Five Customer-Focused Steps

to Increase Profitability in the

Steel Industry
Steel producers have experienced tough times in the past
few years. The market has suffered from persistent weak
demand amid increasing volatility. China’s exports as well
as those from other emerging market producers are further
changing the competitive landscape.
Now and in the past, many steelmakers have shied away from making
fundamental improvements to their sales approach and from efforts
to increase operational flexibility, despite the volatile market. Instead,
they have favored short-term fixes such as tactical cost cutting,
asset restructuring and incremental optimization. Sales were seen as
a necessary evil to “fill the mill” and not a function to be improved.
To increase competitiveness, steel producers need a fundamental
paradigm shift that puts a priority on improving sales and operations.

To find out what changes are needed, Accenture examined the

performance of major steelmakers globally. We identified five game-
changing steps taken by companies in the lead. These companies:

2 Understand the profitability

range of products and services

1
to reduce complexity
Identify customer requirements
under consideration of process
volatility

2
 5 Adapt personnel,
procedural and
informational skills
to facilitate the
new approach

4 Transform supply chains

into highly reliable and
agile ecosystems

3 Segment customers based

on service requirements
and profitability

3
Market situation

As it continues to face sluggish demand, the global steel

market has been changing from a sellers’ to a buyers’ market.
Capacity and production volumes have grown faster than
global demand since the economic crisis of 2009.

The consequences are rising
overcapacity and declining utilization
while volatility remains high (see
Figure 1). The seriousness of this crisis
is further intensified by growing Chinese
exports without ease in sight.
At the same time, prices linger at a
low level, and steel users have begun
to substitute competitive products like
aluminum or plastic components. Prices
have also been impacted by pressure
from automotive suppliers and original import volume of 95 million tons in 2014,
equipment manufacturers (OEMs) that for instance, Chinese imports in Europe
have merged into buying powerhouses. were almost at the same level as total
Supported by sinking transportation costs production from European steelmakers—
and improving logistics capabilities, steel approximately 100 million tons per year.1
is now produced almost anywhere in the
world and shipped at reasonable prices
with reduced effort. In Europe, North
America and many other markets, the
increase in exports from China is putting
further stress on prices. With a total

Figure 1. Global steel capacity continues to grow despite increasing challenges in the market.

100% 1000 US$/t

80% 800 US$/t

60% 600 US$/t

40% 400 US$/t

20% 200 US$/t

0% 0 US$/t
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Utilization US Domestic Hot Rolled Coil (HRC) Average Prices

Source: Steel Business Briefing, 2016

1
Wocher, Martin. “EU wehrt sich gegen Stahl-Dumping,“ Handelsblatt, 13 May 2015.

4
Further complication and
traditional reaction
Historically, steelmakers have reacted with temporary price
decreases and short-term cost reductions. This has taken a
toll on profits for many producers in industrialized countries.

In the current situation, problems Accenture research shows that quick

are hitting these mature markets all fixes are no longer effective. What may
at once and producers are focused have worked in the past—accommodating
on establishing trade restrictions cyclical market fluctuations with a
that are of no long-term value. short-term focus—is no longer sufficient
because of the permanently altered
In addition, steelmakers in developed market dynamics.
markets can no longer leverage
product quality as a major competitive
differentiator since quality of commodity
steel from emerging countries is
constantly improving. Considering this
trend, it is critical to focus on the right
service offerings.

5
Leading practices for
customer focus
A long-term measure that will help improve profitability and reduce
volatility is to align steel production with customer needs. The
steelmakers that pursue this strategy will have a key differentiator
in this new buyers’ market.

The approach of focusing on customer These changes will influence the

requirements is not new; however, to do
it correctly, companies must go through
a fundamental paradigm change. They
must leave behind “fill the mill” thinking
and begin to see themselves as companies
that deliver as promised to the needs of
the customer.
The first step is for steelmakers to
understand that customer centricity is key
to success. Uncertainty can be reduced
by including customer needs into the
strategic equation.
Often, what the customer needs is both
a particular technical specification as
well as production and delivery flexibility.
Delivering this enhanced value proposition
for customers—through a highly dynamic,
flexible and agile supply and production
chain—can, therefore, become a
competitive advantage. This may mean
making significant changes to production
and delivery operations. In some cases,
it will also mean improving inventory
management so that capacity will be
available on short notice when needed. In
time, we believe successful steelmakers
may even profit from ongoing volatility
by preparing and adapting their supply
chains so they can seize opportunities
as they arise. In other cases, companies
may need more targeted sales-related or
research and development (R&D) services
to differentiate themselves.
culture and long-term strategy of many
steelmakers. It requires company-wide
adaption of personnel, procedural and
informational skills. All steelmakers are
impacted by these developments, but
those in North America and Europe
will be impacted the most given the
market situation. It is critical for these
steelmakers to act quickly.
Therefore, Accenture proposes
five elements for steelmakers to help
master the paradigm change, improve
commercial excellence and become
leading producers. Steelmakers should:
1. Identify customer requirements under
consideration of process volatility.
2. Understand the profitability range
of products and services to reduce
complexity.
3. Segment customers based on service
requirements and profitability.
4. Transform supply chains into highly
reliable and agile ecosystems.
5. Adapt personnel, procedural and
informational skills to facilitate the
new approach.

