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Loughborough operations research saves China’s Baosteel $76 million

Professor Jiyin Liu

A Loughborough University Professor is part of an international research team that recommended production and logistics efficiencies to help one of the world’s largest iron and steel factories save more than $76 million.

For more than a decade, Professor Jiyin Liu from the School of Business and Economics and colleagues at the Logistics Institute of Northeastern University (China) and the RH Smith School of Business (University of Maryland) worked with Baosteel - China’s largest and the world’s third largest steel company - to transform its in-plant production and logistics operations in four key areas of its entire steel production process.

The team looked at ways of increasing the efficiency of steel slab production, new methods of scheduling production and allocating products to reduce inventory and storage costs and improve customer satisfaction, how to group steel coils during the batch annealing process to improve product quality and reduce energy consumption, and improvements to shipping: how to select most efficiently what gets loaded and how to plan the stowage onboard to reduce the cost of shuffling and maintain the balance of the ship.

Researchers built optimisation models for these decision problems and proposed efficient solution methods. They developed four different decision support systems for Baosteel, one for each of the key areas, and Baosteel implemented all four.

According to Baosteel, the team’s decision support systems significantly reduced their production, inventory and energy consumption costs, as well as increasing revenue and improving product quality.

Specifically, the company saw a 16.8 per cent improvement of its IT and operations management capability, a nine per cent reduction of inventory, annual reductions of 293,967 tons of standard coal consumption and 585,770 tons of carbon dioxide emissions, as well as an increase in overall product quality and customer satisfaction.

In addition to these environmental and management benefits, Baosteel’s monetary savings have been immense; by implementing the developed decision support systems, and changing its planning and management culture, the company saved more than $76 million between 2007 and 2012, and will continue to save $19 million every year from now on.

Professor Liu said:

“The influence of the research is immense and very exciting for us. With increased awareness of the role operations research plays in manufacturing, the adoption of scientific approaches instead of experience-based approaches will have a positive influence on similar companies in China.

“Because steel production is an energy-intensive industry, our research is important not just because of saving a specific company money, but because the benefits affect the global environment as well.”

The team was recently named as a finalist for the Institute for Operations Research and the Management Sciences (INFORMS®) Franz Edelman Award for Achievement in Operations Research and the Management Sciences, recognizing the team as world-leading in their field.