Ken Schrock has 30 years of experience working with metals in Supply Chain and Operations. He was recently asked to speak at the Crowe’s SMU Steel Summit Conference on the “Future of Tech in Metals: Insights on how technology is changing the industry” panel. We sat down with Ken to leverage some of his expertise in the metal industry.
What are some challenges in the metals industry that make a technology strategy so important?
Ken Schrock: Metals is a tough industry and I’ve encountered a number of business challenges, but I see five key challenges when it comes to technology:
Firstly, metals is a capital-intensive industry, not just in terms of the large investments required for equipment and facilities, but also from a working capital perspective. Clear understanding of your long-term forecasts in terms of risks and opportunities is key to managing enormous capital allocations.
The metals industry is also aging. We see this in general with the workforce on the factory floor, but I think it creates an even greater challenge related to those working in software. Hardware platforms have become obsolete through lack of investment. Software platforms are similar. I see companies that are still running on computer languages like COBOL and bringing back retirees to keep systems running. COBOL was created in the 1970’s and used to get the first space shuttle launched! Younger IT workers who were born with iPhones and laptops aren’t interested in coming to work on your decades-old technology.
Another issue isn’t one strictly within the metals industry, but it’s collaboration when selecting a software. It’s quite common that Finance, Operations, Commercial, and Supply Chain teams are developing plans in silos using different versions of “the truth”. There is a risk of greater access to data and tools like Excel, which can lead to the creation of information silos within a company.
Environmental regulations and investors are creating pressures for companies to reduce the volumes of waste streams and decarbonize for sustainability. Additionally, socially conscious consumers are looking for metals products with higher recycled content. These initiatives are obviously the right thing to do, however they increase reporting requirements and have the potential to add cost.
Finally, at the end of the day, the metals industry is a diminishing returns business, meaning that product standards, customer service expectations, and pricing are pretty much set by the market. You will have to protect your margins by working on costs. Chipping away at cost with a continuous improvement strategy is critical, including the need to find game-changing ideas where you can.
How would you set priorities for software investment?
Ken Schrock: In the simplest terms, you need a balanced attack when deciding how to approach your software strategy. Using a sports analogy, I call this having both a defensive and an offensive strategy.
Let’s take a look at a pretty standard issue across the industry and how a balanced response in your software investment leads to breath-through advantages.
All metals companies with casting facilities understand the challenge of raw material blending. Raw material spend is millions or even billions of dollars per year, and the trick is to find the lowest cost materials to charge into your furnaces. Small percentages of a billion dollars are still very big numbers!
In a typical situation, a cast house operator armed with a list of inventory items and a calculator are looking across thousands of material options, each with its unique weight and chemistry, to select the right components to build a furnace charge. This happens multiple times a day, and I can tell you from experience that when you’re trying to do these calculations at 4:00 am on the end of Saturday’s graveyard shift, you aren’t always going to get the best answer. This isn’t a smart way to approach the problem.
Best practice that many metals companies now use is an optimization tool called a linear program. A linear program has the capability to analyze every combination and provide the lowest cost charge recommendation to the operators in seconds. Plants that have invested in this technology earn very quick paybacks and millions of dollars per year.
This is a lesson of what I call “bringing offense to your game”. It means not just doing what you have to but, instead, thinking creatively about how technology solutions can help you achieve a break-through advantage.
Underperforming companies are only using software to chase obsolescence, compliance, or security. Don’t get me wrong – these are all critical and will keep you alive for the short-term, but it’s playing defense and only half of the answer.
Using optimization to improve blending, heuristics to improve scheduling, or artificial intelligence (AI) to improve your go-to-market strategy are great examples of how you can provide step change improvements in capability. That’s what I call going on offense, and that’s what leading companies do. Deep process experts will be some of the best people to help you find the game-changing opportunities. It’s also critical that the business owners, those who will use it every day and have the most passion to get it right from the beginning, are in the room from Day 1.
How does software create business value?
Ken Schrock: I’ve spent many years standardizing data and processes across departments and across plants. I quickly learned that whenever I took standards to a new plant, I should expect the new plant to find additional improvements that could be taken back to the original plants. In other words, the new plant and the originating plant would both benefit.
