Select Committee on Trade and Industry Minutes of Evidence


Memorandum submitted by UK Steel Association (continued)

STEEL COMPANY OPTIONS AHEAD

  Current economic policies are severely reducing steel companies' strategic options in the UK. The critical mass in competitive manufacturing, which is steel's UK customer base, seems to be slipping away. With ROCE at less than the rare of interest paid by the bank, UK outlook for most steel companies is grim.

  In essence they must do all that they can to protect their assets here for better times ahead. Unfortunately that could mean further retrenchment and consolidation to drive costs out of the system.

  Investment overseas (with open access to the UK market) is more attractive currently than taking on the burden of extra costs due to the sterling/euro exchange rate and the likes of the climate change levy, the business supplementary rate and UK electricity and gas prices.

  Nonetheless steel companies are doing all they can in areas where they do have some control. They are continuing to invest heavily in raising employees' skills (£65 million a year). They are using e-commerce to improve efficiencies and extending research and development to add value to their product offering to customers. In this way they have been able to maintain a level of exports albeit some 5 per cent down on last year's levels.

Metals industry competitive enterprise

  The industry is fully committed to this recently launched initiative, part sponsored by the Department of Trade and Industry, to radically improve performance in delivery on time, minimising waste and ensuring consistent product conformity.

  A team of "metals industry master engineers" is working with individual companies to introduce process improvement techniques and spark a change in attitude of mind, and with it an ability to adapt behaviour to build world best manufacturing practices all the way through the UK steel supply chain. This £3 million programme, 50 per cent sponsored by the DTI, is now completing the first-year pilot phase, of a total five-year plan.

e-Commerce

  The steel industry was the first sector to survey its use of e-commerce under the DTI scheme which is due to be completed over the next three years. With monthly sales well in excess of £750 million, the sector has massive potential for the use of e-business.

  The steel sector is characterised by many long and complex supply chains. According to the study these offer a broad range of opportunities and challenges to create value through the use of e-business. Adopting the new technologies will increase value within companies and also in the linkages between the companies in the supply chain. The study showed that UK steel sector sales using traditional Electronic Data Interchange are expected to grow from the current £110 million a month to some £250 million over the next two years.

  A broad cross-section of steel related industry sectors were covered in the study, including scrap suppliers, steel makers, stockists, steel processors/transformers, engineers, architects, designers and end-use steel consumers.

  Overall the UK steel sector does not appear to be lagging behind other UK B2B sectors in its take-up of e-business, but anecdotal evidence suggests that it is slightly lagging behind the steel sectors in other key countries such as the USA and Germany.

Research and development

  Globalisation and consolidation amongst steel's customers are also affecting the UK steel industry's approach to research and development. Major international customers are seeking steel suppliers with the critical mass capable of jointly developing new materials applications. So steel companies' research is creating opportunities for greater customer involvement in the actual manufacturing process to ensure maximum exploitation of the material's properties.

  At the same time, to access new perspectives and thinking that challenges the industry's preconceptions, steel continues to sponsor work across the leading academic institutions in the materials sciences.

  In some other countries, The Netherlands in particular, we have seen the creation of national centres of excellence in the field of metals research. Given the rather fragmented nature of the existing resource, a study has been proposed to examine the benefits that might accrue to the UK from such a centre whose role would be to act as a "technology navigator.

  This combination of internal and external research resource should provide the incremental improvements in processes and materials applications that ensure short-term competitiveness and the longer-term horizons for a steel industry that is adding further knowledge intensity to its processes, products and customer solutions.

  Steel has always been a knowledge-based industry, long before the term became fashionable and was mistakenly thought to apply exclusively to dot.com companies. The industry's achievements in raising productivity five-fold through the application of IT and modern manufacturing practices are testimony to this and its place in the UK's "new" economy.


 
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