Mey Impact 2011 PDF

The Impact of Implementing World Class Manufacturing on
Company Performance:
A Case Study of the ArcelorMittal South Africa Saldanha Works
Business Unit
Jan Hendrik Phillipus Mey
Research report presented in partial fulfilment

of the requirements for the degree of
Masters of Business Administration
at the University of Stellenbosch
Supervisor: Prof Marius Ungerer
Degree of Confidentiality: A
March 2011
Stellenbosch University http://scholar.sun.ac.za
ii
Declaration
Hereby I, Jan Hendrik Phillipus Mey, declare that this research report is my own original work and
that all sources have been accurately reported and acknowledged, and that this document has not
previously in its entirety or in part been submitted at any university in order to obtain an academic
qualification.
J.H.P. Mey
31 January 2011
iii
Acknowledgements
I wish to acknowledge my indebtedness to the following persons and institutions that have assisted
me in making this project possible:
1. My Heavenly Father for the grace, health and wisdom granted to me.
2. My wife, Liana, and child Temike for their understanding and moral support.
3. My study leader, Prof. Marius Ungerer, for his assistance and guidance during the completion
of this study project.
4. ArcelorMittal South Africa Saldanha Works, World Class Manufacturing Instructor, Andre
Theart, who assisted me with the gathering of information regarding the ArcelorMittal World
Class Manufacturing Framework.
5. All the lecturers at the University of Stellenbosch Business School that attributed to me
becoming a more complete leader.
6. Francis Meyer, from the University of Stellenbosch Business School for all her assistance and
motivation during my studies.
iv
Abstract
Purpose:
Literature on World Class Manufacturing is very limited. Some information exists on the concepts
behind it, but very little exist on the framework and physical implementation. Also, a lot of
information is available on other productivity improvement initiatives but not a lot is mentioned
about the implementation thereof and the difficulties experienced during the implementation. This
paper aims to provide not only an overview of the framework of World Class Manufacturing as
interpreted by ArcelorMittal, but also a case study of such an implementation.
Design/Methodology/Approach:
The approach taken with this paper is to give an overview of the World Class Manufacturing
framework as interpreted by ArcelorMittal and to provide a case study of an actual implementation
thereof.
Findings:
Productivity improvement initiatives have real value for the companies that implement them, but
this value can only be sustained if the principles behind them are entrenched in the companys
strategy.
Practical Implications:
The result of this paper is the design of a Business Management Framework that will support the
sustainability of a World Class Manufacturing implementation.
Originality/Value:
The value of this paper lies not only with the building of the body of knowledge with respect to
World Class Manufacturing but also in the design of a new concept for the support of sustained
value creation of World Class Manufacturing.
Opsomming
Doel:
Literatuur oor World Class Manaufacturing is baie beperk. Daar is wel literatuur oor die konsepte
agter dit, maar daar bestaan baie min literatuur oor die raamwerk asook die fisiese implementering.
Daar bestaan ook baie literatuur oor ander produktiwiteits verbetering initiatiewe, maar daarin word
daar ook baie min melding gemaak van die implementering asook die probleme wat ondervind
word gedurende die tyd. Die verslag se mikpunt is om n oorsig te gee van die raamwerk van
World Class Manufacturing soos wat dit deur ArcelorMittal geinterpreteer word, asook om n
voorbeeld te gee van so n implementering.
Ontwerp/Metodologie/Aanslag:
Die aanslag wat geneem is met die verslag is om n oorsig te gee van die raamwerk van World
Class Manufacturing soos wat dit geinterpreteer word deur ArcelorMittal asook om n voorbeeld te
gee van die implementering daarvan.
Bevindings:
Produktiwiteits verbetering initiatiewe lewer regte waarde aan die maatskappye wat dit
implementeer, maar die waarde kan net volhou word as die beginsels agter die initiatiewe
ingeburger word in die maatskappy se strategie.
Praktiese Implikasies:
Die resultaat van die verslag is die ontwerp van n Besigheids Bestuur Raamwerk wat die
volhoubaarheid van die implementering van World Class Manufacturing sal ondersteun.
Oorspronklikheid/Waarde:
Die waarde van die verslag le nie net in die opbou van die kennis wat beskikbaar is oor World
Class Manufacturing nie, maar ook in die ontwerp van n nuwe konsep for the onderhouding van
volhoubare waarde skepping met World Class Manufacturing.
vi
Keywords
World Class Manufacturing. The ArcelorMittal definition of World Class Manufacturing is to

seek for the continuous improvement of the overall effectiveness of the organisation by
eliminating the causes of losses in the production systems through the implementation of
activities called pillars.
Total Productive Maintenance. As stated by the Japanese Institute for Plant Maintenance
(Nakajima, 1988), a complete definition of Total Productive Maintenance includes the following
five goals:
o
maximise equipment effectiveness;
develop a system of productive maintenance for the life of the equipment;
involve all departments that plan, design, use or maintain equipment in implementing
Total Productive Maintenance;
actively involve all employees from top management to shop floor workers;
promote Total Productive
Maintenance through motivation management with
continuous small group activities.
Lean Manufacturing. The Lean Manufacturing Handbook (Epply, 2000) defines lean as
follows:
Lean manufacturing is a manufacturing system and philosophy that was originally developed
by Toyota and is now used by many manufacturers throughout the world. The term Lean is
very apt because in lean manufacturing the emphasis is to cut out the fat or waste in the
manufacturing process. Waste is defined as anything that does not add value to the customer.
It could also be defined as anything the customer is unwilling to pay for.
ArcelorMittal. ArcelorMittal is the world's leading steel company, with operations in more than
60 countries. With an industrial presence in over 20 countries spanning four continents, the
Company covers all of the key steel markets, from emerging to mature. Through its core values
of Sustainability, Quality and Leadership, ArcelorMittal commits to operating in a responsible
way with respect to the health, safety and wellbeing of its employees, contractors and the
communities in which it operates. It is also committed to the sustainable management of the
environment and of finite resources (ArcelorMittal, 2011).
vii
ArcelorMittal South Africa. ArcelorMittal South Africa Limited is the largest steel producer on
the African continent, with a production capacity of 7.8 million tonnes of liquid steel per annum.
The company has a depth of technical and managerial expertise carefully nurtured since 1928,
a reputation for reliability and a sharply defined business focus, which has forged the
organisation into a modern, highly competitive supplier of steel products to the domestic and
global markets (ArcelorMittal South Africa, 2011a).
Saldanha Works. Saldanha Works is a largely export-focused plant, is in close proximity to the
deep-sea port of Saldanha and employs 568 staff. The plant was commissioned and produced
its first hot rolled coil (HRC) in late 1998 and is currently producing at its designed nameplate
capacity of 1.2 million tonnes per annum (ArcelorMittal South Africa, 2011c).
viii
Table of contents
Declaration
ii
Acknowledgements
iii
Abstract
iv
Opsomming
Keywords
vi
List of tables
xi
List of figures
xii
List of abbreviations
xv
CHAPTER 1 INTRODUCTION AND PROBLEM STATEMENT
1.1
INTRODUCTION
1.2
PROBLEM STATEMENT
1.3
RESEARCH OBJECTIVES
1.4
RESEARCH APPROACH
1.5
LITERATURE REVIEW
1.6
IMPORTANCE AND BENEFITS OF THE STUDY
1.7
DELIMITATIONS AND LIMITATIONS
1.8
CHAPTER OUTLINE
CHAPTER 2 BACKGROUND INFORMATION
2.1
GENERAL
2.2
THE CURRENT ECONOMIC SITUATION
2.2.1
Global economic crisis
2.2.2
Influence on the steel industry
2.2.3
Road to recovery
ix
2.3
THE STEEL INDUSTRY
10
2.4
ARCELORMITTAL SOUTH AFRICA SALDANHA WORKS
15
2.5
SUMMARY
18
CHAPTER 3 REVIEW OF RELATED LITERATURE
19
3.1
WORLD CLASS MANUFACTURING
19
3.2
PRODUCTIVITY
23
3.3
MEASURES OF COMPANY PERFORMANCE
24
3.3.1
General
24
3.3.2
Overall equipment effectiveness
25
3.4
IMPLEMENTATION OF BEST PRACTICE INITIATIVES
26
3.5
TOTAL PRODUCTIVE MAINTENANCE (TPM)
27
3.6
LEAN MANUFACTURING
28
3.7
CONCLUSION
32
CHAPTER 4 THE IMPLEMENTATION OF WORLD CLASS MANUFACTURING
33
4.1
THE CASE FOR CHANGE
33
4.2
WORLD CLASS MANUFACTURING FRAMEWORK
35
4.2.1
The framework
35
4.2.2
The pillars and foundation explained
38
4.3
IMPLEMENTATION
46
4.4
CONCLUSION
52
CHAPTER 5 EVALUATING THE SUCCESS
53
5.1
ROLL-OUT
53
5.2
WORLD CLASS MANUFACTURING PROCESS PROGRESS
55
5.2.1
Prioritisation
55
5.2.2
WCM teams
55
x
5.2.3
Sustainability
56
5.3
OVERALL PROGRESS
57
CHAPTER 6 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
59
6.1
SUMMARY
59
6.2
CONCLUSION
60
6.3
RECOMMENDATIONS
61
References
63
xi
List of tables
Table 2-1: GDP Growth in the BRIC Countries
Table 2-2: Top Steel-Producing Companies (millions of tons)
12
Table 2-3: Apparent Steel Use 2006 2008 (million tons of finished steel products)
15
Table 4-1: Implementation Steps for Autonomous Maintenance
43
Table 4-2: Iron Making Targets
50
Table 4-3: Steel Making Targets
51
Table 4-4: Strip Manufacturing Targets
51
Table 5-1: World Class Manufacturing Roll-Out Progress
54
Table 5-2: World Class Manufacturing Pillar Roll-Out Progress
54
xii
List of figures
Figure 2-1: TED Spread & Components 2008
Figure 2-2: Global GDP Growth
Figure 2-3: GDP Growth in the USA
Figure 2-4: GDP Growth in the Euro Area
10
Figure 2-5: A View of the Steel Industry
11
Figure 2-6: Steel Production by Country (2007)
11
Figure 2-7: ArcelorMittal South Africa - Saldanha Works - Mass & Process Flow
16
Figure 2-8: ArcelorMittal Group - Hot Rolled Coil Production Cost
17
Figure 3-1: World Class Manufacturing - History in Japan
19
Figure 3-2: Overall Equipment Effectiveness (1988 - 1990)
21
Figure 3-3: Overall Equipment Effectiveness at Devres
22
Figure 3-4: Performance Measures of World Class Manufacturing
22
Figure 3-5: Effects of Continuous Improvement with World Class Manufacturing
23
Figure 3-6: Calculation of Overall Equipment Effectiveness
25
Figure 3-7: History of Total Productive Maintenance - Nippondenso
27
Figure 3-8: Pillars of Total Productive Maintenance
28
Figure 3-9: History Timeline for Lean Manufacturing
29
Figure 3-10: Cellular Manufacturing
30
Figure 3-11: Pull Scheduling (Kanban)
30
Figure 3-12: Setup Reduction
31
Figure 3-13: The "Virtuous Circle" of Team Development
32
Figure 4-1: Bottleneck Plant Utilisation
33
xiii
Figure 4-2: Saldanha Works - Hot Rolled Coil Production
34
Figure 4-3: Saldanha Works - Earnings Before Interest, Tax, Depreciation and Amortisation
34
Figure 4-4: Scope of Management Infrastructure
35
Figure 4-5: Routine Management
36
Figure 4-6: Improvement Management
36
Figure 4-7: World Class Manufacturing Framework
37
Figure 4-8: The World Class Manufacturing Process
38
Figure 4-9: People Development Transformation
39
Figure 4-10: Typical Losses
39
Figure 4-11: Relationship between Losses and Costs
40
Figure 4-12: Failure Mechanisms and Causal Factors
41
Figure 4-13: Countermeasures to achieve Zero-Failure
41
Figure 4-14: World Class Manufacturing Pillars addressing Zero-Failure
42
Figure 4-15: 5S Summary
42
Figure 4-16: The Purpose of Autonomous Maintenance
44
Figure 4-17: Objectives of Professional Maintenance
44
Figure 4-18: Improvement Building Blocks
45
Figure 4-19: World Class Manufacturing Organisation
46
Figure 4-20: World Class Manufacturing Development Program
47
Figure 4-21: Saldanha Works Vision
48
Figure 4-22: Overall Equipment Effectiveness - Vanderbilpark Works & Saldanha Works
49
Figure 4-23: Saldanha Works Cost Deployment Process
50
Figure 4-24: Saldanha Works - World Class Manufacturing Implementation Master Plan
52
xiv
Figure 5-1: Saldanha Works - World Class Manufacturing Pillars Implemented
53
Figure 5-2: Prioritisation Progress
55
Figure 5-3: World Class Manufacturing Teams Progress
56
Figure 5-4: Sustainability Progress
56
57
Figure 5-6: Saldanha Works - World Class Manufacturing Cost Savings Tracking
58
Figure 6-1: Proposed Business Management Framework
62
xv
List of abbreviations
WCM
World Class Manufacturing
TPM
Total Productive Maintenance
CDS
Credit Default Swops
LC
Letter of Credit
IMF
International Monetary Fund
GDP
Gross Domestic Product
BRIC
Brazil, Russia, India and China
USA
United States of America
HRC
Hot Rolled Coil
CWQC
Company-Wide Quality Control
TQC
Total Quality Control
TQM
Total Quality Management
OEE
Overall Equipment Effectiveness
BM
Breakdown Maintenance
PM
Preventative Maintenance
CM
Corrective Maintenance
MP
Maintenance Prevention
JIPE
Japanese Institute of Plant Engineers
SMED
Single Minute Exchange of Die
EBITDA
Earnings before Interest, Tax, Depreciation and Amortisation
CEO
Chief Executive Officer
KPI
Key Performance Indicator
IDP
Individual Development Programme
HR
Human Resources
IDC
Industrial Development Corporation
Iscor
Iron and Steel Corporation of South Africa
CHAPTER 1
INTRODUCTION AND PROBLEM STATEMENT
1.1
INTRODUCTION
This research report discusses productivity improvement initiatives with a specific focus on World
Class Manufacturing, Total Productive Maintenance, Lean Manufacturing, Productivity, Measures
of Company Performance and the implementation of best practice initiatives. This research serves
as an introduction to a case study about the implementation of World Class Manufacturing at the
Saldanha Works business unit of ArcelorMittal South Africa.
1.2
PROBLEM STATEMENT
The problem statement for this research is the following:

