Onesteel – Market Mills
Onesteel – Kwinana: using a variable pay system to reduce waste and
increase process efficiency
OneSteel in Kwinana is both a manufacturing and processing plant for steel tube, some of which is
received from other OneSteel plants based in New South Wales. A variable pay system was
developed which sees the employees taking a share in the savings made from their
recommendations. The effect of this initiative is reduced waste from the plant and increased process
efficiency. In the past 12 months the company has saved over $340,000, of which the employees
have shared in over $40,000.
Background
In November 2000, OneSteel operations broke off from its then parent company BHP Limited (now
BHP Billiton) to form four business units that make up OneSteel operations. The operations are a
combination of related businesses that previously operated independently. OneSteel integrates
mining, steel manufacturing, and steel and metal products distribution into one company.
OneSteel manufactures and distributes structural, rail, rod, merchant bar, cold finished bar, chrome
plated bar, reinforcing, wire, tube, pipes, fittings, valves and actuation. The majority of OneSteel’s
products are used in the construction, manufacturing, housing, mining and agricultural industries.
The business units consist of OneSteel in Whyalla, Market Mills, Distribution, and Steel and Tube
Holdings.
OneSteel Structure
Whyalla
Mining Operations
Integrated Steelworks
Structural rolling mills
Rail products facilities
Market Mills
Sydney Steel Mill
Rod, Bar & Wire Mills
Wire Ropery
Pipe & Tube Mills
Distribution
83 Distribution Sites
39 Reinforcing &
rebar sites
89 Franchises
Steel & Tube
Holdings
50.1% owner Tube
Holdings Ltd
74.5% interest in AJ
Forsyth & Co
OneSteel has the total capacity to manufacture 1.7 million tonnes of steel per annum and currently
supplies approximately 30,000 customers domestically and to niche markets overseas with a current
sales turnover of over $2.8 billion per annum. There are over 7000 employees located at sites in
Australia, New Zealand, British Columbia and Canada.
Under former management, these businesses were essentially run as independent operations. The
challenge for OneSteel management has been to bring these businesses together to operate as a
single entity, where all operational elements are in alignment. By achieving this, significant value
can be created for shareholders, customers and employees. As part of the OneSteel Market Mills
operations, the plant in Kwinana will be the focus of this case study.
Centre of Excellence in Cleaner Production
Division of Resources and Environment
Curtin University of Technology
Page 1 of 7
OneSteel – Kwinana Plant (OSK)
The OneSteel Kwinana (OSK) plant currently employs 17 staff. The plant began in 1974 as BTM
Tube Products (part of Tubemakers of Australia) and was taken over by BHP in the mid 90’s and
then “spun-out” from BHP to become OneSteel Trading Limited in 2000. OneSteel Market Mills in
New South Wales supplies the plant in Kwinana with a range of tube and structural steels that it
processes in addition to manufacturing and processing its own product range of which Tubecolor® is
its primary product. There are other manufacturing plants in Victoria and South Australia.
The Process
OSK decided to look toward implementing a variable pay system. The objectives of the system
were that it was aligned with management values and guidelines, simple and effective in providing
rewards to employees and maximised profits to the business. Another key objective was the need to
be linked to the overall OneSteel business vision “to be the safest and most profitable steel
company”. OSK defines the incentive scheme as an alternative compensation system that ties pay to
business outcomes and supports a participative management process. Cash payouts are based on a
predetermined measure of group or business performance.
The variable pay system started with the review of the management
business vision, prioritisation and design guidelines. From this
process performance variables were identified that would be
appropriate to include in the variable pay formula. A basic formula
was developed to calculate the pay resulting from project outcomes.
Historical data was obtained for each of the selected measures and
shown to each of the design teams to determine the suitability for
inclusion into the variable pay system. Initial baseline goals were
Milestones have been achieved
determined and a methodology was also developed for resetting
with Loss Time Injury days at
their lowest in 7 years
goals for future periods. Sharing ratio and the frequency of
payments was agreed upon, combined with the method of payment
and administration, all subject to annual review. The performance in the case of OSK is tied to the
group not the individual to foster teamwork and commitment to common goals.
Variable Pay System
Under this system it is possible for the employees to profit from both a profit share component and
from the increased efficiencies resulting from gain sharing projects.
The extra administration required to service the pay system is small. The system has been
integrated into the normal milestone and monitoring systems and provides management with greater
insight into how the business is travelling.
