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| Recent developments in the international steel producing market have imposed conditions that are making it essential for a successful plant to be as efficient as possible. Newton Industrial Consultants specialise in identifying problems within companies that enable small but powerful changes to be made to the production process, often increasing productivity by ten to twenty per cent. In this article, Andrew Hawes, a partner in Newton explains some of their company’s methodology. |
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| Every steel mill is exposed to changes that are beyond their direct control as demonstrated by the immediate imposition of steel tariffs by the United States, shrinking markets worldwide, exchange rates and growing competition from emerging nations. However there is a guaranteed way of ensuring the success of a your plant by making it the lowest cost, highest quality producer in the market. While this is the aim of hundreds of directors, managers and steel workers across the world, there lies hidden in nearly every steel mill the potential to reduce the cost/tonne by approximately 10%. |
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| The method for doing this is conceptually simple, yet very few have been able to deliver the step change in performance. Overall the reasons for this are easy to explain. We often find that (a) the top operational issues are not financially valued, (b) the top issues do not have the appropriate resource allocated to them and (c) the top issues are not being permanently resolved. |
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| In a perfect world, processes would run consistently at maximum speed with no waste and no downtime, while efficiency would be at 100%. Any company that achieved this would be the lowest cost producer and therefore dominate their market. No mill is perfect, and unfortunately very few mills have an accurate picture of what issues are the biggest. There is certainly no lack of opinion however. At a recent management workshop organised by one of Europe’s major steel mills, eight senior operations managers were asked to list the mill’s top three problems, and give them an annualised financial value. This mill has some of the most sophisticated measurement and control equipment available. It has a large IT department and some of the most talented engineers and managers in the industry. If we score their top choice problem with three points, their second with two and their third problem with one point, then you would expect to see results as shown in Diagram 1, which shows the ideal results. Diagram 2 however shows that the 8 managers between them put forward 17 different problems. In fact, each manager had a different top problem. |
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| (Following subsequent mill analysis to identify the actual top problems only 3 of the 17 problems were significantly reducing profit) |
| After this exercise the managers agreed that each of them have there own ‘pet problems’, ones that they care about and would most like to see resolved. These usually featured as their top choices. They also agreed that there can only be one correct answer, that the data probably exists within the mill to calculate the correct answer, but there was no single report that compared, valued and prioritised each issue. |
| A €100M boxboard mill increased profits from €900,000 to €4.9M in 10 months. Another US mill increased profits by $4.2M in 8 months. Profits from a UK tissue machine were increased by £1.5M in 4 months, and an extra £1.4M was made from a converting line in 8 months. These were achieved on a site with a £40M turnover. Across a large 7 site division a €16M profit increase was achieved on top of a €60M profit the previous year. |
| A mill management team who do not agree what the biggest issue is will be unable to decide how much time and effort to invest in different problems. Worse still, each manager has different priorities and objectives. This means that the biggest issue is unlikely to have the attention it deserves. |
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| If we ignore for a moment that most people chose a different top problem, you would hope that the value of the mill’s biggest problem is estimated to within a small range. In reality the value of the eight top problems ranged from £40,000 to £8 million, with an even spread between these two figures. The decision for the management team must be to decide how much resource, be it people or money, to allocate to individual problems. Without a clear vision of the problem, this is a difficult task. |
| Similar exercises have taken place in European and American mills and the results are staggeringly similar. |
| The actual value of increasing process efficiency is very high in the steel industry. For example let us take a US steel company that produces approximately 1Mt/y at a cost/tonne of $1,200 and profit/tonne of $150. Increasing the process efficiency by 10% (100,000t/y) adds additional profit far in excess of $150 x 100,000. This is because the only extra costs associated with the extra tonnes are additional materials, utilities and distribution. There is no increase in labour cost, depreciation, or fixed overheads. This means that the profit from each additional tonne is $300-$500, or about three times the standard profit margin. This is worth approximately $40 million per year to this company. |
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| There are three elements that determine how easy it is to report all operational issues simply, clearly and at the touch of a button: |
| To begin the analysis, the absolute potential of each process must be determined. For most processes this is relatively straightforward – for example the absolute potential may be defined as zero waste, continual casting at 4m/min, with a furnace life of X and energy consumption of Y. If we are going to understand every loss in performance, we must measure against the absolute potential. It is therefore essential that we should not build in excuses. |
