Module 1 - Case STRATEGIC PURCHASING MANAGEMENT Assignment Overview Review the following article from Purchasing.com. Hannon, D. (2008). P&G uses Gillette deal to draft the blueprint for post-merg

"W e're working every day to keeping inventories in l ine with reduc ed demand," admits David Halcrow, vice president of purchas ing at Rus sel Metals Co in Mis sissauga, Ontario. ”This means very close c ontrol on stocks on a daily, weekly and monthly ba sis” for the firm that proc esses and dis tributes steel, nonferrous metals and superalloys through 57 servic e c enters in the U.S. and Canada.

Metalworking industry buyers s ourc ed only 32 million tons of metals in 2001, a six-year low. That forc ed the service center industry to reduc e its inventori es of steel, nonferrous metals and the superalloys by an es timated 13% to 11 m illion tons at the end of 2 001. Stoc ks have slipped further this year, and the distribution industry’s inventory-reduction efforts probably aren’t over, s uggests Bob W eidner, presid ent of the Metals Service Center Institute (MSCI) in Chi cago, the trade group that represents the majority of the m etals distribution firm s in North Am erica.

Of the service c enter buyers polled by Purchasing M agazine in April, 43% were m aintaining exis ting inventories , 37% were reducing in-house stoc ks and o nly 20% were expanding s tored metal tonnage. Steel Pipe & Supply in Manhattan, Kan., usually inventor ies 80,000 tons at its five service c enters in the Midwest. However, Andrew Becker, purc hasing agent, s ays he is reduc ing in-house inventories because demand for carbon steel , pipe, and tubing products “seems to be cons tant w ithout any upward spike yet this year.” Similarly, Kathleen Long, purc hasing agen t for service center Alpha Steel in Ham mond, Ind., is reducing in-house stoc ks of struc tural grades beca us e the available supply at the m ills for quick delivery is too m uch for current dem and, whic h is f lat.

“The metals dis tribution business requires that ser vice c enter organizations adapt to m arket forc es th at are unpredictable, and often can res hape the nature of the m arket,” says Barney O' Brien, president of Namasco Corp. in Roswell, Ga., which operates two d ozen s ervic e centers in the U.S. and Canada.

“For exam ple, m ore than 25 steel product producers in the U.S. and Canada have ente red into some form of bankruptcy reorganization. This developm en t m ay c ause a res tructuring of the dom estic s upplier base that could have a bearing on Namas co's future sourcing decis ions .” But, for now, the s ervic e center buyers appear to be able to get enou gh steel to m eet current dem and—exc ept in the Detroit area, where there is a definite tightnes s o f s upply from the mills this spring for autom otive-g rade shee t ste el products.Steel buyers nationwide polled in April, however, defini tely were c oncerned about future supplies of hot-rolled, cold-rolled sheet and coated s heet. “Pr ic es of she et steel were at 20-year lows in 2001 but now are m oving up quickly bec ause of the new tariffs that will reduce foreign-made produc t,” says W eidner of the MSCI. “At the s ame time, the demand im provement so far this year has been seasonal and s luggish. In this environment, s ervic e center ex ecutives are watching their in-hous e stocks very c arefully and the buyers (at the service c enters) a re nervous about how much new steel and other m etals to buy and when to have it delivered.” Processing is a factor Numerous buyers surveyed by Purc hasing say they are requiring more pre-production proc essing in an effort to m ake their internal fabrication operations m ore efficient. Many metals dis tributors have s tart ed m arketing the value-added process ing c apabilities o f their service center fac ilities . And several large s ervic e centers scrambling for the c ash to invest i n new equipment that will increase future productivi ty and efficiency—and compete against the independent toll-process ing c ompanies that hold no inventory.

