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

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 culture and long-term strategy of many
it correctly, companies must go through steelmakers. It requires company-wide
a fundamental paradigm change. They adaption of personnel, procedural and
must leave behind “fill the mill” thinking informational skills. All steelmakers are
and begin to see themselves as companies impacted by these developments, but
that deliver as promised to the needs of those in North America and Europe
the customer. will be impacted the most given the
market situation. It is critical for these
The first step is for steelmakers to steelmakers to act quickly.
understand that customer centricity is key
to success. Uncertainty can be reduced Therefore, Accenture proposes
by including customer needs into the five elements for steelmakers to help
strategic equation. master the paradigm change, improve
commercial excellence and become
Often, what the customer needs is both leading producers. Steelmakers should:
a particular technical specification as
well as production and delivery flexibility. 1. Identify customer requirements under
Delivering this enhanced value proposition consideration of process volatility.
for customers—through a highly dynamic,
2. Understand the profitability range
flexible and agile supply and production
of products and services to reduce
chain—can, therefore, become a
complexity.
competitive advantage. This may mean
making significant changes to production 3. Segment customers based on service
and delivery operations. In some cases, requirements and profitability.
it will also mean improving inventory
4. Transform supply chains into highly
management so that capacity will be
reliable and agile ecosystems.
available on short notice when needed. In
time, we believe successful steelmakers 5. Adapt personnel, procedural and
may even profit from ongoing volatility informational skills to facilitate the
by preparing and adapting their supply new approach.
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.

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

10
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 products. It requires production and on factors such as their profitability and
customers’ willingness to pay for delivery processes that are based on strategic importance as a customer.
products and services. To achieve data from different systems that can
this aim, steelmakers should segment help estimate capacity and ensure the Once customer segmentation is executed,
customers and define product and processes remain profitable. In addition, the next step is to focus on new sales
service offerings based on multiple steelmakers must align these processes opportunities by reaching out directly to
dimensions (see Figure 2). This to the promised service levels. end customers, instead of going through
segmentation approach can only be done service centers and traders. Selling to the
if basic promised quality and delivery While regional and industry end customer provides an opportunity
performance are already met. However, considerations should be embedded in to reap higher profits on sales, but it
this is not only difficult to achieve, but any market segmentation, including also means understanding downstream
it also requires constant monitoring customer requirements is the key to markets by rigorously gathering market
and updating when requirements improving sales effectiveness. This needs- and customer intelligence through data.
and collaboration modes change. based approach does not mean offering
services and support to all customers for
Providing high delivery reliability for a set price. It should, however, include
customized products is more complex clearly structured service bundles that
and capital intensive than for standard are offered to groups of customers based

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

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 One benefit for both customers and
by optimizing resources. steelmakers is increased delivery
reliability through process and data
Defined roles and responsibilities are transparency from real-time or near
specifically needed in a process-driven real-time monitoring of the production
organization that is integrated from and supply chain. Any production delays
end-to-end. Sales, operations and supply can be reported early to the customer,
chain management must work together to and capacity that has been held back in
meet customer requirements and demand. reserve can be used if necessary.
This will entail disrupting the traditional
relationships between these departments, We recommend steelmakers begin now
likely requiring redesign of decision to streamline and strengthen their
making, target setting and performance system, data and process landscape,
management approaches to elicit the while planning ahead for a larger digital
desired behavior. overhaul that will ensure a leading
position in the future.
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.

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
circumstances. If you require advice or further
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contact your Accenture representative.

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