Although very extensive information is available on the principles behind World Class
Manufacturing, a review of this literature shows very limited information on the implementation and
physical framework of World Class Manufacturing. This has resulted in the following two areas of
research this report focuses on:
Understanding and analysing the framework of World Class Manufacturing as interpreted by

ArcelorMittal.
Analysing the success of the roll-out of World Class Manufacturing at the Saldanha Works
business unit of ArcelorMittal South Africa with respect to the progress, definition of
measurements and the impact it has on company performance.
1.3
RESEARCH OBJECTIVES
Aligned with the introductory section, the specific objectives this study has been articulated as
follow:
Primary Objective: The development of a case study on the implementation of World Class
Manufacturing at the Saldanha Works business unit of ArcelorMittal South Africa with specific
focus on the implementation and physical framework as interpreted by ArcelorMittal.
Secondary Objective: To review and discuss literature around World Class Manufacturing, Total
Productive Maintenance, Lean Manufacturing, Productivity, Measures of Company Performance
and the implementation of best practice initiatives.
1.4
RESEARCH APPROACH
Saunders, Lewis and Thornhill (2007: 139) describe a case study as a strategy for doing research,
which involves an empirical investigation of a particular contemporary phenomenon within its real
2
life context, using multiple sources of evidence. The research design is an empirical study of the
implementation of World Class Manufacturing at the Saldanha Works business unit of ArcelorMittal
South Africa.
The data in the case study will be mainly qualitative. Quantitative data will be extracted from the
electronic Key Performance Indicator system of ArcelorMittal South Africa as well as the electronic
measurement system utilised by the instructors responsible for the implementation. The
quantitative data will be used to draw conclusions about the success of the implementation of
World Class Manufacturing. Qualitative data will be gathered through discussions with the
instructors responsible for the training around and implementation of World Class Manufacturing
and will be used to draw conclusion around the success of the roll-out with respect to organisation
change and sustainability.
The secondary data source is literature on World Class Manufacturing, Total Productive
Maintenance, Lean Manufacturing, Productivity, Measures of Company Performance and the
implementation of best practice initiatives.
Primary resources for data and information on World Class Manufacturing and the implementation
thereof at the Saldanha Works business unit include the company website, internal company
documents on World Class Manufacturing and the implementation thereof, internal company
progress reports on the status of the roll-out and the impact it has and the ArcelorMittal South
Africa Key Performance Indicator system.
Secondary resources for data and information on World Class Manufacturing and the
implementation thereof at the Saldanha Works business unit include discussions with the
instructors responsible for the training around and implementation of World Class Manufacturing.
It is important to note that the writer is an employee of ArcelorMittal South Africa, and therefore has
insights into, not only the company, but also the industry as well as this implementation of World
Class Manufacturing. Many of these insights form part of the industry analysis and is also
expressed in the review of the implementation of World Class Manufacturing at the Saldanha
Works business unit.
1.5
LITERATURE REVIEW
The subject matter of the research report includes productivity improvement initiatives and the
implementation of best practice initiatives. Literature on these subjects has been reviewed and is
reported in Chapter 3 under the following topics:
World Class Manufacturing
Productivity
Measures of Company Performance
Implementation of Best Practice Initiatives
Total Productive Maintenance
Lean Manufacturing
1.6
IMPORTANCE AND BENEFITS OF THE STUDY
The main purpose of this research report is to provide a case study on the implementation of World
Class Manufacturing to the South African case study knowledge base. This case study can be
used as a basis for companies to work from with regards to the framework and implementation of
World Class Manufacturing.
1.7
DELIMITATIONS AND LIMITATIONS
This study is limited to the theory of World Class Manufacturing, Total Productive Maintenance,
Lean Manufacturing, Productivity, Measures of Company Performance and the implementation of
best practice initiatives. The study confines itself to a qualitative and quantitative, single case study
on the implementation of World Class Manufacturing.
1.8
CHAPTER OUTLINE
This research report is set out according to the following structural outline:
Chapter 1 Introduction and Problem Statement: This chapter gives an outline of the themes that
will be researched as well as the strategy that will be followed with this research report.
Chapter 2 Background Information: In this chapter the background and reasons behind the
necessity for the implementation of a productivity improvement initiative at the Saldanha Works
business unit is discussed focussing specifically on the current economic situation, the steel
industry as a whole and the current operating circumstances at ArcelorMittal South Africa and the
Saldanha Works business unit.
Chapter 3 Review of Related Literature: The literature review discusses the theories behind the
implementation of productivity improvement initiatives with specific focus on the related topics of
World Class Manufacturing, Total Productive Maintenance, Lean Manufacturing, Productivity,
Measures of Company Performance and the implementation of best practice initiatives
Chapter 4 The Implementation of World Class Manufacturing: This chapter gives insight into the
framework and implementation of World Class Manufacturing as interpreted by ArcelorMittal.
Chapter 5 Evaluating the Success: This chapter evaluates the results of some parts of the
framework of World Class Manufacturing as well as the progress made with respect to the
implementation thereof.
4
Chapter 6 Summary, Conclusions and Recommendations: The final chapter gives a summary of
the theories behind the implementation of productivity improvement initiatives, the framework of
World Class Manufacturing as interpreted by ArcelorMittal and the implementation thereof at the
Saldanha Works business unit. It also draws some conclusion from the evaluation of the success
of the implementation and gives recommendations on how this implementation can be improved.
Finally, it proposes a modified framework for World Class Manufacturing that can be used as a
business management framework for strategy formulation.
CHAPTER 2
BACKGROUND INFORMATION
2.1
GENERAL
Rapid changes in the competitive environment over the past few decades have made competition
much more complex. The ability of companies to change and innovate is becoming more and more
important for their survival. This is especially true today, with the current economic crisis forcing
world economic growth in a downward, recessionary spiral.
The Steel Industry is characterised by cycles in the demand for steel. In the late 1990s and the
early 2000s, global demand for steel was on the decline and the price of steel was at its lowest
levels in decades. The Steel Industry was under severe pressure to save on costs, forcing
companies to downsize/restructure their workforce. The building and commissioning of several
steel producing factories in China, in order to satisfy their own demand, also did not help to
alleviate the tremendous strain companies were under.
During this time the industry was also characterised by consolidation. Before this period, the
industry consisted of a few medium-sized players, with most of the worlds steel production
originating from many small companies. The downward pressure on the price of steel caused
many of these small companies to either close down, or being gobbled up by the emergence of a
couple of mega steel companies. One such company that have emerged from this turmoil, to
become the biggest steel company in the world, is ArcelorMittal.
In recent years there has been a major boom in the global demand for steel, driven mostly by the
tremendous economic growth in China. Recently, infrastructural developments in India and Africa
have also started to fuel the demand. This has resulted in the steel price souring to recordbreaking heights and capacity expansions became a major focus for the big players.
The boom came to an abrupt halt with the unravelling of the current economic crisis. Since the
failing of the world banking system, the acquisition of credit has become a futile task, leading to
major problems in, as an example, the motoring industry, one of the largest consumers of steel.
Although the perception is that there is still a high demand for steel, Steel Merchants are struggling
to get rid of their stock due to a lack of available credit in the world financial system, resulting in a
steep decline in the price of steel. Steel companies over the world have announced major cutbacks
in production and in severe cases have even temporarily closed down certain operations.
While the attention in the late 1990s was on reduction of the workforce in order to save on costs,
the more recent focus in the steel industry has been on the increase of the productivity of the
6
existing workforce. Today, many ways of improving productivity exist. This study will focus on the
implementation and impact of one such initiative, called World Class Manufacturing (WCM), at
ArcelorMittal South Africa Saldanha Works. In order to understand the driving forces behind
initiatives like this, as well as the impact it has on companies, it is necessary to analyse the current
economic situation as well as the current structure of the steel industry and the drivers behind
competitiveness.
2.2
2.2.1
THE CURRENT ECONOMIC SITUATION

