Business transformer

Posted on 8 Sep 2009 by The Manufacturer

In 2004 Orb Electrical Steels faced a precarious future. After 106 years of manufacturing steel, the management team decided that a comprehensive business makeover was required if Orb was to survive and thrive in the global electrical steel industry. Will Stirling talks to Mark Cichuta and John Homewood about a total business transformation.

Five or more years ago, had you asked a resident of Newport, Gwent what went on at the big factory off Corporation Road, it’s unlikely that they would have known. Before 2004, the local community knew little about Orb Electrical Steels and many thought the buildings were merely redundant warehouses. Today Orb is firmly on the map. The local newspaper, the South Wales Argus, has a number of stories about the steelmaker on its website, under the name Orb or Cogent Power, its parent company, and Orb has made no attempt to keep the business turnaround that has occurred in the last five years a secret. In February 2008, for example, the company’s Project Renaissance sold 23 acres of surplus land for development, revenues that were reinvested in the company to help update it for 21st century steel production. Part of the investment was a £4m construction contract including a modern 30,000 sq ft head office, and several essential improvements to the factory buildings. It was the biggest investment in the business since the 1960s, according to General Manager Mark Cichuta. Other improvements included a new welfare centre, shower facilities, canteen and locker rooms and a new chemistry laboratory. And today an estimated £75m of the site’s spend goes into the Newport and South Wales economies.

Fundamental improvements in infrastructure were just part of a long term strategy to transform the whole business into a world-class company, a strategy that included: implementation of lean thinking throughout – which included reducing waste and focusing on a better quality, high value product – more efficient manufacturing processes; a safer working environment; better staff facilities; improved customer and supplier relations and a shared vision and passion for the future of the reborn business from customers, suppliers and staff alike.

The history of Orb
Orb Electrical Steels is one part of Cogent Power, a wholly-owned subsidiary of Corus, in turn part of the Tata Steel Group. There are two other businesses in the Cogent group, Surahammars Bruks in Sweden and Cogent Power Inc in Canada. Orb in the UK specialises in the production and global sales of grain oriented steels used for electrical transformers and power generation.

Steel has been processed or manufactured on this site, alongside the River Usk in south-east Newport, since 1898 when the Lysaght family opened the first factory. Orb Works produced aluminium for fighter aircraft in World War II, then in 1947 the decision was made to specialise in electrical steel. Also known as non-oriented lamination or grain oriented transformer steel, this is a speciality steel manufactured in cold-rolled strips or laminations often less than 0.30 mm thick. Once assembled, the strips form the laminated cores of power transformers, and the stator and rotor parts of electric motors. The transformers are used in housing estates, hospitals, factories and other industrial applications. Orb now concentrates solely on the manufacture of these grain oriented electrical steels or “GO”. Therefore the magnetic properties and permeability of the steel is vital to its end use (see box How GO steel is made).

The factory is old – much of the machinery, while well maintained, is over 50 years old. “The cold rolling mills were built in 1950, a lot of the operating lines and ovens are from the 1940s,” says Cichuta. “The aim is through lean thinking and the redevelopment of technology to bring them into a more modern production capability. From 1950 through until 2006, things were happening but nothing in terms of major rebuilding or site investment.”

One change in this period was Orb’s purchase of some downstream businesses – customers in effect. Then in 2006 the company decided that didn’t work, so divested them. “It’s very difficult to buy and integrate your customers, because your other customers object,” says Cichuta.

From 1947 through to 2008, Orb Works produced two main varieties of electrical steel: grain oriented and non-grain oriented steel. In 2007, the decision was made to drop production of the, by then unprofitable, non-grain oriented product and focus exclusively on high value, grain oriented steel. The decision was firmly rooted in the lean thinking being adopted at the time, says Mark Cichuta.

“We decided we had two core markets: electrical steels for motor manufacture and those for transformers,” says Mark Cichuta. “Electrical motor manufacture was moving to Eastern Europe and Asia, our competitors were big integrated steel mills and we were not competitive in that sector. Simultaneously demand for the more difficult products to make from a resource allocation perspective, grain oriented electrical steels, was increasing globally. Modernisation of electrical steel infrastructure was happening and we didn’t have enough capacity to service the market so we decided to stop supplying unprofitable markets and move manufacturing resource wholesale into the grain oriented product. It was a strategic decision.”

One of the biggest hurdles to improvement is the ability to look at your own business objectively. Concurrent with the decision to switch entirely to high value product, the company took the opportunity to review its entire business, bottom-up. The results were painful, very little had changed at the Stephenson Road site since 1947. Management decided that Orb would only survive in the global market for this high value steel product if it stripped down its business model and rebuilt it. The first and pivotal decision was to adopt lean thinking.

Lean – a whole business philosophy
Beginning in 2004, working initially with consultants SA Partners, Orb identified that the whole site was not optimising its resources to deliver expected customer value, nor was it reducing waste from various inefficient facilities, manufacturing or business processes. The review recognised all stakeholders lacked confidence in the company: customers; suppliers; employees; senior staff and the local community. Recognising this poor stakeholder perception was a key factor in rejuvenating the company, removing waste and fragmented facilities and communications. For example, office layout and overuse of email encouraged less face-to-face interaction between staff working in the same areas.

