AGILITY IN THE STEEL PRODUCT INDUSTRY - A CASE STUDY

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4 AGILITY IN THE STEEL PRODUCT INDUSTRY - A CASE STUDY Päivi Iskanius * and Sari Uusipaavalniemi ** *) Department of Industrial Engineering and Management, University of Oulu, P.O Box 4610, FIN Oulu, Finland, paivi.iskanius@oulu.fi, Tel: ; Fax: **) Department of Industrial Engineering and Management, University of Oulu, P.O Box 4610, FIN Oulu, Finland, sari.uusipaavalniemi@oulu.fi, Tel: ABSTRACT This paper focuses on the concept of agility in supply chains and development procedure in the move towards an agile supply chain in the context of Finnish steel product industry. This paper also discusses the drivers that generate the pressure for implementing agility. To be truly agile, a supply chain must be market sensitive, virtual and network-based, and it must be capable of leveraging process integration. The industry network in question is at the beginning of it s strive towards agility. It is concluded that some aspects of agility, such as efforts to form a network-based entity and a move towards a more market sensitive approach could already clearly be recognised in the steel industry network. With others, for instance achieving process integration at its full potential and being completely able to impose agility in the network, there is still a long way to go and a lot of work to do. Key Words: agility, steel product industry, market sensitive, virtual, process integration, network-based

5 1. Introduction Increasing technological complexity, ever-increasing amount of information and knowledge, and global competition, have revolutionary changed the business environment. Earlier, the paradigms where business was managed were scale, cost and quality. Today, the focus has shifted to flexible and rapid innovation, driven by the continuing high-tech boom and expanding global markets. The ability to respond to customers requirements in ever-shorter timeframes has become crucial. Customers do not only want shorter lead times, they are also looking for flexibility and, increasingly, solutions to their problems. So, the companies have to be able to meet the precise needs of customers in less time than ever before. The key word in addition to speed, in this changed environment, is agility (Goldman et al. 1995). The agility concept was first introduced as a management concept in 1991, when the Iaocca Institute of Lehigh University released its report 21 st Century Manufacturing Enterprise Strategy: An Industry-Led View (Kidd 1994). The report proposed that significant changes were needed in manufacturing companies in order to survive the upcoming challenges. Since the introduction of the concept of agility, it has become more and more applied in many industries both as a management practice and as a subject of research. Many researchers both in the academic and business communities have discussed agility in supply chains and how it leads to competitive advantages (e.g. Christopher 2000, Christopher and Towill 2001, Goldman et al. 1995, Goranson 1999, Kidd 1994, Oleson 1998, Swafford et al. 2000, van Hoek et al. 2001, and Yusuf et al. 2003). Some even say that agile manufacturing will be the manufacturing paradigm of the 21 st century (Gunasekaran et al. 1999). The need for agility for market competitiveness has traditionally been associated with supply chains that provide and manufacture innovative products, such as high-technology industry products characterized by short life-cycles, high degree of market volatility, uncertainty in demand and unreliability in supply. Similarly, the traditional industry, like steel product industry, faces such challenges in terms of requirements for more customized products, solutions to customer problems and shorter order lead-times. Moreover, product life-cycles are shortening, and the need for becoming agile is becoming more prevalent. Although plenty of literature dealing with supply chain management, and the concept of agility in supply chains exists, the literature concerning agility in traditional industry fields still demonstrates a certain lack. For instance, in Finland researchers are mostly focused on high-technology industry, for example Helo (2001) in electronics industry and Collin (2003) in GSM Network business, but not enough research has been carried out in traditional industry fields. This study focuses on the concept of agility in supply chains and the development procedure in the move towards an agile supply chain in the context of steel product industry. We have applied a theoretical framework consisting of key elements of agility and these elements are used as an evaluation framework to analyse findings from cases representing one Finnish steel product industry network. In addition to that, special attention is paid to the drivers that generate the pressure for implementing agility.