Global economic crisis
2.2.1.1 The origin of the global economic crisis

The current financial crisis, often referred to in the media as a credit crunch or credit crisis,
originated in August 2007 due to a loss of confidence by investors in the value of securitised
mortgages in the United States of America (U.S.). The crisis prompted substantial injections of
capital into financial markets by the United States Federal Reserve and the European Central Bank.
The difference between the three-month U.S. treasury bill and the three-month London Interbank
Borrowing Rate (LIBOR), also referred to as the TED Spread, which is an indicator of perceived
credit risk in the general economy, spiked up in August 2007, remained volatile for a year, then
spiked even higher in September 2008 as depicted in Figure 2-1: TED Spread & Components
2008 (Mohamed Bahaa, 2010).
Figure 2-1: TED Spread & Components 2008

Source: Mohamed Bahaa, 2010
7
Americas housing collapse is often erroneously blamed for causing the crisis. The housing
collapse actually brought to light the vulnerability of the U.S. financial system caused by intricate
and overleveraged financial contracts and operations, which was caused by U.S. monetary policy
that made the cost of credit negligible therefore encouraging such over-leverage.
One of the main financial instruments that caused the current crisis was credit derivatives or Credit
Default Swaps (CDS). CDS insure debt holders against default. They are fashioned privately, and
traded over the counter outside the control of regulators. When the U.S. government started
seizing mortgage companies, it prompted an auction of their debt so that traders who bought and
sold CDS could settle contracts. These auctions are used to set a price by which investors can
settle the contracts with cash. The sellers of the protection then pay the face value of the contract
minus the recovery value set on the bonds (Global Issues, 2008).
2.2.1.2 Effects and attempted remedies
As more and more entities defaulted on mortgages and loans, investors started to lose confidence
in money markets which prompted them to withdraw unusual amounts of money from money
markets. This resulted in financial institutions starting to experience liquidity problems. September
2008 saw a number of large financial institutions collapsing.
Up to the end of 2009, little trust existed in the financial system. Even large banks stopped lending
money to each other. Investors, which still have cash, are holding on to it, constantly on the lookout
for positive changes in markets to enable them to buy up inexpensive investments. This liquidity
problem in the money market prompted central banks and governments around the world to
intervene either with capital injections or by the guarantee of deposits.
2.2.2
Influence on the steel industry
With banks not lending money to each other, steel merchants are struggling to secure LCs for the
procurement of steel. This has led to the world steel industry virtually coming to a standstill. The
Sales and Marketing entities of steel producing companies are scouring the world in order to
secure enough orders to sustain their businesses. All over the world steel producing companies
have cut back on production in order to firstly conserve their own cash reserves and secondly to
preserve the price of steel.
ArcelorMittal, the worlds largest steel company, had to cut back 50 percent on its European blast
furnace operations, and contemplated totally stopping production at some of its facilities, in trying
to balance supply and demand. Although demand in local markets does not seem to be severely
affected, export demand almost totally dried up (Mettal Bulletin, 2008a).
8
2.2.3
Road to recovery
As the remedies introduced starts filtering through the world economy, the International Monetary
Fund (IMF) predicts that the world economic growth should stabilise during 2010 and even start to
improve during 2011 (berg, 2010). Expectations are that the global Gross Domestic Product
(GDP) growth will recover to around the four percent mark (Figure 2-2: Global GDP Growth).
Figure 2-2: Global GDP Growth

Source: berg, 2010
The expectation is also for much higher GDP growth in the BRIC countries that is, Brazil, Russia,
India and China than in more developed countries (Table 2-1: GDP Growth in the BRIC
Countries). One point of weakness is the expectation that the GDP growth in China will slow down
to below 10 percent in 2011 (berg, 2010).
Table 2-1: GDP Growth in the BRIC Countries
Annual Percentage Change

2009
2010
2011
Brazil
-0.2
7.1
4.2
Russia
-7.9
4.3
4.1
India
5.7
9.4
8.4
China
9.1
10.5
9.6
Source: berg, 2010
9
Although indications are that the GDP growth in the U.S. will return to levels around three percent
(Figure 2-3: GDP Growth in the USA), it is expected that it will slow down in the years after 2010 as
the effects that the economic policy stimulation has had, starts to wane.
Figure 2-3: GDP Growth in the USA

Source: berg, 2010
Some other signs of weakness in the U.S. recovery are also apparent. The housing market has not
yet begun to recover from the crash in connection with the financial crisis and the inflation rate is
also still on the decline.
All indications are that the recovery in the Euro Area will be much slower than the global figures.
Expectations are the GDP growth during 2010 will only be around 0.8 percent, but the forecast for
the years after 2010 is that it will increase (Figure 2-4: GDP Growth in the Euro Area).
10
Figure 2-4: GDP Growth in the Euro Area

Source: berg, 2010
In summary, expectations are that the world economy will continue to recover in the coming years.
There are some areas of concern though. The slowdown of the growth in China as well as the
slowdown in the growth in the U.S. after 2010 will have a significant impact on the outlook for
global economic growth (berg, 2010).
2.3
THE STEEL INDUSTRY
The Steel Industry provides the backbone of economic growth throughout the world and is used in
almost everything that is used in everyday life, from the cars we drive to the houses in which we
live. Steel was the driving force behind the industrial revolution. Its success is based on the
relatively low cost involved in satisfying the varying demands of manufacturers, builders and
designers, as well as its ability to be shaped into many different forms. Today, in the 21st Century,
the demand for steel is driven by infrastructural investments in developing countries like China,
India, Asia and Africa.
11
Figure 2-5: A View of the Steel Industry

Source: Considine, 2005: 8
Up to now, the volume of steel consumed has been a barometer for measuring development and
economic growth. In order to keep up with the ever increasing demand for steel, global steel
production has grown enormously in the 20th century. During the first half of the century, yearly
steel production grew by almost 161 million metric tons (mmt) from an estimated 28 million metric
tons (mmt) in 1900 to approximately 189 mmt in 1950. During the second half of the century, steel
production grew by approximately 659 mmt to about 848 mmt. The largest growth in the industry
could be seen in the first seven years of the 21st century, with the yearly steel production growing
to more than 1,340 mmt (Research Channel Africa, 2009).
Figure 2-6: Steel Production by Country (2007)

Source: International Iron and Steel Institute, 2006
12
Despite this enormous growth in steel production capacity, the demand for steel still outstripped
the supply, with steel prices for flat steel products soaring from levels of $200/ton in 1999 to levels
touching $1,000/ton in 2008. Although the demand for steel is the major drive behind the
increasing prices, cost factors for raw materials such as metallurgical grade coal and iron ore are
also playing a major role.
The industry is currently characterised by consolidations and productivity improvements.
Consolidations resulted in the creation of a couple of mega-manufacturers; ArcelorMittal being a
point in case. Although ArcelorMittal has four times more production capacity than its closest rival,
it only accounts for approximately 10 percent of the worlds production capacity, which is an
indication of just how much fragmentation still exists in the industry. Productivity improvements
have allowed the steel industry around the world to reduce its required manpower by more than
1,500,000 in 25 years.
Table 2-2: Top Steel-Producing Companies (millions of tons)
2008
2007
Company
103.3 1
116.4 ArcelorMittal
37.5 2
35.7 Nippon Steel1
35.4 5
28.6 Baosteel Group
34.7 4
31.1 POSCO
33.3 N/A
31.1 Hebei Steel Group
33.0 3
34.0 JFE
27.7 11
20.2 Wuhan Steel Group
24.4 6
26.5 Tata Steel2
23.3 8
22.9 Jiangsu Shagang Group
10
23.2 10
21.5 US Steel
11
21.8 N/A
23.8 Shandong Steel Group
12
20.4 12
20.0 Nucor
13
20.4 13
18.6 Gerdau
13
2008
2007
Company
14
19.2 15
17.3 Severstal
15
17.7 17
16.2 Evraz
16
16.9 14
17.9 Riva
17
16.0 N/A
16.2 Anshan Steel
18
15.9 16
17.0 ThyssenKrupp3
19
15.0 18
14.2 Maanshan Steel
20
14.1 20
13.8 Sumitomo Metal Ind
21
13.7 19
13.9 SAIL
22
12.2 23
12.9 Shougang Group
23
12.0 21
13.3 Magnitogorsk
24
11.3 30
9.7 Novolipetsk
25
11.3 26
11.1 Hunan Valin Group
26
11.0 27
10.9 China Steel Corporation
27
10.4 22
13.1 Techint4
28
10.0 28
10.1 IMIDRO
29
9.9 N/A
11.6 Industrial Union of Donbass
30
9.9 29
10.0 Hyundai Steel
31
9.8 34
8.8 Bautou Steel
32
9.2 31
9.3 Taiyuan Steel
33
9.0 33
9.0 Anyang Steel
34
8.2 32
9.1 Metinvest
14
2008
2007
Company
35
8.2 37
8.1 Celsa
36
8.1 38
8.1 Kobe Steel
37
8.0 35
8.7 Usiminas
38
7.5 45
6.6 Panzhihau Steel
39
7.5 50
6.2 Rizhao Steel
40
7.4 N/A
7.6 Benxi Steel
[1]
Includes part of Usiminas
[2]
Includes Corus
[3]
50 percent of HKM included in ThyssenKrupp
[4]
Includes partial tonnage of SIDOR
Source: Research Channel Africa, 2009
Overall, the steel industry has been very healthy since the start of the 21st century with the value of
the worlds steel production almost tripling. During the first three quarters of 2008 the steel industry
was still in a boom phase, but this all changed with the inception of the world economic crisis.
Apparent steel use started declining towards the end of 2008 (Research Channel Africa, 2009),
down to 1 198.1-million tons for the full year from 1 214.8-million tons in 2007 (Table 2-3: Apparent
Steel Use 2006 2008 (million tons of finished steel products)). To compensate for this, production
cuts resulted to world crude steel output in 2008 reducing to 1 326.5-million tons, down from
1351.3-million tons in 2007. Although this represented a 1.2 percent decline on the previous years
production, this was the second consecutive year that production had exceeded the 1.3-billion-ton
mark. Nearly all the major steel producing regions, including the European Union, North America,
South Africa and the Commonwealth of Independent States reported declines. However, the
Middle East and Asia, particularly China showed positive growth during 2008.
15
Table 2-3: Apparent Steel Use 2006 2008 (million tons of finished steel products)
Apparent global steel

consumption
2006
2007
2008
1 134.0
1 214.8
1 198.1
Source: Research Channel Africa, 2009