The variable pay system’s two components operate as follows:
1. Profit Sharing
Profit sharing ties pay to a measure of profit. This links payment to the ultimate measure of a
company’s ability to pay bonuses. The advantages are that it is simple to design and administer and
payment cannot be made if the company exhibits poor results. Profit sharing can be used to
prioritize improvement initiatives that increase business performance and profitability.
Centre of Excellence in Cleaner Production
Division of Resources and Environment
Curtin University of Technology
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In practice, profit sharing is applied in two tiers:
1. Up to budget a certain amount pro rata to the amount
2. Above budget higher share per x% pro rata above budget
2. Gain Sharing
Gain sharing plans share with employees the financial gains associated with improvements in
measures of team or business performance. By using measures of performance, as opposed to
measures of profitability, gain sharing plans are generally more meaningful and relevant to
participating employees. Improvements can be quantified and translated into a dollar value, and a
sharing ratio for dividing the quantified gains between the company and the participating employees.
In practice what are included are all types of improvement projects that add profits to the bottom line
over and above current performance such as cost reduction initiatives (excluding group supply
negotiations) and efficiency improvements. Suggested improvements need to be costed and
monitored.
The company shares gains with participants in the variable pay plan, with the following breakdown:
a. 20% in the first year
b. 10% for the next two years
Cleaner Production Initiative
OSK Gain Sharing Register shows project suggestions made by the employees and management, and
the financial benefits. There are over 18 cost reduction programs going at any one time, most of
which have been suggested by the employees. The projects range from good housekeeping and
technology modification, to recycling and product reuse.
The employees at monthly meetings put suggestions forward. The criteria for the assessment of
suggestions includes:
Is the suggestion measurable?
Is it aligned with Onesteel’s process?
Is it of reasonable value, above $100.00?
Has it been approved by management?
Does the suggestion comply with Risk, Environment and Occupational Health and Safety
guidelines?
Capital improvement suggestions are treated separately; as Onesteel is a shareholder company
payback periods need to be considered.
Once suggestions have been agreed to they are monitored and reported on. At the monthly meetings
staff are told how much their improvement suggestion has saved the company and how much they
will gain from it in pay.
Some of the suggestions and their outcomes are detailed below.
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Division of Resources and Environment
Curtin University of Technology
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Paint cleaning and recycling booth
Based on suggestions from the employees a paint cleaning and recycling booth has been leased that
recycles the paint for powder coating. The process consists of a recycling box that fits on the paint
booth and the paint powders are vacuumed / sucked out of the booth back into the recycling
chamber. The recycled paint powder is then put back through the paint gun device. The production
processes were also addressed so only one paint colour is used for each batch, reducing cleaning
costs and lost production time. The recycling machines are leased.
Paint cleaning and recycling booth
Packaging Reduction
The variable pay system has also been extended to wholesale
customers in the area of packaging. This has had outstanding benefits
with suggested projects by the shop floor and management resulting in
significant savings. The project suggestions have crossed over from
simple good housekeeping initiatives to reuse and recycling
techniques.
After reviewing the waste associated with packaging the finished steel
products, it was suggested the company look at ways to reduce the
amount of wood gluts used. The timber gluts were colour coded and a
steel cage was provided to the customers so they could put the used
gluts back into. When the trucks dropped off a new supply, the
cage(s) filled with used gluts is picked up and returned to the
company. The wood products are purchased from plantation pine.
This system alone has saved 15% of packaging materials.
Packaging station changes
in configuration have
saved money
Colour coded wood gluts
are returned for reuse in
packaging
This combined with changes in packaging configurations, such as a
reduction in the amount of strapping; clips and wood to package the
product have also saved the company over $30,000 in one year. The
ideas for these packaging changes came from the shop floor, and the
employees have shared in the gains.
Advantages
The financial rewards that are directly associated with the project’s success increase the
sustainability of the initiative. The incentive scheme encourages and enhances a continual
improvement mentality and creates greater teamwork. It has primarily helped evolve a better
Centre of Excellence in Cleaner Production
Division of Resources and Environment
Curtin University of Technology
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housekeeping management culture within operations, thus reducing waste and improving the
cleanliness of the general work environment.
There has been a reduction in waste to landfill, although this is difficult to quantify, as records of
waste collection are not accurately recorded. The company sees this as part of extended
responsibility to reduce the demand on the timber industry.
There are improvements in terms of working conditions and employee commitment. The employee
incentive scheme and the associated initiatives have also increased the reputation of the company
and it is now seen to be more ‘environmentally responsible’ and serious about the corporate
reputation within the community.
