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Capital Spending to Increase as Machine Shops Seek Productivity

February 20, 2017 / , , , , , , , , , , , , , , ,


Thanks to an unstable marketplace, capital spending among machine shops and other metalworking companies has been down for the last several years. However, new reports suggest a rebound in the near future.

According to data from Gardner Business Intelligence (GBI), machine tool consumption peaked at $7.5 billion in 2014, and then contracted 3 percent in 2015 and 7 percent in 2016. Based on GBI’s Capital Spending Survey, projected total machine tool consumption in 2017 will be down an additional 1 percent. However, as reported here by Modern Machine Shop, the survey also shows that demand for core machine tools will increase in 2017 by 9 percent. In addition, GBI’s new econometric model for machine tool unit orders indicates that the rate of contraction in overall machine tool demand bottomed in July 2016 and will improve through the end of 2017.

Steven Cline, Jr., director of Market Intelligence at GBI, says the driving force behind the projected rebound is the need for increased productivity. “Shops need to increase productivity in order to remain competitive in a global manufacturing marketplace and to counteract the much-talked-about skills gap,” Cline writes in Modern Machine Shop. “More and more shops are turning to lights-out and/or unattended machining to achieve this increase in productivity, but new equipment, including machine tools, workholding and automation, is needed to run lights-out.”

As reported in the news brief, “Strategies for Training and Maintaining Talent in Industrial Metal-Cutting Organizations,” industrial metal-cutting companies have spent the last few years investing a lot of time and resources into their workforce. This has helped boost productivity and address some of the skills gaps, but the GBI survey suggests that shops are seeking a balance that requires investments in both human capital and equipment.

For example, Speedy Metals, an online industrial metal supply company and processor, recently upgraded its band saws to improve efficiency. “We had been searching for a reasonably priced, high-production band saw to add to our saw department and boost our production,” Bob Bensen, operations manager, tells Modern Metals. “We needed a reliable band saw that was going to stand up to the rigors of our fast-paced environment.”

Bensen went on to say that the new band saw, which has nesting capabilities and allows his operators to cut a variety of metals, has improved productivity. This, he adds, has given Speedy Metals a competitive edge and allows his company to continuously offer same-day shipping on quality parts and customized saw cuts that meet the closest tolerances.

Similarly, metal-cutting companies like Aerodyne Alloys are investing in new metal-cutting tools to further improve efficiency. Working with hard-to-cut metals like Inconel 718 and Hastelloy X, the metal service center decided to upgrade from bi-metal blades to carbide-tipped blades to get higher performance out of its band saws. After upgrading to a carbide blade, Aerodyne was able to tackle hard, nickel-based alloys, while also improving cutting time on easier to cut materials like stainless steel. According to a case study, this helped improve operational efficiencies at Aerodyne by up to 20 percent.

Of course, not all capital investments offer a good return. If your shop is considering investing in new equipment or tools this year, be sure to measure cost against productivity. According to the white paper, Selecting the Right Cutting Tools for the Job, managers need to weigh the following:

There is no question: Staying competitive in today’s market is tough. Demands for high quality and quick turnaround continue to increase, while cost pressures and issues like the skills gap remain. How will your shop respond? As the GBI survey suggests, it may be time to consider making some capital investments to ensure that your team is fully equipped to meet demands.

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Customer Outlooks Create Optimism for Industrial Metal-Cutting Organizations

February 1, 2017 / , , , , , , ,


Although there is still a lot of uncertainty surrounding the economy, many metals companies and experts are fairly optimistic about the short term. According to the January 2017 Precision Metalforming Association (PMA) Business Conditions Report, metalforming companies expect strong business conditions throughout the next three months.

Much of this optimism is based on positive forecasts for end-use markets. At the Metal Service Center Institute’s Forecast 2017 Conference, for example, economists and industry experts shared positive outlooks for several customer segments, giving the metals supply chain an idea of where to place their focus this year.

Below is a summary of segments that show some growth potential for industrial metal-cutting companies this year, as reported by MSCI. (You can access the full report here.)

While these are broad-based outlooks, they should provide metal-cutting companies with some confidence as they invest in existing customer segments or consider branching out into new markets. Knowing where the growth is located is a critical part of strategic planning.

