Globalization – Customer centricity – Horizontal integration

Or how Interpipe undergoes a digital transformation

Interview with Denis Morozov, Director for Finance and Economics Interpipe

It is said a long time ago about the higher conjuncture and globalization of industrial markets. As well as that this chain “from the client” forces the producers to react to changes even faster and more accurately. In turn, this challenge is not just one of many. This is a real imperative for enterprises to reduce existing and traditional barriers between technological redistribution (shops, factories), as well as internal services. It has also been said for a long time that it is very difficult task to “sew” together these different redesigns and services – and 100% to customize them for the client, which is almost impossible to solve today without IT systems and tools.

How does this actually happen in Ukrainian enterprises? How do our enterprises transform their culture in the transition from CIS markets to international ones?

Interview of Industry4.0 is given by Denis Morozov, Director for Finance and Economics of Interpipe.

– Denis Vladimirovich, what has changed in your company with the transition to world markets?

For many years only the CIS countries were the main market for Interpipe. Typical orders from there are large lots, where there were no strict requirements for delivery terms and quality of products, as for export. When we lost these markets and the first priority became the countries of Europe, America and the Middle East – the situation has changed. In these markets, absolutely other requirements for quality, product range, registration of accompanying documentation, compliance with delivery deadlines.

The reorientation of exports has entailed the expansion of the product portfolio and the reduction in tonnage of shipments. For example, earlier we supplied products either to large customers or to distributors that aggregated orders into large lots, and then formed small lots and finalized documents for end users. Today, for individual regions, we are actively working directly with end-users, and we no longer have a “buffer” in the form of a distributor.

End-users buy specific products, often in small lots, with delivery at specific times. Just in time – this is a real and very tough demand in the world markets. Western customers try to work without warehouses, taking products “from the wheels” and using it as quickly as possible. Also, it is very important to have the right and convenient package for each order. That is, if a client ordered two lots by two cars to different dates of one month, then that’s how they should be delivered. Customers do not want part of the first order to come to them later with a second car, or that they receive both lots at once by one car.

All this led to the fact that it was impossible to work “the old way”. We had to rebuild and start working differently.

– But you worked in the Far Abroad markets before? Does the increase in the share in foreign markets mean that the company has become more global?

Quite right. Over the past three years, our company has become truly international, not just export-oriented. If earlier the share of our sales in Europe, the United States and the Middle East did not exceed 30%, but now it is more than 50%.

– But what is the connection – how did this increase in volumes in foreign countries lead to the need for “restructuring” of production? That is, does it mean that at some point you stopped coping with the increased volumes?

Changing priorities has led to changes in approaches to work. Previously, orders were large with a small number of product items, that is, ideal for mass production. As we thought: “The production plan for the month is 5 thousand tons of pipes”, and then we control the “plan-fact in tons”. But at some point, sales began to conflict with production. After all, the production workers, as before, thought and planned the categories of the “shaft”, ignoring the small orders of customers or placing them as the last priority. As a result, we began to break the deadlines for closing orders and receive complaints. The order is closed only when all the food items are produced, and if not even one of them is closed, even a small 5-ton position, then the order will not be closed.

Today, our production can no longer work “on the shaft” – it must accurately account for the execution on time of individual, even small orders, which are delivered monthly by hundreds.

In other words, the orientation towards export customers forced us to urgently introduce custom planning and production. Today we control not the “plan for the shaft”, but the plan for the implementation of specific orders. This is not thousands of tons, but let’s say 5-6 thousand specific order items every month. Implementation of the custom production plan is our main KPI and we are proud that today it is brought to 90%. This means controlling each position of each order – from receipt and to shipment.

– What is the role in achieving this KPI production management system (Smart.Factory) and what are its most important functions for you?

Concerning the role I will say simply without an IT system, it would be impossible to achieve those indicators that we have today. Regarding the modules and functions of the system, the most important thing for us is full control over the life cycle of the order. Thanks to the complete digitalization of these business processes, we fully control and see every stage in the system.