6
1 Identify customer requirements
under consideration of process
volatility

7
Steelmakers can better understand customers’ plans by
striving to understand their needs and communicating in a
way that addresses those needs. For instance, if customers
desire price certainty, producers can seek to offer it, rooted
in a deep understanding of the steelmaker’s own costs
throughout the internal supply chain.

Accenture has worked with many The focus on customer needs will further
companies in the resources industries to improve the understanding of buying
explore both the obvious and obscure patterns in the steel value chain overall.
needs of the customer. We link those Steelmakers can anticipate changes in
needs with the customers’ willingness demand based on early warning signs,
to pay for customization and related allowing these producers to gain a
services. We also help our clients change short-term competitive advantage by
their sales approach and organization to adapting their own market behavior
hone in on this area of opportunity. before their competitors can do so.
Steelmakers can do this in addition
In a recent steel industry analysis, for to covering the basic factors and
example, Accenture collaborated with striving for delivery as promised.
a client to jointly define and agree on
their customers’ key buying criteria
and how those related to basic factors,
such as delivery reliability or product
quality standards. After determining
this, the team interviewed customers
and developed an ideal offering that was
linked to the customers’ willingness to
pay. As a final step, Accenture developed
pricing options for various services and
products for the steelmaker.

8
2 Understand the profitability
range of products and services
to reduce complexity

9
Most steel producers have a supply and production
chain that ranges from ironmaking to semi-finished and
finished products. The diversity in steel grades, dimensions,
production paths, mechanical properties, tolerances and
surface treatments increases complexity in production
planning and execution.
Unplanned downtimes, production
breakdowns or changes introduced by the
customer make production-as-planned an
extraordinary challenge. It becomes even
more complicated when steelmakers try
to adjust production based on poor data—
or, in some cases, no data at all.
With inferior or missing data, steelmakers
exert a great deal of effort in an ad-hoc
manner, as they try to make the supply
and production chain more efficient
(often attempting this manually). This
threatens delivery performance and
customer satisfaction, and it also leads to
lower transparency about the “real” costs
of production, lead times and ultimately
customer/order profitability.
Considering this, it is critical to reduce
complexity in the supply and production
chain in order to become and stay
profitable and to deliver as promised.
One way to manage this is to analyze the
portfolio and identify product priorities,
while at the same time offering limited
product customization based on the
customer’s willingness to pay. This is a
difficult balance to achieve.
Initially, providing a wide, unprioritized
range of products may seem to be in the
interest of both the customer and the
steelmaker. But even if a wider range
of products targets more customers
and might be helpful for increasing the
utilization of production facilities, a lack
of prioritization will eventually endanger
delivery performance and, with it, the
customers’ willingness to pay prices for
products and services that are profitable
for the steelmaker.
10
Therefore, Accenture recommends a 1. Either R&D efforts only led to
strong customer focus that results in incremental rather than breakthrough
limiting and prioritizing product offerings innovation, or
for customer segments. This approach
2. Customers have not been willing
provides many benefits for both the
to pay for results of extensive R&D
customer and the steelmaker. A detailed
investments.
portfolio analysis of delivery performance,
real efforts and margins highlights the R&D provides the foundation for high-
steelmakers’ strengths in the supply and quality products and related service
production chain. Those products and offerings. The focus must, however, shift
customers in the profitable range should to collaborative R&D. Rapid innovation
become the “baseline.” can have an immediate impact. As such,
steelmakers that successfully operate
Products outside this range likely require
a short innovation and R&D cycle can
greater effort to ensure quality and
capture market share by immediately
delivery as promised. They can still be
responding to customer needs.
offered to those customers that are
willing to pay a premium to compensate Since this approach is in line with the
for the steelmaker’s higher cost basis current market situation, it becomes clear
and the ripple effects in planning and that the “filling the mill” mentality that
production. However, capacity and worked in the past may actually harm
capabilities in the production and profitability. Instead, profitability can be
supply chain, as well as pricing, have boosted by focusing on customer needs,
to be carefully evaluated to ensure the providing the right services and delivering
required margins are maintained for the as promised. These are more important
steelmaker. Balancing product quality and than a singular focus on production
reliability with controlled complexity and volumes and utilization.
pricing are key capabilities to master.
Furthermore, long-term profitability
requires a portfolio that meets evolving
customer needs. In order to retain
profitability, R&D efforts must serve as
an enabler to the paradigm change and
be in sync with customers’ willingness
to pay. Accenture analysis shows that
today steelmakers approach R&D very
differently. We see no direct relation to
improved profitability, which is based on
one of two reasons:
3 Segment customers based
on service requirements
and profitability

