The
cost savings exceeded more than $150,000,000 on an annual basis.
Description of Problem
A large steel manufacturing facility was operating its operations with higher than expected internal costs. Losses across the organization in terms of yield were running at nearly 25%. Coupled with this was the fact that yield loss also created large losses of capacity and therefore asset inefficiencies. The losses when rolled into the pricing structure dramatically reduced margins and in some cases incurred losses and reduced competitive posture.
Approach
The firm decided to utilize Luftig & Warren International from two fronts. First, the issue of integrated yield needed to be a strategic objective. Thus, as part of the strategic planning and policy deployment process, yield objectives were calculated and translated into targets for each department across the firm. The targets were determined in a manner that would collectively impact the corporate strategic goal. This in turn would provide for successfully achieving the goals associated with operating profit as a function of operating assets.
Secondly, the methodology employed was designed to achieve optimization of multiple product paths and product types or families. This methodology is referred to as customer product/path rationalization. The outcome of the technique drives implications on how different products can be processed across different paths so as to achieve the overall best profile of the assets utilized. This in turn has strong implications for efficiency and profitability.
Results
The firm’s objective was to increase integrated yield by 5% within two years. This was exceeded. The yield increased by more than 8–10%. The cost savings exceeded more than $150,000,000 on an annual basis. The firm is currently the lowest cost steel producer in North America.
Submitted by LWI
Consultant
Bob Pahlkotter