Revamp Demand Planning in the Steel Industry

Transcription

1 Revamp Demand Planning in the Steel Industry Oct 9, 2013

2 Agenda About Tree Island Business Challenge Transformation Approach Implementation Results Lesson Learned 2

3 Overview of Tree Island Steel Ltd. Producer of Quality Wire and Wire Products Established in 1964; headquartered in Richmond, BC One of North America s largest producers of steel wire and fabricated wire products Over 350K tons of steel conversion capacity 57% Canada, 43% US ~400 Employees 66% Canada, 33% US, 1% Asia Average tenure >10 Years Our Assets, Capabilities and Reach Key markets include: Residential & light construction (30%) Commercial construction (20%) Industrial / Original Equipment Manufacturers (40%) Agricultural wire products (7%) Specialty wire products (3%) Sales in all 10 Canadian provinces, 40 US states, New Zealand, Mexico, Germany & China Sells through distributors, retail chains and wholesale distributors 3

4 Millions The US Recession How the tide turned in 2008 $80 EBITDA $60 $40 $20 $- $(20) Net Income We barely survived the recession $(40) $(60) $(80) 4

5 Hindsight Root causes of underperformance Over-dependence on US residential housing market Global expansion as market shrunk Increased inventory as market collapsed Rising imports of commoditized product which impacted our business Concentrated risk exposure Investment timing as markets deteriorated led to write down write down in addition to obsolete inventories Reduction of volume meant reduced splitting of overheads which reflected on financial performance Net Income $40 $30 $20 $10 $- $(10) $(20) $(30) $(40) $(50) $(60) $(70)

6 How we responded Downsizing and tight control of expenses while retaining our focus on safety and quality Strict working capital management cash managed on a daily basis Control of input costs and manufacturing efficiency Secure Financing and renegotiation on debt Increased focus on profitable product lines Pricing discipline and yield management to exit unprofitable business 6

7 Economic Conditions Improving How can we prepare ourselves to compete in the post recession market place? 7

8 Introduction of Business Transformation Get ready for growth Strong Management Predictive Analytics -Create a new hub for centralized analytics - Leverage analytics as a competitve advantage Signs of Market Turnaround Create Internal Capabilities to Prepare for Growth Business Transformation -Organization Restructuring - Process Re-engineering - Strategic Planning Corporate Development - New market development - M&A or Divestitures 8

9 Understanding Costs Steel rod cost is a significant portion of our overall costs Consumables 7% Finished Goods Purchased for Resale 5% Conversion Costs 15% Raw Material 63% Fixed Overhead 10% Raw materials (steel rod and zinc and others) make up for 2/3 of our cost base and over 85% of cost of goods Changes in rod prices flow to the bottom line net of changes to prices that occur as steel prices change Reduce Rod Cost Significantly Reduces Our Cost Base 9

10 Understanding Value Chain Demand Planning Impact on rod procurement and down stream processes Forecast Sales & Marketing Measure against up to date sales activity Procurement Planning Operations Finance Save money on Rod costs (65% of COGS) Scheduling clarity to ensure on time delivery Allow planning and maintenance of machines Provide outlook to the board and executive team Market Pulse Swift reaction to competition and changing market environment Ensure proper adjustments to inventory (Raw Mat l and FG) Resource management (training, vacation, seasonal staff) Budget tracking and financial planning (i.e. working capital) Leverage market intelligence as an advantage Improved customer service as we anticipate their needs 10

11 Business Challenge Improve steel forecast to improve steel rod costs Revamp the demand planning process and methodology at Tree Island to ultimately improve accuracy of our future demand forecast and enable strategic raw material sourcing as one of our key competencies 11

12 Approach How did we do it Discovery Design Implementation Research Publications Industry best practice Process Roles and Accountabilities Documentations Training Change management Reporting Process Future state design With / without contraints Analytics Develop forecast models Analyze forecasting efforts Knowledge sharing Analytics External drivers Statistical analysis Continuous Improvement Review accuracy and probe areas that are under performing Provide tips Improve usability of tool Communication 12

13 Discovery - Key Pain Points What are people currently experiencing People Unclear accountabilities No consistent training Variable communication Process Took over 7 days to complete monthly forecast Manual Input Too Many Handoffs Lack of Communication Lack of Assessment Technology Lack of analytics in forecast Extensive use of spreadsheets and manual work 13

14 Research Industry Best Practice Don t reinvent the wheel Journal Publication Forecasting moedels and their practical usage Past project experience Speaking to Industry Leaders Gerdau Key to forecasting is to find the appropriate market indicators Forecasting has allowed them to weather through the recession by identify a market momentum shift earlier then their competitors 14

15 Design Process & People Leverage guiding principles and take a collaborated approach Process Redesign Guiding Principles Simplification Transparency Accountability Flexibility Current State Design workshops Internal & External Knowledge gathering Future State The options for improvement need to be challenged critiqued Tested kicked around, and validated by subject matter experts, affected employees, and other stakeholders. Buy In => Success 15

16 Design Technology & Analytics Demand planning using analytics 1 What? 2 How detailed? 3 How often? 4 How far out? 5 What data time frame? 16

17 Design Technology & Analytics Demand planning using analytics Predicts 17

18 Design Technology & Analytics Demand planning using analytics Predicts Feeds Provides Baseline Predicts Feed Feedback 18

19 Implementation Technology & Analytics Implementation Challenge Nobody trusts forecasts and everyone knows better 19

20 Implementation & Post Implementation Focus on change management Communicate and Listen Don t wait for the big reveal Education Collaborate Leadership Openly Discuss Change 20

21 Revamp Demand Planning - Results What we ended up with Process Reduced the amount of time it took to complete demand planning from 7 days to 2 days Introduced the tracking of forecasting accuracy to enable quick reaction to market changes People Clear defined accountability assigning sales managers to each key product groups Analytics Improved forecast accuracy level by 30% with no significant forecasting bias 21

22 Implementation Key Lessons Learned Our best practices 1 Building Trust 2 Clear Accountability 3 Importance of Post Implementation 4 Measure Your Performance 5 From Theory to Practice 22

23 QUESTIONS?