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Globalization – Customer centricity – Horizontal integration

Globalization – Customer centricity – Horizontal integration

The higher conjuncture and globalization of industrial markets has been discussed for a very long time as well as the fact that this chain "from the client" forces production workers to react to changes even faster and more precisely. In turn, this challenge is not just one among many. This is a real imperative for enterprises to reduce existing and traditional barriers between technological conversions (workshops, factories, etc.) as well as internal services. It has also been said long ago that "stitching" these different divisions and services together and 100% setting them up for a client is a very difficult task, 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 to international markets?

Denis Morozov, director of finance and economics at Interpipe, gives interview to "Industry 4.0".

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

For many years, only CIS countries have been the main Interpipe sales market. Typical orders from there were large batches, where there were not so stringent requirements for delivery times and product quality as for export. When we lost these markets and the countries of Europe, America and the Middle East became the first priority, the situation changed. These markets have completely different requirements for quality, the range of products, the design of accompanying documentation, and the observance of delivery times.

The reorientation to export led to the expansion of the product portfolio and a decrease in the tonnage of the parties. For example, we used to supply products to either large customers or distributors who aggregated orders into large lots, and then formed small lots and prepared documents for final consumers. Today, in individual regions, we are actively working directly with end-users, and we no longer have a "buffer" in the form of a distributor.

End consumers buy specific products, often in small batches, with delivery on specific dates. "Just in time" is a real and very tough demand in world markets. Western clients are trying to work without warehouses, using products as quickly as possible. Correct and convenient equipment for each order is also very important. That is, if a client ordered two batches by two machines on different dates of the same month, then that is exactly how they should be delivered. Customers do not want a part of the first order to come to them later with the second machine, or both lots at once with the same machine.
All this led to the fact that work "in the old way" became impossible. We had to reorganize and start working differently.

– But previously you worked in the international markets. Does the increase in foreign market share mean that the company has become more global?

Exactly. Over the past three years, our company has become truly international, and not just export-oriented. If earlier the share of our sales in Europe, the USA and the Middle East did not exceed 30%, 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" production? That is, does this mean that at some point you stopped coping with the increased volumes?

Changing priorities led to a change in the approach of work. Previously, orders were large in volume with a small number of product positions, that is, ideal for mass production. As we considered: "The production plan for the month is 5 thousand tons of pipes", and then we control the "plan-fact in tons". However, at a certain point, sales began to conflict with production. After all, the production workers, as before, thought and planned in terms of large volumes, ignoring the small orders of customers or giving them the last priority. As a result, we began to break the deadlines for orders and receive complaints. An order is filled only when all product positions are produced. If at least one of them, even a small 5-ton position, is not filled, the order will not be filled.

Today, our production can no longer work with large volumes. It must accurately take into account the timely implementation of individual, even small orders, which go for hundreds monthly.

In other words, the focus on export customers forced us to urgently implement custom planning and production. Today, we control the plan for the implementation of specific orders. These are no longer thousands of tons, but let us say 5-6 thousand specific order items every month. The fulfillment of the custom production plan is our main KPI and we are proud that today it is up to 90%. This means control of each position of each order from receipt to shipment.



With mayor Boris Filatov at the opening of Interpipe TechFest, the country's largest technical festival, the main organizer and sponsor of which is Interpipe.

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

Regarding the role, I will say simply – without an IT system, it would be impossible to achieve the indicators that we have today. Regarding the modules and functions of the system, the most important thing for us is the complete order life cycle management. Due 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 order register, then it goes to the stage of technical expertise and, eventually, is issued in production with specific deadlines. Next, the stages of production planning, load detail, resource allocation, etc. begin. All this is absolutely transparent and interconnected – we are talking about end-to-end planning, execution and control in a single information field.

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

The system allows structuring and storing all orders in one place, and this is a resource for analytics and optimization of planning. Another important point in production planning is the internal interaction between pipe assets and the Interpipe Steel steel-smelting complex, which supplies a billet for the production of pipes and wheels. Interpipe Steel initially had a highly automated production system, but this did not mean its integration into the full production cycle and the entire chain. The implementation of Smart.Factory allowed establishing an optimal planning process. When taking orders for pipe or wheel products, an application for procurement is formed. The application enters the register of orders for Interpipe Steel. Of these, the steel plant forms its production program.

– Can you describe in more detail what problems the new IT system helped to eliminate in the work of Interpipe Steel and its interaction with internal customers – other plants?

IT system has become one of the tools for solving four serious problems.

First, we optimized the cutting of steel billets. The production plan for Interpipe Steel is drawn up automatically, taking into account the optimal order of the fusions for the transition between different sizes. When switching from size to size, a so-called "adapter" arises – a part of the workpiece, which we cannot use for the production of finished products, that is, we discard them. The optimal order of fusions allows minimizing the formation of such adapters and metal consumption.

