‘Digitisation will benefit steel industry’

20 November 2017

Adopting digital technology, particularly in the areas of core operations and supply chain management, can boost the EBIDTA margins of steel makers.

According to Atanu Mukherjee, President, MN Dastur & Co, digitisation is likely to bring down costs by 5-15 per cent, depending on the segment where it is implemented.

“It is not unusual to get up to 25 per cent cost reduction in certain areas such as operations. In case of supply chain it is slightly less. Probably in the range of 8-10 per cent. Overall, cost reduction across the entire plant could be 5-15 per cent, translating into higher EBIDTA of 4-10 per cent,” Mukherjee told BusinessLine.

The steel industry, in general, unlike banking and retail, has been slow to adopt digital technologies. However, supply chain management and general automation of business processes remain notable exclusions for the sector.

According to Mukherjee, future capital expenditure in steel will be backed by matching investments in digital technology. But investments that have already happened seem to hold a bigger potential.

“If existing players do not adopt, they will be at a competitive disadvantage,” he said.

Capital investment

Application of digital technology in the area of capital investment will help cash flows to improve. Capital investment cycles in the steel industry are fraught with risks and delays. Understanding the capital investment cycle and managing it by using digital technologies will help companies to look at plants even before they are built by using virtual stimulations. This could help cut down the actual cycle time and improve cash flows. “The project viability also becomes better. There is also an opportunity cost; instead of five or seven years which it takes right now, companies might complete the project in four years. So they will be able to sell steel earlier, which adds to the cash flows,” said Mukherjee.

There is a lot to be done on the operational front of steel plants. The productivity of most steel plants in India is close to 300 tonnes per person a year, while it is as high as 2,500 tonnes per person in the US.

Improving other core operations such as productivity of blast furnace and reducing cycle time and energy consumption will also be money translators for companies.

Digital technology will also come in handy in designing new products so as to garner better and profitable markets.

Steel makers should try to enhance their production processes by opting for Internet of Things or Artificial Intelligence to leverage production process in terms of quality, cost and cycle time, he said.

Challenges

The biggest challengeis the lack of expertise. “The expertise required is different from the general IT kind of stuff. It is do with the manufacturing process, advanced algorithms in which we have limited expertise,” said Mukherjee.

More importantly, people are still not able to collate the returns in terms of EBIDTA per tonne on adoption of such technology.

“The risk-taking ability of the industry at this point in time is limited. So there is little bit of coyness in terms of going forward and making actual investments,” he said.

Source: Hindu BL