First we register the application in the register of orders, then it goes to the stage of technical expertise and, in the end, is issued in production with specific terms. Next, the stages of production planning, download detail, resource allocation, etc. begin. All this is absolutely transparent and interrelated – we are talking about end-to-end planning, execution and control in a single information field.

Thus, the order management module (order register), for us the most important in the management of KPI ordering production. It is also important to note the high functionality of the production planning system – today we plan to load the plants for a long period of time on a sliding schedule and in some cases – in shifts and up to work centers. This means that the review of the plans goes every week, and we can flexibly change priorities, according to changing external conditions.

The system allows you to structure and store all orders in one place, and this is a resource for analytics and planning optimization. Another important point in the planning of production is the internal interaction between pipe assets and the steelmaking complex Interpipe Steel, which supplies the billets for the production of pipes and wheels. INTERPIPE STEEL initially had a highly automated production system, but that did not mean its integration into the full production cycle and the entire chain. The introduction of Smart.Factory allowed to establish an optimal planning process. When we took orders for pipe or wheeled products – an application for procurement is being formed. The application enters the register of orders for INTERPIPE STEEL. Of these, the steelmaking plant forms its production program.

– Can you describe in more detail what problems the new IT system helped in the work of INTERPIPE STEEL and its interaction with internal customers – other plants?
The IT system has become one of the tools for solving 4 serious problems.

First, we optimized the cutting of the steel billet. The production plan for INTERPIPE STEEL is made in automatic mode, taking into account the optimal order of fusions for the transition between different sizes. When moving from size to size, there is a so-called “adapter” – part of the workpiece, which we can not use to produce finished products, that is, we write off in scrap. The optimal order of fusions makes it possible to minimize the formation of such adapters and the consumption of metal.

The second problem is illiquid. Earlier planning was statistical – steel billets were cast in the product range and in quantity, based on the production statistics of past periods. As a result, part of the billet lay in warehouses for six months and a year, and then it had to be scrapped.

The third problem is the metal reserves. Previously, we had built a special place in Nikopol to store a 30-day supply of metal for the optimum loading of the plant – the CPP (production preparation workshop). Today, this intermediate warehouse is used minimally – steel reserves are minimized to 12 days. Precisely because the planning system is complete and accurate, the 12-day stock has become completely enough for a rhythmic production today.

The fourth is energy consumption. Electricity is the main energy resource for Interpipe Steel. In peak tariffs, its cost is 3-4 times higher than at minimal tariffs. If earlier we worked at any time of the day, today, having long and accurate forecasts of orders, we can work in “the right hours” and thus optimize the melting schedule.

Now we have become the best in the world in terms of the cost of redistributing tons of steel (the cost of production without taking into account the cost of raw materials) – they are 77 dollars. The best benchmarking indicators are at the level of $ 90 (plants in the US), and on average around the world – $ 120. But when comparing, of course, we need to take into account other factors, especially the price of resources, and not just the balancing of production time.

– Cool! And if you take only a fraction of the electricity – how much has it decreased?

I’ll tell you easier. We produce about a million tons of steel per year. At the same time, we spend about $ 30 per tonne of electricity. And started – with 55 dollars per ton. That is, the reduction in consumption today amounted to more than $ 25 per ton. Now, if it is multiplied by a million tons, then we get a total effect. Also due to the correct operating modes and competent planning, it was possible to achieve savings and other resources, for example, electrodes. After all, in fact, when there is complete information and transparent transparent planning, it is easier to find opportunities for optimization.

– In a recent APPAU engineering survey, we found that only 4% of respondents have developed production KPI systems provided with complete data. How are things with you? What do you measure, and how does the new IT system improve this situation?

