The digital revolution will transform the steel industry

steel industry

(Karan Bhatia, Unsplash)

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Yvonne Zhou, Partner and Managing Director, Boston Consulting Group & Lisa Hu, Partner and Managing Director, BCG


Digital technologies are changing the world and dramatically improving the way that organizations operate. Today, steel and metals manufacturers face a huge opportunity to transform their operational model by implementing digital technology, enabling them to improve operational efficiency, customer service, inventory levels and profit margin.

Based on our experience, typical benefits of an improved and digitized value chain include better customer interaction and up to a two-fold increase in service levels, 2-4% improvement in EBITDA, and inventory reductions of 10 days and more.

Capturing these benefits does not require a full IT transformation. Rather, companies can quickly capitalize on new technologies like predictive analytics and data lakes through agile pilot tests, and begin generating results in months or even weeks. In addition, most companies can begin generating a positive ROI in their first year, a notable improvement from a traditional IT investment.

1. Challenges in the industry

Value chains in the steel and metal industry are extremely complex. Companies must contend with a large number of interconnected volatile assets, a vast amount of product units, a diverse customer base with varying service and quality requirements, and complicated distribution channels with different margin implications.

Asset utilization is often considered a priority and incentives are structured accordingly, yet these decisions often don’t factor in all business drivers influencing profit margin, service levels, or working capital.

Plants and assets often operate in silos, rather than being integrated to meet a larger strategic objective. Supply chain executives have little access to real-time information, leaving them unable to anticipate changes in the market. As a result, companies perpetually act defensively, without the ability to anticipate and mitigate risk or jump on short-term opportunities, which leads to significant value losses.

Steel and metal companies have been continuously trying to solve these issues, but traditional operational improvement methods are close to their limit. To break through the human ability bottleneck in monitoring complex systems and perform extensive real-time calculation, digitization becomes perhaps the only solution for the current seemingly dead end.

2. Digital as a solution

The era of digitization in the steel and metal industries has arrived. Cost of data acquisition, storage and analysis has dropped dramatically in the past five years. Consequently, multiple digital solutions are available today and relatively inexpensive to implement.

Moreover, companies can launch a smaller-scale pilot test that focuses on a single business unit, asset, or geographic market. The pilot can start with several digital use cases, helping to prove the value of the digital approach and therefore establish internal confidence and alignment. This approach puts business needs ahead of the technology, rather than the other way around.

As a digital technology, predictive analytics has already demonstrated its potential to revolutionize the operational model, in terms of speed, cost, and ease of implementation. It uses advanced, self-learning algorithms to sift through large volumes of data generating insights and identifying patterns.

In sales, it enables the demand forecast use case – based on a detailed understanding of customer needs and demand drivers – to allow companies to reduce inventory and improve margins while delivering better service.

The analytics techniques break down demand into component drivers and enable independent forecasts for each driver. By aggregating these factors, the company can create a far more accurate and richer demand forecast than the conventional method.

Prediction models get back-tested for accuracy, and the algorithms adjust based on real-world results to improve accuracy over time. A typical 20-30% improvement in forecast accuracy is generally expected, which would enable steel companies’ account teams to focus on what matters – the customer.

In operations, predictive maintenance use cases help companies to predict equipment breakdowns (a common headache of steel and metal companies) and optimize maintenance frequency.

The traditional prediction method depends on people’s experience, where limited data is collected and analyzed, and no thought through mechanism has been built up. With sensors and machine learning algorithms, digital solutions can greatly improve prediction accuracy and allow extra time before unplanned shutdowns to fix potential issues.

3. How to land the opportunity

To successfully implement and benefit from these new digital possibilities, one needs to consider three elements:

⦁ Harnessing the power of data through digital technologies

⦁ Building the digital “muscle” in the organization

⦁ Maintaining a relentless focus on direct business value

Harnessing the power of data

To effectively deploy digital technologies, it is important to break the problem down into specific independent topics. These so-called “use cases” can be deployed sequentially and allow companies to capture value early without waiting for the full scope being implemented.

Building the digital muscle

While companies can achieve quick-wins with pilots, the gains of digital will only become sustainable through broader organizational measures. Changing cultures and behaviour can be difficult but it is critical to fundamentally improve performance. Departments can no longer function in silos; digital allows for collaboration across the company, but only if silos are opened up to foster a more comprehensive view of the value chain.

Furthermore, companies will need to develop their digital capabilities, by putting the right people into three key roles:

⦁ Product owners: the “CEOs” of a given project, who require both business and digital competency

⦁ Data scientists/business analysts: experts who execute analytics projects, gather data, construct models, and maintain the actual algorithms

⦁ Scrum masters and agile coaches: experts who can create the right environment at the beginning of a project and help teams work in a more agile fashion.

Some of these roles can be filled through training initiatives for internal talent, but it also requires attracting new talent and building up new functions.

