Running head: SOLID AS STEEL 1 Case Study Two: Solid as Steel BMGT 5463 Operations Management Sean Ye, Vivian Tong, Twinkle Gilbert Larry Walker, Professor Northwest University August 20, 2017 SOLID AS STEEL 2 Solid as Steel: Production Planning at ThyssenKrupp ThyssenKrupp Steel Europe was found in 1999. It is a product of the merger between the historic German steel makers, Thyssen and Krupp. ThyssenKrupp Steel Europe annually produced up to 12 million metric tons of steel with 27,600 employees. However, in March 2014 ThyssenKrupp’s facility in Bochum, Germany realized they had been facing serious problems. They were unable to achieve planned goals, which resulted in production volume bring lower, less number of finished products, and lack of production capacity utilization. Schmedders & Schulze (2016) explain ThyssenKrupp’s “main drivers of success were customer orientation and reliability in terms of product quality and delivery time.” (Schmedders & Schulze, 2016). All these unachieved goals lead to unfulfilled orders leaving dissatisfied customers. The steel industry being highly competitive, delivery performance played a critical role in creating a differentiation factor for ThyssenKrupp. The biggest problem for ThyssenKrupp is it cannot fulfill the demand. As Cachon & Terwiesch (2017) says that too little capacity results in demand unfilled. At the same time, too much capacity is expensive because the extra capacities will be wasted and idle time will bring forth financial losses. McKellen (2004) also mentioned that the Takt time concept should be applied by raw the material supplier. In ThyssenKrupp’s case, time control would help them reduce waste and improve its processing process. Bochum Production Lines There are two lines the steel can possibly go through to become a finished product. The two lines are (i) push picking line and (ii) continuous line. The biggest difference between them is the batching process. Whether the steel would undergo further processing or sold directly, the mill scale is removed from the surface. SOLID AS STEEL 3 Push Picking Lines were designed to remove mill scale. To remove the iron oxide layer from the steel the hot strips were uncoiled, the head of the strips was pushed through the push picking line, hot hydrochloric acid filled containers removed the layer from the surface, and then the strip was pushed through a rinsing section to remove any residual acid from the surface. Next step in this line process was oiling, they oiled the steel to protect it from corrosion. Lastly, the strip was coiled again. Before the strip was coiled again the product is called “pickled hot strip” which is sold to business to business customers, it is mainly within the automotive industry. The biggest drawback of this line is pushing of the product through the rinsing section. Each strip is pushed individually. This is the biggest bottleneck the manufacturing unit faces, delaying the entire batch of products and lowering the implied utilization. Implied utilization is “the ratio of demand to capacity: Implied utilization = Demand at the resource/Capacity at the resource. The implied utilization captures the mismatch between demand and capacity.” (Cachon & Terwiesch (2017, pg. 109). It not only disregards time constraints in terms of customer order, it also is the cause of wastage of essential resources like, time, and money. Continuous Lines were designed to move the head of a new strip towards the welding machine. Where the strip was welded to the tail of the one that preceded it. There was no pushing involves, like the name suggests it was a continuous process that saved the facility some production downtime. “Production downtimes due to push-in problems did not occur at continuous lines, but with push picking lines this remained a concern” (Schmedders & Schulze, 2016). ThyssenKrupp still chose to build another push picking line in 2000 because of the increasing demand for high strength steel. Although push picking line slows down the production, it is capable of producing steel products with different strengths and grades. ThyssenKrupp considered this aspect pf push picking lines more profitable to invest. SOLID AS STEEL 4 Performance Indicators At Thyssenkrupp, there were many performance indicators to remind them of the deviations. The output or throughput of the production lines was an important metric. The production lines’ managers needed to report the performance of the lines regularly. With overcapacity and customer’s increasing demand for products quality, the line throughput was one of the key performing indicators. (Schmedders & Schulze, 2016). “The performance indicator run time ratio was a run time of the production line compares to an operating