Memorandum to Ai BaojunGM Baosteel Zhao ZhouliDeputy GM Baosteel Zhou JianfengAssistant to GM Baosteel Li QingyuDirector ESI Pang YuanlinGM HRC Plant Improve Baosteel s performance through implementing lean manufacturing Through the close collaboration with HRC lean diagnosis client team and under the directional guidance of steering committee and support of relevant departments we have successfully finished lean diagnosis of HRC plant from March 26 to April 23 We hope through this memorandum to provide you the summary of diagnosis results and suggestions on next phase lean manufacturing pilots in HRC plant 1 SUMMARY OF LEAN MANUFACTURING DIAGNOSIS CONCLUSIONS Baosteel currently faces significant challenges in satisfying growing demanding and differentiated customer needs in a bid to become world class steel company As the key bottleneck part of the production chain current HRC performance on asset productivity product quality and delivery performance needs to be significantly improved for Baosteel to secure and strengthen its competitive position to grow market share in an increasingly competitive environment Benchmarking with external and historical internal best practices reveals that the capacity utilization and OEE of both 1580 and 2050 lines have improvement potentials of more than 10 Bottom up root cause analysis reveals significant reduction potential in maintenance time roll change time breakdown speed loss rework including downgrade and delivery lead time Potential near term within next 12 months financial impact across all three areas could reach RMB 200 million in total and mid term 1 3 years financial impact could be RMB 600 million in total Baosteel should realize significant improvement potential and resulting financial benefits within and across asset productivity product quality and delivery through a comprehensive 3 5 years change program It should engage and empower employees at operational level to rigorously apply lean tools and structured problem solving approach to set up systems and participative processes to pursue Kaizen continuous improvement To support lean transformation Baosteel should also strengthen its organizational capability by setting up Continuous Improvement Organization as well as policy deployment performance management system to institutionalize the change program thus ensuring that Baosteel s strategic and operational targets are deployed top down to each level of the company strengthening and or setting up appropriate performance evaluation and incentive system and aligning employee s individual KPIs with overall company target Baosteel should start implementing lean manufacturing in HRC plant HRC should kick start the change program by implementing a 6 9 months pilot program immediately It should pursue breakthrough initiatives to improve roll change time maintenance time using lean tools as well as setting up appropriate organization systems and processes for continuous improvement by solving a selected number of high priority product quality and breakdown problems It should start setting up performance management system and process and track evaluate and control implementation process in parallel to institutionalize the change program within HRC Lean transformation is a systematic project for corporate reform 6 sigma is one part of lean manufacturing During the transformation process new ethics and conducts will collide and conflict with current management system Therefore the senior management should profoundly realize that lean manufacturing could bring significant benefits to Baosteel in terms of shareholder value customer satisfaction and employee satisfaction Based on this belief senior management should with unshakable confidence and commitment lead and promote and rollout and deepening of lean manufacturing pilot 2 HRC PLANT LEAN MANUFACTURING PILOT PLAN Trough the communication and discussion with HRC plant management the joint diagnosis team proposes to conduct pilots of 3 6 months in product quality breakdown time work roll change backup roll change and annual planned maintenance areas In order to speed up realization of short term targets and financial impacts and considering HRC implementation capability and risk team recommend both 1580 and 2050 lines conduct pilots at the same time In the meantime team will help set up performance management system and process in HRC to provide fundamental infrastructure support for next step lean roll out and continuous improvement The pilot plan include the following 4 parts 1 Pilot target 2 Pilot approach 3 Key pilot activities and end products 4 Joint pilot team members 1 Pilot target Joint diagnosis team suggests that Baosteel use near term improvement potential as final target of 6 9 months pilot and depending on the characteristics of each improvement areas set required time to reach targets and evaluation standard of pilot results Detailed pilot targets will be defined after you make go decision and will b