Transcript Project Compass + New Star The Race to Win ThyssenKrupp’s Bob Hess

Project Compass + New Star
The Race to Win ThyssenKrupp’s
$3.7 Billion Steel Production Facility
Bob Hess
Cushman & Wakefield
Global Business Consulting
Page 0
Topics

Introduction to Cushman & Wakefield Global Consulting
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Project Compass + New Star strategy and specifications

Project evolution, site selection methodologies and results

Continue with ThyssenKrupp further Insights from:

Mr. Ernst Bernsdorf, Senior Vice President, ThyssenKrupp Stainless
 Kai Mahnke, Vice President, ThyssenKrupp Steel USA
Page 1
Cushman & Wakefield Overview

$1.5 billion revenues in
2006

12,000+ employees
worldwide
Clients

World’s largest privatelyheld real estate services
firm.
Page 2
Cushman & Wakefield
Global Supply Chain Services
Site Selection
• Workforce
• Business Climate
• Op. Costs & Risk
Market
Access and
FDI
Business
Strategy
& Goals
Global
Regional
Local
Supply
Chain
Strategy
Trading &
Supplier
Dynamics
Site
Constructability
& Due Diligence
Transportation
Planning
Network
Modeling &
Simulation
Port Strategies
& Feasibility
Financial
Analysis
Business Case
Support
Strategy
Building
Developer
or
Contractor
Manufacturing
Facility Design
Environmental
& Permitting
Expert
Real Estate
Strategy &
Transaction
Contractor
Vendor
Selection
Building
Construction
Material
Handling
Technology
Real Estate Infrastructure
Consulting
Implementation
Engineering
Execution
Operations
Page 3
Project Compass Strategy and
Specifications
Page 4
Strategic Importance of Compass
Project Compass is integral to ThyssenKrupp’s global strategy to grow
NAFTA market share and improve cost positions.
Project Compass
Mobile, Alabama
Carbon steel
processing and
stainless steel
production
Project Herkules
Germany
Increased carbon steel
production / processing
for German market
Project CSA
Brazil
New carbon slab
production for
NAFTA and EU
Markets
Page 5
Project Compass Specifications:
Redefining ‘HUGE’
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Facility: $3.7 billion; 3,600 acres; 7 million SF under roof

Annual steel production for two segments:

Carbon: Processing / coating 4.1 million metric tons flat carbon steel
 Stainless: 1 metric ton melt shop; then coiled and rolled

Employment : 2,700+ employees; 75% semi- or highly skilled

Utilities:

Electric: 10+ GVA Short Circuit Capacity; two 230-kV trans. lines; 300 MW
service; 107,000 MWH/month
 Natural gas: 1.2 million MCF per month
 Water supply: 10 million gallons per day

Transportation / Access

Rail -- unit trains; Barge -- accessible (and reliable) inland waterway;
 Port -- accessible for slab unloading; Highways – heavy duty!
We began the project wondering:
“Will ANY site meet these specs?”
Page 6
Top Priority: Supply Chain Efficiency
Logistics costs comprise 50% of Project Compass’ annual costs.
Inbound Supply Chain: Louisiana
Origins:
Brazil/Other
Slabs: 4.1
MMT via
Panamax Ship
Unload
Slabs to
Port (Mill)
Load Slabs
to River
Barge
Barge
Unload
Barge at
Mill
Inbound Supply Chain: Alabama
OR
OR
Coil
Rail
Barge
Outbound Supply Chain
Truck
Stocking
Point or
Customer
Page 7
Leading and Managing the Experience

Unique aspects and key challenges of Project Compass/New Star:
Accelerate…accelerate….accelerate (to accept slabs from Brazil)…deadlines;
 Diverse subject matter and large teams (market access, logistics, labor,
financials, site development, permit applications);

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Over 100 team members on project – numerous sub-teams around value chain of
project with different leadership/management styles and needs.
High profile, with political and PR issues from day 1 – internal and external
communication plans were key to success;
 Time difference / travel / 7 x 24 expectations (no sleep, no vacations, no
mercy!);
 Magnitude – normal measures, methods, inquiries, models, etc. don’t
necessarily apply

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This was the “mother load” project that no one could respond to with off-the-shelf
information;

