The steel industry is not easy. A ton of steel can cost as little as $700. A pound of apples costs about the same as a pound of steel, yet steel is a complex product produced using high-tech metallurgical and manufacturing processes. Even before the pandemic the global steel industry was navigating significant disruptions that included steep price competition (China has been investigated numerous times for dumping), soft demand, and tariff issues.
Tata Steel Europe, which produced 9.5 million tons of steel a year, has responded to these issues with a board-level driven transformation journey called “Future Value Chain.” This initiative is aimed at improving their long-term financial viability and creating sustainable value growth.
Part of their transformation includes a journey to implement and improve their connected planning capabilities. Connected planning, based on the Anaplan solution, improves both their profitability and their service capabilities. In an interview with this writer, Dr. Svend Lassen, head of reporting & data analytics for commercial and supply chain at Tata Steel Europe, explained that there needs to be a clear understanding of how any digital project will improve margins before the project is approved. “We don’t spend just to innovate,” Mr. Lassen said, “we need to create business value.”
Tata Steel Europe has a complex supply chain. Their primary steel plants are in Ijmuiden in the Netherlands and in the UK at Port Talbot. The company sells directly and through channels; they have an extensive distribution network to provide postproduction processing, service, distribution, and sales support. They produce a wide range of products for the automotive, construction, engineering, and packaging industries. And they are working toward becoming significantly more sustainable.
So, what is “connected planning?” Dr. Lassen views Anaplan – their connected planning tool – as a cloud-based, business planning platform capable of doing multidimensional planning with very fast solve times.
What does that mean? When a plan is created for one business function, like manufacturing for example, that plan effects things like customer service levels, profitability, cash flows, staffing and many other things. With a connected plan those effects are made visible to other business functions. The goal is to produce an integrated plan that meets the strategic goals of the overall organization.
Connected planning at Tata Steel Europe occurs within the integrated business planning (IBP) process. IBP is a multifunctional planning process that includes sales, marketing, demand planners, manufacturing, and finance. The goal is to match projected demand over the coming quarters with the ability of the organization to produce products that meet that demand. This is a rolling one-month process. In the present month, supply is matched to demand for the coming 3 years with a particular focus on what needs to be produced for the coming quarter. Then the following month, the process is repeated.
These plans get quite detailed. It is not enough to project that 2.5 million tons of steel will be produced in the next quarter. The plan needs to encompass what products will be produced at the product family level (similar products manufactured using the same equipment), what facilities will produce those products, what customers will get them, what distribution facilities will do post-processing, and many, many more details as well.
The idea that a plan is “multi-dimensional” reflects the dimensions of customer demand, capacity, and products. This dimensional linkage allows numerous scenarios to be run. If a change is made to what a customer forecast is expected to buy, for example if the customer appears to want to buy 10 percent more of certain products, the linkage to the effects on what factories can produce and how other customers would be affected are clear.
A common set of scenarios is focused on what should be done if there is not sufficient manufacturing capacity to meet the baseline demand projections. What alternative products should be made? How will this affect their customers? The company’s financials? This is a complex tool because doing IBP well is difficult.
A common issue with IBP is that financial goals can bias the operational plans. Planners come up with data-proven forecasts on what the market may buy. But if the plan will not allow the company to meet their financial goals, executives may push for more sales or sales of more value-added products which result in a higher profit.
Dr. Lassen describes the annual plan as being “W” shaped. There are strategic company goals. Demand and supply chain planners go back and forth until they have created a feasible plan that best meets the company’s key goals. But then executives may ask for higher sales or margins, or lower stock if key financial metrics are not being met. A larger forecast is created, and then that same process of breaking the plan down, and building it back up to a feasible plan, occurs again. Finally, after collaboration and further analysis, the annual plan is agreed to. At Tata Steel Europe, the annual plan and financial planning are part of the integrated business planning process.
Tata Steel’s connected planning journey began in 2017. This was an agile development and implementation process. New connected planning modules or capabilities were created in short sprints where a minimally viable product was created. The employees who would use that module then got to provide feedback on the degree to which the solution would meet their needs. The solution was adjusted and tweaked. The result was that users got solutions put into operation quickly. The solution has continued to grow based on this methodology over the past four years. “This is a different approach than implementing an ERP solution,” Dr. Lassen explained. “It is an iterate and grow approach.”
While the sprints created several relatively small products, in a larger sense what has been developed is an ecosystem of connected solutions to business problems, e.g.:
- A demand forecasting solution that is based upon historical forecast data, collaborative inputs from sales and customers, and external market data. This is a Big Data problem to which they apply machine learning.
- An integrated business planning solution that takes unconstrained demand plans and creates feasible scenarios on what can be produced.
- A Risk and Operations tool that lets the company spot sales gaps of missing customer demand and opportunities in its production schedule where it can slot in new orders at short notice. This gives sales reps the ability to negotiate commitments with prospective customers in real time, thanks to a mobile application.
This year the company is working to augment the IBP solution so that the cash flow implications of plans, not just profitability, can be understood in greater detail. They are also working to tighten the connection between what the company plans to do and the plans that are executed.
What has Tata Steel Europe achieved since the beginning of the connected planning journey? There have been savings of tens of million Euros. Much of these savings have resulted from carrying 20% less inventory – and less working capital – while still meeting projected demand. The company could prove their “Future Value Chain” program, which relies heavily on new capabilities and the connected planning platform, could achieve profit uplifts of more than 100 million Euros over the last years. Customer service has improved; on time in full shipments have increased 5-10% per year. Consequently, Tata Steel Europe’s earnings before interest, taxes, and amortization (EBITA) has improved 5-10% every year!