01.best Study PDF

Supply Chain Management in the Swedish Steel
Industry
Av
Gustav Terland
Jonathan Mankowitz
Examensarbete 2008-xxx
KTH Industriell Produktion
SE-100 44 STOCKHOLM
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SUPPLY CHAIN MANAGEMENT IN THE

SWEDISH STEEL INDUSTRY
HAS THE NICHE STRATEGY IMPLIED LOST FOCUS ON PRODUCTION PROCESSES IN
FAVOR OF PRODUCTS?
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ABSTRACT
This research aims to investigate Supply Chain Management in the Swedish steel industry. More
specifically, how actors in the industry regard their supply chains in relation to their overall
strategy and what implications industry specifics have when the flow of material and information
is to be optimized. Furthermore, this thesis looks into the reasons behind value chain positioning;
is it desirable to encompass all the activities in the value chain into the core businesses
(integration) or rather focus on a particular field of work? What are the reasons behind a certain
positioning strategy? In order to bring clarity to those questions, in-depth interviews have been
conducted with five of the largest Swedish steel companies. An additional survey has been sent to
a selection of other steel companies with a Swedish connection. The interviews and surveys,
together with a financial analysis of the companies, constitute the empiric base for this study.
The findings suggest that forward vertical integration is a trend among Swedish steel companies
and that the proximity to the end-user of steel is the main motive for the deployed strategy.
Despite the fact that margins are generally lower for the latter parts of the value chain, the steel
producers see financial incentives for encompassing these activities. Stabilized demand and
secured sales volumes are reasons why these activities are taken over by the producers.
The Swedish steel companies have chosen to focus on high value niche products since they can
never compete with low cost bulk producers. The niche strategy has made efficiency efforts less
lucrative than increasing margins by developing leading and customized products.
Furthermore, as an effect of the product focus, delivery accuracy is one of the leading issues for
the industry. Even though all companies are aware of this problem and strive to improve delivery
accuracy, the absence of a top performer in the industry takes away the pressure for real
improvements. Acceptance by customers, due to the favorable market situation for steel
producers, is further an implication why this matter is currently not critical for survival.
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BACKGROUND & PURPOSE ................................................................5

1.1
1.2
METHOD..................................................................................................7
2.1
2.2
2.3
2.4
SELECTION CRITERIA FOR STEEL COMPANIES .................................................................................. 7

SURVEY ............................................................................................................................................................ 8
IN DEPTH INTERVIEWS ............................................................................................................................... 9
METRICS ........................................................................................................................................................ 10
THEORETICAL FRAMEWORK ............................................................11

3.1
BACKGROUND ............................................................................................................................................... 5
PURPOSE .......................................................................................................................................................... 6
SUPPLY CHAIN............................................................................................................................................. 11
ANALYSIS AND RESULTS ..................................................................15

4.1
INTERVIEWS ................................................................................................................................................. 15
4.1.1
Case Studies ................................................................................................................................................ 15
4.1.2
Case Study Conclusions - Common Characteristics In The Swedish Steel Industry.............................. 42
4.2
SURVEY .......................................................................................................................................................... 44
4.2.1
Tools Deployed ........................................................................................................................................... 44
4.2.2
SCM-Score .................................................................................................................................................. 48
4.2.3
AHP - Potential Cost Savings And Profit Possibilities ............................................................................ 49
4.2.4
Survey Conclusions Methods deployed .................................................................................................. 50
4.3
VALUE CHAIN WHERE IS THE GOLD IN THE STEEL INDUSTRY?............................................. 51
4.3.1
Profit Along The Value Chain.................................................................................................................... 51
4.3.2
Value Chain Conclusions - Reasons Behind Value Chain Positioning Strategies................................. 52
CONCLUSIONS.....................................................................................53
CRITICAL REVIEW AND SUGGESTIONS ..........................................56
REFERENCES.......................................................................................57
APPENDIX 1 DESCRIPTIONS & BEST PRACTICES ............................60

APPENDIX 2 DESCRIPTION OF SCOR AREAS....................................63
APPENDIX 3 COMPANIES: INTERVIEWED/SURVEYED .....................64
APPENDIX 4 SURVEY .............................................................................65
APPENDIX 5 CALCULATIONS & SOURCE DATA ................................70
APPENDIX 6 AHP METHODOLOGY ......................................................72
APPENDIX 7 SURVEY RESULT .............................................................74
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BACKGROUND & PURPOSE
1.1 BACKGROUND
Historically the focus of improvement methods within Supply Chain Management (SCM) has
varied substantially. This is partly due to new manufacturing technologies and strategies, but also
a result of the changing state of the world economy.
The Swedish steel industrys characteristics are largely a result of the energy crisis in the 1970s.
One of the most apparent reasons for this is that the Swedish ship building industry almost
disappeared. This industry was at the time the second largest in the world and consumed most of
the domestically produced steel. In addition the building sector reduced its activities and the
domestic steel consumption shrunk by 50% from 1975 to 1990. As a result of this, the industry
was restructured and the remaining companies specialized the production intensely towards niche
product groups, with more value added than traditional steel. As a consequence, they no longer
compete with each other. During this period there was also an intense focus on cost reducing
strategies, which is characteristic for a recessionary industry. (Nyquist O. 1998)
The steel industry in general has distinct characteristics that separate it from other industries. For
example the products have relative long life-cycles, the companies are highly capital intensive
and there is a global overcapacity of steel. This means that low cost production is, in general, a
prerequisite to become a market winner and companies cannot rely on increased prices to ensure
their profitability (Standard & Poors 2007). The Swedish steel industry, specifically, is highly
specialized and therefore should not comply with the strategies used globally, where volumes and
economies of scale are the center of attention today (Nyquist O. 1998). This makes an
examination of SCM-strategies in Swedish companies especially interesting.
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Furthermore, it is apparent that the focus lies on costs when the economy is souring, while
productivity is prioritized during upturns (Lindh 2004). The effects of capacity restrictions during
upturns can be minimized by closer relationships with suppliers and customers, in other words;
integration, which is the most apparent trend within SCM related literature today (Simchi Levi et
al. 2007; Lindh 2004; Christopher & Towill 2000). It can also be noted that the past 5 years
(since 2003) have been characterized by strong growth in the global steel market, much due to the
industrial investments in China and the rest of Asia (Jernkontoret 2006).
In the 1980s, as manufacturing strategies such as lean, total quality management and just in time
spread to a broader audience, reduced costs became the focus within SCM (Simchi Levi et al.,
2007). The intense pressure to reduce costs further contributed to the trend of outsourcing in the
1990s, along with the focus on increased availability, and supply chain agility (Simchi Levi et al.
2007; Lindh 2004; Christopher & Towill 2000). Recently the risk management factor has been
integrated to balance the focus on cost (Simchi Levi et al. 2007), and the importance of
optimizing entire value- and supply chains rather than just parts of separate companies - such as
inventory, manufacturing or transports - has increased (Lindh 2004; Stadtler & kilger 2005).
1.2 PURPOSE
The main purpose of this thesis is to describe Supply Chain Management from the view of the
Swedish Steel Industry. In other words, how do the actors in this industry regard their Supply
Chains in relation to their overall strategy and what implications do industry specifics have when
the flow of material and information is to be optimized? The following sections break down the
main purpose into more tangible objectives.
What are the reasons behind value chain positioning? Is it favorable to be integrated all
along the value chain or is it more attractive to focus on certain activities from a value
creating point of view?
What methods are used in the different areas of the Supply Chain and is the purpose of the
deployed methods in-line with the academic research. Do they really aim at increasing
information transparency and system wide efficiency?
Are there any correlations between the use of Supply Chain Management methods and
KPIs regarding performance and value creation?
What areas of the Supply Chain are regarded as most strategically important and is this
coherent with current emphasis on overall business strategies?
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Is there an unequivocal emphasis on certain Supply Chain areas by companies in the steel
industry? And do the companies face the same challenges i.e. are the problems due to
industry specifics or do they exist isolated?
2 METHOD
This thesis contains several sources of information to address the above stated purpose. The
theoretical part consists of well-known sources complemented with academic articles on the
subject.
The empirical part of the thesis consists of two main sources, in-depth-interviews and a survey.
The survey was sent out to get the broad picture of what specific tools are deployed in the
industry, while the interviews have been conducted in order to understand the reasons behind
certain SCM strategies. This material has been complemented by information from the
companies annual reports.
2.1 SELECTION CRITERIA FOR STEEL COMPANIES

Members of the trade organization Jernkontoret have been selected to constitute the market,
which is referred to as the Swedish steel industry. To ensure that the selected companies are a fair
representation of the Swedish market, the selection of companies has been complemented with
steel companies listed by Statistiska Centralbyrn (SCB).
Smelting and Slab

production
Rolling, Hardening
& Finishing of metal
Coiling/Coating/Formatting
- SSC Cutting, Stripping,

Welding, Bending of
Metal
Modular
Production
Figure 1 - Delimitation of the steel industry
The companies have been selected according to the following criteria:
For the survey all steel producing members of Jernkontoret and steel companies listed by
SCB with revenues larger than 500 MSEK have been selected1.
For the in depth interviews the six largest steel producers (regarding revenue) have been
targeted. Five of these have been successfully interviewed (Outokumpu Avesta, Sandvik,
SSAB Oxelsund, SSAB Tunnplt and Uddeholm Tooling).
Additionally well-known, large steel service centers linked to international steel
producers have been selected for the survey (e.g. Arcelor, Thyssen Krupp).
For companies with several units within the same group (e.g. Ovako) the two largest
units have been chosen.
This delimitation has been made to ensure some stability in revenues over the years. Too small companies depend
too much on single customer orders to make a comparison with more stable/bigger companies possible. SCB steel
companies include following SNI-codes: 24100, 24200, 24310, 24320, 24330, 24340, 24520.
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METHOD
Exploration
and Mining
Steel companies have been defined as companies producing steel, from steelworks to processed
steel. Hence, excluding the mining industry (raw materials) and the engineering industry
(modular production) according to figure 1. The last stage included here encompasses final
activities such as cutting, bending etc. This is often done by an external part, referred to as Steel
Service Centers (SSC), often with the responsibility to also distribute the steel locally.
These delimitations have resulted in a list containing 29 selected companies shown in table 1
below sorted by revenue. SSCs are written in Italics and the interviewed companies in Bold. The
complete list with excluded companies can be viewed in appendix 3.
16
17
18
19
20
21
22
23
24
25
26
27
28
29
Lindab Steel
Erasteel Kloster
Plannja
Surahammars Bruks
Haldex Garphyttan
Scana Steel Bjrneborg
Burseryds Bruk
ThyssenKrupp Materials
Bhler-Uddeholm Precision Strip
Arcelor SSC
Structo Hydralics
Boxholm Stl
Scana Steel Sderfors
Carpenter
A large part of this thesis consists of investigating the SCM-tools that are used in the steel
industry. As interviewing each one of the companies would have been too extensive, a survey
was conducted in order to understand the great picture. The targets have been either site
managers or managers within logistics or SCM who have been called in advance to increase the
number of respondents.
The survey answers the following questions: (1) How are steel companies positioned in the value
chain, (2) What parts of the supply chain are emphasized, (3) What tools are used for managing
the supply chain, and (4) Where in the supply chain do steel companies see most potential for
cost savings and areas for profit generating possibilities. The complete survey can be found in
appendix 4.
In the first part of the survey the respondent is simply asked to indicate the stages in the value
chain that are part of the company activities.
The tools used in (3) are a collection of best/leading practice methods from the SCOR model and
other credible sources (see theory). Best/leading practices are marked yellow in appendix 7.
Abbreviations are explained in appendix 1, where also the source claiming the best/leading
practice is listed for each method. Furthermore, the questions in the survey are sorted by supply
chain area (e.g. source, make) and are constructed as statements where the respondent is asked to
fill out to what extent the statements coincide with the supply chain activities taking place at
present.
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METHOD
2.2 SURVEY
Table 1 - Selected companies

Companies
1 Outokumpu Stainless
2 Sandvik Materials Technology
3 SSAB Tunnplt
4 SSAB Oxelsund
5 Tibnor
6 Ovako Steel
7 BE Group
8 Ruukki Sverige
9 Acerinox Scandinavia
10 Hgans
11 Ovako Bar
12 Outokumpu Tubular
13 Uddeholm Tooling
14 Fagersta
15 Kanthal
SCM-Score
Respondents are asked to rank to what extent each method is used, from strongly disagree (1)
to strongly agree (4). This allows for a simple computation of a SCM-Score. More specifically,
the SCM-score has been calculated as the sum of all best practice methods multiplied with the
degree of usage (1-4) and then divided with the total possible score (the sum of all methods
multiplied with 4) to receive the percentage.
The SCM-score is an indicator of Supply Chain Management maturity and is used in comparison
with other metrics to reveal if there exists a correlation between the use of Supply Chain
Management methods and performance.
Representation of methods deployed
For the representation of the survey results the answers 3 and 4, for each Supply Chain
Management method, have been characterized as used to a high extent. The percentage of high
extent users per method is shown in tables for each SCM area.
To bring clarity and stringency the companies have been divided into two categories; steel
producers (Stage 1&2) and service centers (Stage 3). This is due to the fact that the former is very
production intensive while the latter is rather a middleman.
AHP
The final part of the survey consists of a pair-wise comparison of the supply chain areas, where
the respondent is asked to rank each area in regard to potential. Information from this part is used
in order to do an analytical hierarchy process (AHP)2, where the degree of potential for each area
is revealed for the industry in general.
METHOD
For the evaluation of the survey the companies have been divided into two groups, producers and
service centers. The reason for this is that a clear distinction can be made as the activities differ
significantly, and thereby also the supply chain management strategies.
2.3 IN DEPTH INTERVIEWS