Introducing and maintaining lean principles at this factory was not an easy proposition, as it challenged much of the accepted business culture. Management, however, had little choice. Once lean was chosen as the in-house philosophy for the Cogent Power Group, all the staff were trained in lean thinking principles and appropriate tools, e.g. Learning to See, 5S, SMED, TPM, Problem Solving, They then considered the reduction of waste and creation of value within their areas or along the value streams. It took time and, as with any change management at a long-running factory, there was reticence from some quarters, but overall the people responded positively to the new lean approach. This was crucial to its success, says Cichuta and John Homewood, Orb’s Continuous Improvement Manager. “Some people have found it difficult. But they have come out of it very well, we’ve not lost anyone through the process,” Cichuta says.

“The best thing about lean as opposed to other philosophies or culture change programmes is that lean thinking is a language that everyone can understand,” says Cichuta. “5S applies to all departments, shop floor, office or management. Project Renaissance is a 5S project, it’s the five steps in 5S applied through Renaissance to whole business. Sort, Simplify, Sweep Standardise, Sustainability etc – it applies throughout. We’ve implemented lean right through the organisation, the new strategy is based on lean principles – we’ve got rid of a non-value add product and used our capacity to focus on producing a more value-added product.” Lean has helped Orb to identify and reduce waste, and there are many areas where this has happened – in the product’s physical manufacture and by using less additive material, in streamlining the process itself and reducing changeover times of coils, automating the process as much as possible, trimming less product from the finished steel coils, reducing packaging where possible, and so on. As any lean manufacturer knows, lean is not a tickbox exercise but a journey of continuous improvement. “We can now truly say there is a culture of lean thinking at the company. But there is lots more to do so that we can further minimise waste while creating customer value by the end of 10 years of lean at Orb, in 2014,” says Homewood.

Mark Cichuta shows me Cogent’s Effectiveness/Efficiency grid (see graphic). It shows how business performs along the two axes. An inefficient and ineffective company will die. If you are efficient but ineffective, your costs are low but the customer doesn’t want your product so you’ll die slowly.

Inefficient but effective, you’re expensive but the customer still wants your product, you’ll probably survive. “Everyone aims to be in the Thrive quadrant, being efficient and effective – this is what lean thinking is all about,” Cichuta adds.

A vital component of the employee-conversion to the new business model was the work invested to improve staff facilities.

The 2004 business review showed up some glaring shortcomings in the facilities and infrastructure of a business with a turnover of £200m. Orb’s offices, housed in pre-War buildings, were spread throughout the site in random locations. Employees could enter the manufacturing plant from 11 different entrances, making a feeling of common purpose hard to secure. There were no adequate showers or locker room facilities; staff often went straight home dirty. In 2006, Orb began the infrastructure and cultural enhancement leg of its turnaround. Called Project Renaissance, the company set a completion target of December 2008. Renaissance was a site-wide project with a threefold objective: 1) dispose of redundant land – proceeds of the sale of 23 acres financed the main site development; 2) transform the company from an “Old Big Works” to a Small Modern Lean Business, with associated agility and speed of responsive to demand and 3) attract and retain the best suppliers, customers, and employees.

All the old, poorly insulated buildings being used as offices were vacated, the excess land was sold and a new, modern office building was erected overlooking the River Usk. A new, single standard amenity block with locker room and showers was built inside the body of the main factory. “Everybody has a locker there, they can get changed before going onto the factory floor,” says Senior Lean Coach Mike Anthony. “Being the steel industry there is oil, dirt and dust so people can get pretty dirty. Staff used to get changed and go home, now they can have a shower and go home feeling and smelling cleaner.” A new chemistry lab and technology centre was built. A communal canteen was installed, and televisions were installed in staff communal areas to show world news as well as to communicate internal company messages. The employees, management says, have responded very well to the changes, they are using the showers, locker room and canteen, watching the news and so have a greater chance of seeing company messages. Talking to the Operations Manager, Tony Cook, and factory staff representative, Nicky Parkes, in one of the communal areas, it was clear that the effect on morale of some simple infrastructure improvements was high.

Other simple changes have been effective in bringing unity and spreading the firm’s new lean philosophy. Now there is a single main entrance to the 43 acre site, and one car park beside the head office, where there used to be several smaller car parks over 67 acres. A single office, canteen and communal shower block has meant workers based in one part of the site can now easily discuss with colleagues from other departments or lines; in some cases co-workers had been at Orb for many years and never really met. Critically, decision-making time has become noticeably more efficient in the new areas, as everyone now is within a few seconds walk of the person they may want to talk to.

A culture of continuous improvement has enabled a reduction of injuries, another excellent top-level KPI.

