ISSUE Manufacturing Industry: the backbone of Korean economy. But its SMEs are facing significant challenges.

The United Nations Industrial Development Organization (UNIDO) announces the countries’ ranking of manufacturing competitiveness every year. The Republic of Korea entered 17th in 1990 and made it to the Top 10 in 2003. In 2017, it ranked 4th. It took Korea just 28 years to jump from 17th to 4th — a truly remarkable leap forward. The products of the manufacturing industry make up 90 percent of total exports, and domestic jobs created by the industry add up to over 4.5 million. As of 2017, the GDP portion of the nation’s manufacturing industry stands at 30.4 percent — higher than that of China (29.3 percent). In this respect, it is evident that the manufacturing industry has played a significant role in the rapid growth of Korean economy.

However, Korea’s manufacturing industry is said to be facing huge challenges. The business in the manufacturing industry — including steel, shipbuilding, and automotive — have reached the maturity stage, and are struggling against fierce competition amid overcapacity in the global market. Besides, There has been an increasing number of issues regarding the ecosystem of the manufacturing industry in recent years, such as promoting balanced growth between large companies and SMEs. The industry is being flooded with new technologies of the Fourth Industrial Revolution — such as Big Data, the Internet of Things (IoT), and Artificial Intelligence. There are concerns that these technologies might widen the disparity between large companies and SMEs. Eventually, the gap in knowledge, information, and technology could lead to economic polarization.

According to OECD statistics, Korea is one of the countries with the largest productivity gap between large companies and SMEs. The labor productivity of SMEs relative to large companies recorded 53.8 percent in 1988 but fell to 32.5 percent in 2014. On the scale of R&D expenditures, the gap between the two gradually widened over time as well. These gaps led to a huge difference in business performance, which in turn resulted in the disparity of labor, resources, and R&D investment capacity. This kind of repeated cycle is fatal to the industrial ecosystem vulnerable to its instability.

POSCO has an important role here. The World Economic Forum announced POSCO as a ‘Lighthouse Factory’ for pioneering the manufacturing industry by applying core technologies of the Fourth Industrial Revolution. There are 44 lighthouse factories around the world and POSCO is the first and only Korean company on the list.

So, POSCO came up with a solution: establishing and pursuing shared growth programs that enable SMEs to become smart together. Since POSCO has the competitiveness that transforms the huge steelworks into a lighthouse factory, the company is stepping forward, more than willingly, to share its competitiveness with SMEs in a bid to strengthen the industrial ecosystem.

SOLUTION A POSCO-type Shared Growth

At POSCO, the term ‘Shared Growth’ isn’t a new concept. The company started its first Shared Growth activities in the late 1990s. In 2005, POSCO established an organization dedicated to the purpose and currently operates a total of 33 Shared Growth programs. The “Benefit Sharing” system, which is run by the government and participated by 472 companies nationwide, is known to be first launched by POSCO in 2004.

Among the many Shared Growth programs, POSCO focalizes on the POSCO-type Productivity Innovation as an effort to bridge the gap between large companies and SMEs.

The ‘POSCO-type Productivity Innovation’ program is an activity to transfer QSS (Quick Six Sigma), a POSCO’s own manufacturing innovation technique, and smart factory technology successfully built by POSCO. To facilitate it, POSCO is to contribute 20 billion KRW over five years and the government adds 10 billion KRW to run the program. So far, POSCO-type Productivity Innovation activities look similar to those of other companies.

However, delving into the details of the program, you might find something interesting — the program consists of two steps. The first step is ‘smartization consulting to enhance competence,’ and the second is ‘support service to build a smart factory’. Those two approaches might seem quite similar at first glance, but there is a reason why POSCO operates the program in this way. POSCO strives hard to teach how to fish rather than just give the fish itself.

