BURNS HARBOR, Ind.—Some steel mills are destroyed by globalization, others reborn.
Left for dead a decade ago, this 50-year-old facility on the shores of Lake Michigan has been rejuvenated thanks to an unusual experiment by its owner, Luxembourg-based ArcelorMittal.
In 2008, Burns Harbor was “twinned” with a hypermodern mill in Gent, Belgium. Over 100 U.S. engineers and managers, who were flown across the Atlantic, were told: Do as the Belgians do.
Burns Harbor now enjoys record output. Its furnaces, where steel is made out of iron ore, coal and limestone, are run with software developed in Belgium. Robots are in. Pencils are out. Workers are learning to make the same amount of steel with nearly half the people it employed three decades ago. Productivity is nearing Belgian levels.
The transition hasn’t been seamless. As a collective bargaining session looms this summer, union leaders say a tough battle is expected over wages, safety risks and the next wave of automation. But there is also an acknowledgment that increased productivity has saved the mill from oblivion.
American manufacturing—from chemicals to washing machines—is growing again. Spurred by stable labor costs, weaker unions and low natural gas prices, today’s manufacturers have emerged from the recession far different from what they were even a decade ago. They employ more highly skilled workers, are more automated and have far fewer workers.
Globalization often is blamed for the travails of American manufacturing—from the relentless pressure of imports from lower-wage countries to outsourcing and overseas production by U.S.-based manufacturers. But globalization has its upsides as well. Not only does it often mean cheaper goods for American manufacturers, but it puts pressure on U.S. factories to become more efficient to keep up with global competition, making it possible for them to survive.
Burns Harbor is a case in point. Outside of the U.S., steel was long dominated by state-backed companies that fed their nation’s appetite for cars, construction beams and washing machines. A wave of globalization in the 1980s created a true international steel market, straining less-profitable mills, especially in the U.S., and leading many to bankruptcy. The U.S. steel industry produced 95.6 million tons in 2011, about three-quarters of what it made 30 years ago. It employed about 95,000 people in its core mills and plants, one fifth as many as in 1981, according to the American Iron and Steel Institute.
That laid the groundwork for Lakshmi Mittal, the billionaire Indian who began assembling what is now the world’s first successful international steel conglomerate of its size, and the largest by production, with 263,000 employees in 20 countries and 112 steelmaking facilities.
Mr. Mittal perfected a simple business model: Buy rundown, often state-owned, mills, cut costs, lay off workers, improve productivity, turn a profit. It worked from Slovakia to South Africa, from Ukraine to Trinidad.
Twinning—benchmarking two mills against each other—represents the next evolution. “The process doesn’t change: melt iron, cast, roll. But there are always incremental improvements you can make,” Mr. Mittal said in an interview.
Modern benchmarking was pioneered by Xerox in the 1980s and has become a common tool for multinationals. But industrial historians say that what Mr. Mittal is actually doing is taking a page out of the productivity-obsessed playbook of 19th-century steel pioneer Andrew Carnegie and applying it globally. “The foremen of the blast furnaces on the Allegheny competed on monthly outputs,” says David Hounshell, a professor of industrial history at Carnegie Mellon University.
In a similar fashion, ArcelorMittal twins pairs of mills—usually of similar size, age, product mix and output—against each other. In addition to Indiana and Belgium, mills in Germany and Poland, and France and Romania, have been twinned. The weaker mill is ordered to copy the practices of the better mill, while the stronger is told to keep its edge. Managers are summoned to regular meetings and ordered to divulge and compare their performances. Although there is no explicit policy on the consequences of poor performance, ArcelorMittal has been quick to idle or shut down unprofitable mills, as it did in Liège, Belgium, last year.
Many in the industry thought high wages would permanently sink the U.S. steel industry. Workers at Burns Harbor averaged about $ 80,000 in wages and benefits in 2011, up about 14% from 2007.