6 2. Research Method and Data Collection The empirical results of this paper refer to 18 case companies which are all actors in a Finnish steel industry network in the Northern Finland. Our paper is descriptive in nature and it is based on qualitative material. Thus, in order to increase validity of the study we have used multiple sources of evidence; interviews, questionnaires, documents, direct observations, and modelling one project order-delivery, and then analysed the data as an entity. Analysis of data is one of the least developed and most difficult aspects of doing case studies (Yin 2003). In this study we have applied two theoretical frameworks in the analysis of the data; categorization of the drivers towards agility according to Goldman et al. (1995) and the framework for developing an agile supply chain according to Christopher (2000). This study consists of empirical conducted as a case study in the steel product industry between the years In order to find drivers towards agility and analyze findings of the agility in the steel product industry and reflect them on the theory, we have drawn up a list of activities. First, unstructured interviews were held in order to get a realistic understanding of the companies and their activities. The first interview was carried out in 12 companies in total where the core competences, level of current co-operation and facilities for utilizing ICT tools were structured. Secondly, based on first impressions from the interviews, a workshop was organized for discussion of the selected topics (i.e. changes in the business environment and possibilities to operate as a collaborative supply chain in the future). These given three topics were first analyzed through SWOT in 4 smaller groups and then discussed among the participants. In the workshop there were in total 43 participants from 16 different companies. Thirdly, based on these discussions, a specific questionnaire for companies was designed to find out the cornerstones of a roadmap for an effective supply chain model and also to reflect the current state of co-operation in each company. The third part was realized in 8 companies, where the company representatives (i.e. owners, CEOs) formed a working group and provided answers to 25 open-ended questions covering areas such as how changes in the business environment affect the customer base and their demands, competitors, technology and the practices in the network. Fourthly, representatives of 6 companies answered 34 open-ended questions covering areas as information sharing, process integration and collaborative relationships. Finally, with 5 companies we modeled one sample product process (order-delivery process) by following through its value chain. Theme interviews with the operational staff were held in order to identify and illustrate the critical issues and the development possibilities of the supply chain. With the results of the interviews and company visits the case process was flowcharted and the major drawbacks of the supply chain were defined. 3. Agility in Supply Chain 3.1 The Definitions of Supply Chain and Agility Supply chain management (SCM) has received substantial attention from both researches and practitioners, yet many companies are struggling to implement supply chain processes within the company as well as across the supply chain. Defining the supply chain as the

7 network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer (Christopher 1998), it can be deduced that the supply chain concept covers the coordination of processes between the various companies in order to attain continuous and efficient physical flows of data of the companies participating in the chain. All companies in the supply chain are actively working together towards common objectives, and are characterized by sharing information, knowledge, risk and profits. SCM focuses on joint planning, coordination, and process integration between suppliers, customers, and other partners in a supply chain. Its competitive benefits include cost reductions and increased return on assets, as well as increased reliability and responsiveness to the market needs (Chopra & Meindl 2001). Based on these definitions, supply chain is seen as a network in the study and thus the term network is thus used as a synonym for the supply chain in this paper. Agility has been expressed in different ways. Firstly, it has been introduced as a total integration of business components (Kidd 1994). Secondly, it has been represented as flexibility of manufacturing, people and organisations (Goranson 1999). Moreover, some other expressions such as concurrency, adaptability, use of information systems and technologies, and diverse combinations of all above mentioned have been used in defining agile manufacturing (Kidd 1994, Youssef 1992). In this study we use the definition of agility developed by the Agile Forum: Agility is the ability of an enterprise to quickly respond to changes in an uncertain and changing environment (Goldman et al. 1995). The concept of agility comprises two main factors (Kidd 1994): 1) Responding to changes (anticipated or expected) in proper ways and due time. 2) Exploiting changes and taking advantage of changes as opportunities. This necessitates a basic ability for any organisation that is sensing, perceiving and anticipating changes in the business environment. An agile manufacturer, in this respect, is an organisation with a broad vision of the new order of business world, and with a handful of capabilities and abilities to deal with turbulence and capture the advantageous side of changing circumstances (Zhang & Sharifi 2000). 3.2 Drivers towards Agility Agility drivers are the changes or pressures from the business environment that necessitate a company to search for new ways of running its business in order to maintain its competitive advantage (Sharifi & Zhang 2001). Sharifi and Zhang (2001), Yusuf et al. (2003), and many other articles in the literature, present classifications of the key drivers or forces that pressure companies to develop agile supply chains. In this study we have chosen as the basis of our analysis the classification of Goldman et al. (1995), which spots ten distinctive forces that drive towards agility: 1) market fragmentation, 2) production to order in arbitrary lot sizes, 3) information capacity to treat masses of customers as individuals, 4) shrinking product lifetimes, 5) convergence of physical products and services, 6) global production networks, 7) simultaneous inter-company co-operation and competition, 8) distributed infrastructures for mass customization, 9) corporate reorganization and 10) pressure to internalize prevailing social values.

