（人力资源知识）IB’
Memorandum to：
Ai Baojun GM, Baosteel
Zhao Zhouli Deputy GM, Baosteel
Zhou Jianfeng Assistant to GM, Baosteel
Li Qingyu Director, ESI
Pang Yuanlin GM, HRC Plant
Improve Baosteel’s performance
through implementing lean
manufacturing
Through the close collaboration with HRC lean diagnosis
client team, and under the directional guidance of steering
committee and support of relevant departments, we have
successfully finished lean diagnosis of HRC plant from March 26
to April 23. We hope, through this memorandum, to provide you
the summary of diagnosis results and suggestions on next phase
lean manufacturing pilots in HRC plant.
1. SUMMARY OF LEAN MANUFACTURING DIAGNOSIS CONCLUSIONS
Baosteel currently faces significant challenges in
satisfying growing, demanding and differentiated customer needs
in a bid to become world-class steel company. As the key
bottleneck part of the production chain, current HRC
performance on asset productivity, product quality and delivery
performance needs to be significantly improved for Baosteel to
secure and strengthen its competitive position to grow market
share in an increasingly competitive environment.
Benchmarking with external and historical internal best
practices reveals that the capacity utilization and OEE of both
1580 and 2050 lines have improvement potentials of more than
10%. Bottom up root cause analysis reveals significant
reduction potential in maintenance time, roll change time,
breakdown, speed loss, rework (including downgrade), and
delivery lead time. Potential near term (within next 12 months)
financial impact across all three areas could reach RMB 200
million in total, and mid-term (1-3 years) financial impact
could be RMB 600 million in total.
Baosteel should realize significant improvement potential
and resulting financial benefits within and across asset
productivity, product quality and delivery through a
comprehensive 3-5 years change program. It should engage and
empower employees at operational level to rigorously apply lean
tools and structured problem solving approach to set up systems
and participative processes to pursue “Kaizen”- continuous
improvement. To support lean transformation, Baosteel should
also strengthen its organizational capability by setting up
Continuous Improvement Organization as well as policy
deployment (performance management) system to institutionalize
the change program, thus ensuring that Baosteel’s strategic
and operational targets are deployed top-down to each level of
the company, strengthening and/or setting up appropriate
performance evaluation and incentive system, and aligning
employee’s individual KPIs with overall company target.
Baosteel should start implementing lean manufacturing in
HRC plant. HRC should kick start the change program by
implementing a 6 –9 months pilot program immediately. It
should pursue breakthrough initiatives to improve roll change
time, maintenance time using lean tools as well as setting up
appropriate organization, systems and processes for continuous
improvement by solving a selected number of high priority
product quality and breakdown problems. It should start
setting up performance management system and process, and track,
evaluate and control implementation process, in parallel to
institutionalize the change program within HRC.
Lean transformation is a systematic project for corporate
reform (6 sigma is one part of lean manufacturing). During the
transformation process new ethics and conducts will collide and
conflict with current management system. Therefore, the senior
management should profoundly realize that lean manufacturing
could bring significant benefits to Baosteel in terms of
shareholder value, customer satisfaction, and employee
satisfaction. Based on this belief, senior management should,
with unshakable confidence and commitment, lead and promote and
rollout and deepening of lean manufacturing pilot.
2. HRC PLANT LEAN MANUFACTURING PILOT PLAN
Trough the communication and discussion with HRC plant
management, the joint diagnosis team proposes to conduct pilots
of 3-6 months in product quality, breakdown time, work roll
change, backup roll change, and annual planned maintenance
areas. In order to speed up realization of short-term targets
and financial impacts, and considering HRC implementation
capability and risk, team recommend both 1580 and 2050 lines
conduct pilots at the same time. In the meantime, team will
help set up performance management system and process in HRC to
provide fundamental infrastructure support for next step lean
roll out and continuous improvement. The pilot plan include the
following 4 parts:
1. Pilot target
2. Pilot approach
3. Key pilot activities and end products
4. Joint pilot team members
1. Pilot target
Joint diagnosis team suggests that Baosteel use near term
improvement potential as final target of 6-9 months pilot, and,
depending on the characteristics of each improvement areas, set
required time to reach targets and evaluation standard of pilot
results. Detailed pilot targets will be defined after you make
“go” decision, and will be validated in the form of signed
performance contract between Baosteel senior management and HRC
pilot teams. Near term improvement target is list in lean
manufacturing diagnosis report.
2. Pilot approach
Joint diagnosis team recommends that HRC plant should adopt
different problem solving approaches according to the
characteristics of different pilot projects.
Breakthrough projects：For those projects that have
fewer improvement opportunites however each with high financial
impact, and have less requirement on large scale people
involvement, which include work roll and backup roll changes
and annual planned maintenance, we recommend breakthrough
pilots with project team leading the problem solving. This will
involve standardization of work process, training of front line
operators, and then implementation of pilot.