But the Belgian mill’s labor costs have long been even higher. While Gent’s wages are on par with Burns Harbor, the country’s tax structure, including generous education credits and child care benefits, can boost the total cost of employing each worker to over $ 150,000. That prompted managers there to invest in more automation, giving Gent a competitive edge.
Now, the Burns Harbor plant is following suit.
Burns Harbor, just south of Chicago, was built by Bethlehem Steel in 1964 as a supplier for Detroit’s booming car industry—its coils sculpted into Fords, Chevys and Chryslers. The mill, a massive complex covering 3,300 acres and filled with industrial buildings housing giant furnaces, rail lines and a power station, came to dominate and define the economy in this town of 1,200. Its taxes have long provided about 90% of the town’s revenue.
Because of its high labor costs, it struggled against low-cost Asian imports in the 1980s as well as auto maker woes in the 1980s and 1990s. The mill went bankrupt in 2002, decimating the town’s economy. International Steel Group, owned by investor Wilbur Ross, took over, cut costs and sold it to then Mittal Steel in 2005.
Mittal managers coveted the proximity to car makers and the mill’s workhorse reputation. But when they arrived, they were dismayed to find out-of-date equipment and workers, many who joined the mill right out of high school, still using pencil and paper to calculate the right mix of iron ore, coking coal and limestone for every batch of steel.
“It had not enjoyed the same level of investment as peer facilities in other parts of the world, such as Europe,” says Madhu Ranade, the mill’s general manager.
The Gent plant was also built in 1964. And even today it gleams like a shimmering new car, its walls painted white and its linear layout along a canal giving it a sense of orderly progression. It has enjoyed almost unbroken prosperity, thanks to occasional state investments as well as its presence in the wealthy region of Flanders.
“We’ve pretty much always had investments, and in the last 20 years, a lot has been in IT,” says Renaat De Witte, a union rep. Much of the automation was driven by high labor costs. “So we’ve always pushed productivity hard,” says Vincent Van Quickenborne, the country’s economy minister.
“Gent really is one of the best mills in the world,” says Peter Marcus, president of World Steel Dynamics, an Englewood Cliffs, N.J.-based consultancy. The measure his company favors, man-hours per ton, shows Gent at 1.25 and Burns Harbor behind at 1.32. “Those are both currently among the better numbers in the world,” he says. The average in the U.S. is 2.0.
Mr. Mittal said Gent was a star. “We wanted Burns Harbor to be more like Gent.” Thus the development of the twinning program, which began in late 2007, and accelerated after the U.S. recession put a premium on productivity.
That year, Larry Fabina, a hulking 56-year-old engineer from Johnstown, Pa., who had worked at the mill since 1973, traveled to Belgium, where he toured the medieval town and spent six weeks taking careful notes at the mill.
After seeing the level of automation in Belgium, it wasn’t hard to see what needed to be done back home. For example, in Gent, a computer coordinates the movement and processing of iron steel slabs, while in Burns Harbor, workers relied largely on phone calls, paper and brain power.
One Belgian computer model called Coordi tells workers when to pour liquid iron into ladles, when to mix in alloys and when to cast the steel into slabs, which is critical in avoiding expensive reheating of steel.
There were other smaller, but significant details. The Gent mill used a different type of nozzle attached to huge hoses that were used to remove flakes from 2,000-degree steel. Placed at a more efficient angle, the same amount of surface impurities could be removed with less water. Welders cut coils of steel to order, which kept waste to a minimum.
When Burns Harbor engineers returned, they made the quick and easy fixes first. They changed hose nozzles and moved the nozzle on 2,500 horsepower hoses used to scrub flakes off the steel closer, thus reducing the amount of power needed to propel the water. Those two changes saved the Indiana plant $ 1.4 million in energy costs, the company said.
Workers were directed to trim less rough steel off the sides of coil, saving the equivalent of 725 coils a year. “That’s 17,000 cars,” says Mr. Fabina, the mill’s manager for continuous improvement.
Adopting the Coordi computer model took longer. Workers used to gathering information on their own and relying on experience and intuition had to attend classes on computer modeling.
