Search for publications, researchers, or questions

See all
2 Citations

See all
10 References

See all
1 Figure

Article (PDF Available)inInternational Journal of Logistics Economics and Globalisation

1(2):160-175February 2008with699 Reads
DOI: 10.1504/IJLEG.2008.020529 Source: RePEc

2nd Petri Helo

31.59 University of Vaasa

Abstract
This article discusses challenges to the supply chain in today's steel industry. In the steel
industry, the supply chain, apart from actual production, is an extremely complex task,
requiring the consideration of numerous factors and objectives. Sharply fluctuating
demand, raw materials supply and uncertain prices produce a negative impact on steel
production. At the same time, the supply chain of the steel industry has to consider
multiple objectives and multiple stages of steel production and supply chain
simultaneously in a global market. It requires an optimised supply chain alternative by
extending visibility of demand based on economy and market, raw material supply based
on transportation, and suppliers and their price. This article is concerned with certain
factors of the supply chain in the steel industry; it discusses the challenges to the supply
chain in the steel industry, and proposes certain ways to achieve an optimised supply
chain and win-win path in visibility across all participants, from steel producers to
customer demand. Finally, some results are summarised.

Discover the world's research

100 million publications
2.5 million new publications each month
10 million members

Join for free

Figures

Full-text (PDF)
Available from: Petri Helo, Feb 03, 2016

Discover by subject
Joinarea
for free

Share

Challenges to the supply chain in the

steel industry

1st Guangyu Xiong

or

Log in

Download Full-text PDF

Challenges to the supply chain in the steel industry

Guangyu Xiong & Petri Helo
Logistics Research Group, University of Vaasa, Logistics, PO Box 700, FIN-65200 Vaasa, FINLAND

Abstract:
In this paper, we discuss challenges to the supply chain in todays steel industry. In the steel industry, the
supply chain, apart from actual production, is an extremely complex task requiring the consideration of
numerous factors and objectives. The difficulties are accentuated by a heavy production process with sharp
fluctuated demand, raw materials supply and also uncertain prices, so that factors of such supply chains
may negatively impact steel production. In contrast to other industry, the supply chain of the steel industry
considers multiple objectives and multiple stages of steel production and supply chain simultaneously in a
global market. It generates optimized supply chain alternatives by extending visibility of demand based on
economy and market, raw material supply based on transportation, and suppliers and their price. These
alternatives reveal tradeoffs with respect to competing objectives, such as maximizing profitability,
minimizing delivery time, minimizing the cost of raw materials, and minimizing manufacturing disruptions
by optimization of the steel supply chain. This paper is concerned different factors of the supply chain in
the steel industry; it discusses the challenges to the supply chain in the steel industry, and proposes an
optimized supply chain and win-win path in visibility across all participants, from steel producers to
customer demand. Finally, some results are summarized.
Keywords: Supply chain, Steel industry, Visibility, Relocation and consolidation, Optimization

Submitted to: International Journal of Logistics Economics and Globalisation (IJLEG).

