Tata Steel Europe’s connected planning journey
The steel industry is not easy. A ton of steel can cost as little as $ 700. A pound of apples costs about the same as a pound of steel, but steel is a complex product made using high-tech metallurgical and manufacturing processes. Even before the pandemic, the global steel industry was going through significant disruptions that included strong price competition (China has been the subject of numerous investigations for dumping), weak demand and tariff issues.
Tata Steel Europe, which produces 9.5 million tonnes of steel per year, has responded to these issues with a board-level transformation journey called “Future Value Chain”. This initiative aims to improve their long-term financial viability and create sustainable growth of value.
Part of their transformation includes a journey to implement and improve their connected planning capabilities. Connected planning, based on the Anaplan solution, improves both their profitability and their service capabilities. In an interview with this writer, Dr Svend Lassen, head of reporting and data analysis for the trade and supply chain at Tata Steel Europe, explained that there needs to be a clear understanding of how any digital project will improve margins before the project is approved. . “We don’t just spend to innovate,” said Lassen, “we need to create business value. ”
Tata Steel Europe has a complex supply chain. Their primary steelworks are located in Ijmuiden in the Netherlands and in the UK in Port Talbot. The company sells directly and through channels; they have an extensive distribution network to provide post-production processing, service, distribution and sales support. They manufacture a wide range of products for the automotive, construction, engineering and packaging industries. And they are striving to become significantly more sustainable.
So what is “connected planning?” Dr. Lassen sees Anaplan – their connected planning tool – as a cloud-based business planning platform capable of multidimensional planning with very fast resolution times.
What does it mean? When a plan is created for a business function, like manufacturing for example, that plan affects things like customer service levels, profitability, cash flow, staffing, and more. With a connected plan, these effects are made visible to other business functions. The goal is to produce an integrated plan that meets the strategic goals of the entire organization.
Connected planning at Tata Steel Europe takes place as part of the Integrated Business Planning (IBP) process. IBP is a multi-functional planning process that includes sales, marketing, demand planners, manufacturing, and finance. The goal is to match projected demand over the next few quarters with the organization’s ability to produce products that meet that demand. This is a one month continuous process. During the current month, the supply is adapted to the demand for the next 3 years with particular emphasis on what must be produced for the coming quarter. Then the following month, the process is repeated.
These plans are quite detailed. It is not enough to predict that 2.5 million tonnes of steel will be produced in the next quarter. The plan should include which products will be manufactured at the product family level (similar products manufactured using the same equipment), which facilities will manufacture those products, which customers will obtain them, which distribution facilities will perform post-processing, and many others, many more details too.
The idea that a plan is “multidimensional” reflects the dimensions of customer demand, capacity and products. This dimensional link allows many scenarios to be executed. If a change is made to what a customer forecast should buy, for example if the customer seems to want to buy 10% more of certain products, this relates to the effects on what factories can produce and how other customers would be affected is clear.
A common set of scenarios focus on what needs to be done if there is not sufficient manufacturing capacity to meet baseline demand projections. What alternative products should be made? How will this affect their customers? Company finances? It is a complex tool because doing the IBP well is difficult.
A common problem with IBP is that financial goals can skew operational plans. Planners come up with data-proven forecasts of what the market can buy. But if the plan doesn’t allow the company to meet its financial goals, executives may push for more sales or sell more value-added products, which translates into a higher profit.
Dr. Lassen describes the annual plan as being “W” shaped. There are strategic corporate goals. Demand and supply chain planners come and go until they have created a workable plan that best meets key business goals. But executives can then ask for higher sales or margins, or lower inventory if key financial metrics are not met. A larger forecast is created, and then the same process of breaking down the plan and rebuilding it into a workable plan is repeated. Finally, after more collaboration and analysis, the annual plan is approved. At Tata Steel Europe, the annual plan and financial planning are part of the integrated business planning process.
Tata Steel’s connected planning journey began in 2017. It was an agile development and implementation process. New modules or connected planning capabilities have been created in short sprints where a minimally viable product has been created. Employees who would use this module then provided feedback on the extent to which the solution would meet their needs. The solution was adjusted and adjusted. The result was that users quickly implemented the solutions. The solution has continued to develop based on this methodology over the past four years. “It’s a different approach to implementing an ERP solution,” explained Dr. Lassen. “It’s an iteration and growth approach. ”
While the sprints have created several relatively small products, in a broader sense what has been developed is an ecosystem of solutions connected to business issues, for example:
1. A demand forecasting solution based on historical forecast data, collaborative sales and customer contributions, and external market data. This is a big data problem that they are applying machine learning to.
2. An integrated business planning solution that takes unconstrained demand plans and creates workable scenarios of what can be produced.
3. A risk and operations management tool that allows the company to spot sales gaps related to missing customer demand and opportunities in its production schedule, allowing it to place new orders on short notice. term. This gives sales reps the ability to negotiate engagements with prospects in real time, using a mobile app.
This year, the company is working to improve the IBP solution so that the implications of cash flow plans, not just profitability, can be understood in more detail. They also strive to strengthen the connection between what the company plans to do and the plans that are executed.
What has Tata Steel Europe accomplished since the start of the connected planning journey? Tens of millions of euros in savings have been made. Much of that savings resulted from carrying 20% less inventory – and less working capital – while still meeting expected demand. The company could prove that its “Future Value Chain” program, which relies heavily on new capabilities and the connected planning platform, could generate an increase in profits of more than 100 million euros in recent years. years. Customer service has improved; on time in full shipments increased 5-10% per year. As a result, Tata Steel Europe’s profit before interest, taxes, depreciation and amortization (EBITA) has improved by 5-10% every year!