The second problem is illiquid assets. Previously, planning was statistical. Steel billet was cast in the product mix in quantity, based on statistics from the production of previous periods. As a result, part of the billet laid in warehouses for six months or a year, and then it was necessary to discard it.

The third problem is metal reserves. Earlier, in Nikopol, we built a special place for storing a 30-day supply of metal for optimal plant utilization – the preparatory production workshop. Today, this intermediate warehouse is used minimally – stocks have been minimized to 12 days. Precisely because the planning system is complete and accurate, we now have enough 12-day stock for rhythmic production.

The fourth problem is power consumption. Electricity is the main energy source for Interpipe Steel. At peak rates, its cost is 3-4 times higher than at the minimum ones. If earlier we worked at any time of the day, then today, having long and accurate forecasts of orders, we can work at the "correct hours" and thus optimize the melting schedule.

Now we have become the best in the world in terms of costs for the redistribution of tons of steel (production costs excluding the cost of raw materials) – they are $ 77. The best benchmarking indicators are at the level of $ 90 (plants in the USA), and the world average is $ 120.

However, when comparing, of course, it is necessary to take into account other factors, especially the prices for resources, and not just balancing over the time of production.

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

I'll answer you in easier terms. We produce about a million tons of steel per year. At the same time, we spend about $ 30 on electricity per ton of steel. And they started with $ 55 per ton. That is, the reduction in consumption today amounted to more than $ 25 per ton. Now, if this is multiplied by a million tons, then we get the total effect. In addition, due to the correct operation modes and competent planning, it was possible to achieve savings of other resources, for example, electrodes. Indeed, when there is complete information and end-to-end transparent planning, it is easier to find opportunities for optimization.


At the Kiev International Economic Forum (KIEF). Interpipe is a partner and sponsor of this largest forum of the country, where leading industrialists gather.

– In a recent survey of AIAU on machine industry, we found out that only 4% of respondents had developed production KPI systems, provided with complete data. How are things going with you? What are you measuring, and how does a new IT system improve this situation?

You are right. The management of KPI depends on the accuracy of the data and the automation of the process by which they are received and measured. Let us take, for example, our KPI for equipment downtime in workshops. We have 60 work centers that monitor the operation of the equipment. Previously, everything related to this KPI was the most opaque process. Simply put, the information was unreliable. Since there may be many reasons for downtime, and they are connected with different areas of responsibility, no one wanted to be responsible. Therefore, the information "from below" was false both about the causes and about downtime. Looking ahead, I will say that this is a typical example of the complexity of assessing the contribution of IT systems to business performance. After all, they often ask: "How have you improved this or that KPI?" However, it is assumed that certain indicators were previously accurate and reliable. In fact, as in the example of downtime, it is not true. Without accurate and reliable data, there may be no KPI estimate, so it makes no sense to compare with such (historical) indicators.

Now we are trying to automate the processes for obtaining accurate data, measuring KPI and minimizing the human factor. Returning to downtime, today many types of equipment have sensors, there are controllers – the data from them goes to the maintenance and repair management system*. Therefore, everything that concerns downtime is now as transparent and reliable as possible. With this system, we have already covered all rolling production and part of other major equipment. About 30% of the equipment will still need to be covered. The system is now accumulating data. And my forecast is that only in a year we will be able to talk about the dynamics of KPI change in terms of downtime in relation to real, accurate data.

*editorial comment – maintenance and repair management system Smart.EAM is implemented at Interpipe from IT-Enterprise.

– Nevertheless, can you already estimate the dynamics of improvement of any indicators and a result of the introduction of IT systems? Indeed, in the example of the cost of tons of steel, you have connected this with flexible planning and tariffs. Are there more such examples?

If we continue the example with the maintenance and repair management system, then this is a complex system and indeed, it already allows evaluating the effectiveness of many processes. For example, it does not simply provide information on downtime in terms of time or %. Downtime, together with the data of the primary diagnostics (measurement of vibration, temperature, etc.), which is carried out by specially trained personnel – this is the incoming information for the preventive diagnostics of the condition of the equipment, analytics and recommendations for the purchase and replacement of spare parts. Based on the data set, the system emulates the operation of the equipment and determines when any repairs will be needed, when and which parts need to be purchased or whether they should be available all the time. If earlier we purchased spare parts in reserve, and they could have been in stock for years, now we are switching to purchasing materials based on information from the system. For example, the system will help determine that with such a vibration, the bearing will fail after 50 days. Prior to the expiration of this period, the replacement part will go to the warehouse and will 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 site or mechanism fails. This allows anticipating the accident. In addition, we reduce the stock of spare parts and try to increase their turnover, that is, do not allow them to lie in stock for years.