You are absolutely right – the management of KPI depends on the accuracy of the data and the automation of the process to get it – measurement. Take, for example, our KPI for downtime equipment in the shops. We have 60 work centers that control the operation of equipment. Previously, everything related to this KPI – was the most opaque process. Simply put, the information was unreliable. Since there can be a lot of reasons for downtime, and they are related to different areas of responsibility, no one wanted to “substitute”. Therefore, the information “from below” was false both about the reasons, and about the time of idle time. Looking ahead, I will say that this is a typical example of the complexity of assessing the contribution of IT systems to business indicators. After all, they often ask “how much have you improved this or that KPI?”. But it is assumed that certain indicators were previously accurate and reliable. In fact, as in the example with idle times, this is not the case. Without accurate and reliable data, there can be no KPI assessment, so comparing with such (historical) indicators does not make sense.

Now we are trying to maximize the automation of the processes for obtaining accurate data, measuring KPI and minimizing the human factor. Returning to idle times, today on many types of equipment there are sensors, there are controllers – the data from them enter the control system of MRO *, therefore everything that concerns downtime is now as transparent and reliable as possible. With this system, we have already covered all rolling production and some other basic equipment. About 30% of the equipment will still need to be covered. The system now accumulates data. And my forecast – only in a year we will be able to talk about the dynamics of changes in KPI for downtime in relation to real, accurate data.

– Nevertheless, can you already assess the dynamics of improvement of any indicators, and as a result of the introduction of IT systems? After all, in the example at the cost price of a ton of steel, you associated it with flexible planning and tariffs. What else is there from such examples?

If we continue the example with the MRO system, then this is a complex system and indeed it already allows us to evaluate the efficiency of many processes. For example, it does not simply issue information on downtime in terms of time or%. Simplicity, together with the data of the primary diagnostics (vibration, temperature measurement, etc.), which is carried out by specially trained personnel, is incoming information for preventive diagnostics of equipment condition, analytics and recommendations for the purchase and replacement of spare parts. On the basis of the data array, the system emulates the operation of the equipment and determines when any repairs will be needed, when and what parts need to be purchased or they must be available permanently. If earlier we bought spare parts “in reserve”, and they could lie in the warehouse for years, now we turn to purchasing materials based on information from the system. For example, the system will help to determine that with such a vibration the bearing will fail after 50 days. Before the expiration of this period, the replacement bearing will go to the warehouse and be installed on time without loss for production. That is, the main goal is preventive diagnostics, when the system sees and can predict when a node or mechanism will fail. This helps prevent accidents. In addition, we reduce the spare parts warehouse and try to increase their turnover, that is, we do not allow them to lie in the warehouse for years.

Preventive diagnosis leads to improvements in performance. For example, we saw that downtime is reduced from 24% to 19%. This is controlled and transparent – all information about downtime, their causes, repair work in the dynamics is visible in the system. We also measure the accident rate. It decreased at times – earlier in wheel production it was 2% of the working time, now 0.3%. Why is this happening?

Because we diagnose the equipment and can anticipate the accident.

Another indicator that reflects the work on optimization and maintenance is “emissions”. When an unexpected stop or accident occurs, the products that are currently in production at this site can be rejected and sent to the scrap. These are direct losses. Earlier in wheel manufacture of such emissions was more than 2000 wheels a year. Now – only 300. All this is easily translated for money.

It must also be said that such an accurate diagnosis is not always critical. There are plots whose available working hours do not limit our production capabilities, that is, there is a supply of capacity, and a simple one at such a site for today is not a bottleneck. And there are bottlenecks – for example, heat treatment of pipes or machining of wheels – where every minute of idle time leads to energy, metal or production losses. We try to measure processes and indicators in critical areas, and it is here that the dynamics of improvement are clearly visible.

– You mentioned the benchmarking indicators. Are there any other indicators that you monitor and consider yourself to be one of the best in the world?

In the world there are not many KPIs that are common and used in the pipe industry. Usually our competitors do not talk about them. Other known benchmarking indicators are not always applicable to us. I will name a few that we use.

