In many ways, big metal companiesespecially steel and
primary aluminum producersare proud to be distinct from
other heavy manufacturers, even other process industries. But
being sui generis also means that many aspects of
information technology, especially enterprise resource planning
(ERP) systems, often have to be custom-made or developed
internally rather than bought off the shelf from big vendors,
such as SAP AG, Microsoft Corp. or Oracle Corp.
That is now starting to change, and at an accelerated pace,
due to forces both inside metals and in the broader economy.
Most notably, the normal capital investment cycle
post-recession is now turning, favoring upgrades. As that
happens, vendors have added capabilities that better fit the
making of metals. In addition, formerly tangential areas of
managementespecially supply chain and risk management,
which have their own specialized solutions and platforms that
can be readily linked to ERPhave become more a part of
senior executives daily responsibilities.
There definitely is a rise in ERP and other technology
systems in the metals market, said Gavin Lavelle,
president and chief executive officer of Brady Plc, a provider
of commodity trading and risk management (CTRM) software. There
are several reasons for that. The most immediate driver
is that after the economic crunch of 2008-09, there has been
unprecedented volatility in commodity prices worldwide. That is
especially true all along the metals supply chain. We saw
prices drop 80 to 90 percent and then shoot back up. So all the
playersmines and mills and fabricators and service
centersare much more aware of, and focused on, risk
That can include stress-testing portfolios, better
understanding counterparty risks from suppliers to customers
and service providers, and reviewing capital and operating
assets. The world has changed, Lavelle said. When prices are
rising or declining steadily in long cycles, managers have time
to adapt. But when they get rapid shocks, they need
better tools. That is not just true in metals, but in all
Lavelles company is a collaborator in a market as a
CTRM supplier, not an ERP competitor. With recent installations
at Xstrata Plcs copper concentrators in the Middle East
and South America, as well as a series of projects with
Corporación Nacional del Cobre de Chile (Codelco), Brady
has seen a run of activity in the metals sector. In many cases,
its CTRM initiatives have been in coordination with ERP systems
Senior executives in the software sector recall that as far
back as the late 1980s and early 1990s, other process
industries, especially the petrochemical sector, were early
adopters of ERP. SAP and Oracle were among the top providers at
the time. Based on that strength, Oracle won some early
metals contracts like Alcoa (Inc.) and Worthington (Industries
Inc.), one software insider said. SAP was another
Tier 1 competitor, based on the strength of its reporting
engines. It was No. 1 worldwide in all industries.
Microsoft vaulted into the top tier in the early 2000s when
it acquired Dynamics, he said. That had the advantage of
being built over the SQL server, keeping integration simple
over the whole Microsoft stack. That makes for simple
interfaces to the user and lower costs to implement.
Still, metals proved a coy market through the boom of the
mid-2000s. Then came the shocks of 2008-09. That, Lavelle said,
explains how the upswing in ERP and other system installations
and enhancements was the result of the natural procurement
cycle. At the bottom of the financial crisis and the
recession, people were concentrating on just keeping the lights
on. Once things stabilize, they have their meetings and
consultations and bring in the analysts, he said.
That can take a year or more. Once they make a plan, the
requests for proposal go out to the vendors and service
providers. Another six months for replies and selection, and
here we are. The cycle takes two to three years from crisis to
deployment of new platforms and solutions.
Beyond the core drivers in ERP that have arisen from the
recent recession and recovery, there are two other factors that
serve to accelerate the trend, Lavelle said. One is
increased regulation and oversight, both internal and external.
There is an increased compliance burden all around and many
more financial regulations.
The other outside driver to increased ERP adoption in metals
is the marked shift to electronic business overall through
commodity markets, the actual supply chain, and futures and
options. Historically, trading on commodity exchanges had
been in the ring or on the phone, Lavelle said.
Trading is now mostly electronic. It is faster, cheaper,
more accurate and has a better order trail.
Lavelle recalled one debate in the metal markets.
Trading on the London Metal Exchange had been going for
something like 150 years, all in the ring and then also on the
phone. There were so many arguments against moving to
electronic trading, he said. But once the change
was made, within two years 80 percent of the front-month
contracts were being traded electronically. Adoption was very
fast and very broad.
Looking ahead, Lavelle sees cloud-based solutions as the
next big thing, in which software and databases are not
physically on the hardware of the company, or even at the
vendor, but on a remote, secure server. The idea of
secure, log-on access to ERP or CTRM systems from anywhere is
very powerful, he said. We think that is very much
the way forward.
If the cloud is indeed the way forward, then metal makers
might actually benefit from not being early adopters of
The metal companies did not generally go in for the
first few rounds of ERP, said Perry Zalevsky, industry
principal for mill products and mining at SAP, still one of the
largest global ERP suppliers. They have been going along
with their legacy systems, even when the companies as they
exist today are the result of mergers, acquisitions and
Zalevsky said that given such a status for many operators,
the current slow recovery in overall economic and market
conditions is a good environment in which to make the jump to
light-speed. There has been a recovery from the recession
in metals that has not occurred in all sectors of the economy,
but metal makers can start to look to the longer term these
When times are tough, there is usually not enough capital
for ERP and other capital projects. At the other end of the
spectrum, when mills are running flat-out there isnt time
to make changes and neither is there any sense of urgency as
long as the party lasts, Zalevsky said. I was at a pipe
and tube company recently, and they were lamenting the
hodge-podge of systems they had. Of course, no one set out to
have an information technology landscape like that, but often
that is where operators find themselves.