Page 1

Challenges to the supply chains in the steel industry

Abstract:
In this paper, we discuss challenges to the supply chain in todays steel industry. In the steel industry, the
supply chain, apart from actual production, is an extremely complex task requiring the consideration of
numerous factors and objectives. The difficulties are accentuated by a heavy production process with sharp
fluctuated demand, raw materials supply and also uncertain prices, so that factors of such supply chains
may negatively impact steel production. In contrast to other industry, the supply chain of the steel industry
considers multiple objectives and multiple stages of steel production and supply chain simultaneously in a
global market. It generates optimized supply chain alternatives by extending visibility of demand based on
economy and market, raw material supply based on transportation, and suppliers and their price. These
alternatives reveal tradeoffs with respect to competing objectives, such as maximizing profitability,
minimizing delivery time, minimizing the cost of raw materials, and minimizing manufacturing disruptions
by optimization of the steel supply chain. This paper is concerned different factors of the supply chain in
the steel industry; it discusses the challenges to the supply chain in the steel industry, and proposes an
optimized supply chain and win-win path in visibility across all participants, from steel producers to
customer demand. Finally, some results are summarized.
Keywords: Supply chain, Steel industry, Visibility, Relocation and consolidation, Optimization
1. Introduction
Along with the growth of the world economy, steel consumption has been growing dramatically in recent
years. According to the projections by IISI (The International Iron and Steel Institute, Brussels, 03 October
2005), the prospects are still continued real growth in the demand for steel worldwide, with the demand for
steel forecast to grow to between 1,040 and 1,053 million tonnes in 2006 from a total of 972 million tonnes
in 2004. This is a growth of 4-5% over the two year period. The strongest growth continues to come from
China, which should see a 10% increase in steel demand in 2005 and a further 7-10% growth in 2006
(http://www.worldsteel.org/news/107).
From the rapid growth of global demand for steel, turning to the supply chain in the world steel industry,
steel producers are faced with pressure on raw materials, and their prices as well. According to the
characteristics specific to the steel industry, the key challenge today is not merely to improve the
techniques of production, but the industry is also facing uncertainty in its supply chain, which might lead to
uncertainty in raw materials, marketing demand and the price of the product. This paper investigates the
key factors within the supply chain that supports steel production. There is an analogy to the challenges
when dealing with new problems. For each participant within the supply chain of the steel industry, major
strategic changes have been made in visibility for each participant from the demand of end customers to
upstream suppliers across the entire chain, structural developments including relocation and consolidation,
and raw materials availability and prices. As a historical industry facing new challenges, there have been
two major obstacles preventing the steel industry from achieving its developing objectives. The first
obstacle is higher input to its steel production caused by the higher prices of raw materials. This brings the
steel company lower profits. The second obstacle is the lack of visibility across the entire steel supply chain.
Despite having a well recognized ERP package, most steel companies have been focusing on new solutions
for their supply chain.
The paper is organized as follows: Section 2 analyzes the challenge of raw materials in the supply chain of
the steel industry and describes the development of prices both in raw materials and steel product caused by
sharp fluctuation in demand and in raw material supply. Section 3 points out the challenge of putting
structural relocation and consolidation strategy to the supply chain in the steel industry. Section 4 discusses
the application of supply chain software to improve steel production and expand the visibility across the
supply chain to each participant in the steel industry. Section 5 proposes the use of advanced logistic

Page 2

technology for the future development of the supply chain in the steel industry, further proposes an
optimized supply chain in the steel industry and a win-win path for the participants across the chain. The
last section summarizes and concludes the paper.
2. The challenge of sharp fluctuation of the demand and raw material supply
We firstly investigate how sharp the fluctuation of demand has been in the steel supply chain during recent
years.
The steel industry is traditionally a very boom-and-bust cyclical industry. In the early 21st century, the
world steel market is in a deep slump. The international prices of steel have crashed below the production
costs of even above-average mills in terms of efficiency and much of the steel industry was suffering. In
2000 in North America, the American Iron and Steel Institute (AISI) reported that the steel industry saw 41
bankruptcies and lost 55,000 employees.
However, later on, steel demand has continued upward in line with rapid economic growth. With the strong
growth of steel demand, steel companies such as United States Steel (Pittsburgh, PA, U.S.) and Nucor
Corporation (Mt. Pleasant, SC, U.S.) have been reporting strong financial results. Dofasco Inc. An example
illustrates the price development for HR and CR coil in Germany in Figure 1, which shows clearly the trend
towards higher prices in recent years. According to the latest statistics issued by the International Iron and
Steel Institute (IISI), from January to May 2005, the accumulative output of crude steel of 61 countries and
regions in the world was 456.7 million tons, increasing by 8.1 % than the same period last year. Higher
demand had much to do with reasonably strong world economies, with an outsized role played by China.

* The German prices correspond to the development of prices in other European countries.
Source: Steelhome.cn, January 2005
Figure 1. Price development for HR and CR coil in Germany

Page 3

Source: Steelonthenet, James F. King, Steel Analysis; AIECE, October 2004

Figure 2. Major steel input costs 2002 to 2005

Along with the surging demand for steel product, boom demand is putting pressure on the availability and
prices of raw materials in the supply chain in the world steel industry due to steel industry being sensitive
to the impact of raw materials on its total manufacturing costs. According to Consline AG, Research &
Consulting (Figure 2) , coke prices are forecast to decrease about 20 percent in 2005, scrap prices should be
stable; prices for iron ore, coking and thermal coal are to increase in 2005 again. In general, the AIECE
(Association of European Cojuncture Institutes) experts are lowering commodity prices for 2005 for most
products, as demand will slide and supply will increase.
In the steel industry, raw materials, including ore and coke, make up the majority of the manufacturing cost
of steel and its related product. It is obvious that without adequate supplies of materials the global steel
industry will absolutely be unable to meet the expected growth in world steel consumption. Many steel
companies have been considering how to make their raw material supply meet the sharp fluctuations in
steel demand. In 2005, most companies raised their prices and expect further increases, e.g. Corus has
increase steel prices, especially for the automotive industry, by at least 20 percent, and Baosteel (China) has
raised steel prices by 11 percent in the first quarter of 2005, then following the move of Baosteel, almost all
Chinese steel makers raised their prices for hot rolled products (Steelhome, 29, 12.2004). Looking further
ahead to 2007 (Table 1), if the IISIs forecast of increased steel demand is to be met, then crude steel
production would need to rise to 1,130 million tonnes. To meet such a level of production, steelmakers
would require by 2007 an extra 200 million tonnes of iron ore, 60 million tonnes of coke and 75 million
tonnes of steel scrap (http://www.issb.co.uk/pdf/200402_china.pdf). This is quite a tall order, and the
reality is that materials could start to run short, which, coupled with shipping constraints, is likely to put a
brake on future steel growth. It seems only yesterday that the main concern facing steelmakers was low
prices caused by a glut of steel on world markets and fuelled by inefficient capacity and local subsidies.
Steel supply was running ahead of demand. What a difference a year makes. It now seems that serious