Although India is projected to increase apparent steel use by two percent in 2009, and
consumption in the BRIC countries (Brazil, Russia, India and China) is expected to contract by only
5.9 percent, projected apparent steel use for the world, excluding the BRIC countries, will contract
by 22.3 percent in 2009.
China is expected to witness negative growth of five percent in apparent use in 2009, as the
prevailing global economic crisis hits the countrys exports, and also as a result of the countrys
slowing economy. The last time Chinas apparent steel consumption contracted was in 1995, when
a decline of 17.2 percent was recorded, following the real estate bubble burst.
2.4
ARCELORMITTAL SOUTH AFRICA SALDANHA WORKS
ArcelorMittal South Africa Saldanha Works started out in 1996 as a brave move by Iscor and the
Industrial Development Corporation (IDC) to create jobs on the West Coast of South Africa. It was
a very ambitious decision seeing that the steel price was on the decline. From the start the
company, then Saldanha Steel Pty. Ltd. was doomed for failure, due to being heavily financed by
means of debt. After approximately five years of operation, and still not making a profit due to the
burden of huge yearly interest payments, in 2003 Saldanha Steel was incorporated into Iscor, the
biggest steel producer in South Africa, with part of the deal being the total repayment of all
outstanding debt.
Iscor, on the other hand, was in process of concluding a business assistance agreement with Ispat,
a major global competitor in the steel industry. As part of this agreement, Ispat would assist Iscor
with the streamlining of business processes in exchange for a percentage of the financial gain
Iscor made out of the agreement. Iscor was also in the process of splitting its mining and steel
operations, the result of which was the two companies Iscor and Kumba. After the conclusion of
the business assistance agreement, Ispat acquired the major shareholding in Iscor.
Globally, Mr. Lakshmi Mittal, Chief Executive Officer of LNM Holdings, the holding company of
Ispat, was on a mission to create the worlds biggest steel company, and after the acquisition of
International Steel in the United States, brought all his companies under the umbrella of Mittal
Steel. This was still not the end, and he consequently drove the merger of Mittal Steel and Arcelor,
another mega steel company that emerged from the turmoil of the late 1990s. The result was the
16
creation of the biggest steel company in the world, ArcelorMittal, controlling approximately 10
percent of world steel production.
With the recent boom in the steel industry, ArcelorMittal South Africa embarked on a major
capacity expansion drive, planning to expand on its production capacity all over the world by
means of major capital projects. The start of the world economic crisis saw these plans change
drastically. The focus changed from capacity expansion to the preservation of market share and
cash flow. The current plans of the company include the stabilisation of current operations and
investment in backward integration initiatives.
The ArcelorMittal South Africa Saldanha Works plant, a largely export-focused plant, was built on
the Mini-Mill concept with one major difference. The Mini-Mill concept entails the melting of scrap in
order to produce liquid steel, whereas the Saldanha Works plant was built with its own liquid iron
manufacturing capabilities. It is the only plant in the world that has successfully combined the
Corex (for the production of Liquid Iron) and Midrex (for the production of Direct-Reduced Iron)
processes into a continuous chain, replacing the need Coke Ovens and Blast Furnaces. This
makes the plant a world leader in emission control and environmental management. The plant was
specifically designed for the production of clean steel, with virtually no impurities like tin and
copper that is quite a common occurrence when melting scrap for the production of liquid steel.
Figure 2-7: ArcelorMittal South Africa - Saldanha Works - Mass & Process Flow
Source: ArcelorMittal South Africa, 2011b
17
The Saldanha Works plant production chain is very short, taking only 16 hours from the time ironore enters the Corex or Midrex units to the rolled product. Different production units are closely
coupled, resulting in very little work-in-progress, with any disturbance in one production unit
causing the whole production chain to come to a standstill (Figure 2-7: ArcelorMittal South Africa Saldanha Works - Mass & Process Flow).
The plants primary product is Hot-Rolled Coil that is mostly exported into Africa and is mostly used
as sheeting or in the manufacture of pipes. The plant produced its first hot-rolled coil in 1998 and
currently has the capability to produce at its nameplate capacity of 1.2 million tons per year. It
accomplishes this with a labour force of around 560 full-time employees. Productivity at the plant is
currently measured at around 2100 tons per full-time employee per year. This is excellent when
compared to the benchmark of around 1000 tons per full-time employee per year from
conventional steel manufacturing facilities. Within the ArcelorMittal Group, the Saldanha Works
plant is positioned below the average with respect to Hot-Rolled Coil Production Cost (Figure 2-8:
ArcelorMittal Group - Hot Rolled Coil Production Cost)
Figure 2-8: ArcelorMittal Group - Hot Rolled Coil Production Cost
The current focus at the plant is the restoration of basic conditions at all the production units in
order to regain the ability to produce at 1.2 million tons per year. In order to accomplish this, the
company decided to introduce World Class Manufacturing principles.
18
2.5
SUMMARY
The main vehicle for trade in the steel industry is credit. The world financial crisis have created a
liquidity problem that have resulted in financial institutions not trusting each other. As a result, at
the end of 2008, the trade in the steel industry virtually came to a standstill. Although calm has
been restored to financial markets and the global economy is on a recovery path, trade in the steel
industry has not recovered to the levels before the crisis. Because of steps taken during the
financial crisis to ensure the long-term survival of ArcelorMittal South Africa, the Saldanha Works
business unit is struggling to perform at its nameplate capacity. All of this, coupled with the
immense competition in the steel industry, necessitated the Saldanha Works business unit to
implement a productivity improvement initiative called World Class Manufacturing.
19
CHAPTER 3
REVIEW OF RELATED LITERATURE
World Class Manufacturing (WCM) is closely related to Total Productive Maintenance (TPM) and,
together with initiatives like 6-Sigma, forms the basis of Lean Manufacturing. As not much literature
exists on the implementation of World Class Manufacturing itself, the literature survey will
concentrate on productivity, measures of company performance, the implementation of best
practice initiatives, as well as Total Productive Maintenance and Lean Manufacturing. The
ArcelorMittal framework for World Class Manufacturing as well the implementation thereof will be
covered in CHAPTER 4.
3.1
WORLD CLASS MANUFACTURING
The ArcelorMittal definition of World Class Manufacturing is to seek for the continuous
improvement of the overall effectiveness of the organisation by eliminating the causes of losses in
the production systems through the implementation of activities called pillars. These pillars
basically refer to the framework that is used for the implementation of World Class Manufacturing.
ArcelorMittals interpretation of World Class Manufacturing was built on three building blocks
namely; Japanese Benchmarking, Quality Control and Total Productive Maintenance (covered in
section 3.5).
Figure 3-1: World Class Manufacturing - History in Japan

Source: ArcelorMittal South Africa, 2008
20
The industrial revolution in Japan occurred during the Meiji Era, an era that extended from 1868
until 1912. Two reasons exist for the speed of Japans modernisation. Firstly they employed over
3000 foreign experts in a variety of fields such as teaching English, science, engineering, the army
and navy etc. Secondly, Japan dispatched many students overseas to Europe and America. These
overseas missions were used to learn from their Western counterparts as well as to benchmark
with other industries. The process of modernisation was closely monitored and subsidised by the
Meiji government, enhancing the power of firms like Mitsui and Mitsubishi. Japan emerged from
World War I as a major industrial nation. After World War II, and with the help of Deming and Juran,
Japan was able to resurrect their economy very quickly (Japan-Guide, 2002).
Quality Control is an initiative that was coined in 1960. It was primarily concerned with products
and processes. Quality control is a process employed to ensure a certain level of quality in a
product or service. It may include whatever actions a business deems necessary to provide for the
control and verification of certain characteristics of a product or service. The basic goal of quality
control is to ensure that the products, services, or processes provided meet specific requirements
and are dependable, satisfactory, and fiscally sound. The Company-Wide Quality Control (CWQC)
movement began in Japan between 1955 and 1960 by Kaoru Ishikawa. Consistent with the
teachings of Deming and Juran, Ishikawa's philosophy of CWQC implied that "quality does not only
mean the quality of product, but also of after sales service, quality of management, the company
itself and the human life. Some consequences of following these principles are: improved quality,
uniform processes, reduction in defects, and cost reduction. Ishikawa believed that exceptional
quality should be the goal of all organizations, that the highest level of quality would be accepted
worldwide and that CWQC should embody the axiom that people are basically conscientious of
their work and that by taking advantage of these elements of creativity and sociality, the company
will exhibit enhanced means by which to meet customers needs. Company-Wide Quality Control is
roughly equivalent to the Japanese Total Quality Control (TQC). In Japan, "control" has the same
meaning as "management" in the US. Thus, CWQC roughly equals TQM (Nakajima, 1988).
In 1985 personnel from Usinor, one of the Arcelor plants, found Nakajimas first Total Productive
Maintenance (TPM) guide in a Tokyo bookshop. In 1986 it was translated into French and in 1991
Nakajimas second book was also translated. In 1988 it was decided to slightly adapt TPM to the
French culture and call it Topomaintenance, from the Greek word topos that means field. It
was decided to keep the word maintenance, which proved to be a disaster. A pilot
implementation of Topomaintenance, between 1988 and 1990, at a bottleneck connecting rods
forging line at Estamfor, realised an improvement of 50 percent in Overall Equipment Effectiveness
(Figure 3-2: Overall Equipment Effectiveness (1988 - 1990)). In 1990 it was decided by some of
the quality and operations people of ArcelorMittal to promote the implementation of
Topomaintenance within the group (ArcelorMittal South Africa, 2008).
21
Figure 3-2: Overall Equipment Effectiveness (1988 - 1990)

