As steel producers continue to be painfully aware, the volatility of global demand for steel looks set to continue for

many years. This unpredictability is driven in large part by emerging economies like China, coupled with increasing
global market competition. In light of this, improvements in the way that companies manage their supply chain can act
as a key competitive differentiator and unlock value, both in terms of reducing working capital requirements, and
creating additional value through exploiting new market opportunities.
Over recent years, many steel companies are realizing that they are losing market competitiveness (and in some
cases market share) because they are not able to satisfy the requirements of an increasingly demanding market.
Customers are demanding shorter delivery lead times, while steel producers are facing increasing business and
planning complexity due to growing market demand for more complex steel products, which is driving up production
lead times and the need for higher inventory levels. Additionally, many steel producers now have longer and more
complex internal and external supply chain processes, including the use of subcontractors, which makes it very
difficult to manage and coordinate along the supply chain.
These more recent dynamics also go hand in hand with the traditional challenges that steel producers face, for
example: siloed organizational structures, the inability to generate accurate sales forecasts, ineffective planning for
market and product mix opportunities, and the difficulty to calculate feasible order delivery dates for production. Such
challenges have a direct negative impact on supply performance. (See case example for more detail.)
In simple terms from a supply chain perspective, steel companies need to balance significantly improved customer
service levels, while simultaneously minimizing working capital requirements and the potential impact of supply chain
disruptions. Unfortunately, enabling these new supply chain capabilities is not a trivial task, and requires a clear
strategy and plan for potential success.
Typical barriers to effective supply chain management result from issues such as:

Disconnects between existing business processes and information technology (IT) systems, including gaps
in functional coverage.

Inconsistent business rules and priorities across the company, including misalignment between the different
planning process time horizons and cycle times.

Inability to align the organization to drive effective supply chain management.

A lack of consistent metrics to drive behavior, and measure adherence to target policies and procedures.
Achieving an effective supply chain transformation requires the careful alignment of processes, organization and job
roles with software capabilities.
Based on Accentures extensive experience working with steel companies around the world, five of the key factors
critical to success in enabling and delivering supply chain transformation projects in the steel industry are:

Business policy and process alignment.

Business process and software alignment.
Planning model granularity.
Organizational alignment.
Supply chain performance metrics.

By not addressing these areas appropriately, many steel companies have not been successful in achieving the supply
chain transformations that they originally set out to do. Such missed opportunities are frequently blamed on the lack
of maturity of available software tools for supply chain management and, while this partially may have been the case
in the past, it is frequently not the real underlying reason.
In the next sections, we will highlight some important considerations relevant to the above factors and provide
insights into how steel companies should address them in order to achieve a supply chain transformation that drives
toward high performance.
Case example: Large European steelmaker
Example supply chain process issues facing the company

The different planning process levels (e.g., demand planning, production planning) did not have aligned
objectives and were being performed in functional silos.

Customer order intake was not fully aligned with the supply/ master plan. As a result, customer orders were
accepted that did not fit with business objectives.

Order promises to customers were not based on a realistic evaluation of available material and capacity.

Monthly production plans were generated focused on maximizing Basic Oxygen Steelmaking (BOS)
converter utilization, and not the overall material flow and due date requirements of orders. Plans were created based
on the use of spreadsheets.

Because the created production plans were not feasible and did not allow manufacturing to meet its
objectives, the scheduling of production through the finishing units was not aligned with the production plan.
Business impact of supply chain challenges

Average actual production lead times were typically two times the planned standard lead timesdue to lack
of coordinated material and capacity production planning.

Stock levels of key steelmaking raw materials (e.g., ferroalloys) were on average 11 days (of cover) higher
than industry leading practicedriven by poor sales forecast accuracy.

On-time and in-full delivery of products in some cases was below 50 percent, with high levels of variability
driven by a quantity-based planning process focus, rather than order-based.