8 3.3 Developing Agile Supply Chain Prater et al. (2001) state that firms operating in international markets face challenges when trying to implement means required to increase their agility. Pursuing agility may necessitate an increase in the complexity of management and also increase coordination costs. There are no guidelines telling how much the uncertainty can be reduced or how much the complexity should be reduced. Prater et al. (2001) suggest that companies have to make a trade-off between vulnerability (increased by uncertainty and complexity) and supply chain agility (flexibility and speed in sourcing, manufacturing and delivery). This means that instead of aiming at full compliance with the initial definition of agility, companies should concentrate rather on some selected key aspects of an agile supply chain. Many researchers have studied the development of supply chain agility. Gunasekaran (1999) presents broadly original works and case studies, where concepts of agile manufacturing, and design and implementations of agile manufacturing, are discussed. In Zhang and Sharifi (2000), as well as in Sharifi and Zhang (2001), the methodology to assist manufacturing companies to achieve agility is presented. In van Hoek (2001), agile capabilities in the supply chain are discussed, and agile supply chain framework - dimensions that reflect the more general aspects of agility applied to the supply chain operating environment, is presented. In Yusuf et al. (2003), a conceptual model for assessing an agile supply chain is constructed. Cameron and Gromley (1998) present two different methods for constructing an agile supply chain; building a community of supply chain members and using logistics integrator capable of constructing an agile supply chain. Outsourcing in general is seen as means of increasing the supply chain agility. For instance, Mason et al. (2002) state that outsourcing the actual manufacturing to contract manufacturers in electronics manufacturing supply chain has increased the agility of the supply chain. Van Hoek (2000) states, how postponement allows company flexibility and contributes agile capabilities. Finally, the framework chosen to be used in this study is from Christopher (2000) (actually quite similar as in van Hoek (2001)), who has identified a set of characteristics that a supply chain must have in order to be truly agile (figure 1). These include: Market sensitivity (through the capturing and transmission of point of sale data); Being information driven (or virtual) (based on information rather than inventory); Having integrated processes (collaboration between buyers and suppliers: joint product development, common system design, shared information); and Being network based (confederations of partners linked together as against stand alone organizations). Virtual Market sensitive Agile supply chain Process integration Network based Figure 1 Theoretical framework for the agile supply chain (Christopher 2000)