Another benefit of standardization, and maybe just as significant, was that departments or plants who previously had little contact would afterwards have a connection that helped them work and solve problems together.
This initiates a cycle of continuous improvement by moving organizational silos towards collaborative teams.
This theory around standardization is extremely important when thinking of the challenges of a diminishing returns industry like metals, where you must attack margins through continuous process improvements, like:
- Getting an extra wrap on your coil
- Recovering an extra piece out of the saw
- Finding ways to reduce maintenance and raw material costs
- Filling up the last 5% of a truck
We need standards to measure performance and talk about improvement. The implementation of good software is going to help you facilitate conversations and measure performance at all levels of the process, from equipment process control targets to long-range forecast accuracy. A software infrastructure built around standards is also going to help you sustain the business over time as you experience the churn of an aging organization.
The lesson is that it’s not just the good technology. The technology along with the implementation of standards themselves during the software project is what will get people talking and automatically make you better.
Do you have any lessons on what to watch out for?
Ken Schrock: I’ve seen examples of companies selecting software for the wrong reasons and wasting their money. Common mistakes are to buy the cheapest option based on the Procurement assessment, or just going with the same legacy software that was used for other applications because it seems easier.
When the new software underperforms, users build stealth systems out of Excel or other tools to get around the cumbersome system. The users aren’t happy because the tools don’t meet their needs, IT isn’t happy because their tools are disparaged and not used, and business owners aren’t happy because they’re not realizing the full return on the software investment. The common problem in many of these situations is that the usability requirements of the business owners and the flexibility of the tool were undervalued during the selection process.
As leaders, you expect your organization to continuously learn and adapt, so why wouldn’t you hold your software accountable to the same standard?
It’s my assertion that usability and adaptability should be significant criteria when you make a purchasing decision. And once you implement the software solution, particularly a tool geared towards your offensive strategy, you can’t just turn off the lights and walk away. Make sure you have an organizational plan for adapting to new standards and chasing new opportunities
The point is that good software should facilitate change and performance in your organization while bad technology will lock in difficulties and becomes a barrier to change – and nobody can afford that.
What would you tell a metals company that is looking for breakthroughs?
Great question. I’ve shared a lot of lessons and theory, but how do you get started? Here are some places to think about if you’re looking for breakthroughs. You don’t necessarily want to start with all of them; I’d just pick one.
- For market strategy, consider tools that can leverage big data or AI to understand customer behaviors. This can help you understand what your customers are looking for and how to prompt your market-facing sales reps with actions to sell more.
- With respect to capacity management and revenue, whether you’re in a fast-moving up cycle or a down cycle, there is tremendous real dollar value in being able to reconcile your capacity footprint with the sell plan. For metals plants with large equipment and highly specialized operators, a one-month error in when to shut down a piece of equipment or start one up can be very expensive.
- For those of you that are in manufacturing, raw material costs and line planning is a huge expense and optimization can help you attack it. In the Procurement space, tools that tie Opex and Capex plans to real-time procurement can help you find advantage through better management of expenses, contract consumption, and payments .
- In Logistics, Transportation Management System tools will help you optimize strategic planning, sourcing and procurement, as well as daily planning and execution.
Any final suggestions for how to think about a technology transformation?
Ken Schrock: The final point I want to emphasize is to realize that even though you may not be an “IT person”, you as a leader must understand and engage in how technology can help your company grow.
Think about how to connect your business planning across multiple areas, like FP&A, S&OP, Supply Chain, Workforce, Asset Management, and Maintenance, and how that connected planning breaks down information and organizational silos to drive improvement.
Think about how these connected plans and new offensive capabilities can help you attack the big industry challenges we talked about at the beginning, like capital pressures, environmental sustainability, and margins.
Think about how your decision process would change if you were able to understand multiple, fully connected business scenarios, when the markets are going up and down.
And think about how much better you could lead your company if you could do this very quickly, together as a team, every day.
Questions? Contact Ken Schrock, [email protected]
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