operational management in steel plant

Neelachal Ispat Nigam Limited, Kalinganagar, Odisha

Case Study

Operation Management In

Steel Plant

Santosh Kumar

Content

1.Introduction

2.World Steel Production Scenario

3.Operational Process in steel industry

4.Fundamentals of Operational

Management

5.Operational Management in steel industry

6.Conclusion

Santosh Kumar, Manager (Steel), Neelachal Ispat Nigam Limited, Kalinganagar, Odisha

Introduction

The challenges that confront Steel industry in the age of globalization are complex in nature. The secret of sustainable turnaround lies in how steel industry faces the challenges and develops combative and anticipatory process. Most of the Problem can be solved by adopting and modifying their Operational Management strategy.


World Steel Production Scenario


Present Status and Future Projections World Steel Production (2012) : 1527 MT Indian Steel Production (2012) : 78 MT World Ranking in Production : 4th

Projected Capacity by 2016-17 : 150 MT Projected Capacity by 2019-20 : 200 MT Projected Capacity by 2030 : 500 MT

Indian Steel Production is bound to grow manifold in years to come to sustain Growth in infrastructure /Construction, Automotive , Capital Goods and Consumer Durable Sector i.e economic growth .


Share of world crude steel production 2012, 2011

Source: World steel association, Brussels


Steel Scenario

SN

Country 2013(Jan-Aug)

2012(Jan-Aug)

Rank in 2013

% of total world production

% Growth over prev. year Jan-Aug

1 World 1051 1025 - - +2.5%

2 Asia 706 666 - 67% + 6.0%

3 China 522 482 1st 49% + 8.3%

4 India 53 52 4th 5% +1.9%

Unit: million tons

Source: World Steel Organization (Formally IISI, Brussels)


World steel capacity utilization ratio

Source: World steel association, Brussels


Operational Process of Steel Plant


Structure of Iron & Steel Industry in IndiaType of Plant Number of Units Total Capacity

(million tonnes per year)

BF-BOF based Integrated Steel Plant 8 30.0EAF Based Integrated Steel Plant 3 10.6EIF based plant 1170 28.8EAF/ EOF based mini steel plant 37+2 9.5Gas Based DRI plant 3 8.0Coal Based DRI plant 418 26.6Mini BF based Pig Iron plant 42 -Ferro Alloy Units 173 4.0Hot Re-Rolling Mills 1794 40.8Cold Re-Rolling Mills 65 10.2Galvanising Units 20 5.6Colour Coating Units 6 0.5Tin Plate Units 2 0.3Wire Drawing Units 69 1.2Indian Steel Industry is highly fragmented with a variety of process routes and thousands of small & medium units for iron & steel making and also downstream processing


Process Routes in Integrated Steel Plants in India

Plant Process Route

Annual Capacity (million tonnes)

SAIL, BSP, Bhilai BF-BOF/THF 3.9SAIL, DSP, Durgapur BF-BOF 1.8SAIL, RSP, Rourkela BF-BOF 1.9SAIL, BSL, Bokaro BF-BOF 4.4SAIL, ISP, Burnpur BF-BOF 0.5RINL, VSP, Vizag BF-BOF 2.9NINL, Jajpur BF-BOF 1.1Tata Steel, Jamshedpur BF-BOF 6.8

JSW Steel, Bellary BF/Corex-BOF 7.8JSW Ispat Steel, Dolvi DRI/BF-Con Arc 3.6

JSPL, Raigarh DRI/BF- AC EAF 2.4Essar, Hazira DRI/HBI/BF/Corex- DC EAF 4.6

Even in Integrated Steel Plants, diverse process routes for iron making are adopted, not visible elsewher.


Fundamentals of

Operational Management


3 Basic Functions of Business Organizations

Ensure and allocating financial resources

Produce goods or services

Assess consumer needs, and sell /

promote goods or services


• Operations management (OM) is the science and art of ensuring that goods and services are created and delivered successfully to customers.

• The principles of OM help one to view a business enterprise as a total system, in which all activities are coordinated not only vertically throughout the organization, but also horizontally across multiple functions.

Operations management is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services.

Operations Management (Coke Zone, Iron Zone, Steel Zone, Mill Zone)

Inputs(Raw

materials)

Outputs(Coke, Pig

Iron & steel )

What is Operations Management?