9 3.3.1 Market sensitivity According to Huang et al. (2002), the purpose of an agile supply chain is to understand customer requirements by interfacing with the market and being adaptable to future changes, aim to produce in any volume and deliver to a wide range of market niches concurrently, and provide customized products at short lead times (responsiveness) by reducing the cost of variety. Market-oriented companies often segment the markets and differentiate products and services to create and retain satisfied customers and surpass the competition. Market-oriented companies put the customer first; generate, disseminate, and suggest the market-oriented companies; and have the capability to use their resources to produce respond market intelligence (Waller et al. 2000) Virtuality Information is crucial to the performance of supply chains, because it provides the basis upon which supply chain managers make decisions. Information must be accurate, accessible in a timely manner, and of the right kind (Chopra & Meindl 2001). Today s operations in a network are based on interaction and transmission of information. Therefore e-commerce and information communication networks have a significant role in developing a collaborative supply chain. The effects of information technology on increasing agility have also been recognized. For instance, Schönsleben (1998) and McGaughey (1999) identify the role of information technology (particularly EDI and Internet) in supporting agility. With the right technology choice, according to Mentzer (2001), a company can communicate with its suppliers at all levels, can help break down barriers between companies, speed up information flows and turn data into useful collaborative information, in other words, make a supply chain visible. Many information systems have been developed for SCM from EDI and ERP, or into newly developed SCM systems and e-business solutions, and recently, the use of intelligent agents for SCM has received great attention in academic research Process integration The need for integration not just within an organisation but also upstream with suppliers and downstream with distributors and customers has long been recognised in the SCM literature (e.g. Christopher 1999 ). The concept of process integration has been taken into use in many organisations. Business processes are the activities that produce a specific output or value to the customer (Lambert et al. 1998). According to Lambert et al. (1998) there are seven key business processes that could be integrated across the supply chain: customer relationship management, customer service management, demand management, order fulfilment, manufacturing flow management, procurement and product development and commercialisation. The number of processes that should be integrated or would be advantageous to integrate varies. In some cases linking just one key process is enough and in others linking multiple or all business processes is required. Thus, it should be carefully analysed which business processes to integrate in a supply chain. (Lambert et al. 1998) Process integration refers to collaborative working between buyers and suppliers, joint product development, common systems and shared information. This form of co-operation

10 in the supply chain is becoming more prevalent as companies focus on managing their core competences and outsource all other activities. (Christopher 1999) Network-based One of the key issues to achieve agile response to fast-changing markets lies in the quality of the supplier relationships. It is often the lead time of the suppliers that limits the ability of OEM (Original Equipment Manufacturer) to respond rapidly to customer requirements. Correspondingly, introduction time of the new project can be dramatically reduced through the involvement of suppliers in the innovation process. In order to truly leverage the supplier relationships the supplier base should be rationalised so that closer co-operation could be done with only a few key suppliers. In addition to that, a large amount of information should be shared with the suppliers. This means especially sharing real-time demand information and leveraging information systems. A sense of commonality between the customer and supplier companies should be created. This is achieved through information sharing and cross-functional teams. (Christopher 2000) In a network, tasks that are not the core competence of a company can be outsourced to some network partners who have the competence for doing them better. Outsourcing increases efficiency as each player in the supply chain can specialize in its own competence area. Additionally, outsourcing offers flexibility and scalability which are important aspects when developing agility in the supply chain (Bovet & Martha 2000). Outsourcing also creates external supply chains. Instead of internalizing activities to manage them within a single company, they are performed by other companies, with less direct control over the outcomes. It requires both careful selection of business partners and a need for inter-organizational management. (Schary & Skjøtt-Larsen 2001) 4. Case Study Agility in Steel Product Industry Empirical approach for this study was carried out in a Finnish steel product industry network, which brings together a group of 18 companies in the steel sector in Northern Finland. Engineering workshops; industrial service providers like engineering companies, logistics provider and testing companies and a global steel producer form the central partners of the network. The steel producer as an OEM (an organisation within the supply chain that is responsible for the delivery and design, also with customers) produces total solutions for construction and mechanical engineering and metal production industries. The company has a wide range of products and services for metal products like hot-rolled, cold-rolled and coated plates and sheets made of low alloy steels, cut steel products, steel tubes and pipes and long steel products. Manufacturing subcontractors of the steel producer have their own areas of expertise e.g. flame cutting, welding, machining, bending, forming, and shape cutting. The steel producer has a central role in managing material and information flows; suppliers have direct contacts with it, and the amount of indirect suppliers is limited. In addition to the role of the OEM, there are several different roles and positions for suppliers in the case network. Suppliers may attain the position of a system supplier, which has a direct relationship with the buying company, and they may also have relationships with companies in the second and third tiers of the network. These

