Download the full study report
Oct. 2008, pdf, 1.8MB
The objective of this study is to analyse how companies in the steel industry use Information and Communication Technology (ICT) for conducting business, to assess impacts of this use for firms and for the industry as a whole, and to indicate possible implications for policy. The analysis is based on results of an international survey of steel enterprises, econometric analyses, evaluation of recent literature, and ten case studies.
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 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)
NACE Revision 2 is a four-digit classification of business activities. It is a revision of the “General Industrial Classification of Economic Activities within the European Communities”, known by the acronym NACE and originally published by Eurostat in 1970. NACE Rev. 2 replaced the previously used Rev. 1.1 on 1 January 2008.
The European iron and steel industry comprised 9,459 enterprises and employed 776,800 people in 2004. The basic metals manufacturing sector is dominated by large multinational enterprises, with 74% of its EU-27 value added created by enterprises with 250 or more employees. However, the majority of companies in the industry are small or medium-sized. While the strategic importance of the steel producing industry for Europe has declined during the past decades, steel remains a very important production material (section 2.2). Since 2003 there has been an unprecedented upward cycle 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 may lead to further large-scale enterprises. Skills and employment issues are becoming more important since many employees will retire within a few years and hiring new skilled personnel may become difficult. Furthermore, environment issues, energy saving in particular, are becoming more important for the steel industry (section 2.3).
Infrastructure, skills, investment
Steel business can apparently not be done without the internet any longer. Practically all companies in the sector are connected to the internet. The share of steel firms that said they have a broadband connection to the internet was 41% (34% weighted by employment) so that there is much scope for improving internet connections. As regards skills, only large companies reported to have experienced difficulties to find ICT practitioners (20%) which reflects their higher demand. As regards budgets, 69% (employment-weighted) said that they would keep the ICT budget at about the same level, and further 30% said they would increase the budget.
Steel business can apparently not be done without the internet any longer. Practically all companies in the sector are connected to the internet. The share of steel firms that said they have a broadband connection to the internet was 41% (34% weighted by employment) so that there is much scope for improving internet connections. As regards skills, only large companies reported to have experienced difficulties to find ICT practitioners (20%) which reflects their higher demand. As regards budgets, 69% (employment-weighted) said that they would keep the ICT budget at about the same level, and further 30% said they would increase the budget.
Procurement is a fundamentally important activity in the steel industry, as in most manufacturing industries, because upstream supply chains tend to be complex and fragmented (section 3.1). Firms representing 66% of the EU-7 steel industry’s employment were found to procure goods via the internet or other computer-mediated networks. The share of goods procured online tends to be small.
Electronic sourcing platforms can make procurement processes more efficient and reduce procurement costs. 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.
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. The use of software for managing orders is quite prevalent: companies representing 76% of the steel sector’s employment said they use such software. 59% reported to have an ERP system. The use of internal systems for document management, supply chain management (both 27%), and customer relationship management (21%) was found to be not so widespread. Radio Frequency Identification (RFID) is also not prevalent. Steel firms representing 12% of employment reported to use RFID and 6% said they plan to do so.
Case study evidence from the Srem iron foundry, Poland (section 5.2), and Farwest Steel, US (section 5.3) point to challenges of implementing e-business systems related to ICT acceptance and the need for changing management practices. 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 5.7) and Baosteel (section 5.5) refer to such challenges.
The steel industry is largely driven by requirements from customers. Thus the customer interfaces are vitally important. e-Business solutions may enhance communication with customers, including for example product specification, scheduling, and invoicing. Online platforms for data exchange with customers, such as the one at Corus Steel IJmuiden (section 5.6) may improve order processes, reducing orders processing costs and lead times. The case of Baosteel (section 5.5) also provides a related example: Workflows were reported to now require on average only 60% of the time spent before introducing digitised operations. However, steel firms representing only 26% of the industry’s employment actually sell goods electronically, which is lower than in other industries. Steel products may not be well suited for e-sales due to their specificities (section 3.5.2).
Distribution and logistics of steel products to customers has long been neglected as a strategically important issue in the sector (section 3.5.3). However, steel firms representing 80% of the industry’s employment expect high or medium impacts of ICT on logistics in the future (section 6.1). The Eurometal association sees a 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 5.7).
In the steel industry, e-marketplaces were not successful. The last e-marketplace for the steel industry in Europe, Steel 24-7, was terminated in September 2007. e-Marketplaces did not fulfil the expectations. Companies preferred to sophisticate their own sales platforms rather than trading via third-party platforms (section 3.4.1). The case of the former e-Arbed.com illustrates the high expectations attributed to electronic market places and their potential to enhance sourcing and selling efficiency, but it also shows some of the difficulties that led to the closure of all e-marketplaces in Europe (section 5.8).