Page 4

shortages of basic steelmaking materials are likely to constrain steel production to a point where steel
supply may be unable to meet demand. (Steve Mackrell, 2004).
Table 1. Estimated global requirement for steelmaking materials

Million tonnes
Steel Demand *
Crude Steel Production
Materials
Iron Ore
Coke
Scrap
450

2001

2002

2003

2004

2007

780
850

831
902

884
970

936
1,016

1,041
1,130

1,050
300
375

1,120
315
400

1,200 1,260
340
355
425

1,400
400
500

* IISI forecasts
NB. estimated materials consumed based on current furnace mix.
Iron and Steel Statistics Bureau

3. The challenge of structural relocation and consolidation

The demand for and consumption of steel have shown a steady increase in spite of cuts in international
capacity. The number of steel products is high and still increasing. The international steel trade and its
relatively heavy supply chain are playing a key role in the world steel industry. Caused by a very strong
demand for raw materials, high prices relative to demand have been a feature of the past few years,
consequently, both for raw materials and steel products. So far, steel companies have been able to
successfully increase selling prices for most products and more than offset the increase in input prices.
However, apart from increasing steel prices to raise raw material input, what strategies might the steel
industry adopt to deal with the sharply fluctuating demand in the supply chain?
Relocation and consolidation is a necessary strategy for steel companies, which can optimize the supply
chain to improve efficiency and competitiveness, and achieve greater flexibility in the steel supply chain.
Steel companies might adopt it for their supply chain strategy. However, the world steel industry has been
in any case undergoing a structural relocation and consolidation over the last decade and the changed map
has never been clearer and the potential is still huge nowadays. The challenge is to optimize the structural
relocation and consolidation between steelmakers and raw materials suppliers so that each side can get
maximum profits, i.e. a win-win strategy.
In terms of structural relocation and consolidation, aiming at reducing input costs for steel making, the steel
producer might shift to the global steel industry. This means that Western producers invest cash earned
from higher steel prices in lower cost steel producing regions, in order to counter the threat from low-cost
producers. Doing so, one of the challenges for a steel company is the level of integration, and therefore it is
very important that the manufacturing facility is close to the raw material base; and another challenge is
investing in close proximity to customers and consumer markets. In terms of this China is the biggest
growing market in recent years and will continue to be for many years ahead according to the estimation by
IIIS. There are some companies which have already been taking advantage of the situation. A good
example is the European steel giant Arcelor, which has been investing in Brazil and China since 2004. In
this investment case, Brazils CVRD (Companhia Vale do Rio Doce SA) is the worlds biggest iron ore