The purpose of the interviews was to get a more detailed picture of how the supply chain for each
company is outlined and the strategic reasons behind choosing a certain approach. The in-depth
interviews have been carried out with the five of the largest steel producing companies in regard
to revenues.
In order to reach out to people with knowledge in the supply chain processes, the interviews have
been carried out at the factory sites. Steel companies usually have several industrial units
scattered throughout the country and for this thesis the major plant that encompasses steel
production has been selected for the interviews.
Description can be found in appendix 6
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To be able to cover the whole supply chain from a strategic perspective, managers from market,
production and logistics have been interviewed at each site. This grants a total of 15 interviews.
The interviews were carried out with open-ended questions based on the survey, but from a more
explanatory angle. In other words, the respondents were given space to speak freely in order to
extract as much relevant information as possible.
2.4 METRICS
For comparison with the SCM-Score and the positioning by the various companies well known
financial and Supply Chain Management specific key performance indicators (KPI) have been
calculated. To minimize the effect of specific years, the metrics have been calculated as the
average for the period 2003-2006. The complete results can be viewed in appendix 5.
EBIT MARGIN (EBIT %) EARNINGS BEFORE INTEREST AND TAXES
EBIT takes all operational profits into account, i.e. exclusive interest payments and income taxes
and is an indicator of a companys profitability. The reason for the use is that the measurement
excludes the effects of capital structures and tax rates, thereby making cross-company
comparisons possible. 3
ROCE indicates how efficient and profitable a companys investments are, or in other words,
how well the assets are used. As the operating profit is related to the investments it requires, this
measurement should reflect more specifically the relative operational success of a company.4
ROCE = EBIT / (TOTAL ASSETS CURRENT LIABILITIES)
STOCK TURNS
Stock turns, or inventory turns, is used as a measurement of how many times the inventory is sold
and replaced in one year. A low value indicates poor sales and excess inventory (in relation to the
sales volume). This is also one of the main KPIs used to measure a Supply Chains effectiveness
and is supposed to improve with the use of best practice methods (Stadtler & Kilger 2005).
Revenue and Inventory are measured in MSEK.5
STOCK TURNS = REVENUE / INVENTORY
http://www.investopedia.com/terms/e/ebit.asp
http://www.investopedia.com/terms/r/roce.asp
5
http://www.investopedia.com/terms/i/inventoryturnover.asp
4
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METHOD
ROCE RETURN ON CAPITAL EMPLOYED
EBIT % = OPERATING PROFIT / REVENUES
3 THEORETICAL FRAMEWORK
3.1 SUPPLY CHAIN
The following section describes the origin of the methods used in the survey, the questions asked
in the interviews and the model used for analysis. Abbreviations and explanations to specific
methods can be read in appendix 1.
DEFINITION OF SUPPLY CHAIN AND SUPPLY CHAIN MANAGEMENT
The task of integrating organizational units along a supply chain and coordinating material,
information and financial flows in order to fulfill (ultimate) customer demands with the aim of
improving the competitiveness of a supply chain as a whole (Stadtler & Kilger 2005)
Simchi-Levi has similar definition of Supply Chain Management with an apparent focus on
reducing cost and increased efficiency throughout the supply chain:
Supply Chain Management is a set of approaches utilized to efficiently integrate suppliers,
manufacturers, warehouses and stores, so that merchandise is produced and distributed at the
right quantities, to the right locations, an at the right time, in order to minimize systemwide costs
while satisfying service level requirements (Simchi-Levi et al. 2007)
Integration is a necessity for an effective supply chain, where the ideal is that information and
know-how is shared openly among the members. Competition along the supply chain is supposed
to be replaced by the commitment to achieve increased competitiveness along the chain as a
whole. On the other hand market interactions imply that companies can cancel their collaboration
at any time for short-term reasons (better prices in other supply chains, etc.). Therefore bonds
should be used to ensure the cooperation among supply chain members. These bonds can be
either technical (common technologies), knowledge (about each others businesses), social,
administrative or legal. (Stadtler & Kilger 2005)
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THEORY
There are two ways to improve a supply chain, i) closer integration of involved companies and ii)
better coordination of material, information and financial flows. In order to achieve this,
companies must overcome their own organizational barriers and align strategies with the other
constituents of the chain. Hence, this is the core of Supply Chain Management and the definition
is as follows:
Stadtler & Kilger define the supply chain as a 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. The chain
involves two or more legally separated organizations that are linked together by either material,
information or financial flows and includes the ultimate customer. Supply Chain Management
has the objective of governing all parts of the supply chain as a unit, instead of single
organizational elements, in order to achieve increased competitiveness. (Stadtler & Kilger 2005)
Coordination, the second part of SCM, includes utilization of information and communication
technology, process orientation and advanced planning. Electronic Data Interchange (EDI) for
example is favorably used to achieve instantaneous information exchange among members in the
supply chain. Process orientation refers to the streamlining of cross-company processes to reduce
system-wide costs while enhancing quality and various operations speeds (e.g. steel companies
performing simple machining operations to facilitate the next production step for customers).
Finally, advanced planning incorporates both short- and long-term planning where APS systems
(Advanced Planning Systems) exist to complement ERP systems to include inter-organizational
planning. (Stadtler & Kilger 2005)
Collaboration is, in other words, essential to a companys success and sequential processes ought
to be replaced by global optimization. Therefore collaboration has become the focus of supply
chain systems in recent years, resulting in development of standards for collaboration between
suppliers and vendors (such as Collaborative Planning, Forecasting and Replenishment, CPFR).
(Simchi-Levi et al. 2007)
The increasing amplification of orders occurring within a supply chain the more one moves
upstream. This phenomenon also occurs even if the end item demand is fairly stable. (Stadtler &
Kilger 2005)
The Bullwhip effect is regarded as a classic problem within SCM, that results is unnecessary
inventory, shortage costs and unstable system behaviors. One source for this effect is the use of
multiple demand forecasts. The theory states that orders should be based on the ultimate customer
demand and not that of intermediaries, which can be achieved by information integration through,
for example, EDI-links or VMIs. In other words problems concerning all three parameters of
working capital (unnecessary inventory), costs (unstable production) and lost revenues (supply
shortages) can be related to the Bullwhip effect and minimized by better integration. (Stadtler &
Kilger 2005)
Other principles to reduce the Bullwhip effect are order batching (consolidating transports), prize
stabilization (discounting increases the Bullwhip effect) and elimination of gaming (additional
ordering as a result of speculations). These counteractions to the Bullwhip effect are simplified
by the use of timely information, both intra- and inter-organizational. (Stadtler & Kilger 2005)
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THEORY
THE BULLWHIP EFFECT
Furthermore a vital issue is that SCM should not be a strategy on its own, but rather an integral
part of both each members strategy and the supply chains strategy as a whole. This can also be
complemented by consolidations among different supply chains, e.g. combining demands for
standard parts to increase the purchasing power. (Stadtler & Kilger 2005)
SCOR-Model
The SCOR model is a reference instrument, developed by the Supply Chain Council (SCC) in
order to describe Supply Chains and the activities they encompass in a standardized way. As a
result Supply Chains can be benchmarked against each other and best practice methods for
specific processes are shared. (Stadtler & Kilger 2005)
Furthermore the SCOR-model constitutes the base for the analysis model used to position the
interviewed companies relative each other. The SCOR model consists of the process types: plan,
source, make, deliver and return (recycle) and includes activities from suppliers to customers.
Appendix 2 provides a brief explanation of the different areas.
3
In addition to best practices for Supply Chain Management, there are key performance indicators
(KPIs) that are applicable and important for all supply chains. These are delivery performance
(delivery accuracy), supply chain responsiveness (the ability to react to market changes), assets
and inventories (inventory turns) and costs (e.g. cost of goods sold). (Stadtler & Kilger 2005)
One important aspect of Supply Chain Management is demand fulfillment (delivery accuracy).
Closely connected to demand fulfillment is the process of order promising, with the traditional
approach that is standard for MRP systems of promising supply against inventory. If there is no
available inventory, orders are quoted against production lead-time (backlog) which often
violates other constraints, such as available capacity. A better approach to promise orders is
available-to-promise (ATP), which considers all constraints along the supply chain to give more
accurate and realistic promises. ATP is the result of a synchronized supply and capacity plan
and represents actual and future availability of supply and capacity that can be used to accept
new customer orders on. This method is especially useful in the case of a supply constraint in
the industry, i.e. material and/or production capacity are bottlenecks. (Stadtler & Kilger 2005)
Supply Chain Council
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THEORY
Figure 2 SCOR-model6
THE ANALYSIS MODEL

The analysis model comprises the operational processes from the SCOR model (Source, Make,
Deliver & Return), briefly described in the previous chapter. The model has been complemented
with the dimension of working capital/revenues/costs. This will supposedly explain the use of
certain methods as the focus shifts depending on each companys state and the steel industrys
state in general.
To further reflect the importance of integrating suppliers and customers and clarifying the
strategies for this, these two areas have been added to the SCOR processes (to some extent this is
incorporated in the excluded plan area from the SCOR model). Even though product
development (design) is not addressed by the SCOR-model this area has been added as the
model would not reflect the companies complete emphasis without it. The Supply Chain Forum,
where these three areas are described as integrated processes in Supply Chain Management,
further validates this addition to the SCOR model. (Stadtler & Kilger 2005)
Combined, the various sources have resulted in an analysis model shown below (figure 3).
3
THEORY
Figure 3 Analysis model
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4 ANALYSIS AND RESULTS

4.1 INTERVIEWS
The following sections contain information about the largest steel companies in Sweden. Each
chapter first contains an overview of the companys strategy followed by more Supply Chain
Management specific strategies. The SCM areas supplier and source have been merged in
this section as strategies often overlap.
4.1.1 Case Studies
The following case studies are based on the conducted interviews and are interpretations of the
conversations with company representatives. In addition to the in-depth-interviews each
companys annual report has been used as a complementary source of information.
4.1.1.1 SSAB Oxelsund Plate Division

Revenue:
Production:
Employees:
Niche:
Customers:
Strategy:
9.563 MSEK7
586 kt (kilo tonnes)8
25199
Quenched heavy plate
Construction machinery, mining equipment & crane manufacturers
Superior product, service & know-how, physical closeness to
customers
SSAB Oxelsund is one of two divisions within the SSAB Group, producing heavy plate with its
two most recognized brands HARDOX and WELDOX. The facility in Oxelsund is an integrated
steelworks, covering all production from smelting to hardening, quenching and finishing.
Oxelsunds products have better strength and resistance characteristics while maintaining a
lower weight than competitors products. This is a source for competitive advantage, enabling a
sales price that is often close to double that of other steel producers. Notable is also that by the
end of 2007 almost no ordinary plate was produced as a result of the strategy of focusing more on
niche products (quenched plate) 10.
The main customers for Oxelsund are construction machinery, mining equipment and crane
manufacturers. These industries have high requirements regarding safety and reliability and
hence enable steel makers to charge more for superior product characteristics. Also the increased
focus on environmental issues favors producers of lighter materials but with similar strengths.
SSAB has very well-known brands in this niche, going as far as being recognized and requested
by end-consumers (for example the buyer of a Caterpillar machine) when buying equipment.
Affrsdata (for 2006)

SSAB Annual Report 2007, p. 29 (for 2006)
9
Affrsdata - 2006
10
SSAB Annual Report 2007, p. 28
8
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ANALYSIS & RESULTS
Generally the market for quenched plates shows a good growth. This is much due to investments
in developing regions but also the developed regions have shown continuously increased
demand11. For Oxelsund specifically, the demand is far bigger than the available production
capacity, giving the companys sales organization a highly favorable position. Rather than
actively selling the steel, this is an operation of allocating small volumes to preferred customers.
As a result of the above-mentioned factors Oxelsund has an extremely high EBIT margin
compared to most other companies in the steel industry (as can be seen in appendix 5).
Tied to the insufficient production capacity, is Oxelsunds strategy to supply small customers
that are not attractive to the big players in the industry, mainly due to small order volumes.
Examples of this kind of customers are small local after-market service centers with demands for
customized products. Going after this kind of customers, means not only supplying unattractive
markets, but also being almost invisible to bigger competitors. It would be very difficult to find
all these small customers to make counter-offers even if they wanted to.12
The sales strategy to concentrate on small customers is complemented with a very developed
collaboration with end-customers. Specific about this collaboration is that it goes beyond
marketing and long-term relationships, to have expert knowledge about the customers processes.
This gives Oxelsund a very favorable position in negotiations and the possibility to sell the exact
right steel at a higher price. In other words the products sold contain a high level of service, from
application support to long-term relationships. For example Oxelsund has application engineers
specialized in the mining industry where demands regarding safety and product reliability are
extremely high.
As a part of the strategy to go after small customers, mainly in the after-market, Oxelsund does
not sell at all via wholesalers. Instead products are sold either directly to customers, often subsuppliers to Original Equipment Manufacturers (OEM), or distributed by their own warehouse.
The simplified value chain for Oxelsund is interpreted below.
11
SSAB Annual Report 2007, p. 9

Interview with SSAB Oxelsund representative
13
14
12
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ANALYSIS & RESULTS
The activities with the most unique production knowledge at Oxelsund are the smelting
(material recipe) and the hardening/quenching process. These two processes surround the process
of rolling, which could theoretically be outsourced. The main reason for keeping this process inhouse is to remain integrated with minimal external risk. Another factor is the desire that
customers consider the products unique and special, something that would be harder to achieve if
production processes were outsourced. 14
As it is impossible for Oxelsund to compete with lower prices volumes are too small the
company constantly tries to develop products that are difficult to produce with high productivity.
In other words they manufacture products that are unattractive to produce for modern flowoptimized factories where maximum tonnage at lowest possible cost is prioritized. This once
again makes the products unattractive for competitors and is a part of the long-term strategy to
dig deeper into the niche. 13
SCM-EMPHASIS
The fact that demand is far greater than capacity affects lots of different areas of the company,
although no apparent SCM strategy is deployed company-wide. Some extra attention should be
given to the fact that most work focuses on increasing revenues, whether it is increased
production or pro-active work with deliveries. As it turns out, it is currently much easier for the
company to earn more by increasing sales than trying to reduce costs. 16
SUPPLIER/ SOURCE
When purchasing raw materials the company uses few suppliers and long-term relationships to
keep the raw material inventory at a minimum. The main raw materials (ore and coal) are bought
at global market prices and conditions and are therefore considered difficult to affect from a SCM
point of view. For example VMIs or EDIs are not used and there is a relatively low transparency
between supplier and customer regarding demand.17
The sourcing process is furthermore aimed at lowering costs and keeping the inventories as low
as possible. Although the money that can be saved by lowering inventory levels can never be
15

17
16
17 (74)
ANALYSIS & RESULTS
The collaboration with customers in the after-market furthermore creates a pull for Oxelsunds
products in earlier stages (OEMs and end-users). Alongside the collaboration with these aftermarket service centers, Oxelsund owns its own service centers. This is mainly in markets where
there are few local SSCs and they must have their own in order to create an infrastructure to be
close to potential customers. Owning SSC facilities is especially important when establishing
operations in developing regions due to the lack of existing infrastructures for distribution.
Furthermore Oxelsund is ready to buy local centers that are often family-owned and otherwise
would be closed down. Apart from resulting in increased integration and a closeness to customers
this strategy reduces uncertainties in demand.15
Figure 4 Value Chain SSAB Oxelsund
compared to the loss in production due to a lack of raw materials. Therefore costs are not
prioritized when it comes to critical input materials, but the main focus regarding non-critical
inputs. 18
DESIGN
Design, or product development, has always been regarded as one of the main drivers for success
by SSAB Oxelsund. The unit has a desire to be considered the market leader regarding product
characteristics and innovation and therefore has to put emphasis on this area. Since the
restructuring of the steel industry in the 1970s, Oxelsund has produced products with a
significant quality advantage. Even though competitors are closing in regarding product
characteristics, Oxelsund still has the leading edge. The strategy is to remain in this position and
therefore the company focuses a lot of attention in this SCM area.19
DELIVER
External transports are constantly being improved and remain an important area within SCM at
Oxelsund. Transports are being optimized in regard to costs in the long run, but the main reason
for improvements in this area is that it must not become a future bottleneck. This would be highly
plausible if production capacity would be more in line with demand. In other words the work is
pro-active in this case.
As part of the distribution strategies Oxelsund also develops methods for loading containers for
transport and shifting to trains from trucks. Apart from being more environmentally friendly this
alternative allows for fewer transshipments and hence is more effective. 22
RECYCLE
Within the factory site, excess material and scrap is recycled and used as input material. When it
comes to recycling material from customers or various service centers, the potential cost savings
are very small. Furthermore the logistics solution for achieving this would have to be established
18