Coaching states, utilities, chambers, railroads, ports, politicians, and other
stakeholders to “think unconventionally” and to make the investments to
compete; and
 Team motivation, skillsets, and project expansion.
…all worth it for a once in a lifetime project!
Page 8
Project Evolution and
Site Selection Approach
Page 9
Search Area
Four factors determined the search area: coastal port(s) for
inbound slabs, barge-navigable water ways; anticipated customer
concentrations; and business climate.
Customer
concentrations
IL
IN
PA
OH
WV
MO
OK
AR
LA
KY
AL
VA
NC
TN
MS
MD
GA
SC
TX
Inbound
Slabs
Inbound
Slabs
Page 10
Identifying and Eliminating Sites
1.
2.
Request for Information (RFI) and
sites issued to search-area states.
3.
RFI responses received and catalogued.
4. Site inspections and community/utilities
meetings used to select Preferred Sites.
Sites evaluated against Critical
Success Factors, and classified as
Retain, Marginal or Eliminate.
Page 11
Early Phases: Eliminating Sites and Ports
The project initially progressed through phases of parallel analysis of
candidate sites and ports on both the East and Gulf coasts.
Site Criteria
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Electric
infrastructure
Size / shape
Water and rail
access
Natural gas
service
Topography,
wetlands,
floodplains
Water supply
Layout
challenges
Sites
Ports
67 considered 25 considered
Desktop Flaws
Analysis
Sites
Ports
35
19
eliminated eliminated
Site Visits
Sites
Ports
20
Terminals
eliminated studied
Port Criteria
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Channel depth
Distance from
open sea
Rail service
Berth length
Storage space
Inland river
access
Qualified labor
Steel
experience
12 sites / 6 ports
Page 12
Port Screening Methodology

Of the 25 ports analyzed for their ability to meet key Compass/New
Star requirements, six appeared to present feasible options based
on evaluations to date, eventually narrowed to Mobile and New
Orleans.
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Ports Analyzed
Mobile, AL
Tampa, FL
Brunswick, GA
Savannah, GA
Burns Harbor, IN
Lake Charles, LA
Baton Rouge, LA
South Louisiana, LA
New Orleans, LA
Plaquemines, LA
Baltimore, MD
Gulfport, MS
Pascagoula, MS
New York, NY
Morehead City, NC
Cleveland, OH
Philadelphia, PA
Charleston, SC
Corpus Christi, TX
Port Lavaca, TX
Freeport, TX
Houston, TX
Beaumont, TX
Port Arthur, TX
Norfolk, VA
IL
PA
OH
IN
MD
WV
MO
OK
KY
VA
NC
TN
AR
Philadelphia
Baltimore
Norfolk
SC
MS
TX
AL
GA
Morehead
City
LA
FL
Mobile
New
Orleans
PORTS
Feasible (6)
Eliminated (19)
SCALE
equals 250 km
Page 13
Critical Location Factors
Throughout the project, candidate locations/sites were evaluated
based on their performance against seven Critical Success Factors
and their cost profile (20-year net present value).
Skilled Labor
Availability & Quality
12.0%
Utility
Quality of Life
Infrastructure
3.0%
5.0%
20-Year Total Costs
(one-time and recurring)
50.0%
Business Climate
Perceptions
7.0%
Site Suitability
& Quality
3.0%
Ease of Implementation
and Timing
7.5%
Supply Chain Effectiveness
12.5%
% denotes
decision
weight
Page 14
Complete Business Case Evaluation
Cushman & Wakefield and ThyssenKrupp developed working teams
and methodologies to deploy a holistic business-case approach to
identify the optimal location solution for Project Compass.
Methodologies / Teams
Optimal Location Solution
Network/Logistics Modeling
Port and Location Strategies
Site Selection/Due Diligence
Workforce Profiling and
Financial Modeling
Business Case
Development
Optimal
Solution
Incentive & Real Estate
Negotiations
Program Management
Oversight
Page 15
Selecting 3 Finalists from 12 Preferred
Sites
In three months of analysis and site visits, the 12 Preferred Sites were
narrowed to three Finalists (Arkansas, Louisiana, and Alabama).
12 Sites in 7 States
Qualitative
conditions ratings
Market Access
&
Transportation
Ease of
Implementation
/ Timing
Site Availability
& Quality
Business
Climate
Labor
Availability &
Quality
Utility
Infrastructure
Total
Score
Site 1
2
2
2
2
2
2
12
Site 2
2
2
2
2
0
2
10
Site 3
0
2
2
2
0
2
8
Site 4
2
2
0
-2
2
2
6
Site 5
0
0
2
0
0
2
4
Site 6
0
0
2
0
2
0
4
Site 7
0
0
0
2
-2
2
2
Site 8
-2
2
2
0
2
-2
2
Site 9
0
0
0
0
0
2
2
Site 10
2
-2
-2
0
0
2
0
Site 11
0
2
0
-2
-2
2
0
Site 12
-2
2
2
0
-2
0
0
Logistics
network
modeling
…ThyssenKrupp Stainless
joins project - a ~$1 billion
expansion!!…
Multiple executive
site and port tours
Investment Costs (in billions, US$)
1.8
1.6
1.4
1.2
1.0
0.8
0.6
0.4
Illustrative examples
Finalists: Further Due
Diligence & Incentives
IL
or
ris
,
Pa
du
ca
Po
h,
in
K
tP
Y
le
a
St
sa
.J
nt
am
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es
V
Pa
ris
h,
LA
O
sc
eo
M
la
ou
,A
nt
R
Ve
R
rn
ed
on
R
,A
iv
L
er
Pa
ris
h,
LA
C
ou
rt
la
nd
,A
Li
L
ttl
e
Ro
M
c
us
k,
cl
AR
e
Sh
oa
ls
,
W
A
L
es
tP
oi
nt
,M
S
Tu
ni
ca
,M
S
0.0
M
Iterative business
case and IRR
modeling
0.2
Machinery & Equipment
Construction
Sales Tax
Land Purchase
Page 16
Extensive Due Diligence on Three Finalists
Extensive financial and logistics modeling, coupled with engineering
and site constructability analysis, revealed Alabama and Louisiana
sites as superior candidates.
Key Learnings
Refined Logistics Modeling
Greater site-specificity on modes, carriers,
rates, and distribution models
Labor Market Analysis