Page 5

producer and exporter, Arcelor is the worlds biggest steelmaker, and Baosteel is the biggest steelmaker in
China (http://english.people.com.cn/200402/03/eng20040203_133798.shtml). The advantages are the
companys close proximity to its major market (China) and raw materials suppliers (Brazil), as well as
cheaper labor and electricity costs.
In the main world steel producing regions, relocation and consolidation is already progressing. In terms of
statistics, the top five producers in Western Europe account for more than 60% of total steel production; in
North America 50% and in Japan, about 80% of steel production. Nevertheless the supply chain in the steel
industry is still fragmented and even with the proposed creation of the Mittal Steel Company the top 5
producers in the world account for fewer than 20% of global steel production. By contrast, the top 5 iron
ore producers account for about 90% of the global iron ore market; in the automotive sector, the 5 biggest
players account for about 65% of market share. Obviously, the big players plan to grow bigger by
corporate action over the next 5-10 years (Philippe Varin, 2004).
There are some regions which still have big potential to make structural relocation and consolidation. For
example, as one of the main steel markets, China has had a low industrial concentration ratio because of
historical reasons; it has led to a series of problems, such as repeat construction, and strong price
fluctuations of products and raw materials in past years. Therefore, relocation and consolidation has been
proceeding already, and it will go to further over the next years. As a result, this strategy will increase
Chinas steel industrial concentration ratio, lower steel product costs, improve R&D, and enhance the
competitiveness of Chinas steel industry quickly.
With many benefits resulting from relocation and consolidation in the steel supply chain, another challenge
of is that consolidation in itself will not ensure the future success of the industry or even the success of the
companies that most actively pursue it, Lichtenstein said at a Steel Success Strategies conference.
(Restructuring steel, Iron Age New Steel, August, 2001) Most mergers fail to create value for the
acquiring companys shareholders. Avoiding this failure, one solution is putting the ultimate restructuring
into another business. In terms of the current shortage of energy, steel companies might consider converting
their mills into power plants, says Donald Barnett, president, Economic Associates Inc. Steel mills have
infrastructure and land in place to support power plants. Some ironmaking technologies create a lot of byproduct energy and use the same energy that a power plant does.
In summary, there are several benefits that steel companies can share from relocation and consolidation in
the supply chain:
1.
2.
3.
4.
5.
6.
7.

Optimizing investment, including raw materials and WIP

Maximizing the value of supplier relationships
Minimizing input cost for steelmaking
Determining the effect of shutting down or opening new manufacturing facilities
Improving the price competitiveness
Utilizing key assets optimally
Restructuring to other new businesses

Obviously, the value-added supply chain benefits from relocation and consolidation when the steelmaker
puts them into practice as soon as an appropriate opportunity appears.
4. Challenge of application of supply chain software to improve steel production
Faced with high pressure on the supply chain in the steel industry, advanced supply chain software or IT
(Information Technology) solutions based on e-commerce might be an alternative for the steel industry,
which would empower steel companies to achieve a better synchronization and extend visibility of the
value chain through a whole range of production management improvements. One of the main motivations
for the application of IT solutions in the steel industry is the objective to combine maximizing profits of the
steel company and real-time steel demand. IT solutions based on e-commerce would extend visibility
across the entire supply chain in the steel industry.

Page 6

As an earlier good case of supply chain software, e.g. Tata Steel has been striving to optimize its operation
amidst scarce resources and capacity imbalance since 1985. Aimed at capacities and resources varying
from period to period, Tata discontinued using a manual planning method in 1985 in favor of model-based
planning for guiding marketing strategies in Tatas product mix area, which works as a planning model to
provide information on the optimal product mix. It can also determine the consequences of various options
on the overall profitability of the steel division. The model is now used throughout the company, providing
strategic insights into new product development, capacity expansions, production planning, and resource
distribution. This model has brought about a shift from maximizing tonnage to maximizing profit in the
supply chain management strategy in Tata.
Along with a number of new supply chain software nowadays, more and more steel companies have been
utilizing or starting to consider new supply chain software in their steel supply chain management. IT
solutions based on e-commerce have brought about the fact that it is becoming a technical reality to extend
visibility across the supply chain for the steel industry. Following stronger competition and pressure on the
steel industry, if the ongoing relocation and consolidation pattern make extended visibility vital to longterm survival, then a web-based IT solution enables the extension of visibility across the supply chain for
the steel industry. Web-based IT solutions allow extended visibility across complex steel supply chains and
distribution networks, and give steelmakers, raw materials suppliers, distributors, end-customers, even
suppliers to suppliers, access to real-time information using just an Internet connection and browser.
Wilson (2003) summarizes the advantages of extended supply chain visibility improving optimization as
follows:
1.
2.
3.
4.
5.
6.
7.

Streamlined automated transaction processing and order tracking, for buying and fulfillment.
Simplified planning and management with supply chain participants, from raw materials receipt
through to customer delivery.
Collaborative, proactive monitoring and measuring of key performance objectives.
Real-time electronic communication with supply chain (and other business) participants.
Year-round marketing via online promotion and sales.
Lower personnel costs thanks to automated business transactions.
Real-time monitoring of customer buying habits.

