Metals & Natural Resources: Determined To Cut Costs

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September 22, 1997

METALS & NATURAL RESOURCES:
Determined To Cut Costs

Metals companies are using IT to reduce overhead and target a global market
By Bob Francis
IW 500 slug ust because the economy is on the upswing and the layoffs and cutbacks of the late '80s and early '90s are history doesn't mean that being a technology manager in the metals and natural resources industries is a walk in the park. The IT budgets of these companies remain slender while CIOs are asked to take old-line, slow-to-change technological infrastructures and layer in new technolo gies such as the Internet. At the same time, these companies are taking a more global view of their markets, which means the IS departments are integrating with overseas partners.
But the recent economic good times have given the steel industry, in particular, more consistency than the sector has seen in some time, industry analysts say. Orders for steel remain strong. But if interest rates should increase and the economy should slow too abruptly, the steel industry may be faced with even tighter margins, forcing more efficiency in IT departments to shore up the bottom line.
Despite the lingering question of interest rates, there's little doubt that the steel industry is improving. After a drop in capacity over the last decade, from 150 million tons annually in the early 1980s to as little as 108 million in 1994, the trend is changing somewhat, as most mills are operating at around 90% of capacity. Now, capacity is up to about 116 million annual tons. But competition remains strong, meaning that pric e pressure in the industry continues unabated.
"While the economy has been good, prices have been kept tight, so that affects our profitability," says Bill Howard, VP of technology at Inland Steel Industries Inc. in Chicago. "With that we've been forced to run a tight ship."
At the same time, companies have been making changes to their IS departments as the economy churns faster and becomes increasingly globalized. Those changes haven't by any means been easy for companies that have been running their businesses for years-and usually decades-on mainframe computers.
Inland Steel maintains two IBM mainframes with a DB2 database. In addition, Inland has about 60 Digital Equipment VAX midrange systems. On the PC side, the company has 5,000 desktop and mobile PCs tied to about 160 Novell LANs.
But the metals companies have been pushing to change their systems to take advantage of new technologies in order to cut costs. The survivors of the steel industry's dark days of the 1980s have found that this is one way to increase profits without having to raise product prices. Besides creating new manufacturing processes, such as mini-mills, which lower the cost of turning out steel, many steel companies are refining the ways they order, process, inventory, and distribute their products. They've learned to cut out some overhead-in many cases replacing outmoded computing systems and applications, written for a different and slower economic environment, with more rapid-response systems.
Inland Steel, for instance, has been engaged in a major overhaul of the way it handles inventory, in order to eke out more profits in a stagnant pricing environment. That has been a significant focus of Inland's IS department as the company changes its distribution system on the steel manufacturing and steel service center sides of the business.
The company recently completed the largest service-based capital project in its history, a $36.8 million, three-year overhaul of its Order Fulfillment System, which gives the c ompany information on and control over orders, from the customer phone call through the delivery process. Part of that involved taking DB2 data and replicating it on Unix systems.
Inland also created a data warehouse using Oracle databases. It contains information on order entry, billing, invoicing, and shipping, as well as data on production, recording, and quality. The system provides complete access for all of the organization's 5,000-plus users. According to Inland officials, the project has reduced the time between an order's entering the company's system and its delivery-what previously had taken as long as 50 hours now is accomplished in as little as a few minutes. The new system is also linked with the company's many suppliers, says Howard. That has improved the quality of the product delivered and increased the speed of delivery, he says.
Revamping For Flexibility
At the same time, the company has spent the last four years revamping its legacy systems so changes can be made quickl y-a response to an economy that has yet to show signs of any lengthy slowdown. That's also true at other companies, such as USX Corp., which is also in the midst of a project that will move its legacy order-fulfillment system from IBM mainframes to Digital 8400 Alpha systems.
"We're moving to an Oracle application that we're planning to roll out through 1998," says Eugene Trudell, general manager of computer services at USX's U.S. Steel Group in Pittsburgh. Like Inland, one of USX's main goals in the changeover is to reduce cycle times and improve order processing between its sales offices and its steel manufacturing plants. Several other mainframe functions may be moved to the Digital 8400 Alpha environment in the coming years, Trudell says.
One reason the company is looking at changing its older systems is that the legacy code needs to be changed to be year 2000- compliant. For old-line companies such as steel plants, the amount of legacy code can be immense.
Take USX, for instance. "We've got more than 70 million lines of code, so it makes sense to go ahead and move to some new systems," Trudell says. USX is also working with Platinum Software to take on some of its year 2000 migration. But USX also found another resource: college students. "We've got over 100 college interns who are going over our code, with each group led by an experienced project leader," Trudell says. "They get experience working for a major company, and we find what code we need fixed."
USX plans to have its year 2000 work done by the end of 1998, giving the company a year to work out any problems that come up through 1999. "We think we can deal with any surprises at that point," says Trudell.
Inland has identified most of its year 2000 problem code and has outsourced some of its year 2000 work to EDS. But neither Inland nor USX has had to take a write-off for any of the year 2000 projects. "We have most of the fixes in place," says Inland's Howard.
The steel companies are also moving ahead on other technolo gical fronts. While the industry as a whole has used the Internet mainly for departmental home pages, companies are considering the technology for more applications. Inland, for instance, shares information over the Internet using Lotus Notes.
Inland recently updated its home page and is installing a system that lets customers access transaction information, such as order tracking, over the Internet. The company also offers its employees some fairly standard Internet information, such as data on safety, quality, performance, and productivity.
USX hopes to offer some form of electronic data interchange (EDI) over the Internet in the near future, but so far, there have been no standards developed for the steel industry, which may hamper the implementation. "That's something you would expect the American Iron and Steel Institute (AISI) to develop, but it hasn't happened yet," says Trudell. If some standards don't show up soon, USX may develop its own system. "The Internet is a good place for this type of thing, and we'd like to utilize it as soon as possible," he says. That process will move the steel companies even closer to their customers, which will also let them cut costs even more.
Global Response To A World Market
Steel companies are also becoming increasingly global as the world market opens up. Steel demand in countries such as China, Brazil, and India is expected to grow 10% annually in the next few years, more than double the rate in the United States. Many steel companies are partnering with overseas manufacturers. Cleveland's LTV Corp., for instance, is interested in building mini-mills in Asia and Europe, partnering with British Steel plc and Japan's Sumitomo Corp.
Inland is involved in steelmaking ventures in China and Mexico. Inland links to those plants via large on-site servers that keep the company apprised of operations there. "We're linked to those plants so we know what we're producing and where," says Inland's Howard.
But although changes in back-office computi ng are quickly taking place, USX's Trudell notes that computers are a prerequisite on the factory floor as well. "In some of our newer plants, most of the steelmaking is measured and controlled by computers on the factory floor. That's been a big change over the past 10 years," he notes. Such changes should continue as long as the economy-and particularly the steel industry-maintains its current pace. Notes Trudell: "There's nothing that puts the stop to a big IS project like a poor sales environment."

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