Severstal Best Run Business: Managing an Intelligent Enterprise
Andrey Kostenko is a Research and Development director at Severstal’s utilities security project, called SKIF. He says, “You may ask why this is our main business challenge — energy represent 10 percent of our total annual costs.” While Severstal generates 80 percent of its electricity, it depends on suppliers for the remaining 20 percent.
Kostenko explains that Severstal can’t accurately assess how much electricity it consumes in real time, so forecasting is very difficult: “We have to give a forecast for every hour of the next day to our supplier. We pay fines if we exceed that forecast or if we don’t reach the amount forecasted.”
The result? According to Kostenko, Severstal spends $12 million a year because of extra costs. “With electricity imbalances, we don’t know how much we really spend or consume.” The company pays an additional $1 million in fines due to incorrect energy forecasting.
As it turns out, energy fraud — and the lack of a real-time fraud detection system — has made accurate insight difficult. Fraud can include energy theft, “fake” energy companies asking for upfront payment without providing electricity, or utility companies charging more for energy than they’ve actually supplied.
Severstal believes that technology innovation will help prevent fraud and improve energy management. That’s why Severstal turned to SAP for help. Already an existing SAP customer for ERP and mining solutions, Severstal partnered with SAP to develop a prototype using Internet of Things (IoT) technologies to harness meter data, as well as machine learning and advanced analytics solutions from SAP Leonardo, a set of groundbreaking technologies, industry expertise, and services that help business become more intelligent.
In a highly competitive industry, this project exemplifies Severstal’s strategy to explore technology that will help bolster its profit leadership. According to its 2017 Annual Report, last year the company invested $27 million in IT and digital projects and “developed a strong digital team dedicated to trialing and introducing the latest international technologies.”
SAP’s proven design thinking and doing methodology got the project off to a smooth start. A kick-off workshop helped Severstal clearly articulate its energy management problem and identify who would use the technology. The SAP Design AppHaus team proposed a design-led approach that involved the end-users from the beginning. Including a mix of experts and end-users from IT and business, they started with exploration workshops, conducted on-site user research, and moved on to the early visualization of ideas with design prototypes that enabled the teams to uncover and identify the core issues. Discovering the problem was straightforward — improve forecasting and stop fraud — but pinpointing the end user led to some surprises. The team originally thought it would be used by electricity planners and technicians but ultimately, as Kostenko explains, “our real key users are security officers because they are responsible for detecting imbalances.”
The team created high-fidelity prototypes using SAP Build and SAP Fiori to address the issues on both personnel and technical sides. The SAP Leonardo design-led approach was key to the project’s success, resulting in the quick delivery of a role-specific solution to monitor energy consumption deviations in real-time using SAP Leonardo Analytics and Machine Learning Foundation. For example, one team may report that they used 100 kilowatts but department-wide usage shows that team used 400. The solution identifies the discrepancy and triggers an alert to security officers that there may be electricity fraud.
“We got a real helicopter view, and understood what’s going on. We went from feeling there was something wrong to knowing what was wrong“,
Andrey Kostenko, RnD Director Severstal Skif
Kostenko reports, “This tool has started saving us money already. Even being a prototype, we’ve detected several core problems and started solving them. I would guess that we’ve already saved one or two million dollars. And we hope real-time monitoring of imbalances and electricity consumption will let us save millions more.”
The SAP Design AppHaus facilitated an efficient project start and provided guidance with its user-centric approach and design-related services, following the golden rule of SAP Design to anticipate and proactively respond to end-customer needs. SAP Leonardo machine learning algorithms have been trained to recognize patterns in electricity use — and detect and flag deviations. SAP Analytics provide security officers with transparency into where the aberrations exist, highlighting problem zones.
Going forward, Kostenko and his team believe those machine learning algorithms could be applied in other use cases. For example, machine learning could help Severstal understand discrepancies in liquid natural gas, oxygen, and inert gas consumption. It could also be applied to business processes like accounting and procurement. Additionally, the company plans to add Big Data and blockchain capabilities to the fraud detection solution.
According to Kostenko, “As we become more intelligent, we will be able to manage more of our problems.”
About SAP Design and the SAP Design AppHaus
The SAP Design AppHaus team collaborates with customers by focusing first on users and their experiences. We guide customers and SAP to apply design methodologies in daily business and establish a collaborative spirit while optimizing the usage of SAP solutions for the end user.
Our approach is grounded in fostering creativity in three key pillars: people, process, and place. We help organizations drive innovative cultures by designing and establishing processes that remove obstacles to creativity. We also support our customers through the creation of innovative spaces, which enable people to do their best work. This focus has led to the successful design and implementation of 700 customer projects across a variety of industries.
This story was originally published on SAP News Center