Service levels will improve by more than 10 points.
The metals industry has changed little over the past 100 years. The capital-intensive industry has traditionally organized around a push-based system focused on managing cost and maximizing volume. Companies have struggled to focus on customer needs while protecting profitability.
When one large integrated metals player (MetalCo) sought BCG’s assistance in becoming truly customer centric, BCG collaborated with the company to push past the traditional model and transcend the typical cost-reduction adjustments.
BCG saw the opportunity to build a sustainable advantage by working with MetalCo to develop a seamless value chain that used digital and advanced analytics to disrupt the current compromises in the industry. The team launched a three-year digital-transformation program to move MetalCo’s value chain away from the uncertainty, volatility, and complexity that had been driving it for nearly a century.
BCG and MetalCo placed anticipation and agility at the heart of a transformation that would enable the company to operate as a customer-centric business in which the value chain determines the bottom line. They designed the digital transformation to create transparency into business and customer processes, better predict and anticipate customer needs and demand, and thus enable faster, more agile decision making.
Ultimately this effort helped ensure enhanced levels of service and higher profits—while also freeing up cash through optimized stocks.
To take full advantage of advanced analytics and big data to drive the transformation, BCG brought the full range of internal digital expertise and external partners to the table. In addition to BCG’s own experts in the Technology Advantage practice and the supply chain topic, BCG engaged:
To begin, BCG and MetalCo launched a diagnostic phase, jointly assessing the potential value and identifying the opportunities to deploy advanced analytics and structural enablers—while executing quick wins.
They then built a comprehensive transformation program on three pillars:
BCG and MetalCo examined how advanced analytics could transform the entire value chain—from enhanced planning that would optimize the supply chain system to more effective plan execution. Together, they defined the universe of all the interconnected potential uses of analytics, segmenting the complex, companywide problem into individual solutions.
This approach enabled the team to create business impact quickly by developing, piloting, and scaling several solutions sequentially. That is, after developing the first solutions—such as demand forecasting—they were able to pilot and scale those while simultaneously developing the next set of solutions.
To use the insights gleaned by deploying predictive analytics along the entire value chain, MetalCo needed to change how the organization worked. The transformation required the company to redesign existing processes to make them far more effective. It also required that MetalCo change the modes of collaboration using platforms such as Yammer for fast and transparent sharing of information.
By focusing on margin improvement for both the long and short terms—and operating at net positive from the very first year of the transformation—BCG ensured that MetalCo could achieve quick wins that helped fund the longer-term journey to total transformation.
For example, the team used the company’s own data to establish a trading desk that could realize easily attainable operational improvements. The cash and gains made by these quick wins were immediately invested into the larger and long-term effort. MetalCo’s trading desk continues to use these new agile approaches to identify and mitigate risks in the supply chain—and assess and realize opportunities.
To improve demand forecasting, BCG and MetalCo sought to accurately forecast demand using historical data and sophisticated algorithms. The team developed predictive models that identify patterns in volume as well as in seasonality—ultimately forecasting with high degrees of accuracy.
The automated and advanced analytics forecasts were embedded in a new tool for managers that also provided new transparency about historical data and patterns, leading to the ideal combination of man and machine. Consequently, the accuracy of MetalCo’s demand forecast improved by 20 percentage points.
The new tool for demand forecasting was rolled out to more than 200 trained users. Demand forecasting at MetalCo is now cloud-based, highly predictive, and true to demand. With more precise predictions of demand, MetalCo can allocate the optimal production capacity and produce the right amount of materials for the customer.
In the quest to develop a more precise production plan, BCG helped develop accurate, probability-based forecasts for asset production. By running millions of simulations, the team also modeled the interactions between assets to assess systemwide capacity.
Drawing both on prior data and on probability-based assumptions, the team was able to optimize buffer settings across multiple assets and countries in MetalCo’s system. In order to ensure sustainability, BCG created a playbook to guide stakeholders in using these tools and in making the right decisions in different situations.
Using this approach, MetalCo is able to set the appropriate buffers so that it can reduce forecasting errors by 50%, ensure double-digit improvements in service levels, and prevent production outages costing millions of euros. And it achieves those goals while shifting away from finished goods to less expensive upstream inventory.
BCG and MetalCo are deploying advanced analytics to build a customer-centered ecosystem and to operate in simultaneous and decentralized—rather than sequential—ways. This agile approach delivers transparency into processes within the company and at its clients and enabled more informed and accelerated decision making.
The transformation also improves production scheduling and delivery performance, and enhances working capital management. It leads to sustainable improvements in service levels of more than 10 points and will boost EBITDA margin by 2-4 points, while reducing inventory levels by 4-10 days.