Chicago-based Ryerson Tull, for example, plans to ma ke significant investm ents in new, highly autom ated material handling equipm ent to boost produ c tivity. "W e expect these inves tments to provide s ubstantial benefits when the m etals market improves, " notes Neil Novich, c hief executive officer. But, s ince he is n’t sure just when a subs tantial upturn i n dem and will occur, Novich says the 57-facility m etals dis tribution giant “is foc using this year on d eliberate inventory reductions.” Feralloy North American Stee l Co., a subsidiary of the Feralloy Corp. unit of Pr eussag North Am eric a Inc., has just completed a major information techno logy upgrade at Butler, Ind., as part of a new strategy to be more responsive to customer needs by improving its own internal she et steel inventory m anagem ent s ystem . Frank M. W alker, president of Fer ralloy, says the com petitive steel distribution m arket has required the investment at all of the com pany’s 10 coil proc essing and dis tribution plants “of the sophis ticated information s ystem s that will guar antee efficient and cost-avoiding m aterials m anagem ent programs.” Metals buyers rely on service c enters becaus e the qu antities they purc hase usually don’t give them enough leverage to buy directly from the mills , whic h have order-s ize m inim ums. Also, the buyers say that the supply of certain grades of metal are beco ming more limited, which necessitates s trategic allianc es with a limited number of distributors cap able of sourcing from onshore and offshore m ills. Y et, the results of at leas t three polls in the past year show that nearly half of the metals buyers are pla nning to reduce the number of s ervic e centers they will u se in the future.

“And the fact that supplier-reduction programs are far from over is another reason that we have to kee p a c lose watc h on how much and what we sourc e from the mills,” says Ernie Taylor, purchas ing director at Integris Metals in Minneapolis, the nation’s third-l argest m etals dis tributor. “W e have had to be very judicious in our mill-s elec tion process becaus e we need to pick the long-term survivors who will be around to provide the metals we need.” Another factor that has heightened distribution con cerns about inventories is that 66% of the nation’s steel buyers are involved in jus t-in-time delivery progr am s, according to Purchas ing Magaz ine’s landm ark s tudy of last autumn. At least a fifth of t hese buyers also have their ste el dis tributors m aintaining ownership and management of the invento r-som etim es at the s ervic e center, s ometimes at the end-us er’s plant--until the m etal actually goes in to produc tion.

Distribution experts s ay has created a form of inven tory trans parency, a process where the metals s ervic e centers evolve into extensions of a custom er 's purchasing and proc urem ent department rather than acting sim ply as a physic al dis tribution s ales c hannel for manufac turers. The problem for distributors is that costs assoc iated with such inv entory trans parency were absorbed easily when the m etals market was boom ing from 1990 into early 2000, but have been a money-loser during the 2000-2001 metalworking reces sion.

W here buyers s ourc e metals now, and in the future (% of total metals buy) SOURCE: PURCHASING 1995 20002005 forecast Producing mills 28 23 24 Servic e centers 64 65 58 Processors 7 7 14 Metal Service Centers tighten inventory controls - 2002-04-30 06:00:00 | ... http://www.purchasing.com/article/217399-Metal_Serv ice_Centers_tight... 1 of 2 1/14/2010 11:34 AM Average Rating: (0) Rate this: Resource Center Browse Categories Browse Companies Traders & merc hants 1 5 4 RELATED CONTENT TOPICS AUTHOR TOP RATED SPONSORED LINKS Featured Company Global Data Mining GDM specializes in global trade data, and helps pro vide global trade data and enterprise-wide data solutions to help importers and exporters around the w orld optimize & automate global trade processes.Working closely with the Content Specialists of... more Most Recent Resources Measuring The Impact of Procurement Training However You Slice It, Buying Energy is Unique Breaking Through the Relocation Cost Reduction Para digm: The Total...

Using Data to Identify Risks & Opportunity Enterprise-wide Trade Data Management TALKBACK We would love your feedback! Post a comment » VIEW ALL TALKBACK THREADS Top 100 Metals Service Centers: Buyers sourced reco rd $67 billion in metals from distribution giants 04/30/2009 Steel service center shipments down 42% from a year ago 02/19/2009 Buyers looking to reduce suppliers 05/02/2001 Big declines reported for nine-month metals service center sales 01/14/2010 Buyers ask service centers: 'What happened to JIT?' ... and a few other things 05/05/1999 Metal Service Centers tighten inventory controls - 2002-04-30 06:00:00 | ... http://www.purchasing.com/article/217399-Metal_Serv ice_Centers_tight... 2 of 2 1/14/2010 11:34 AM