When the U.S. steel industry spiraled downward in the early 2000s, one mini-mill continued to shine bright. Not only did it survive the bankruptcies, liquidations, plant closures and consolidations faced by many of its peers, it grew in capacity, productivity and profitability without compromising quality. How did they do it? What set them apart? And, most importantly, what lessons can be taken away by manufacturers in other sectors?
Nucor Corp.s steel bar mill in Darlington, S.C., is the embodiment of whats right in manufacturing. The mills ability to persevere was by no means an accident. A combination of risk, resolve, teamwork and innovation helped to keep the company safely in the black.
Central to its success is a culture of innovative asset management not just capital assets, but human resources as well. Nucor-Darlingtons asset strategy includes insightful planning, shrewd investments, cutting-edge technology, best practices and a lasting devotion to its workforce.
|"People are your number one asset," said Andy Munson, maintenance manager, Nucor-Darlington (back row, second from left).|
To hell with it
Nucor first ventured into steel manufacturing when the company encountered supply problems for two acquired steel joist plants. According to Nucor CEO Daniel DiMicco, then-CEO Ken Iverson decided, To hell with it, Im gonna build my own steel mill. With the goal to produce steel as cheaply as it could buy imported steel, Nucors first steelmaking facility was built in 1969 in Darlington.
Nucor has since grown to be the largest steel producer in the U.S. and the second largest steel manufacturer in the Western hemisphere, as well as Americas largest recycler. Nucor has a total capacity of more than 20 million tons of steel annually, with net sales of $11.3 billion in 2004. The companys scrap-based bar, sheet, structural and plate mills span 17 facilities throughout the U.S.
Nucors mills use modern steelmaking techniques to produce steel efficiently and at globally competitive costs. Recycled steel scrap and other metallics are melted in large electric arc furnaces, poured into continuous casting systems, and converted in rolling mills into finished products.
The bar mills produce bars, angles and light structural shapes in carbon and alloy steels, which are used in automotive, construction, farm equipment and other applications. The total capacity of Nucors nine bar mills is approximately 6.3 million tons per year, making the Bar Mill Group a cornerstone of the company.
Darlington is currently Nucors third-largest bar mill in terms of buying production, and the largest bar producer in the Southeast. The plant produces more than 200 grades of steel. The Darlington mill was originally designed in 1969 for a capacity of 60,000 tons, says Andy Munson, Nucor-Darlingtons maintenance manager. This year, Darlingtons melt shop has a 900,000 ton capacity.
Munson and his team of 74 maintenance personnel are responsible for the melt shop, two bar mills and facilities maintenance at the Nucor-Darlington facility. Rolling Mill No. 1 produces smaller structural products, while Rolling Mill No. 2 produces larger structural shapes, odd leg angles, channels and heavier sections.
The U.S. manufacturing market is threatened by huge challenges with global competition, high costs and regulatory policies that shrink profits. Three million jobs were lost in the sector since 2001 the same year the steel industry entered a severe downturn and suffered one of the toughest periods in its history. Between 2001 and 2003, most steel manufacturers lost money. More than 30 U.S. steel companies have gone bankrupt in the past few years.
Higher prices on energy and raw materials led to pricing pressures that were furthered by a weakened dollar and decreased domestic output. Global overcapacity, currency manipulation and illegal dumping contributed heavily to the decline. China now consumes approximately one-third of the world output of rolled steel, and its trade practices are noted as a particular risk to the industry.
In addition to international trade concerns, domestic issues contribute to challenge of remaining profitable. Legacy and healthcare costs, tort reform, tax policy, environmental issues and regulations are among the many aspects that burden the Made in USA label and caused steel prices to soar.
According to DiMicco, such issues constitute something north of a 20% disadvantage to locate in the United States versus a basket of our largest trading partners.
Against all odds
Despite seemingly overwhelming challenges, Nucors performance during the industrys depression was remarkable. The company remained profitable every year, regularly increased its dividend and maintained its track record of no layoffs. Nucor has enjoyed success while overcoming obstacles our foreign counterparts never face, DiMicco says.
