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Outokumpu Streamlines Organization, Plans Job Reductions

10/21/2011 - Outokumpu has stated its target is to reduce costs by EUR 100 million by the end of 2012 and working capital by EUR 250 million by mid-2013. Planned measures include restructuring in all Outokumpu units and functions, reducing the number of production shifts at Avesta, Nyby, and Kloster, as well as outsourcing of some support functions.

Outokumpu has stated its target is to reduce costs by EUR 100 million by the end of 2012 and working capital by EUR 250 million by mid-2013.
 
Planned measures include:
 
  • Cutting costs and restructuring in all Outokumpu units and functions, improving cost efficiency in Tornio, reducing the number of production shifts at Avesta, Nyby, and Kloster as well as outsourcing of some support functions
 
  • Centralizing and consolidating the Group's European distribution network
 
  • Streamlining Outokumpu's organization and reducing the number of organizational layers.
 
CEO Mika Seitovirta: "European market fundamentals have changed substantially in recent years. Demand has not yet fully recovered following the previous financial crisis, and now we are facing growing uncertainty on the European market. The stainless industry is facing significant overcapacity, and imports into Europe have increased. In this situation, to compete successfully in the global market, we need to reduce costs drastically, simplify the way we manage the company and establish clear accountabilities."
 
To achieve sustainable profitability, Outokumpu plans to initiate a cost-reduction program aimed at achieving savings of EUR 100 million by the end of 2012. Planned measures include reducing the number of production shifts, restructuring the organization, and outsourcing of some support functions as well as improvements in overall efficiency.
 
The planned measures correspond to a reduction of up to 1300 jobs in global terms, with most of the reductions taking place in Finland (up to 300) and in Sweden (up to 600).
  
Negotiations with personnel representatives will begin as soon as possible in all the affected units and functions, according to Outokumpu, and the results will be communicated in phases as the negotiations progress. The outcome of the planned employee negotiations and consultation processes may result in negative financial impact on Outokumpu's operating profit in the coming quarters, with some impacts already in the fourth quarter 2011.
  
To reduce Outokumpu's working capital by EUR 250 million, the inventory turnover in the Group's entire supply chain needs to be improved. Compared to the number of inventory days of approximately 110 during the second quarter 2011, Outokumpu intends to bring inventory days closer to 90 days by mid-2013.
 
Streamlining and consolidating the Group's captive distribution network in Europe will contribute to this inventory reduction target and facilitate identification of the most cost-efficient routes to market. Outokumpu plans to consolidate stocking operations into a smaller number of locations in Europe, serve the markets from these key locations, and utilize its existing processing capacity in the markets efficiently. The company currently maintains stocks in more than 20 European countries and has coil-processing capability at six locations. The Group also has six plate service centers in Europe.
 
Outokumpu also relies on independent distributors. Streamlining captive stocking operations may generate opportunities for deepening cooperation with independent distributors in some markets, it notes.
 
Outokumpu's planned new business model will be based on three Business Areas, each with full accountability for sales, profit and assets, improving the ability to respond to customer needs rapidly. The three Business Areas will be:
 
  • General Stainless: stainless steel operations in Tornio and the finishing plant in Terneuzen
 
  • Specialty Stainless: Special Coil, Special Plate, Kloster and Long Products including the Sheffield meltshop
 
  • Ferrochrome: the Kemi Chrome Mine and ferrochrome production in Tornio.
 
According to plan, Business Areas will be responsible for their own sales as well as production and supply chain operations. Outokumpu says its customers will benefit from being able to deal with sales staff who have both mill and product-specific expertise, and who are supported by a global sales network.
 
In addition to the Business Areas, Outokumpu has specified APAC (Asia Pacific) as a Focus Area to strengthen the Group's presence and improve its business in markets with the highest growth potential for stainless steel.
 
The new organization is planned to become effective as of January 1, 2012.