11 second and third tier suppliers normally do not have direct contacts with the buying company, as they operate through the first tier supplier. 4.1 The case supply chain In this study we have modeled one case supply chain (order-delivery process) of the project product between five companies in order to find out the critical issues of the supply chain agility. Also the development methods have been studied. The case project product (pipes for the hull construction) is one part of a large global project, Mad Dog truss spar, which was ordered by Technip Offshore Finland, a part of Technip Offshore Group and French Technip-Coflexip Group affiliate on behalf of BP. The local supply chain consists of the steel producer, two manufacturing subcontractors, one testing company, and one logistics provider. The order comes to steel producer that provided raw material and prefabricated operations (cut and bevelled) to plate component. The steel producer itself has no possibilities for demanding bending and welding operations but in its supplier network there are four different companies who can complement them. In this case the suppliers are chosen because of their capability to process heavy thick plate components. Supplier A manages bending and some bevelling operations and supplier B welding and sub-assembling operations in this order-delivery chain. Company C manages testing and quality control operations of the welded seams. All transportation between companies is taken care of by the logistics provider, and in the last operations stage (and from the last company) the products are transferred directly to CSO Mäntyluoto Works. The supply chain is presented in figure 2. BP End Customer ORDER Company C Testing Technip Offshore PI-Rauma Technip Offshore Finland Mäntyluoto Works Focal company Raw material and cutting Company A Bending Logistics provider D Company B Welding Customer side for the delivery Flow of material Supplier network for the delivery Flow of information and know-how Figure 2 The case supply chain 4.2 Pressure towards agility Steel producer has recently (7/2003) implemented a new customer-oriented business model where the change of business from mass production to metal solution business is presented. Today 70 % of total turnover comes from traditional steel production and 30 % of metal solutions. According the CEO s, the rates will be rather the opposite in the future. In this case study we have concentrated to the projects for offshore (and wind mill) applications.

12 The main markets of these components are gas and oil industry and power production (wind mills and water power stations). Total demand of this line of business in Europe is about tons per year in the future, of which the volume share to Raahe area is expected to be about tons. Today the volume is about tons per year, so to achieve that kind of volume growth and customer orientation the network needs to develop its processes more effective and supply chains more agile. (Asunmaa 2003) As discussed in the theoretical section, Goldman et al. (1995) categorize ten distinctive forces that drive towards agility in general. The reflections of these drivers in the steel product industry network drivers are illustrated in the table 1. Table 1 Drivers towards agility in the case network Market fragmentation Production to order in arbitrary lot sizes Information capacity to treat masses of customer as individuals Shrinking product lifetimes Convergence of physical products and services Global production networks Simultaneous inter-company co-operation and competition Distributed infrastructures for mass customization Corporate reorganization Pressure to internalize prevailing social values Concentrating on certain customer segments The new business model of the OEM contains four business divisions based on customer segmentation metal products, building and construction solutions, mechanical engineering solutions and metal fabrication solutions. Customers order smaller quantities The proportion of project type orders is increasing More customised products and customer is involved already in the product development phase Accelerating product development and definition by information technology make customization possible Increasing proliferation of products or services Emphasis will move to project-based business, providing solutions to customers The new business model of the OEM in the network highlights the need for complete solutions Customers are international companies Customers demand global presence from the OEM Strong trend towards networking in the field (especially through collaborative R&D, procurement and marketing efforts) Opening borders (new members in EU), new international market areas in the future? The suppliers of the steel network are sometimes competing against each other to get project orders and at the same time cooperating with each other in other projects Several suppliers provide similar services Suppliers have collaborative development projects The OEM is concentrating on its core competence and outsourcing more and more activities to other members in the network Only by acting as a collaborative network is it possible to deliver customised solutions to customers Companies of the network are independent and have not plans to merge at least not yet In the new business model the OEM of the network is adopting more customer-oriented way of operating and is becoming the provider of metal solutions. Companies are attending the regional development and education projects