Throughout the lean years, Nucor managers invested strategically and improved operations so theyd be ready when the steel industry recovered. This is consistent with Nucors philosophy: Invest during the difficult times and continue to raise the bar during good times.
Global pricing has since recovered, excess capacity has eased and profits are returning in the industry, although consolation continues. Nucor remains committed to its stated goal, to take care of our customers by being the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world.
Munson identified several asset management practices that helped to sustain Nucor-Darlington during hard times:
Modern equipment: Nucor-Darlington houses some of the most state-of-the-art equipment in the industry. The latest advances in steelmaking around the world are aggressively pursued to determine which can be adapted to the South Carolina facility. Innovation has been the cornerstone of our business model, says DiMicco. Our growth has been based on using cutting-edge technologies that our competitors sometimes arent even aware of.
|Nucor invested heavily in new equipment during good economic times, and had it sized for future growth. By planning ahead and spending wisely, they had the foundation to survive the downturn in the industry. Robert MacDougall, marketing manager, Rockwell Automation.|
Nucor-Darlington continues to invest in new equipment and update installed equipment to maximize their production processes. Their technical understanding of the installed equipment as well as new technology allows them to develop advanced processes that keep the plant competitive. Joe Frisch, sales manager - Metals, ABB Inc.
Nucor as a whole is geared toward modernization, which allows them to stay ahead of the game. It is a forward-looking company that invests a lot of resources into state-of-the-art technologies across the corporation. This strategy allows them to save costs through transformation. Losso Paolo, sales director, Danieli
Continuous innovation and improvement: After startup, the mill implemented a practice Nucor calls BESTmarking. BESTmarking is our method of continuously seeking ways to improve upon our facilities and work processes, explains Munson. It involves traveling to Nucor and competitive steel plants in the U.S. and abroad to preview equipment already in service, get opinions, assess the benefits and return to Darlington to make changes.
Best practices and technology innovations that increase productivity, improve operating efficiency, drive energy savings and deliver other business benefits are targeted for adoption. This ensures the mill has the best equipment available to get the job done correctly, efficiently and safely. BESTmarking has led the plant to embark on numerous strategic initiatives to optimize existing operations.
Throughout the industry downturn, modernization efforts continued. During 2001-2003, the worst years for the industry, Nucor accelerated efforts to cut operating costs, increase yields, and improve overall product quality. Rather than cutting capital spending while times were rough, the company continued to invest in its future.
In February 2002, the corporation announced that more than $200 million would be spent on three bar mill capital projects over three years. Upgrades to Darlingtons Bar Mill No. 1 and two other Nucor facilities were included. The projects were completed on time and on budget. Throughout 2004, the three mills continued to reduce conversion costs, increase yields and productivity, and improve product consistency (see sidebar, Steelmakers playbook).
Proactive maintenance and failure analysis: Nucor-Darlingtons crew is enhancing its ability to conduct predictive, proactive maintenance. They have implemented condition monitoring techniques such as vibration analysis, oil analysis and hydraulic oil analysis. They use an in-house thermal camera to locate hot spots and assess vulnerabilities. Root cause analysis is practiced throughout the mill to correct problems at the source, minimize interruptions and extend the equipments useful life. All equipment is tracked in an asset management system, Datastream 7i, which was upgraded in 2003.
Minimizing energy and inventory costs: Recycling steel scrap is just one of the ways Nucor achieves tremendous energy savings. Steel produced from melted scrap consumes only a fraction of the energy required to make steel products from iron ore. It is said that the energy Nucor saves by recycling scrap metal can power millions of average households for an entire year.
Additionally, Nucor-Darlingtons inventory levels and costs are shrinking. The mill is increasingly relying on vendor-managed and vendor-owned inventory for common supply materials, and maintaining on-site only those items designated as unique supply materials. For insurance, you keep the inventory you need, Munson says. If the rest is readily available, why pay just for the convenience of having it on-site? Instead, we have it delivered just in time.