Operations: A Transformation Process

Workers

Managers

Equipment

Facility

Materials

Land

Energy

Information

Goods

Services

Inputs Outputs

Operations and

processes

Feedback

Performance

Lead time The time between ordering a good or service and receiving it.


Production SystemsSystem Inputs Conversion Output

(desired)

Hospital PatientsMDs, NursesMedical SuppliesEquipment

Health Care HealthyIndividuals

Restaurant Hungry CustomersFood, ChefServersAtmosphere

Prepare FoodServe Food

SatisfiedCustomers

AutomobilePlant

Sheet SteelEngine PartsTools, EquipmentWorkers

Fabricationand Assemblyof Cars

High QualityAutomobiles

University High School GradsTeachers, BooksClassroom

Transferringof Knowledgeand Skills

EducatedIndividuals

6Santosh Kumar, Manager (Steel), Neelachal Ispat Nigam Limited, Kalinganagar, Odisha

Operations Management

The management of systems or processes that create goods

and/or provide services.

◦ Planning

◦ Coordinating

◦ Executing

Operations function consists of all activities directly related to producing goods or providing services.


Responsibilities of Operations Manager

Products & services

Planning

– Capacity

– Location

–– Make or buy

– Layout

– Projects

– SchedulingControlling/Improving

– Inventory

– Quality

Organizing

–Degree of centralization

–Process selection

Staffing

– Hiring/laying off

–Use of OvertimeDirecting

–Incentive plans

–Issuance of work orders

–Job assignments

– Costs

–Productivity


Operations Management includes:

◦ Forecasting

◦ Capacity planning

◦ Scheduling

◦ Managing inventories

◦ Assuring quality

◦ Motivating employees

◦ Deciding where to locate facilities

◦ And more . . .

Scope of Operations Management


Why is Operations

Management

Important?


Reasons to Study Operations Management

50% or more of the jobs in industry are operations management-related:◦Customer Service◦Quality Assurance◦Production Planning◦Scheduling◦Inventory Management◦Logistics

Operations Management activities are at the core of all business organizations.

All Other Functional Areas are interrelated with Operations Management


Operations as Technical Core

Operations

Finance

Capital Markets, Stockholders

Marketing

Customers

Work

ers

Sup

plie

rs

Pu

rchasi

ng

Pers

on

nel


The Overlapping of Three Major Functions

Operations

FinanceMarketing

• Budgeting• Economic

analysis of investment proposals

• Provision of funds

……• Financial

indicators

• Competitor• Customer

preference• Trend of

technology …… • Judgment of

manufacturability

• Fulfillment lead time


Major Characteristics of Operations Process

Type of Conversion

1.Project Shop2.Job Shop (Batch Shop)3.Assembly Line4.Continuous Process

ProductMix Size

FewMany(Several)FewSingle

ProductionVolume

Single or FewLow(Medium)HighVery High


Today's Factors Affecting OM

Global CompetitionQuality, Customer Service, and Cost ChallengesRapid Expansion of Advanced TechnologiesContinued Growth of the Service SectorScarcity of Operations ResourcesSocial-Responsibility Issues


Why Study Operations Management?

OperationsManagement

Business Education/Career Opportunities

Systematic Approachto Org. Processes

Increase Competitive Advantage/Survival

Cross-FunctionalApplications


Operations Decision Making

People Plants Parts Processes

Planning and Control

Materials &Customers

Products &Services

Input Output

Operations Management

Marketing StrategyFinance Strategy

Marketplace

Corporate Strategy

Operations Strategy


Strategy Begins with Priorities

1. How would we segment the market according to product group?

2. How would we identify product requirements, demand patterns, and profit margins for each group?

3. How do we identify order winners and order qualifiers for each group?

4. How do we convert order winners into specific performance requirements?


Manufacturing’s Role in Corporate Strategy

Stage I--Internally Neutral - minimize potential manufacturing negative

Stage II--Externally Neutral - achieve parity with competitors

Stage III--Internally Supportive - support business strategy

Stage IV--Externally Supportive - manufacturing based competitive strategy


Operations Strategy

Customer Needs

Corporate Strategy

Operations Strategy

Decisions on Processes and Infrastructure

ExampleStrategy Process

More Product

Increase Org. Size

Increase Production Capacity

Build New Factory


Core services strategyCore Services are basic things that customers want from products that they purchase.