The first is the consumption factor of the metal, it refers to the amount of billet for the production of 1 ton of pipe or wheel. This indicator we control for a long time and today we significantly reduced it due to various activities.

I already called the execution of the order plan. Here in the territory of the former Soviet Union we are exactly ahead – I do not know if any of our competitors ever used such KPI. They, as before, consider everything a shaft.

Another important indicator is BWW (the critical date of shipment). He talks about how many orders are fulfilled on time. Earlier it was only 10%, that is, only 10% of the total number of orders we fulfilled on time. Today we have reached 60%. This is a significant progress, but we will improve this KPI further.

– For what period did you achieve this?

Over the past 2 years.

In fact, during this period, we have opened our eyes to many things. The information system allowed to see many indicators, which we did not pay attention to before. Well worked for themselves, and worked. Today we are able to analyze and identify many bottlenecks along the entire chain – from the customer and to our suppliers of raw materials and spare parts.

– OK. What’s next? Projects Smart.Factory and Smart.EAM from IT-Enterprise are still unfolding in all the plants, somewhere completed, somewhere not. What do you expect after the completion of both systems? Will you continue to improve these KPIs or do you have other goals that you have not already mentioned?

I believe that all mentioned KPI will remain relevant. They allow you to correctly determine the model of the production system with maximum focus on the end user. We will continue to work on them and try to maximize them to 90% or more. Moving towards the client is the main task. After all, it is already clear – as we have new clients in the Far Abroad markets, we have to adapt more and more to new requirements. In turn, the requirements of these customers are also constantly tightened – the system is in dynamics. Therefore, depending on how the requirements and the situation on the market will change, there may be new KPIs.

If we talk about the project Smart.Factory – we have high expectations for the planning module (APS). We do not use the capabilities of this module 100% and we have not yet reached the level of serious business analytics. That is, it is important for us to learn how to plan the loading of production, using various criteria and influencing factors that allow to achieve minimization of costs. There are still great reserves in this.

– The output to this new level is somehow related to the skills, or more broadly – the culture of the personnel and users of the system?

Oh sure. Today, not all responsible and middle managers are using all the capabilities of the system. And although the system has improved significantly in recent years, many simply do not trust and fear IT systems. Another factor is that staff should be trained to make maximum use of the entire IT system toolkit. This is the task of senior managers.

– This is a very interesting moment, which we talk a lot about in the movement 4.0 – “Technologies already exist – a problem in the culture of enterprises.” Culture is the main barrier in the digital transformation of industrial enterprises. Do you have any problems, do you see any problems in changing the culture of the personnel of your enterprise?

Of course, this is a very important and big problem. As a leader, I understand the vector where we are moving, I can correct it, form a strategy and vision. But the culture of production is much more complicated, it is not subject to orders.

We do not yet have a total digital culture in which the staff would be on the “you” with the tools and understand how to use it for production tasks, which in turn are completely focused on meeting customer needs. I do not know how to correctly call this culture – maybe “ERP-culture” or “digital culture”. Too fast was the transition – before that we were, we can say, in the Stone Age, and then again – full transparency in a single information system.

In the theory and practice of change, it is known that they occur twice. First – external: here we have a new tool, a new technology. But further there must be the next stage – internal changes. Internal changes concern each person – these are changes at the level of awareness of new realities and opportunities, new demands for oneself – and, accordingly, the acquisition of new skills, knowledge, behavior changes. ERP appeared, but many people still live there – in the last century. This is a big problem – there is no single recipe here, and it can not be solved quickly. Here, neither orders from above nor instructions will help.

It takes time, system work is needed, so that people are used to, rebuilt, mastered new skills, saw that the system is working, began to trust it completely. Then the behavior changes.
Then a person, say in a planning or maintenance system, will think much more, consider different options and skillfully apply this tool. We have no other option for development.

– Thank you, Denis Vladimirovich! At the conference on July 5, if you will allow me, we will return to the issue of the culture of enterprises and we will more thoroughly condemn this with our audience.
Thank you. Good.