The initial implementation of Topomaintenance within the group was a huge disaster. The
initiative became ridiculed as being social entertainment and paintwork. Even Total Productive
Maintenance was not spared, with TPM becoming an acronym for Totally Painted Machines.
Three main factors stood out as being the reasons behind the failure. These were a lack of
leadership support from the top, not everybody was involved and there was only a slight
improvement and not a breakthrough. This was the first realisation of how much culture had an
influence on the success of such an initiative. It was clear that focus had to be placed on cultural
adaptation (ArcelorMittal South Africa, 2008).
After the initial failure a number of changes were made to the implementation plan. A model for the
implementation of World Class Manufacturing was drawn up. It was decided that the support of the
Chief Executive Officer was crucial and that World Class Manufacturing had to be embedded into
company strategy before any attempt could be made at deployment. Part of the new plan was to
find and get the buy-in from a pacemaker; a General Manager, of a plant with an uncertain future,
with a strong determination and very competent personnel. The plan was then to apply the real
Japanese method, without changing as much as a comma, and set breakthrough targets. The
Total Quality Management (TQM) team would give unlimited free support during the
implementation phase. Such a willing candidate, Devres, was found in 1995. Devres is a plant in
Northern France, in the middle of nowhere, with 117 own employees, producing non-core products
for non-core markets, with a 40 year old production line. It was actually an ideal candidate to close
down. The results of this implementation was astounding (Figure 3-3: Overall Equipment
Effectiveness at Devres) and World Class Manufacturing found its way into the strategy of
ArcelorMittal (ArcelorMittal South Africa, 2008).
22
Figure 3-3: Overall Equipment Effectiveness at Devres

A study of the literature on World Class Manufacturing reveals that it is a very loosely defined
principle, with no single best practice framework. The first to coin the phrase was Hayes and
Wheelwright (1984) to describe organisations that have achieved a global competitive advantage
through the use of their manufacturing capabilities as a strategic weapon. World Class
Manufacturing is described as a collective term for a number of production processes and
organisational strategies which all have flexibility as their primary concern.
Figure 3-4: Performance Measures of World Class Manufacturing

23
Literature on the performance measures of World Class Manufacturing is very limited. The only
reason for this could be the fact that no single best practice framework exist for the implementation
of World Class Manufacturing principles, as each framework will necessitate the creation of
different performance measures. The only common factors that could be identified from the
literature are cost, quality, and reliability/throughput (Figure 3-4: Performance Measures of World
Class Manufacturing). The main aim of World Class Manufacturing is the pursuit of maximum
efficiency for the production system in order to maximise the organisations profitability.
Figure 3-5: Effects of Continuous Improvement with World Class Manufacturing

As was stated in Chapter 2, there are four basic motivators why a company would want to
implement World Class Manufacturing. Firstly, due to the fact that the economic environment has
become more severe and the company wants to focus on the reduction of cost by eliminating
failures/disturbances in the production process. Secondly, customer requirements for the quality of
products have increased and the company wants to pursue zero defects for products and services.
Thirdly, customers start demand stricter adherence to and shortening of deadlines and the
company wants to increase throughput in the pursuit of just-in-time delivery. Lastly, the need for
improved working conditions have increased and the company wants to eliminate dangerous
and/or unhealthy work and work conditions.
3.2
PRODUCTIVITY
What is productivity? In most cases when reference is made to productivity, the first thing that
springs to mind is labour productivity. This can be very misleading as the most basic measure of
productivity can be defined as the output of a process divided by the input to the process. Pavlina
24
(2005) gives us an even more basic definition of productivity which is that productivity is equal to
value divided by time. Using time as the divisor can be very contentious, as many would argue that
the resources, like labour, etc. should rather be used, but all of these can be discounted to time.
The value that is derived from the process is a quality that has to be defined by the user of the
equation. It can be anything from units to monetary value.
In Mintzbergs (2007: 25) opinion, productivity improvements can lead to exactly the opposite of
what the intention was, especially if these improvement initiatives are solely driven from a financial
perspective in order to increase shareholder value. A companys productivity would skyrocket if it
fired all its employees and only sold from stock, but this surely cannot be a long-term solution.
Mintzberg (2007: 25) proposes that recent productivity improvements might lead to the demise of
some very powerful enterprises as these improvements will not be sustainable over the long term.
Elimam and Dodin (2001: 449) propose that financial incentives can be used to improve
productivity and quality in manufacturing and service facilities. The writers at the same time warn
that this increased productivity would amount to nothing if the additional demand to consume the
newly created capacity could not be stimulated. It can be concluded then that improvements in
productivity can only be justified if the extra capacity contributes to revenues or if the same
capacity is to be produced with less resources.
3.3
3.3.1
MEASURES OF COMPANY PERFORMANCE

General
In his article Continuous Improvement Dont fool yourself with metrics, Drickhamer (2004)
proposes that operational performance measures can be very misleading. Depending on what they
measure and how theyre calculated, performance measures can bring problems to the surface or
they can give managers a false sense of security. In this article it is proposed that companies
should be more focussed on metrics that is of importance to the customer that is focussed on
effectiveness rather than of efficiency, and does not just concentrate on output. Drickhamer (2004)
also proposes that the more activities you measure, the less likely you are to miss some really
important messages coming from your company.
The basic purpose of any measurement system is to provide feedback, relative to your goals, that
increases your chances of achieving these goals efficiently and effectively. Measurement gains
true value when used as the basis for timely decisions. The purpose of measuring is not to know
how your business is performing but to enable it to perform better. The ultimate aim of
implementing a performance measurement system is to improve the performance of your
organization. If you can get your performance measurement right, the data you generate will tell
you where you are, how you are doing, and where you are going. As Colin Powell, former U.S.
Secretary of State, states in one of his eighteen lessons for leaders (Harari, 1996); the most
25
important question in performance evaluation becomes not "How well did you perform your job
since the last time we met?" but "How much did you change it?" The same can be said for
companies. Today, the tool that is punted to be the most relevant in measuring company
performance is the Balanced Scorecard. The Balanced Scorecard is a tool that does not only look
at the financial performance of the company to determine performance, but uses a balanced
approach to determine the companys performance with respect to its relationship with all
stakeholders of the company. By having four distinct perspectives (financial, customer, internal
process and innovation and learning) it promotes a more holistic view of the business.
3.3.2
Overall equipment effectiveness
Overall Equipment Effectiveness (OEE) has become a widely used measure for the manufacturing
industry. The measurement of OEE is used for Improvement. It is an internal improvement
measure, which relates to the efficiency and costs of the operation, and is used as part of the
improvement cycle. In the original Total Productive Maintenance literature, mention is made of a
target of 85 percent which will classify the operation as World Class (Schonberger, 2008). The
calculation of OEE is based on the product of the availability, performance and quality ratios of a
given machine (Figure 3-6: Calculation of Overall Equipment Effectiveness).
Figure 3-6: Calculation of Overall Equipment Effectiveness

The measurement of OEE unfortunately has some flaws (Robbins, 2008). The most significant is
probably the fact that the customers of the operation do not have any interest in the operations
efficiency or cost. Customers are far more interested in measures like On-Time-In-Full (i.e. did I get
my order on time, in full?). To run a manufacturing business solely on an internal efficiency
26
measure rather than on a customer satisfaction measure is a recipe for disaster (Schonberger,
2008). The second most significant problem with using the measurement of OEE relates to its use
in a manufacturing facility that is made up of a continuous stream of machines. In this instance the
output of one machine is the input to the next machine. In this instance the literature indicates that
the total OEE is the product of the OEE for each machine. This in itself is a major problem, as the
bad quality and non-availability of any machine can have a major influence on the availability,
performance and quality of the next machine in the line. In these cases, OEE can only be used for
shock value, to measure improvement or to identify bottleneck machines, and cannot be used for
benchmarking against other manufacturing facilities.
What OEE does do is help the organisation analyse the problem and make improvements. This is
why Toyota uses it as a spot measure on single machines where there is a capacity or quality
problem (Schonberger, 2008). Calculating the OEE of anything other than a discrete machine or
automated line is pointless. OEE developed out of the need for improvement groups to have a way
of measuring and analysing equipment problems as part of their Define, Measure, Analyse,
Improve, Control cycle. OEE defines the expected performance of a machine, measures it and
provides a loss structure for analysis, which leads to improvement. It can then be used as a
tracking measure to see if improvement is being sustained.
3.4
IMPLEMENTATION OF BEST PRACTICE INITIATIVES
Laugen and Boer (2007: 397) in their article on the implementation of best practices, state that
many practices and improvement programmes have been suggested as best practices, with
companies assuming that their adoption would lead to higher performance, but that the
implementation process of these practices to a large extent determines the gains that can be
realised from them. Comparisons are made between the gradual implementation approach and
the big bang implementation approach, with the gradual implementation approach leading to
initial reduced performance whereas the big bang implementation approach have no such effect.
The article continues to examine the differences in implementation approaches between two
companies. Although both these companies introduced similar improvement initiatives, different
approaches were used for the implementation thereof. The effectiveness of implementation and
realisation of benefits from the initiatives depended largely on the culture of the organisation. The
company where continuous improvement was entrenched in the culture of the organisation could
use the gradual implementation approach because change was part of the culture, whereas the
company where there has been no improvements initiatives implemented in recent times, had to
make use of the big bang approach in order to make a step change, after which the gradual
implementation approach could be used to phase in continuous improvement.
27
3.5
TOTAL PRODUCTIVE MAINTENANCE (TPM)
Total Productive Maintenance (TPM) is a concept that originated in Japan. The origin of TPM can
be traced back to 1951 when preventive maintenance was introduced in Japan. However the
concept of preventive maintenance was taken from the U.S. Nippondenso was the first company to
introduce plant wide preventive maintenance in 1960. Preventive maintenance is the concept
wherein, operators produced goods using machines and the maintenance group was dedicated
with work of maintaining those machines, however with the automation of Nippondenso,
maintenance became a problem as more maintenance personnel were required. So the
management decided that the routine maintenance of equipment would be carried out by the
operators. (This is Autonomous maintenance, one of the features of TPM.) Maintenance groups
took up only essential maintenance works (Venkatesh, 2009).
Figure 3-7: History of Total Productive Maintenance - Nippondenso

