1) Steel companies face pressure to improve efficiency and competitiveness through digital technologies like ERP systems and data-driven decision making. 2) To succeed, companies need to streamline processes, gain real-time visibility into costs and operations, and invest in supply chain and manufacturing automation. 3) Getting product definitions, cost visibility, and ERP systems aligned is key to unleashing the power of digital technologies and becoming a "high velocity enterprise" that can quickly adapt to market changes.

1. 12  editor@ironandsteeltoday.com
IT & SOFTWARE
July / August 2016
S
teel companies face relentless pressure to remain competitive
in a low-growth environment driven by the end of China’s rapid
economic growth, changes in commodity prices and increasing
regulations. But what does this mean for your company’s IT strategy?
Simply put, steel companies should understand how enterprise
resource planning (ERP) and other related digital business applications
can help them succeed amid economic uncertainty and low global
economic growth of 1-2%, at best.
Companies also need to become truly efficient, leveraging technology
to the maximum to streamline processes, create visibility and make
better informed decisions. In addition, steel companies need to invest
in differentiating innovation, in areas such as supply chain management
and manufacturing process automation.
On the ERP side, the advent of technologies like in-memory computing
and the release of the new SAP S/4HANA business suite offer
significant opportunities. However, it is critical for steel companies to
understand what this means in terms of simplification, as well as how
to exploit new capabilities and drive additional process efficiencies.
Accenture has coined the phrase ‘high velocity enterprise’, which ties
together ERP, modern technologies and digital capabilities to create
improved, faster and more streamlined processes. Done correctly,
becoming a high velocity enterprise will help a steel company to better
adjust commercial models, pricing and supply chain strategies faster
than its competitors, while aggressively managing costs to maximise
profitability. This will help ensure market leadership (see Figure 1).
Material master data design and real-time cost visibility and
management are two key areas where steel companies must ‘get it
right’ with the design of their IT systems, and in particular ERP, as a
fundamental platform to unleash the full power of digital technologies.
These elements are vital to achieving business transparency, process
efficiency and simplification of master data management, based on
a single source of truth – for example providing structured visibility of
production costs.
Master data design
Today, there is increasing pressure to adopt newer digital technologies
— such as eCommerce platforms that enable business-to-business
sales — to provide competitive differentiation and to rapidly react
Connecting ERP and digital technologies
to become a high velocity steel enterprise
Dr Andrew Zoryk of Accenture explains why steel companies should
be thinking about their IT strategies
Figure 1: A high velocity steel enterprise creates new business capabilities that were not
previously possible
to market dynamics. Such requirements put added demands on the
effectiveness of ERP systems and, more fundamentally, the way in
which master data is managed.
So, to successfully
deploy and integrate
technology across
multiple business units,
a steel company must
have a strong grasp
on one of the key
fundamentals underlying
many of the processes
involved — namely,
material or product
definition (see Figure 2).
At its simplest level,
this means answering
the following questions
quickly:
• Can we make the
order?
• When can we deliver?
• What is the cost to
produce?
• What should the selling price be?
• What is my expected ‘realized price’?
In the past decade, many steel companies have implemented ERP
technology to support their core business processes. However,
most are not able to dynamically or quickly configure a product during
order entry both technically and commercially. Nor can they calculate
costs or profitability order by order — coupled with an accurate
delivery due date.
Meanwhile, companies realise an increased need to integrate
across their businesses, horizontally – from upstream raw material
management to downstream steel finishing operations and service
centres – and vertically, from budget planning and sales/operations
planning to order management and manufacturing.
The upshot? Many companies now see the need to rethink their
approach to defining materials in their ERP systems.
Creating definitions of steel products, for example in an SAP ERP
system utilising variant configuration, is a challenging task requiring
deep knowledge and a clear understanding of the significant
implications on all company processes and areas. Done successfully,
steel companies can reduce complexity — from several hundred
thousand finished goods and work-in-process material codes to
approximately 100 configurable materials. This process structures
critical business and technical knowledge into a scalable, maintainable
rules engine framework.
The challenge increases when product definitions support different
business models, including ‘make-to-decoupling point/finish-to-order’
and the more traditional ‘make-to-stock’ and ‘make-to-order’ models.
To tackle this there are several options, which have pros and cons. As
just one example, master data standardisation across the business,
the material codes should not carry localised definitions like grades or
dimension ranges. Type of business and manufacturing complexity are
both determining factors to find the optimum approach.
The next step is to translate the approach into a working solution.