| For example, the operations team at a European plate mill could not decide whether to measure their process against 3.2m/m (the original design speed) or 3.0 m/m (the best they could achieve). If they had measured against 3.0m/m then their report would not have shown them the value of the 0.2m/m loss in speed, which it transpired, was worth £6 million per annum. This was actually their No.1 issue, and with the will of the entire team behind them they were able to solve the ‘break-outs during cooling’ problem and increase speed to an average 3.16 m/m, making an extra £4 million for the plant over the following year. |
| The second element is the ability to collect the data required to calculate the issues. These include actual process speeds, process outputs, waste levels etc, as well as the costs and sales price so that additional output can be valued. In the steel industry this is usually the most straightforward step due to the process control and monitoring systems in the industry. |
| The third element is to create a robust analysis program that is able to turn the data into simple reports. There are some off-the-shelf packages that claim to be able to do this, although in reality it is usually beneficial to build this system in- house. This gives the added advantage of being able to develop, tailor and adapt the system. |
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| The most successful analysis systems generate reports that produce the following minimum criteria: |
- A daily graph of all the mill’s losses over the past 24 hours
- A weekly graph of all the mill’s losses for the past 7 days
- Trends of the top biggest problems over the past 4 months
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| Having a clear understanding of where the mill’s potential lies, on a daily, weekly or monthly basis is only the start of reducing costs. The correct people must be allocated to the correct issues, be given enough time, have the right skills and have the desire to resolve the problem. Achieving this mix is not easy. Few mills have ‘spare people’, and so time must be found by understanding what tasks are less important than working on the biggest issue. In the example of the plate mill, the Engineering Manager had focused his best people on developing the maintenance program along an RCM route. This was seen as the department’s No. 1 priority until he examined the top losses. It showed him that process reliability problems did not fall into the mill’s top 6 issues and were almost insignificant in value when compared to the slower casting speed. When he turned his team’s attention to this ‘new’ problem results came quickly. Resource allocation becomes significantly easier when the right information is available. |
| By holding short daily performance review meetings and using the daily report as a prompt, the top issues of the day will have people allocated to them. Problems, which are not able to be resolved on a daily basis, or add up over a week to be significant, are reviewed at a weekly review. Most managers have had training and plenty of experience of running meetings. However there are a few golden rules to ensure that these are effective. These include having the discipline not to focus valuable resource towards the small issues, ensuring the meeting is action orientated and not discussing the details of problems in the meeting. |
An area of potential that this system is particularly effective at uncovering is the shorter duration stops that happen frequently. An example of this is from a UK cold rolling line. Three to four times a day, this line developed a transfer problem, which caused small reels to be kicked out after 3-6 minutes. These reels could not be sold and therefore the time on the process had been wasted. While this was inconvenient for the production team it was not until the reporting system valued this as their third biggest problem, at £900,000 per annum, that anyone really turned their attention towards it. Within 3 weeks the problem was permanently resolved.
This problem had almost gone un-noticed. There are reasons why the situation occurred - this type of problem is often known about, tolerated as a nuisance, and frequently not recorded. This type of problem can be extremely valuable. When resolved the benefits are seen within a few days. |
| When a rare problem occurs that lasts a few hours it can receive a disproportionate amount of attention to the time lost in a month. As it does not repeat itself very often, results from solving one of these problems can take a long time to show and deliver significantly less long term benefit than the short duration high frequency stops. |
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This process has been used across Europe and the US in industries such as paper, packaging, brewing and steel fabrication. It has generated millions of pounds worth of cost savings. On average £2-£10 million extra profit is generated per site. It gives new clarity and guidance to a mill’s management team. Examples of a recent project result show dramatic reductions in cost/tonne and increases in productivity. The steel industry requires a rigorous, scientific approach to many aspects of production. When this approach is applied to site cost reduction a valuable step change is possible.
(Dia 3) |
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| In all of the world’s steel mills lies hidden potential, which can be uncovered and clearly understood if the correct analysis is carried out. By using this information effectively to allocate the appropriate resource, more than 10% can be removed from steel production costs. These results can be achieved within a few months, and dramatically improve the future success and security of steel mills. |
| To discuss this approach in more detail contact Andrew Hawes at Newton Consulting’s office on 01543 481557,or andrewhawes@newtonconsulting.co.uk or visit the website at www.newtonconsulting.co.uk |
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