Quality Flexibility Speed Price (or production cost)

10SAIsej Consultancy Services Ponevt.Ltd, Bhubaneswar

Competitive Dimensions Cost Quality and Reliability Delivery

◦ Flexibility◦ Speed◦ Reliability

Coping with Changes in Demand New Product Introduction

◦ Speed◦ Flexibility


Competitiveness Drivers

Product Development◦ speed development & enhance manufacturability

Waste Reduction (JIT Philosophy)◦ WIP, space, tool costs, and human effort

Improved Customer-Supplier Relationships◦ borrowed from Japanese Keiretsu

Improved Leadership◦ strong, independent boards of directors


Operational Management

in

steel industry


Iron ore

Pellet

Limestone

Coke

Sinteredore

Blast furnace(BF)

Hot metal

Basic oxygen furnace(BOF)

Scrap

Iron making

Electric arc furnace(EAF)

Steel making Continuous casting

Hotdirectrolling(HDR)

Billet

Bloom

Slab

Reheating furnaceSteel casting

Rolling

Seamless pipe millSeamless pip

Welded pipe mill

Welded pipeButt welded pipe

Cold rolling tandem mill

Cold rolled coiland sheet(also for plating)

Hot strip mill

Hot rolled coiland sheet

Main products

Plate mill

Plate

Wire rod mill

Wire rod

Section mill BarShapeSheet pileRail

Steel Plant Operational Process


Steel Plant Operational Process

Inputs Processing Outputs

Raw Material - Coal- Iron Ore - FluxWaterEnergyLaborBuildingEquipment

Coke OvenSinter PlantBlast FurnaceBOFCCP

BF CokeSinterPig IronSteel

Consumer Feedback


People, Culture & Organization

ProjectSchematic diagram for organization structure in Indian steel plant


Strengths Weaknesses

1. Availability of iron ore and coal

2. Low labor wage rates

3.Abundance of quality manpower

4. Mature production base

1. Unscientific mining

2. Low productivity

3. Coking coal import dependence

4. Low R&D investments

5. High cost of debt

6. Inadequate infrastructure

Opportunities Threats

1. Unexplored rural market

2. Growing domestic demand

3. Exports

4. Consolidation

1. China becoming net exporter

2. Protectionism in the West

3. Dumping by competitors

SWOT Analysis of the Indian Steel Industry

Source: National Steel policy 2005, Ministry of Steel, GoI


Major Challenges & Opportunities for Indian Steel Industry

Opportunities:• Availability of Raw material • Consistency in final product due to advance level of automation for

process control. • Environmental Issues and air pollution• Strong network of market (All product is marketed by M/s MMTC

limited)

Challenges behind Indian steel industry• Volatile Steel price. • Utilizing Maximum plant efficiency. • Higher Energy Consumption as compared to international benchmark. • Volatile demand and Supply. • High Competitiveness among small Players. • Lack of Product branding. • Higher Number of Breakdowns.


MarketingSales promotionAdvertisingSalesMarket research

OperationsFacilities Construction; maintenance

Production and inventory control Scheduling; materials control

Quality assurance and controlSupply chain managementManufacturing Tooling; fabrication; assembly

Design Product development and design Detailed product specifications

Industrial engineering Efficient use of machines, space, and personnel

Process analysis Development and installation of production tools and equipment

Finance/ accountingDisbursements/ credits Receivables Payables General ledgerFunds Management Money market International exchangeCapital requirements Stock issue Bond issue and recall

Manufacturing


Steel Plant: Operational Management

Forecasting: Grade of steel & Pig Iron in Demand

and in order.

Capacity Planning: According to sales order in

pipe-line and demand scenario

Scheduling: Scheduling of production plan of each

units

Quality: Quality of the Product.