Among the newest IT solutions for the supply chain, there are several popular products, which have been
used by the steel industry in practice. i2 Technologies (USA) is one of the providers of demand-driven
supply chain solutions designed to enable business agility; it provides a series of products to steel
companies around the world, which are successfully leveraging the company's solutions. i2 gained a
number of important customers from the steel industry, including the USAs Wheeling-Pittsburgh Steel
Corporation, South Africas AngloGold and Chinas Baosteel. Among these steel companies, WheelingPittsburgh implemented solutions from i2 Technologies to help enhance its customer service and business
processes. Prior to implementing i2 solutions, Wheeling-Pittsburgh was leveraging a homegrown set of
manual tools. Today the company uses i2s Factory Planner and Scheduler to improve its planning,
scheduling and material assignment processes. The steelmaker reports that as a result of the implementation
of i2 solutions, it has realized improvements on-time orders and standardized processes across its plants.
The company can now generate reports each day that show the progress each facility is making against
plans generated by the i2 Factory Planner. This enables facility employees to focus on completing
operations
necessary
for
getting
products
to
customers
on
time
(http://www.manufacturingtalk.com/news/iyb/iyb115.html). It is clear that the new system dramatically
enhances business efficiency, productivity and management. Another high selling product is SAP; a good
case of which is Hylsa, one of Mexicos largest steel makers. In order to respond to competitive challenges,
Hylsa is building on its SAP R/3 foundation by implementing advanced supply chain processes. These
processes are supported by the full range of SAP Advanced Planner and Optimizer (SAP APO) functions in
mySAPTM Supply Chain Management (mySAP SCM). Hylsa has used SAP APO in its Bar and Rod
Division in May 2000 and achieved significant inventory cost savings, reductions in planning time, and
customer service improvements, which have enhanced the companys market position. Another example is

Page 7

Germanys Mittal Steel, which also chose SAP R/3 with add-on functionality for the mill products
industry (now available in the mySAP ERP solution) and mySAP Supply Chain Management, with its
key component, SAP Advanced Planning & Optimization (SAP APO). SAP APO provides the best in-class
planning and optimization functionality. Its powerful, out-of-the-box capabilities enable decision makers to
check the availability of materials and capacity, and create reliable production schedules across multiple
sites, making for greater visibility, efficiency, and productivity.
Apart from the existing supply chain software, steelmakers can also select any adequate supply chain IT
solution product. Whichever software, the aim of the steelmaker is to gain extended supply chain visibility
improving optimization for their production as in Wilsons previous summary (2003). The steel company
can also design its own supply chain software, responding to the requirements of the supply chain. One
such case is Oracle ERP (Enterprise Resource Planning), which has enabled Chinas Jinan Steel to merge
its production, information and cash flows into a single system. Realizing that an important key to
competitiveness is a solid IT platform, Jinan Steel decided to create a commercially proven e-business
system that would integrate strategy and execution, and boost profits by optimizing internal and external
resources. Jinan began the upgrade in 2003, calling on Han Consulting to help design and implement a new
enterprise resource planning (ERP) system based on Oracle E-Business Suite solutions. Already the new
system has been yielding measurable operational improvements, from better production planning and lower
costs to faster strategic decision making.
Among a number of new IT solutions in the steel supply chain, the TOC (Theory of Constraints) concept is
a total different solution from other IT solutions and traditional supply chain management. There are five
steps to TOC presented by Goldratt (Goldratt, E.M. What is this thing called the Theory of Constraints?
North River Press, Croton-on-Hudson, NY, 1990): identify the constraint, exploit it, subordinate everything
else to it, elevate the constraint, and avoid inertia when the constraint shifts. In exploiting the constraint, the
drum-buffer-rope scheduling technique and buffer management are used. In finding ways to elevate the
constraint, the techniques of effect-cause-effect and the cloud diagram often are useful. A good example of
TOC is LeTourneau, Inc. (USA). LeTourneaus vertically integrated supply chain begins with its Steel
Group, which was chosen to implement the TOC concept first due to the fact that it represents the
beginning of the supply chain, and alternative steel sources simply do not exist in one of the most dynamic
steel markets in the last 30 years. In just three months, the Steel Group reported an increase of 14% more
volume with no additional staffing and 5% less overtime. Average lead times were reduced by 50%.
Reliability improvements went from 67% on time to 87% and are steadily improving. At the time of the
press release below they had just completed four straight weeks at 90%. The most significant
improvement for the Steel Group that TOC has given us is total visibility of the facility from one end to the
other end. And its visibility is not just limited to a few select individuals, but every employee in the Steel
Group. We now manage from a proactive style rather than a reactive style due to the increased visibility.
(Dave Blazek, Vice President and General Manager of the Steel Group, 2004). There is no doubt that TOC
provides a new supply chain solution for the steel industry.
Even supply chain software can help steel companies achieve extended supply chain visibility and improve
optimization. The supply chain software makes tremendous demands of the steel company's network
infrastructure. In order to ensure the success of its applications, it is important that the steel company is
involved at an early enough stage of its implementation. Implementation should be done in segments so
that the company can plan the deployment of a scalable and intelligent supply chain infrastructure.
Therefore, during implementation of IT solutions or supply chain software, there are several steps that a
steel company must follow:
1.

