While they are still not on the cutting edge, companies in the steel supply chainfrom raw material suppliers to mills to service centers and processors all the way down to end usersincreasingly are realizing that the ever-changing world of information technology (IT) has become the heartbeat of companies, and that keeping up with IT innovations has become ever-more important to help them to keep their competitive edge.
Nevertheless, acceptance of new IT solutions along the steel supply chain remains more of an evolution than a revolution.
There continues to be a lot of caution about embracing new information technology solutions, Steel Manufacturers Association president Philip K. Bell said, noting that some companies encountered snafus when trying to implement certain IT systems, including some that contributed to the demise of some companies. This has fed into the innate fears of the largely cautious industry.
However, I think in recent years there has been a growing appreciation of the use of IT solutions and how critical they are to the success of companies throughout the steel supply chain, Bell said, noting that they can provide a comprehensive look at a companys enterprise and allow executives to make better strategic decisions.
I think we are past the point of trying to convince companies that IT is necessary for them to be competitive, because I think everyone already knows that they need IT to run their business and if they dont have an adequate IT infrastructure they will not be competitive, said Ron Greco, an account executive at Atlanta-based IT solutions provider Aptean. Rather, I think it is the flavor of IT and the costs associated with it that really start to separate companies.
Patrick Gallagher, vice president of Pittsburgh-based Management Science Associates Inc., agreed. I think that different companies have different levels of sophistication and reliance on these systems, but I do think they all touch upon them at some levels, he said. More-sophisticated companies might have more full-blown IT systems, but others at least have smaller enterprise resource planning (ERP) that they are using or scheduling features and functions that they are building into their systems.
Javier Cortina, managing director in the mining and metals practice of Dublin-based Accenture Plc, said that the level of sophistication is not necessarily due to the size of the company, but rather to the mindset of the companys managers and their understanding of the value that information technology can bring.
While the steel industry as a whole is not currently on the front line of adopting new technology, it is moving to combine more advanced automation and applied analytics in its cost and production models as well as in market strategies. Companies increasingly have been looking at how they can turn their reporting systems to reshaped or upgraded analytic tools to increase the value of their available information to improve their key operational metrics, Cortina said.
But it can be a challenge for steel companies to find a product that can help them better connect with the supply chain and one that allows the entire steel supply chain to consistently exchange information, according to Scott Alsup, general manager of business technologies at Ghent, Ky.-based Gallatin Steel Co. He said there is not really a huge market for IT software geared toward mills, service centers, processors and others in the steel supply chain and the unique business challenges that they tend to face.
Alsup said that one choice is for companies to purchase a software product from one of the big players in the IT software universe, such as Germanys SAP AG, but they tend to be expensive, geared toward large organizations and generally fairly difficult to implement. The other choice is to turn to a niche option from a smaller company.
The problem is that the most-talented software companies go where there is the highest opportunity and the highest revenue, and the steel industry isnt it, Alsup said. So what we end up with is larger software companies that try to create niche products that attempt to meet the needs of our particular industry, but dont dedicate a ton of resources to it.
He said it has been reported that about 52 percent of the companies in the steel supply chain use custom-developed software, with the remainder divided among 15 to 20 different software companies, each of which do not have more than a 5- to 6-percent share of the total steel market. That speaks volumes about the challenges of finding an easy-button solution when companies are looking to update what could now be outdated IT systems that were developed perhaps decades ago, when the steel industry was very different, Alsup said.
Cortina said that during the economic downturn, most companies did not invest a lot of money in the upgrade, integration or simplification of their information application landscape, although some did take the opportunity to make changes towards more cost-effective and better-prepared IT services and they likely will benefit now from that. There has been more change recently, however, as more companies realize how new information technology models can be better leveraged and help them to faster adopt new trends in increased digitalization across the value chain. The ability to leverage those new capabilities will be a relevant differentiation factor in the future.
The reality is that the steel business has been moving, and continues to move, so fast now that there are no hard-and-fast rules about how it is going to be in the next 10 years, Alsup said.
There is a trend throughout the steel supply chain to update IT systems to more modern tools in order to allow for a better optimization of manufacturing processes and costing models, Cortina said, allowing bottlenecks to be identified faster and action taken to improve product flow at lower costs and better service levels. This, he said, includes the use of certain optimization tools that can enable a company not only to get the maximum benefit from its more-efficient assets but also to use the information that has been gathered to improve the performance of its less-profitable assets.