The development of ICT standards in the steel industry may be important for sophisticating e-business communication in the industry and beyond. Eurofer, the European Federation of Iron and Steel Industries, supported the development of the European Steel Industry Data Exchange Language (ESIDEL) standard. ESIDEL version 1.0 was introduced in 2004; an upgraded version 1.1 was published at the end of 2005. In 2007 the further development of ESIDEL in Europe was stopped (section 3.4.2). Only 1% of the interviewed EU steel companies reported to use ESIDEL, while even 7% of the US steel firms stated to use it. ESIDEL version 1.1 was however adopted in Australia. At CMC Coil Steels, Australia, the standard was implemented successfully, while opportunities for improvement also emerged (section 5.9).
Taking a bird’s eye view on the survey findings, the following differences were found:
Steel industry no laggard – but lacking innovation activity: ICT endowment and e-business use in the European steel industry was found to be broadly in line with other manufacturing industries; on average in between chemicals and furniture which were also included in the survey (see section 3.7). This may be in contrast to an image of an old-fashioned industry that may be present in the general public. However, the e-Business Survey 2007 also found that the steel industry is indeed lagging behind other industries in innovative activities (see section 4.4.1). This applies to general product innovation, to process innovation of both general and ICT-related nature, and to organisational innovation.
SMEs lag behind large firms: In all ICT and e-business domains, small steel firms lag behind medium-sized ones, and medium-sized ones in turn lag behind large firms. The differences between SMEs and large firms are smallest for e-sales indicators and largest for internal systems (see section 3.7). The differences for internal systems may reflect SME’s limited ability and necessity to invest in comprehensive back-office systems. For e-procurement and ICT infrastructure, the differences are similar.
EU steel firms lag behind US: EU-7 steel firms were found to use less ICT than their US counterparts. The differences between the EU and the US were found to be smallest for internal systems and largest for e-procurement indicators. For ICT infrastructure and e-sales indicators, the differences are similar. Never-theless, the SeBW advisory board assesses the EU steel industry as more competitive than the US one because US steel firms are bound to tight shareholder requirements which limit their investment capabilities.
Findings from an econometric analysis suggest that ICT have considerable impacts on the steel industry but they did not change business in this industry fundamentally. Key findings for the items analysed include the following:
Productivity: Results from other studies indicate that ICT-induced productivity effects are relatively less pronounced in capital intensive, mature manufacturing industries such as steel. On the other hand, empirical evidence shows that particularly the larger companies in the steel industry have dynamically adopted ICT, notably for managing the supply chain (chapter 3). A growth accounting analysis suggests that changes in the ICT-capital stock accounted only for minor shares of overall value added growth in the basic and fabricated metals industries. As regards labour productivity, non-ICT capital intensity and the intermediate inputs intensity were found to be the main components of labour productivity growth. However, ICT can be embedded in other types of capital, so there may be a "hidden ICT-impact".
Innovation: The findings indicate that ICT impact in the steel industry is mainly on process innovation, not on product innovation. Many case studies conducted for this report confirm that ICT can be considered as an enabler of innovation and positively impact on firm performance (section 4.4).
Market structure: In the steel industry, the number of potential customers is limited and the products sold are not well-suited for online sales. ICT and e-business are rather used to support, not conduct, sales processes. The analysis indicates that ICT and e-business can hardly be used to open up new markets, to increase the number of customers and impact on the steel market’s structure (section 4.5).
Value chains: ICT facilitating B2B interactions continues to be used in a way that enhances, not replaces individual companies’ business strategies, apparently also in the steel industry. Analyses findings indicate that outsourcing propensity is correlated with intensity of ICT use, while the direction of this relationship is not clear (section 4.6).
Current industry policy appears to not adequately reflect the importance of ICT and e-business for the steel industry. Several political activities may be suggested (section 6.2):
Fostering value chains and e-business use. Public organisations may support activities to foster value chain development through ICT in the steel industry. While the European Commission should have a focus on cross-border activities, Member States may promote national or regional activities. In recent years, several EU Member States have launched initiatives to facilitate e-business exchanges within specific industry supply chains. A key objective in most of these initiatives is to enhance SME participation because they are at risk to be eliminated from the supply chain.
Supporting ICT skills development. The steel industry has the image of a declining industry and may thus face difficulties to attract skilled employees, also in the field of ICT. The steel firms themselves, their industry associations as well as public policy could become more active in this respect. First of all they can promote awareness about and uptake of e-business skills in steel companies. Furthermore they can support e-learning solutions and enhance co-operation activities with universities to support e-skills development.
Promoting ICT standards. The EC could play a more active role towards standardisation of e-communication processes in the steel industry. The EC could promote the positive Australian experience and the idea of further ESIDEL development among European steel enterprises as well as their customers and suppliers. The EC could also initiate and co-fund European projects to implement this standard. These could focus on SMEs because they tend to be reluctant to adopt standards due to the related investment costs.
Promoting ICT use for saving energy. ICT and e-business may be used to better protect the natural environment and, in particular, to save energy. Policy makers may promote findings from a related study conducted by the e-Business Watch in 2007/8.