Let’s say that building a smart factory is like making smart fishing spots and fishing gears. Good tools and fisheries are important, but before that, the fishers also need training. In the manufacturing industry, the importance of the workforce is paramount, so a smart factory can be completed only when the workforce becomes smart as well. For companies that need this fundamental change in structure, step 1 (smartization consulting) is implemented instead of building the smart factory straight away. POSCO carries out step 2 (support service to build a smart factory) for those companies that have already gone through innovation and are expected to create synergy with the build of a smart factory. The competitiveness and productivity innovation that POSCO would like to share lies here: a people-centered smart factory.

 SOLUTION STEP 1  Smartization Consulting to Enhance Competence

‘Smartization consulting to enhance competence’ is an improved version of POSCO’s QSS Innovation activities that had been carried on from 2013 to 2018. QSS Innovation is an industrial movement to improve the productivity of the manufacturing workplace. ‘Smartization consulting’ also uses the QSS as a consulting tool, but this activity concentrates on changing the SMEs’ fundamental structure and lay the foundation for smartization prior to build a smart factory. Thus, the project not only enables innovation in productivity but also help detect areas that require a smart factory. As of 2019, POSCO had carried out consulting projects in 108 companies and plans to expand to 110 companies in 2020.

 SOLUTION STEP 2  Support Service to Build a Smart Factory

In the second step of the program, POSCO Group specialists help build a smart system that is suitable for the company. At this point, the surrounding environment and the scale of the company are taken into consideration. The provided services include monitoring facilities, MES, and ERP, etc. A customized system — according to the SMEs’ smartization level — is proposed and built, with POSCO and the government each bearing 30% of total expenses. If the project cost is less than 20 million KRW, the total amount is borne by the POSCO and the government — without the burden of SMEs.

In most ‘smart factory building support’ provided by large companies, the support ends with just installing the system. But POSCO’s support can be differentiated since it reshapes the mind-set of the workforce in step 1, and then builds the smart factory in step 2. It is an ideal program, not just for establishing smart facilities but also for nurturing an intelligent workforce as well. Though there are some cases where the first and second steps of the program are conducted independently, POSCO plans to maximize synergies by implementing both steps as an integrated program. POSCO provided supports for 110 companies last year, and 120 companies will be supported this year. Targets include POSCO suppliers, partner and client companies, POSCO Group suppliers, and also companies that have no business transactions with POSCO.

“Shouldn’t our company be of a certain scale to get consulting from POSCO?” The answer is no. For the smaller SMEs, POSCO plans to introduce “Mini QSS” initiating this year. POSCO is to carry out consulting for smaller companies as well so that these companies can easily start innovative activities that are essential for growth.

※ Solution Case Study

Aware of the current situation, POSCO provides customized consulting of specialists to resolve problems or issues, which are liable to show up in SMEs. POSCO has been offering this service to its direct client companies, and now it has gone on to extend this service to the clients of its client companies as well. The reason why POSCO is interested in these secondary and tertiary business partners, is because POSCO is looking at the overall ecology of the steel industry, and finding ways to strengthen it. Hence, introducing another service of POSCO — ‘Maintenance Technical Support for Secondary Client Companies’

‘HK STEEL’ is a client company of ‘Hankum’ — one of POSCO’s client companies — and is currently producing ultrathin materials for automotive seat belt spring. Following Hankum’s recommendation, HK STEEL applied for POSCO’s maintenance solution, and POSCO stepped in more than willingly. POSCO Newsroom met with the CEO of HK STEEL and POSCO’s maintenance support team in charge, to discuss the technical support provided.

▲ HK STEEL is POSCO’s secondary client company.

l How Did POSCO’s Help Come So Far?

HK STEEL, located in Ansan, Gyeonggi-do, was established in January 2002. It is an SME with 15 employees including the CEO. The steel purchased from Hankum goes under secondary processing here and then sold to ‘Autoliv’ and ‘Asan Precision’. As seen here, HK STEEL doesn’t do any business directly with POSCO. Yet, it could still benefit from POSCO’s maintenance technical support. How was this possible? Let’s find out.