Other benefits include: a greater sense of ownership over the operations, shared responsibility of
decision making, increased productivity and quality, a strong level of maturity on the site, and a
higher level of respect and dignity displayed at all levels. There have been only two complaints in
over one million meters of production tube manufactured.
Incentives
The incentives to keep the program going are considerable. Since the
program’s inception the company has achieved record yields. Customer
Complaints on manufactured product are at their lowest for 14 years.
The company is achieving 99.6% on-time deliveries and effective
performance is up 74.5%, a 6.2% increase from last year.
OSK believe the employees are the main reason for their success and
value their contribution. The program has helped OSK move forward in communicating the
following values to its employees:
Pride in our work, standards and achievements
Passion, hunger to achieve and exceed goals
Focus and attitude to improve processes and team work
Barriers
The initial barriers stemmed from employees being sceptical about how serious the management was
at the initiation of the incentive scheme and the associated employee benefits from the savings.
However, when the information started to be shared amongst the employees and real dollars
appeared in their pay packets, the attitude changed dramatically. There are added costs to implement
and manage the program, however these are outweighed by the returns both to the company and it’s
employees. The program has full support from the corporate managers.
OSK have also identified some issues associated with the variable pay system such as possible
conflicts arising from differing business decisions. However the gain sharing provides a strong
opportunity to improve the business and increase in profit, which is aligned with OneSteel’s
objectives. Linking this to profit instead of a measure eliminates most of the disadvantages of gain
sharing such as doing well at one measure at the expense of another area in the company. As a
consequence, management looks more broadly at the parameters that are incorporated into the
decision making process.
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Division of Resources and Environment
Curtin University of Technology
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Further Developments
The new system has created an environment of continual improvement where all processes are being
constantly reviewed with opportunities to use safer, more efficient and environmentally friendlier
consumables and processes being trialled and investigated on an ongoing basis.
The incentive scheme has worked extremely well in making sure the current operations are operating
in the most efficient manner. The system shows that cleaner production initiatives such as good
housekeeping, reuse and recycling and technology modifications can not only save the company
money, but also have good environmental, occupational health and safety and risk management
outcomes.
The company is looking at ways to further develop the emerging corporate culture toward
continuous improvement and the bottom up ownership of recommendations and process innovations
that currently exists. The incentive scheme has worked to reduce the amount of waste generated
from the plant and make the current operations more efficient. The challenge for the organisation
now is to move beyond the ‘low hanging fruit’ and look toward proactive solutions. The company is
also looking to further embrace cleaner production techniques by adopting the continuous
application of integrated strategies and applying them to processes, thus increasing the overall
efficiency and also reducing the risk to the environment and those that work within the company.
DISCLAIMER
OneSteel Market Mills, a business group forming part of OneSteel Limited ABN 63 004 410 833,
provides the information contained in this case study as a service to those interested in the reduction
of waste in industrial manufacturing and processing. Since the information is provided for general
guidance only, it in no way replaces the services of professional consultants on particular projects or
subjects and should not be relied upon in any manner whatsoever for any purpose whatsoever.
Whilst every effort has been made to ensure the information provided in this case study is accurate
and up to date at the time of first publication, OneSteel makes no warranty, representation or
undertaking whether expressed or implied, nor does it assume any legal liability, whether direct or
indirect, or responsibility for the accuracy, completeness, or usefulness of any information contained
herein.
Unless otherwise stated, OneSteel Limited is the owner of the copyright in all material contained in
this case study.
Should this case study be reproduced in any form either in part or in whole, the reproduction must
refer to the original source of the material and must contain the following disclaimer in full:
Unless otherwise stated, OneSteel Limited is the owner of the copyright in this material. Whilst every
effort has been made to ensure the information provided in this case study is accurate and up to date
at the time of first publication, OneSteel makes no warranty, representation or undertaking whether
expressed or implied, nor does it assume any legal liability, whether direct or indirect, or
responsibility for the accuracy, completeness, or usefulness of any information contained herein.
Centre of Excellence in Cleaner Production
Division of Resources and Environment
Curtin University of Technology
Page 6 of 7
Contact:
Mr Mathew Taufel
Occupational Health and Safety and Quality Assurance Manager
OneSteel Market Mills
PO Box 129
Kwinana, WA, 6167.
Phone: 08 9411 9730
Fax: 08 9437 1006
Email: taufelm@onesteel.com
Implementation Date: 2000 - 2003
Further initiatives:
Case developed by the Centre of Excellence in Cleaner Production (Curtin University of
Technology)
Last modified: August 2003
Centre of Excellence in Cleaner Production
Division of Resources and Environment
Curtin University of Technology
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