Source: Technology Promotion Association, 2002
Thus Nippondenso, which already followed preventive maintenance, also added Autonomous
maintenance done by production operators. The maintenance crew went in the equipment
modification for improving reliability. The modifications were made or incorporated in new
equipment. This led to the creation of the term of maintenance prevention. Thus preventive
maintenance along with Maintenance prevention and Maintainability Improvement gave birth to
Productive maintenance. The aim of productive maintenance was to maximize plant and
equipment effectiveness to achieve optimum life cycle cost of production equipment.
28
By then Nippondenso had made quality circles, involving the employee participation. Thus all
employees took part in implementing Productive maintenance. Based on these developments
Nippondenso was awarded the distinguished plant prize for developing and implementing TPM, by
the Japanese Institute of Plant Engineers (JIPE). Thus Nippondenso of the Toyota group became
the first company to obtain the TPM certification (Venkatesh, 2009).
Figure 3-8: Pillars of Total Productive Maintenance

Source: Venkatesh, 2009
Venkatesh (2009) proposes that Total Productive Maintenance (TPM) is a framework for
maintenance and management and is normally represented by a building with pillars representing
different maintenance and training activities and a floor representing continuous improvement and
waste elimination activities (Figure 3-8: Pillars of Total Productive Maintenance).
3.6
LEAN MANUFACTURING
Lean means "manufacturing without waste. Waste ("muda" in Japanese) has many forms.
Material, time, idle equipment, and inventory are examples. Most companies waste 70 percent to
90 percent of their available resources. Even the best Lean Manufacturers probably waste 30
percent. Lean Manufacturing is the latest buzzword in manufacturing circles but it is not especially
new. It is derived from the Toyota Production System (TPS), Just-in-Time Production and other
predecessors (Figure 3-9: History Timeline for Lean Manufacturing). Lean Manufacturing refers to
the elimination of unnecessary steps and of waste throughout an entire production process.
29
Through lean production, all steps in an activity are aligned to achieve a continuous flow pattern in
the production process. Labour is involved in cross-functional teams (each person on a team is
skilled to perform the tasks related to a specific portion of the production process) in order to
increase efficiency. Teams of workers are dedicated to a specific activity group. In such an
arrangement, efficiency is achieved by eliminating unnecessary steps which make labour more
efficient and reduces/eliminates waste. Continuous evaluation and improvement is a key to being
as efficient as possible (Strategos, 2010). The historical timeline for the development of Lean
Manufacturing is reflected in Figure 3-9: History Timeline for Lean Manufacturing.
Figure 3-9: History Timeline for Lean Manufacturing

Source: Strategos, 2010
Most waste is invisible and is not easy to eliminate and therefore a set of techniques that identify
and eliminate waste has evolved that are core disciplines:
Cellular Manufacturing:
30
Involves the proper design of manufacturing facilities in order to eliminate waste and allow for
the unobstructed flow of work-in-progress from one station to the next.
Figure 3-10: Cellular Manufacturing

Pull Scheduling (Kanban):

Kanban scheduling is a system by which the supplying system/process is alerted to the fact
that consumption has taken place in order for the supplying system/process to replenish stock.
Figure 3-11: Pull Scheduling (Kanban)

Six Sigma/Total Quality Management:
31
These techniques are used to directly improve quality and reduce waste. Six Sigma is a
statistical tool that is used to identify and eliminate the sources of waste and Total Quality
Management is used for the guaranteeing the handover of quality product from one process to
another and finally to the customer.
Rapid Setup:
Setup reduction, also know as Single Minute Exchange of Die (SMED), and is involved with the
optimisation of the setup of processes in order to facilitate short production runs to satisfy
customer demands.
Figure 3-12: Setup Reduction

Team Development:
The development and training of the organisation is imperative for the success of all the other
techniques. Teams are in a virtuous circle in which action triggers effects in a cycle that
returns to and reinforces the original action.
32
Figure 3-13: The "Virtuous Circle" of Team Development

3.7
CONCLUSION
It is important to note that almost all the literature points to the fact that the blind implementation of
any initiative is almost certainly doomed for failure. In order to successfully implement initiatives
like this, it is necessary to view it from a strategic point of view. In order to build a sustainable
competitive advantage requires organisations to look at market requirements and focus their
manufacturing tasks in order to win orders in the marketplace.
33
CHAPTER 4
THE IMPLEMENTATION OF WORLD CLASS MANUFACTURING
4.1
THE CASE FOR CHANGE
Recent cutbacks, by ArcelorMittal South Africa, in production capacity and maintenance

expenditure due to the global financial crisis has caused some major production disturbances (as
can be seen from the decline in the utilisation of the bottleneck plant in the production chain Figure 4-1: Bottleneck Plant Utilisation) and has resulted in the plant struggling to produce even
close to its nameplate capacity (Figure 4-2: Saldanha Works - Hot Rolled Coil Production).

Source: ArcelorMittal South Africa, 2010a
34
Figure 4-2: Saldanha Works - Hot Rolled Coil Production

Although the plant had an incredibly good 2008 (Figure 4-3: Saldanha Works - Earnings Before
Interest, Tax, Depreciation and Amortisation) it cannot be related to good performance in
production and/or utilisation, as those figures were below standard for the period. The good
financial performance for 2008 is directly attributable to the incredible rise in the global steel price
where it almost tripled in over six month period. The exceptional rise in the steel price came to an
abrupt halt with the onset of the world financial crisis during the 3rd quarter of 2008.
Figure 4-3: Saldanha Works - Earnings Before Interest, Tax, Depreciation and Amortisation
Source: ArcelorMittal South Africa, 2010e
35
Another setback for the plant came when the renewal of ArcelorMittal South Africas Sishen iron
ore rights did not take place. The Saldanha Works plant was built to take advantage of the supply
of cheap iron ore from the Sishen mine. The influence of this was such that an announcement was
made that it might cause the closure of the Saldanha Works plant. All of this, together with the
resolve of the General Manager and the support of a highly skilled, yet unmotivated, workforce,
made the Saldanha Works plant an ideal candidate for the implementation of World Class
Manufacturing. The CEO of ArcelorMittal South Africa bought into the concept and actions were
put into motion for the implementation of World Class Manufacturing at ArcelorMittal South Africa
Saldanha Works.
4.2
WORLD CLASS MANUFACTURING FRAMEWORK
4.2.1
The framework
World Class Manufacturing strives to influence Management Infrastructure (Figure 4-4: Scope of
Management Infrastructure) in order to achieve five goals:
Maximise Equipment Effectiveness
Sustain Productive Maintenance for the life of the equipment
Involve all departments and all employees in implementing World Class Manufacturing
Improve Working Conditions
Develop motivated and proud employees
Figure 4-4: Scope of Management Infrastructure

36
World Class Manufacturing fits into the management activities of Work Routine Management
(Figure 4-5: Routine Management) and Improvement and Innovation Management (Figure 4-6:
Improvement Management) within Management Infrastructure.
Figure 4-5: Routine Management

Figure 4-6: Improvement Management

The real difference the implementation of World Class Manufacturing makes on the production
process is sustainability through standards and people development which is supported by the
37
correct management infrastructure. The framework of World Class Manufacturing is represented
by a house with ten pillars, which represents the different focus activities, supported by the
implementation of 5S build on the foundation the correct management infrastructure (Figure 4-7:
World Class Manufacturing Framework).
Figure 4-7: World Class Manufacturing Framework

The process of the implementation of World Class Manufacturing has three definite phases (Figure
4-8: The World Class Manufacturing Process). During the first phase, prioritisation, the process of
Cost Deployment is introduced. This process is responsible for loss analysis due to underlying root
causes. Another process that is to be completed during this phase is the classification of
equipment, as well as the prioritisation of actions to address the losses identified for the equipment
classification. In the next phase, Focus Teams, teams are created to address the pillars of
Autonomous Maintenance (AM), Professional Maintenance (PM), People Development (PD) and
Focussed Improvement (FI). In the final phase, Sustainability, additional focus is placed on the
creation of standards for the operation and maintenance of equipment, and People Development.
38
Figure 4-8: The World Class Manufacturing Process

4.2.2
The pillars and foundation explained
People development:
Up to before the implementation of World Class Manufacturing, ArcelorMittal South Africa made
use of Individual Development Programmes (IDP) in conjunction with Balanced Score Cards to
facilitate the development of individuals as well as the management of performance. The
introduction of World Class Manufacturing saw the move from IDP to People Development Profiles.
Through continuous loss analysis and sustained people development no compromise is allowed on
the critical tasks and competencies of any People Development Profile. This becomes a foundation
block of the Human Resources (HR) strategy and becomes the vehicle to identify real HR
shortcomings. In order to facilitate people development, standards are created for the maintenance
and operation of machines, training videos are compiled and people are trained and tested on
these.
39
Figure 4-9: People Development Transformation

Cost deployment:
Cost Deployment is a specific method for cost reduction. It is a scientific and systematic
methodology with the financial department and is reviewed yearly in order to define the yearly
action plan. The methodology consists of:
What are the losses?
Figure 4-10: Typical Losses

40
Where are they generated?
What is the cost of the losses?
Figure 4-11: Relationship between Losses and Costs

Which losses will be reduced/eliminated (prioritisation)?
How will the losses be solved? Identify the pillar/tool to be used (action plan).
Who will be responsible to work on the losses (action plan)?
When will the losses be reduced/eliminated (follow up monthly on the losses evolution and the
action plan)?
The three main mechanisms responsible for failures in equipment are deterioration, uncontrolled
stress and insufficient strength. Figure 4-12: Failure Mechanisms and Causal Factors shows the
five causal factors that lead to the mechanisms previously defined and Figure 4-13:
Countermeasures to achieve Zero-Failure show the countermeasures that can be taken to achieve
Zero-Failure.
41
Figure 4-12: Failure Mechanisms and Causal Factors

Figure 4-13: Countermeasures to achieve Zero-Failure

The three WCM Pillars that addresses the countermeasures are defined in Figure 4-14: World
Class Manufacturing Pillars addressing Zero-Failure.
42
Figure 4-14: World Class Manufacturing Pillars addressing Zero-Failure

5S:
The 5S practice, used by most world-class companies, creates a visual workplace which increases
productivity by making work easier and safer. Figure 4-15: 5S Summary shows a summary of the
5S practice.
Figure 4-15: 5S Summary