11
The concept of customer segmentation is not new to the
steel industry. It has been practiced with varying complexity
and effectiveness for decades. We are suggesting an
additional element to boost effectiveness of customer
segmentation approaches for steelmakers.

The underlying goal is to fully capture
customers’ willingness to pay for
products and services. To achieve
this aim, steelmakers should segment
customers and define product and
service offerings based on multiple
dimensions (see Figure 2). This
segmentation approach can only be done
if basic promised quality and delivery
performance are already met. However,
this is not only difficult to achieve, but
it also requires constant monitoring
and updating when requirements
and collaboration modes change.
Providing high delivery reliability for
customized products is more complex
and capital intensive than for standard
products. It requires production and
delivery processes that are based on
data from different systems that can
help estimate capacity and ensure the
processes remain profitable. In addition,
steelmakers must align these processes
to the promised service levels.
While regional and industry
considerations should be embedded in
any market segmentation, including
customer requirements is the key to
improving sales effectiveness. This needs-
based approach does not mean offering
services and support to all customers for
a set price. It should, however, include
clearly structured service bundles that
are offered to groups of customers based
on factors such as their profitability and
strategic importance as a customer.
Once customer segmentation is executed,
the next step is to focus on new sales
opportunities by reaching out directly to
end customers, instead of going through
service centers and traders. Selling to the
end customer provides an opportunity
to reap higher profits on sales, but it
also means understanding downstream
markets by rigorously gathering market
and customer intelligence through data.

Figure 2. Multidimensional, needs-based customer segmentation boosts effectiveness and efficiency in sales.

Industry

Needs
Attractiveness

Source: Accenture project experience

12
It is important to remember that customer Figure 3. The paradigm change cycle displays the interlinked factors to achieve
segments cannot be developed only once. sustainable change in the steelmaking industry.
They must be in constant evolution—just
like the organization that is built around
meeting the needs of these evolving
Customer Requirements
customer groups. This approach will
and Willingness To Pay
require companies to dynamically adjust
customer segments, processes and
related business rules (see Figure 3).

Steelmakers must truly understand their

buyers to successfully execute the sales
process. This starts by knowing customers’
product needs and requirements. Actual Customer Segments Implementation in
customer behavior, such as frequent and Business Rules Processes and Systems
exception handling and rush orders, should
also be scrutinized to define customer
characteristics. Furthermore, it is essential
for steelmakers to carefully assess
customer profitability, order volume and
trends in order to derive current and future
attractiveness. These three dimensions— Profitable and
customer requirements, characteristics Prioritized Portfolio
and attractiveness, including willingness
to pay—feed the entire sales process
on a continuous basis (see Figure 4). Source: Accenture project experience

Figure 4. The three dimensions of understanding the customer support the entire sales process based on actionable segmentation.

KNOW YOUR BUYER – The three dimensions of understanding customer needs:

Requirements
Characteristics
Attractiveness

1 2 3 4 5 6 7 8
Segmentation Product & Channel Sales Pre-sales Post-sales
service offering Marketing Sales
preparation operation operation support support

How can current What product What What channel What number How should What What support
customer and service marketing fits with of sales sales resources cross-sell is required to
segments offerings are effort and customer resources will prioritize time or up-sell retain customers,
be integrated profitable? approach is segments, be allocated to between opportunities considering their
to the new effective with products each customer customer care exist per requirements,
approach and different and services? segment? and future customer characteristics,
future segments segments? opportunities? segment? attractiveness and
be treated willingness to pay
differently? for products
and services?

Source: Accenture project experience

13
4 Transform supply chains
into highly reliable and
agile ecosystems

14
 To meet the requirements of each customer segment and
benefit from the new sales approach, steel companies must
be redesigned to turn “reactive” production and a “reactive”
supply chain into a highly reliable and agile system.

