Responding to the Crisis

The current economic downturn was first felt in the European manufacturing industry during the July-September quarter of 2008. Tata Steel Europe (TSE) reacted quickly to realign its output with the anticipated lower steel demand levels. It continued to monitor and adjust its output levels throughout the second half of the financial year as European steel demand deteriorated. The depth of the crisis required Tata Steel Europe to adopt a dual strategy and two series of measures were drawn up. The first, ‘Weathering the Storm’, comprised several short-term actions designed to cut costs and keep supply and demand in balance. The second, ‘Fit for Future’, addressed certain longer-term and structural issues that the downturn had brought into focus.

Weathering the Storm

The severity of the crisis made it imperative for TSE to quickly align production with market demand.

TSE’s crude steel output was cut by at least 40% in the six months to the end of March 2009.

The reduction was achieved largely through the temporary idling of three blast furnaces – one each at the IJmuiden, Port Talbot and Scunthorpe works.

At the same time, the company moved to reduce costs in line with expected reduced revenues.

A series of cost-cutting, working-capital and inventory management, and other short-term initiatives achieved more than £700 million in cash benefits for the business during the period October 2008-March 2009.

Much of the payroll-related cost cutting was achieved through measures such as the elimination of overtime, altering shift patterns (thus reducing shift bonus payments) and the implementation of work agreements that allowed the company to reduce the hours of employees who were experiencing shortages of work. There was also a reduction in the use of third-party services.

In addition the company took advantage of the drop in activity to institute retraining and upskilling programmes for the workforce. A Government payroll support scheme was effective in the Netherlands.