Message of Commitment from the President

For an Earth, Society and Company that Continue to Survive and Prosper / President Takahiro Fujioka

Looking Back at FY2020

Aichi Steel celebrated its 80th anniversary in 2020. In the words of Kiichiro Toyoda, who started a business that led to establishment of our company, “Great cars are made with great steel.” Based on this belief, while still in the early years of the automotive industry, we set out on the uncharted path of manufacturing specialty steels for automobiles.

What we have inherited from 80 years ago is the DNA of “a sense of purpose for the future” and “willingness to pioneer new frontiers.” Over the 11 years since I became president, the whole of society, as well as the steel and automotive industries, have faced a time of tremendous change. We have experienced a series of ordeals, including the explosion at our Chita Plant on January 8, 2016, which we must never forget, but have still managed to transform the strength of individuals into a strong organization while achieving steady growth*1 over this time. Thanks to the January 8 accident, we were able to apply the knowledge gained and systems developed in our response to COVID-19 in fiscal 2020.

With prompt management decisions to establish a COVID-19 headquarters and support center, and expand the use of teleworking, we were able to create an environment for business continuity without loss of productivity while maintaining safety. We have organized our lessons from the pandemic into five themes to create a “new business style” that we are incorporating into our new Medium-term Management Plan and workstyle reform.

During fiscal 2020, COVID-19 created an extremely difficult business environment, resulting in dramatic reductions in sales volumes and increased prices for scrap metal, our main raw material. Production fell by 30% and operating profits were 2.7 billion yen in the red during the first half of the year. However, with a recovery of demand and the strengthening of Genryou Management (managing with limited order quantity) in the second half, we were in the black again after absorbing our first half losses and rapid rises in the cost of raw materials to achieve full-year net sales of 204.9 billion yen, operating profits of 3.5 billion yen, and profit attributable to owners of the parent company of 3.0 billion yen.

With the pervasive sense of despair surrounding the pandemic, I felt that we needed to commit to a positive financial result in order to maintain and improve employee morale. While we were unable to control the external environment, including demand and the price of raw materials, we were determined to implement Genryou Management, which was something we could do as a company. Genryou Management means building structures that are profitable even with small production volumes by lowering costs and break-even points, and maintaining those levels. Although our activities were only modest, such as determining and carefully managing fixed and variable Environment expenses, and consolidating our equipment*2, each of our companies committed themselves to their implementation. It is important to maintain these practices as they provide fertile soil for maximizing profits when sales volumes finally recover. This time, we have seen positive results and I also feel that these efforts have had a positive impact on employee motivation as well. For Aichi Steel, as the price of raw materials has a significant impact on profits, so we will continue to focus on implementing Genryou Management to become a company that remains profitable through production systems that are resilient to change.

*1 Steady growth: Growth that is ongoing, even little by little, like the rings of a tree that continue to be formed regardless of environmental change

*2 Consolidating equipment: Aggregation of multiple production lines and equipment, and effective use of excess equipment, line space and labor, to improve utilization rates

Formulating Vision 2030 for the Aichi Steel Group

On top of the pandemic, society is currently undergoing a paradigm shift based on ideas such as sustainability and SDGs. For us to continue achieving steady growth in this environment, we have to respond to social changes from a long-term perspective. To achieve this goal, it is essential that Aichi Steel has a core philosophy and framework.

For this reason, we have formulated wide-ranging frameworks that include the in-house company system that we introduced in 2017, the Aichi Way that we formulated in 2018 as a set of universal values and codes for everyone in the Aichi Steel Group to follow, and our brand slogan and Declaration on Labor-Management Cooperation, reinforcing unity between workers and managers, that we established in 2020. While facing an uncertain future, we have also established Vision 2030 in line with our renewed understanding of the need to work backward from an ideal future and incorporate ESG management into our business initiatives.

Vision 2030: Company of Choice Globally

Basic Policy Enhance earnings capacity by reforming business and manufacturing capabilities while putting ESG management into practice
Management
Guidelines
(1) Contribution to a sustainable global environment
(2) Creation of a prosperous society through business reform
(3) Employee happiness and corporate development

Clarifying directions for the company will change the perspective of employees and lead to forward-looking decisions about business and investment options rather than being short-sighted. With Vision 2030 launching in fiscal 2020, each in-house company and headquarters has collaborated on activities to promote greater understanding and penetration of the vision among all group employees. In just over a year since it was formulated, there has been a visible change in employee awareness, and we are starting to see the results in their thinking, words, and decisions.

Confronting a Dramatically Changing Business Environment

In establishing a range of frameworks and clarifying the core philosophy and framework of Aichi Steel, we now understand where we need to be headed as an organization. This means using CASE technologies, carbon neutrality, and digital transformation (DX) to strengthen the company’s foundations and accelerate implementation of more essential initiatives.