20
21
22
19
18 (74)
ANALYSIS & RESULTS
Being able to sell more than can be produced also comes with some problems. The factory at
Oxelsund has been constantly occupied with orders for more than 100% of available capacity.
The slightest problem in the factory therefore creates a huge gap and delivery accuracy has been
very low in the past. A way of avoiding this problem is to have a close communication between
sales offices and production. The slightest stop in production is immediately communicated to
sales offices where allowed sales volumes are reduced correspondingly.21
MAKE
Some best practice methods are used in order to create an efficient flow of goods. These methods
are for example drum-buffer-rope (optimizing in regard to bottlenecks) and creating a capacity
abundance in final production steps. This only helps to some extent as the factory site is old and
the layout is not optimized to create a flow of products from the start.20
as there are lots of outgoing transports but only a few incoming, i.e. cross-docking solutions are
difficult to achieve. 23
CUSTOMERS
One important aspect of the Supply Chain Management theory is sharing information openly.
This strategy is currently not used between Oxelsund and its customers. The reason for this is
very specific, namely that the company does not want customers to view the products in stocks as
available at wish. This of course relates to the strategy that the sales force basically allocates
volumes to customers.
On the other hand the company focuses lots of attention on this area when it comes to
cooperating, long-term relationships and knowledge about customers processes (as described
previously). Hence, it is one of the main aspects of the companys strategy and helps to reduce
demand uncertainties while increasing the sales volumes. 24
ANALYSIS
The emphasis on Supply Chain Management is recapped in figure 5 below. The SCM areas
supplier, source and recycling receive by far the least attention. These areas are typically
associated with cost reduction and as the company rather focuses on increasing sales, they are
given less emphasis.
Suppliers
Design
Source
Make
Deliver
Working
Capital
Revenues
Costs
Strong emphasis
Medium emphasis
Figure 5 Supply Chain emphasis SSAB Oxelsund
23
24

19 (74)
Some emphasis
Recycle
Customers
ANALYSIS & RESULTS
SSAB Oxelsund does not seem to have a general SCM strategy, although some specific SCM
methods are used in the various sections. Because of the favorable market the company does not
focus on costs at the moment and most strategies are directed towards increasing production
capacity and short- and long-term revenues.
Focus lies on developing the products rather than developing the production processes.
This is due to the fact that a Dollar in increased sales is easier to achieve than saving a
Dollar in making the product.
Customer relationships and collaboration go beyond the end-user to even include the
aftermarket, creating a very favorable position that is difficult to reach by competitors. A
pull for the products is created throughout the value chain when end-users demand that
products should contain steel from Oxelsund.
Even though small customers are preferred, global steel consumers constitute an
important part of the total sales volume. These companies demand a global presence by
the steel supplier in order to have a consistent steel quality throughout their production
sites. Hence the global distribution net becomes an important aspect, placing emphasis on
improving logistic solutions.
4.1.1.2 SSAB Tunnplt Strip Division

Revenue:
Production:
Employees:
Niche:
Customers:
Strategy:
14.824 MSEK25
2660 kt26
405627
Advanced high strength steels (strip)
High strength: Heavy & light vehicles, crane manufacturers,
Ordinary: Engineering & construction
Advantageous distribution net on home market, increased focus on
niche products
SSAB Tunnplt, the strip products division, manufactures both ordinary and high-strength strip
steel. Customers for high strength steel are mainly in the automotive industry with applications
ranging from containers (hot rolled) to safety components (cold rolled). The main competitors in
this product area are Arcelor Mittal and Thyssen Krupp. Ordinary steel has applications in the
construction, engineering and automotive industry and competitors are most European steel
producers. In summary, the market for the products manufactured by the SSAB Tunnplt facility,
is highly competitive (more so for ordinary than high-strength) and the prices depend much on
the competitors. Therefore a strategy that focuses on reducing costs is necessary for this division,
although reduced working capital has recently become an important issue. This is the opposite of
the SSAB Oxelsund division that basically dictates conditions and focuses a lot on increasing
revenues.
25

27
26
20 (74)
ANALYSIS & RESULTS
Delivery accuracy is low due to the over-scheduled production system.
Sweden, as SSABs home market, is the absolutely largest market for the Tunnplt division with
approximately 35% of the total deliveries. The remaining shares are somewhat equally distributed
across Europe completed with small shares in the USA and China. In the Nordic market the
company sells both ordinary and high-strength steel, whereas the strategy is to only supply highstrength in the remaining markets. Ordinary steel sales in the home market are made possible
mainly by the proximity to customers and a well established distribution net. Environmental
issues and requirements have a positive effect on the demand of high-strength steel as reduced
weight can be achieved with similar or higher strength and a longer product life (this is mainly
relevant for sales in the automotive sector). As the company has also come relatively far in the
emissions reduction area (compared to competitors in other countries), stricter, but equal,
environmental regulations could be of advantage.28
The material flows for the Tunnplt division are shown simplified in figure 6 below.
28
Interview with SSAB Tunnplt representative

30
29
21 (74)
ANALYSIS & RESULTS
Generally the production sets limits for how much high-strength steel can be produced and sold.
The production flow is very complex for the different high-strength products, with many
bottlenecks at final steps. This allows for the remaining production capacity in the first steps
(rolling) to be utilized for ordinary strip steel production. Tunnplt has the same strategy as the
company as a whole, namely to increase the focus on niche products. Investments in the
production capacity for advanced high-strength steels are in line with this strategy and as a result
the share of high-strength steel increased from approximately 28 % in 2006 to 33 % in 2007.
Compared to the Oxelsund facility, where almost only niche products (quenched steels) were
produced towards the end of 2007, this strategy still has large potential. 30
The strip products division consists of two units; a slab production plant in Lule and rolling
plants and after-treatment in Borlnge. As the capacity in Lule is not sufficient, the remaining
slabs are purchased from the Oxelsund unit. To increase the capacity in the final steps, several
sub-contractors are used for various finishing operations close to the customers. 29
Figure 6 Value Chain SSAB Tunnplt
SUPPLIER / SOURCE
Within purchasing there is not so much to do in order to lower the prices because of the
industrys characteristics. Rather, this is a cash-flow issue where raw material stock levels ought
to be optimized to minimize the working capital. The current focus in this area therefore lies on
reducing the number of suppliers in order to increase long-term collaboration, which potentially
means advantageous payment conditions.
Also, the stock levels are not optimized at the current, as a result of insufficient inventory
management systems. This area has large potential for savings and for that reason focus lies on
optimizing order sizes and inventory levels.
Otherwise, the raw material prices are regarded as a relatively small problem as the increases
apply to all other global competitors as well. Although there is some lag, the price increases are
31
32

22 (74)
ANALYSIS & RESULTS
SCM-EMPHASIS
The strip division has no common SCM strategy to increase the company-wide efficiency.
Despite this, several improvement methods are used within each of the defined areas that are
described below. Generally Tunnplt strives to improve delivery accuracy, although the main
focus lies on reducing costs and increasing the share of niche products through investments and
productivity improvements.32
As can be seen in figure 6 the products are sold mainly via wholesalers but also directly to subsuppliers and manufacturers. Especially in the home market, Sweden, the distribution net is very
elaborated including the ownership of distributor Tibnor and building sheet producer Plannja.
This distribution net and local presence is also the main competitive advantage for ordinary strip
steel in the home and neighboring markets.31
also shifted to the end-price for the customers. This should be compared to environmental
requirements that vary in different countries and hence distort the competition.33
DESIGN
As the strip division manufactures products that are relatively standard, research and
development becomes very important - niche products within this steel area today, often become
bulk products within ten years. Therefore the company has to invent numerous new steels each
year to keep the competitive advantage of being the leader in innovation. For this purpose a
technology-push way of working is applied, i.e. instead of focusing on customers demands the
research is technology driven.
Most research is conducted within the areas of cold and hot rolled steel as the focus on niche
products increases. To sum up, there is a large focus on this area even though no specific SCM
strategies are apparent. This is a result of the recent strategy to focus more on increasing the
variety of products provided instead of expanding globally.34
Even though production is said to be completely MTO, prognosis are used indirectly for the
production planning process. Customers place a preliminary order, weeks or months ahead of
production, with the various sales companies but are not bound to that volume instantly (orders
are bound to the customer in the rolling stage). The same volume is used for production planning
and discrepancies occur if customers change their order later in the process. Better forecasts
would therefore show a large potential. Once again a more integrated communication system
would prove useful for this scenario as information could be shared faster and easier internally.35
33

35
34
23 (74)
ANALYSIS & RESULTS
As high strength volumes are restricted, the marketing and sales forces reserve volumes upon
received orders. These volumes are then converted by the production planning units into batches
that are realizable regarding lead and changeover times. Hence the production sets the limits,
regarding high strength steel, for the sales forces whose task it is to keep the sales volumes even.
This communication, however, shows great potential for improvements as the information flow
between market units and production is often not good enough. Partly this is due to obsolete IT
solutions, but also focus should be shifted to treating different areas in the company as customers,
i.e. the customer-orientation should be exploited internally as well. A better communication
would lead to better production planning and a significant competitive advantage as the share of
niche products could be increased.
MAKE
As stated above the production can only handle a certain amount of high-strength steel as there
are several bottlenecks in the different flows. All volumes are produced on customer orders
(MTO) as the products are highly differentiated and customizable (with restrictions). This also
makes the batches relatively small (compared to other strip steel producers) and places pressure
on reducing changeover times. Therefore this is a focus area in production at the strip division
and methods like Total Productive Maintenance are used to improve the efficiency.
DELIVER
For the delivery process SSAB Tunnplt uses several large distribution platforms, with the main
distribution center in Rotterdam. The transports are carried out by rail/truck/ship to Rotterdam
and then by trucks to the end destination. This end destination can either be a customer or one of
the approximately 50 smaller Distribution Centers (DC), mainly in Europe.
The company uses a large service center in Maastricht, otherwise service operations are carried
out close to the customers through an elaborated cluster of partner companies. Although the
strategy is to be as close as possible to the customers, there is not a current plan to own these
service centers but they are needed as the product range exceeds the own capacity.
For the distribution in general and transports to these local service centers, the strip division has a
tool for real time control. In other words the products that are currently not in their own
possession can be monitored easily. The system also generates an invoice automatically for the
customers. 36
The collaboration with customers otherwise receives large focus as application knowledge is
regarded as one of the competitive advantages for the company. A trustworthy and high quality
sales force is vital to the operations On the other hand information is not shared openly regarding
capacities and prognosis outside the companies boundaries. 37
ANALYSIS
Most important areas are R&D, collaboration with, and proximity to customers and superior
production knowledge. There is additionally a small focus on reducing working capital, mainly in
the areas of sourcing and deliver. Apart from production, where the focus is directed towards cost
reductions, the most emphasized areas are focused towards increasing revenues.
36
37

24 (74)
ANALYSIS & RESULTS
CUSTOMERS
As mentioned above the strip division has a very close collaboration with customers in the home
market. For a few large and strategically important customers in the Nordic area the company
uses EDI-links as a way to simplify the order flows. These customers often have extreme
demands regarding delivery times and delivery accuracy why this kind of system and some
reserved stock is needed. Otherwise the strategy is to increase the number of smaller customers in
order to create barriers. Small customers make it easier to retain a higher price level since their
relative bargaining power is lower.
RECYCLE
This area was not mentioned during the interviews as the area was not perceived as a prioritized
issue.
Suppliers
Design
Source
Make
Deliver
Recycle
Customers
Working
Capital
Revenues
Costs
Strong emphasis
Medium emphasis
Some emphasis
Figure 7 Supply Chain emphasis SSAB Tunnplt
Apart from enhancing the products physical attributes, R&D functions focus on
increasing knowledge about customers processes through collaboration. The products
value consists of the physical characteristics and the knowledge provided by the steel
producer. Steel characteristics can only be developed to a certain level while the know
how still shows a lot of potential.
As a result of the desire to have small customers a more complex distribution net is
needed, implying for increased working capital. Increasing raw material cost will further
contribute to this rise of working capital. The recent focus on lowering working capital
therefore makes logistic solutions (Deliver) important to improve.
Generally Tunnplt strives to improve delivery accuracy in the production, although the
main focus lies on reducing costs and increasing the share of niche products through
investments and productivity improvements.
25 (74)
ANALYSIS & RESULTS
The intense focus on niche products that are highly differentiated implies a production
process that is not optimized in regard to material flows. In other words the production
process is sub-ordinate to the niche product strategy.
4.1.1.3 Outokumpu Stainless - Avesta

Revenue:
Production:
Employees:
Niche:
Customers:
Strategy:
20.016 MSEK38
656 kt39
219140
2m wide cold and hot rolled plate - Stainless
Process industries, e.g. oil & gas, chemical, pulp & paper industry
Superior production methods, application know-how, enhanced
SSC network to increase end-user & project customers, customerorientation
Recently, there have been major investments in Avesta, totaling about EUR 550 million, to
almost double the production capacity and enable increased focus on Specialty Stainless. Today
some General Stainless is produced as well but the strategy is to produce higher shares of
Specialty Stainless in the future. This shift will decrease productivity but the total value added is
supposed to account for the productivity losses.43
The Stainless pricing mechanism works differently than that of normal steel. The price depends
on the global steel price but with an addition for alloys (for example Nickel), which makes the
end-price44 and thereby the demand very dependent on the alloy prices45. This increased exposure
to financial institutions trading adds volatility to the end-product price. This means that even if
the underlying demand for products is stable and in line with production capacity, the sales
38

