Production Technology and Flexibility in the UK Steel Industry

Abstract

Manufacturing policy in the steel industry fuses strongly with the technology in use. In the United Kingdom, the dominant technology has been the Blast Furnace/Basic Oxygen System which necessitates a large-scale operation in order to attain the lowest possible unit production costs, a primary objective of management in the UK bulk steelmaking business. Focusing solely on the cost side of operations is a natural consequence of the store of knowledge in the industry concerning production techniques and scale effects. However, this is a myopic view because no attempt is made to evaluate the market response to steel availability nor the ease with which a match between output and demand can be achieved. The paper reports on experiences with a system dynamics simulation model which attempts to highlight the importance of the blast furnace in a typical integrated steelworks. Policies concerning the management of blast furnaces are captured in the model and the effects quantified using a common metric (money) for both production (cost) and market (revenue) effects. It is posited that larger furnaces are not necessarily advisable and, further, that the alternative technology of electric arc steelmaking offers much greater flexibility in terms of responding to demand changes. The overall result is improved profitability and less import penetration.