Before pursuing supply chain software, the steel companys own system needs to be functioning
properly. The needed data should be accurate, and the objectives of a new system need to be
clearly defined. It is better to be reliable, scalable and intelligent. For example, the project of
Mittal Steel Germany started up in June 2001. From the outset, the implementation participant
IDS Scheer provided the supply chain management expertise and industry-specific skills required
to tailor SAP APO to the companys requirements. Working closely with specialists at Mittal Steel
Germany, the consultants modeled the steelmakers production processes in SAP APO and
ensured they could be executed with SAP R/3.

Page 8

2.

During the implementation stage, companies should move in stages, beginning with those critical
units that will have the greatest initial impact on the bottom line. Using the same example, during
implementation in Mittal Steel Germany, Mittal Steel Hochfeld went live with SAP APO and SAP
R/3 in November 2002. Experience gained during this stage of the project benefited the rollout of
software to the Ruhrort steelworks in April 2003 and to the Hamburg plant exactly one year later.
Implementing in stages also made the project much more manageable than implementing the
software across the entire organization.

3.

The company should provide training and help employees understand the new, overall approach
after the implementation of the new system, since the supply chain software implementation
requires a completely new approach to planning and scheduling. Employees have to learn the new
approach and trust the software, which is the related softwares recommendation and is held
accountable.

5. Future development of the supply chain model in the steel industry -Win-Win
Due to the fact that there are many long and complex supply chains in the world steel industry, including
raw materials and transportation, and sharp fluctuations of demand, as we have previously pointed out, so
relationships, engineering, and information are the key to improving the supply chain, and the key to new
strategy for the supply chain in the world steel industry will be the success of cooperation between steel
producers, distributors and end-users to take costs out of the supply chain so that a win-win situation can
be achieved for each side.
From the previous discussion, the following issues revealed a way forward to achieving a win-win path for
each participant across the supply chain in the steel industry:
1.
2.
3.
4.

Keep up with global integration of the supply chain in world steel industry by proper strategies,
e.g. relocation and consolidation.
Pursue extending the supply chain visibility and shorten the bullwhip effect by advanced supply
chain models and implementation of IT solutions, e.g. i2, SAP R/3, TOC and Oracle ERP, etc.
Employ optimization logistics functions such as transportation and distribution by optimized
cooperative relationships and using Vendor Managed Inventory (VMI) across the supply chain,
and relocation and consolidation.
Apply supply chain software to existing and potential participants in steel production planning,
transportation, customer service, and participants relationship management by electronic data
interchange (EDI), and Enterprise Resource Planning (ERP) applications across entire chains.

Figure 3 shows the future supply chain model in the steel industry. Firstly, these issues can result in a
global evolutionary change integrating the steel industry with the real-time supply chain management of
tomorrow. Next, IT solutions based on e-commerce will enable the development of a modern supply chain
model in the world steel industry, which will ensure the information visibility of each participant so as to
shorten the bullwhip effect across the supply chain such as in market demand, raw materials and their
prices and inventory levels, and then determine how to make an integrated supply chain model, whether a
raw materials order policy, schedule of upstream and downstream steel production, or transportation, and
distribution retail systems. When handled properly, advanced strategies and models will improve and effect
optimization of the entire supply chain, while at the same time improving the supply chain in the steel
company. Moreover, due to IT technology based on e-commerce, which has brought about an increase in
the speed at which information can be communicated along the supply chain, the participants across the
supply chain in the steel industry can tighten up communication with each other and make information
available more quickly to the participants who need to make decisions and keep good communication with
immediate participants or customers and the end-users. Then the steel company will be enabled to optimize
logistical functions, e.g. using Vendor Managed Inventory (VMI) across the supply chain, and relocation

Page 9

and consolidation as well. Finally, taking IT solutions based on e-commerce into their entire supply chains,
steel companies will effect an integration of the supply chain from raw materials producers through to the
final end-user, and develop a highly competitive supply chain model for the market. Substantial reductions
in cost can be achieved in the entire chain, e.g. Oracle ERP (Enterprise Resource Planning) in Chinas
Jinan Steel; SAP APO and SAP R/3 in Mittal Steel Hochfeld in Germany, as presented in the previous
section.
To get to a win-win situation, there are several trends that might be involved in the future development of
the supply chain in the steel industry (Figure 4):
1.

