Dr. Nils Naujok, Holger Stamm
February 22, 2019
The metals industry is facing economic, political and technological disruption, and the combined weight of these forces is the catalyst for a digital revolution among steel and aluminium makers. But we think that embracing the use of connected machines and sensors with the ability to communicate in real time with suppliers and customers, and refining processes based on data analytics, can lead to a significant increase in productivity – and profitability – in this highly competitive industry.
The challenges affecting the ability of steel and aluminium makers to grow profitably and sustainably are considerable. After strenuous efforts to recover from a recession a decade ago, global over-supply caused a further collapse in prices three years ago. Although the relative health of the global economy has boosted demand again, the market must now deal with the imposition of tariffs as a result of trade tensions between the US, China and the European Union.
Stricter environmental regulations, volatility in raw materials prices and greater competition from producers in lower-cost economies are also crimping profitability. At the same time, clients want stronger and more durable kinds of steel, more diversified and specialised portfolios of products and grades, and shorter innovation cycles.
Some companies have successfully implemented, on a piecemeal basis, digital changes such as monitoring and analysing temperature data to maximise performance of the furnace, or predictive maintenance in rolling mills. However the challenge is to build these individual initiatives into a coherent digital business model.
Significant performance improvements and cost reductions can result from a number of approaches, including use of “track and trace” within a steel plant and additive manufacturing, as well as real-time data sharing with customers on the quality of a coil. Digital champions – defined as those with an over-arching digital strategy from production to interaction with customers – are already seeing the benefits of doing this.
Our proprietary analysis shows that getting this digital process right can significantly increase margins, by as much as 16% on a tonne of steel. To reap such rewards, metals companies must work to create a fully integrated digital ecosystem with their suppliers and customers, combining processes and data at every stage, from raw materials to the end product.
Strategy& believes that the next step for metals companies is the creation of a fully integrated digital ecosystem that combines processes and data across the whole value chain. This will include digitisation of the physical product (e.g. information about the quality of the coil), digital services (e.g. product development and quality management) and digital interaction with customers.
By 2025, we see three possible roles for the steel industry:
To become digital champions, companies in both steel and aluminium must streamline their processes (vertical integration) while using digital tools to work more closely with suppliers and customers (horizontal collaboration), using them as the basis to build digital business models.
Doing so will revolutionise productivity and enable them to thrive in a landscape of technological change, volatile demand, increased regulation and political uncertainty. The path to success has its challenges, but the time to act is now to lock in the many competitive benefits of embracing a fully digital model.