Outokumpu Annual Report 2007, p. 25 (for 2006) - aggregate figure for Specialty Stainless division
40
41
Outokumpu Annual Report 2007, p.22 & 25
42
Outokumpu Annual Report 2007, p.25 & 38
43
Interview with Outokumpu representative
44
Transaction price = base price + alloy surcharge
45
Nickel accounted for 75% of raw material costs for the Group in 2007, Outokumpu Annual Report 2007, p. 34
39
26 (74)
ANALYSIS & RESULTS
Customers for the Specialty Stainless area are typically in the oil & gas, chemical, nuclear power
or pulp & paper industry. These industries typically demand tailored solutions for their project
orders and have high requirements regarding product properties. This increases the importance of
the R&D function and collaboration with customers through application engineers and sales
personnel42.
Outokumpu is a global producer of stainless steel with production facilities in Finland, Sweden,
the UK, the US and the Netherlands. The production facility in Tornio, Finland is considered to
be the most cost-efficient General Stainless Steel factory in the world, focusing on large-volume
production and integration to even include its own chromite mine (chrome used for some steel
grades, reducing price volatility and increasing cost competitiveness). The Swedish mills focus
on Specialty Stainless, an area that produces half the volume compared to General Stainless while
contributing with the same sales value. This gives approximately the double per tonne price
(EUR/t) and the double margin for Specialty products41. The biggest Swedish subsidiary, Avesta,
represents Outokumpu in this text.
volume will vary substantially, creating extreme Bullwhip effects for Outokumpu. As an
example, quarterly EBIT for the Outokumpu Group, varied from approximately EUR 400 million
to negative EUR 280 million due to changes in Nickel prices46.
Avestas production facility is adjusted to produce high quality Stainless from a lower quality of
raw material (mainly scrap) and works with material recipes that contain smaller amounts of
alloys than competitors but with similar material properties. This, of course, gives a competitive
advantage while reducing volatility for the own companys margins. Furthermore Avesta
produces 2m wide slabs as one of only 3 factories in the world, a differentiation that further
reduces dependence on the worlds trading markets.47
Figure 8 Value Chain Outokumpu
A company-wide strategy for Outokumpu is to increase and invest in the service center network
in order to increase the share of end-user and project customers49. By buying service and
distribution centers the company is often able to increase the centers share of Outokumpu steel.
46
Outokumpu Annual Report 2007, p. 8-9

48
49
Outokumpu Annual Report 2007, p. 4
47
27 (74)
ANALYSIS & RESULTS
Outokumpu Avesta currently sells approximately 50% of its products via internal distributors and
directly to sub-suppliers, while the rest is sold to external distributors48. Simplified the main
flows in the value chain for Outokumpu Avesta are shown below in figure 8.
Outokumpu Avesta considers its main strength to be competence in the areas of sales, production
methods and applications for their products. The advantage in production has been partially
pointed out above, but an area that is especially important in the Special Stainless industry is
application know-how. It is impossible for Outokumpu Avesta to compete with prices and the
focus is shifted to selling better products than competitors. Therefore a big task for the sales force
is often to explain the superior material characteristics to customers, both for existing and
recently developed products. At the same time this collaboration with customers provides
information about their real needs.
This means that an investment in service centers indirectly means taking over production to endcustomers and increasing the demand for the companys own products.50
Distribution centers in general make large profits by speculating on material prices and thereby
increasing the volatility of Stainless products. In other words they build up large stocks when the
prices are low and sell of stock when prices increase. This is a main reason for the varying
demand during 2007. Therefore another aspect of the investments made in this area, is that they
reduce the volatility for Outokumpus products by smoothening the demand, which is a central
strategy for the Avesta facility.51
The increased scrap prices have increased the attention on invested capital in inventories, but the
main focus in sourcing is still reducing costs (inventory accounts for a very large part of the
Groups total costs54). An explanation for this is that production cannot be allowed to stand still
due to empty raw material inventories, i.e. they must not be bottlenecks.55
As part of OK>1 Outokumpu has established a new category organization within procurement in
order to leverage the Groups size and thereby buying power. This means that all contracts are
made at company level by the Supply Chain Management function to guarantee lowest possible
price across different business units. This improvement work alone has resulted in savings of
EUR 10 million (for the entire Group).56
DESIGN
R&D is an area within Outokumpus work that achieves some extra attention. One of the
advantages Outokumpu has over its competitors is that the steel produced has a similar, or better,
quality but with a lower quality of scrap as input material. Also, a smaller amount of alloys per
tonne Stainless is used, which is a result of thorough research. To keep this advantage the
50

52
53
Outokumpu Annual Report 2007, p. 36 & 45
54
55
56
51
28 (74)
ANALYSIS & RESULTS
SUPPLIERS/SOURCE
Apart from ferrochrome Outokumpu uses external suppliers for all input materials. The general
strategy is to enter long-term contracts, but also the company has changed its pricing model for
the alloy surcharge in order for the end-price to faster reflect the changes in supplier contracts
and prices (this is mainly due to the volatile Nickel prices).53
SCM-EMPHASIS
Outokumpu has launched a program called OK>1 to increase focus on SCM in the entire
company. This company-wide introduction combined with emphasis from top management on
SCM constitutes a ground for successful implementation. The main idea of the program is to
create a customer-oriented supply chain thinking with end-to-end management of the internal
value chain52. Combined with some other strategies this program is described for each SCM area
in the following sections.
company focuses a lot of attention on this area with an R&D center in Avesta, mainly to increase
revenues and margins.57
There is also a linkage between the R&D functions and the Production Excellence program
(OK>1) at Outokumpu, to ensure system-wide efficiency at all levels. While research at Avesta
in concentrated on developing new grades, there is a constant parallel development of production
technology to keep up with the pace. Furthermore the R&D experts with Outokumpu are the link
to sales departments and customers, providing both advice and valuable feedback.58
Although most of the production is made to order (MTO), the company uses prognoses for
production planning in the longer run. These forecasts are based on collaboration between
salesmen and their customers. When an actual order is made it is entered into an MPS system but
still not visible to all separate facilities in Avesta. The steelworks for example download
information from the general MPS system twice a week after it has been processed by production
planning.59
DELIVER
The main thing that has come up within the distribution area is that Outokumpu continuously
invests in local distribution and service centers. Apart from smoothening the demand this ensures
reliable distribution channels to chosen markets. Also this area is part of the responsibilities of
the SCM function at a corporate level, ensuring system-wide efficiencies60. Locally there is a
well established information flow regarding production capacity and stock levels and some of the
best practice methods regarding transports are used (for example wave picking). Despite this
57

59
60
58
29 (74)
ANALYSIS & RESULTS
Furthermore approximately 90% of the production volume at Avesta is produced and tied directly
to a specific customer (MTO) after leaving the steelworks (Stage 1). This means that internal
stocks are kept at a minimum to reduce working capital in later stages. Interesting is that the
steelworks run at a fairly constant speed, while later activities, like rolling, are adjusted directly
to demand and thereby highly flexible. This is possible because the steelworks can supply for
other Outokumpu units but also sell of material as General Stainless bulk steel. It is apparent that
the bottleneck lies in later stages at the present, but the investments might shift the bottleneck
back to the steelworks making it possible to produce more Specialty Stainless.
MAKE
Some areas in the internal supply chain attract some extra attention, with production (Make) as
the most outstanding part. In production the focus lies mainly on reducing costs while constantly
improving processes and lead times to secure delivery accuracy in the long run. The major key
performance indicator (KPI) for this area is OEE, or Operational Equipment Efficiency, which
has improved continuously since the program was introduced. The value of the KPI itself is not
as important as the drive it gives each employee to achieve improvements. The financial
implications are difficult to see, but the program is a pro-active approach to meet potentially
higher future demands when it comes to delivery accuracy and lead times.
deliver does not give the impression as one of the most prioritized improvement areas for the
company.61
RECYCLE
Similarly to deliver, recycling is not one of the most focused areas within SCM at Outokumpu.
Having a close collaboration with its customers in the home market although enables the Avesta
facility to have an elaborated recycling strategy. For example rest products are taken care of
internally and there is a logistics solution for reusing excess steel from the customers. At the
same time this area is regarded as having the least potential regarding profit generating and cost
saving possibilities.62
CUSTOMERS
Outokumpu has a strategy to increase collaboration with customers through a structure that is
very similar to SSABs application engineers (as described in the design section). The
company has a very good understanding of both end-customers and distribution centers needs.
Generally Outokumpu gives the impression of focusing more attention on Supply Chain
Management than other interviewed companies in this report. The reason is a company-wide
improvement program that has come up at all interviews and permeates all levels of the Avesta
facility when interviewed. The focus within SCM appears to lie mainly on cost reduction and
stabilizing demand. This is achieved through increased integration, increased customer
collaboration and implementation of well-known production methods.
The results are visualized in figure 9 below.
61

63
62
30 (74)
ANALYSIS & RESULTS
ANALYSIS
Furthermore Outokumpu has a very well established distribution net in the home market (Nordic
region), partly through ownership but also through long-term relationships with distribution
centers. This combined with the fact that Outokumpu is often the single largest provider gives a
large competitive advantage, which has to be built on in order not to lose market share when
other global players enter this market. Therefore collaboration with customers is an important
area for the companys future success. 63
Suppliers
Design
Source
Make
Deliver
Recycle
Customers
Working
Capital
Revenues
Costs
Strong emphasis
Medium emphasis
Some emphasis
Figure 9 Supply Chain emphasis Outokumpu
4
The improvement program, OK>1, permeates all levels of the organization with most
significant impact within the production (Make). General KPIs are broken down into
specific measurements for each sub-division, creating a coherent way of working with
improvements throughout the organization.
The overall most important KPI for Outokumpu is delivery accuracy. Although
improvements have been initiated there is still work to be done in order to meet higher
customer expectations in the future.
By investing in the service and distribution center network the company increase the
sales volumes, although the main reason for these investments is to reduce the volatility.
Thus the effect from speculating distribution centers is decreased.
So far, the Supply Chain Management initiative has not implied any significant financial
improvements, nevertheless the work is part of a pro-active effort for future potential
benefits.
Close collaboration, knowledge about customers and an effective distribution net are
significant barriers for the home market.
31 (74)
ANALYSIS & RESULTS
4.1.1.4 Sandvik Materials Technology

Revenue:
Production:
Employees:
Niche:
Customers:
Strategy:
19.337 MSEK64
not relevant, too different steels and grades
858565
Advanced Stainless Steel
Petrochemical, medical, paper, oil & gas industry, knifes & razors
Few and big customers, increased focus on niche products,
customer-orientation, enhanced production efficiency
Like Outokumpu, Sandvik is very dependent on the various prices of alloys (Nickel, Cobalt &
Tungsten) used in Stainless Steel production. The Nickel price fluctuation for example resulted in
estimated losses of approximately 450 MSEK during 200768. As for Outokumpu the Stainless
price depends on the steel base price plus an alloy surcharge, but the effect of increased alloy
prices is not immediately transferred to the price of Stainless. This lag impacts Sandviks result
negatively and enhances demand variations as customers adjust their orders to the current alloy
surcharge.69
With the intention of being a provider of a complete range of products in the niche of Stainless
Steel, additional steel products are purchased from other steel producers. Sandviks strategy is to
concentrate the production in Sandviken on high margin products and to complete the assortment
of less specialized steel from external producers. This is a part of the enunciated plan to increase
the share of high-margin steel, a shift that aligns with the strategy to move away from bulk-like
products. Manufacturing products that are difficult to produce with a maintained productivity in
bulk-producing factories, is used as a strategy to avoid competition.70
64
Sandvik Annual Report 2006

Sandvik Annual Report 2006, p. 12
66
67
68
Sandvik Annual Report 2007, p. 12
69
Interview with Sandvik representative
70
65
32 (74)
ANALYSIS & RESULTS
Sandvik is a highly integrated stainless steel producer, which includes all activities from steel
smelting to finished products. The strategy is to produce advanced value-added products where
Sandvik has a possibility to become the market leader. SMTs products are divided in three
product groups: wire, tube and strip. Typical customers are found in the petrochemical, oil, gas
and power industries as well as producers of applications with a need for special alloy grades,
such as razor blade and knife manufacturers. 67
Sandvik is a global industrial group divided in three major areas, steel tools for metal working
applications, equipment and tools for rock-excavation and stainless high-alloy steels. In this
thesis the latter product area which is organized under the unit Sandvik Material Technologies
(SMT) has been studied and referred to as Sandvik 66
Branding is an important area and like Intel inside has become a phenomenon in the computer
industry, Sandvik strives to create a similar perception among the users of Stainless Steel
components. By aiming at the end-customer Sandvik tries to create a pull for their products
throughout the value chain, where the end-user demand Sandviks steel.71
Most of the products are produced when an order is placed and only 20 % of the products are
produced to be stocked. When products are ready for delivery they are first shipped to a main DC
in Rotterdam and then distributed to local steel service centers (split points). From these service
centers the steel is finally delivered to the customers. When large volumes are shipped they are
often transported directly to the factory, instead of going via a distribution center.72
Figure 10 Value Chain Sandvik
SCM-EMPHASIS
As for many of the other steel producers in this study, Sandvik suffers from problems with lead
times and delivery accuracy. The people working at the factory are well aware of the problems
and the two most important KPIs that are measured and displayed at every site are delivery
accuracy and the number of accident-free days. A program was started in 2003 to improve
operational performance under the name SMT Business System. This program affects some but
71

73
72
33 (74)
ANALYSIS & RESULTS
A simplification of the product flows from Sandvik to its global customers is shown in figure 10.
Transportation from the factory to the main DC is managed by well-known Third Part Logistics
Providers (3PL), while transports from service centers to customers are handled by various local
distribution companies. This structure is efficient from a transport logistics viewpoint but implies
vast amounts of different invoices and thereby difficult handling (i.e. which transports correspond
to which invoices). An EDI-broker is used for this purpose, which is further described in the
SCM section deliver. 73
not all of the defined areas within Supply Chain Management, but with the common intention to
increase customer orientation and improve lead times and delivery accuracy. 74
SUPPLIER/ SOURCE
Purchasing is one of the areas that is emphasized in the SMT Business System. Despite this the
area was not mentioned as a prioritized area during the interviews and the reasons might be
similar to those for the other steel companies, the dependence on world market prices. This
makes it difficult to affect the price by introducing certain SCM methods.
One of the big issues is to decrease the working capital in the production and concepts like WIP
(Work In Progress) seem to be permeated throughout the entire organization. This is also a reason
for the focus on reduced lead-times in the production, which would decrease working capital.
Another method that is used at Sandvik is the concept of letting bottlenecks set the pace for the
production. Much like at SSAB Oxelsund, the production is currently utilized to 100% of
capacity, which calls for bad delivery accuracy in case of any minor problem. The company
therefore focuses on bottlenecks in combination with customer-driven production. Instead of
fully booking the production there is a close communication with sales & marketing and in case
of a lack of capacity the efforts are shifted to increasing prices immediately.77
DELIVER
Sandvik uses an external service provided by an EDI-broker in order to increase control over the
shipping process information and invoice handling etc. The broker furthermore works with all the
3PLs and brings together information about where the trucks containing Sandviks products are at
any time. This information is only available for the routes populated by the large 3PLs.
74
Peter Gossas presentation SMT Capital Markets Day 2007