Of course, the other key element is knowing how to best serve those customers—both new and existing. As reported in the news brief, “Strategies for Improving Customer Service and On-Time Delivery in Industrial Metal Cutting, on-time deliveries are no longer enough. Today’s customers are looking for trusted suppliers that go the extra mile. “Whether offering a new, value-added service or investing in certification, metal-cutting companies have several opportunities to cultivate a strategic customer relationship built upon premium service,” the brief states. (For some specific strategies for improving customer service, you can download the full news brief here.)

It is far too early to tell how this year’s market will shake out, but as the above forecasts show, there are several segments that offer growth potential for industrial metal-cutting organizations. With a little strategic planning and a strong focus on customer service, companies may find they can make this year one of their best.

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Quality Comes First for Leading Fabricators

January 10, 2017 / , , , , , ,


Like many industrial metal-cutting companies, fabricators face the constant challenge of balancing speed with quality. Although most managers understand that both are critical, tight schedules and rising customer expectations are making it more and more difficult for companies to keep up.

According to the brief, “Strategies for Improving Customer Service and On-Time Delivery in Industrial Metal Cutting,” managers need to be sure that when push comes to shove, quality comes first. “While speed and agility are certainly key attributes of any leading metal-cutting operation, they cannot come at the expense of accuracy,” the brief states. “In sawing, for example, if an operator increases the speed of the saw to get more cuts per minute without considering the feed setting or the material, the end result will be decreased blade life, possible maintenance issues, and lower quality cuts. In the same way, companies focused solely on speed and delivery without considering the quality aspect of customer service will likely see other areas of their business suffer, including customer retention and costs.”

Leading fabricators understand the benefits of keeping quality high, and many continue to invest in this part of their operations. Madden Bolt, a fabricator based in Houston, TX, recently announced that it has earned its AISC certification from the American Institute of Steel Construction (AISC). The goal of the certification, the company states, is to further demonstrate to customers its commitment to delivering quality steel products—a step Madden says only half of the steel fabricators in its category have taken.

According to a company press release, the six-month AISC certification process was worth the effort and directly benefits customers. Specifically, the certification requires Madden Bolt to implement effective procedures that safeguard the specifications and agreements within customer contracts, including a system that would resolve discrepancies or deviations from contract requirements. Madden is also required to ensure that material ordered complies with design and drafting specifications and that the materials are inspected to meet ASTM standards.

Many fabricators are also in the process of undergoing ISO 9001:2015 certification. The quality standard, which was recently updated, is a best practice for many industrial metal-cutting organizations, including Metal Cutting Service, Inc. in City of Industry, CA. David Viel, president of the specialty metal-cutting shop, admits that while it is hard to pinpoint the dollar benefit ISO 9001 certification has brought to his bottom line, it has definitely offered a return on investment. “Our quality, if I had to make an estimate, would be in the range of a 20% to 30% improvement,” he says here in a case study.

Of course, certification is just one way fabricators can invest in quality. There are several technologies available that help industrial metal-cutting companies enforce quality control, such as the inspection tools used by companies featured here and here in Modern Metals.

Regardless of how you decide to ensure quality within your shop, the point is that you put in the time and resources necessary to make it a top priority. In today’s fast-paced market, slow and steady does not win the race, but fast and sloppy doesn’t stand a chance.

In what ways has your fabrication shop invested in maintaining high quality standards? 

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Training Strategies for Today’s Advanced Metal Fabrication Shops

December 10, 2016 / , , , , , , , ,


With all the buzz around connectivity and “smart” factories, it appears as if the manufacturing industry is on the brink of a major shift. Some experts, as we reported here, are calling this Industry 4.0. Even companies in more mature industries like metal fabrication are starting to realize that the demands of today’s customers are not only changing the scope of their work, but the way in which they actually need to do their work.

“Investments in fabricating technology, information systems, and employees will be necessary to stay on top of the growing complexity in the metal fabricating business,” Dan Davis, editor of The Fabricator, says here in a recent editorial. “There’s no other way around it in this world of massive customization in manufacturing.”

While most industry leaders understand the capital and technology investments that may be necessary in the near future, many fail to realize the growing importance of investing in employees and, more specifically, in their training. In today’s lean manufacturing world, metal fabricators and other industry metal-cutting organizations have been conditioned to think in terms of efficiency. This means that secondary activities like employee training are often neglected because they don’t directly contribute to the bottom line.