time of the production line” (Schmedders & Schulze, 2016). Operating time = Calendar time – (legal holidays, shortages,7 all scheduled maintenance), Run Time = Operating time – (breakdowns, exceeding downtime for maintenance, set-up time) For example, if the operating time is 10 hours or 600 minutes, the 60 minutes of downtime, so the RTR is 90%. Both figures were reported daily, monthly, and per fiscal year. Every plant manager could get a report of past period that noted deviations from planned figures. The longterm failure to achieve the goal had a serious impact on the operations of the enterprise, which could result in an unplanned incremental expense. Deviation from Planned Throughput Steel production lines used historical figures to calculate the average performance, so there was a fixed number of order volumes. They use orders to “fill capacities” (Schmedders & Schulze, 2016). In this way, there would be three possibilities. First, they would reach the planned throughput, but there would be extra capacity at the end of the month. In this case, if there were an intermediate product that was available for processing, the extra capacity could be filled with orders from the next month. Otherwise, the production line could stand still without SOLID AS STEEL 5 filling the order. This is a bad situation for a company because the extra capacity would be wasted and the fixed costs are still there. The second situation is also serious, the planned throughput cannot achieve the goal. In this case, the order will take longer to complete. According to Little’s law(1954), The lead time is increased because the inventory or the takt time increases. For example, the materials received by ThyssenKrupp are not standard, sometimes the materials are low thickness or low width thus the materials spend more time to pass through the process of production. Whatever the reason, the longer the lead time leads to more costs because the planned capacity is not enough, so the actual cost will be higher than the expected cost. Product pricing may turn into a wrong low price, contribution margins rate is much lower than expected, and may even be negative. The third situation is the ideal case. The actual throughput is fully in line with planned throughput (Including the case of minimal deviations). This situation is almost impossible for ThyssenKrupp, in the past ten years of operations they have only managed to achieve this once. Recommendation ThyssenKrupp can use root cause analysis to find out the root causes of the problem. Root cause analysis is an effective method of analyzing problems and solving problems (Okes, 2009). Root cause analysis is a method of finding the root cause of a problem step by step rather than stay on the surface reason and to find the bottleneck of the production process. First, listing some possible reasons for deviations: 1. Wrong computing capacity. 2. The material low thickness or low width. 3. Major breakdowns. 4. Missing Engineer. Second, drawing the fishbone chart per the first step, and then write the reason for each. As detailed as possible based SOLID AS STEEL 6 on available information, fishbone chart show below. Figure 1. Fishbone Chart of The Reason of Deviation. ThyssenKrupp according to the fishbone diagram can work on improvements as follows: 1. Calculate capacity in a more scientific way 2. Purchase of standardized materials 3. Improve worker training 4. Regular downtime to check equipment to avoid large equipment damage To conclude the reason ThyssenKrupp were always failing surfaced during one of the meeting causing them to gather data to improve their operations. The RTR showed that the lower the run time ratio, the higher the negative deviation from the plan. On the other hand, they rely on the historical figures to estimate capacity. It is the other reason that they could not achieve their goal. For ThyssenKrupp, the number of capacity is very important because the capacity to determine how many orders ThyssenKrupp can receive. Standardized materials can reduce takt time, Staff training and maintenance can reduce idle time. SOLID AS STEEL 7 Reference Cox, C. R., & Ulmer, J. M. (2015). Lean Manufacturing: An Analysis of Process Improvement Techniques. Franklin Business & Law Journal, 2015(2), 70-77. Cachon, G., & Terwiesch, C. (2017). Operations Management(1st ed.). New York, NY: McGrawHill Education. McKellen, C. (2004). TAKT Time and Standard Operating Procedures. Metalworking Production, 148(10), 14 Schmedders, K., & Schulze, M. (2016). Solid as Steel: Production Planning at thyssenkrupp. Kellogg school of management,KEL942. Okes, D. (2009). Root cause analysis: The core of problem solving and corrective action. Milwaukee, WI: ASQ Quality Press.
