The steel industry uses GrafTech's graphite electrodes in mills where the electrodes burn at temperatures of up to 5,000 degrees Fahrenheit or half the temperature of the surface of the sun in electric arc furnaces to melt tons of scrap steel at a time. GrafTech really only has one main competitor with global manufacturing capability, along with various local competitors that also have global supply capacity, but the paucity of players in the market has not, historically, helped the company in supporting the prices it can charge for its electrodes. In fact, tied as the company has been to the fortunes and misfortunes of the global steel sector, and with electrode supply at times outpacing demand among steel companies, GrafTech and its competitors often have had to contend with downward pressure on electrode prices (although more recently the global market for graphite electrodes has been more in balance and actually has seen some price strengthening). At the same time, the company has faced cost increases for raw materials and energy across all its business, putting the squeeze on its margins. Not surprisingly, GrafTech has made cost control a top priority, targeting, and achieving, $16 million in savings last year and setting the bar at $30 million for 2004.
In terms of responsiveness to changing customer requirements, the graphite electrode side of GrafTech certainly has gone the extra mile. Its customers the steel companies, themselves operate in a very dynamic demand environment, and they have become, of necessity, increasingly agile in how they respond to changes in the marketplace, ramping up and shutting down production very rapidly. Naturally, that variability flows back up the supply chain, and the steel companies want their own suppliers, including GrafTech, to be able to ramp up and down equally as quickly, no mean feat considering that it takes GrafTech close to two months to manufacture an electrode that a steel mill can burn through in a matter of hours. (The electrodes, which can be up to 30 inches in diameter and 10 feet long, are produced using petroleum coke and coal tar pitch, and they go through several different curing processes to eliminate volatile gases and create stability in the structure of the material not a process that leaves room for shortcuts.) As a result, to maintain its high service levels, GrafTech has had to maintain substantial finished goods inventory to meet sudden spikes in demand. The company also has a policy of not imposing cancellation penalties on customers that order material but subsequently do not fulfill that order.
From a systems standpoint, Tim Boardman, manager of global demand management for GrafTech, says that while the company operates as a global business, each of its plants in different countries has, in the past, operated very independently, free to choose its own manufacturing systems. With each plant able to run its own preferred enterprise resource planning (ERP) system, Boardman says, the company has tended to optimize on a local level rather than globally. "So that has been a challenge as we take a look at the global market and try to compete in the global space," he says.
To address these challenges maintaining the kind of flexibility its customers need while allowing GrafTech to reduce its own costs the company has adopted both some new enterprise solutions and a new philosophy. First, GrafTech adopted J.D. Edwards Strategic Network Optimization solution (SNO, now known as PeopleSoft EnterpriseOne Strategic Network Optimization, since the acquisition of J.D. Edwards by PeopleSoft last year) in a move designed to give the company a more global view of its supply and demand balance. SNO, Boardman says, helps the company determine which plant in the GrafTech network should be assigned to satisfy demand from any given customer, based on the specifications of the required graphite electrode, current capacity, geographical considerations and so on. "In the past," Boardman explains, "it was really kind of a gut feel. The SNO model tells us the optimal way to satisfy whatever demand we impose upon the model."
Boardman says that adopting SNO has not only helped the company more effectively meet demand and plan operating levels at its plants, the system also has helped in understanding where, based on its plants' capacity, GrafTech should be targeting its marketing and sales efforts for best effect. But perhaps most importantly, Boardman says, "SNO has been very helpful in forcing us to take a look at our total business as a system, not as individual parts. We're now trying to optimize the total system, not just the sum of the individual parts."
Similarly, the company has taken another step toward unifying its operations by adopting PeopleSoft's EnterpriseOne (formerly J.D. Edwards' OneWorld) as the systems backbone of its plants worldwide, with plans to have all its manufacturing locations converted to the same system by the end of 2005.