The encyclopedia · Strategy & Leadership · Strategic decision · 2001–2006
Elkem modeled its silicon network, then reopened a furnace on the answer
Elkem's strategic planning model mapped its silicon supply chain; the plan reopened a closed furnace, added $17M in equipment, and lifted revenue.
Elkem
The solution
Elkem's silicon division is the world's largest supplier of silicon metal and ferrosilicon. The economic slowdown that began in 2000 forced it to rethink its supply chain network and product portfolio.
Instead of cutting capacity by instinct, the division built a strategic mathematical-programming model covering future plant structure, possible closures, new plant acquisitions and production-equipment investment, then stress-tested plans with scenario analysis.
The result was a restructuring that reopened a closed furnace and converted equipment with a $17 million investment, with Elkem expecting a significant, sustained yearly improvement in silicon division revenue.
Why it worked
- Scenario analysis showed which capacity decisions held across different futures.
- Modeling the whole network exposed that reopening could beat closing.
- The model made a $17M investment decision defensible to management.
- The model became a tool for repeated strategic planning, not a one-off study.
What can be applied
Before closing capacity, model the whole network under scenarios: the optimal answer can be reopening a furnace rather than shuttering one, because logistics and conversion economics interact.
Aftermath
Elkem proceeded with the restructuring, including reopening the furnace and the $17 million equipment conversion, and the model became part of its strategic planning process; the case was published in Interfaces (2006).
Sources
- Elkem Uses Optimization in Redesigning Its Supply Chain
- Elkem Uses Optimization in Redesigning Its Supply Chain
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