Reference no: EM132199282

Use this scenario to answer the following questions:

Some steel mills are destroyed by globalization, others reborn.

Left for dead a decade ago, this 50-year-old facility on the shores of Lake Michigan has been rejuvenated thanks to an unusual experiment by its owner, Luxembourg-based ArcelorMittal.

In 2008, Burns Harbor was “twinned” with a hypermodern mill in Gent, Belgium. Over 100 U.S. engineers and managers, who were flown across the Atlantic, were told: Do as the Belgians do.

Burns Harbor now enjoys record output. Its furnaces, where steel is made out of iron ore, coal, and limestone, are run with software developed in Belgium. Robots are in. Pencils are out. Workers are learning to make the same amount of steel with nearly half the people it employed three decades ago. Productivity is nearing Belgium levels.

The transition hasn’t been seamless. As a collective bargaining session looms this summer, union leaders say a tough battle is expected over wages, safety risks, and the next wave of automation. But there is also an acknowledgement that increased productivity has saved the mill from oblivion. . . .

Globalization often is blamed for the travails of American manufacturing—from the relentless pressure of imports from lower-wage countries to outsourcing and overseas production by U.S.-based manufacturers. But globalization has its upsides as well. Not only does it often mean cheaper goods for American manufacturers, but it puts pressure on U.S. factories to become more efficient to keep up with global competition, making it possible for them to survive. . . .

A wave of globalization in the 1980s created a true international street market, straining less profitable mills, especially in the U.S., and leading many to bankruptcy. The U.S. steel industry produced 95.6 million tons in 2011, about three-quarters of what it made 30 years ago. It employed about 95,000 people in its core mills and plants, one fifth as many as in 1981, according to the American Iron and Steel Institute.

That laid the groundwork for Lakshmi Mittal, the billionaire Indian who began assembling what is now the world’s first successful international steel conglomerate of its size, and the largest by production, with 263,000 employees in 20 countries and 112 steelmaking facilities.

Mr. Mittal perfected a simple business model: Buy rundown, often state-owned, mills, cut costs, lay off workers, improve productivity, turn a profit. It worked from Slovakia to South Africa, from Ukraine to Trinidad.

Twinning—benchmarking two mills against each other—represents the next evolution. “The process doesn’t change: melt iron, cast, roll. But there are always incremental improvements you can make,” Mr. Mittal said in an interview.

Modern benchmarking was pioneered by Xerox in the 1980s and has become a common tool for multinationals. But industrial historians say that what Mr. Mittal is actually doing is taking a page out of the productivity obsessed playbook of 19th century steel pioneer Andrew Carnegie and applying it globally. . . .

In a similar fashion, ArcelorMittal twins pairs of mills—usually of similar size, age, product mix, and output—against each other. In addition to Indiana and Belgium, mills in Germany and Poland, and France and Romania, have been twinned. The weaker mill is ordered to copy the practices of the better mill, while the stronger is told to keep its edge. Managers are summoned to regular meetings and ordered to divulge and compare their performances. Although there is no explicit policy on the consequences of poor performance, ArcelorMittal has been quick to idle or shut down unprofitable mills, as it did in Liège, Belgium, last year.

Many in the industry thought high wages would permanently sink the U.S. steel industry. Workers at Burns Harbor averaged about $80,000 in wages and benefits in 2011, up about 14% from 2007. . . .

“Gent really is one of the best mills in the world,” says Peter Marcus, president of World Steel Dynamics, an Englewood Cliffs, N.J.-based consultancy. The measure his company favors, man-hours per ton, shows Gent at 1.25 and Burns Harbor behind at 1.32. “Those are both currently among the better numbers in the world,” he says. The average in the U.S. is 2.0.

Mr. Mittal said Gent was a star. “We wanted Burns Harbor to be more like Gent.” Thus the development of the twinning program, which began in late 2007, and accelerated after the U.S. recession put a premium on productivity.

That year, Larry Fabina, a hulking 56-year-old engineer from Johnstown, Pa., who had worked at the mill since 1973, traveled to Belgium, where he toured the medieval town and spent six weeks taking careful notes at the mill.

When Burns Harbor engineers returned, they made the quick and easy fixes first. They changed hose nozzles and moved the nozzle on 2,500 horsepower hoses used to scrub flakes off the steel closer, thus reducing the amount of power needed to propel the water. Those two changes saved the Indiana plant $1.4 million in energy costs, the company said.

Workers were directed to trim less rough steel off the sides of coil, saving the equivalent of 725 coils a year. “That’s 17,000 cars,” says Mr. Fabina, the mill’s manager for continuous improvement.

Adopting the Coordi computer model took longer. Workers used to gathering information on their own and relying on experience and intuition had to attend classes on computer modeling.

Last year, Burns Harbor implemented Coordi at a cost of under $1 million. Since then, the mill has increased the average number of 298-ton caldrons of molten steel it produces daily, known as “heats,” to 50 from 42. . . .

“Steel working used to be 80% back and 20% brain, now it’s the other way around,” says Mr. Trinidad, the union rep, who started when the plant employed 6,700 workers in 1974. Now it has 3,700. . . .

Burns Harbor achieved a record slab production of 4.8 million tons in 2011, says Bill Steers, the company spokesman, compared with 5 million at Gent. Productivity is almost at 900 tons per employee per year, while Gent has improved to around 950. “Much of this can be attributed to twinning,” says Mr. Steers.

ArcelorMittal executives say they are focused on pushing even harder. At a recent meeting, Gent managers boasted they would soon reach 1,100 tons per employee. Burns Harbor managers declined to comment on whether that is feasible.

What are the pros and cons of ArcelorMittal’s twinning program? Explain.