Last year, Burns Harbor implemented Coordi at a cost of under $ 1 million. Since then, the mill has increased the average number of 298-ton caldrons of molten steel it produces daily, known as “heats,” to 50 from 42.
Before “you’d write everything down on paper during the day, and then at the end of the day, type all the data into a computer,” says Mike Williams, a furnace operator. Now “we watch everything come in during the day on computer screens.” Expected savings: $ 1.3 million annually.
Inside a control room overlooking a red hot bucket of liquid ore, Chuck Shippen, a bearded man in his 60s, sits next to Mr. Williams. When the new computer system was introduced, they and other longtime workers had to be retrained.
Taking notes and tests was a big change. Mr. Shippen says his job is different but better now. “It is a little different to watch the screens here than to make 30 phone calls a day to collect information,” he says.
Other longtime workers had to assume jobs they didn’t have to do before. Paul Gipson, a 68-year-old electrical power inspector for most of his 44 years at Burns Harbor, says he and other senior workers have found themselves performing rote tasks he once delegated, like fixing light bulbs.
Such changes caused frustration among some workers, union leaders say. This summer, the union expects another tough bargaining battle. The United Steelworkers negotiates a single contract for all 12 of ArcelorMittal’s U.S. facilities.
Despite the success of Burns Harbor, other mills and plants aren’t faring as well, prompting company officials to argue that steelworkers are overpaid compared with other manufacturing jobs. “The way this company’s talking, this battle is not going to be for the timid,” says Pete Trinidad, a union rep at the mill.
While rank-and-file workers have been adjusting, managers have been under their own kind of pressure. In 2008, managers were told to equal Gent’s record of 900 tons of steel per person per year, up from 800 at the time.
ArcelorMittal replaced parts and equipment throughout the plant, including an upgrade to its continuous heat treatment line, which allows engineers to cook and cool the steel to make it lighter and more durable.
A big issue was getting the timing right.
“If we cannot properly pace the shop,” steel gets delayed, cools and has to be reheated at cost, says Mehmet Ataman, Burns Harbor’s 36-year-old Operations Technology Manager, who traveled to Belgium to figure out how to avoid the reheating. “Temperature is money in this business,” he says.
Mr. Ataman represents the new type of worker at the plant, which is hiring more people with computer and engineering degrees who understand automation and complex electronics.
“Steel working used to be 80% back and 20% brain, now it’s the other way around,” says Mr. Trinidad, the union rep, who started when the plant employed 6,700 workers in 1974. Now it has 3,700.
Twinning, workers say, has helped avoid catastrophe. In 2008, as the global economy was melting down, ArcelorMittal said it would need to lay off 2,444 workers at Burns Harbor. After negotiations with the union, 500 workers left voluntarily, and 900 agreed to work 32-hour weeks. No layoffs have been made since.
Since then, ArcelorMittal has invested a total of $ 150 million in overall capital improvements in the Indiana mill and the mood locally is more confident. Sarah Harvey, co-owner of the Lil’ Off The Top barbershop nearby, says the couple dozen steelworkers who come in each week have “been tipping better recently.”
Burns Harbor achieved a record slab production of 4.8 million tons in 2011, says Bill Steers, the company spokesman, compared with 5 million at Gent. Productivity is almost at 900 tons per employee per year, while Gent has improved to around 950. “Much of this can be attributed to twinning,” says Mr. Steers.
ArcelorMittal executives say they are focused on pushing even harder. At a recent meeting, Gent managers boasted they would soon reach 1,100 tons per employee. Burns Harbor managers declined to comment on whether that is feasible.
But they are exploring robotic cranes like those used in Gent.
How far can the automation go? “That’s an open question,” says Mr. Ranade, the Burns Harbor manager, when asked if he could one day run the mill by himself with an iPad.
Write to John W. Miller at email@example.com
A version of this article appeared May 21, 2012, on page A1 in the U.S. edition of The Wall Street Journal, with the headline: Indiana Steel Mill Revived With Lessons From Abroad.