Original Article

Using product segmentation to

improve supply chain management in
Tata Steel
John Albiston* and Ian Cross

Tata Steel Strip Products UK, Port Talbot Works, Port Talbot,
SA13 2NG, UK.
E-mails: john.albiston@tatasteel.com; ian.j.cross@tatasteel.com
*Corresponding author.

Abstract The steel making operations of Tata Steel in Europe are

moving to a new operating model with common processes adopted at
all sites. Two of the major initiatives underlying this new model are
Customer First and Supply Chain Transformation. Collectively, these
initiatives aim at making a step change in the company’s offering to
customers with a focus on improving delivery on time, reducing lead-
time and reducing work in progress. Improving the flow of material
through the business is critical in achieving these objectives. The ORteam
has been involved in standardising a common process for product seg-
mentation. The team has taken a data-driven approach and this article
outlines the methods used in creating the output necessary to ensure
supply chain improvements.
OR Insight (2012) 25, 150–164. doi:10.1057/ori.2012.6;
published online 18 July 2012

Keywords: supply chain; ABC; fulfilment strategies; manufacturing

Received 25 May 2012; accepted 28 May 2012

Introduction

Tata Steel is a global steel maker with manufacturing sites around the world.
Tata Steel Strip Products UK (SPUK) is based in South Wales and produces
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www.palgrave-journals.com/ori/
 Using product segmentation to improve supply chain management

4.5 million tonnes of steel a year. The ORteam provides an internal service for
SPUK. The aim of the team is to help decision makers make more informed
decisions and so help improve the bottom line of the business. As such, the
activities of the ORteam can be explained in terms of the Data Triangle shown
in Figure 1.
Most of the activities of the ORteam are about turning data into information
and knowledge with the aim of adding to the understanding of the company’s
business processes, that is, aim to have more wisdom. The activities are
centred on four main areas: data mining, simulation, optimisation (linear
programming) and business intelligence. Many of the ORteam’s projects
incorporate several of these skills sets. The projects cover operations, tactics
and strategy.
Tata Steel in Europe has moved to a new operating model with common
processes being adopted on all sites. The organisation has been reconfigured
to have one face to the customer rather than each business unit selling its
own products. Two major in-company initiatives are aiding this: Customer
First and Supply Chain Transformation. The manufacturing sites are now
part of one integrated supply chain and the old business unit boundaries
are being removed. The aim of these transformational projects is to change
the way the company interacts with its customers and improve the company’s
offering in terms of lead times and delivery on time while increasing the
efficiency of the process so that an overall reduction in the stock in the supply
chain can occur.

Figure 1: Data triangle.

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 Albiston and Cross

Improving the flow of material through the business is critical in achieving

these objectives. This creates a significant opportunity to change the way
products flow across previous business unit boundaries.
The ORteam has been involved in standardising a common process for
product segmentation. This involves the combining of several techniques into
one method. A matrix combining the ABC and runner, repeater, stranger (RRS)
analyses is generated for each of the key parts of the process. Thus, for an
individual product, several characteristics are derived. Each analysis is con-
ducted on data from a 6-month period and so tracking of these characteristics
over time leads to an attribute of either growing, stable or declining (GSD).
Once the matrix has been created, other attributes can be overlaid such as
yield, lead time, stocks and so on. By combining the technique with the
product funnel, discussions with key personnel can reveal possible changes
to the materials used or the process route so that the supply chain can be
optimised.
This article outlines the methods used in creating the output for these data-
driven supply chain improvement projects.

Manufacturing Constraints

The through process route from iron making to Tata Steel’s customers con-
tains many individual operations, across several sites. The manufacturing
processes can be batch, semi-continuous or continuous and each process has
a range of batch quantities and/or scheduling rules that are quite different.
These unit-scheduling rules are required to allow the units to produce quality
products. Due to these different constraints, inter-process stock is required
to enable the flow of material through the plant.
At the steelmaking stage, liquid steel, which has been refined from the blast
furnace produced iron, is cast using a continuous process. Liquid steel batches
of 330 tonnes are refined and cast on one of three continuous casting
machines. While the thickness remains constant, the width needs to be
changed. Each batch has one chemical composition. To allow the product to
flow in the best way for production (quality and volume), sequences of the
same chemistry are cast together with a preferred sequence length of up to
six casts that is, approximately 2000 tonnes. During the processing of this
material, the width can be altered in small steps.
The next stage of the main process is hot rolling; here the slabs are reheated
to around 12501C and rolled in the hot rolling mill where the gauge is reduced
from around 230 mm to between 1.5 and 17 mm depending on the customers’
requirements. The rolling process is scheduled so that several different
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 Using product segmentation to improve supply chain management