Pull or push/pull combined system instead of push system

Along with development of e-commerce technology, which provides companies with the needed
information with security and integrity, within the supply chain in the steel industry, steel companies
are able to take internal systems and make that information more directly accessible to participants and
end customers and provide them with access to needed information. They can achieve this by a pull
system instead of a traditional push system, which was popular before and has been used in most steel
companies so far. It is also possible for a steel company to use a push/pull combined system in the
supply chain if with a pull system it is not easy to have each participant within the chain. With a supply
chain cooperative relationship, the pull system or push/pull combined system can enable the steel
industry to send its customers an invoice and contact other participants, and provide them with the
capability of pulling the information whenever they are ready to receive it in real time.
2.

Giant participant in a supply chain instead of a relatively small steel industry participant

Reasonable global integration by relocation and consolidation must result in the elimination of smaller
and less competitive players and keeping big and viable players within the supply chain in the steel
industry. It will result in the big players in the steel industry growing bigger by corporate action over
the next 5-10 years, as Philippe Varin (2004) points out.
3.

Streamlining the distribution network instead of weaker efficiency of distribution centers

With functions of the storage and transportation of supplies, the distribution network is playing an
important role in the supply chain of the steel industry. A single, central warehouse or distribution
center cannot effectively satisfy the modern steel industry in terms of storage and delivery. IT solutions
based on e-commerce would enable the steel industry to use a tiered distribution network, with several
storage and distribution levels.
Today, as transportation infrastructures improve in the world, steel companies are able to focus more
attention on cost-effectiveness, and the trend is for steel products distribution networks to have the
minimum feasible number of levels. Streamlining the distribution network can cut costs in the
distribution stage and, with fewer levels; steel products can reach downstream participants and end
customers faster. To determine the appropriate inventory levels, logistics managers should have
consideration on how the locations fit into a supply-chain network profiting from the downstream
participants, the desired frequency and speed of delivery of products, the cost of their transport, storage,
and handling, and operational constraints. To do so, a streamlining distribution network will
demonstrate its value to the entire supply chain, including supply quality and customer service,
bullwhip effect shortening and cost reduction.
4.

High value-added service strategies involved in the steel value chains

While expanding the steel production and markets, the future supply chain in the steel industry will
aim to try to add value that goes beyond the supply chain and line access. Many steel companies have

Page 10

been focusing on the steel business value chain and looking for expansion in different participants of
the value chain from upstream suppliers to downstream products, including raw materials,
transportation, logistic, production, trading and distribution., and it seems there is still big potential in
high value-added. With more and more steel companies benefiting significantly by shifting their
businesses from offline to online channels in recent years, the steel industry will continue to provide
high value-added services, clearly defined through their involvement in the steel value chains. EDI
capability and e-commerce will determine where the company adds value to the relationship and
reduce or eliminate structural inefficiencies and complex value chains and enhance the speed,
efficiency, and cheapness of steel commerce.

6. Conclusion
Optimizing the supply chain with extended visibility is one of the most important technologies in the world
steel industry, and is considered as the highest level of integration in steel production, logistics, IT
technology, relocation and consolidation of the world steel industry. Clearly, an optimized supply chain in
the steel industry is tightly connected with the role defined by the steel production management, decisionmaking, scheduling, planning, steel markets, etc in the steel supply chain. In this paper, the challenges to
the supply chain in the steel industry are analyzed, and structural relocation and consolidation strategy are
pointed out for integration into the supply chain in the steel industry. The application of supply chain
software to improve steel production and expand visibility across the supply chain for each participant in
the steel industry is discussed. As a result, we propose the future development scenario of the supply chain
in the steel industry, and develop an optimized supply chain and a win-win path for the participants across
the chain. With advantageous supply chain technologies and strategies, and a number of supply chain
softwares and IT solutions based on e-commerce technology, an optimized supply chain will provide a winwin situation for each participant across the steel supply chain, and steel companies will obtain wide
benefits and profits from their optimized, value-added supply chain.
References:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.

