Case Studies

Tata Steel of India

Sinha, G. P., Chandrasekaran, B. S., Mitter, N., Dutta, G., Singh, S. B., Choudhury, A. R., and Roy, P. N. (1995), Strategic and operational management with optimization at Tata Steel,Interfaces, 25:1, 6-19.

Tata Steel of India: Tata Iron and Steel Company is one of the largest companies in India. In the early 1990's it reported revenues in excess of $1.2 billion and profits of $160 million. Tata's 75,000 workers annually produced 2.4 million tons. In 1984, Tata Iron and Steel completed a major modernization effort that enhanced steel making capacity. Work began on a mixed-integer linear programming (MILP) model that would optimally allocate scarce resources so as to maximize profits. This emphasis on optimal profits represented a significant change in thinking. Up to that time the spotlight had always been on maximizing tonnage without paying too much attention to that policy's overall impact on profit. It was wrongly assumed that the two-tonnage and profit-were almost equivalent.

Tata Steel is a fully integrated iron and steel making plant that consumes vast amounts of energy. An early focus of the modeling effort was the impact of scarce power resources on production planning. In metropolitan areas, power availability for Tata Steel fluctuated by time of day and season and in some instances the reduction of power was abrupt. One critical set of decisions involved determining which production activities to shut down as power resources declined. Before the model had been implemented, the policy was to shut down finishing mills first and later primary mills as power became scarcer. The model demonstrated that the optimal strategy was really to shut only a few of the finishing mills before starting to turn off the primary mills. The decisions as to which mills to turn off were represented in the model as 0-1 variables.

The first major success of the model occurred in November 1986. The model enabled Tata Steel to generate more profits than the month before even though there was less available power and total production was down. It is estimated that in the first year of implementation, the MILP model increased Tata Steel's profits by $73 million as it shifted the company's focus to maximizing profit rather than tonnage. The model has since been applied to other parts of the company and its affiliates that produce tubes, tinplate and steel wire rope.

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