Service centers can be a strategic ally when it comes to inventory management
November 9, 2012
A supply chain is only as strong as every link. That's why more metal formers are leaning on their material suppliers to improve their coil and sheet management. A couple of metal service centers offer up some advice for those metal stampers looking to do more.
Metal is money—whether it’s raw stock, work-in-process, or finished goods.
Metal formers have spent most of the last decade figuring out ways to minimize work-in-process and get finished goods out the door as fast as possible. That’s how they are able to free up cash and stay competitive: they have become adept at turning assets (raw material) into cash (purchased goods) in a very efficient manner. Turnaround time is the name of the game for most stamping operations.
But when you talk about raw coil stock, that’s another matter. A stamper can apply lean thinking in an effort to minimize raw material inventory, but supply chain reality dictates that it has to have a certain amount of material on-hand to be responsive to unpredictable customer demands.
That need to be responsive happens to tie up a lot of cash. In fact, in the Fabricators & Manufacturers Association’s 2012 Financial Ratios & Operational Benchmarking Survey, almost two-thirds of the 36 companies surveyed admitted that, as a percentage of sales, direct material costs accounted for at least 30 percent. For 28 percent of those surveyed, that number jumped to at least 40 percent. There’s plenty of room for improvement for companies in the metal manufacturing world.
Fortunately, metal service centers are well-aware that they can help metal formers handle their raw material stock more effectively. The problem is that purchasing agents may not be so engaged. In the age when one person rarely has just one responsibility, a purchasing agent probably isn’t spending voluminous amounts of time researching metal service centers. For the most part, if a service center can get coil delivered on time, it’s sitting pretty with the stamping company. If that isn’t happening, having someone spend a few minutes looking for alternatives through an Internet-based search engine is a likely follow-up exercise.
To provide a little more depth than an Internet blurb, STAMPING Journal spoke with a couple of service centers to find out just how they are approaching relationships with stampers. Following are four ways they have adjusted their businesses to be more supportive.
This is not a hard concept to understand. Service centers commit to carrying the inventory that its customers can’t or aren’t willing to carry.
“We realized several years ago that our role as a supplier was quickly evolving—a fact that has only been magnified with the economic challenges of the past few years. This means that we needed to change our model so that we are not simply a metals supplier, but instead an active contributing member of our customers’ supply chains,” said Annette Tiesman, executive vice president, United Performance Metals (UPM).
UPM is basically maintaining customers’ “overage,” as Tiesman described it, so that they can maintain consistent delivery of metal parts without the need to hold additional metal stock that acts as a hedge against unpredictable increases in orders. Tiesman said UPM is in a position of being able to accept larger mill quantities and distribute those across its customer base.
Of course, with that kind of relationship, a service center has to be responsive. That means the front-office staff needs to know what is happening in the back so that accurate information is being shared with the stamper looking for definite delivery details.
“The information flow about what’s happening in our plant moves in and out of our sales areas to the shop about eight to 12 times per day. We are communicating as to what is changing and what is going on. It’s just the nature of our business,” said Brett Zischke, sales manager, Admiral Steel.
Admiral Steel has one location in Alsip, Ill., but it has hundreds of customers in search of medium- and high-carbon steels and specialty alloy steels. That means it is dealing with customer communications throughout the day, and several of the inquiries are about getting material shipped out as soon as possible. That’s where clear visibility into the day’s shipments can assist a metal service center in providing an accurate answer about expedited service.
The accommodation for earlier delivery may cost a nominal fee or nothing at all, depending on the production activity that particular day. Zischke said the key is delivering a prompt answer to the customer, who is obviously pressed for time.
At one time a metal service center would have been able to get away with limited offerings to customers, but the days of carrying only 40,000 or 60,000 lbs. of carbon steel coils are over. Flexibility has become very important.
For example, UPM has in-house slitting and leveling capabilities on both the East and West Coast. If a stamper needs a specific width of coil, UPM can slit a master coil to the metal former’s specifications, even producing sheets if necessary.
“We leave metal in master coil form as long as possible to provide us the ability to tailor the inventory to the customer’s needs,” Tiesman said.
Working with a supplier that can respond to unusual material requests in a timely matter helps the metal stamper focus on its core inventory needs that 80 percent of its business requires.
If all steel were created equal, more metal stampers would have fuller heads of hair. Unfortunately, material inconsistencies make metal forming a true challenge for even the most experienced stamper.
The material’s origin can give a stamper an idea of just what to expect in terms of metal makeup. That leads to an important question: Is the stamper’s service center working directly with mills, or does it purchase a lot of steel from secondary markets?
Zischke said that Admiral Steel works directly with its mill suppliers to ensure that coils and sheets meet industry specifications, such as those set forth by the American Society for Testing and Materials or the American Iron and Steel Institute.
“We say this is what ‘normal’ is for that product, but we decide if we want it to be a little cleaner in the chemistry, closer in the tolerances, or better in the finish,” Zischke said. “It is all purchased to meet specifications that we put to the mill.”
Of course, traceability is an important aspect of being able to prove the material quality. Zischke said it’s not difficult to maintain that level of documentation when working directly with the mills that supply the hot-rolled stock, but it gets trickier when that material is sent elsewhere to be reworked with cold reduction.
“So we have to scrutinize them a little tighter and insist upon making sure that there is that link, even to the extent that we ask them to provide the hot mill certification that proves out what they claim they are doing with that steel,” he said.
Once those relationship are hammered out with the hot- and cold-rolled sources, however, Zischke said the focus falls on good recordkeeping. That hopefully reduces some of the material-tracking responsibility for the stamper while simultaneously providing some peace of mind.
Some supply chain relationships in the metal forming industry have evolved to the point where the material supplier can access the stamper’s database through the web and glean information to help arrange timely shipments of materials. It’s not a widespread practice, but when such a trust level is reached between supply chain partners, material delivery and management get a lot easier.
“It helps both the customer and us to make sure they have raw material, but better still, these types of data links also contain future needs and projections. We need those to be able to make sure that we have steel on the floor, because getting material in here is not a snap of the fingers,” Zischke said.
UPM invested in an inventory management system that allows for better tracking, forecasting, and modeling of inventory scenarios. Ward Sutton, UPM’s coil segment manager, said such a tool doesn’t replace conversations with the customer, but it can prove helpful in analyzing situations and providing solid data to make those conversations even more valuable.
“More than ever we find ourselves spending time with our customers to understand their demand, anticipated growth, and business cycles,” Sutton said.
Are metal stampers working with material suppliers dedicated to doing more than just dropping off coil at the front door? If they have any doubt, they should probably take the time to ask questions of their supply chain partners. In today’s manufacturing reality, they can’t afford not to.