Another outside force driving ERP in the metals sector,
according to Zalevsky, is the consumerization of information
technology. People have these smart phones and tablets
with amazing capabilities, then they go to work and their
office or station in the mill has this clunky old system,
he said. Many operators dont have any comprehensive
ERP at all, just islands of automation.
reaction, he said, is that if the devices in our pockets and
even in kids backpacks can do all those things, why
cant these systems run the company and the plant? If a
delivery company can confirm in real time where a package is on
the other side of the world, why cant my company tell its
customers where their shipment is and when it will arrive?
Zalevsky said there are indeed new platforms and solutions
being offered by ERP and CTRM providers that are more easily
installed and aligned with each other and a companys
other systems. ERP can come top-down or bottom-up,
he said. Indeed, CTRM is often the gateway to a wider ERP
SAP does a lot of things, but hedges and currencies
and interest rates are not a major core strength, he
said. What we do very well is tie into treasury or risk
management systems. You decide your hedging program, and we can
show you how it will affect the rest of the operation out into
the future. If a mill or a trader already has a sophisticated
hedging program in place, then the tie-in is a natural.
Executives need to know that what their trading desk is doing
aligns with not just corporate strategy, but also the current
There has been a gap even for companies with fairly
well-advanced systems, Zalevsky said. Risk management has
not been tied into financial. He cited a new area called
provisional invoicing as an example of whats possible
now. If a fabricator takes an order today that will
involve the purchase of copper, the order for the copper might
not be made for a month or two and the finished order might not
be shipped for another month or two, he said. The
trading desk needs to know not just that the order has been
taken, but the process flow. And sales and accounting need to
know how the trading desk is handling any risk management so
they can make provisions in the contract if
SAP recently acquired SuccessFactors, a company that handles
cloud-based human resources management. We have seen this
coming for a long time, but it has not yet come very much to
the metals sector, Zalevsky said. But the ability
to check pay stubs or vacation days or performance reviews from
anywhere, anytime, is very powerful, although he warned
that with anything in the cloud, privacy and security are
always major issues.
Zalevsky said that if mills and fabricators are just
treading water by patching up legacy systems, they are really
being swept out to sea. There are capabilities available
now that you are just never going to get with a patchwork
system, he said.
Richard Baker, chief executive officer of Cleartrade
Exchange, an electronic exchange for iron ore and steel as well
as drybulk freight and containers, said mills, traders and
buyers can hedge their physical and financial exposures on that
or other exchanges around the world. The innovations in
futures and options are bringing transparency, efficiency,
automation and reliability to all parties, he said.
Those who can link to ERP can take full advantage of
those trading capabilities.
Traders on the desk are responsible for running the books in
front of them, and that is what CTRM is for, Baker said. But
ERM handles the link to risk management and corporate strategy.
The trader requires strategic direction for tactical
To illustrate, Baker cited a buyer for a major appliance
manufacturer. His exposure to steel, specifically
hot-rolled coil (HRC), is high, and his access points to the
market are multiple. The emerging model is consolidating order
books, finding liquidity and automating the workflow to address
any pain points, he said. I used to trade in the
sheet market, and I remember 10 years ago the buyers would get
beaten up by the production managers who were wanting to know
Wheres my sheet? Wheres my
Today, the risk has shifted. Ultimately, the risk
manager could easily undo all that has been done in the supply
chain without good access to information across the
organization, Baker said. A supply engineer may be
buying forward 30 days or getting a saving from the forwarder.
Is that gain then being netted off by the volatility in the
Baker said that according to recent conversations with
purchasing managers about ERP, the consensus is that they want
to see direct feeds from the exchanges. They want to know
where the forward market and the derivatives market are. The
anchor for the business is the real-time activity in the spot
index. Beyond that, the forward market gives price
Perhaps the most challenging aspect of ERP in the metals
market is that there are so many different trends to consider.
Technology innovations, broader economic realities and
developments within the commodity markets all help make the
argument for accelerating adoption.
But Josh Cole, a principal for manufacturing and
distribution consulting services at Crowe Horwath LLP, said
that what stands out in a historical context is that
metal companies have never believed that an agnostic ERP
solution as provided by the major software companies, the
household names, would be a good fit for them. Among metal
executives, there has been a belief that those platforms were
designed for discrete manufacturing.
As a result, Cole said, the metals industry decided long ago
to go out on its own with either boutique, custom-designed
commercial solutions or home-grown systems. They have
mostly worked, but as a result the industry is behind the curve
now on research and development, he said. Also, the
solutions are in silos for primary producers, service centers
and scrap operators.
Boutique, custom-made and home-grown solutions rely heavily,
even entirely, on a single vendor or in-house staff, Cole said.
They also are reliant on what is now likely to be aging
hardware and infrastructure.
What metals needed before was support for their unique
process industry. They still need that, but in a way that is
flexible rather than ossifying, he said.
Its happening at a time when there are more options
and more advancements in solutions, Cole said. That extends to
service centers. Service centers are looking to add
value, and boutique solutions cant handle the fabrication
elements. If service centers want to offer that capability,
they really have to look to the major ERP solutions.
That said, ERP is never a turnkey proposition. Crowe Horwath
offers a software and services package called Metals
Accelerator that Cole said makes a prebuilt ERP platform feel
like a boutique application. Other vendors and service
providers have different approaches that accomplish similar