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Ruukki

Automated product costing, stock valuation, sales forecasting and production leveling systems to facilitate customer, product and market portfolio management in a vertical value chain consisting of a network of international, intra-linked subsidiaries
 
With consolidated net sales of EUR 3.7 billion in 2006, Rautaruukki Corporation (www.ruukki.com) has used the marketing name of "Ruukki" since 2004. The corporation supplies metal-based components and integrated systems to construction and mechanical engineering industries. In 2006 Ruukki employed an average of 13,121 people. The corporation is listed on the OMX Exchange in Helsinki.

Mr. Sakari Tamminen became elected CEO of Ruukki Corporation in 2003. Mr. Tamminen soon saw the need and put into motion a fundamental change – transforming Ruukki from being a reliable steel producer to become the preferred supplier of metal-based solutions for selected customer segments. A corporate target of generating half of revenues and earnings via the newly founded solution divisions (Construction and Engineering) and half by the Metals Division by 2008 was set.

Ruukki was to become customer focused: Construction, Engineering and Metals divisions were to be managed as customer and geography specific vertical value chains passing through some 40+ corporate subsidiaries in some 20+ countries - Production and Corporate Business Support were to serve those focus divisions - aligned by their pre-defined customer order profitability, service, delivery capability and operational efficiency criteria. Customer sales order forecasts were to steer the optimization of purchasing, production and transports throughout the vertical value chain driven by market demand and true customer profitability instead of past sub-optimization by subsidiaries maximizing their own production, sales volumes and intra-group profits via transfer pricing. The goal to reduce the exposure to business cycle fluctuations by augmenting sales of solutions and specialty products (that tie up less capital than is required by traditional steel production) by reducing the sales of price-sensitive standard products was also set.

A further 2008 objective to improve the corporate cost structure by approximately EUR 150 million compared to the cost of doing business in 2004 was set. It was also estimated that the change would release some EUR 150 million of working capital by the end of 2008. Organic growth and development of the solutions businesses were to be supported through acquisitions - the structural transformation was to be supported by divesting non-core units.

The building of the new Ruukki steering system named PROFIT commenced in June 2004. Relying on a separate sales data warehouse, a new costing engine was built on MS SQL Server to accurately calculate cost standards for the Ruukki companies. The level of detail for the cost standards was chosen on a case-by-case basis and in some cases extends down to product-customer combinations. To accurately model the vertical value chains without hiding behind transfer prices, the cost standards of different units are combined using material usage data.

One of the main challenges was to fit together the different data coming from the 40+ corporate subsidiaries. To ensure fast and reliable reporting in all situations, extensive handling was created to give sensible results even when data integrity fails. The entire process is automated as much as possible to give both business and IT time to focus on the non-routine tasks of running the system. In a company of this size with this many subsidiaries and different source systems, those tasks require a lot of attention.

The system was by no means easy to set up and required some 30 man-years of work (out of which some 6 was management and IT-consulting, the rest by Ruukki personnel). However, it was operational comparatively fast to support the new Ruukki strategy.

PROFIT went live first partially in the beginning of 2005 and then gradually including the entire group by December 2005. Each month in a time frame of only a few working days the cost standards are combined with the monthly sales data of the subsidiaries to create the desired profitability reports on product-customer level. In addition to being utilized for managerial purposes by some hundreds of Ruukki managers and staff, the multidimensional profitability and Cost of Goods Sold analyses produced are also in use and reconciled with Ruukki’s quarterly IFSR segment reporting to the stock exchange.

Rolling 15 months' sales forecasting and production optimizing capabilities were added to the system late 2005. Utilizing the material usage data gathered originally for costing purposes, the system calculates the future material needs required to fulfill the sales forecasts. This in turn is tied into deciding the optimal usage of production capacity and ultimately the financial planning and budgeting processes.

"It would not be fair to call our relationship a project", state Tuomo Valkonen, Director, Corporate Finance and Control and Veli Huotari, Corporate Business Controller of Ruukki Corporation, "It is a process, a journey, that commenced by Ruukki making that 180 degrees turn of strategy requiring us to completely renovate our methods of managing and the entire substance of information used when managing the corporation. We cannot imagine having been able to purchase a bespoke process like this out of a software box – covered in shrink wrapped plastic!"