Adam Ritt., 2001. The bottom line: Inventory. Iron Age New Steel. New York:
Mar .Vol.17, Iss. 3; pg. 16.
Berry, B., 1999. Strengthening the supply chain. Iron Age New Steel. New York:
Oct .Vol.15, Iss. 11; pg. 2.
Firoz, A.- S., 2001. Steels tale of woes. Financial Daily, the Hindu group of publications. August.
Gopal P. Sinha, Niloy Mitter, S.B. Singh, Goutam Dutta, P.N. Roy, B.S., Chandrasekaran and A.
Roy Choudh., 1995. Strategic and Operational Management with Optimization at Tata Steel.
Interfaces 25, pp. 6-19.
IISI Short Range Outlook Good Prospects for Steel. Brussels, 03 October 2005.
(http://www.worldsteel.org/news/107)
Jinan Steel Forges Market Leadership with Integrated ERP Solution. 2004. Oracle Corporation.
LeTourneau, Inc. 2005. Breaks New Ground with the Theory of Constraints. Constraints
Management Group, LLC
Mackrell, S., China - Raw materials and shortages. ISSB Limited. 2004.
MITTAL STEEL GERMANY. SAP Customer Success Story, Mill Products. 2005
mySAP SCM AT HYLSA. SAP Case Study, mySAP Supply Chain Management. SAP AG.
2002
Scott K. Wilson. Extend optimization, extending visibility, too. Metal Producing & Processing;
January 01, 2003
Simpson, D., 2005. Metals, the metals advantage. APPLIANCE Magazine. August.
Sinha, S. and Wagner, R., 2005. Optimizing production and business processes in the iron and
steel industry. Technical Report. Siemens Industrial Solutions and Services Group (I&S). 13, June,

Page 11

14. Steel prices retain high levels in 2005. Analysis and Forecast. Consline AG. Research and
Consulting.
15. Steelmaker improves planning and scheduling. 2005. i2 Technologies.
16. Goldratt, 1990. E.M. What is this thing called the Theory of Constraints?, North River Press,
Croton-on-Hudson, NY.
17. Berry, B., 2001. Restructuring steel. Iron Age New Steel. Aug. 17, 8, pg. 2.

Page 12

Administration
and
decision level

Steel
production

Optimization & integration by

supply chain strategies, e.g.
relocation and consolidation,
restructuring to new businesses, etc.

IT Solution based on e-commerce technology

Steel mill
Supervisory
system

Management
level

Transportation
system

Steel production planning

and scheduling

Demand
forecast

Supply chain
software

Materials
purchase

Inventory
system
NETWORK

Database
level

Raw
material
suppliers

Information
technology
level

Distribution
system

Retailer
system

End customers
(E.g. auto-makers,
tubing-makers)

Information for each stage in steel supply chain

Figure 3. Future supply chain model in steel industry

Potential
participants of
up/downstream

Page 13

Pull or push/pull
combined system in
steel supply chain
Optimization
logistics
functions with
VMI, etc.

Giant participant
of supply chain

Integration by
Relocation,
consolidation, and
restructuring.

High valueadded service

strategies

Streamlining
distribution
network

Extending supply
chain visibility with
i2, SAP R/3, TOC and
Oracle ERP, etc.

Supply chain
software with EDI,
ERP, etc.

E-commerce Technology

Supply chain in the world steel industry

Figure 4. Win-win path for supply chain in steel industry

Page 14

Citations

References

10

Reverse logistics strategies as a means to improve profitability

"Furthermore, none of the literature has viewed OM in the steel industry
from solely a RLs aspect. As Xiong and Helo (2008) discuss, " in the steel
industry, the supply chain is an extremely complex task " . Therefore, this
study further breaks down OM construct into two constructs of production
commitment (OM1-OM4) and production efficiency (OM5-OM8). "

[Show abstract]

Full-text Article Jan 2011 International Journal of Logistics Economics and Globalisation
Kelly Weeks
Read full-text

Using System Dynamics to Model Rod Bar Supply Chain in Iranian Market
[Show abstract]

No preview Article Jan 2010

Mahmodi Jafar

Mohamad Hosein Minaee

Read

Similar publications
Understanding Organized Retail Supply Chain Environment:
Full-text Article Jul 2016
Rajwinder Singh

H. S. Sandhu

B. A. Metri

R. S. Ghera

Read full-text

Environmental Sustainability in the Fashion Supply Chain in India

No preview Article Jul 2016 International Journal of Social Ecology and Sustainable Development
Manoj Kumar
Read

A Social-Exchange Perspective on Supply Chain Innovation

No preview Article Jul 2016 International Journal of Information Systems in the Service Sector
Santanu Mandal
Read

Data provided are for informational purposes only. Although carefully collected, accuracy cannot be guaranteed. The impact factor represents a rough estimation of the journal's impact
factor and does not reflect the actual current impact factor. Publisher conditions are provided by RoMEO. Differing provisions from the publisher's actual policy or licence agreement
may be applicable.
Show self-archiving restrictions

2008-2016 researchgate.net. All rights reserved.

About usContact usCareersDevelopersNewsHelp CenterPrivacyTerms | AdvertisingRecruiting