Supply chain will aid BlueScope comeback

Date: 21.08.2012

BlueScope Steel announces another $1 billion loss but plans to leverage supply chain transformation to help return to the black

By Anna Game-Lopata | August 21, 2012

BlueScope Steel announced another $ 1 billion
million loss in its full year results yesterday but plans to leverage supply chain transformation to help it return
to the black.

General Manager Supply Chain and Processing Ingilby Dickson says over the last 12 months, in particular, supply chain management has played a "huge role", contributing to an improvement to the company’s working capital and debt reduction
efforts.

"One of the positives to come out of the position BlueScope has found itself in is that we’ve been able to focus on getting our supply chain lean and mean and efficient," Dickson tells SupplyChain Review.

"Inventory has been reduced by
400,000 tonnes over last year enabling the organisation to get its balance sheet in better shape."

Dickson adds BlueScope’s "significant" supply chain transformation has been "bigger than people realise".

"The supply chain processes
of transporting iron ore and coal on one end to producing Colorbond on the other are quite sophisticated and complex," Dickson says.

"We’ve been able to improve that, while taking significant inventory out to achieve an improvement to real DIFOT
(deliveries in full, on time) of 92 to 94 percent over the last 12 months."

"We’ve achieved significant cost reductions by using our coal and iron ore assets more efficiently.
Reductions to overheads last year
were well and truly over 25 percent."

Dickson says BlueScope Steel is moving forward with the same challenges around retaining efficiency levels through a "well-balanced" supply chain.

"We’re making sure we target for that," Dickson says.

He says BlueScope’s recent restructure into four main businesses is also contributing significantly to the company’s turnaround.

BlueScope now comprises BlueScope Building Products, BlueScope Global Building Solutions, BlueScope Australia and New Zealand and in the US, North Star BlueScope Steel.

The company reports its business strategy in Australia and New Zealand will incorporate further cost saving opportunities at Port Kembla and improvements to manufacturing and distribution.

While Dickson declines to specify the details of these opportunities, he says the restructure of BlueScope business units has been tough; including the shut down in 2011 of its number six blast furnace at Port Kembla, abandonment of its export business and the recent closure of its Western Port hot strip mill in Hastings, Victoria.

Steel will now be transported as hot rolled coil rather than slab from the company's Port Kembla site to Hastings.

Approximately 650,000 tonnes per year of hot rolled coil feed for the Western Port production lines from the Port Kembla hot strip mill via rail, following a contract re-negotiated with Pacific National in July.

Well over 1,000 workers have lost their jobs in the closures.

"Given economic uncertainty
and competition from steel imports, BlueScope’s challenges are set to continue," Dickson says.

"But we are nevertheless expecting to
make good
our
forecast to the market that we will be EBIT positive by the end of the year."

NIPPON STEEL JOINT VENTURE
Dickson says the supply chain journey for the company’s building products joint venture with Nippon Steel Corporation (NSC) is a "work in progress".

BlueScope announced the new joint venture, which extends a decade long relationship between the two companies, on 13 August.

The deal, which involves the incorporation of BlueScope’s ASEAN and US building products businesses into a new US$1.36 billion (AUD $1.3 billion) company called NS BlueScope Coated Products, will create the world’s second largest steelmaker.

A 50-50 percent arrangement, BlueScope says NS BlueScopeCoated Products will provide a strong platform to capture expected growth in the $40 billion per annum building and construction sector in ASEAN and North America.

"The JV will facilitate entry into new markets not currently accessible to BlueScope. For example, the JV will supply whitegoods manufacturers offering products to Asia’s fast growing middle class and speed up entry into emerging markets in the ASEAN region," CEO Paul O'Malley says.

"The net proceeds of approximately US$540 million from Nippon Steel’s 50 percent investment will afford BlueScope further financial flexibility and balance sheet strength to grow businesses that deliver strong returns."

Ingilby Dickson says the joint venture will enable Nippon production capabilities in Australia for products and services it currently doesn’t possess.

"I’m excited by having a door opened to benchmark our achievements and address supply chain challenges together," he says.

"It’s important for a small player like BlueScope to have such relationships and opportunities."