Outokumpu re-designed its supply chain, resulting in shorter lead times with improved service to customers and released more than 500m€ capital from the inventories.
Outokumpu is as of today the world’s biggest producer of stainless steel. A downturn in the market resulted in Outokumpu having 2 BEUR in debt and marginal cash flow.
The company management made a focused decision to strengthen the capital base and increase profitability. The first through improvement of working capital and the later through cost reductions. These were the only group-wide projects for Outokumpu during the year. The working capital project was named P250 since the target was to free capital tied up in inventories worth of 250 MEUR, while decreasing the inventory days from 122 to 95. Outokumpu had a highly professional steel organization, but the strong cash flow focus was new for the personnel – a real challenge!
“From our twenty years in Working Capital Optimization we have learned that basic structures within companies have to change, if we are to create sustainable effects. The management at Outokumpu has shared this crucial insight from day one in this project”
-Juha Järvelä, Senior Advisor at Capacent
What was done
The project started with a general analysis of the inventory situation and identifying realistic targets. It continued with a top management workshop where the structure, time table and high level targets were decided.
After that we made a transaction based inventory analysis covering raw material, work in progress, finished goods and goods in transit for all main production facilities and service centers. The quantitative analysis was then verified by interviews with key stakeholders in the operative organization.
Local cross functional workshops were then held at all major units and detailed targets of each unit were determined together with the persons responsible for the implementation. This was the starting point for the key delivery from Capacent, to provide structured implementation support through the whole supply chain: from steel mill production planning to inventory optimization planning by the coil service centers.
Essential for the success was keeping the big picture in mind and at the same time having a strong focus on detailed delivery.
The implementation focus included active participation in monthly Steering group meetings where the guidance for prioritized areas and actions were discussed with the top management of the company. A clear strength of Capacent was the versatile team of 10+ persons with a mix of competencies and seniority; all highly involved in the operational improvement process. The final touch for the success was given by the excellent cooperation with Outokumpu personnel both in the PMO and locally, highly motivated and extremely strong in their steel business know-how.
“The co-operation between our line organization and Capacent’s consultants with their down-to-earth approach functioned really well. We had not yet found a partner who could perform in the entire spectrum – from the top management all the way to our factory floors, where the vital changes have to take place. But Capacent performed in every aspect; the result speaks for itself.”
-Eran Hubert, Project manager, Outokumpu
Our support helped Outokumpu achieve the original targets and surpass them half a year in advance. More than 500 MEUR was freed from the inventories in a sustainable manner and the inventory day level reached at the end of the project was 92 days.
In addition to this, the company managed to significantly shorten the lead-times of key materials to customers, improve its inventory follow-up and respond quicker to material build-ups. As a positive by-product of the project, high awareness of the importance of cash flow and profitability was created within all levels of the organization.