chemistries are rolled together in a round. A round is constructed so that

wide slabs are rolled first and then the material in the round progressively
narrows (1700–800 mm). A new round then starts after several of the rolls
are changed. The weights of the slabs are between 15 and 35 tonnes.
The slabs are rolled one at a time, with orders that can be anything
from 1 slab to more than 20. Materials in a round combine lot of orders
and each order is rolled to different thicknesses and different processing
conditions.
After hot rolling, the material can be despatched to end customers, to other
Tata Steel plants or can be further processed through pickling, cold rolling,
annealing and coating. At each stage in the process, products can go to
internal or external customers. As with the hot rolling, all of these various
internal units have different batch sizes and schedules. Figure 2 shows
a Sankey diagram of the flows through SPUK.
The traditional product funnel (please see Figure 3) has shown that historically
the customisation of the product has occurred very early in the process, tradi-
tionally at the slab making stage, that is, that slabs are manufactured for a cus-
tomer order. (Figure 3 is explained in more detail in the following section.)
SPUK supplies around 800 customers with over 25 000 products in order
sizes of 15 tonnes to over 5000 tonnes. The average order size is around 60t.
As the material moves to downstream Tata Steel units, the number of products
offered increases substantially and the order sizes reduce.
In the old business model, each business unit tried to optimise its own flow
and performance. In some cases, this led to boundary issues with each
business holding stocks and having their own lead times and order systems.
This sub-optimisation of the whole chain provides a fertile ground for
improvement with a ‘One Company’ philosophy in place with the aim of
replacing local optima with more global optimum.

Figure 2: Sankey diagram showing the flow of material through SPUK.

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 Albiston and Cross

6000
Current
uniques specifications 5000
Aim
4000

3000

2000

1000

0
1 2 3 4 5 6 7 8
process
Figure 3: Product funnel.

The use of supply chain analytics and the creation of standard methods to
analyse the order book has been undertaken by the ORteam in SPUK. One of
the methods being used to improve this flow is based on Product Segmen-
tation. The aim of this work is to offer a standard approach that provides the
data and information required to support this process.

Product Segmentation Methods

There are numerous methods to aid supply chain improvement based around
product segmentation, also called late customisation and generics. The tech-
niques used are well-established methods that, in this work, have been com-
bined and modified into an integrated approach. The aim is to group products
into different classifications so that different supply chain approaches can be
applied, such as make to stock, finish to order and make to order (Olhager and
Prajogo, 2012). However, the critical consideration is to change the way products
are manufactured to improve the flow of material through the chain (Bicheno
et al, 2001). One way to do this is to move towards the aim as shown in Figure 3,
the product funnel.

Product funnel
The product funnel shows the number of unique specifications at each stage
in the production process. At each stage of the process, a set of processing
parameters is combined that lead to determining how many varieties
exist. For example, each combination of the length, width and steel grade
at the casting stage would make the product unique. The number of
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 Using product segmentation to improve supply chain management

unique specifications at each step of the process is plotted on the pro-

duct funnel, as shown in Figure 3. In Figure 3, it is evident that a lot
of the uniqueness of the product is determined early in the production
process. The aim of Product Segmentation is to allow some of the unique-
ness of a specification to be added later in the process and to create
decoupling points that separate customer orders from internal manu-
facturing orders.

ABC analysis
ABC analysis is the classic product segmentation approach (Teunter et al,
2010; Hadi-Vencheh and Mohamadghasemi, 2011). It divides products into
three classes based on volume (or value) (Figure 4). Class A represents the
large volume group of products (theoretically containing 80 per cent of
the total volume in 20 per cent of the specifications), Class C includes a high
number of small volume orders (theoretically 5 per cent of total volume)
with Class B representing those in between.
The initial investigation used the historical values from the cumulative
distribution curve. However, as the analysis is undertaken at critical points
in the process route, it was observed that the cumulative distributions did
not follow the same trend (see Figure 5). In order to produce complimentary
analyses at different stages of the process route, non-standard split points
were used. Initially, this was a manual, iterative method based on some-
what of an art. By observing the initial results, it was estimated that the
actual curves could be used to determine the splits. This is achieved by
comparing the actual cumulative distributions with the cumulative dis-
tribution for the ‘Standard’ (that is, the reference base case cumulative
distribution). The method involves selecting the standard split points from

100
95

80

A B C

Highest Lowest

Figure 4: ABC analysis.