The plant also is reducing its number of suppliers through a bidding process aimed at identifying maximum economic value, and establishing partnerships with preferred suppliers.
Recognizing employees as your greatest asset: Iversons greatest legacy is his employee-focused approach. Nucors empowering, egalitarian style of human resource management is unique among American steel manufacturers. The employees are not unionized. The management structure is extremely lean. Employees at every level can influence improvement decisions. Compensation is largely performance-based, and two-thirds of every employees pay comes from bonuses. Furthermore, there has never been a layoff at the plant, and turnover is extremely low.
At Nucor-Darlington, the staff is encouraged to work together, share challenges and learn from each other not only within the plant but with steel facilities around the world. They are encouraged to be proactive in identifying, recommending and implementing changes that benefit the organization. When they improve a process, they profit from the gains.
While some companies take their employees for granted, this mill invests heavily in employee development. In early 2000, shortly after joining the company, Munson implemented an apprentice program at the mill. We provide lots of training to increase individual skill sets so that our employees will have a well-rounded, diverse background. He adds, My guys who once needed only to understand basic motors, electricity and control systems are now using computers and computer graphics, and troubleshooting via laptop terminals.
The mill works hard to provide rewarding opportunities and a sense of job security. Maybe thats why so many have such long tenures with the mill. The company is outstanding as far as how they treat their employees, says 21-year veteran Jackie Helms, a Melt Shop maintenance planner.
Its a great company to be working for, agrees Will Ham, a Nucor-Darlington machinist for 25-years. I see it getting stronger and stronger every day.
The ingenuity and dedication of its employees are widely credited for the mills continued success. And theyve seen others fail. Im a member of the Melt Shop Maintenance Guild, and a lot of the guys used to be with competitors, Helms says. A good many are now working for us. Were as competitive as you can be in this market.
Outsourcing selected tasks: It takes careful planning to determine where and when to best use contractors. The mill routinely outsources large jobs, such as the Bar Mill No. 2 upgrade. They also outsource construction work and some supplemental maintenance tasks. This practice adds value by ensuring the right talent is on-hand when needed.
Planning for the unexpected: Threats to success can at times seem beyond anyones control, but Nucor-Darlington is building up its defenses and continuously refining its strategies. Fires, industrial accidents and acts of nature are among the threats all companies must be prepared to face.
Nucor-Darlington has a disaster recovery plan designed to mitigate catastrophic events. It, too, is subject to change. When an unprecedented direct hit from lightening knocked the UPS power supply offline and killed all the plants servers in August, management quickly implemented new technologies and processes to prevent similar outages in the future.
Nucor does not release plant-specific financial data, but the corporate picture is telling. In the five years ending with 2004, Nucors sales increased 174% to $11.38 billion, and total tons sold increased 88% to at least 19 million tons. Steel bar shipments alone virtually doubled to 6.5 million tons.
The companys growth was achieved through acquisitions, optimizing existing operations, and developing traditional greenfield projects using new technologies. In particular, 2004 was a banner year, with record sales and net earnings due to historically high selling prices, margins and shipments.
Higher unit gas and electricity costs were offset by increased production efficiency at the steel mills, and as a result total energy costs were essentially flat from 2003 to 2004. Because of the high efficiency of Nucors steel mills, these energy costs were less than 10% of sales in 2003 and 2004.
Employment costs are approximately 8% of sales -- lower than the costs incurred by integrated steel facilities producing comparable products -- because Nucor operations are highly automated and productivity is high.
In the locker room
To others, Munson recommends, The best thing you can do is take care of your people. Tap into their world, show genuine interest, foster ideas among the group, share views and input. Give your people the opportunity to grow. He adds, In the spirit of Ken Iverson, our goal is not simply to make money, but to leave behind a torch that can be passed on to future generations.
