All to SAP: Metinvest's development will save $20 mln annually

SAP

Systems, Applications and Products in Data Processing (SAP). This is a software that automates processes in any business area. Such applications make life of large companies easier: they offer solutions to specific tasks, are aligned and exchange data. The programs are standard for the industry but can be tuned to meet a company's requirements.

metinvest

All to SAP: Metinvest's development will save $20 mln annually

In summer of 2011, Metinvest launched its digital transformation and implementation of SAP. platform. The company did not stop at automating the processes through standard applications and proposed a customer solution for the planning of the process route from supply of coal to production of coke and and hot metal. The outcome helped the company save cash and gain recognition in Europe.

Start: scientists against mathematicians

The traditional process of coal blend planning could take up to several weeks. Process engineers from the enterprises and experts of the Ukrainian State Coal and Chemical Research Institute would come and manually decide which coal goes to which coke-making enterprise. They could discuss one enterprise the whole day. By the end of the day, it would turn out there was not enough coal. The process had to be started all over again.

The idea of using mathematical models in the process planning appeared in 2006. It was only in 2014 that the plans could become reality when the S&OP function was re-set in Metinvest Group to move away from time-consuming manual work with huge amount of data in Excel through the automation of planning procedures in SAP.

The obvious cost effect and personal involvement of the new management of the function made it possible to calculate the annual business plan for all steel-making enterprises in SAP at the end of 2014 and include GOKs into the SAP planning perimeter by the end of 2015.

The difficulties arose when integrating coke-making enterprises into the system. SAP has special solutions (modules) that were suitable to replace our developments for steel-making enterprises. SAP proved to be effective at GOKs. However, it could not handle the coal blend planning for coke-making enterprises. We had to go back to mathematics again.

S&OP

Sales and Operations Planning

Blend —

is a mix of different types of clean coal charged into the coke oven to produce coke, which is a fuel for blast furnaces of steel-making enterprises

“

When we understood what was the problem and suggested the solution, they laughed at us. When we began doing it, SAP and the coal and chemical research institute said it was not possible

Kirill Makarov, director of business process transformation department of Metinvest Group

"We had been working on blend optimization with Glushkov Institute of Cybernetics for six years and couldn't get any results because too many parameters had to considered. That's why I had little confidence it would work out", says Igor Drozdnik, the head of coal department of Coal and Chemical Research Institute, who explored coal and coke for more than 30 years and consulted the Metinvest team for 1.5 years.

Scientists and mathematicians would sit side by side for half a year, each fighting for their own calculations. The breaking point was when real savings became visible. The coal blend calculated using the mathematical model was several dollars cheaper. When translated into the company's volumes, that was over a million of dollars. It took several months of tests in real-life conditions, and by the end of 2013 the coal blend was already calculated using the new model.

“

Ukraine does not have programs like this. Before, it would take 15 days to do the planning, while today it takes one or two days at the most. This time is enough to calculate 5-7 options

Igor Drozdnik, the head of coal department of the Ukrainian State Coal and Chemical Research Institute

The model would be one big pack of advantages if it were not for a small "but" - it could not be transferred into SAP and integrated with the global planning system. We had to find a solution to that.

To achieve this, Metinvest had to take the issue to the international SAP forums. A council of experts in Waldorf, Moscow and Kiev were racking their brains for several months. As a result, Metinvest was able to complete SAP standard applications with customer mathematical models. Six months later, the model began to function as a part of the system.

Coal – Coke – Hot Metal project

When doing the planning we would sometimes ask ourselves if we were right in trying to reduce the cost of the coal blend. Maybe, we should be more expensive and better quality coal instead. This would improve the quality of coke, the cost of hot metal would be less and the volumes would be more. And the costs would pay back", says the head of Sales and Operations Planning Department Irina Lyamtseva.

Such logic brought an idea of continuing the logical sequence and plan the entire coal-coke-hot metal chain. S&OP initiated a project, whose main purpose was the end-to-end planning of coal-coke-hot metal chain.

This is like an equation with multiple variables, where the demand of steel-making enterprises for coal blend needs to be calculated

Given

Over 70 coal suppliers, 3 coke-making enterprises and 3 steel-making enterprises

Solution

Unique mathematical model integrated into the SAP platform

Outcome

Reduction of costs for coal blend, improvement of coke quality and reduction of hot metal production cost

The project was finished in 2017, and the system went live at the start of 2018. It undergoes adjustments from time to time, where theory is balanced with practical things.

"This project first proved that we can! Second, it proved that SAP can produce real benefits," summarizes Kirill Makarov.

This is not the end of the story - we have one more chain waiting and that is iron ore-sinter-hot metal.

Effect after project implementation

20х

Faster planning calculation procedure

1.7%

Cost reduction of coal blend for coke production

31.2%

Fewer reblendings required

Queue of competitors

Economics and Business System Development Directorate that was started in April 2018 to secure stable development of the company in the long-term and continue the practices of S&O planning, nominated Coal-Coke-Hot Metal project for SAP Quality Awards, where the project was honoured with gold as the best innovative project in CEE in 2018. Metinvest became the first Ukrainian gold winner in the history of SAP Quality Awards. The prize was given on September, 11 in Sopot, Poland.

SAP Quality Awards —

is an international competition to recognize the best projects of the year, which is held by SAP company, a German software corporation, since 2010. More than 200 SAP projects are submitted for the competition every year in three categories: Fast Delivery Projects, Business Transformation Projects, Innovation Projects. Each project is evaluated against 10 SAP Quality Principles that determine the both the benefits and the quality of project management processes.

Kirill Makarov, Director of Business Process Transformation Department of Metinvest Group at the SAP Quality Awards ceremony

The victory in the regional European competition gives Metinvest a chance to participate in the global competition for Europe, Middle East and Africa. A short list of the regional winners will be created at the beginning of the next year, and the winners will be announced in April.

"After we won the competition, we now have a queue of peers wanting to see how the systems works. We already had six meetings with foreign companies. SAP, peers and industry leaders know about us," says Kirill Makarov.

Experts from Economics and Business System Development Directorate are now working on a new project for strategic planning that would allow to save not just dozens but rather hundreds of millions of dollars. We are talking about a 10-year planning tool that will help manage the company value.