Finished steel product stocks for customer consignment stocks were typically 1520 days too high, when
compared to industry leading practicedriven by a lack of visibility of planned order completion dates.
Business policy and process alignment
Supply chain management processes cannot be considered in isolation and their impacts on other end-to-end
business processes, such as order-tocash, purchase-to-pay and plan-toreport, need to be carefully determined and
aligned. These business process impacts have in turn potentially significant influence on existing enterprise resource
planning (ERP), or legacy IT systems, and can present significant constraints in the delivery of a successful supply
chain software solution.
The deployment of a supply chain transformation in a company is often accompanied with a significant change in
market-facing and manufacturing strategy. Most recently, many steel companies are moving away from more
traditional make-to-order business models to a combined make-to-stock/ make-to-order approach. Such changes in
operating model clearly require a careful redefinition of certain key business policies to confirm that the new model
can function appropriately. Furthermore, such policies and procedures need to be carefully aligned both vertically and
horizontally across the different planning time horizons and functional areas.
Business process and software alignment
A number of supply chain software solutions are available in the market that provide a good fit to the requirements of
the steel industry.
One of the most common mistakes made when implementing SCM software is the failure to correctly align the tools
(and their capabilities) to the business and functional requirements. A frequently observed scenario is as follows:

A company starts a supply chain initiative with a focus on production planning and purchases an appropriate software
application. During the solution design phase, a long list of business and functional requirements are identified, which
include many requirements that are beyond the actual scope of the designed functional capabilities of the software. A
simple example of this is a requirement to be able to model the sequencing of material for a hot rolling mill. The
project team decides that these sequencing requirements are important and, even though the tool is not really
designed for it, they believe that customizations can always be implemented to make it work.
Later in the build phase of the project, such customizations effectively fail because the application is being forced to
do things it was never designed to do. As a result, the project struggles, users become dissatisfied because the
software does not function according to their expectations, and ultimately the company does not receive the benefits
expected.
Because of such initial experiences that many companies have with advanced supply chain software tools, often the
software is blamed for not being good enough and the company is reluctant to make further investments in the supply
chain area.
A critical aspect of any supply chain transformation is, therefore, to have a deep understanding of the capabilities of
different software applications being considered, and to be able to map these capabilities in the correct way to
business and functional requirements.
Demand planning and supply planning combine to provide sales and operations planning (S&OP) capability.
S&OP provides a medium-/long-term tactical plan for the businesstaking a consensus sales forecast that is
balanced against production capabilities. Tools often provide capabilities for characteristic dependent planning,
capacity reservations and the ability to create plans optimized based on relative margin contribution of different
products (so called profit optimization).
Order promising enables both available-to-promise (ATP) and capable-to-promise (CTP) capabilities. ATP provides
a reliable due week order confirmation to customers, based on allocations driven from the S&OP process. CTP
provides a due date order confirmation, based on the current production plan, reflecting actual material and capacity
availability.
Production planning generates a feasible short-term, order-based plan that is key to seeking to achieving the ontime delivery of customer orders.
Scheduling creates material-based sequences based on detailed manufacturing constraints of the production plan.
Typically, multiple scheduling tools are used at different stages of the steelmaking supply chain.
Planning model granularity
Due to the complexities of steelmaking manufacturing processes and products, it is not practically possible to
manage all planning decisions that are relevant to different time horizons in one single planning tool. Therefore,
different planning horizons require different tools and levels of granularity in what they model.
A good example of this is S&OP. In the steel industry, because of the large number of end products involved (up to
hundreds of thousands), S&OP should be performed at an aggregated product family, or group, level. A product
family represents a logical grouping of individual sold products that have similar attributes, follow similar production
routings and consume similar product capacity (as measured in terms of machine run rates and yield). In some
cases, it also may be appropriate to differentiate between sales forecast product groups and supply planning product
groups, which can be managed on different aggregation levels. The optimum level at which to perform product group
aggregation is different for each steel companydepending, for example, on product mix and process route
complexityand is a function of the trade-off between requirements for planning accuracy and control, versus model
complexity and usability.
It is important to recognize that small differences between individual productsfor example, steel grade specification,
width and thicknessdoes not automatically drive a need to proliferate the number of product groups that are
defined. Conversely, the defined product groups need to be able to provide a reasonable model of production
capacity consumption, to allow realistic mid- and long-term planning decisions to be made, and to allow the business
to make correct product/market allocation decisions.
A further key consideration is that the level at which planning groups are defined should be a level of aggregation at
which the company can make a sales forecast with a reasonable degree of accuracy. At the S&OP planning level,
steelmakers are not trying to create a sales forecast and plan for the next week; therefore, an aggregated view of
demand based on a few key product attributes, such as steel grade and thickness, will suffice and result in a much
higher degree of forecast accuracy.