However, as stated in the brief, “Strategies for Training and Maintaining Talent in Industrial Metal-Cutting Organizations,” research shows that investing in areas like training can provide a host of benefits, including better quality, faster on-time customer delivery, higher revenue per operator, and lower rework costs. “Put simply, companies can’t afford to neglect one of its greatest assets,” the brief states. “By investing resources into the workforce, industrial metal-cutting leaders can better equip themselves for today, as well as the future.”

For shops that want (or need) to beef up their training programs, an article from Foundry magazine provides some insight on what it takes to create an effective training program. According to the article, training programs should include a strong combination of education, engagement, and use: “Training must educate by teaching skills, transferring knowledge, cultivating attitudes and hitting other specific targets. But training that is purely educational doesn’t get results. That is why training must present information in ways that are engaging, interactive and require the learner to think and use the information learned.”

The article goes on to describe a method often used in training known as VAK Attack. VAK is an acronym describing the three ways people learn, as spelled out below:

According to the Foundry article, effective training should include all three of the VAK principles so that employees can better learn and absorb the information presented. The author also suggests hiring an outside trainer to ensure long, impactful results. (You can read the full article here.)

It would be hard for anyone to ignore the advancements of the manufacturing industry; however, too many companies are ignoring the role employees play in today’s increasingly complex production environments. By investing in employees and their training, today’s metal fabricators can prepare for the future and, more importantly, stay competitive today.

How is your fabrication shop investing in employee training?

customer delivery

Enhancing Customer Service In Your Metal Forge

November 25, 2016 / , , , , , , , , ,


There is no question that customer expectations are changing. Companies like Amazon have raised the bar on what customers should expect from a service provider, whether that means Sunday deliveries or using the latest technology to improve the purchasing experience.

Not surprisingly, the so-called “Amazon effect” has found its way into industrial manufacturing. Supply chain consultant Lisa Anderson says she has seen this first hand with all of her manufacturing and distribution clients. On-time deliveries, she says, are no longer enough. Today’s customers are looking for suppliers that can offer faster lead times and value-added services that will benefit their bottom line.

While same-day delivery may not yet be feasible, industry leaders are finding several ways to enhance customer service. According to the brief, “Strategies for Improving Customer Service and On-Time Delivery in Industrial Metal Cutting,” the following are just a few of the strategies industrial metal-cutting organizations are using to better meet the demands of their customers:

Many forges and other industrial metal-cutting companies are also diversifying their services to better serve new and existing customers. In fact, Ampco-Pittsburgh Corporation has built diversification into its corporate strategy. Earlier this month, the Carnegie, PA-based forging operation announced the acquisition of ASW Steel, Inc., a steel producer based in Welland, Ontario, Canada.Commenting on the acquisition, John Stanik, Ampco-Pittsburgh’s CEO, said:

“This acquisition is a very important element in Ampco-Pittsburgh’s strategic diversification plan. ASW’s proven broad expertise in flexible steel refining methods will provide us with the capabilities to manufacture the additional chemistries needed to expand our reach in the open-die forging market. The transaction also enhances our ability to grow in markets in which we currently participate and to add new markets for customers in the oil and gas, power generation, aerospace, transportation, and construction industries.”

What does it take to keep your customers satisfied and, more importantly, gain their loyalty? In today’s demanding market, most industrial metal-cutting companies would say high quality, competitive costs, and on-time delivery. However, those have always been the hallmarks of any good manufacturer, and some might argue that the last few years weeded out any companies that even remotely lagged in these key areas. How you “amp up” your customer service game will largely depend on what you already have in place, but the above strategies are just a few ideas to get you started.

What is one thing you could do to improve customer service in your forging operation?

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Keep Your Machine Shop Competitive with Value Steam Mapping

November 20, 2016 / , , , , , , , , ,


Research continues to show that leading industrial metal-cutting companies are focused on continuous improvement. For example, according to the latest Top Shop benchmarking survey from Modern Machine Shop magazine, “top shops” (defined as the top 20 percent of the 350 shops that were surveyed) are more likely to apply lean-manufacturing methodologies than other shops. They are also more likely to have cultures of continuous improvement. Specifically, the survey revealed that 62 percent of top shops have adopted formal continuous improvement programs compared to only 46 percent of other shops.