Continuous improvement projects involving all
employees：For those projects that have many improvement
opportunities however each with low financial impact, and
require large-scale people involvement, which include improving
product quality and reducing breakdown time, we recommend
continuous improvement pilots involving all employees. Using
systematic problem solving method and tools, project teams
continuously, bottom-up, capture and implement each improvement
opportunity that will bring impact. This pilot approach has
generated significant impact in thousands of operational
improvement projects we involved. It will generate significant
impact in a short term and continue the improvement step by
step in a 3-month stage.
Due to the complexity of product quality problem, team
suggests that, before the step-by-step continuous improvement
implementation, Baosteel should design a quality organization
and management process as the fundamental infrastructure of
continuous improvement. We suggest that, during the first 3
months of pilot, pilot team will drive selectively solving
“first wave” common and frequent quality problems, in the
meantime set up quality continuous improvement organization and
management process, and train relevant people to use
appropriate quality tools. From the fourth month, team begins
piloting quality organization and process, and solve “second
wave” quality problems through the involvement of all
employees.
Set up performance management system to “lock in”
improvement results and behavior：In parallel with the pilot, a
performance management system team will build HRC KPI tree,
cascade breakdown of KPI at each operational level, design KPI
for each position, and, combined with the pilot, track, analyze,
and monitor the KPI.
3. Key pilot activities and end products
Work roll and backup roll changes pilot team (6/1
–8/31)
Key activities：
Train front line operators on SMED, PERT, and PDCA
systematic problem solving method
Conduct multiple observations on roll changes, and
collect sufficient data on roll change process
Conduct in-depth root cause analysis and “brain
storm” on potential solutions
Design improvement plan, implementation plan, and
standard work process
Implement improvement plan, adjust and fine tune the
plan in the pilot, and document the standard work
process for future rollout
Design performance tracking and evaluation system for
roll changes
End products：
Realized pilot targets
Standard work process on changing work roll and
backup roll
Performance tracking and evaluation system for
work roll and backup roll changes
Trained (systematic problem solving method, SMED,
PERT, and standard work process) front line operators
Annual planned maintenance pilot team (6/1-8/31)
Key activities：
Train front line operators on SMED, PERT, and PDCA
systematic problem solving method
Conduct multiple observations on annual planned
maintenance process, and collect sufficient data on
annual planned maintenance process
Conduct in-depth root cause analysis and “brain
storm” on potential solutions
Design improvement plan, implementation plan, and
standard work process
Implement improvement plan, adjust and fine tune the
plan in the pilot, and document the standard work
process for future rollout
Design performance tracking and evaluation system for
annual planned maintenance
End products：
Realized pilot targets
Standard work process on annual planned
maintenance
Performance tracking and evaluation system for
annual planned maintenance
Trained (systematic problem solving method, SMED,
PERT, and standard work process) front line operators
Product quality pilot team (6/1 –11/30)
Key activities：
Conduct training for pilot team members and other
relevant people on PDCA systematic problem solving
method, root cause anaysis tools including fishbone
and “5 why”, SPC, and PFMEA, etc
Define the responsibilities on quality management for
each HRC departments and positions
Design key quality management process (problem
detection, eradication, and prevention)
Based on the pilot targets, solve selected quality
problems
Solve quality problems using PDCA systematic problem
solving method, process and appropriate quality tools
Track and monitor the implementation and improvement
plan, and standardize the work process
Design performance tracking and evaluation system
End Products：
Defined quality management responsibilities for
each HRC departments and positions
Key quality management process (quality problem
detection, eradication, and prevention)
Realized pilot targets on quality problem
improvement
Documented standard work process against solved
quality problems in the pilot
Trained (quality tools and standard work
process) operators
Performance tracking and evaluation system for
product quality pilot
Breakdown time pilot team (9/1-11/30)
Key activities：
Conduct training for pilot team members and other
relevant people on PDCA systematic problem solving
method, root cause anaysis tools including fishbone
and “5 why”, SPC, and PFMEA, etc
Define breakdown reduction frequency and time
indicator for each HRC departments and positions
Design quick response process for machine breakdown
Based on the pilot targets, solve selected breakdown
problems
Solve breakdown problems using PDCA systematic problem
solving method, process and appropriate quality tools
Track and monitor the implementation and improvement
plan, and standardize the work process
Design performance tracking and evaluation system
End Products：
Defined responsibilities on machine breakdown for
each HRC departments and positions
Realized pilot targets on breakdown problem
improvement
Documented standard work process against solved
breakdown problems in the pilot
Trained (systematic problem solving method and
standard work process) operators
Performance tracking and evaluation system for
breakdown pilot
Performance management system team (9/1-11/30)
Key activities：
Build KPI trees for HRC plant, define KPI
Design KPI and define the source of KPI data
Design KPI model (spreadsheet) system
Input historic data and pilot target into KPI model
(spreadsheet), and test the extent of financial
impact of each KPI
Design performance feedback process and format, set up
performance management and monitor system
End products：
KPI model (spreadsheet) system for HRC plant
source of KPI data
Performance management and feedback process
4. Members of joint pilot teams
The project team will consist of Baosteel personnel and
McKinsey consultants who will work jointly as a team. This team
will be jointly responsible for the success of the project and
the project end products. The McKinsey team members will bring
experience and training in operational improvement and lean
manufacturing in steel, and the Baosteel team will provide
relevant information. The joint project team will work
together to analyze problem, desing improvement plan, document
standard work process, train operators, track, analyze and
monitor the implementation process.