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Manufacturing industry presence, market-based
wages, and education and training resources
Site Constructability / Permitting Analyses

Site-specific facility design, site prep cost
estimation, and site conditions assessments
Incentives Negotiations
Incentives potential assessments, in-person
meetings and Requests for Proposal

Highest logistics
costs at Osceola, AR
site
Louisiana site has the
most manufacturing
skills, but with
premium costs
Construction and
permitting challenges
exist at all sites, but
are manageable
Incentives dialog
focused on needs to
achieve ‘ready to
build’ site
Page 17
Tailoring Financial Incentives to the Sites
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The final months of activity focused on development-cost
estimation, environmental permitting, and problem solving
through collaboration between ThyssenKrupp’s and the states’
teams…
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… and tailoring incentive programs that could most impact the
Project Compass/New Star business case.
Financial Incentives
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Prioritized based on business case impacts
Means to address extraordinary development needs
(piling, grading, utility and transportation infrastructure)
Facility Design and Site Development Costing
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Site specific facility designs were refined based on
results of on-going site assessments
Parallel wetlands, river construction and air permitting
Page 18
Final Site Selection Decision
The good news: Two great sites... The bad news: How do we decide?…
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Based on the Critical Success Factors, the sites were objectively
rated on 30+ weighted qualitative factors.
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The results suggested a near tie based on qualitative factors.
30+ individually weighted factors re:
operating conditions, risks, timing, etc.
Illustrative examples
Unique pros and cons of the
sites were nearly balanced.
Page 19
Final Site Selection Decision

(continued)
Ultimately, ThyssenKrupp’s internal deliberations on the sites’
merits and their long-term financial business cases yielded the
selection of the Mount Vernon, Alabama site.

Louisiana Highlights: Superior inbound logistics coupled with larger
labor force and deeper manufacturing presence; yet more extensive
infrastructure development and higher anticipated operating costs.
 Alabama Highlights: Lower long-term operating costs (e.g., electricity
and labor) and less complex site development and infrastructureimprovement scenario.
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The final choice between the two sites was a very challenging
one for ThyssenKrupp’s leadership and project teams – due in
large part to the outstanding efforts of Team Louisiana and Team
Alabama.
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Intangibles and the performance of economic development
teams played a key role in ThyssenKrupp’s decision-making
throughout the project.
Page 20
…in the end, leadership and commitment
Page 21