Josh Cole, a principal and the manufacturing and distribution performance services leader with Chicago-based Crowe Horwath LLPs performance services group, agreed that there are some downfalls to steel companies having niche, boutique or custom IT solutions. Particularly problematic are those that were developed decades ago and didnt include open, strategic platforms that can be adapted to meet the companys changing needs. Many companies realize that they have to make a change because of the tremendous risk in relying on older technologies and old support resources or scarce resources to support it, Cole said.
But Gallagher noted that there are some situations where companies dont necessarily want to upgrade to newer technology because the older technology has been so effective.
Leveraging technology has the potential to increase companies competitiveness on both the cost and the revenue and service side, Cortina said. I think it is not an optional decision to embrace technology to promote internal efficiency and improved relationships with clients and key market stakeholders, but rather a necessity.
Cole said one emerging trend is that many of the companies in the strategic enterprise technology world are updating their IT platforms using their industry partners expertise in an effort to give their customers the best of both worldsto allow them to manage their business around the unique functional requirements of steel manufacturers, but on a more strategic platform that opens up access to information, paperless workflow, mobility and other features that will support continuous improvement and be at the heart of some of the challenges to the industry.
Alvaro Rozo, global practice director for systems and process control at Mississauga, Ontario-based Hatch Management Consulting, said consultants such as Hatch can help steel companies wade through the different IT modules available to them, including management execution systems, advanced planning and the integration of ERP with the supply chain. We help our clients who require their different integration modules to identify what solutions are the best fit based on their market conditions and market approaches.
Given that every steel company is different, with a somewhat different business strategy, it doesnt make sense to try to find a holy grailone IT product that solves everything, said Francois Eijgelshoven, a vice president at Quintiq Inc. That just isnt how it works.
He said that typically a company wants something that can model both the supply chain and the companys strategy with rules and constraints for that supply chain and that customer in a very flexible software that can model information, make it transparent and optimize operations.
I think many people dont understand the complexity of how all these systems tie together and dont understand that it isnt that easy to incorporate changes, Alsup said, although it is starting to change. Software companies are now adapting to the reality that some changes of mundane tasks, such as tagging and document creation, shouldnt be that hard.
It appears that companies in the steel supply chain and the types of IT solutions available to them are going through a transition.
The speed of the changes in the IT tools that are available to steel companies is amazing, with something new and great being introduced in the market every six, 12 or 18 months, Gallagher said, adding that this can be overwhelming for steel executives that dont have the time, or in some case the inclination, to keep up with technology.
One problem, according to Alsup, is that a lot of the pain caused by eroding IT infrastructures, system deficiencies and supply chain gaps arent being felt at the decision-making level, but rather by the people who are actually running the machines or doing the shipping or receiving. Nevertheless, more steel companies will be forced to realize that their legacy systems cant be sustained forever, and that those who embrace technology change will see more success while people who resist or delay will pay a penalty for doing so.
Eijgelshoven said that in the future the IT solutions developed to aid the steel supply chain will be more agile, including increased mobility and visibility, creating a virtual glass factory where customers can look from any angle to see where an order is and when they can expect to see it delivered.
The beginnings of this kind of technology already exist and are being used in industries that tend to be on the leading edge of IT, Cole said, and although it also has started to take hold in the steel industry it will take some time for it to do so in a more noticeable way.
He said it might take an increased number of younger people coming on board for that to happen. Some larger metal companies are starting to be more successful at making steel cool again and recruiting talented college graduates who use smart phones and tabletswhere applications are innately simple and quickmore often than personal computers. As these people move into leadership positions, they will expect it to be easier to perform business functions and to get information based on such functions, Cole said.
IT solutions based on these concepts, while not quite there yet, are coming, he said, adding that today you cant run a business on your smartphone but you might be able to see or do a few things that way. Likewise, while there arent any complete mobile enterprise technology packages yet, they are moving in that direction. I think a lot of IT industry players understand this and they are investing heavily in it. The first thing they are doing is getting their platforms into a condition that they can be released via the cloud, via the Web, on any device so they dont have to keep inventing a new platform for every means of accessing it, Cole said
When that is complete, it might be possible to run businesses from smart phones or tablets, he said. Who knows? You might be able to walk the shop floor wearing your Google Glass some day and see inventory turns and all the data you need. I dont think that is out of the realm of possibility over the next decade.
Alsup agreed. Change is happening, and it is going to continue to happen, he said, noting that the whole market dynamic has flipped. It used to be business that drove innovation, but now it is consumer-focused technologies that are cascading their way into the workplace.