TISCO - THE WORLD'S MOST COST-EFFECTIVE STEEL PLANT

Case code-OPER-011
Published-2001

- B. Muthuraman, Managing Director, TISCO.

BACKGROUND NOTE

Tata Iron and Steel Company (TISCO) was established in 1907 by J N Tata1 at Jamshedpur in Bihar, India. TISCO offered a wide range of products (See Exhibit I) and services including Hot rolled/Cold rolled (HR/CR) coils2 and sheets, tubes, construction bars, forging quality steel, rods, structurals, strips and bearings. It also manufactured material handling equipment, ferro alloys and other minerals, software for process controls, and offered cargo-handling services.

By April 2001, TISCO had emerged as the world's lowest cost producer of steel. TISCO's operating cost at the 'hot metal' (liquid) stage was $75 per tonne. The company's cost per tonne of finished steel stood at $152 for the financial year ending March 2001. The World Steel Dynamics (WSD) , in a report stated, "Tata Steel is a 'world class' steel maker - the only in India - and one of the few companies in the world with such a standing. This view point is based on a variety of reasons such as low operating costs, special company culture, good profitability, etc." WSD identified 12 companies as World Class Steel Makers, and ranked them based on certain factors. Analysts felt that TISCO's achievement of becoming the lowest cost producer of steel was mostly attributed to its implementation of TOP (Total Operational Performance), a program that focused on improving TISCO's operational practices and rationalizing procurement costs.

THE 'TOP' PROGRAM

In the early 1990s, TISCO appointed McKinsey and Booz-Allen & Hamilton to study its operations and suggest ways to cut costs. Irani explained the rationale, "Cost-cutting measures are more important in the present situation where one can no longer control steel prices which are dictated by international markets." The consultants suggested TISCO to focus on various components affecting the cost of steel, which included cost of raw materials, cost of conversion, fuel rate in the blast furnace and mining of coal. TISCO was advised to use the most modern technologies to cut costs further.

In the second half of 1998, in association with McKinsey, TISCO implemented TOP program at its G blast furnace . TOP was widely regarded, as a program, which would have a maximum positive impact to the bottomline, with minimum investment, required in minimum time. It aimed achieving large improvements in throughput, quality and cost in the short term. In the long run, TOP was expected to enable the TISCO to achieve high rates of performance improvement.

Since TISCO's scale of operations was quite large, the whole organization was divided into manageable 'units' to facilitate the implementation of TOP. A unit team was formed comprising a unit leader and two facilitators. Initially, McKinsey provided the facilitators. The unit leader was responsible for the performance of that particular unit. The team worked full time on the TOP program for a period of 12 weeks. Around eight units were addressed simultaneously during the 12 weeks, and this was also known as 'Wave.' The entire Wave was divided into five phases.

The unit team's objective was to explore ideas to reduce the cost or delays made by the unit by about 40%. In the process, the team was expected to identify and understand how each cost element could be reduced. The team had to establish relationships between key performance indicators and the elements that had an impact on them. Each team was asked to set itself a target based on the TOP norms; develop ideas to improve from the present level of performance to the target level; and implement those ideas.

The Phase I of a Wave was two weeks long. During this phase, the cost base was examined and the items that had a maximum impact on the bottomline were identified. Individual components of the larger cost elements were identified by drawing cost trees . The cost elements, which could be reduced were highlighted and the reduction targets were set. In the Phase II of the Wave, ideas were explored to reach the set targets. At the G blast furnace, throughput and fuel costs were identified as the key performance indicators in the Phase II. Among the different individual components of fuel costs, coke and coal were the largest cost elements. They accounted for about 50% of the total costs. A reduction target was set to bring costs down to 570 kgs per thm from 610 kgs per thm. In the Phase III of the Wave, ideas were generated to achieve the target output of 3800 tons per day. Considering the techno-economic feasibility, 36 ideas were short-listed. The ideas were then grouped based on the capital expenditure required for implementing each idea. The Phase IV of the Wave started with the implementation of these ideas. Simultaneously, the G blast furnace also implemented 185 ideas, which did not require any capital investment.

By March 1999, the G blast furnace achieved a savings of Rs 87 million against the targeted savings of Rs 40 million. TISCO set up a potential savings target for its G blast furnace at about Rs 300 million per annum, accounting for more than 10% of its profits in the fiscal 1999. By late 1999, TOP was in Phase V of the Wave. In 2000, similar Waves were also adopted in TISCO's shop floors. The TOP program had helped TISCO to shift its focus from just producing volumes to costs and quality. Moreover, TOP enabled TISCO to improve customer satisfaction and loyalty.

IMPLEMENTING BEST PRACTICES

THE FUTURE

[1] Jamshedji Nusserwanji Tata (J N Tata) was the founder of the Tata Group of companies.

[2] Hot rolled coil is a coil of steel rolled on a hot-strip mill (hot-rolled steel). It can be sold in this
form to customers or be processed further into other finished products. Cold rolling is a process
where the shape and structure of the steel can be changed by rolling, hammering, or stretching it
at a low temperature (often room temperature).
2003, Case Studies and Management Resources. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means - electronic or mechanical, without permission.