Besides the traditional functionalities available in ERP systems, there
are more advanced business rule management capabilities, as well
Figure 2: Decisions about product definition impact many
defferent integrated business processes

2. 13www.ironandsteeltoday.comJuly / August 2016
Author
Dr Andrew Zoryk,
managing director – metals, Accenture
www.accenture.com
IT & SOFTWARE
as steel industry specific add-on solutions. These options enable
companies to find the best solution to match their requirements.
Getting it right will lead to rewards in terms of process simplification,
integration and usability.
The importance of real-time cost visibility
It is critical that steel companies have a firm grasp on their real
cost-to-serve customers. This means not just after delivering the order
(actual costs), but also before and while accepting the order (planned
costs). Furthermore, this means not just one time per month, but also
in real-time (see Figure 3).
Often companies lack a systematic management process around their
annual budgetary calculation of production costs; therefore, insights
gained from variance analyses using standard costs are not consistent
across business units and only allow limited insights into past
business performance. In addition, inconsistently set standard costs
can potentially distort product pricing and thus directly impact profit
and loss (P&L).
integrated with shorter-term planning based on an actual order book
situation, creating a revenue and cost planning model that more
accurately reflects routings, yield and capacity utilisation.
• Product structure alignment – Improving cost planning and control
will require good alignment with the product definition modelling
and structures within an ERP system, for example, how the bill of
materials (BOM) and routings for a given material are defined. Using
configurable materials modelling in an ERP system allows us to build
a multi-level BOM structure, which supports not only the order-level
planning and costing of materials, but we can also create a model
that integrates directly to the S&OP and budgetary planning levels.
Rules for managing this across all these processes at a characteristic
(material attribute) level can be managed within a single, consistent
set of product definition rules.
Bringing it all together – digitally
What does digital transformation look like for the steel industry?
Excellent examples range from deploying radio frequency identification
(RFID) material tracking to reduce logistics costs, to embracing
e-commerce channels to enable retail-like experiences for business-to-
business (B2B) customers. Many more opportunities can be explored.
Steel companies
should start by building
a clear strategy and
roadmap to find the
value opportunity
areas for using digital
to improve innovation.
These include product
quality improvement,
manufacturing,
warehouse
management,
commercial pricing and
equipment maintenance.
The full integrated
picture is also important.
Steel companies should
consider how plant
data can be used with
analytics and models
to not only increase
process visibility and
quality, but also tie back into planning and other ERP-level business
functions. This, in turn, drives continuous improvement in the
underlying master data that control processes, provides agility and
enables the fine-tuning of processes and decision making.
For inspiration, steel companies can look at digital innovation in other
industries like mining (see Figure 4) and chemicals. Seeing which
applications of digital they have looked at, perhaps in a different
context, and then considering how to apply the same to their own
specific situation can yield many benefits. Some examples are
directly transferable – such as contractor and equipment tracking
and predictive maintenance – enabling the potential for multimillion-
dollar benefits.
Clearly such a roadmap cannot be implemented overnight; issues may
arise along the way. For example, many steel companies have old and
outdated manufacturing execution systems in their plants, which may
initially limit data access. Incorporating these issues into the roadmap
will help to identify strategically where investments should be targeted
and where quick wins can be achieved with low investment and high
returns on investment.
Figure 3: Dynamic, real-time costing of sales and production, aligned with product definition
structures, enables high velocity companies to systematically manage costs
This all leads to business requirements in several areas, examples of
which include:
• Profitability analysis – Understanding the expected profitability
at the time of sales order entry and actual order profitability after
delivery and invoice. This includes margin objectives and follow-up
at different business levels.
• Performance of production-related activities – Performance
objectives and their measurement for production activities (direct
and indirect) at every step of manufacturing.
• Inventory valuation – Correctly valuing stock with the objective
of having a meaningful number that provides the company with an
accurate valuation at any given moment in time.
Today, many steel companies find it difficult to achieve objectives
in these areas without intensive manual effort, and they cannot do
so in real time. As a result, they often base decisions on ‘averaged’
information at month end, which lacks the desired level of granularity to
enable improved cost management.
So, for business processes and ERP applications, what are some of
the key enablers to provide improved capabilities? Here are two:
• Integrated cost planning and budgeting – To improve standard
costing and budgetary planning processes, tightly integrate the
process with the company’s sales and operations planning (S&OP)
process. This will drive a more accurate view of the next 12-18
month rolling time horizon for demand and constrained capacity,
product mix and available planned allocation of capacity across
different product groups. This planning can then be directly
Figure 4: As an example, digital technology already
deployed in mining is directly transferable to steel