Managing Increasing Product Variety at Integrated Steel Mills

Intense market competition in recent years has made it increasingly important for integrated steel mills (ISMs) to differentiate themselves from competitors based on customer service, two key attributes of which are the duration and the reliability of order-fulfillment time. To improve responsiveness, some ISMs are shifting from a pure make-to-order system toward a hybrid make-to-stock, make-to-order system. They can then match certain customer orders to existing semifinished inventory, thereby reducing the time it takes to fill those orders. However, choosing which semifinished products to make to stock and how to manage their inventory are difficult problems. We developed an optimization model that one ISM implemented as a decision-support tool for choosing the designs of made-for-stock (MFS) slabs. Use of the model has reduced the number of MFS slab designs and increased the proportion of orders covered by those designs.