International operations management strategy of ArcelorMittal

‘Globalization’ causes an inevitable international competition between the companies all over the world. Establishing a competitive international business strategy as well as international operations management strategy is a company’s foremost priority.

Mayer and Moore (1983) define manufacturing strategy as “a plan that describes the way to produce and distribute the product”, and “the choice of process technology, degree of vertical integration, the number and location of facilities, factory focus and the manufacturing infrastructure”. When the operational strategy comes to a global level, it means “global manufacturing”, which is a coordinated resources management, production and logistics system, providing the best mix of inputs from worldwide locations along the value-added chain (Fawcett 1992).

This assignment will first examine the current international operations management strategy of ArcelorMittal, and then discussed whether its international operations management strategy remains appropriate over the next years.

Current international operations management strategy of ArcelorMittal

International operations management strategy is a phenomenon of combining the concept of international operation strategy and business strategy.

Toni, Filippini and Forza (1992) discussed the relationship between globalization and operation. They point out that ‘Market globalization requires achievement of high standards of performance in quality, timeliness, total costs and customer service. To reach these levels of performance simultaneously it is necessary to change and improve all the phases in the value chain continuously’. Strategy refers to a direction for an organization designed to give competitive advantage. An operations strategy is a long range plan or vision for the operations function which is a part of the business strategy.

It consists of four interrelated elements: mission, objectives, policies and distinctive competence. Booz Allen and Hamilton (1982) use the concept of the manufacturing mission as the way a product should be sourced, manufactured and distributed. The mission must also specify the levels of process flexibility, product mix, customer service, product quality, product cost, productivity and other manufacturing requirements.

ArcelorMittal is the world’s leading steel and mining company. With a total production capacity of around 125 million tonnes of crude steel, ArcelorMittal is a steel producer with a diversified production process. It has industrial operations in 20 countries on four continents producing flat and long steels as well as tubular products across both the developed and developing world. The company pursues a consistent strategy to reduce exposure to risk and cyclicality by using a three-dimensional strategy focusing on product diversity, geographic breadth, and vertical integration both upstream and downstream.

The strategy of vertical integration is divided into upstream and downstream integration. In upstream integration, the company invested in iron ore and coal mining assets which ensures supply and provides a natural hedge against raw material price volatility. Through a combination of acquisitions and internal expansion, ArcelorMittal is the world’s fourth largest producer of iron ore, with a global portfolio of 16 operating units with mines in operation or development. The principal iron ore mining operations are located in Canada, USA, Mexico, Brazil, Algeria, Bosnia, Ukraine, Kazakhstan, and Liberia. The geographically diverse portfolio of mining assets allows the company to supply the developing world as well as its own steel facilities. As most of the mines are also in close proximity to the group’s steel plants, the own production provides a competitive advantage for the company.

In downstream integration, ArcelorMittal’s “Distribution Solutions” segment let the company meet a wide range of customer needs in virtually all steel-consuming industries and markets which is sold into a total of approximately 174 countries. The “Distribution Solutions” segment also allows the company to meet the operations performance objective. Slack et al. (2004) had argued that there are five operations performance objectives including cost, quality, speed, dependability, and flexibility. This segment assists the company to achieve the speed and dependability objectives. The Distribution Solutions business sells both in local markets and through a centralized marketing organization. The service centers finish steels to suit individual applications, provide customized solutions, and help the group service its customers more directly. The company has benefitted from their technical know-how and leading position.

Lockamy and Cox (1995) has found that short lead times, on-time deliveries, increased process/product innovation and flexibility, and responsive field service to be the factors on which international competition takes place. ArcelorMittal has a diversified production process, producing approximately 65.9 million tones of crude steel through the basic oxygen furnace route, around 22.6 million tones through the electric arc furnace route, and around 3.4 million tones of crude steel through the open hearth furnace. It creates flexibility in raw material and energy usage and the scale helps it to optimize plant load factors.

Apart from good performance on speed, dependability and flexibility, the company has a strong track record of delivering consistent cost improvements as well. This result is gained through the company’s international operation strategy. Marquardt (1999) points out that ‘Global manufacturing supports a global strategy that in turn focuses on which international markets to target, but also covers logistics, tactics and policy’. The benefits may include reduction of transportation costs, access to low cost production factors, and greater economies of scale. Since 2008, ArcelorMittal’s management gains program has delivered $4 billion of cost savings. In 2011, the company announced its asset optimization plan which is aimed at concentrating production at the lowest cost plants to optimize productivity. As noted by Hayes and Schmenner (1978), “Manufacturing functions best when its facilities, technology and policies are consistent with recognized priorities of corporate strategy. Only then can manufacturing gain efficiency without wasting resources”. In addition to the policies consistent, the company’s facilities and technology are also consistent with their strategy that provides competitive advantage. ArcelorMittal frequently works with their customers in committed co-engineering programs and have a strong presence in the design centers of most global automotive manufacturers, acting as a strategic partner for many. It provide the service through a research and development budgets in the European steel industry, a worldwide network of laboratories, and a management program that actively shares practice around the company’s operations.

Based on the strategy and performance of ArcelorMittal, its international operations management strategy fully implements the company’s international business strategy in product diversity, geographic breadth, and vertical integration. It not only attains the entire five operations performance objective, but also acts as a competitive multinational company. According to Corbett (1996), there is a difference between global and multinational firms. The former create standardised products for a world market and then manufacture them on a large scale in a few highly efficient plants, while the latter may modify products and strategies from country to country. The company has different product – mix strategy in different market in relation to its demand. It believes that demand in the developed world is weighted towards flat products and a higher value-added mix, while demand in the developing world is higher for long products and commodity grades. The company also predicted that as these economies develop, their need for higher value products will increase. It shows that the company’s business strategy as well as international operations management strategy will follow the changes that are caused by these external factors.