Strategic and Operational Management with Optimization at Tata Steel

Tata Steel has been striving to optimize its operations amidst scarce resources and capacity imbalances. To provide decision support, we developed a mathematical model based on mixed-integer linear-programming (MILP) and hierarchical optimization between 1983 and 1986. It considers marketing constraints, capacities, yields, profitability, routes, energy, and oxygen balances. Its use just for optimal distribution of power has provided a benefit of US $73 million in the first year of implementation (1986–1987). Tata Steel has realized other benefits, such as optimal distribution of scarce oxygen and liquid iron, optimal power cogeneration levels, break-even prices and quantities of purchased scrap, and optimal conversion of semifinished steel into finished products by other companies functioning as conversion agents. In the early ’8Os, the model shifted Tata Steel’s emphasis from maximizing tonnage to maximizing contribution to profits.