Thursday, December 20, 2012

First, I am going to give you the view from Novelis and tell you how we are doing things. I am going to introduce myself. So my mother always says you should never take the jacket off until you've introduced yourself. She also says make sure you got a coat hanger, so there we go. OK, so Novelis is part of the Birla Group. Has anybody ever heard of the Birla Group? It's not so blank-there's a few-Collins has heard of them. I thought, you might have.

Yeah, like I said, June 2007, Novelis was bought by the Birla Group of companies, which immediately increased their end-to-end leverages across a number of markets, cement, aluminum, carbon black, copper, retailing, cell phones-India's biggest cell phone provider, I think, as the numbers go: 13 countries, big market capitalization, more than 100,000 employees, and 20 countries over the globe. So, not a small organization, and one with which bringing Novelis's purely aluminum industry focused business into Birla was very interesting.

I guess the key thing there was that the Birla group does do world class manufacturing processes. They do have programs to deliver that. So Lean Six Sigma and the kind of stuff we were doing was a good fit, but a bit like some of the Toyota things. They wondered why it needed to be special. They just said, "Well, that's how you work, isn't it? Why do you need a special program with special people driving it? Isn't it just something that you do?" So it was a good fit. It's good for Novelis and it's good for the Birla group, and that's pretty much it for the corporate intro.

So Novelis, Europe then-yeah, we've got 6,000 FTs, 14 plants. In 2007 we shipped a million tonnes of aluminum, and that's like a lot, that's like all of it. That's like 20 percent. We have the world's largest hot-rolling aluminum plant in the world. Actually it's in Alunorf in Düsseldorf, a joint venture with Hydro. So the assets that we have around Europe, they're quite diverse in their location. Transport and logistics are obviously interesting with all the different supply chains and there are lots of different cultures in there too. So thinking about a supply chain transformation against that backdrop starts to get quite interesting, quite quickly.

So then the Alunorf is-I think it's the size of 70 or 80 football fields. The footprint of the factory-it's like, when you fly into Düsseldorf, it's the thing you can see from the aircraft. It's that big, it's huge, it has its own railway. This is all kind of run from a HQ point of view from Zurich. So plant-wise, you've got lots of mergers and acquisitions that have come together, you've got diverse equipment, you've got geography, you've got all of the stuff in there. So it's a good one to take as a case study for the transformation.

What do we supply and who to supply? Well, Lots of people actually, with lots of products, maybe not the end-user product. You can see some of the vehicle applications here and general purpose and specialties and what not. The North American operations are more about the sort of the common side with the Anheuser-Busch's and Cokes and those people, but beverage can, food can and all those product ranges. There are a lot of supply chains in there.

The interesting thing about it from my point of view was that when you see an aluminum ingot cast, they actually look very similar-one aluminum ingot looks a lot like another one. It's only when they get to codify weight and the supply chain that they actually start to look like something different that you can recognize as an end-user customer. That's been one of the challenges with our supply chain transformation is to stop bundling material at the start of the supply chain and just hoping that it'll figure its way by the time it gets to the end in the right customer application channels. We have had to work quite hard about that.

As you know, I mean anybody that's involved with automotive, particularly Toyota, things like stopping production lines because of poor OTIF and bad delivery performance just doesn't happen. You can't do that. Also with cane makers and people like...don't take it. Don't take it great, if you phone them often and say you've got to shut down your lines and that is just-it just doesn't happen.

So the behavior that you tend to drive there of course is you get the just-in-case orders that go in and the just-in-case inventory and the just-in-case buffer stock. So you get this whole propagation across the chain with all the geography that goes with it, and you end up with 60 million Euros-100 million Euros spent on transportation-and all your inventory is in trucks, and then in trains and boats and on the Rhine and all these places. It's a huge challenge, huge challenge.

To give you a bit of background, a bit of scene setting, in terms of scale of transformation and the diversity of the products coming through the product lines, in terms of our specific supply chain challenges, I mean in these fluctuating times of metal prices, aluminum has gone anything from nearly $3,500 on the LME down to $2,000 at the moment, and it's like a pogo-ing thing anywhere in between. So your inventory holding value, when you've got a large kilo tonnes in the chain can be hugely significant and punitive.

So in terms of our particular challenges, primary metrics, really for the transformation of our supply chain, are to deliver the OTIF. We can sell OTIF as a business. We can sell it because if customers don't need buffer stocks and they don't need all these intermediate things that protect their supply chain. If we can deliver the OTIF, we can lower those buffer stocks, and we can get commercially better arrangement. It works like that. That's how it is.

Minimize the inventory in the supply chain. A thousand KT of aluminum is a huge number to ship. When you look at the inventory terms that we had within the system, the width we were holding on a month-by-month basis is some colossal numbers, colossal numbers you know. It's lottery number stuff. I'll come onto that in a minute, but yeah, basically the two primary drivers that deliver the OTIF and minimize the inventory in the chain.

This is a real project as well. This isn't like a theoretical thing that we've done here. I wanted to give you a real example and you always walk a fine line between what you can say commercially, and there are all customers in the room, but I think people would rather know that we are improving something than just leaving it to go to the state of dilapidation. So this is a real example.

When you take the map of Europe if you'd like and then you put the metal flows on the top of it. You can see Alunorf there, which really is a huge engine right in the middle: two hot mills, five cold mills, heat-treatments, remount facilities, ingot casting, recycling centers, its own railway. It's a huge engine. Then you look at the geography between all the different plants, different applications, and you look at the kind of metal flows reach for the customers, where do you begin. I mean, do you try and figure out orders in one particular customer application? Do you take a bunch of them? Do you take, try and segment some of them together? Do you do it by plant basis? Do you do it by assets? I mean, you have to do something. So I am going to tell you what we did.


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