Tighter, safer, cheaper processes
Dr John Homewood has worked for Cogent for 16 years in the UK and Germany and is Orb Electrical Steels’ Continuous Improvement Manager. He helped devise several measurement techniques to help assess and execute process, business and lean improvements at Orb, including business cost modelling and methods of tracking progress. With Mark, he also championed the development of a system to make the steel strip manufacturing process less environmentally wasteful and safer without compromising the product’s core properties. This type of steel has traditionally been coated with a medium containing hexovalent chromium to give an even appearance. “The product was safe for the user but the environmental issues during manufacture were significant,” says Homewood. “In 2006 we made the bold step of removing this from the product ahead of most of our competitors. Initially it was probably not as good-looking but we have continued to improve that over the years.” Surface appearance is important to us.

Sulphur is extracted in the high temperature coil annealing stage, the slowest part of the process. The next stage in the steel lamination process normally involves treating with sulphuric acid to remove excess oxide powder that’s left over from the high temperature batch anneal. In re-designing the front-end of the thermal flattening process, Orb took the step of eliminating all the sulphuric acid, now using just a wet brush section to remove all the powder and dust. This was completed by December 2008. “Clearly this has an environmental benefit, and makes the working environment safer – and saves us the cost of the acid,” says Homewood. Eliminating both chromic acid and sulphuric acid from the process “is an example of our commitment to our environmental and health practices in the last few years”, he adds.

Raw “hot-band” coil arrives at Orb by sea and river. From beginning to end, the steel takes can take as little as12 days to move around through the factory until the finished product – a trimmed roll of refined, beautifully thin electrical steel –is placed on a pallet. The main sections of the 100m long thermal-flattening process are the coating section and thermal flattening section. “We don’t want the line or process section speed to alter,” says Mike Anthony.

“That’s why it’s important we used the SMED technique (Single Minute Exchange of Die), in what we call changeover workshops.” I watch as the operator stops the entry end while a two-man team feed the new coil in, but the process is still running, steel still moves down the line. “We’ve done as much as possible to simplify the changeover operation so the next coil is loaded and running in as little as 20 seconds. This used to be about two minutes but we shortened it through changeover practice with teams.” As he talks, the operation of feeding on the new coil literally takes 20 secs, and its going again.”

GO 100
In recent times, some key production processes have significantly reduced operation, the plant currently producing at at rate of about 60,000 tonnes of GO product a year. This is just over half of it’s full capacity of 100,000 tonnes. How can Orb respond to any increase in demand should market demand improve? “Our people and plant capability is a full seven day week,” says Mike. And as and when demand leaps, Orb has a fully operational second thermal-flattening line on stand-by. Originally used for annealing lower grade, nonoriented steel, it’s conversion became the GO100 project, converting over to a 100% grain oriented process. It involved redeploying and upgrading old equipment at a cost of about £5m. This was a team effort – most of the work was done by Orb employees voluntarily, underscoring the change in attitude the new, improving Orb was cultivating.

Work began on March 31 2008, the converted line had its first production three months later, completing a challenge that most at Orb thought was impossible. “The success of GO100 was down to the buy-in of staff,” says Cichuta. “Everyone worked very hard to achieve it. We installed new, state-ofthe- art operator rooms and control panels, a real step forward when you consider some of the old methods of working, and a change that certainly underpins lean thinking.” It was the first time in the world this conversion had been done, converting an old line of this type to make a very different finished product. It is ready to roll at short notice.

Energy watch
Orb is a big consumer of energy, employing processes which is the equivalent of cumulatively heating the steel up to 5,000°C and force cool ingback to room temperature. Energy price rises really hurt us,” Cichuta says. An analysis of Orb’s energy use was undertaken and a metric to show how much energy was being consumed throughout the manufacturing process was devised. This was cross-referenced with electricity rates – fixed and forward-purchased, and at different times of day. This produced an optimum energy cost curve, a benchmark
consumption. Now real-time energy consumption is tracked against the benchmark to reveal spikes in usage, where and when. This has helped to refine the process to reduce energy bills.

Now and tomorrow

To summarise Orb Electrical Steels’ transformation to date:

– The company is market-focused and has close customer relationships. “We believe in long term relationships – with customers, suppliers and staff – and growth.” It has an established product range, with good long term demand forecasts. Its health and safety record is good. Orb is big on core values. “Priorities change, core values don’t – that’s why we call lean and relationships core values.” The company is engaging in continuous improvement embedded by lean.

– Orb has been through rapidly robust project development and cultural change, which some employees have found challenging but none have been lost through the process.

– Orb now has staff facilities commensurate with a large 21st century manufacturing business. There is a new chemistry lab and technology centre. All staff have a locker, they can get changed in the locker rooms before going onto factory floor and can use the showers. There are better internal communications via televisions, fewer emails and more one-to-one interaction.

– Demand is in a trough but it recently rallied a little. “In the last two years, we have switched 40% of our business,” says Cichuta. “That has put pressures on us, but we remain profitable, we are viable as a business. We intend to continue the programme we started, and when the recovery comes we’ll be ready, in terms of capacity, in terms of the people and facility we have, and product innovation and development – a lot of work has gone into that in recent years.”

– Orb Electrical Steels has succeeded in pulling a crumbling 19th century business away from the brink and transforming it into a modern, profitable company. Confidence in the business has been restored with customers, suppliers and employees, and five years into a lean journey showing demonstrable improvements, despite the economic downturn, it can look ahead to a bright future.