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Inventory Turns – Somebody Pays

Recently we touched upon blanket orders. Today, we are going to look at them specifically as to how they might relate to inventory management.

So, my favorite cautionary snippet warns about “Not shooting pool with anyone who’s first name is the name of a major city.” To an extent, there is wisdom in that. Unless of course you’re THAT GOOD! And, most of us are not.

When it comes to the idea of keeping steel in inventory, there is another snippet that suggests; “Better that you be stuck in an elevator with 50 first graders with fevers, ice cream cones, and intestinal flu, than hold steel bars as inventory.” Doesn’t seem to leave much room for any discussion. Just don’t do it, at any time, for any reason. That used to refer to slow-moving inventory. Today, however, it seams to refer to any inventory, no matter who you are; service center, end-user, manufacturer.

In a nutshell, no one is to maintain any inventory, but everyone is expected to ship their products next day. In reality, that philosophy results in what I refer to as “kick the can”. Someone has the inventory somewhere; we just want it to be someone else’s expense. Inventory is a necessary evil then, so long as someone else is carrying it. Or, as an old and dear friend of mine would always say; “Somebody pays!” Just move the actual mass of hard steel down the line until it is not so visible. BUT, how many decision makers do you want to be between your “Just-in-Time” company and availability of the actual goods? There is no avoidance; to deliver products with the speed expected today, most of us should actually maintain some inventory (that includes end users, manufacturers, and even service operations). We just need to insure we are capable of managing that inventory with a competence that approaches an art-form level.

Heavy industry is alive and well. Globally, there is a big need for digging, busting, breaking, grinding and pushing; dirt, rocks, yogurt, whatever. Service centers are tasked with anticipating the needs of that industry months or years ahead of potential orders. No easy task. End users, however, may witness repetitive usage of materials within somewhat predictable cycles. They enjoy a level of “forecast insight” that steel service centers would love to have, no matter how slight it might be. Yet fewer than you would imagine utilize the benefits of a useful and available inventory management tool; “Blanket Orders”.

Committing “forward”, to a dedicated source of supply, for a dedicated quantity of material, may be facilitated by using a blanket order. Not a bad compromise that protects continuance of supply and improves cash flow.

-Howard Thomas, January 21st, 2020

Steel Mills Are Changing – Take Two

Shortly following the end of WWII, many special military grades of steel became available to feed the ravenous growth in industries like housing and manufacturing. During that boom, the commercial sector found uses for new steel grades developed by the military, and price was not an object. Existing steel mills previously occupied with feeding into the war effort, misjudged the massive needs of a burgeoning private sector.

Armor Plate became wear plate liners for steel mills and mine trucks. Hardened alloy round bar intended for gun barrels on battleships became mandrels and line shafts. The clamoring public would end up consuming all that was available and that which was not yet available. During the next 30 years or so, even newer grades were developed with special properties needed by big users and big buyers. Automotive, Appliance, Railroad, Mining, and an upgrading military drove invention and innovation. That amalgamation of industry was dubbed “The smoke stack industry”. Steel salesmen were “Smoke stack chasers”. If you were a part of that smoke stack industry, your request for a special modified grade of steel saw it quickly become a standard grade or stock size.

New alloy grades, new production methods, new shapes and sizes would soon become the bread and butter items for steel sellers. In the latter part of the twentieth century, it was hard to imagine a size that was not a stock size in whatever shape. But, the driving forces of heavy industrial activity are cyclical. In time, and on the buying-side of the equation, designs would change, requirements diminished, saturation achieved. On the supply-side, steel mills would react to the cyclical downturns by limiting production or “Hot idling” mills. (Putting them into a short hibernation).

Mills accepted the unavoidable downturns but nothing immediately coordinated industry’s permanent disuse of an item with the mills eagerness to accommodate the needs of those industries. All was viewed as the cyclical behavior; the natural order of things. Nothing specifically identified “gone-forever” items. Right about at this time, the concept of mega-mills was gaining traction. Capabilities of the mills, along with the efficiencies were being improved.

Mills reacted to this ebb and flow by limiting production of certain items to coincide with industrial cycles. Some items would disappear from the menu of available steel, but only until times got better. A signal of economic rebound brought a rebirth of increased production to include not just new demand, but to align production with virtually the same menu of sizes and shapes offered before the “correction”. Important buyers needed only to wait until the next upturn, at which time they could order their new unique items, comfortable in the knowledge that they would also have the ability to order standard, or, stock sizes when and if they needed. Like sugar and bread in a grocery store; there when needed.

For decades that symbiotic relationship seemed destined to go on forever. But, in time customers became more educated at recognizing and predicting boom and bust cycles. They began to hate the bust cycles and incorporated inventory management procedures and systems to assist them in limiting purchases to all but critical need items. Steel service centers, the now and again marketing arm of steel mills, subsequently began to make adjustments to their own inventories. Altruistic philosophy be damned. If you’re not going to sell it, don’t stock it! The attractive mill price of big tonnage orders became not so attractive, definitely not sufficient to offset the detrimental effects of maintaining a grossly obese inventory. Now, the monster sized “Feed me Seymour” steel mills had to react. Smaller appetizer orders from industry did not fill the bill. So, into a climate of tonnage resistance from astute service centers and with pragmatic acceptance of the realities of their existence; the mills launched programs requiring even greater tonnage orders. Eventually, they would be required to prune back their offerings (grades, sizes, and shapes), strategically re-align or network with more responsive and efficient mini-mills and processors; or go into a “Cold Shut-Down”. Generally, the state of being a little bit dead.

-Howard Thomas, Sep 27th 2019