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
S
N
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 India
Type of Plant Number of Units Total Capacity
(million tonnes per year)
BF-BOF based Integrated Steel Plant 8 30.0
EAF Based Integrated Steel Plant 3 10.6
EIF based plant 1170 28.8
EAF/ EOF based mini steel plant 37+2 9.5
Gas Based DRI plant 3 8.0
Coal Based DRI plant 418 26.6
Mini BF based Pig Iron plant 42 -
Ferro Alloy Units 173 4.0
Hot Re-Rolling Mills 1794 40.8
Cold Re-Rolling Mills 65 10.2
Galvanising Units 20 5.6
Colour Coating Units 6 0.5
Tin Plate Units 2 0.3
Wire Drawing Units 69 1.2
Indian 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 3.9
SAIL, DSP, Durgapur BF-BOF 1.8
SAIL, RSP, Rourkela BF-BOF 1.9
SAIL, BSL, Bokaro BF-BOF 4.4
SAIL, ISP, Burnpur BF-BOF 0.5
RINL, VSP, Vizag BF-BOF 2.9
NINL, Jajpur BF-BOF 1.1
Tata Steel,
Jamshedpur
BF-BOF 6.8
JSW Steel, Bellary BF/Corex-BOF 7.8
JSW Ispat Steel,
Dolvi
DRI/BF-Con Arc 3.6
JSPL, Raigarh DRI/BF- AC EAF 2.4
Essar, 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 Systems
System Inputs Conversion Output
(desired)
Hospital Patients
MDs, Nurses
Medical Supplies
Equipment
Health Care Healthy
Individuals
Restaurant Hungry Customers
Food, Chef
Servers
Atmosphere
Prepare Food
Serve Food
Satisfied
Customers
Automobile
Plant
Sheet Steel
Engine Parts
Tools, Equipment
Workers
Fabrication
and Assembly
of Cars
High Quality
Automobiles
University High School Grads
Teachers, Books
Classroom
Transferring
of Knowledge
and Skills
Educated
Individuals
6Santosh Kumar, Manager (Steel), Neelachal Ispat Nigam Limited, Kalinganagar, Odisha

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
– Scheduling
Controlling/Improving
– Inventory
– Quality
Organizing
– Degree of centralization
– Process selection
Staffing
– Hiring/laying off
– Use of Overtime
Directing
– 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
Workers
Suppliers
Purchasing
PersonnelSantosh Kumar, Manager (Steel), Neelachal Ispat Nigam Limited, Kalinganagar, Odisha

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 Shop
2.Job Shop
(Batch Shop)
3.Assembly Line
4.Continuous Process
Product
Mix Size
Few
Many
(Several)
Few
Single
Production
Volume
Single or Few
Low
(Medium)
High
Very High

Today's Factors Affecting OM
Global Competition
Quality, Customer Service, and Cost Challenges
Rapid Expansion of Advanced Technologies
Continued Growth of the Service Sector
Scarcity of Operations Resources
Social-Responsibility Issues

Why Study Operations Management?
Operations
Management
Business Education/
Career Opportunities
Systematic Approach
to Org. Processes
Increase Competitive
Advantage/Survival
Cross-Functional
Applications

Operations Decision Making
People Plants Parts Processes
Planning and Control
Materials &
Customers
Products &
Services
Input Output
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
Example
Strategy Process
More Product
Increase Org. Size
Increase Production Capacity
Build New Factory

Core services strategy
Core Services are basic things that customers want
from products that they purchase.
Quality
Flexibility
Speed
Price (or production cost)
10
SAIsej 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
Sintered
ore
Blast furnace
(BF)
Hot metal
Basic oxygen furnace
(BOF)
Scrap
Iron making
Electric arc furnace
(EAF)
Steel making Continuous casting
Hot
direct
rolling
(HDR)
Billet
Bloom
Slab
Reheating furnace
Steel casting
Rolling
Seamless pipe mill
Seamless pip
Welded pipe mill
Welded pipe
Butt welded pipe
Cold rolling tandem mill
Cold rolled coil
and sheet
(also for plating)
Hot strip mill
Hot rolled coil
and sheet
Main products
Plate mill
Plate
Wire rod mill
Wire rod
Section mill Bar
Shape
Sheet pile
Rail
Steel Plant Operational Process

Steel Plant Operational Process
Inputs Processing Outputs
Raw Material
- Coal
- Iron Ore
- Flux
Water
Energy
Labor
Building
Equipment
Coke Oven
Sinter Plant
Blast Furnace
BOF
CCP
BF Coke
Sinter
Pig Iron
Steel
Consumer Feedback

People, Culture &
Organization
Finance
Business Process
Technology
(Technical &
Scientific services)
Production
Process
Project
Schematic 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.

Marketing
Sales
promotion
Advertising
Sales
Market
research
Operations
Facilities
Construction; maintenance
Production and inventory control
Scheduling; materials control
Quality assurance and control
Supply chain management
Manufacturing
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/
accounting
Disbursements/
credits
Receivables
Payables
General ledger
Funds Management
Money market
International
exchange
Capital 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 rates
trade barriers
capital costs
inflation
capital availability
social costs/legal
funds flows
savings rate
interest rates
minimum 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
Operations
costs/productivity
quality
delivery cycle
delivery reliability
flexibility for prod change
flexibility for vol. change
New product introduction
inventory mgt.
Prod. Planning Control
Equip. & process tech
size, location of facilities
logistics
customer service
information 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
Management
Organizational
Leadership,
Strategy for
Turnaround,
Corporate
Governance,
Business Result
Continual
Improvement
Continual
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

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