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Our strategy: "Klöckner & Co 2022"

The international steel distribution sector is no different from any other industry when it comes to digitalization: To be among the winners, you have to be fast and flexible. Klöckner & Co is a pioneer of change. We consequently extended our strategy in September 2017 to be even more digital, efficient and profitable. We have defined three strategic main pillars, which are supported by our transformation to a digital corporate culture characterized by greater openness and flexibility as well as customer centricity.

1. Digitalization and platforms: The cornerstone of our strategy is the digital transformation of our business. We are pioneers here, blazing the trail for customers and partners. Part of our “Klöckner & Co 2022” strategy involves driving the disruption in steel and metal trading via an industry platform. With this clear strategic orientation, we leverage and profit from the opportunities and potential of trading in digital marketplaces for our business.

2. Higher value-added business: Focus on business with higher margins remains a key thrust of the
“Klöckner & Co 2022” strategy. We expect digitalization to give this pillar of our business an additional boost
as well.

3. Efficiency improvement: To further enhance efficiency, we launched our “VC² – Value Creation at the Core” program at the beginning of this year. VC² will act as an accelerator for our “Klöckner & Co 2022” strategy by bringing together the existing “One Europe” and “One US” optimization programs and complementing them with a series of other initiatives around business development, operational excellence and profitable growth. The program will not only make us lastingly less dependent on market price fluctuations; it will also consolidate our position as a digital pioneer in the distribution business.

Our “Klöckner & Co 2022” strategy is backed up by a broad range of supporting activities as well as a cultural transformation across all parts of our Group.

DIGITALIZATION AND PLATFORMS

The digitalization strategy developed by Klöckner & Co aims to eliminate the inefficiencies in the steel in-dustry supply and value chain by digitally connecting all market participants and unlocking significant efficiency gains for all concerned.

All projects and initiatives relating to Klöckner & Co’s digitalization and digital networking are being driven forward by kloeckner.i, our Group Center of Competence for Digitalization, from the heart of the German start-up scene in Berlin. Over 80 employees now work at kloeckner.i in the fields of product innovation, software development, online marketing and business analytics.

We make use of methods such as design thinking, agile product development and the lean start-up approach to design digital solutions for our customers and partners in the shortest possible time. As a result, the percentage of sales generated via digital channels has risen steadily, increasing from 9% in the first quarter of 2016 to 21% at the end of the second quarter of 2018. At the same time, we have connected up with wholesalers and major steel producers on the procurement side.

We have also expanded the range of our – initially proprietary – online shop by opening it up to partners offering complementary products. This marketplace functionality gives Klöckner & Co customers access to a significantly wider range of steel and metal products without us having to invest in additions to our product portfolio.

Alongside the digitalization of processes throughout the Group, intelligent use of the data generated is also rising in importance. To gain an early foothold in this market, too, we entered into alliances with Aera and Arago, two of the leading providers of artificial intelligence (AI).

This February, we went live with the first version of our open industry platform, XOM Materials. In contrast to the Klöckner & Co online shops, the industry platform will ultimately be a completely independent digital marketplace for steel, metal and industrial products and is therefore also open to direct competitors of Klöckner & Co. Growth of XOM Materials is to be funded by outside investors, which will also ensure its gradual independence from Klöckner.

We connect up with external start-ups via our kloeckner.v venture capital enterprise. We invest both through selected venture capital funds and directly in start-ups that support our digitalization strategy with disruptive approaches.

Our digitalization strategy also goes hand in hand with a profound cultural shift within our Company. We want our employees to understand our digitalization strategy and to be aware of how they can contribute to reaching our Company’s ambitious goals. Moreover, we need to become even faster and more agile given the increasingly dynamic changes occurring in our sector. With this, the innovative working methods employed in the start-up scene are being applied more and more throughout the Group. This is accompanied by an in-depth exchange between kloeckner.i, our digitalization subsidiary, and employees from other divisions in all of the country organizations.

Online training is also provided by Klöckner & Co Digital Academy to get the workforce in shape for the digital age. This lends employees support in developing and implementing new ideas, which they can discuss and finetune with their colleagues across national and divisional borders in a non-hierarchical way using innovative channels of communication, such as Yammer, the Group’s internal social network. We have thus broken down the existing vertical communication silos in favor of an unfiltered, increasingly horizontal form of communication.

These measures, too, are already having an impact. In the rankings put out by kununu, Europe’s biggest employer rating platform, we were the 9th best company in the Leadership Culture category in all of Germany. We also achieved an outstanding ranking in the Work Climate category, coming in at 38th place.

HIGHER VALUE-ADDED BUSINESS

Many of our customers are highly vertically integrated and still use conventional methods to carry out tasks we could perform more efficiently by consolidating orders. A good example of this is our investment in 3d lasers, which we can use to combine several customer tasks such as drilling, sawing and slitting at an attractive price and with significant gains in precision. In Great Britain, for instance, we have built what is now the country’s second-largest 3d laser center near Dudley. In Germany, we have already taken our third 3d laser into operation, thus very successfully occupying a market niche.

We have additionally entered the field of 3d printing technology. After highly promising tests with our first 3D printer at kloeckner.i in Berlin, our German country organization Klöckner & Co Deutschland GmbH has now moved into the growth market of additive manufacturing by investing in a 3d printer for metals.

We further expanded in the demanding shipbuilding business during the quarter under review. Our German subsidiary has considerable expertise in supply chain organization for the shipping industry. As an exclusive partner to Meyer Werft, we have industry knowledge that we have now been able to leverage by entering into key additional partnerships.

We have also further expanded our higher-margin business with higher value-added products. Last year at our Bönen location in North Rhine-Westphalia, Germany, for instance, we built a service center to process aluminum flat products for the European automotive and manufacturing industries. The service center has a total processing capacity of 80,000 tons of aluminum per year.

Efficiency improvement

“ONE EUROPE” PROGRAM
One Europe is projected to contribute around €30 million per year to EBITDA from the end of 2019 onward. €16 million of this has already been achieved, including €6 million in the first half of 2018.

ONE US PROGRAM
From the end of 2020, this program is slated to deliver an annual EBITDA contribution totaling $15 million. The $4 million planned for 2018 has already been delivered in its entirety.