▲ HK STEEL CEO Hee-kwon Kim

“We have been purchasing primary processed steel from Hankum for 30 years. Recently there was a problem with the facilities in our company and when I talked to Hankum about it, they informed me of POSCO’s maintenance technical support. At first, I thought our company wouldn’t get the support since we do not have a direct partnership with POSCO. But POSCO accepted our request and agreed to take a look at our facilities. POSCO mentioned that secondary clients were POSCO’s clients too. So we asked POSCO for an overall inspection along with solutions regarding equipment — such as maintaining the horizontal level of the rolling mill, the operational status of the hydraulic plant and how to maintain it, the power quality, and so on.”

Hee-kwon Kim, CEO of HK Steel, said that working on technology development and facility maintenance is difficult due to lack of personnel and fund. That’s why POSCO’s support — complimentary help from experts — is like a blessed rain after a long drought for him.

“There are five or six companies that produce products with just one or two rolling mills, here in Ansan alone. All the CEOs of the companies tell me that whenever there are technical problems, it is because they are short on funds. But then again to solve the problems, they need more funds. It’s like a vicious circle. For SMEs, equipment maintenance is an incessant issue. I was quite worried as well. But now that POSCO’s experts have taken over, I can’t be more reassured.”

POSCO’s service doesn’t end in just maintenance technical support alone. Kim also added that POSCO meets with Autoliv — a client company of HK STEEL — and Hankum every quarter to discuss products.

“Our company produces springs for automotive seat belts, and there are some researchers who give us advice at POSCO. Along with these experts, we discuss quality with our client companies. Not just that, POSCO also analyzes the product and sends the report back to us. Thanks to POSCO, both our company and our client companies are in a win-win situation with more competitive products.”

Mr. Kim added, “For the manufacturing industry — including the steel business — to break through the current staggering economy, large companies and SMEs need to work together. In this sense, POSCO is doing great things by expanding the solution program to SMEs, who are in much need of it. With this help, SMEs can grow more and this would eventually boost the manufacturing industry. So I wish that other SMEs would also get to know about this solution program.”

l “It’s a Great Pleasure to be of Help”

Four field experts from Pohang Works were at work when newsroom visited HK STEEL. This time they were staying for two days to look into the maintenance. Newsroom met with Technical Manager Tea-young Huh and Consultant Young-gug Kim — who both have over 30 years of field experience. They are ‘field’ experts assigned here with the essence of POSCO’s 51 years of technology. They’ve been going around the country and sharing their skills and experience.

Q. What are you helping with HK STEEL today?

Mr. Huh: I am in charge of the PLC (Power Line Communication) control and the drive that runs the motor. I am inspecting the maintenance control so that it runs stably and doesn’t affect product quality.
Mr. Kim: I am in charge of the entire power distribution system — a system that receives electricity from the power plant and distributes it — and this time I will examine the quality of the electricity that HK STEEL uses. If electricity supply isn’t stable, several problems might appear so I check several factors, like the power factor, harmonics, transformer load factor, breaker protection devices, and so on, with diagnostic equipment. After inspection, a report of the current status follows and if there is any improvement needed, we provide technical support.

Q. How was your inspection? What solution did you give?

Mr. Kim: Before the actual consulting, We came here and took a look at the facilities around two weeks ago. We also asked what HK STEEL needed. They said that they had a problem with the rolling. The quality wasn’t as good as it used to be. Today after inspecting, I saw that the alignment of the rolling mill was slightly dislocated, and there was a problem with the Automatic Gauge Control (AGC) — a thickness control system. This may sound simple, but these are subtle errors that are hard to find by just looking, without any expert equipment or knowledge. The problem is that these errors can cause degradation in the quality of the end product.
Mr. Huh: We’ve readjusted the mill alignment and made sure that the control system works accurately. Accordingly, the flatness of the steel will get better which will, in turn, enhance product quality. I hope this would help boost the client company’s sales as well.