13 4.3 Analysing agility in steel product industry Market sensitivity As discussed in the theoretical part, market sensitivity can be defined as a capability of the supply chain to read and respond to real demand. The success factors of the case steel product network are its flexibility and speed (exactly the two aspects needed in an agile network). Customers appreciate more or less lower price, which sets pressure for the network to reduce total production costs. The reduction can be done mainly through reducing delivery time in the network by making the whole supply chain more effective, more agile. Today s manufacturers are willing to delay their production in order to customize the products. We have seen buy-to-order (BTO) and customize-to-order (CTO) concepts actively used in IT industry by almost all manufacturers. Also, the development trend for the steel product network is to change the operational mode from traditional MTS-mode, where companies in traditional way manufacture products to inventory, towards MTO-mode (including DTO-Design-to-Order and ETO-Engineering-to-Order modes), where manufacturing does not start until the real demand (or order) comes in the network. In other words, the purpose is to move the OPP (Order Penetration Point) as far to the upstream in the supply chain as possible. That kind of postponement offers a strategy to make that change happen. Apart from the postponement of shipment of goods and maintaining goods at the central location in the logistic channel, certain manufacturing activities could also be postponed. Especially in project oriented business, the steel producer is typically responsible for the delivery and the development of the end product to customers, and it also provides prefabricated steel material for the project. The steel producer plans and runs the project management operations in its information systems and suppliers are more or less involved in the operational development. The steel producer s delivery time of the material to the project varies from 2 to 4 weeks depending on the material (2 weeks for standard steel material, 4 weeks for special steel material). The customer order is a signal to start prefabricating work (like cutting, bevelling). Suppliers normally do not have direct contacts to customer and manufacturing in the supplier networks does not start until the customer orders are received and order handling by the steel producer is done. Summarizing the findings concerning the market sensitivity in the steel network, it can be concluded that efforts towards a more market sensitive approach have been made. Nevertheless, achieving market sensitivity in its very sense requires achieving more information transparency in the chain, so this aspect of agility is also interconnected with the aspect of virtuality and thus can only be fully realised through increasing the virtuality as well Virtual or information driven Being information driven or virtual means that inventory is replaced by information as described in the theory section. In the case supply chain, information flow between companies is currently mostly based on mail, , phone call or visit. Companies have different ERP-systems or merely not electronic systems at all. The companies have started

14 the development research founded by Tekes (National Technology Agency of Finland), the purpose of it is to support the movement towards more open information exchange by integrating activities and by using agent technology (an open ICT system for information exchange), in supporting collaboration in information sharing, operational cooperation, and dynamic supply chain configuration. The target is to develop a generic software solution, where all the companies have equal status (equal rights and responsibilities). The solution must be easy to join and easy to leave, but still ensures data security. In the SteelNet information system, agents represent major functionalities of a company. The agents are able to communicate and collaborate both within the company and with agents from other companies via Internet. This enables the seamless information flow through all operations in the company and also through the entire business network. The software solution must be easy to integrate into a company s own software system. An information solution network should transmit and control the communication and information about the supply chain management. In the future, the agent network should be accessible to all collaborating companies. Summarizing the findings concerning being virtual or information driven, it can be concluded that towards real information driven supply chain, they still have a long way to go, but companies have realised the importance of collaboration. The suppliers must be able to link electronically into the customer s system to obtain shipping details, production schedules and any other needed information. SMEs have problems in implementing information technology applications; they may not have enough knowledge and/or resources to invest. That is why agent technology application is very interesting, because companies do not have to invest in heavy ERPs, they can join the information network without even having any ERPs at all. The case companies are developing common information technology for their logistics operations. However, as also stated by Varghese (2003), seamless collaboration with complete information sharing between all supply chain participants is still in the future Process integration As stated in the theoretical part, process integration refers to collaboration between buyers and suppliers in the areas of product development, common system design and shared information. In the case network the steel producer has started development projects with its suppliers considering process integration and IT applications in order to streamline and optimize the entire supply chain. The starting point for the development is the fact that the processes are not cost-efficient and agile enough to beat the competitors. By streamlining cross-company processes, the supplier network can reduce costs, enhance quality, and speed up operations. The purpose of the case supply chain study presented earlier; was to find out the possibilities to halve the delivery time from 8 weeks to 4 weeks. That kind of reduction in delivery time is possible by eliminating time buffers, and developing the whole supply chain seamless, effective and fast. The welding process in Company B is a bottleneck in the case supply chain. All other operations of the supply are scheduled towards it. So, to put all development pressure to improve welding sub-process, gives the best result. To reduce lead time, four development possibilities were found: 1) the need of increasing staff capacity volatile can be managed e.g. by loaning staff from other companies in the network; 2) investments into more efficient manufacturing and IT technology, e.g. logistics