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 Albiston and Cross

100
95
90
85
80 product
Volume

Slab
75
steel grade
70
steel grade family
65 Hot Rolled
60 Standard
55
50
0 20 40 60 80 100
Spec

Figure 5: Actual cumulative distributions.

the standard distribution curve (that is, the 80 per cent and 95 per cent of the
total volume) but transferring these points to the actual distributions. This
means that the 80 per cent and 95 per cent cumulative points are changed to
different values for the actual data set. This produced very similar, but more
repeatable results to the iteration method.

RRS analysis
The RRS analysis is also a common supply chain tool, but whereas ABC looks at
volume (profits and so on), the RRS method looks more at the frequency at
which events occur (Waddington, 2003). This method determines how stable
the flow of the product is, that is, how often is that material manufactured. RRS
is therefore an alternative way of segmenting the orders. Figure 6 shows
schematically what the different patterns would look like on a time series plot.
Runners are produced nearly every week at very similar tonnages, repeaters
less frequently or with very large variations in tonnage from period to period,
whereas strangers occur very infrequently.
As with the ABC analysis, standard ways of assigning the categories are
available. In this work, we used two standard methods/criteria:

1. A simple count of the number of weeks in which production occurred;

2. The coefficient of variation (standard deviation over the mean) of the
weekly tonnages.

A similar effect to the ABC analysis was observed in that the data from
different process stages have quite different characteristics. For this reason,
the two approaches of count and coefficient of variation were used iteratively
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Volume

Runner

Time

Volume

Repeater

Time

Volume

Stranger

Time
Figure 6: RSS representation of orders over time.

to determine the split points for each process. The starting points were splits
on count to be at 15 per cent and 75 per cent; so for a 26-week period, it would
mean split points of 4 weeks and 20 weeks, respectively; for the coefficient of
variation, the split points would be at 1.0 and 2.0. By iterating between these so
as to reduce the number of specifications, which have different values of RRS,
segmentation was produced for each stage in the process.
A review of the data failed to find a simple method to move away from this
iteration process as observed for the ABC analysis. One significant observation
is that data from different process stages seem to fit into one of two groups;
one group that was largely based on areas where the product at that stage
would only be produced once in every time period and the other where there
may be multiple occurrences of that item in the time period. This observation
could be important in determining the time unit of the analysis. In this case, as
the company’s current order system allows only one customer order of a
certain specification being placed per week (deliveries, while linked to orders,
can be more frequent but would be delivered from one order), our time period
was selected at one week. An alternative time period may mean that this split
in the characteristics of the RRS analysis may not be seen.
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 Albiston and Cross

Table 1: ABC/RRS matrix (values are as percentages)

Runner Repeater Stranger

A Tonnes 34.96 0.81 0.00
No 2.24 0.09 0.00

B Tonnes 39.07 12.33 0.10

No 17.11 9.37 0.09

C Tonnes 0.83 8.12 3.78

No 1.46 24.94 44.71

Combining the ABC and RRS results

The critical step in our segmentation method was to combine the ABC
and RRS analyses into a 3  3 matrix (see Table 1). This matrix, containing
nine classifications, is produced for each stage in the manufacturing
process.
In this matrix, typical characteristics are seen in that there is a large
volume of A-runners from quite a low number of specifications, whereas
the C-strangers have high number of specifications but only a small
volume. The matrix is regularly used to determine, for any of the nine
classifications, which is the most suitable supply chain fulfilment method,
as indicated in Figure 1. The strategies applied are make to stock (no
shading), finish to order (light shading) and make to order (dark shading).
This is overlaid on top of Table 1.