76
http://www.smt.sandvik.com
77
75
34 (74)
ANALYSIS & RESULTS
MAKE
With the introduction of the SMT Business System many of the methods within Lean
production have been implemented at Sandvik. Examples of these are Kanban, continuous
improvements and customer-order driven production, which is supposed to have improved leadtimes significantly.
DESIGN
The aspiration to produce more high-value products makes design an important area. Sandvik
wants to be associated with quality and regarded as a market leader in innovation. Not only are
the product characteristics important to improve, but also the knowledge of how the products can
be used in end-user applications must continuously be elaborated75. The R&D function acts as
the link to the customers, extracting information about needs but also as a provider of technical
services and material advice. The emphasis on R&D is confirmed by the ownership of one of
Europes largest stainless steel research centers. 76 This function is also under the influence of the
SMT Business System with the intention to increase focus on customers real needs.
In order to increase the service offered to customers, a track and trace system might be introduced
throughout the transportation system. This would be equivalent to when private individuals
purchase goods over the internet today where they can monitor the delivery process and track the
parcel all over the world in real time. One aspect that makes this solution difficult to implement is
the low IT-maturity by many of the transport companies, on the other hand successful
implementation would mean a substantial competitive advantage.
From a Supply Chain Management perspective Sandvik uses many best practice methods.
Examples of these include the above-described EDI-solution, Wave-picking and Cross-docking.
By using these strategies, and thereby filling trucks, the company optimizes the transport cost. In
addition the setup with local distribution companies, that transport the goods to the customers,
ensures a high service level.78
ANALYSIS
The emphasis on SCM areas is visualized in figure 11 below.
78

80
79
35 (74)
ANALYSIS & RESULTS
CUSTOMERS
The customers are few and large and have often been faithful buyers of Sandviks steel for
several years. There is an apparent emphasis on relationship management with a focus on
customers processes and applications. The market organization has recently switched from being
organized by product area to a market segment grouping, a step in order to ease the procurement
processes for customers. With the new organization buyers only need one contact person at the
market unit for all products that are purchased, instead of one contact person for each product
category. This is an action taken, as a part of the company-wide process, to increase endcustomer relationships. The global sales organization has direct contact with the steel plant and
no intermediaries are used, a step to further increase and maintain the close connection with the
customers.80
RECYCLE
The area of recycling has received little attention at the Sandvik interviews. As for many of the
other interviewed companies the volumes that could be transported back to production facilities
are relatively small and therefore make out low potential for savings. Nevertheless this area could
allow for improvements as environmental demands will become stricter in future. 79
Suppliers
Design
Source
Make
Deliver
Recycle
Customers
Working
Capital
Revenues
Costs
Strong emphasis
Medium emphasis
Some emphasis
Figure 11 Supply Chain emphasis Sandvik
Low delivery accuracy is one of the main problems. Furthermore lead times need to be
improved and work-in-progress (WIP) minimized, in order to decrease working capital in
the production processes.
Focus on collaboration with end-customers through close cooperation between R&D

function and consumers. Application engineers ensure that the right materials are
developed and in later stages sold and used correctly.
With the aspiration to be a market leader in innovation and associated with the latest
technology a lot of attention is placed on the developing new products, making design an
emphasized area.
Distribution process is well elaborated to optimize transport costs. A high service level is
reached by the usage of split-points in order to even out local demand variations.
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ANALYSIS & RESULTS
Design, Make and Customers are areas that are emphasized by Sandvik. Although Deliver is not
a part of the improvement program it is another area that is prioritized and very well elaborated.
Many SCM methods are used in addition to and under surveillance of this program, although it
does not permeate the organizations units to the same extent as during the interviews with
Outokumpu. There is a large focus on decreasing working capital in the production as part of the
program, but the general objective is to increase revenues through larger shares of niche products
and customer collaboration.
4.1.1.5 Uddeholm Tooling
Revenue:
Production:
Employees:
Niche:
Customers:
Strategy:
2.220 MSEK81
70kt82
84083
Tool steel
Tool makers, automotive industry, OEM
service, global presence, quality
There is also a tendency to increase the forward vertical integration. Uddeholm holds a factory
with machinery to enable some modular production. By making the products more sophisticated
the next performer in the value chain, the tool producers, can decrease the lead time for their
production. At the same time as Uddeholm strives to increase the integration, a strategy to
distinguish themselves, they are keen not to integrate too far and be perceived as a competitor by
the customers. The level of integration also depends on the country Uddeholm operates in. In
general more processed steel is requested in the north of Europe where manual labor is more
expensive.86
The trend to produce more value added products is apparent at Uddeholm Tooling. Products are
classified into three categories depending on the value of the steel and there is a shift of the
product mix into the more sophisticated grades. Nevertheless, the increased alloy prices have
resulted in a higher demand for more bulk-like steel.87
As more of the modular industries, such as mobile phone production, is outsourced to low cost
countries Uddeholm needs to be present locally with stocks and services in those regions. Finding
81

Rolf Stlberg
83
http://www.jernkontoret.se
84
Sweden Today, no 3 2005, Steeled for global growth
85
Interview with Uddeholm representative
86
87
82
37 (74)
ANALYSIS & RESULTS
Like many other Swedish steel producers Uddeholm Tooling possesses a strong brand that stands
for quality. There might be other producers that can make steel with superior characteristics, but
Uddeholms strength is the unvarying quality. When customers buy steel from Uddeholm they
always know what to expect and can be certain that the steel will behave the same, regardless of
when the steel is purchased.85
Uddeholm Tooling is a leading producer of tool steel for industrial tools and dies used to produce
millions of products, such a cars, CDs, computers and cell-phones. Since 1991 Uddeholm is a
subsidiary to the Austrian company Bhler-Uddeholm AG, a global producer of tool steel with a
market share of 34 %. Customers range from larger OEMs to small local producers of steel tools,
and no customer constitutes more than 2% of the total volume sold. The most important segment
is automotive, that accounts for around 50 % of Uddeholm Toolings production and sales.84
other segments where the high quality steel can be used is another attempt to retain sales
volumes.
Collaboration with other steel companies is further a part of an attempt to increase sales. For
example, a new tool steel has been developed in joint venture with SSAB to live up to the
specific requirements when processing the new high strength steel (by SSAB). Customers are
guided to pick the best tool steel from Uddeholm when buying steel from SSAB.88
SCM-EMPHASIS
About 20% of the products sold by Uddeholm are produced at other facilities. Sub-contractors are
used when there is an insufficient capacity in the steel plant and some products are purchased due
to lack of capability. These complementary products are sourced in order to provide a complete
selection of tool steel. 90
DESIGN
Uddeholm aims at presenting two new steel products every year. The emphasis on design is
regarded as one of the competitive advantages held by the company and there is an extensive
investment of capital in this field.91
MAKE
The most commonly used production method at Uddeholm is the drum-buffer-rope practice i.e.
the production line is adjusted after the bottlenecks, with buffers in front of critical operations.
The production philosophy deployed at Uddeholm aims at running the production with full
capacity at all times, even if there is a cut in demand. This way of managing the production
results in increased inventories during less busy periods. Increased working capital due to stocked
products is less expensive than an eventual lack of steel later on when demand might increase. A
lost hour in the production could never be retained and therefore bottlenecks are run regardless of
88

http://www.jbfab.com/omjbf.html
90
91
89
38 (74)
ANALYSIS & RESULTS
When purchasing raw materials Uddeholm uses fixed order points. It is necessary that the
production at Uddeholm never halts due to a lack of resources; a stop in one of the bottlenecks
would be far more expensive than the cost of keeping some extra inventories.
SUPPLIER/SOURCE
Scrap and alloys are the two most important inputs in the production process. When purchasing
scrap Uddeholm turns to JBF (Jernbruksfrndenheter), a cooperative organization that provides
input material to several of the Swedish steel producers. The organization was established in the
beginning of the last century by the leading steel producers with the intention of bringing order to
the shaky scrap market. The scrap allocation has always been the main task for the organization
even if other sourcing duties have been assigned to the organization over the years (e.g. other raw
materials)89.
the real demand. As long as there is no need for excess cash due to approaching investments, the
reduction of working capital will not be a highly prioritized area.
Orders in the production are executed as they arrive by the first in first out policy, although
products assigned to customers are given priority to orders made to be stocked. Products are not
held for important customers nor saved for more lucrative markets; if the steel is available when
requested, the sales unit who has placed the order receives the goods.
Running production is on the one hand about maximizing the filling degree in each operation and
on the other hand about minimizing the total lead time for each product. Some operations take
several hours and launching small series, to increase the individual products lead time, will
occupy the equipment. At the same time, waiting for sufficient material to fill up operations will
increase the non-value adding time for products that are waiting to be processed. One rule of
thumb that is deployed is to never produce more than what can be consumed by the next
operation during one shift. 92
Delivery accuracy is an important area, although not as big of a problem as for other companies
in this study. The delivery accuracy KPI is measured in two ways, how many orders that are
delivered on time and how many of the standard products that are available at a given time.93
Figure 12 Value Chain Uddeholm
RECYCLE
92
93

39 (74)
ANALYSIS & RESULTS
All the transportation by land is managed by 3PLs and the overseas shipments are handled by a
partly owned shipping company.
DELIVER
The distribution net is regarded as one of Uddeholms competitive advantages. Few other toolsteel producers have a global presence and can provide steel for all markets. Even if the sales
organizations manage all the cooperation with the customers, the physical transportation of the
steel is transferred directly from the steel plant out to the consumers, as can be seen in figure 12
(for Europe only).
Even if recycling mainly takes place in-house today, there is a potential in encompassing endusers in the reverse flow of material. The characteristics of tool steel makes it favorable to recycle
since the steel is kept intact in the tool and is not mixed with other materials when it is used in
applications. Locating the steel is a complex issue because the end-consumers of the steel are not
the customers directly supplied by Uddeholm and therefore difficult to locate. Another issue is
the way scrap is treated. When the steel is to be thrown aside at a factory, it is often bunched
together with the rest of the steel scrap that is sourced and therefore difficult to distinguish.94
CUSTOMERS
When Uddeholm became a part of Bhler Uddeholm AG a new organization was outlined. The
sales organizations were separated from the production unit and they now act as different
divisions, with decentralized responsibility for profits.
The decentralization of the organization has also increased the bullwhip effect throughout the
company. The production only receives information of how much the sales units intend to buy,
not how much steel that will actually be sold to the customers. This gap of information leads to a
perceived variation in demand that is greater than the variation among the end consumers of tool
steel.
Another implication for increased bullwhip effect is the unsynchronized optimization of
inventories. At the end of each year the sales units try to minimize inventories in order to show
good financial results. Larger orders are then placed at the beginning of the next year to
compensate for the lack of products. This makes scheduling in the production more complicated
and harder to forecast, with amplified variation as a result.
Although this way of outlining the supply chain makes no sense from a logistic point of view, the
decentralized responsibility has forced the sales units to be more careful and not waste capital.
The benefits from a decentralized organization are regarded, by the board, as more important than
the upside of an optimized communication between sales and production units.
Although the sales units are treated as customers the real consumer of the steel is the tool makers.
The collaboration with these end consumers is an important part of the sales and marketing
function for Uddeholm Tooling. Application engineers are used to help customers and develop
their processes. A pull strategy is used to create a demand for Uddeholms products by focusing
94
40 (74)
ANALYSIS & RESULTS
The production unit only controls its own inventories and is only supposed to serve the sales units
when they place an order. This breakdown, into decentralized organizations, implies that one
product can be available at one sales unit and short at another. No one has the overall
responsibility to communicate and even out these misallocations and the result is suboptimization.
By implementing the reorganization the board tried to make each site more efficient and to
eliminate waste. One problem that has occurred because of the effort to make the company more
efficient, is the lack of transparency.
marketing operations on the user of the tools. A great bargaining position arises when big tool
users like Nokia and Volvo demand their tool makers to use steel from Uddeholm. 95
ANALYSIS
The three most important areas are Design, Deliver and Customers all focusing on increased
revenues in priority to working capital and costs.
Suppliers
Design
Source
Make
Deliver
Recycle
Customers
Working
Capital
Revenues
Strong emphasis
Medium emphasis
Some emphasis
Figure 13 Supply Chain emphasis Uddeholm
95
During the past years Uddeholm has experienced increased revenues and profits although
the supply chain focus has been put aside. Instead of system wide flows of information
and goods, processes are regarded as autonomous entities where sub-optimizations occur.
Possessing a strong brand and providing high quality products are more important than to
be perceived as a cost leader. Therefore the design process is regarded as highly
important.
The distribution net (deliver), with global presence, is regarded as a necessity in order to
reach out to all the customers and is one of Uddeholms competitive advantages.
Tool producers are historically small companies. This has put Uddeholm in the position
where they can sustain high prices due to the low bargaining power of customers. At the
same time collaboration with end-customers is an important aspect of the marketing pullstrategy.
41 (74)
ANALYSIS & RESULTS
Costs
4.1.2 Case Study Conclusions - Common Characteristics In The Swedish

Steel Industry
The following characteristics are common findings among the companies that have been
interviewed for this thesis.
A summary of the emphasized areas within the interviewed companies is presented in figure 14
below. Design and Customers are the two areas that receive the most attention, followed by
Make and Delivery. The most prioritized areas are unanimously focused towards increasing
revenues. One should bear in mind that focus on revenues might be a result of the flourishing
economy in the past years, and a shift to more cost effective approaches is likely when the
economy sours.
Figure 14 - Summary of Supply Chain emphasis
Other common findings are:
Low delivery accuracy. Most companies produce on orders (MTO) and battle with low
delivery accuracy. Although the companies are not forced today by the customers to
improve delivery accuracy, the common idea is that improvements would lead to a great
competitive advantage.
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ANALYSIS & RESULTS
Regarding sourcing/suppliers, the raw materials for steel producers are largely bought at world
market prices and are hence difficult to affect. Furthermore, stops in production are much more
critical than a slightly increased sourcing cost, especially when capacity restricts the sales volume
(more can be sold than produced).
Supplier/Source and Recycle receive by far the least attention. Recycling, in terms of reverse
flow of material outside the own production, is taken care of by established networks specialized
in this field. Costs related to establishing own infrastructures, outweigh the benefits of an
integrated reverse flow.
Focus on Supply Chain Management is generally low. Due to the current market
situation when demand often exceeds production capacity, cost and capital-saving
activities are less effective than increased sales efforts and therefore easier to neglect.
Collaboration with end-customers is emphasized as a part of the niche strategy

implying for Forward Vertical Integration. A common service offered by a majority of
the steel companies is application engineers, provided to help customers develop products
containing steel or their processes. The focus on service and added value in terms of
know-how are strategic moves to differentiate the products. Eventually the steel produced
by companies in low cost countries will be of the same quality and the steel itself will no
longer be a competitive advantage. The knowledge of how the steel can be used in
specific applications will then constitute the leading edge. In order to achieve this high
level of collaboration with end-customer, presence in the latter part of the value chain
(Forward Vertical Integration) is necessary.
End-customer marketing. The marketing pull-strategy is widely used in the steel

industry. Promotions aimed at the customers customer to create a pull through the value
chain are deployed by a majority of the steel companies. Even though steel is a
commodity, sold business to business, the marketing and branding activities play an
important role.
43 (74)
ANALYSIS & RESULTS
Product focus rather than process focus - to produce products that are difficult to
produce in an efficient way. The Swedish based steel companies can never compete by
efficiency; hence they seek to manufacture products that are too difficult to produce with
a high productivity in the international competitors (often bulk producers) production
systems. Most Swedish steel companies strive to produce high margin products, steel used
in applications where a higher quality is requested.
4.2 SURVEY
The results from the survey are summarized in the three sub-sections of this chapter. First the
most relevant methods for each supply chain area are presented and analyzed, followed by the
AHP analysis and general conclusions obtained from the survey. Altogether the number of
respondents is 16 and they are listed in appendix 3.
4.2.1 Tools Deployed
Methods
Used to high extent
Steel producers (stage 1-2)