CASE (connected, autonomous, shared & services, and electric)

To survive the once-in-a-century transition that the automotive industry is undergoing, we have to offer products that contribute toward the A (autonomous driving) and E (electric) elements of CASE technologies. Going forward, we will continue to accelerate our existing initiatives while driving further reinforcement and implementation.

GMPS autonomous driving support system
GMPS autonomous driving support system

Carbon neutrality

The Japanese government’s Carbon Neutral by 2050 initiative will have a significant impact on companies like Aichi Steel that are heavy users of electric energy. However, because this is a core mission for us, we believe that it also offers opportunities for our company, despite the difficulties it brings, such as considerable increases in energy and development costs. While collaborating with the government, other industries and competitor companies, we have established a task force, which I am leading, that aims to reduce CO2 emissions by 35% by 2030 (compared to 2013 levels) and work toward carbon neutrality by 2050.

To achieve these targets, we will develop innovative technologies for reducing CO2 emissions while maintaining focus on full implementation of initiatives we have been conducting in the past and initiatives we can conduct now. If each organization determines how to reduce energy consumption in each and every process of their production activities, and how to develop energy-saving technologies, and then establishes targets that they put into practice, then it will demonstrate the likelihood of success and encourage employees to move forward. I am confident that the unique Kaizen capabilities developed over the years by the Toyota Group can be applied to decarbonization as well. By expanding our capabilities, used in the past to overcome many ordeals, with a sense of urgency, we will work on achieving carbon neutrality going forward.

Electric furnace exhaust heat recovery system completed in 2020
Electric furnace exhaust heat recovery system completed in 2020

Digital transformation (DX)

Digital transformation has the power to improve the quality of information and increase the speed of management. It will help our businesses reform and support the “creation of a prosperous society through business reform,” which is a management guideline in Vision 2030. In April 2021, we established a cross-company organization with leaders assigned to each of the five themes to clarify directions and deadlines. Initiatives have been launched to create a resilient framework for manufacturing and developing talent. The reason that we chose the cross-company format was to maintain a bird’s eye view of the initiatives. Tasks that concern the company as a whole are connected because departments and organizations cannot complete them on their own. They have to understand the whole picture, including how the different things they have to do are connected, and what they ultimately want to achieve.

Under this organization, we will work to digitize data on tasks that previously relied on skills, intuition and tacit knowledge, and streamline partially optimized data from each process to create explicit knowledge. This will not only lead to faster management decisions but will also improve intellectual productivity as well to improve employee motivation.

Five DX Themes

In the middle of a business environment that continues to rapidly change, I realize that I must take command by demonstrating directions for the company and then determining whether we are going in the right direction or whether the methods we are using to get there are appropriate. I believe the proper course of action in a changing environment is to start afresh and proceed from there, so Vision 2030 will not remain unchanged. This is because it is important at this time to move quickly but with an eye on the future.

For details, refer to “Business Environment Changes

Positioning and Key Points About the New Medium-Term Management Plan

In April 2021, we launched a new Medium-term Management Plan to run for three years. This is an action plan under Vision 2030, as a concrete demonstration of the priority issues and roadmap for the first three years of initiatives to realize Vision 2030. With detailed information on what each of us should be doing in our daily jobs, the plan enables all employees to share the same directions and move forward to bring Vision 2030 to fruition.

It is clear that a vision cannot be realized if only supported by management, and it is more important for 100 people to take one step forward, than for one person to take 100 steps, so that we all advance as one. The idea of the new Medium-term Management Plan is that every employee must be able to feel themselves moving slowly but surely forward over the three years of the plan. For this reason, I am taking the lead myself to disseminate information through channels such as the internal newsletter, where I can speak my mind, in order to promote further understanding and penetration of the plan within the company.

There are four key points to the new plan that I want to focus on. The first is putting “ambidextrous management” into practice. It is only a matter of time before our steel and forging businesses start to decline if we do nothing, which is why we have to create products that add value and maintain profitability. On the other hand, in the areas of stainless steel and smart technologies, there are opportunities to create new businesses. This is why, under the new plan, we will put ambidextrous management into practice to both maintain and expand profitability.

The second key point is establishing specific three-year targets for carbon neutrality, CASE technologies and digital transformation, and ensuring steady implementation of systems to promote them. We will create a solid foundation over this time to support initiatives for realizing our vision for fiscal 2024 and beyond. Designated in April 2021 as a Digital Transformation Certified Company by Japan’s Ministry of Economy, Trade and Industry, we will continue to enhance these initiatives going forward.