Factors Affecting on Steel Plant Performance

Economic/Political

exchange ratestrade barrierscapital costsinflation

capital availabilitysocial costs/legalfunds flowssavings rateinterest ratesminimum wage

Environmental/social

Env. protection

health costs

labor unions

education system

consumer tastes

retailing capabilities

employee

External

transportation costs

logistics resources

labor supply, capabilities

training resources

communications

public infrastructure



Corporate

strategy

risk avoidance

role of functions

Fin-Mktg-Mfg-Eng-R&D

balance sheet

financial capacity

marketing policies

export sales competencies

Technological sophistication of mgt

Technological

R&D

engineering

product development

process development

new products

development process


Suppliers

abilities

coordination

location

competition

cooperation

Operationscosts/productivity

qualitydelivery cycledelivery reliabilityflexibility for prod changeflexibility for vol. changeNew product introduction

inventory mgt.Prod. Planning ControlEquip. & process tech

size, location of facilitieslogistics

customer serviceinformation technology

WS6



KEY PROCESS TO ACHIEVE THE GOAL : BENCHMARKING

COST REDUCTION● Reducing operating costs● Reduction in working capital costs● Substitution of raw material● Social infrastructure costs● Differentiated sourcing● Effective supply chain management

OPERATIONAL EFFICIENCY● Asset utilization efficiency● Capital productivity● Labour productivity● Yield improvement

Operational Strategy for Operational Excellence


KEY PROCESS TO ACHIEVE THE GOAL : PROFIT CENTRE APPROACH AND INTERNAL CUSTOMER MODEL

REVENUE MAXIMISATION● Maximizing net sales realization ● Effective product/market analysis● Increasing customer base● Penetrating marketing communication● Debtor’s management

FINANCIAL RESTRUCTURING● Asset restructuring● Strategic cost reduction across the board

● Divestment in non-core business

Financial Strategy for Operational excellence


BUSINESS RESTRUCTURING● Redesigning key corporate processes● Consolidation and collaboration

OPERATIONAL RESTRUCTURING● Management systems and structure● Capital productivity● Steel servicing

MARKET EXPANSION● Enhancing steel consumption● Augmenting marketing services

Financial Strategy for Operational excellence


KEY PROCESS TO ACHIEVE THE GOAL: CONTINUAL IMPROVEMENT & SUSTAINABLE STRATEGIC TURNAROUND

STRATEGIC RESEARCH● Identification of priority areas● Quality improvement● Customized product development

TECHNOLOGY PLANNING● Stage-wise adoption of latest technology● Process automation● Eco-friendliness as key parameter

INTEGRATED IT STRATEGY● Networking with customers, suppliers● Widespread IT application● E-commerce

MODERN HRD STRATEGY MARKET SUSTENANCE ● Establishing brand equity of steel ● Customer loyality

Corporate Strategy for Operational Excellence


The core values and concepts of operational excellence are embodied in seven categories: • Leadership; • Strategic Planning; • Customer Focus; • Measurement, Analysis and Knowledge Management; • Workforce Focus; • Process Management and Outcomes of Financial and

Non Financial Parameters; and • Business Results.

Core Values for Operational excellence


The Operational Excellence through effective operational management focuses on certain key areas of business performance:

• Customer-focused Results; • Product and Service Results; • Financial and Market Results; • Human Resource Results; • Organizational Effectiveness Results; • Governance and Social Responsibility Results.

Core Values for Operational excellence


Important Points in Effective OM

Forecasting--determining what the future holds in terms of product demand, raw material prices, etc.

Quality Management/Quality Control--making certain that the products and services provided are of the highest possible integrity

Just-In-Time Production (JIT)--minimizing waste, in-process inventories and maximizing flexibility

Material Requirements Planning (MRP)--getting the right parts to the right place at the right time


Scheduling--planning the production of goods and services in the most efficient possible way

Technology--exploring uses of technology and automation in manufacturing and providing of services

Supply Chain Management / Logistics

Important Points in Effective OM


Operational Excellence

Customar

Satisfaction,

Employee

satisfaction

Alignment

between HR,

Information

Management,

Services and

Production

Process Manage

ment

Organizational Leaders

hip, Strategy

for Turnaro

und,

Corporate

Governance,

Business Result

Continual Improvement

Continual Improvement

Continual ImprovementContinual Improvement


Conclusion


The challenges that confront Indian steel industry in the age of globalization are complex in nature. The secret of sustainable turnaround lies in how Indian steel industry faces the challenges and develops combative and anticipatory process.

The achievement of operational excellence often required a significant cultural change in operational Management in order to be sustained. Operational Management process must be well planned and coordinated so that employees are involved throughout the process and that all improvement activities occur in a coordinate manner.

Conclusion


operational management in steel plant

Leadership & Management