Working actively to increase
integration (80%)
Used to a low extent
Reduced number of suppliers

for non-critical products
(80%)
Increased suppliers for
critical products (56%)
Compatible MRP (0%)
Open Book (11%)
Service Centers (stage 3)

integration (100%)
Increased suppliers for

critical products (67%)
CPFR (40%)
Compatible MRP (20%)
Open Book/Target Costing/
Red. Nr. of suppliers for
non-critical products (33%)
Working actively to increase integration with suppliers receives great importance among all
companies, 100% of the Steel Service Centers rate this question high extent while the same
number for Steel Producers is 80%. Despite this fact, most listed methods concerning increased
integration (information sharing: MRP, open book, etc.) are used to a very low extent.
Methods concerning reduced risk and price (flow of materials: adjusted number of suppliers) for
purchased goods are used to a higher extent by all companies.
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ANALYSIS & RESULTS
SUPPLIERS
Following chapters describe methods used within each of the SCM-areas according to the
analysis model described in the theory chapter. For each SCM-area the two most commonly/least
used methods - and additionally all methods with over 70% usage - are displayed in a table with
the percentage of high extent users shown in parenthesis. The complete results from the survey
can be seen in appendix 7.
DESIGN
Methods
Used to high extent

Working actively to make
Design more efficient (67%)
Customer-demand-driven
(90%)
Design for Environment
(56%)
Innovation Blowback (0%)
Open Innovation (0%)

Design more efficient (50%)

(80%)
Design for Manufacturing
(80%)
Open Innovation (0%)
Methods
Used to high extent

Focus on working capital
(89%)
Costs prioritized for noncritical products (78%)
Optimization tools for

sourcing (0%)
Merge-in-transit (0%)

Focus on working capital
(100%)
Sourcing solely based on
prognosis (83%)
VMI (0%)
Wave-Picking (0%)
Even though both groups state that there is a large focus on reducing working capital, the best
practice methods are used to a very low extent.
MAKE
Methods
Used to high extent

production more efficient
(100%)
MTO (90%)
SMED (80%)
Drum-buffer-rope (80%)
Mass-Customization (80%)
Flexible Production
regarding variation in
45 (74)

production more efficient
(100%)
MTO (100%)
Buffers & intermediary
inventories minimized
(83%)
Lean (83%)
ANALYSIS & RESULTS
SOURCE
67 % of steel producers are working actively to make the design-process more efficient and 50%
of the SSCs are working actively with this. The service centers are more concerned about how the
products are developed in order to ease the own production process (DFM) than the steel
producers are. On the other hand steel producers use customer driven design to a much larger
extent than service centers, even though the service centers are closer to the end-customers.
demand (70%)
Muda (70%)
MTS (20%)
Buffers and intermediary
inventories minimized (30%)
Demand-Pull Manufacturing
(17%)
ERP/MRP based production
(prognosis)/ Muda/ Masscustomization (33%)
100% of producers and SSCs focus to a high extent on making this area (Make) more efficient.
Steel producers use best practice methods to a higher extent than SSCs. Methods deployed by
producers focus more on securing the production and flexibility than minimizing working capital
by a lean production.
DELIVER
Deliver more efficient (89%)
Real Time Inventory control

(80%)
Shelf Ready format (70%)
EDI-links (11%)
Cross Docking (22%)

Deliver more efficient
(100%)
Cross Docking (83%)

Real Time Inventory control
(83%)
VMI (33%)
89% of the Producers and 100% of the SSCs focus to a high extent on making deliver a more
efficient area. Control within the company regarding product and information flow is generally
high through methods like Real Time Inventory Control.
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ANALYSIS & RESULTS
Methods
Used to high extent
RECYCLE
Methods
Used to high extent

Working actively to improve
recycling (100%)
In-house Product Recovery

(78%)
Waste products sold to 3rd
part (78%)
Reverse Logistics (40%)
Production system includes
reverse flow of materials
(44%)

Working actively to improve
recycling (83%)
Waste products sold to 3rd

part (100%)
In-house product recovery/
reverse logistics (67%)
Production system includes
reverse flow of materials
(20%)
Package Recovery (33%)
Methods
Used to high extent

integration with customers
(80%)
End user marketing (44%)

ATP (30%)
Compatible MRP/ERP (10%)
CPFR (20%)

integration with customers
(83%)
CPFR (40%)
End user marketing (33%)
Compatible MRP/ERP
(17%)
ATP (17%)
More than 80% of the Producers and SSCs rate integration with end-customers as an important
area to improve. End user marketing receives relatively little attention by the companies
participating in the survey although the area has been highlighted during interviews.
The will to increase collaboration with customers is not about implementing compatible ITsystems (MRP/ERP) but more about establishing relationships and global sales presence.
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ANALYSIS & RESULTS
CUSTOMERS
Although recycling is an area that most producers and Service centers regard as important to
improve, very little is done to create a reverse flow of material for products outside the own
production. The reverse flow is handled by existing scrap recyclers and the potential for each
producer to locate and bring back their own steel is very low.
4.2.2 SCM-Score
The SCM-score is percentage of best practice methods used by a company. Comparing this score
to EBIT and ROCE would reveal if there is a correlation between the use of best practice
methods and the value that is created. Calculations of the metrics are attached in appendix 5.
.
producers
producers
SSC
20%
40%
15%
30%
ROCE%
EBIT%
SSC
10%
20%
10%
5%
50%
55%
60%
70%
0%
40%
75%
45%
50%
55%
60%
65%
70%
75%
SCM-score
Figure 15 SCM score vs. metrics
Apparently there is no correlation between SCM-score and the financial metrics, EBIT and
ROCE neither for producers nor for the SSCs.
The results for a more Supply Chain Management specific metrics, however, indicate some
correlation. A higher SCM-score often results in higher stock turnovers according to figure 16,
although only for steel producers.
SSCs
12
Stock Turns
Stock Turns
Producers
0
40%
45%
50%
55%
60%
65%
70%
75%
0
40%
SCM-Score
45%
50%
55%
60%
SCM-Score
Figure 16 SCM score vs. Stock Turns
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65%
70%
75%
ANALYSIS & RESULTS
SCM-score
65%
0%
45%
4.2.3 AHP - Potential Cost Savings And Profit Possibilities

In this section the results from the AHP are shown, i.e. the relative potential of the different
Supply Chain Management areas. For example a potential of 16% (Customers) versus 8%
(Deliver) means that the Customer area is regarded to have twice the potential compared to the
Deliver area. Once again, the results have been presented separately for producers and service
centers (SSC).
SSC - Relative potential of SCM areas
Producers - Relative potential of SCM areas
15%
9%
16%
26%
26%
5%
8%
20%
15%
Supplier
Design
Source
Make
Deliver
Recycle
Customers
10%
15%
Figure 17 Relative potential of SCM areas (AHP)
For the producers the three areas with the most potential are Customers, Make and Design. The
latter two are regarded as equally important, but more than twice as important as for example
Source (26% vs. 10%). The SSCs on the other hand rate Customers, Supplier and Design highest,
although with a more equal distribution amongst the remaining areas than for producers.
The fact that supplier collaboration (Suppliers) receives greater ratings amongst SSCs is much
due to the nature of their business, this is their core competence. While the steel producers mostly
source their commodities from large corporations at market prices, the SSCs buy more value
added products. This enables a larger bargaining opportunity for SSCs, which would explain the
results. On the contrary the production is the producers main activity, explaining why the area
receives higher ratings than for SSCs.
Furthermore the area Source receives higher ratings relative other areas for SSCs than for
producers. This could be explained by the fact that speculation constitutes a large part of the
service centers business, while the producers strive to avoid speculation by sourcing in level
with the true need.
49 (74)
ANALYSIS & RESULTS
9%
Supplier
Design
Source
Make
Deliver
Recycle
Customers
5%
20%
4.2.4 Survey Conclusions Methods deployed

Below are the conclusions from the survey results.
Tools deployed (from section 4.2.1)
Methods deployed by producers focus more on securing the production and flexibility
than minimizing working capital. In other words the focus lies on providing customers
with a high level of service instead of offering low prices through a cost-effective
production process. Hence, products are prioritized above processes (Make).
The steel producers collaborate closer with end-customers than service centers when it
comes to design. In other words the steel producers skip the middle-men and aim directly
at the endcustomers when they develop new steels (Design).
SCM-score (from section 4.2.2)
A correlation exists between the SCM-score and stock turns for steel producers, but when
analyzing the impact on financial metrics this pattern can not be seen. This would imply
that the use of best-practice methods has impact on Supply Chain efficiency, although
other aspects than SCM are more important for value creation. The independence
between the SCM-score and stock turns for SSCs might be a consequence of the SSCs
business. Since speculation is incorporated, minimized inventories are not necessarily
desirable, thus affecting the stock levels.
AHP-Analysis (from section 4.2.3)
Areas with most potential, for cost savings and profit generating possibilities, amongst
the producers are Design, Make and Customers.
50 (74)
ANALYSIS & RESULTS
Generally the methods deployed are rather about directly reducing risks and costs than
about increased transparency and information sharing (Source and Customers).
4.3 VALUE CHAIN WHERE IS THE GOLD IN THE STEEL INDUSTRY?

This section explains the reasons behind Steel companies positioning strategies in their value
chain. For this purpose the value chain has been divided into three stages that are characteristic
for the steel industry.
4.3.1 Profit Along The Value Chain

One obvious question is whether there is a correlation between value creation and positioning in
the value chain. In other words if there are areas in the steel value chain that are more value
adding and also more profitable than others.
STAGE 2
STAGE 1
Exploration
and Mining
Smelting and Slab

production
STAGE 3
- SSC Cutting, Stripping,
Welding, Bending of Metal
Modular
Production
Rolling, Hardening
& Finishing of metal
Coiling/Coating/Formatting
20%
EBIT %
15%
10%
5%
0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
ROCE %
Stage 1, 2 & 3 (5 companies)
Stage 2 (4 companies)
Stage 1 & 2 (4 companies)

Stage 2 & 3 (6 companies)
Figure 18 Positioning vs. Profit
There is no clear correlation between either the EBIT-margin nor ROCE when compared to the
combination of activities encompassed in a company (i.e. extent of integration throughout the
value chain). Notable is that the size in terms of turnover seems to be greater for fully integrated
companies. This could be a given result of the capitalization that takes place when more activities
are performed. It could also be that growing companies seek to expand vertically rather than
growing within the existing activities.
51 (74)
ANALYSIS & RESULTS
Positioning vs. Profit

Com panies are sized by revenue
Positioning vs. Profit

Com panies are siz ed by revenue
20%
EBIT %
15%
10%
5%
0%
0%
5%
10%
15%
20%
25%
ROCE %
30%
35%
40%
45%
Figure 19 Positioning vs. Profit
In general a financial comparison between the Swedish steel companies is very ambiguous due to
the extreme differences in size and type of products. Even within the sector containing the largest
and fully integrated companies, which have been interviewed, there is a large diversity in
margins. This further underlines the conclusion that integration itself does not mean high
margins. The margins are instead largely a result of the type of products created by each
company.
4.3.2 Value Chain Conclusions - Reasons Behind Value Chain Positioning

Strategies
There is no distinct correlation between positioning and value creation.
Steel production itself does not mean high margins. This implies that products rather than
processes are the main drivers for value. The even margins among SSCs, where the
variety of products eliminates product related value, further underlines this.
Margins are lower for SSCs than for steel producers, hence there are no obvious financial
incentives for forward vertical integration by steel producers. The reason for this might
be that brands belong to the producers while SSCs act more like wholesalers. The niche
steel is not a generic product that can be re-branded by wholesalers like some consumer
goods.
52 (74)
ANALYSIS & RESULTS
When all companies that encompass stage 1 are bunched together (figure 19) it is evident that
they appear all over the spectra. Steel production itself does not mean high margins which might
imply that products rather than processes are main drivers for value. The cluster of SSCs, with
similar margins in figure 19, further underlines this conclusion. As the SSCs distribute several
different products, the product related value is eliminated and factors like global steel and alloy
prices take over as value drivers.

