Reliable Steel Supply
Strategies for Minimizing Steel Supply Chain Disruptions
The steel supply chain is a complex web involving numerous stakeholders—from steel mills to various processors, multiple tiers of fabricators, OEMs, and end users. To maintain a smooth operation, all participants must synchronize their actions amidst rapid changes in customer demand and unpredictable external disruptions like natural disasters, geopolitical tensions, and extreme market fluctuations.
So, what can you do, as only one piece of this larger puzzle, to ensure that your supply chain runs as smoothly as possible, optimizing your operating efficiencies, cutting costs, and ensuring your customers' satisfaction? At Worthington, we leverage our industry expertise to provide valuable insights and actionable advice to navigate the complexity of the steel supply chain like a well-seasoned captain.
The Importance of Robust Communication
Effective communication is the cornerstone of supply chain management. Without it, you can’t orchestrate a synchronized dance with your suppliers and customers.
At Worthington, we’ve spent over sixty years transforming the concept of 'strong communication' into a daily practice. We’ve learned that effective communication is built on trust and responsibility. It's about our customers openly sharing their demand, specification, and consumption changes and us reciprocating with information on machine downtime, quality issues, mill outages, incomplete mill orders, and lead time changes. This transparent exchange of information empowers both sides to adapt quickly, ensuring a smooth flow in the supply chain dance.
The Most Important Items to Communication with Your Supplier
The elephant in the room regarding steel supply chain flexibility is that steel mills have long lead times, usually measured in months. How many months depends upon the product(s) you order and at what volume. A service center/processor, like Worthington Steel, will do their very best to be the buffer between the more rapid changes in your customer demand, product mix, and consumption levels – and the relatively slow pace of the mill. To be an effective buffer, we need information about your change requirements as soon as possible, allowing us time to identify alternate/additional sourcing and update our processing schedule to keep you in steel.
Demand Changes
While your supplier/processor can likely accommodate small variations in shipped tons, it is important to establish what level of change requires immediate communication. Your supplier will need time to secure additional steel when your demand increases. If it is falling, you don’t want your supplier to overbuy. Communicating your expected patterns of variance in demand ahead of time, with updates when reality differs from this expectation, will help your supplier be more prepared to react to your changing needs.
Specification Changes
In general, you want to maximize the amount of time the mill and your processer have for changes in your specification requirements. Simpler changes – like the width of your slit material – take a shorter lead time. Other changes, like the chemical makeup of your steel, will take a lot longer.
Consumption Changes
Communicating the cadence of when you need your steel is very important. If you require most of your steel the first week of each month, your processor will need to plan their production differently than if you require several smaller shipments throughout the month. The best practice to reduce the risk of damage inherent to storing steel is for your processor to produce your steel as close as possible to the time when you will consume it. If you discover that you need to push back or pull up demand, give your supplier as much time as possible for proper production planning that minimizes risks.
The Most Important Items Your Supplier Should Communicate to You
As soon as your supplier knows that something could or will cause a disruption to your normal steel delivery, they should communicate their contingency plans and options to mitigate the disruption. Below are common reasons for delivery delays:
Mill Outages:
The mills have planned and unplanned outages. Seasoned suppliers will stay abreast of planned outages through inventory management. They will check in more frequently during this time to ensure their purchasing schedule is on target with your forecasted demand. Unplanned mill outages, while rare, happen. To ensure the continuity of steel performance, your supplier must communicate with you about your options for alternate supply. Depending on your level of pre-production approval process (PPAP), a supplier should give you all the known differences in the alternate supply and the level of risk those changes pose.
Equipment Downtime
Suppliers, like the mills, also have planned and unplanned maintenance. Adhering to a tight preventative maintenance schedule is important to minimize unplanned downtime. When a planned outage is coming up, your supplier must communicate with you to ensure you have adequate steel supply through the outage.