Q. You must have visited a lot of SMEs. Have you had any memorable experiences?

Mr. Huh: Last year, I visited a client company in Gimpo. Its factory was submerged due to a big flood that year. The company didn’t have a specialized person in charge of electricity, and the plant manager managed the electricity by himself. After the flooding, the whole factory experienced a blackout and nobody knew how to power back the electricity. So they brought in a technician and it took three days to get the line working. After this incident, our team visited multiple times to draw an electric schematic diagram of the plant and number the panels.
Mr. Kim: I remember that one too. There was a big typhoon that next year too and caused another problem with the electricity supply. However, at that time, they looked at the electrical schematic diagram that we gave them, and they could bring back the power easily, minimizing the downtime of the plant. Drawing the electric diagram — that could be easily understood — was quite a challenge because it is usually hard for non-experts to comprehend. I had to travel back and forth from Pohang to Gimpo several times because of that, but when I got a call from them saying that it helped a lot, it was all worth it.

Q. The CEO of HK STEEL mentioned that the service doesn’t end with just maintenance technical support alone. What’s more?

Mr. Kim: e are trying to solve the weaknesses and chronic problems, that our client companies experience, with POSCO experts. In addition to maintenance technical support, we provide solutions in various areas such as marketing, safety, energy, IT, and so on, which means that our support contributes to the growth of our client companies, not just in resolving problems.
Mr. Huh: We try to help in all areas possible if it is of help to our client company’s business. I think this could be the cornerstone of the POSCO vision — ‘Building a Better Future Together’.

Q. What does this project mean to you and what are your future goals?

Mr. Kim: Now that I can share my experience and skills where it’s needed, I feel that I’m really contributing. Whenever I resolve client companies’ problems and see them thrive, I am so happy for them. I believe that my role and mission is to aid client companies for a better future together.
Mr. Huh: I expect the credibility between POSCO and client companies will increase through these support programs. I learn a lot myself through these POSCO maintenance technical support activities, too. I would like to work on providing more solutions in the future as well.

‘Maintenance Technical Support for Secondary Client Companies’ program is part of POSCO’s efforts to help SMEs facing this reality. POSCO spares no time and effort on the mutual growth of POSCO and all its client companies, business partners and suppliers. Through this, POSCO hopes to strengthen the steel industry ecology and make sure that POSCO steel becomes products of the highest quality for consumers.

Such a description isn’t inaccurate considering POSCO has topped the WSD (World Steel Dynamics) competitiveness ranking for 10 years straight.

But it’s not enough — yes, POSO was and still is a top steelmaker, but the values POSCO is creating goes beyond the realm of steel products. To reflect this reality, the more accurate description of POSCO today is: “POSCO provides the most competitive solutions to the clients.”

l POSCO — More than Products

The day-to-day steelmaking operation involves: melting iron ore to produce molten iron and making steel products as per client’s requests, be it hot-rolled steel, cold-rolled steel, wire rods, thick plate steel, etc.

For POSCO, that’s not the end of the story. POSCO’s sales tactic distinguishes itself from other steelmakers in that, when a client places an order, POSCO doesn’t immediately jump into the production. Instead, POSCO thinks ahead considering the whys and the hows: why does the client want and need this product? What are the best manufacturing/welding/assembly technologies to serve that purpose so the product can thrive in the market?

Let’s say a client places an order for a wire rod. Ultimately, the client would like to produce large bolts with POSCO’s wire rod. In this case, what POSCO sells to the client is not just the wire rod. What POSCO does is to sit down with the client and discuss the details of the end use: where will the bolts be used? POSCO thoroughly reviews the technologies involved, before heading straight into the production, so that the product can serve its best purpose.