Only Stage 3 - SSC (8 companies)
Others (10 companies)
5 CONCLUSIONS
Positioning Forward integration is part of a strategic move to secure and stabilize

demand, rather than a hunt for increased margins. In other words the motive for
forward integration, among steel producers, is not to buy the margins in the later stages
of the value chain, but rather to secure the own margins through a stabilized demand.
Furthermore, stainless steel producers in particular suffer from the volatility in the nickel
price and other alloys. The apparent demand, created by speculating distributors who are
stocking or selling of steel, makes forecasting a problematic area. By taking control of
distribution centers the demand volatility is reduced and margins are stabilized.
Forward integration is used as an approach for marketing and product

development rather than as a Supply Chain Management strategy relationships
exist but are not used to their full potential. The academic theory argues that a system
wide optimization, instead of regarding each part as independent units, will be beneficial
for all constituents. To achieve this state, it is essential to share information openly along
the supply chain. In general, the steel companies have established close interactions with
customers, for marketing and development purposes, but the advantages of these close
relationships are not used to the full potential. Information about inventory levels,
capacity and demand is not shared as widely as possible to achieve optimal planning and
forecasting.
53 (74)
CONCLUSIONS
The strategy to avoid competition by addressing small end-customers requires presence

in the latter part of the value chain in order to control the flow of material. If the
influence over the service centers was to be diminished, the producers would no longer
be able to implement this strategy.
Although there is no distinct correlation between positioning and value creation, a

tendency among the largest companies is to be integrated. Most steel companies have a
strategy to increase control in the latter part of the value chain (service center), by either
ownership or strategic alliances. The margins are generally lower for service centers than
for steel producers but the proximity to end-consumers is essential. Close collaboration
works as a guarantee in order to secure stable demand in the long run. In other words, if
the producers lose the connection to end-consumers, a large part of their competitive
advantage is lost (application know-how etc.).
Product focus rather than process focus, due to niche strategies. The Swedish steel
companies have chosen to focus on high value niche products since they can never
compete with low cost bulk producers. The focus on developing leading and customized
products has put efficiency efforts aside.
Furthermore the financial analysis shows that steel production itself does not mean high
margins. The vast spread among steel producers when it comes to margins would imply
that the superior ones are either more efficient or able to charge higher prices for the
steel. Since the Swedish steel companies are not bulk producers, the latter explanation is
more likely. Compared to bulk producers, where the most cost efficient producer earns
the most money, the niche producers value rather seems to depend on the products
superiority. This implies that products rather than processes are the main drivers for
value. The even margins among SSCs, where the variety of products eliminates product
related value, further underlines this.
The fact that the product characteristics seem to be the main value driver, implies that
efforts in making the process more efficient are less attractive.
5
Delivery accuracy low due to absence of a top performer. The number one issue at all
interviewed companies is low delivery accuracy. Even though all companies are aware of
this problem and strive to get better, the absence of a top performer in the industry might
take away the pressure for real improvements. Another explanation might be the
acceptance by customers. It is widely accepted that orders must be placed a long time in
advance and with some uncertainty regarding delivery times.
An underlying reason for the low delivery accuracy might be the shift from a traditional
process industry, to an MTO industry with highly customizable products. Process
oriented machines are used to produce individual products, thereby not in an optimized
way.
To improve the delivery accuracy larger inventories can be held, on the other hand this
implies more working capital. Instead of using backlogs in production planning, the use
of planning systems that incorporate capacity restrictions along the entire supply chain,
would possibly improve this without the issue of larger inventories.
54 (74)
CONCLUSIONS
Design and Customers are univocally the two most important areas for steel
producers, with most potential for increased income possibilities. The case studies
reveal design and customers as by far the most emphasized areas (followed by make) and
the AHP analysis shows that design, make and customers are regarded as areas with the
most potential. Currently, the focus lies on increasing revenues in favor of cost savings
and capital rationalizations. This is probably a result of the current favorable market
situation, but if the economy should turn down, focus might shift to a more cost saving
perspective. Thereby Supply Chain Management strategies, like increased information
sharing, could become necessary for the steel industry.
Source, Supplier and Recycle are less emphasized areas and regarded by the
steel producers to lack potential for increased revenues and cost savings. The raw
materials for steel producers are largely bought at world market prices and are hence
difficult to affect. Furthermore, stops in production are much more critical than a slightly
increased sourcing cost, especially when capacity restricts the sales volume (more can be
sold than produced) and is once again a result of the favorable market situation.
CONCLUSIONS
55 (74)
Recycling, in terms of reverse flow of material outside the own production, is taken care
of by established networks specialized in this field. Costs related to establishing own
infrastructures, outweigh the benefits of an integrated reverse flow.
6 CRITICAL REVIEW AND SUGGESTIONS
The major conclusions are drawn from qualitative interviews at the largest steel producing
companies in Sweden. A minor drawback of such an approach is that some viewpoints are always
missed, although the targets have been chosen to reflect large parts of each organization. Even
though sourcing questions have been considered during the interviews, a more coherent academic
approach would have included interviews with responsible persons in this area. It can be added
that initially, during interviews with the Swedish steel trade organization, this area came off as
somewhat less important, which has affected the decision to exclude sourcing managers.
56 (74)
CRITICAL REVIEW
Supply Chain Management has also become a wide concept with many different meanings. To
state that this paper constitutes an investigation of Supply Chain Management in the steel
industry is therefore quite ambiguous. Rather, frameworks from SCM theories have been used for
the analysis of the companies. Each SCM-method contains too much analysis for a single thesis
to cover all of them more deeply than has been made here. This leads up to a general suggestion
for further interesting investigations in this area. For example, an interesting approach would be
to investigate more in-depth the delivery accuracy for any single steel producer and suggest how
specific SCM methods (e.g. VMI) can be applied and the consequences thereof. Another possible
research suggestion would be a benchmark between the steel industry and another process
industry regarding delivery accuracy.
Furthermore, for the analysis of the survey, the number of respondents was relatively low,
resulting in some statistical uncertainties. The hit rate, with 16 respondents out of 29 possible, is
acceptable and the number of companies is difficult to affect as including more small steel
producers would not bring more context to the thesis. It must therefore simply be accepted that
the uncertainty is part of the nature of this paper.
7 REFERENCES
LITERATURE
Ansari S.L. & Bell J., Target Costing: The Next Frontier in Strategic Cost Management, 1997
Lindh C. Logistik och Supply Chain Management, KTH, Stockholm, 2004
Simchi-Levi D. et al, Designing and Managing the Supply Chain Concepts, Strategies and
Case Studies, McGraw-Hill, New York, 2007
Stadtler H. & Kilger C., Supply Chain Management and Advanced Planning: Concepts, Models,
Software and Case Studies, Springer, Berlin, 2005
ARTICLES
Ahmadi R. & Wurgaft H., Design for synchronized flow manufacturing, Management Science,
1994, accessed 2008-05-12 via http://www.jstor.org
Cachon G P; Fisher M Supply Chain Inventory Management and the Value of Shared Information
Management Science, Vol. 46, No. 8. (Aug., 2000), pp. 1032-1048.
Accessed 2008-05-12 via http://links.jstor.org/sici?sici=00251909%28200008%2946%3A8%3C1032%3ASCIMAT%3E2.0.CO%3B2-C
Chen F. et al, Quantifying the Bullwhip Effect in a simple Supply Chain: The Impact of
Forecasting, Lead Times and Information, Management Science, 2000, accessed 2008-05-12 via
http://www.jstor.org
Christopher M. & Towill D., Supply Chain Migration from Lean and Functional to Agile and
Customized, Supply Chain Management: An International Journal, vol.5 nr.4, 2000, accessed
2008-05-12 via http://www.emerald-library.com
Hagel J., Seeley Brown J., Innovation Blowback: Disruptive Management Practices from Asia,
The McKinsey Quarterly, 2005, accessed 2008-05-12 via
http://www.johnseelybrown.com/innovationblowback.pdf
Jernkontoret, Det svenska stlet behvs, 2006, accessed 2008-05-21 via
http://www.jernkontoret.se/informationsbanken/vara_publikationer/pdf_info_utb/jkfakta_svenskt
stalbehovs.pdf
57 (74)
REFERENCES
Olhager J., Produktionsekonomi, Studentlitteratur, 2000
Womack J. & Jones D., Lean Thinking - Banish Waste and Create Wealth in Your Corporation,
2003
Kale et. al, Alliance capability, stock market response, and long-term alliance success: the role of
the alliance function, strategic management journal 23, 2002, accessed 2008-05-12 via
http://www.jstor.org
Logistics Management, Merge-in-transit yields benefits, Logistics Management Journal, 1998,
accessed 2008-05-12 via http://www.logisticsmgmt.com/article/CA145699.html
Nyquist O., Jernkontoret, The recent restructuring of the Swedish special steel industry, 1998,
accessed 2008-05-21 via
http://www.jernkontoret.se/informationsbanken/presentationer/pdf/restruct.pdf
Potter A. et al, The evolution towards an integrated steel supply chain: A case study from the UK,
International Journal of Production Economics, 2002, accessed 2008-05-12 via
http://www.sciencedirect.com
Standard & Poors, Industry Survey Metals: industrial, 2007, available at

http://sandp.ecnext.com/coms2/description_RS_MEI_ITM
Sweden Today, Steeled for global growth, no 3 2005, accessed 2008-05-21 via
http://www.uddeholm.com.ar/files/Sweden_Today3-2005Uddeholm.pdf
PRESENTATIONS
Peter Gossas presentation SMT Capital Markets Day 2007:
http://www3.sandvik.com/pdf/ir/capital/070904/Sandvik_Materials%20Technology.pdf
E&Y, SCM footprint, 2008-01-16
FINANCIAL SOURCES
Affrsdata: http://www.ad.se
ANNUAL REPORTS
Outokumpu: http://www.outokumpu.com/39836.epibrw
Sandvik: http://www.sandvik.se/ar2007
SSAB: http://www.ssab.se/templates/PressRelease____813.aspx?releaseid=337118
Uddeholm: http://www.bohler-uddeholm.com/english/3177_ENG_HTML.htm
58 (74)
REFERENCES
Smith W. & Lockamy A., Target Costing for Supply Chain Management: An Economic
Framwork, Journal of Corporate Accounting & Finance, John Wiley and Sons, 2000, accessed
2008-05-12 via http://www.interscience.wiley.com
Supply Chain Council, SCOR Overview version 9.0, 2006, accessed 2008-05-12 via
http://www.supply-chain.org
SOURCES TO COMPANY SELECTION

Jernkontoret:
http://www.jernkontoret.se/informationsbanken/vara_publikationer/pdf_info_utb/foretag_och_ad
resser_2008.pdf
Statistiska Centralbyrn SCB:
http://www.scb.se/templates/Listning2____35024.asp
INTERVIEW SOURCES
Jernkontoret Interview: 05-02-2008
Matthias Ternell (Director International Affairs)
Outokumpu Interviews: 19-03-2008

Tommy Acimovic (Head of production, steelworks)
Anette Lfgren (Logistics Director / SCM)
Per Stinessen (Sales & Marketing Manager)
Sandvik Materials Technology Interviews: 17-03-2008
Anders Forslund (Global Distribution Manager)
Martin Mueller (Global Product Manager, strip)
Uddeholm Tooling Interviews: 15-04-2008
Rolf Stlberg (Marketing Director)
Stefan Sjgren (SCM / Logistics Director)
59 (74)
REFERENCES
SSAB Tunnplt Interviews: 11-03-2008

Peter Strandberg & Malin Fridell (Logistics Controller)
Riitta Pettersson (Coordinator Warehousing & Distribution)
Hans kerblom (Business Area Manager, Nordic Market)
Gran Hugard (Manager Marketing Communications)
SSAB Oxelsund Interviews: 20-02-2008

Carl-Johan Wahlgren (Manager External Logistics)
Per-Olof Stark (Director Marketing & Sales)
Ola Hgglund (Head of Division & Director Production)
Appendix 1 Descriptions & Best practices

The various abbreviations from the survey are shortly described in this section according to their
use in this thesis, including the source for the best/leading practices.
The concept of cooperating with other companies to achieve
economies of scale
Kale et. al
Available-To-Promise
(ATP)
An availability and feasibility check for customers. The ATP is

the uncommitted part of a companys inventory and planned
production over time. Customers can retrieve information about
available supply as ATP provides lead-time quotations based on
current supply chain status.
Simchi-Levi,
Stadtler &
Kilger
Backward Integration
(vertical)
Increasing the level of control between companys own value

chain and that of suppliers
Simchi-Levi
Collaborative Design
Collaboration among companies to develop new products
E&Y
Collaborative Planning,
Forecasting and
Replenishment (CPFR)
A platform for retailers and manufacturers to exchange

information about future sales promotions and past sales trends.
CPFR makes it easy for each side to retrieve and append
relevant information in order to make more accurate forecasts
and better planning.
Simchi-Levi
Cross Docking
To increase inventory velocity and to minimize storage space

the receiving and shipping processes are linked together in a
DC. Every inbound shipment has an outbound shipment
scheduled and the incoming goods are moved directly to the
order pick up area without any intermediate storage.
Simchi-Levi
Customer Driven R&D
Products are developed according to customers demands

(opposite of technology-push)
Womack &
Jones
Demand-Pull
Manufacturing
Production is demand driven. Products are produced on internal

(or external) orders, no prognosis are used
Womack &
Jones
Taking environmental demands into account already in the

product development phase
E&Y
Design for Manufacturing

(DFM)
The productivity is accounted for in the development phase

i.e. the production of the new product is facilitated
E&Y
Drum-Buffer-Rope
The production is managed in regard to bottlenecks (buffers

used in front of bottlenecks). The drum (bottleneck) sets the
pace for entire production line in order to maximize throughput
and minimize work-in-progress (WIP)
Olhager J
Electronic Data
Interchange (EDI)
Paperless communication, where data is transferred between

two systems without human intervention.
Cachon G P,
Fisher M
60 (74)
APPENDIX 1
Alliance & Leverage
Enterprise Resource
Planning (ERP)
Simchi Levi
Potter A et.
Al
Ethical Sourcing
One unified system with several different data sources

integrated. Information about the companys process can be
stored and retrieved from all the departments within the firm.
Information systems could be more or less compatible with the
customers systems.
Considering ethical aspects when evaluating suppliers
Fixed Order Quantities
Using fixed order volumes for refilling stocks
Forward integration
(vertical)
Increasing or decreasing the level of control between a

companys value chain and its distributors/customers value
chains.
Chen et al
(not best
practice)
Simchi Levi
Innovation Blowback
The concept of using emerging markets demands (e.g. China/

India) to establish products in more developed countries
Lean
A production philosophy that aims at reducing waste in every

production step in order to create a flow of material.
Mass-customization
The production is adjusted to allow for customized products

