How could I pass on blogging about the Wall Street Journal reporting on May 21 that 100 U.S. engineers and managers were flown across the Atlantic and told: “Do as the Belgians do!”?
The article, titled “Indiana Steel Mill Revived With Lessons From Abroad ,“ is part of their series on how globalization can improve local organizations and may be one reason why American manufacturing is growing again. “Some steel mills are destroyed by globalization, others reborn.
Left for dead a decade ago, this 50-year-old facility on the shores of Lake Michigan has been rejuvenated thanks to an unusual experiment by its owner, Luxembourg-based ArcelorMittal.
In 2008, Burns Harbor was “twinned” with a hypermodern mill in Gent, Belgium. Over 100 U.S. engineers and managers, who were flown across the Atlantic, were told: Do as the Belgians do.
Burns Harbor now enjoys record output. Its furnaces, where steel is made out of iron ore, coal and limestone, are run with software developed in Belgium. Robots are in. Pencils are out. Workers are learning to make the same amount of steel with nearly half the people it employed three decades ago. Productivity is nearing Belgian levels.
Burns Harbor, according to the WSJ, is a case in point of the “upsides of globalization: … it puts pressure on U.S. factories to become more efficient to keep up with global competition, making it possible for them to survive.” There are a few observations to be made:
- This is an interesting interpretation of “upside;” not dissimilar from lean operations referring to waste as “an opportunity for improvement.”
- Global organizations can drive continuous improvement by global, yet internal competitive benchmarking. Lakshmi Mittal, the billionaire Indian, now has assembled the world’s first successful international steel conglomerate of its size, and the largest by production, with 263,000 employees in 20 countries and 112 steelmaking facilities.
Twinning—benchmarking two mills against each other—represents the next evolution. “The process doesn’t change: melt iron, cast, roll. But there are always incremental improvements you can make,” Mr. Mittal said in an interview.
ArcelorMittal twins pairs of mills—usually of similar size, age, product mix and output—against each other. In addition to Indiana and Belgium, mills in Germany and Poland, and France and Romania, have been twinned. The weaker mill is ordered to copy the practices of the better mill, while the stronger is told to keep its edge. Managers are summoned to regular meetings and ordered to divulge and compare their performances. Although there is no explicit policy on the consequences of poor performance, ArcelorMittal has been quick to idle or shut down unprofitable mills, as it did in Liège, Belgium, last year.
(Geographical note: Liège is in the southern part of Belgium, called Wallonia, while Gent is in the region of Flanders.”)
Burns Harbor achieved a record slab production of 4.8 million tons in 2011, says Bill Steers, the company spokesman, compared with 5 million at Gent. Productivity is almost at 900 tons per employee per year, while Gent has improved to around 950. “Much of this can be attributed to twinning,” says Mr. Steers.
ArcelorMittal executives say they are focused on pushing even harder. At a recent meeting, Gent managers boasted they would soon reach 1,100 tons per employee. Burns Harbor managers declined to comment on whether that is feasible.
3. Labor costs in the Midwest: “Workers at Burns Harbor averaged about $80,000 in wages and benefits in 2011. But the Belgian mill’s labor costs have long been even higher. While Gent’s wages are on par with Burns Harbor, the country’s tax structure, including generous education credits and child care benefits, can boost the total cost of employing each worker to over $150,000.”
4. Over the last 20 years, the higher labor costs in Flanders drove continuous investments in automation and IT to push productivity.
“Gent really is one of the best mills in the world,” says Peter Marcus, president of World Steel Dynamics, an Englewood Cliffs, N.J.-based consultancy. The measure his company favors, man-hours per ton, shows Gent at 1.25 and Burns Harbor behind at 1.32. “Those are both currently among the better numbers in the world,” he says. The average in the U.S. is 2.0.
5. Interestingly, much of the improvements come from production control that is now optimized by computer. “Steel working used to be 80% back and 20% brain, now it’s the other way around.” Another example of the increased need for education in this new age of high-tech manufacturing.