Analysis

Use of the ABC/RRS matrix

This method is commonly used on final products to determine the way the
supply chain operates. In this work, the matrix and the data set not only
show what classification the customer orders are in but for the upstream
processes what classification the material sits in as well. The aim of the work
was to maintain the product diversity to customers while improving the
material flow. This would allow improved delivery to time and shorter
lead times.
The flows of A-runners are generally well known and the supply chain process
has been optimised. While improvements across old business unit boundaries can
be improved, the main areas to improve performance are generally associated
with the C-stranger products. This work can be used to improve these types of
products. For instance, where two C-stranger products exist, one has its whole
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process route characterised by the C-stranger designation. This is a quite

different supply chain problem to a C-stranger product that comes from an
A-runner upstream specification. By looking at the specifications, it may be
possible to change the route on the C-Stranger product so that it comes from
a repeater or runner at an upstream specification, thus completely changing the
flow of material through the production process.

Adding value
One of the main benefits of producing the matrix is using the ability to overlay
other data on top of the matrix. Collecting data such as delivery to time, yield,
throughput times, lead times, stock turn, right first time, rejections and so on
can be overlaid on top of the matrix to reveal how these factors are being affected
by the category on the matrix. An example of this is shown in Table 2.
The predicted lead time is the average for a grid point and is calculated as the
time in weeks from the order booking date to the planned delivery date. While the
measured value represents the degree to which the delivery date was
achieved, higher values represent poor delivery on-time outcomes. This
shows that on the initial method of working, the planned lead times do vary
a little between classes, but most categories have similar lead times,
whereas the actual lead times vary significantly with the ABC/RRS category.
Further analysis of these overlays gives good indications of how to better
control the lead times offered and to change the upstream route to further
increase supply chain efficiency.

Selecting the time period to undertake the analysis

As already described, the analysis has been undertaken with weekly data.
However, the duration over which the analysis should be undertaken
also needs to be determined. Traditionally, annual data would be considered
as being a good representation of the true demand. However, the main

Table 2: Overlay of delivery performance on ABC/RRS matrix

Runner Repeater Stranger

A Predicted 4.2 3.6 4.6
Measured 1.7 1.8 1.9

B Predicted 4.8 4.6 5.1

Measured 1.6 1.7 1.8

C Predicted 4.0 4.6 4.9

Measured 1.8 1.6 1.8

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 Albiston and Cross

controlling factor is to be able to pick a stable period. In the current volatile

market, the period of a year was deemed to be too long. As part of the reason for
undertaking this work was to improve the supply chain processes, it was also
necessary to be able to see changes made and to monitor progress.
For these reasons, a period of 26 weeks was selected. The analysis is then
repeated on subsequent 26-week periods. A method is needed to be able to
observe the difference from period to period and what trends were occurring.
In order to do this, a third analysis was undertaken to determine if the particular
classes are growing, stable or declining in size, termed GSD. Comparisons of
analyses from each time period are used to calculate the GSD attributes.
For each 6-month period of analysis, the output data, which contains the ABC/
RRS data for each order at each of the stages in the process route, is uploaded
into a database and the GSD are calculated using a common set of condi-
tions. This new method involves first normalising the output tonnages to the
previous periods so that changes in total output are taken into account.
The values are then compared and specifications within 10 per cent of the
previous value are deemed stable, those with an increase greater than
10 per cent are growing and those with a decrease greater than 10 per cent
are declining. The 10 per cent cut-off value was selected to allow small
changes to be observed. However, at the present time, it is not known if this
value is optimum and as more data are collected the effects of changing
this cut-off value will be investigated. At this early stage in the use of
this method, the 10 per cent was found to give a suitable indication as to
how the changes being made could be tracked. The GSD suggests that
there are only the three categories; however, two additional categories are
sometimes required – new specifications and those specifications that were
not made in the more recent period.
The GSD attributes can also be overlaid on the ABS/RRS matrix, as shown it
Table 3. This table shows the matrix at the slab production stage. It is inter-
esting that the A-class material is largely stable, B-class material is slightly
more variable with some new and some old specifications, whereas the C-class
material is very different with many new and old specifications and very few
stable specifications. This further shows the degree of difficulty in providing
stable supply chain solutions especially in the most difficult C-stranger cate-
gory. At the slab stage, the plan that is being implemented is to produce a set
of common slab specifications. Figure 7 shows that the percentage of the
tonnage that comes from standard slabs on the slab grid matrix has increased
over the 24-month period.
While it is not the intention to make all the products come from these spe-
cifications, it is planned that the vast majority will, and most importantly that
those that do not will be treated in a different way.
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Table 3: Overlay of GSD on to ABC/RRS matrix

ABC_SS GSD Total Runner Repeater Stranger

A declining 1 1 0 0
A stable 13 11 1 1
B declining 21 5 14 2
B growing 23 11 11 1
B new 33 10 16 7
B stable 150 91 54 5
B stopped 23 5 13 5
C declining 189 3 49 137
C growing 237 6 76 155
C new 357 7 106 244
C stable 372 35 138 199
C stopped 346 1 73 272

100
95
%tonnage covered

90
by slab grid

85
80
75
70
65
60
2009H2 2010H1 2010H2 2011H1
period
Figure 7: Increase in slab specifications covered by the slab grid.