Preventive diagnostics lead to improvements in performance. For example, we see that downtime is reduced from 24% to 19%. This is a controlled and transparent process – all information about downtime, their causes, and repair work in dynamics is visible in the system. We also measure the level of accidents. It decreased by several times: earlier, in wheel production, it was 2% of the working time, now it is 0.3%.

Why is this happening? Because we diagnose the equipment and can prevent the accident.

Another indicator that reflects optimization and maintenance work is "emissions". When an unexpected stop or accident occurs, products that are currently in production at a given site can be rejected and discarded. This is a direct loss. Earlier, in the wheel production, there were such emissions of more than 2000 wheels per year. Now – only 300. All this is easily transferred to money.

It should also be said that such an accurate diagnosis is not always critical. There are areas, the available time of work of which does not limit our production capabilities. That is, there is a reserve of power, and downtime at such a site is not a trouble spot today. And there are trouble spots. For example, heat treatment of pipes or machining of wheels, where every minute of downtime leads to a loss of energy, metal or production capacity. We try to measure processes and indicators at critical sites, and it is here that the dynamics of improvement is clearly visible.

– You have mentioned benchmarking indicators. Are there any other indicators that you monitor and consider yourself among the best in the world?

There are not many KPIs in the world that are common and used in the pipe industry. Usually our competitors do not talk about them. Other well-known benchmarking indicators are not always applicable to us. I will name a few that we use.
The first is the expenditure ratio of the metal. It is the number of billets for the production of 1 ton of pipe or wheel. We have been controlling this indicator for a long time and today we have significantly reduced it due to various activities.

I have already mentioned the fulfillment of the order plan. Here in the territory of the former Soviet Union, we are definitely ahead. I do not know if any of our competitors use such a KPI at all. They still consider everything in large volumes.

Another important indicator is critical shipping date. It is about how many orders are completed on time. Previously, it was only 10%, that is, we completed only 10% of the total number of orders on time. Today we have reached 60%. This is a significant progress, but we will continue to improve this KPI.

– What was the period of achieving this?

Over the past 2 years.

In fact, during this period, our eyes opened to many things. The information system made it possible to see many indicators that we previously did not pay attention to. Well, they just worked. Today, we are able to analyze and identify many trouble spots along the entire chain: from the client to our suppliers of raw materials and spare parts.

– OK. What is next? Smart.Factory and Smart.EAM projects from IT-Enterprise are still being deployed in all plants. Somewhere they are completed, somewhere not. What do you expect on completion of both systems? Will you further improve the mentioned KPIs or are there other goals that you haven’t mentioned yet?

I believe that all mentioned KPIs would remain relevant. They allow to correctly determine the model of the production system with the maximum focus on the end user. We will continue to work on them and try to maximize them to 90% and above. Moving towards the client is the main task. After all, it is already clear now: as we have new customers 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 being tightened – the system is in dynamics. Therefore, depending on how the requirements and the situation on the market will change, it is possible that new KPIs will appear.

If we talk about the Smart.Factory project, we have high expectations for the planning module (APS). We do not use the capabilities of this module by 100% and we have not reached the level of serious business analytics yet. That is, it is important for us to learn how to plan the production load, using various criteria and factors of influence, allowing achieving cost minimization. There are more reserves.

– Is entering a new level somehow related to skills, or, more generally, the culture of personnel and users of the system?

Yes, of course. Today, far from all responsible and middle managers use all the capabilities of the system. In addition, although the system has improved significantly in recent years, many simply do not trust and fear the IT system. Another factor is that staff need to be trained to maximize the use of all IT system tools. This is the task of top managers.

– This is a very interesting point about which we talk a lot in the 4.0 movement – "Technology already exists, a problem is 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 your company's personnel?

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

We still do not have a total digital culture in which the staff would be familiar with the tools and understand how to use it for production tasks, which in turn are fully focused on meeting customer needs. I do not know how to properly call this culture: maybe, "ERP culture" or "digital culture". The transition was too fast. Before that, we could say we were in the Stone Age. And here again: complete transparency in a single information system.

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

It takes time, we need systematic work, so that people get used to it, restructure, learn new skills, see that the system works, and begin to trust it completely. Then the behavior will change.

Then a person, let us say, in the planning system or the maintenance and repair management system, will think much more continentally, consider different options and skillfully apply this tool. We have no other development option.

– Thank you very much, Denis Vladimirovich! At the conference on July 5, if you don't mind, we will return to the issue of the culture of enterprises and will discuss it in more detail with our audience.

Thanks. Very well.

The interview was taken by Alexander Yurchak.

Based on: Industry 4.0 in Ukraine