ThyssenKrupp: The Amazon of Material Services
ThyssenKrupp is one of the big steel producers in Europe, and is getting ready to move to a completely different supply chain model. The company competes in a number of areas, including steel, in Europe, steel in Americase,, Materials Services, Inoxum, Elevator Technology, Plant Technology, Components Technology, and Marine Systems. The Chairman of the Board, Dr. Ing. Heinrich Hiesinger, spoke about the massive period of change the company is going through. He noted in his speech that “we want to align our busiensses to those of the future. One quarter of the company will be sold, and we have made major headway –and merged our company, are selling off steel companies in Brazil and in the US. Our main capability is we see ourselves as an engineering company – and the importance of the company is our know-how.. In the years to come, steel will only be 30% of revenue and we will be a totally different company. The other segments are becoming more important – elevators, escalators, fertilizers, and 90% of diamonds go through our services, and also for services for manufacturing industries.”
The latter category represented a true source of supply chain innovation. Hiesinger spoke of becoming the “Amazon of Material Services”. Material services and logistics management will become TK’s core activity. The company has 500 branches in 40 countries, and does global distribution of materials including plastic, copper, and iron ore. That business unit does more and more warehousing and general inventory management. They have 150,0000 items available ex stock in Germany alone, and a warehousing, logistics and information logistics system with hub and spoke warehouses. “It is like being an Amazon for small to medium sized businesses. They place orders, and we try to deliver in 24 hours. Steel distribution now accounts for only 15% of sales for this unit. Most of the demand is driven by final end customer requirements – and a new business model was generated for logistics as we move out of steel production.”
In doing so, Hiesinger spoke about want to show how far reaching the subject of logistics is in a traditional company and how decisive it will be for the success of the company. Changing a business model from being a large clunky steel producer, to a nimble Internet provider of material to industrial businesses is no easy feat. He noted that “The importance of connecting IT and people is key. Global connectedness means that our customers expect us to be connecting them to service locations and we have 130 plants worldwide, about 2000 service stations and 2/3 of our staff is located abroad. To keep this network running smoothly there is no longer a distinction between manufacturing and industry. Logistics is a relevant and compelling part of any company and this will make us more successful and efficient, to the interest and benefit of the company. It is critical for us to be networked and connected. We need to use IT and automated purposes – and it is not a simple task. Many of our people are traditonal steel manufacturing engineers, and the concept of an IT-enabled supply chain is very difficult for them to comprehend. Very deliverately we know once we are connected, we can react flexibly to changing environments. Services may be developed in Germany –but we need to connect with others in other parts of the world for success.”
One of the biggest messages was that “there is no longer a distinction between production and logistics. Thinking this way is far from the reality of a global economy. The share of value creation in your own company is going down more and more. In today’s global environment, customer satisfaction is determined more by logistics and influenced in the first days or weeks, more so than the technical elements of the product itself. Keep a focus on the customer to the delivery point will lose opportunities for growth. Production is not the issue any more.”
Compelling words indeed…..and a harbinger of more change to come in the world of industrial manufacturing.