15 information technology application and new submerged arc welding machines; 3) to integrate sub-processes, e.g. welding and bevelling activities in the same stage (and company) can reduce time, and transportation and production costs; and 4) to synchronize welding and testing activities concerning time. The steel producer has the possibility of reducing material production time to 2 weeks but it is not the most cost effective alternative from a steel producer s mass-production point of view. Transportation time could be reduced, if prioritizing competitiveness instead of cost effectiveness. Summarizing the findings concerning process integration, it can be concluded that achieving process integration at its full potential and being completely able to impose agility in the supply chain requires yet more time and effort Network-based Operating as a network-based entity means that there are confederations of partners that are linked together. Outsourcing some tasks to the network partners is also part of forming the network-based entity. In the case network the steel producer is going to outsource some operations to its suppliers. That is also stated as an item in the steel producer s strategy: "the company consciously endeavours to learn from customers and to offer ever-more upgraded products and services, and to find new offerings which open up completely new business opportunities. The streamlining of processes and operations will be used to ensure company s cost effectiveness." The steel producer has today four different kind of contractual relationships with its suppliers: 1) co-operation agreements concerning certain contractual products, 2) annual agreements, 3) case by case fixed orders and 4) cost per hour invoicing in certain work capabilities. The common trend with the suppliers is towards a deeper co-operation; partnerships and strategic alliances. The companies in the steel network have realized that they do not have to possess all the competences needed for providing the customer with the products and services, but instead they can collaborate and utilize the competences provided by the other members in the network. The case supplier companies have started to develop long-term business relationships with the focal companies and with other suppliers. The steel producer has increased the development of supplier management and developed its own criteria for categorizing suppliers in the network. The criteria is based on the suppliers growth and stability, required service level and the sophistication and compatibility of the suppliers implementation process, the suppliers technological capabilities and compatibility, the volume, the capacity available from the suppliers and the suppliers anticipated quality level. The actual procedure of the steel producer in network managing is: some specific performance measurements for the supplier network; regular meetings with each supplier; a development plan for each partner relationship; and annual network meeting (general communication and feedback, common understanding of trends and requirements in the future). The need to improve the current level of collaboration is obvious and recognized in the network companies. The development requires changing incentive systems, collaborating with partners in the supply chain, investing in information systems that give rise to coordinated and synchronized planning, and creating true partnership relationships. Especially in the project business (companies that have consciously decided to band together and develop the activities of the overall subcontracting network producing final product) people are realizing the importance of moving away from transactional (or armlength) relationships towards deeper, long term co-operation. The efficiency of the case