An agile supply chain will help improve
order-to-delivery times and increase
flexibility when customer orders change,
for instance, by decoupling production
at certain points and creating reserved
production capacity.
Decoupling can take place at the point
in the material flow where a material
becomes linked with a specific subsequent
product or even the final material/product
in the customer order (see Figure 5).
Before decoupling points are identified,
steelmakers must narrow down the
product offering by customer segment by
defining the pre-products for each group.
Decoupling results in shorter lead times,
decreased inventory levels for finished
goods and increased flexibility for the
steelmaker and customers. In addition,
defective production and downtimes
can be better compensated for because
the steelmaker has the flexibility to
achieve the customer specification
later in the production process (e.g.,
through cutting or grinding the
material), as long as suitable decoupling
points and products were chosen.
Decoupling points can be well executed
for so-called “runner” products, which
are simpler to forecast (e.g., due to
stable base demand from a certain
customer group). Short-term changes,
unexpected downtimes, special
requirements and products that cannot
be operated through decoupling points
still endanger the guarantee of delivery-
as-promised. When this guarantee
is made, it means steelmakers must
hold back capacity for unexpected
events. This unused capacity in the
production plan of each line generates
flexibility and agility for all unplanned
matters that come up, including
downtimes and orders with special
requirements for lead time, dimensions,
grades and additional treatments.
The key challenge here is to eventually
utilize all available capacity even though
some has been held back in reserve.
In other words, there is nothing wrong
with filling the mill, as long as it is not
at the cost of on-time delivery. With
these points in mind, it is only possible to
decouple production and create a reserve
production capacity if digital, end-to-end
processes enable better management of
the supply chain.

Figure 5. Decoupling points and focused products are two major levers to realize and ensure shorter order-to-delivery times
and flexibility toward order changes.
Product Variation

Specialties
Standard

Decoupling Points Production Depth

Source: Accenture project experience

15
5 Adapt personnel, procedural
and informational skills to
facilitate the new approach

16
To achieve a fundamental paradigm change, processes, roles
and technology must be closely aligned. Enterprise resource
planning (ERP) systems must deliver timely and efficient
management reporting and analytics to enable integrated
planning, such as planning for machine utilization, staff
deployment and purchasing of primary materials.

This will help reduce costs and downtime
by optimizing resources.
Defined roles and responsibilities are
specifically needed in a process-driven
organization that is integrated from
end-to-end. Sales, operations and supply
chain management must work together to
meet customer requirements and demand.
This will entail disrupting the traditional
relationships between these departments,
likely requiring redesign of decision
making, target setting and performance
management approaches to elicit the
desired behavior.
Even though implementing a new,
integrated sales and production approach
does not immediately require a holistic
digitalization of the organization,
steelmakers should consider it for
creating an agile production and supply
chain, and for reducing the risks inherent
with scattered processes and systems in
the organization.
One benefit for both customers and
steelmakers is increased delivery
reliability through process and data
transparency from real-time or near
real-time monitoring of the production
and supply chain. Any production delays
can be reported early to the customer,
and capacity that has been held back in
reserve can be used if necessary.
We recommend steelmakers begin now
to streamline and strengthen their
system, data and process landscape,
while planning ahead for a larger digital
overhaul that will ensure a leading
position in the future.

17
Conclusion

The empowered position of the customer in the new buyers’

market means the business strategy and operating model
of steelmakers must change. The usual measures will not be
sufficient to sustain profitability.
Combining Accenture's research results and project experience, we have
addressed the starting point for the required paradigm change. It is
to focus on customer needs in connection to their willingness to pay.
Offering the right services and delivering as promised become the key
success factors for improving steelmakers’ margins and competitiveness.

Our five-element approach supports steelmakers in their transformation

initiative—from strategy definition via execution to operational
excellence. They will be constantly driven by customer centricity and
offer the right service portfolio based on customer needs and their
willingness to pay. The defined service portfolio will be aligned with the
supply and production chain to deliver as promised, and the company
can work toward improving the bottom line with a lower cost base.

18
19
Authors About Accenture
Christian Seyfarth Accenture is a leading global professional
Manager, Resources services company, providing a broad
Accenture Consulting range of services and solutions in
christian.seyfarth@accenture.com strategy, consulting, digital, technology
and operations. Combining unmatched
Patrick Eisermann experience and specialized skills
Consultant, Resources
across more than 40 industries and all
Accenture Consulting
business functions – underpinned by
patrick.eisermann@accenture.com
the world’s largest delivery network –
Dr. Julia Oppermann Accenture works at the intersection of
Senior Manager, Resources business and technology to help clients
Accenture Consulting improve their performance and create
julia.oppermann@accenture.com sustainable value for their stakeholders.
With more than 373,000 people serving
Götz Erhardt clients in more than 120 countries,
Managing Director, Resources Accenture drives innovation to improve
Accenture Consulting
the way the world works and lives.
goetz.erhardt@accenture.com
Visit us at www.accenture.com.

Visit us
www.accenture.com/naturalresources

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at Accenture as general guidance. It is not
intended to provide specific advice on your
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