The third key point is putting Genryou Management into practice and thoroughly implementing our “Jikotei Kanketsu” (defect-free process completion) approach, which are two ongoing initiatives for creating underlying strengths for the company. In terms of Genryou Management, we will continue to maintain profitability with resilience to upward and downward movements in response to change, and to achieve this we will ensure implementation of companywide efforts toward building a stronger company.

Jikotei Kanketsu” is an overall approach to good work practices, rather than a localized approach, that clarifies the work that each of us should be doing. Through this approach, employees review and continually improve their own work to enable downstream employees to smoothly complete their tasks without defects. In other words, the basic approach is to have confidence and pride in your own work no matter what that work may be, whether at Headquarters or elsewhere, not just at production facilities. Since 2018, we have been conducting “Jikotei Kanketsu” training for employees promoted to team leader positions, and we have been developing environments that enable instruction and practice of this approach in the workplace. We also continue to develop educational curricula, such as problem solving and the Toyota Production System (TPS), and through such efforts to develop our employees, we will improve the strength of our organization by improving the individual capabilities of each of our employees.

The fourth key point is incorporating a new business style into our new Medium-term Management Plan with the aim of using the lessons of COVID-19 to achieve growth for the company. The new business style comprises (1) safe and reassuring work environments, (2) contribution to all stakeholders, (3) enhanced work life balance (4) development of autonomous human resources, and (5) promotion of cost reductions in line with the TPS. I want to respond properly to the many different social and attitudinal changes that the pandemic has brought.

As one of the ways that we will achieve these goals, we have completely reformed our executive management structure. To achieve faster decision-making and speedier business execution that can meet drastic changes in the business environment, we have revised the format to focus on roles instead of titles, while bringing all management into one structure that we have simplified by reducing ranks and numbers. Under this new structure, I want to focus on the above four key points to help realize the new plan.

Overview of the New Medium-Term Management Plan

Measures under the new Medium-term Management Plan will embody the three management guidelines of Vision 2030.

Under the “contribution to a sustainable global environment” guideline, we will develop and improve innovative technologies toward carbon neutrality from the 4R perspective of reduce, reuse, recycle, and renewable. I am leading the Task Force for Promoting Carbon Neutrality where we are implementing companywide initiatives under the three pillars of eco-management, eco-energy, and eco-production. The task force comprises six subcommittees in the areas of planning, technology innovation, energy conservation, process reforming, environmental conservation, and eco-products.

Under the “creation of a prosperous society through business reform” guideline, we will accelerate the creation of value-added products by reforming our existing businesses, and accelerate development in next-generation areas such as CASE technologies. Finally, we will pursue these efforts through the “employee happiness and corporate development” guideline as we continue building environments where diverse human resources can play active roles and where our employees can work with vigor and enthusiasm.

For details, refer to "Vision 2030" and the Medium-term Management Plan for Hagane, Stainless Steel, Kitaeru, and Smart companies

The challenge for survival in the future

Aichi Steel is a company that started from a determination to produce steel from scratch. This high aspiration, and innovation and creativity, are our DNA and our strengths, which have been passed down to us as assets. In the Aichi Way, we have embodied them in the form of action guidelines. As the only materials company within the Toyota Group, we have an obligation to supply high quality, low cost products to contribute to the growth of the group. As such, we have applied this awareness and practice to create specialty steel technologies that produce high quality products. Contributing to the businesses of all our customers, these technologies are appreciated not only by the Toyota Group but by other companies as well.

Within the steel industry of Japan, specialty steels are also considered to be the final stronghold against overseas offensives due to the outstanding quality and superior productivity they provide, and their excellent technical capabilities and competitiveness based on proprietary know-how. From the social dimension, the steel industry is situated in an extremely difficult situation. However, Aichi Steel is determined to tackle carbon neutrality and other difficult challenges, and to raise its corporate value, as the developer of specialty steels in Japan and as a company that underpins the growth of the Toyota Group.

Because of these difficult times we live in, I would like to raise “Survival” as my thesis (an assertion of intent). By formulating, sharing, and continually implementing a clear framework, we have been able to learn from our many past difficulties, including the January 8 accident. I feel that we have acquired considerable experience and knowledge, and as a result have dramatically improved our ability to survive. But this ability to survive is really “the power of people.” Going forward, I will continue focusing on developing human resources and, as per part of our company vision, create a corporate culture where every employee has a sense of “making a positive contribution to society” while creating an underlying strength for responding to any change in the business environment with a forward-looking, can-do attitude. Changes in our surrounding environment are intensifying, but we have to work together to survive these difficult times. I aim to continue leading the way and taking the initiative so that every employee can share the collective consciousness, and take on the challenges, of “Survival.”

I have been given the responsibility of ensuring that Aichi Steel continues to survive and develop as a company for decades to come, and that it remains a company of happy, smiling employees into the future, and I promise to do my best to achieve this goal.