43
Autonomous Maintenance:
This pillar aims to reduce and eliminate losses due to the non-respect of the defined basic
condition of the equipment. It aims to create production behaviour leading to loss elimination
(together with Professional Maintenance and People Development). The deployment of this pillar is
based on seven steps:
Table 4-1: Implementation Steps for Autonomous Maintenance
Step
Responsibility
Activities
Cleaning Checking
Simultaneous elimination of scraps and dirt,

finding anomalies on equipment and repairing
them
Corrective measures against

sources of dirt and poor access
areas (Improvements)
Elimination of sources of dirt and scraps,

prevention of splatters and improvement of
hard-to-access areas to clean and lubricate in
order to reduce time necessary to clean and
lubricate
Cleaning,
Lubrication
and
Tightening Standards (1 & 2
lock-up actions)
Prepare action standards to maintain cleaning,

lubrication and bolt tightening actions as little
time consuming as possible (it is necessary to
note regularly and daily the available timetable)
General Inspection (Training of

operator)
Acquire knowledge and skills thanks to the

inspection manual on how to detect slight
defects on machines through general inspection
and repair them
Autonomous Inspection (lock-up

action)
Create and implement autonomous inspection

checklists
Control and Maintenance
Standardisation of checkpoints
systemisation of maintenance
workshop:
Production only
Maintenance & Production
Description
Full Implementation
Cleaning,
standards
Lubrication
and
Material flow standards
Data recording standardisation
Die, tool, etc., control standards
and full
in every
Inspection
Deployment
of
company
policy/goals,
quantitative analysis of improvement actions,
recording of MTBF analysis to study and
improve machines
44
Figure 4-16: The Purpose of Autonomous Maintenance

Professional Maintenance:
This pillar aims to support the Autonomous Maintenance pillar to bring the equipment back to basic
condition. It aims for zero-breakdown using breakdown maps and going to the root cause of the
problems. Professional Maintenance also aims to reduce process losses like scrap generation and
quality issues due to equipment failures.
Figure 4-17: Objectives of Professional Maintenance

45
Focussed Improvement:
This pillar contains two different problem solving approaches, 10 Step Tool (Kobetsu Kaizen) and 4
Step Tool (Quick Kaizen), and a set of well defines tools. The 10 Step Tool is used to eliminate
root causes based on understanding of the physical phenomena. It is a very accurate tool and is to
be applied rigorously to lead to a complete elimination of the root cause of the loss. The 4 Step
Tool is used to reduce losses via Plan, Do, Check, Act (PDCA) and is also used by Autonomous
Maintenance and Professional Maintenance teams.
Figure 4-18: Improvement Building Blocks

The other pillars will not be explained further as their meaning should be quite self-explanatory.
The inclusion of all employees is facilitated through a well defined organisation structure (Figure
4-19: World Class Manufacturing Organisation).
46
Figure 4-19: World Class Manufacturing Organisation

The results of implementing World Class Manufacturing are:
Productivity increase
Zero breakdowns
Continuous improvement
Quick learning
4.3
IMPLEMENTATION
The five basic concepts for the successful implementation of World Class Manufacturing are:
Corporate Culture:
Establish a corporate culture that will maximise production system effectiveness.
Prevention-based Philosophy:
Organising an on-the-shop floor system to prevent losses and achieve reduction-to-zero
targets such as zero accidents, zero defects, zero breakdowns in the entire production
system life-cycle.
Participation of all the functions of the organisation:
47
Involving all functions of an organisation including production, development, sales, logistics,
general affairs, etc.
Involvement of everybody:
Involving every member of the organisation from top management right through to line
operators. World Class Manufacturing is based on actions by people.
Group work:
Achieving zero losses through the activities of overlapping small groups.
The implementation plan for World Class Manufacturing is depicted in Figure 4-20: World Class
Manufacturing Development Program. After the decision was made by top management to
implement World Class Manufacturing at the Saldanha Works plant, the training of World Class
Management instructors commenced. One of the philosophies of World Class Manufacturing
entails a unique way of training whereby instructors are initially trained in the principles after which
they are then responsible for the training of top management. Top management would then be
responsible for the training of the next level of management with the assistance of the World Class
Manufacturing instructors. This process then continues to lower levels. The reasoning behind this
is to show buy-in from higher levels in the organisation. This is where the first failure came with the
implementation of World Class Manufacturing at the Saldanha Works plant.
Figure 4-20: World Class Manufacturing Development Program

48
After the training of the World Class Manufacturing instructors and top management, it was the
responsibility of top management to train the next level in the organisation. This did not happen,
with the operations manager not taking up his responsibility. In the end, the instructors had sole
responsible for the training of the organisation down to the supervisor level, after which the training
continued on its intended route. The result of this was a very slow take-up on the concepts of
World Class Manufacturing. Many people still believe that it is still just another initiative that will
pass with the winds of time.
Eventually, the instructors took it on themselves to facilitate the change management that was
required. They created and implemented a change management training programme that was
intended to change peoples minds about the implementation of World Class Manufacturing. The
success of this programme was astonishing, taking into account that the instructors have never
been trained in change management. This can mostly be attributed to the fact that the instructors
have been with the company for many years and have been through many of the changes the
company has undergone since its creation in 1996. During this change management training a new
vision was created for the Saldanha Works Plant (Figure 4-21: Saldanha Works Vision).
Figure 4-21: Saldanha Works Vision

49
The vision created some interesting challenges. One of the goals of the future vision is Overall
Equipment Effectiveness. As was explained in the literature review, the measurement of Overall
Equipment Effectiveness (OEE) has some major drawbacks. One of these is when the OEE of a
continuous production chain, which the Saldanha Works plant is, is measured. In order to explain
this problem a comparison is made between the measurements of OEE between the Vanderbilpark
Works plant, which is an integrated mill with enough buffer capacity between processes that it
cannot be classified as a continuous production process, and the Saldanha Works plant in Figure
4-22: Overall Equipment Effectiveness - Vanderbilpark Works & Saldanha Works. Even if all the
production units within the Saldanha Works plant achieve an OEE of 90 percent, the resultant OEE
for the plant would only be 73 percent.
Figure 4-22: Overall Equipment Effectiveness - Vanderbilpark Works & Saldanha Works
The step for loss analysis and target setting went very well and followed the process depicted in
Figure 4-23: Saldanha Works Cost Deployment Process.
50
Figure 4-23: Saldanha Works Cost Deployment Process

The loss analysis and target setting resulted in the targets being set out for Iron Making, Steel
Making and Strip Manufacturing as is set out below in the tables below (ArcelorMittal South Africa,
2010b).
Table 4-2: Iron Making Targets
51
Table 4-3: Steel Making Targets
Table 4-4: Strip Manufacturing Targets
Based on the loss analysis and target setting, together with the change management training
sessions the implementation master plan was created (Figure 4-24: Saldanha Works - World Class
Manufacturing Implementation Master Plan).
52
Figure 4-24: Saldanha Works - World Class Manufacturing Implementation Master Plan
Source: ArcelorMittal South Africa, 2010c
4.4
CONCLUSION
Declining bottleneck plant utilisation as a result of cuts in maintenance expenditure during the
financial crisis resulted in a severe downward trend in the monthly hot rolled coil production.
Coupled with this, the EBITDA of the Saldanha Works business unit hovered around the breakeven point (not taking into account the upward spike in EBITDA during 2008 as a result of the
escalation of steel prices during the boom period) created a case for change for the
implementation of World Class Manufacturing at the Saldanha Works business unit.
The framework for World Class Manufacturing, as interpreted by ArcelorMittal, focuses on the
elimination of losses with the help of an intensified maintenance focus. The development of the
organisation is a fundamental requirement for this to be realised.
Based on the initial loss analysis, priorities were set for the critical equipment in the production
process. Measurement systems were also put into place and targets were set for the different
production areas. After the initial resistance to change, change management training took place
and a greater buy-in into the principles of World Class Manufacturing was achieved. This led to the
creation and acceptance of a master plan for the implementation of World Class Manufacturing.
53
CHAPTER 5
EVALUATING THE SUCCESS
5.1
ROLL-OUT
Based on the loss analysis and target setting exercise, it was decided that only five pillars of the
World Class Manufacturing framework will be implemented in conjunction with the implementation
of 5S (Figure 5-1: Saldanha Works - World Class Manufacturing Pillars Implemented).
Figure 5-1: Saldanha Works - World Class Manufacturing Pillars Implemented

Source: ArcelorMittal South Africa, 2010e
The progress with respect to the roll-out of World Class Manufacturing at the Saldanha Works
plant is shown in Table 5-1: World Class Manufacturing Roll-Out Progress. From this it can be
seen that the implementation has taken more than two years now and is still not completed. The
main reason behind this is the onset of the world financial crisis in the third quarter of 2008. Other
reasons that are also attributable to the slow progress is the initial lack of commitment from top
management, the view that the implementation of World Class Manufacturing was just another
passing fad and the availability of resources that is part of the core World Class Manufacturing
administration team.
54
Table 5-1: World Class Manufacturing Roll-Out Progress
Table 5-2: World Class Manufacturing Pillar Roll-Out Progress, shows the progress that has been
made with respect to the roll-out of the chosen pillars. From this it can also be seen that the
progress is also quite slow. The main reason behind the slow progress since the renewed focus on
implementation from the middle of 2010 can be attributed to a major mechanical structure failure in
the Steel Making area.
Table 5-2: World Class Manufacturing Pillar Roll-Out Progress
55
5.2
5.2.1
WORLD CLASS MANUFACTURING PROCESS PROGRESS

Prioritisation
The cost deployment pillar is the main focus of the prioritisation phase of the World Class
Manufacturing process. While performing the loss analysis, the poor quality of the historical loss
data was identified as a major stumbling block. This resulted in the redesign of the measuring
criteria, points and formulae in the ArcelorMittal South Africa electronic Key Performance Indicator
system. Historical data will now have to be built up from scratch and therefore an additional step
has been built into the management process for World Class Manufacturing whereby the cost
deployment process will be repeated on a yearly basis. It was also identified that the capability and
discipline to determine root causes for all types of losses on a daily basis needed to be developed
as part of Routine Management.
Figure 5-2: Prioritisation Progress

Source: ArcelorMittal South Africa, 2010d
5.2.2
WCM teams
Good progress was made with respect to the deployment of the initial steps for Autonomous
Maintenance, Professional Maintenance and People Development. The Key Performance Indicator
results were also, on average, very good. It was found, however, that progress still had to be
forced through planned audits and coaching, and that the people put in charge of the pillars
shunned away from taking the ownership of their respective pillars. The Focussed Improvement
deployment is currently being hampered by the lack of an organisational function that can take the
ownership and difficulties in convincing people on the shop floor to get involved.
56
Figure 5-3: World Class Manufacturing Teams Progress

5.2.3
Sustainability
Although it has already been proven that the World Class Manufacturing methodology is working,
the sustainability of this initiative can only be proven over time.
Figure 5-4: Sustainability Progress