16 network is based on social relations and trust between people even when the value creation process is vital. Social relations create a structure of rational selection of partners and form the basis for future co-operation. In complex and dynamic environments, long term relations can remove insecurity and increase productivity and innovativeness. Summarizing the findings, it can be concluded that the importance of collaboration has been understood in the network and efforts to form a network-based entity could already clearly be recognised in the steel industry network. 5. Discussion and Conclusion In this study we have taken a look into development of agile supply chain and the drivers towards agility in supply chain in the context of steel product industry. Although the results we obtained are relevant and beneficial to the participating companies, this specific case and its future development, our research is nevertheless subject to a number of limitations. As stated earlier, companies should concentrate on a few selected aspects of agility in their attempt to develop an agile supply chain. Thus, in other types of supply chains, the aspects of agility to be worth pursuing might differ from those highlighted in this study. Similarly, some of the forces acting as drivers for the agility might not have as strong impact on other supply chain contexts or the other way around. While the agility framework used in this study is of a generic nature, the detailed findings achieved by using this framework in other types of supply chains could differ from those achieved in this study, since the characteristics of the supply chains and the objectives of the participating companies would inevitably affect the results. Nevertheless, we believe to have shown that leveraging the framework of agility could be valuable also in traditional industry fields, where the need for agility has not been that obvious before. Although literature and previous research present a number of frameworks for developing an agile supply chain there seems not yet to be a single systematic, organized approach towards building the agility in itself in the supply chain studied. Agility seems to be merely a byproduct resulting from all the efforts initiated to form a more closely integrated network and increase and improve the information exchange in the network. Agility is generally recognized as a means of responding to and taking advantage of changes in a constantly changing business environment. This study reflects on the importance of supply chain agility also in industry fields that have not traditionally been associated with pursuing agility. The steel industry faces the same challenges which have earlier been associated only with innovative supply chains: customers demand more customized products and shorter order lead times, product life cycles are shortening, and the need for becoming agile is obvious. The companies in the steel industry network studied have realized that agility in supply chains can offer strategic advantages. The first steps towards a more agile network have been taken. Some aspects of agility, such as efforts to form a network-based entity and a move towards a more market sensitive approach could already clearly be recognised in the steel industry network. With others, for instance achieving process integration at its full potential and being completely able to leverage virtuality in the network there is still a long way to go

17 and a lot of work to do. For instance, the role of information systems in the whole supply network and how to achieve transparency based on the agent technology solution should be examined further. Agent technology is a new information technology and there has been little application of that technology in the logistics area so far. A further important step in the future would be to develop and to implement the common (agil)e-operational business model in the steel network. Based on this study we argue, that pursuing agility in the steel industry supply chains could be worth the effort resulting in increased competitiveness. However, a critical approach should be taken when considering when and where and to which extent agility should be pursued in the steel industry context, since there are no all-cure solutions. A more detailed research related to the supply chain agility concept in traditional industry fields is needed. In the future, more research concerning the development procedure of an agile supply chain especially in traditional industry fields, such as steel or paper industry, should be done. One research area would also be to define, which degree of agility the supply chains in the traditional industries should actually pursue and achieve to improve their competitiveness and which aspects of agility are considered the most imperative ones in these particular types of supply chains. It would also be interesting to take a closer look to the role and impact of the focal company in a supply chain in initiating and implementing the move towards agility. Acknowledgements We gratefully acknowledge the funding and support by the Technology Development Centre of Finland (TEKES) and the companies associated with this project. References Asunmaa, J. (2003) Rale project plan. Rautaruukki Oyj. (Unpublished) Bovet, D. and Martha, J. (2000) Value Nets Breaking the Supply Chain to Unlook Hidden Profits. New York, John Wiley & Sons. Cameron, B. and Gormley, T. (1998) Extend for collaboration. Manufacturing systems, 16 (7) p. 20. Christopher, M. (1998) Logistics and Supply Chain Management - Strategies for Reducing Cost and Improving Service. Prentice Hall. Christopher, M. (1999) Creating the Agile Supply Chain - Achieving Supply Chain Excellence by Technology Ascet, 1. Christopher, M. (2000) The Agile Supply Chain. Competing in Volatile Markets. Industrial Marketing Management, 29, Christopher, M. (2004) Creating the agile supply chain. [WWW-dokumentti]. < n.pdf>. Read in Christopher, M. and Towill, D. R. (2001) An integrated model for the design of agile supply chains. International Journal of Physical Distribution & Logistics, 31(4), Christopher, M. and Towill, D. R. (2002) Developing Market Specific Supply Chain Strategies. The International Journal of Logistics Management, 13 (1), 1-14.

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