Worthington has invested in building redundancy into our capabilities to mitigate the impact of unplanned outages. This allows us to switch processing to another line or location as needed. If an outage will cause a material delay, your supplier needs to communicate with you immediately to identify alternative supply opportunities.
Quality Issues
Due to the nature of steel, quality issues often aren’t apparent until your supplier starts to process it. These issues are often unpredictable and happen without much, if any, advance notice. Worthington does as much as possible to identify and weed out problematic material proactively. Your supplier must quickly locate an alternate supply when a quality issue arises. They must get your permission for acceptable deviations if a one-to-one substitute is unavailable. They are also responsible for expediting replacement material as part of their obligation to fulfill your order on time.
Changes in Mill Lead Times
Changes in mill lead times are a function of mill demand. Experienced suppliers will monitor trends and plan inventory levels accordingly. Your supplier must contact you to confirm your forecast of demand to ensure there is no gap in supply.
Make Contingency Plans
At Worthington, we embrace a resilient supply strategy to minimize disruptions. A large part of this strategy involves building strong relationships with our suppliers over time, ensuring a diverse sourcing options network. By working closely with trusted partners, we can quickly adapt to changing circumstances and maintain a steady supply of flat-roll steel to serve our customers. In addition, we’ve created many redundancies in our processing routes and capabilities. If a line goes down in one location, we can shift production to an alternate plant.
Our customers are not surprised that we advise building in manufacturing redundancies, where possible. However, they may be surprised to learn that we don’t suggest sourcing all their steel from Worthington. Dual sourcing protects our customers by diversifying risk and usually allows Worthington to shine directly compared to our competition.
Accurately Forecasting the Variance in Demand
Who can perfectly predict the future? We certainly can’t. If everyone knew exactly how things would play out, managing and optimizing their supply chain would be easy, but we all know that isn’t how the world works. The good news is that a perfect demand forecast isn’t required. What is needed is a good understanding of your demand variance. By how much does your demand rise and fall, and what is your %confidence in these trends? As you compare your forecast to actual results over time, you will uncover any biases and become a better forecaster going forward. The more your supplier understands your variance in demand, the better supply chain partner they can be for your business.
Invest in a Strong Inventory Management System
While implementation is always challenging and never goes as quickly as any company would like, we highly recommend investing in an MRP or ERP software platform that best meets the needs of your business. Finding an implementation partner who can guide you through the optimal setup, customizations, and training is equally important to ensure a smooth transition and a high level of adoption. At some point, we may have software that can read our minds and enter data for us, but for now, these powerful systems are only as good at the quantity and quality of the data your employees enter.
When data is reliably entered, you can know your inventory levels in real-time, preventing stockouts while minimizing the costs of carrying excess inventory. This, in turn, will improve your cash flow. The best part is that once these new processes are implemented in a system, you will no longer be reliant on the tribal knowledge of your current employees to make your business hum. If people leave, their process knowledge won’t leave with them.
At Worthington, we want to be the best partner we can be to help you manage your inventory levels. Over time, we’ve discovered that every customer is somewhat unique in how they consume steel. We take the time to get to know your business so that we can match the required flow. We also help you plan how much of an inventory buffer to carry. If you have a more specialized steel product with a huge demand variation, you must have more inventory than a widely available steel product with steady demand.
Embrace Innovation Through Continuous Improvement
Have you ever been left high and dry by one of your customers on finished goods? Have you experienced an extreme drop or surge in demand? – We see you pandemic! We’ve been there too. Supply chain challenges are present at every tier of the manufacturing supply chain, with common issues shared across the board. Completely mastering the supply chain is very aspirational. With so many variables outside our control, perfection is almost impossible. Instead, it is good to set your sights on creating a manageable method for continuous improvement.
For Worthington, this process started with forming an internal team called “The Transformation Team,” dedicated to continuous operational improvement. This group focuses on streamlining our processes through focused on-site projects with relevant employees and teams. The world is always changing, and having a team dedicated to keeping your processes streamlined to your customers and business needs makes all the difference.