Steering committee. A steering committee consisting of Mr. Ai
Baojun, Mr. Zhao Zhouli, Mr. Zhou Jianfeng, Mr. Li Qingyu and
Mr. Pang Yuanlin from Baosteel should lead the overall project,
and guide and supervise the project team by providing strategic
direction, refining the project approach, approving
recommendations, and ultimately assuming responsibility for
project implementation.
The steering committee will meet periodically throughout
the project every 4-6 weeks. The steering committee will review
the project progress, approve critical pilot implementation
plan, guide the pilot direction, and remove hurdles in pilots.
Project leadership team. Project leadership team consists of
Mr. Li Qingyu and Mr. Yang Chunping from Baosteel and Jonathan
Woetzel and Antti Pitkanen from McKinsey. Project leadership
team meets frequently, ., weekly to provide direction and
guidance to the project team.
Joint Baosteel/McKinsey project team (full time). A full time
cross-functional project team consisting of Baosteel team
members and McKinsey consultants will drive the overall project
execution. A full-time Baosteel project leader and Mr. Zhang
Wejie, the McKinsey engagement manager, will lead the team.
According to pilot areas project team will consists of 5
sub-teams: roll change project team, annual planned maintenance
project team, product quality continuous improvement project
team, breakdown reduction continuous improvement project team,
and performance management system project team. Every sub-team,
except for performance management system project team, will
consist of two team leaders with each from 1580 and 2050 lines,
and 3-4 client team members (full time or part time).
Performance management system project team consists of 1
McKinsey consultant and 3-4 client team members. Members of the
client team must be both high potential and high performing,
consisting of Baosteel managers and personnel who have been
identified as likely future leaders.
The full-time team will also need the assistance of
part-time resources from the hot rolled coil plant and key
functional departments in providing data, documents, and
reacting to the project team’s thinking. For both full-time
and part-time team members, the Baosteel project leader will
ensure that Baosteel team members deliver their end products on
time.
Over the course of the pilot, the project team would work
closely with Baosteel management and meet together in workshops
and reporting sessions. McKinsey will work closely with the
pilot client team, emphasizing the coaching and training of
client team members. Client team members will provide critical
operational information on Baosteel product quality and
delivery performance as well as asset productivity issues, and
participate fully in the project team’s activities and
analysis. Their day-to-day roles will be to work together with
the McKinsey team on data collection efforts, key interviews,
analysis and synthesis, and key document and presentation
preparation. The Baosteel team members will receive extensive
training throughout the engagement, and the commitment they
develop in the process will enhance the likelihood of effective
implementation and overall project success. In addition, this
skill transfer will enable the Baosteel team members to be the
driving force of implementation.
McKinsey is fully committed to help Baosteel develop a
sustainable lean transformation to improve product quality,
delivery performance and capacity utilization, and to build the
necessary capabilities in house. To do so, we will assign a
highly qualified team and leverage all required global
resources to support Baosteel to implement lean manufacturing.
We hope to become a long-term collaboration partner of Baosteel
and continuously help Baosteel become a high performing
company.
* * *
We hope that the above diagnosis conclusions, pilot scope
and approach fully reflect the consensus thoughts of joint
diagnosis team. Working together with HRC line, we are deeply
impressed by the employees capability and qualification, strong
commitment to their job and the drive to expose existing gaps
and problems, as well as the courage to set challenging goals.
We also highly respect Steering Committee’s effort in this
phase. By accurately controlling the overall direction for the
project, the committee helped diagnosis team focused on key
areas improvement potential and economics, drove continuously
deep root cause analysis to ensure improvement potentials and
economics accuracy and feasibility armed with substantial facts
and analyses. We believe our fruitful cooperation will
accelerate lean production’s pilot and rollout to make the
improvement potentials come true and realize the economics.
May 17, 2002
