Case Study–Can Information Systems Save U.S. Steel؟
In capacity U.S. Steel (USS) is the 10th largest integrated steel manufacturer in the world and the largest in the United States. Headquartered in Pittsburgh, Pennsylvania, it can produce about 14 million tons annually. The world’s largest steel maker, Europe’s Arcelor, produces more than 40 million tons annually, while South Korea’s POSCO, the second largest, produces about 30 million tons. In fiscal 2001 USS’s total revenue was $6.38 billion, with a net loss of $218 million. Its information technology budget was about 1.1 percent or $70 million, a very low number for that industry. Its third largest customer is the Ford Motor Company, an automobile manufacturer that requires an immense amount of steel.
In 1996, Ford viewed USS as the worst in performance amongst its leading suppliers, and it threatened to turn elsewhere for its steel supplies despite their 70-year relationship. “We were in danger of losing Ford’s business,” explained Gene Trudell, USS’s Cheif Information Officer. “It was that serious.” Ford’s biggest complaint, among many, was that it was not notified when its steel shipments would arrive, leaving Ford unable to operate efficiently. To USS, Ford’s threat was a wakeup call causing it to examine its whole production cycle. USS identified a number of challenges beyond its notification system. It knew it needed to lower production costs, including its cost per ton of steel and the number of hours per person required to produce a ton, as well as the costly size of its steel inventory. It had to return to profitability, and to accomplish that it needed to increase its share of the high-end steel market. Internally it needed to centralize management of the various USS businesses and factories and their information technology infrastructures, which in 1996 were locally controlled.
USS’s major problems were reflected in its order-taking process. Orders were often manual, very imprecise, and filled with errors. Moreover, once an order arrived, USS was unable to track it during processing. Processing began when one of its four plants transformed the raw materials into steel coils, which were then sent to USS’s processors to be turned into finished products. USS has over 120 processors (35 to 40 of which work on Ford products). A single piece of steel might be processed by up to five different processors as they treat, shape, and finish the products. The reason for the complexities is that these orders require blending and shaping of the materials, including manipulating such characteristics as heat and tensile strength. USS was unable to follow each order as it was processed and delivered.
One problem was that each processor had its own tracking and order systems, and each assigned its own inventory codes, making tracking impossible for USS. In addition, each processor communicated its processing data to USS over a dialup system. When the data arrived, they then had to be manually translated into a format that could be used by USS’s own system before the information could be sent to the customer. This translation took about 90 minutes per message. It was a very expensive and inefficient system, and it left USS’s customers without enough information for their own production planning. USS did send advanced shipping notices (ASNs) to customers notifying them of the arrival time, but the ASNs often arrived after the steel, too late to benefit the customers. Late shipments made customers such as Ford more inefficient. Some Ford plants are only 20 minutes away from the processors. If a truckload of steel arrived without an ASN, Ford employees would have to record the delivery information manually, a process requiring excess labor while increasing errors. The tracking system’s inadequacies also created forecasting and inventory problems, forcing the company to hold too much inventory, which in turn raised USS’s costs even higher. It needed to modernize its...
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