If the bolts were intended for a steel structure, POSCO researches what joints will be connected, figuring out how the client can produce the most solid and durable bolts with POSCO’s wire rods. POSCO’s business approach is to provide the best possible solution for clients’ competitiveness, not just POSCO’s.

l POSCO Global R&D Center Spearheads Client Solutions

What enables providing POSCO solutions to clients? It’s the years of accumulated research on various properties and characteristics of steel materials. Currently, POSCO’s research facilities are located in Pohang, Gwangyang and Songdo: Steel Products Research and Process Engineering Research Group in Pohang; and Automotive Steel Application Center in Gwangyang.

Of all POSCO’s research facilities the Steel Solution Research Lab in Songdo, Incheon spearheads client solutions.

▲ POSCO’s research facilities

Over 80% of the researchers at POSCO’s Steel Solution Research Lab are Ph.D. researchers across various fields such as machinery, materials, architecture, civil engineering, etc. At POSCO’s cutting-edge, state-of-the-art research facilities, the company develops top solutions for clients from various industries including automotive, home appliances, electrical steel sheets, stainless steel products, construction, ships, machinery, pipelines, etc.

To optimize its capacity to develop client solutions, the Steel Solution Research Lab in Songdo restructured its departments into the following four groups this year: Materials forming research; Materials performance research; Steel structure research; Welding and Joining research.

In addition, the Steel Solution Research Lab collaborates with the marketing department in Seoul as well as with the Steelworks in Gwangyang and Pohang, playing a role in developing customer solutions, support, and timely supply of solution products.

l POSCO Solution Targets Client Success

The recent collaboration with Austem, an auto parts manufacturing company, is a good example of the solution development at POSCO Global R&D Center.

Austem provides key auto products such as chassis, body, steel wheel, and seat — through domestic and overseas businesses, Austem has annual sales of over 400 billion KRW. Austem has been POSCO’s long-term client since 1990, and the company shows a solid growth record through its existing products as well as new technologies.

As the auto market shifts towards sustainability, efforts are being made to make more eco-friendly cars such as electric vehicles and to reduce car weight. In such milieu, lightweighting auto parts such as suspension which absorbs the road impact to enable stable driving emerged as an important factor.

Despite the global tendency where automakers opt for aluminum to lightweight suspensions, POSCO has been focusing on developing steel suspension since 2016, through its partnership with Austem.

The two companies applied GIGA STEEL to suspension parts — conventionally, giga-grade steel was never applied to suspension. POSCO’s new approach led to an optimal design technique to secure lightweight without compensating the current level of performance.

Per suspension type, the weight was reduced by 14.3% to 20%, thereby securing a steel solution that satisfies the suspension stiffness, strength, and fatigue performance.

With the new GIGA STEEL suspension, Austem is pioneering a new market where the product is being positively received in the global market.

Dong-Yoon Seok, a Senior Researcher at the Materials forming research group at the Steel Solution Research Lab, said, “To verify the performance of the product, we went through countless prototypes and tests at the R&D center and the Austem’s production lines.” He added, “Collaborating with a competent client and meeting the goal we’ve set was truly rewarding. That’s the type of solution development we aim for.”

▲The POSCO-Austem partnership replaces aluminum with GIGA STEEL for suspension.

Seok, also remarked, “The long-term partnership between the two companies helped build mutual trust which made the whole solution development process much easier. That was one of the big contributing factors for the good result.” — his remark signifies when developing solutions for client success, what POSCO focuses is the long-term success, not the short-term.

As POSCO contributes to improving clients’ technology and sales channels through its solution activities, POSCO’s high-quality steel products are being sold with the most optimized performance. This has distinguished POSCO from other contenders in the industry and that’s the path POSCO will continue to follow.

POSCO isn’t satisfied with simply making the world’s most competitive steel products. Instead, they want to be a steel company that offers the most competitive solutions to their clients.

※ At the time of Austem’s overseas expansion, POSCO’s Global Platform Business (GPB) program supported its entry into China. GPB was created to help partner companies expand overseas. To supply auto parts to China’s key automakers, Austem signed a joint venture with POSCO and established three production facilities in Suzhou (2008), Yantai (2014), and Wuhan (2016).