The global raw steel production has surpassed 1.3 billion metric tons continuously for third year in 2008 (though over 1.2% decline over 2007), with an estimated value of around $ 900 billion. Used as raw material for many industries like construction, automobile, transport and many others, there is often a high demand for highly customized products. The competition from the minimills along with this growing demand of customization from the customers pressurizes the Integrated Steel Manufacturers (ISMs) to increase the variety of products and to improve their responsiveness to market demand. The composition of their product portfolios is turning over rapidly. For example, POSCO, the Korea based steel manufacturer has 50 plants with more than 76,000 hot and cold-rolled steel products. A major percentage of items in the current portfolio of the ISMs, which contains thousands of unique end-products, have been introduced in the last 10 years only. Managing variety is at present the key to profitability for the ISMs.
Along with its advantages, product proliferation comes with many disadvantages too. The more the variety of products to be made, the more is the average cycle time across all product groups. Also, the more the number of slab or billet designs, more is the space required for their storage. Hence, high product proliferation results in poor utilization of slab or billet-storage space.
For the ISMs that have so far operated in the make-to-order (MTO) production mode, order fulfillment times are long and range from 10 to 15 weeks, while the high profitability market for the ISMs demand shorter and reliable delivery lead times, in the range of five to six weeks. The complication associated with a steel plant is that the production processes are designed to make steel in the cast sizes as large as possible in order to minimize the changeover costs and maximize the capacity utilization. Therefore, for ISMs, strategic inventory management is a challenge as well as an opportunity to improve the operations.
Fig -1 - Positioning of the CODP and different modes of production
For the ISMs, the need of the hour is to strategically place the inventories of the semi-finished products in the right quantities, i.e., placing a customer order decoupling point (CODP) at the semi-finished products level. CODP is the point that separates forecast-driven production from customer-order driven production within a supply chain. The further upstream the CODP is located, the more the manufacturing activities are carried out under certainty. (See Fig 1)
Fig -2 - Possible Decoupling Points in a steel supply chain
Managing inventory at decoupling point 1 allows for reduction in 2-or-less casts (See Fig 2). It also helps in shortening the lead times and avoiding the unplanned inventory leading to higher customer satisfaction. Downstream decoupling point leads to inventory generation due to erro and also due to surplus from operational constrains.
4 comments:
I read your post and found it to be very intersting. I did some primary research on CODP and found that this concept has widespread application in the retail industry. It is a good idea to apply it to the steel industry, but I am having difficulty in understanding how to go about it. Could you please throw some light on the topic?
You have very correctly found that CODP has widespread application in retail industry. So what stops it from being implemented in the steel industry. One needs to take a very directed approach on this matter. Identification of the decoupling points would be a good starting point for this. Once that is done, then reducing the decoupling points to an optimum level followed by optimization of the complete supply chain to suit the decoupling points should be a good idea to follow. However, whatever I have told you just now is purely general. Each and every case has some unique properties that require special care and hence separate solutions. I hope this solves your problem. But, if it does not, then please feel free to write back with further quesries and information pertaining to it. We will only be glad to help you.
Cheers.
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