Maintaining a relentless focus on direct business value

To capture the full promise of digital, companies need to focus on a clear path to value by linking all initiatives to quantifiable benefits and actively tracking against it. Digital enables companies to quickly create value by deploying agile teams that use the insights created to change ways of working already in the concept development phase. This creates buy-in for the broader initiative by winning over sceptics. It also funds the journey, allowing companies to go further and move faster in their embrace of digital.

4. Summary

Compared with other industries, such as media and retail, digitization in the steel and metal industries is still lagging behind. But it also means that the first mover will gain a clear competitive advantage. Companies that recognize the opportunity from digital and take deliberate moves to capitalize on it will give themselves a sustainable advantage. Those that don’t, risk falling behind.

How to make a suitable digital strategy is not an easy-to-answer question. We do not suggest putting huge investment and thus, expecting it is a one-off effort. The digitization is a long journey instead of a quick jump forward. Agile deployment of some market-proven tools and initiatives can help companies test the water and solve existing problems, preparing the company for the future large-scale digitization.

Advertising

the sting Milestone

Featured Stings

Can we feed everyone without unleashing disaster? Read on

These campaigners want to give a quarter of the UK back to nature

How to build a more resilient and inclusive global system

Stopping antimicrobial resistance would cost just USD 2 per person a year

This credit card has a carbon-emission spending limit

Is the ECB enforcing the will of the big Eurozone member states on the small? Can the euro area live with that?

Parliament endorses landmark EU-Japan free trade agreement

Time to say goodbye to the plastic straw. But what’s the best alternative?

What my transgender child can teach us about the workforce of the future

Trailing the US-EU economic confrontation

New state aid rules: Commission increases national support to farmers up to €25,000

10 expert predictions for the next decade in Chinese AI

Thursday’s Daily Brief: ambulance attack in Libya, #GlobalGoals defenders, human rights in Cambodia, Swine Fever

Trade defence report: restoring the level playing field for European producers

3 ways to fight stress at work

Helping small businesses fight cybercrime benefits the global ecosystem

Ursula von der Leyen: ‘We must not hold onto yesterday’s economy as we rebuild’

Eurozone: Austerity brings new political tremors

Universal Health Care: can it exist only in utopic society?

UN heath agency: Time is now to ‘act as one’ in fighting infectious coronavirus

‘Time is of the essence’ for refugees on Greek islands – UN agency

Bugged Europe accepts US demands and blocks Morales plane

State aid: Commission approves close to €94 million support for waste-to-energy high-efficient cogeneration plant in Bulgaria

Educational disadvantage starts from age 10

ECB: The bastion of effective and equitable Europeanism keeps up quantitative easing

The Swiss will pay dearly for voting out fellow Europeans

Brexit is happening now but the UK hasn’t really assessed the impact of a “no-deal” divorce

Remarks by Commissioner Lenarčič on the deployment of EU Medical Teams to Italy

Interview with ourselves: the mental health of health professionals

Young people worldwide can ‘determine the future of migration,’ says UN senior official

Inflation keeps falling in Eurozone

Smart devices must come with trust already installed

Syrian Government’s ‘different understanding’ of UN role, a ‘very serious challenge’ – Special Envoy

Open-plan offices make workers less collaborative, Harvard study finds

MEPs criticise “America first” policy

EU finally agreed to cut roaming charges in 2017 but criticism is always there

It’s time to fulfil the promises made to women 25 years ago

Rare diseases are more common than you might think

Here’s how to rebut the climate doom-mongers

CDC advises against gatherings of 50 or more – Today’s COVID-19 updates and analysis

How our global battle against coronavirus could help us fight climate change

EU-Turkey relations: EU considers imposing sanctions while Turkey keeps violating Cyprus’ sovereignty

Military operation in northeast Syria could see unintentional release of ISIL affiliates: UN chief

Negotiations on Investment Facilitation at the WTO gain support at Davos

This is the world’s greenest football club – and you’ve probably never even heard of it

Global Compact on Refugees: How is this different from the migrants’ pact and how will it help?

Camino de Santiago – a global community on our doorstep

Could implants treat people with brain disease? A young scientist explains

ECB should offer more and cheaper liquidity if Eurozone is to avoid recession

South Sudan: ‘Outraged’ UN experts say ongoing widespread human rights violations may amount to war crimes

More than nine in ten children exposed to deadly air pollution

Does Indonesia have the world’s most complicated elections?

Europe votes against GMOs but the Council votes for TTIP

Half the world’s refugee children not in school, UN agency finds

Medical students: The need for emigration

Brexit: European Commission intensifies preparedness work and outlines contingency action plan in the event of a no deal scenario with the UK

The issues of practicing medicine in Pakistan

OECD, BSR and Danone launch 3-year initiative to strengthen inclusive growth through public-private collaboration

The financial world upside-down: debt failure closer

What would happen if we removed cars from cities?

Entrepreneurial leadership: what does it take to become a leader?

China-EU Relations: Broader, Higher and Stronger

45th Anniversary of the French Confederation (Confédération Nationale des Junior Entreprises)

The Peoples are missing from EU’s monetary union

More Stings?

Advertising

Speak your Mind Here

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s