57
5.3
OVERALL PROGRESS
When looking at the utilisation of the Bottleneck plant (Figure 5-5: Bottleneck Plant Utilisation), it is
obvious that the utilisation has picked up since the implementation of the World Class
Manufacturing planned downtime in order to perform preventative maintenance. Utilisation has
picked up from an average of 49.24 percent for 2009 to a year-to-date figure of 57.59 percent for
2010. Another interesting fact is that the failure of the mechanical support structure is clearly visible
in the figures for May and June 2010. A clear indication of the influence that the implementation of
World Class Manufacturing has on plant performance can be seen in the November and December
2009 figures. During these two months it was decided to halt the planned World Class
Manufacturing downtime in order to try and push for higher throughput. The result of this was
actually just the opposite with utilisation dropping to 51 percent and 55 percent respectively.
Figure 5-6: Saldanha Works - World Class Manufacturing Cost Savings Tracking, shows the sum
of the World Class Manufacturing Team technical Key Performance Indicators (KPI). This shows
good results against the baseline but because of general instability, other equipment/areas outside
of the current scope of the World Class Manufacturing implementation can deteriorate these
savings. The main objective is to have good technical KPI tracking per team which can then be
translated to financial terms. This can then be used to answer the question the people involved in
the implementation are asking about what do we save if we improve this KPI with our World Class
Manufacturing effort? This system for the real-time financial tracking of KPIs is currently under
development.
58
Figure 5-6: Saldanha Works - World Class Manufacturing Cost Savings Tracking
59
CHAPTER 6
SUMMARY, CONCLUSIONS AND RECOMMENDATIONS
6.1
SUMMARY
Rapid changes in the competitive environment over the past few decades have made competition
much more complex. The ability of companies to change and innovate is becoming more and more
important for their survival. This is especially true today, with the current economic crisis forcing
world economic growth in a downward, recessionary spiral.
The Steel Industry provides the backbone of economic growth throughout the world and is used in
almost everything that is used in everyday life, from the cars we drive to the houses in which we
live. Steel was the driving force behind the industrial revolution. Its success is based on the
relatively low cost involved in satisfying the varying demands of manufacturers, builders and
designers, as well as its ability to be shaped into many different forms. Today, in the 21st Century,
the demand for steel is driven by infrastructural investments in developing countries like China,
India, Asia and Africa. The recent changes in the world economy, with the inception of the world
financial crisis, have forced the steel industry to look at ways of optimising its current operations in
order to lower their cost of production.
World Class Manufacturing is one such operational optimisation initiative. It was built on the
principles of Total Productive Maintenance and various quality management initiatives and also
includes aspects of Lean Manufacturing. Its main focus is the elimination of losses that occurs at
various stages in the production and maintenance lifecycle. World Class Manufacturing aims to
unite the efforts of all functions, especially maintenance and production, in the production cycle.
World Class Manufacturing breaks down the barriers between production, engineering and
maintenance. No longer can be said that a problem is YOUR problem, with World Class
Manufacturing all problems become OUR problems.
ArcelorMittal South Africa Saldanha Works went through some major changes in its short
existence. It went from a small steel producing company on the West Coast of South Africa, to a
small cog in the big machine that is ArcelorMittal. The recent changes in the economic
environment, coupled with the production and maintenance cutbacks because of it, has placed the
existence of the plant in the balance. The mineral rights dispute between ArcelorMittal South Africa
and the Sishen Iron Ore Company tipped the scale and something had to be done to restore the
profitability of the company. The decision to implement World Class Manufacturing was made and
the wheels started turning, albeit very slowly.
It has now been two years since this decision has been made, and the implementation of World
Class Manufacturing is still not concluded. The initial resistance to change coupled with the world
60
financial crisis and some major production disturbances have slowed the implementation down
considerably. Although the implementation of World Class Manufacturing have not been concluded,
the plant has already seen some major benefits from the implementation with bottleneck plant
utilisation improving and even financial savings that can be directly attributed to the implementation.
6.2
CONCLUSION
The implementation of productivity improvement initiatives can help companies to stay afloat and
even become world-class companies. The proper integration of these initiatives into company
strategy together with comprehensive change management is, however, non-negotiable. The
implementation of World Class Manufacturing is not a simple sideline initiative that can be switched
on and off. It requires commitment from everybody in the organisation, especially top management,
in order to realise the promised gains.
From the initial gains achieved at the Saldanha Works plant, it can be concluded that World Class
Manufacturing does improve the efficiency of a company. Because the implementation have not
been completed, it is impossible to say to what degree it has an influence and whether these gains
are sustainable. The gains achieved can also easily be eroded due to World Class Manufacturing
not being fully implemented at all functions/areas at the plant. Quality problems or production
disturbances at these other functions/areas can have a major impact on the functions/areas where
World Class Manufacturing has been implemented.
World Class Manufacturing is an effective tool to focus limited resources on the most critical
equipment or area. The implementation of the initial fast track World Class Manufacturing was not
a mistake, but more is needed to sustain the routine execution of the new standards and people
development. It is critical to improve the accuracy of cost deployment and to maintain/improve the
capability of day-to-day management during World Class Manufacturing deployment in order to
respond to unexpected new losses. The People Development pillar is critical for sustainability and
to improve training and focus on the critical tasks and knowledge for each position. The role-out of
this principle on its own will add value.
Although some initial gains can be leveraged from the implementation of theses initiatives,
sustainability can only be achieved if these initiatives are entrenched into the strategy of the
company.
61
6.3
RECOMMENDATIONS
In the view of the World Class Manufacturing instructors, the following recommendations can be
made:
Continue with the implementation of World Class Manufacturing as per the Master Plan. Stay
with the pillars that are currently the focus for the implementation until sustainability can be
proven after which the other pillar can be rolled out.
Start the implementation of a foundational routine management system in parallel. Start by

only focussing on the Key Performance Indicator breakdown and visual management for all
meetings.
Investigate the use of supporting elements from the Twinning process that is currently under
way at ArcelorMittal South Africa Newcastle works.
It is important that there should be no promotion of other initiatives, but that everybody should
be made to understand that it is part of World Class Manufacturing and is required to execute
and sustain the World Class Manufacturing standards and People Development.
It is required to create a progress function within the organisation to focus on higher level
projects using Focussed Improvement.
Savings should not be made on the allocation of resources (mostly people) to the team that is
responsible for driving the roll-out of World Class Manufacturing.
It is the view of the writer that the only way that the principles behind the Implementation of World
Class Manufacturing can become sustainable requires a new way of thinking. It is necessary to
take the framework of World Class Manufacturing and build a Business Management Framework
that will support it. Such a Business Management Framework was designed by the writer and is
shown in Figure 6-1: Proposed Business Management Framework.
62
Figure 6-1: Proposed Business Management Framework
This Business Management Framework encapsulates the whole strategic management lifecycle.
The place of the Cost Deployment pillar is not next to the others, as it influences and prioritises the
others, it should be seen as roof structure that holds all the other pillars together. Based on the
loss analysis and target setting (Cost Deployment an internal view of the company) together with
the vision and strategy of the company (an internal and external view of the company), actions (the
green circles) are initiated to support them. Other Initiatives (Interventions) is placed on the one
side of the pillar structure. Actions that are put into place to support these interventions must now
be categorised according to the pillars. A toolbox is placed on the right hand side of the pillar
structure. These tools are gleaned from Total Productive Maintenance, World Class Manufacturing,
Lean Manufacturing and many others, and are in support of the actions that have been put in place
to support the companys vision, strategy and loss addressing targets.
63
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The Impact of Implementing World Class Manufacturing on

Jan Hendrik Phillipus Mey

Research report presented in partial fulfilment

Supervisor: Prof Marius Ungerer

Stellenbosch University http://scholar.sun.ac.za

Stellenbosch University http://scholar.sun.ac.za

Stellenbosch University http://scholar.sun.ac.za

Stellenbosch University http://scholar.sun.ac.za

Stellenbosch University http://scholar.sun.ac.za

World Class Manufacturing. The ArcelorMittal definition of World Class Manufacturing is to

maximise equipment effectiveness;

develop a system of productive maintenance for the life of the equipment;

promote Total Productive

Maintenance through motivation management with

continuous small group activities.

Stellenbosch University http://scholar.sun.ac.za

Stellenbosch University http://scholar.sun.ac.za

CHAPTER 1 INTRODUCTION AND PROBLEM STATEMENT

IMPORTANCE AND BENEFITS OF THE STUDY

DELIMITATIONS AND LIMITATIONS

CHAPTER 2 BACKGROUND INFORMATION

THE CURRENT ECONOMIC SITUATION

Global economic crisis

Influence on the steel industry

Stellenbosch University http://scholar.sun.ac.za

THE STEEL INDUSTRY

ARCELORMITTAL SOUTH AFRICA SALDANHA WORKS

CHAPTER 3 REVIEW OF RELATED LITERATURE

WORLD CLASS MANUFACTURING

MEASURES OF COMPANY PERFORMANCE

Overall equipment effectiveness

IMPLEMENTATION OF BEST PRACTICE INITIATIVES

TOTAL PRODUCTIVE MAINTENANCE (TPM)

CHAPTER 4 THE IMPLEMENTATION OF WORLD CLASS MANUFACTURING

THE CASE FOR CHANGE

WORLD CLASS MANUFACTURING FRAMEWORK

The pillars and foundation explained

CHAPTER 5 EVALUATING THE SUCCESS

WORLD CLASS MANUFACTURING PROCESS PROGRESS

Stellenbosch University http://scholar.sun.ac.za

CHAPTER 6 SUMMARY, CONCLUSIONS AND RECOMMENDATIONS

Stellenbosch University http://scholar.sun.ac.za

Table 2-2: Top Steel-Producing Companies (millions of tons)

Table 4-1: Implementation Steps for Autonomous Maintenance

Table 4-2: Iron Making Targets

Table 4-3: Steel Making Targets

Table 4-4: Strip Manufacturing Targets

Table 5-1: World Class Manufacturing Roll-Out Progress

Table 5-2: World Class Manufacturing Pillar Roll-Out Progress

Stellenbosch University http://scholar.sun.ac.za

Figure 2-2: Global GDP Growth

Figure 2-3: GDP Growth in the USA

Figure 2-4: GDP Growth in the Euro Area

Figure 2-5: A View of the Steel Industry

Figure 2-6: Steel Production by Country (2007)

Figure 2-8: ArcelorMittal Group - Hot Rolled Coil Production Cost

Figure 3-1: World Class Manufacturing - History in Japan

Figure 3-2: Overall Equipment Effectiveness (1988 - 1990)

Figure 3-3: Overall Equipment Effectiveness at Devres

Figure 3-4: Performance Measures of World Class Manufacturing

Figure 3-5: Effects of Continuous Improvement with World Class Manufacturing

Figure 3-6: Calculation of Overall Equipment Effectiveness

Figure 3-7: History of Total Productive Maintenance - Nippondenso