Automation of method
The method has been developed and grown over several years and has gone
through several iterations and platforms, from MS Excel to databases. Presently,
analysis is carried out using IBM SPSS Modeler (formerly called Clementine)
workbench with data pulled from several data sources. The data manipulation is
undertaken in the workbench and the output file downloaded into a database. As
such, the whole 6-month analysis can be easily completed within a day.

Using the Output to Improve Supply Chains

The work undertaken by the ORteam allows the collection of data from various
sources to be automated and the data processed to provide an output file for use
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 Albiston and Cross

in supply chain improvement activities. This information provides insights into the
supply chain. However, on its own it has no use; it is only when it is deployed
within supply chain development teams that it can be used to help understand the
current situation and how to make improvements. The ORteam works with these
development teams to improve supply chains. This work started with a project
within the SPUK business, especially around the slab processing stage. However,
with the opportunity under the ‘One Company’ initiative, it has being deployed
through the SPUK processes and into Tata Steel’s downstream manufacturing
units. This experience is improving confidence before rolling out the process to
the external customers. The initial success of these projects has helped the
method become established. There are several successful supply chain projects
that have used the information provided by this method to improve supply chains,
with improvements in stocks, delivery to time and reduced lead times being seen.
While the method helps these processes, it is the actions taken by the supply
chain development teams that make the supply chain improve. As was stated at
the start of this article, the ORteam’s mission is to help others make more
informed decisions. This work shows how OR can help improve supply chains by
the simple use of data coupled with OR methods of analysis.

Benefits

The development has led to a structured method of analysis that has been
largely automated. The analysis is undertaken on the complete order book
for the whole through process route. The information is used on area or
product specific supply chain projects. The fact that the analysis covers
the whole order book allows a global perspective, leading to the optimisa-
tion of the whole rather than just undertaking the analysis on a small subset.
This helps produce local solutions that fit in to the big picture and so
help prevent the local teams improving local supply chains at the expense of
the whole.
The data-driven approach helps the process in a soft way by providing a
common frame of reference for all those involved in the improvement pro-
jects based on facts rather than beliefs. Indeed, one side effect is that it
identifies how one part of the supply chain varying their own chain for
their own benefit can adversely affect another part of the larger chain. This
initiates discussions that can lead to new approaches for improving the
whole chain.
Starting small has allowed the approach and method to develop and initial
successes have helped establish the method. The approach continues to
develop and as confidence grows then it is being used further down stream.
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Conclusions

There is a saying in Tata Steel: ‘if you keep doing what you are doing, you will
keep getting what you get’, which means to improve you need to change what
you do. The use of the method discussed in this article has provided the
information necessary to allow a data-driven approach to be used in order to
change and improve the process.
The analysis on the whole data set, but the implementation on the subset to
allow locally driven improvements, allows for a ‘think global – act local’ approach.
The ‘one company’ initiative is providing a driving force for changing what
the company does and this approach can provide information to help drive the
improvement process.
The ability to overlay the details such as yield, delivery to time and so on
have clearly indicated to project teams that it is not the large runners that
create issues in the supply chain, but the ability to provide the smaller, special
specifications. These specifications make up part of a customers’ overall pur-
chase, and improving the ability to offer and make these special specifications
can be an order-winning criterion.
Flexibility and creative thinking of how products can be manufactured
through the whole supply chain can lead to significant improvements in what
can be offered to customers, especially in terms of lead time and stocks.
Finally, the approach used does not utilise advanced OR techniques.
However, the clear presentation of summarised data and information that
project teams can use has created the insights necessary to improve supply
chain management.

Acknowledgements

The ORteam has developed this process, but it is only by the involvement of
many others that this technique has become used and established. Many
thanks must go to a large number of our colleagues. The article describes work
undertaken in 2010/2011.

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