(within boundaries)
E&Y
Material Resource
Planning (MRP)
A set of techniques to calculate requirements for material by

using inventory data, product data and master production
schedule. Information systems could be more or less compatible
with the customers systems.
Simchi Levi
Potter A et.
Al
Merge In Transit
The combination of goods from several sources into a single

transport, in order to minimize transports
Logistics
Management
Make-to-order (MTO)
Make to order. Products are manufactured directly upon order

from customers
Not best
practice
Make-to-stock (MTS)
Make to stock. Products are manufactured continuously or in

regard to a prognosis and stocked
Not best
practice
Muda
Actively eliminating all sources of waste (every activity that is

not value-adding). Part of Lean theory
Womack &
Jones
Open Book
Open sharing of information regarding sourcing prognosis with

suppliers
Potter A, et
al / Towill
Open Innovation
The concept of selling/sharing research (e.g. as patents) that is

not used by the own company to develop new products
E&Y
Order up to
The filling of stocks with variable amounts but up to a fixed

point (desired quantity in stocks)
Chen et al /
Simchi-Levi
Package Recovery
Packages that can be reused are sent back to the manufacturer.
E&Y
The
McKinsey
Quarterly
(Hagel &
Seeley
Brown)
Womack &
Jones
APPENDIX 1
61 (74)
E&Y
Waste products are either recycled in house or sold to a third

part.
E&Y
Real Time Inventory
The inventory data is updated continuously when orders are

placed.
Stadtler &
Kilger
Reverse Logistics
The process of moving goods from the destination of

consumption back to the origin where remaining value could be
captured. The process involves planning, implementing and
controlling all activities associated with the procedure.
E&Y
Shelf Ready Format
Packing goods in a arrangement that is requested by the

customer in order to avoid repacking.
E&Y
Single Minute Exchange of

Dies (SMED)
Single Minute Exchange of Dies. An approach to reducing

changeover times
Womack &
Jones
Supplier Orchestration
The use and coordination of several suppliers to decrease

delivery lead times and risks
E&Y
Synchronized source-make
The sourcing process depends on actual needs in production,

through use of a common electronic interface with suppliers
Target Costing (product

development)
The end-price of the product (target cost) is taken into account

in the development phase
Target Costing (supplier

integration)
Here referred to as the concept of setting a target cost for the to

be sourced product (depending on end-price) and then help
selected supplier achieve that price. The allowable amount of
costs that can be incurred on a product and still earn the
required profit
Womack &
Jones,
Ahmadi &
Wurgaft
Ansari &
Bell / Smith
& Lockamy
Ansari &
Bell / Smith
& Lockamy
Wave-Picking
Instead of scheduling orders to be picked when they are

received, increased efficiency in a DC can be achieved by
consolidating orders in waves. The criteria for consolidation
could be by customer, product, geographical area, or any other
criteria that makes sense for the DC.
Supply Chain
Council
Vendor Managed
Inventory (VMI)
The supplier has access to customers inventory data and is

responsible for maintaining a predetermined inventory level
Simchi-Levi,
Supply Chain
Council
62 (74)
APPENDIX 1
Product Recovery
Appendix 2 Description of SCOR areas

The information below is quoted from Supply Chain Management and Advanced Planning
(Stadtler & Kilger)
(Plan)
Plan covers processes to balance resource capacities with demand requirements and the
communication of plans across the supply chain. Also in its scope are measurement of the supply
chain performance and management of inventories, assets and transportation among others.
Source
Source covers the identification and selection of suppliers, measurement of supplier performance
as well as scheduling of their deliveries, receiving of products and processes to authorize
payments. It also includes the management of the supplier network and contracts as well as
inventories of delivered products.
Deliver
Deliver covers processes like order reception, reservation of inventories, generating quotations,
consolidation of orders, load building and generation of shipping documents and invoicing.
Deliver includes all steps necessary for order management, warehouse management and
reception of products at a customers location together with installation. It manages finished
product inventories, service levels and import/export requirements.
Return
In the scope of return are processes for returning defective or excess supply chain products as
well as MRO products. the return process extends the scope of the SCOR-model into the area of
post-delivery customer service. It covers the authorization of returns, scheduling of returns,
receiving and disposition of returned products. In addition return manages return inventories as
well as the compliance to return policies.
63 (74)
APPENDIX 2
Make
In the scope of make are processes that transform material, intermediates and products into their
next state, meeting planned and current demand. Make covers processes to schedule production
activities, produce and test, packaging as well as release of products for delivery. Furthermore,
make covers the management of in-process products (WIP), equipment and facilities.
Appendix 3 Companies: Interviewed/Surveyed
APPENDIX 3
64 (74)
Appendix 4 Survey
APPENDIX 4
65 (74)
APPENDIX 4
66 (74)
APPENDIX 4
67 (74)
APPENDIX 4
68 (74)
APPENDIX 4
69 (74)
Appendix 5 Calculations & Source Data

With exception for Sandvik Materials Technology (SMT), the source for all data is Affrsdata.
Affrsdata did not provide separate data for SMT, which is a unit within Sandvik AB, and hence
this data is taken from the companys annual report.
SOURCE DATA
Revenues
2005
2004
2006
EBIT
2005
ASSETS
2005
2004
2004
2003
2006
18826000
15925000
15971000
14126000
2003
20016000
21234000
18688000
13483000
2250000
1129000
1155000
366000
19337000
17003000
14423000
12467000
2324000
1729000
1354000
750000
14824000
13830000
12384000
10400000
2508000
2993000
2407000
881000
10877000
10170000
9950000
9036000
9563000
8544000
6565000
5280000
2007000
1799000
692000
361000
7440000
6897000
6116000
5702000
3940337
3546381
3057724
2457292
345812
152155
62543
-333903
2153373
2056822
2057429
1923521
3478692
3109091
1550586
1224320
103104
82760
46503
11037
1611730
1443204
617376
494559
3033000
2686000
2357000
2067000
295000
413000
373000
418000
4693000
4820000
4391000
4485000
2457399
2284692
2242725
1732780
332917
250195
219940
92420
1195112
1216872
1282671
1075295
2346300
1861000
1354800
1099100
43100
-54500
65700
18600
2046400
1831200
1457700
970100
2220324
2286820
1860744
1470110
180203
160700
94793
32773
2116147
2171096
2009005
1564345
2026400
1606000
1488300
1138800
190900
56100
76000
1900
1272600
680500
788400
618700
1535000
1459000
998000
761000
30100
118700
97300
-5000
1006600
1031700
998300
868000
967196
916943
680518
782240
56147
52407
-15885
-2704
563157
493278
430141
446535
754708
758364
677974
586396
12515
45930
45895
34332
425212
411350
370933
348575
658459
558458
429405
427219
72909
49327
6113
-725
393592
324861
319997
352076
492479
471311
472758
475717
48327
21099
43130
58941
796120
753092
752459
564589
407137
422031
389846
342825
745
3785
16108
-9382
221196
207847
191070
193646
333764
305714
278593
215554
23108
20227
39379
3420
147960
134532
127893
108486
193325
169345
192443
154271
157141
115364
140144
112457
3001
19329
11359
21655
-822
4397
-5407
11787
189876
154379
197382
106735
190003
110717
173323
93822
7851800
6308800
5529400
4388500
678200
388200
368700
57200
2902900
2546800
2614900
2055700
3639074
3191130
3009805
2315597
275297
151846
162252
84568
1180209
1278866
1812324
1374295
1562696
1269895
1171664
1042596
224035
158938
118646
68880
291327
262716
383875
284362
995700
513075
412039
854000
446119
358292
758900
362208
295202
684600
396780
203100
63200
-9945
26251
42300
7751
16819
34500
-1501
18515
23300
-3950
6251
467000
186212
165172
358200
159585
161804
401600
155241
150709
351100
132738
109269
3046681
2202151
1724279
1207698
200418
-3306
91412
34591
2377853
1146027
884160
673434
1805207
548110
1462791
541126
1287649
476417
1006253
394325
71542
80958
60257
78420
82129
79244
99548
61000
2014679
424047
1593299
359843
1457882
349653
1495105
306409
2006
Outokumpu Stainless AB
Sandvik Mat Tech
SSAB Tunnplt
SSAB Oxelsund
Ovako Steel AB
Ruukki Sverige AB
Hgans
Ovako Bar AB
Outokumpu Tubular
Uddeholm Tooling
Fagersta Stainless
Erasteel Kloster
Surahammars Bruks AB
Haldex Garphyttan
Scana Steel Bjrneborg AB
Structo Hydraulics AB
Boxholm Stl AB
Scana Steel Sderfors AB
Carpenter Powder Products AB
Tibnor AB
BE Group Sverige AB
Lindab Steel AB
Plannja AB
ThyssenKrupp Materials AB
Arcelor SSC Sverige AB
Acerinox Scandinavia AB
Kanthal AB
Burseryds Bruk AB
2006
Current Liabilities
2005
2004
2003
2006
Inventory
2005
2004
2003
10580000
8079000
7123000
5319000
5052000
2870000
2536000
2115000
4911000
3893000
3998000
4168000
3183000
2881000
2388000
2178000
3394000
3618000
3223000
3017000
2020000
2176000
1553000
1311000
684780
848932
515464
381922
590871
644716
556800
553034
770853
567787
346642
258396
549942
452495
231502
211678
555000
445000
420000
255000
479000
450000
379000
317000
317507
345151
416850
262280
372390
320644
401619
304369
893300
688600
394100
294700
604100
477300
340600
254700
315861
383168
327060
239871
647035
625098
523861
468657
626000
144900
278700
162400
477200
214300
286700
230500
270500
303700
228200
112100
300600
272700
301100
183500
154421
132688
103141
107426
119297
105409
77735
66905
216073
212876
178634
160014
84903
78361
56664
62749
241149
200479
199373
211487
128348
92878
79730
66502
275385
233603
253856
187425
114408
142345
138881
128022
190280
170730
156232
168526
70101
60818
46138
46331
66519
57220
63819
44699
60874
54485
64391
39111
62768
40462
73057
23719
40547
34629
37336
22369
34208
59620
30523
52142
23506
53830
18621
38666
1432400
1283900
1302600
887400
878900
773900
791400
565800
677664
543881
504940
236194
409756
293845
333068
243305
263792
225713
278529
176262
142829
82483
156997
97327
260500
172245
84383
168400
123853
90446
210800
112509
80453
152300
93681
48611
127000
63878
84830
79200
65971
87497
126500
59611
86902
85200
60606
66477
1830458
752801
581561
439138
1151985
686215
657388
360889
1109741
152608
609060
79991
380209
101931
280498
75454
711363
49331
435028
42358
392846
27334
338275
40741
70 (74)
APPENDIX 5
Sandvik Mat Tech
SSAB Tunnplt
SSAB Oxelsund
Ovako Steel AB
Ruukki Sverige AB
Hgans
Ovako Bar AB
Outokumpu Tubular
Uddeholm Tooling
Fagersta Stainless
Erasteel Kloster
Haldex Garphyttan
Boxholm Stl AB
Tibnor AB
BE Group Sverige AB
Lindab Steel AB
Plannja AB
Kanthal AB
Burseryds Bruk AB
2003
CALCULATIONS
Revenues
EBIT AVG ROCE AVG Stock Turns SCM-Score
20016000
6,4%
14,7%
6,3
73%
19337000
9,4%
11,9%
0,0
14824000
16,6%
37,1%
4,9
53%
9563000
14,9%
35,5%
4,2
62%
658459
5,3%
23,0%
5,7
56%
3940337
0,4%
4,6%
5,5
52%
2457399
9,9%
25,9%
6,3
56%
2220324
5,6%
6,8%
3,4
1535000
4,8%
8,1%
4,5
2026400
4,5%
13,8%
5,5
57%
967196
2,2%
5,7%
9,3
548110
15,3%
29,1%
12,7
492479
9,0%
9,4%
3,7
46%
3478692
2,4%
10,9%
6,4
1805207
6,1%
7,5%
3,0
754708
5,1%
17,8%
10,0
407137
0,6%
5,4%
7,1
59%
333764
7,3%
30,3%
5,2
193325
0,8%
1,7%
6,5
3033000
15,3%
9,0%
6,3
169345
9,9%
16,3%
2,7
52%
7851800
5,7%
27,5%
8,0
52%
3639074
5,3%
23,8%
9,6
3046681
3,6%
20,2%
3,0
62%
2346300
1,4%
2,0%
4,0
58%
1562696
10,9%
25,0%
11,1
70%
995700
4,8%
20,7%
8,2
58%
513075
0,0%
0,0%
6,9
412039
5,1%
23,2%
3,9
63%
71 (74)
APPENDIX 5
Sandvik Mat Tech ***
SSAB Tunnplt
SSAB Oxelsund
Ovako Steel AB
Ovako Bar AB
Uddeholm Tooling
Erasteel Kloster
Fagersta Stainless
Burseryds Bruk AB
Ruukki Sverige AB**
Kanthal AB
Haldex Garphyttan
Boxholm Stl AB
Hgans
Tibnor AB
BE Group Sverige AB
Outokumpu Tubular
Lindab Steel AB
Plannja AB
Appendix 6 AHP methodology
APPENDIX 6
72 (74)
APPENDIX 6
73 (74)
Appendix 7 Survey Result
APPENDIX 7
74 (74)

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Supply Chain Management in the Swedish Steel

SUPPLY CHAIN MANAGEMENT IN THE

BACKGROUND & PURPOSE ................................................................5

SELECTION CRITERIA FOR STEEL COMPANIES .................................................................................. 7

THEORETICAL FRAMEWORK ............................................................11

ANALYSIS AND RESULTS ..................................................................15

CRITICAL REVIEW AND SUGGESTIONS ..........................................56

APPENDIX 1 DESCRIPTIONS & BEST PRACTICES ............................60

BACKGROUND & PURPOSE

BACKGROUND & PURPOSE

BACKGROUND & PURPOSE

2.1 SELECTION CRITERIA FOR STEEL COMPANIES

Smelting and Slab

- SSC Cutting, Stripping,

Figure 1 - Delimitation of the steel industry

The companies have been selected according to the following criteria:

Table 1 - Selected companies

2.3 IN DEPTH INTERVIEWS

Description can be found in appendix 6

ROCE RETURN ON CAPITAL EMPLOYED

EBIT % = OPERATING PROFIT / REVENUES

THE BULLWHIP EFFECT

Supply Chain Council

THE ANALYSIS MODEL

Figure 3 Analysis model

4 ANALYSIS AND RESULTS

4.1.1 Case Studies

4.1.1.1 SSAB Oxelsund Plate Division

Affrsdata (for 2006)

ANALYSIS & RESULTS

SSAB Annual Report 2007, p. 9

ANALYSIS & RESULTS

Interview with SSAB Oxelsund representative

ANALYSIS & RESULTS

Figure 4 Value Chain SSAB Oxelsund

Interview with SSAB Oxelsund representative

ANALYSIS & RESULTS

Figure 5 Supply Chain emphasis SSAB Oxelsund

Interview with SSAB Oxelsund representative

ANALYSIS & RESULTS

4.1.1.2 SSAB Tunnplt Strip Division

Affrsdata (for 2006)

ANALYSIS & RESULTS

Delivery accuracy is low due to the over-scheduled production system.

Interview with SSAB Tunnplt representative

ANALYSIS & RESULTS

Figure 6 Value Chain SSAB Tunnplt

Interview with SSAB Tunnplt representative

ANALYSIS & RESULTS

Interview with SSAB Tunnplt representative

ANALYSIS & RESULTS

Interview with SSAB Tunnplt representative

ANALYSIS & RESULTS

Figure 7 Supply Chain emphasis SSAB Tunnplt

ANALYSIS & RESULTS

4.1.1.3 Outokumpu Stainless - Avesta

Affrsdata (for 2006)

ANALYSIS & RESULTS

Figure 8 Value Chain Outokumpu

Outokumpu Annual Report 2007, p. 8-9

ANALYSIS & RESULTS

Interview with Outokumpu representative

ANALYSIS & RESULTS