DiMicco, too, recommends manufacturers concentrate more on the next generation and less on the next business quarter. Because he believes the current U.S. trade policies are not working, he is actively pursuing support for reform. Nucor is working to encourage free and fair trade based on level playing field rules. They are lobbying to strengthen U.S. trade laws and close loopholes that make the laws difficult to enforce. They are promoting tort reform, alternate energy sources and cost-benefit reviews of environmental and safety regulations. He says, Give us the opportunity to compete on a level playing field, and shame on us if we cant win.
Nucor-Darlingtons ability to succeed while others drowned in red ink is a testament to the possibilities for American manufacturers across the board. Innovative asset management is this mills key to success. We are proud to recognize Nucor-Darlington as Plant Services Survivor USA Plant of the Year.
Bar Mill No. 1 upgrade: In 2003, $31 million was spent to improve Nucor-Darlingtons Bar Mill No. 1. Danieli was contracted to upgrade the finishing end, including completely replacing the cooling bed, stacker and finishing facilities. Rockwell provided the drives and the ControlLogix control systems.
As much as possible, existing equipment was reused and in some cases relocated and/or integrated with the new systems. The goal of the upgrade was to generate production efficiencies, ensure product quality and enable very quick changeover times. Andy Munson, Nucor-Darlington maintenance manager, reports a 130% productivity improvement as a result of the finishing upgrade.
Bar Mill No. 2 upgrade: In February 2004, Nucor announced that new intermediate and finishing stands were to be installed at Bar Mill No. 2. The $19 million upgrade, which occurred in early 2005, took just four weeks to complete. Danieli provided the rolling mill upgrade, replacing the existing nine-stand horizontal intermediate finishing mill with a new, state-of-the-art 10-stand twist-free mill. Rockwell again provided the control systems and drives.
In keeping with Nucors strategy, several existing components and drives were kept and all new machines were designed for expanded product range and productivity. This was a major upgrade aimed at increasing mill uptime and productivity. It would reduce stand changing time, mill set-up and cobble rate. This increased the throughput opportunity through more efficient operation from the mill utilizations gained.
Consteel process improvement: Nucor-Darlington employs a continuous steel (Consteel) process that involves preheating scrap as it is sent down the conveyer to the electric arc furnace. The plant wanted to accelerate this process and reduce energy waste, but the melt shop was constrained by transformers dating back to 1993.
Nucor worked with ABB to implement a rectifier cooling system upgrade and unique transformer temperature monitoring that would automatically control the transformer load based on transformer temperature levels. The upgrade increased the system rating and provided an approximately 11% increase in power to the DC electric arc furnace. It also decreased the tap-to-tap time, or the length of time to produce a heat, by 5% to 8%.
With this change, Nucor was able to squeeze more value out of the existing equipment rather than invest heavily in larger transformers and new electrical equipment. When Consteel was first installed in the melt shop in 1992, it was a 500,000 ton per year facility. Now, Nucor-Darlington is up to 900,000 tons per year with the same transformers installed more than a decade ago.
Environmental advancements: Nucor-Darlington is very proactive on the environmental front and is constantly looking for ways to do things better, according to Munson. For example, the Consteel process reduced particulate emissions, and in 2000 the exhaust system was upgraded to better control fugitive emissions from the melt shop furnace. Also in that timeframe, a new zero-discharge water system was installed to control water and wastewater internally on the site, thereby protecting the public water supply.
In December 2000, Nucor Corp. entered into settlement with the Environmental Protection Agency (EPA) to resolve environmental noncompliance violations. The company is working diligently with the EPA, conducting testing, piloting certain pollution control technologies and implementing necessary corrective actions. It maintains an excellent relationship with state and local environmental authorities.
Ongoing improvements: Additional upgrades at Nucor-Darlington, too many to list in their entirety, included adding nine Zenar cranes in the past three years; arc furnace modifications with help from SMS Demag; two major installations of Marley cooling towers; a continuous-cleaning sand filter from Parkson Corp. for the major water system; gravity ventilators from Moffitt Corp.; warehouse building materials from the Vucraft division of Nucor; and warehouse and other construction projects using materials from Nucor building systems and steel beams from Nucor Yamato Steel.