It is often non-intuitive for steel companieswhere the culture is to work at a very detailed level of informationto
create a planning model at a high level of aggregation. Many steel companies start out by believing that they will
require several thousand product groups in order to be able to represent the complexities of their business. The
reality is that planning at such a granular level is not manageable and product group numbers in the low hundreds
result in a much more successful S&OP solution.
In contrast with S&OP, in the short-term planning horizon (typically the next few weeks or months), production
planning makes decisions based on a relatively detailed description of a product that needs to be produced, for
example, taking into account relevant product attributes, such as steel grade, width, length and weight. At this level of
planning, it is important to recognize differences between material attributes in order to correctly plan their impact on
resource capacity consumption and on material allocation decisions. Therefore, production planning is carried out at
an end-product level of detail based on steel quantity (e.g., the number of tonnes) with no aggregation being used.
Organizational alignment
One of the key failings of many supply chain projects is the lack of attention paid to organizational impacts, change
management and training. It frequently is assumed that merely implementing a new software tool will bring the
desired business results.
To achieve the desired business objectives of a supply chain transformation, the future organization needs to be
aligned carefully with the future supply chain processes. For example, in the S&OP process, there is the commercial
(sales) view and the supply (operations) view (as well as others). Furthermore, verifying that the new supply chain
organization reflects the appropriate balance and influence of these organizations in the various S&OP activities and
decision-making processes is important.
Within the defined supply chain organization, it also is important to be able to define the key roles for people in the
future supply chain organization, what responsibilities and accountabilities they will have, how communication will be
performed, and how they will be individually measured.
Supply chain performance metrics
The principle of key performance indicators (KPIs) to measure the success of a supply chain project is a well-known
and used concept. In addition to KPIs, however, there are a number of other indicators that also should be employed
to support the success of a supply chain management project (see Figure 5), namely:

Key conformance indicators.

Plan quality indicators.

One of the main challenges in any successful supply chain project is to confirm that the plans being proposed by the
software tools are actually being used to drive the business. For example, do the manufacturing shopfloor workers
actually produce the planned production orders at the times proposed by the planning tool? To measure such
adherence to the plan, key conformance indicators should be defined in the project.
The production planning process has generated a set of planned orders for production on a hot rolling mill for the next
three days (the planned quantity). Based on this plan, the production schedulers have created a suitable hot rolling
mill slab sequence (the scheduled quantity). The actual production over the three days is tracked on a cumulative
basis and based on a number of conformance indicators that can be calculated. As can be seen in this example,
while conformance to schedule is high (above 90 percent), conformance to plan is low (about 50 percent), indicating
a potential disconnect between these two processesas reflected by the relatively low schedule-to-plan
conformance.
A further challenge in effective supply chain management is to counteract the variability resulting from people who are
involved in the planning processes themselves. Again, to take scheduling as an example, often schedules may be
created by different people on different days or shifts. Because, the people performing these processes typically have
many years of experience in such tasks, they have their own subjective interpretations of what constitutes a good
plan or good schedule. Therefore, to confirm business process consistency, it is necessary to define plan quality
indicators, which allow the planners and business to determine objectively which of the alternative plans and
scenarios being created are the most appropriate.
Delivering successful supply chain transformations
The successful delivery of a supply chain transformation requires a deep understanding of both business and
technology impacts, and their potential consequences. By failing to address correctly factors such as those discussed

earlier in this paper, steel companies may fail to unlock the full potential value of their supply chain, and in the worst
case, may actually destroy value. To foster success when embarking on a supply chain transformation, companies
should look to leverage wherever possible existing leading-practice design experiences and models.
Through its extensive experience working with many steel and metals companies in the world, Accenture has
developed a patented business process management (BPM) framework for the metals industry that provides steel
companies with an integrated model for defining leading-practice supply chain (and other business) processes. In
addition, the BPM solution provides key performance indicators, organizational architectures and role descriptions
that are relevant to each process area. The BPM model helps to reduce risk and improve delivery timelines by
providing a common language and ready-made supply chain process architecture.
From an IT and software viewpoint, it also is important to understand the demands steel industry-specific
requirements place on available software solutions, and how such tools should be deployed and configured to
address the business needs and expectations. For advanced supply chain software solutions, such as those from
SAP, the Accenture Advanced Enterprise Solution for Metals links the industry-specific, leading-practice BPM
processes to a preconfigured planning solution built on the latest SAP technology, and is packaged with complete
process documentation and industrialized implementation accelerators. In addition, AAES provides a number of
industry-specific configurations and/or enhancements to core supply chain and ERP functionality that help metals
companies to address their requirements.