Interim study report - Executive Summary (January 2008)
(The final study report will be available by the end of September 2008.)
This document is an interim report. It contains parts of a sector study on e-business activity in the steel industry. Its objective is to describe how companies in this industry use Information and Communication Technology (ICT) for conducting business, to assess impacts of this development for firms and for the industry as a whole, and to indicate possible implications for policy. The analysis is based on evaluation of recent literature and case studies. Results of an international survey of steel enterprises on their ICT use as well as an econometric analyses will be added for the final study.
The steel industry as defined for the study purpose covers large parts of division 24 in NACE Rev. 2, “manufacture of basic metals”. The steel-related parts of NACE 24 are the first three groups and two classes of the fifth group: 24.1 “manufacture of basic iron and steel and of ferro-alloys”, 24.2 “manufacture of tubes, pipes, hollow profiles and related fittings, of steel”, 24.3 “manufacture of other first processing of iron and steel”, 24.51 “casting of iron”, and 24.52 “casting of steel” (section 2.1).
The basic metals manufacturing sector is dominated by large multinational enterprises, with 71% of its EU-25 value added created by enterprises with 250 or more employees. However, the majority of companies in the industry is small or medium-sized. The strategic importance of the steel producing industry for Europe has declined during the past decades, which is also noticeable in terms of value added and employment (section 2.2). However, steel remains a very important production material, and since 2003 there has been an unprecedented upward trend in the industry, caused by increased demand for steel particularly from China. A further trend is an ongoing process of consolidation of the steel industry which will lead to further large-scale enterprises. Furthermore, environmental issues are becoming more important for the steel industry (section 2.3).
Procurement management is a fundamentally important activity in the steel industry, as in most manufacturing industries, because upstream supply chains tend to be complex and fragmented. Electronic sourcing platforms can make procurement processes more efficient and reduce procurement costs (section 3.1). The case of ThyssenKrupp shows that such platforms may not only be beneficial for the procuring company but also for the suppliers because their tendering procedures can become more streamlined, too (section 5.1). However, iron and steel companies are likely to continue to procure raw materials in long-term offline relationships, due to an oligopolistic market structure in iron ore supply and due to the necessity to fulfil high quality standards for input raw material.
Internal e-business systems can significantly enhance workflows and business processes and thus increase productivity and reduce costs in steel enterprises (section 3.2.1). While large companies may benefit from implementing comprehensive applications such as enterprise resource planning (ERP) systems, small companies may already benefit from simple software and basic ICT. In this respect, preliminary findings for this report confirm related findings from previous e-Business Watch studies for other manufacturing industries. However, case study evidence also points to challenges of implementing e-business systems related to ICT acceptance and the need for changing management practices. The Srem iron foundry (section 5.2), Poland, provides a related example. Moreover, the integration of information systems in the course of mergers poses particular challenges to systems interoperability (section 3.2.2). The cases of ArcelorMittal Gent (section 5.4) and Baosteel (section 5.3) refer to challenges related to integrating and unifying information systems after mergers.
The steel industry is largely driven by requirements from customers. This also applies to e-business solutions, and it applies to firms of all size classes. Thus the customer interfaces are vitally important. e-Business solutions may facilitate communication with customers, including for example negotiation, product specification, scheduling, shipping and invoicing. Online platforms for data exchange with customers may enhance order processes significantly, reducing orders processing costs and lead times. The case of Baosteel (section 5.3) provides a related example: Workflows now require on average only 60% of the time spent before introducing digitised operations.
Distribution and logistics of steel products to customers has long been neglected as a strategically important issue in the sector. In order to meet the challenges of downstream supply chain management, steel trade is currently changing its characteristics. Intermediaries are becoming even more important. Eurometal sees an new paradigm for steel distribution emerging, moving from a product driven business model to a steel solution business model. ICT and e-business can contribute to making distribution and logistics in the steel industry more effective. ArcelorMittal Gent provides an example of linking warehouses electronically, enhancing the overview of materials in stock and on transport, thus reducing storage costs and allowing faster invoicing (section 5.4).
There are two issues that deal with both the procurement and the sales side of e-business in the steel industry: e-marketplaces and ICT standards.
Preliminary findings show that ICT and e-business have considerable impacts on the steel industry. However, they did not change business in this industry fundamentally. The following preliminary conclusions were drawn from case studies conducted for this report and literature evaluation:
Results of an econometric analysis of ICT and e-business impacts will be added in the final report.
Based on preliminary research findings, there are several general implications for public policy to promote ICT and e-business use in the steel industry (section 5):
