Iron & Steel Sector

The Challenge:  Designing separate costing systems for different supply chains

Ereğli sells rolled flat products made from slab.  If its slab production is not sufficient it imports slabs so that overall market demand for rolled flat products are always met.

Despite significant cost differences between imported and produced slabs, sales profitability was calculated on a mixed slabs average cost, since there were  no costing systems to account for imported slabs and produced slabs separately.  As such, sales pricing based on an average cost was misleading.

The Solution:  Two separate costing systems  were designed on Reflex  to account for different supply chains, namely slab imports and slab production.

Reflex first determined the amount and timing of slab imports. Next, Reflex  labeled slab SKU’s  automatically, depending on the source of supply chain. Then Reflex adjusted production routes and product trees permitting   “costing for imported slabs” and “costing for produced slabs” operate simultaneously as two separate process costing systems.

Reflex fed COGS for flat rolled products with separate cost flows to enable pricing and profitability decisions be based on correct costings.

Solution Benefits:  Bu using Reflex, Erdemir was able

  1. Measure the added value of imported slabs and produced slabs separately, thus determining the optimum product range.
  2. To make parametric simulations to measure its ability to service timely World Bank loans.
  3. To set up automatic rotating letter of credit facility to finance coal imports required to maintain the energy balance at the regulated temperature for steel making furnaces.
  4. Lead data based decision making process with the help of simulated financials.  For example, Erdemir simulated cost and cash flow implications of the labor union to develop  its negotiation strategy.
  5. To produce Capital Market Board reports automatically by capitalizing interest expenses of fixed asset investment credits.
  6. To calculate the NPV or IRR of new investment project’s marginal cash flows in conducting feasibility analysis of the new investment projects.