The survey also found that shops are implementing a variety of improvement tools to stay competitive. One tool in particular that is widely used is value-stream mapping (VSM). In fact, the survey found that almost 40 percent of top shops are using this lean methodology compared to only 20 percent of other shops.

As explained in the eBook, Five Performance-Boosting Best Practices for your Industrial Metal-Cutting Organization, VSM is a “paper and pencil” tool that helps managers visualize and understand the flow of material and information as a product makes its way through the value stream. The map is a representation of the flow of materials from supplier to customer through your organization, as well as the flow of information that support processes as well. According to iSixSigma, this can be especially helpful when working to reduce cycle time because managers gain insight into both the decision-making and the process flows.

Although it is easy to become overwhelmed by the terminology, an archived article from Ryder outlines VSM in five simple steps:

  1. Identify product. Determine what product or product groups you will follow. Focus on one product at a time and start with the highest volumes.
  2. Identify Current Flow. Once you’ve defined the scope, the next step is to create a “current state map,” or a visual representation of how the process (or processes) in the warehouse is operating at the present moment. Key data points such as units per month, shipping frequency/schedules, hours of operations (available time), number of shifts worked, or any pertinent information around customer demand should be gathered before beginning the current state.
  3. Observe. Get on the floor and walk the entire process through step-by-step. Take notes and compile data such as inventory, cycle times, and number of operators.
  4. Make the map. Literally map out the process you just witnessed by drawing it out on a board. Include the data you collected and place inventory numbers under each step in the process. This will identify your bottlenecks.
  5. Create (and implement) a plan. Now that you know what and where your process improvements are, choose one or two to focus and improve on in a set amount of time. Once those are complete, you can prioritize the other bottlenecks to improve lead times.

One of the biggest misconceptions about VSM is that it is only applicable to high-volume shops. Like many other lean tools, VSM can usually be adapted to fit high-mix, low-volume machine shops. In an interview with Fabtech, Mike Osterling, a senior consultant with Osterling Consulting, Inc., explains:

“Let’s begin by pointing out that the front office processes (order taking and management) for low-volume, high-mix production processes are much more complex than the front office processes for high-volume low-mix environments – thereby meaning those value streams are in much greater need of VSM alignment!  So we need to start those VSMs at the receipt of order (or at receipt of a request for quote), and we need to include leaders from those areas in the actual VSM activity.  In some cases we can identify VS product families if there are products that are different, but they go through common production processes. In those situations, there may be opportunities to create areas of flow (or mini-flow).” (You can read the rest of the interview here.)

In an industry driven on speed and schedules, taking a few days to complete VSM or other improvement exercises may seem like wasted time. However, managers need to consider the price of not taking the time to focus on continuous improvement. Investing in tools like VSM can help your shop operate more efficiently, reduce lead time, improve customer service, and as research suggests, help you keep up with your competitors.

If you want to learn more about value stream mapping, iSixSigma provides a wealth of information available here, and the Lean Manufacturing institute offers educational classes and webinars here.

customer delivery

Improve Your Metal Service Center Operations with Standardized Processes

November 5, 2016 / , , , , , , , , ,


Process improvement strategies are nothing new to manufacturing. As an industrial metal-cutting company in today’s challenging market, chances are you’ve spent time finding ways to reduce costs while increasing output to keep up with rising material costs and customer demands.

However, with a slew of improvement strategies, tools, and technologies available, many managers have lost sight of one of the simplest ways they can optimize the performance of their operations—process control.

Process control can help metal service centers ensure consistent quality, and minimize blade and machinery failures that can cause a workflow bottleneck. While there are many ways to implement process control, standardization is perhaps the easiest and most successful way to keep employees moving in the same direction.

Standardized practices, as defined by leanmanufacture.net, dissect larger, overall processes into simple, easy-to-follow steps that any operator can easily perform. This standardized approach allows operators to perform tasks the same exact way every time, which results in using resources, such as time and raw materials, more efficiently.

According to the Lean Enterprise Institute, standardized work “is one of the most powerful, but least used lean tools. By documenting the current best practice, standardized work forms the baseline for kaizen or continuous improvement. As the standard is improved, the new standard becomes the baseline for further improvements and so on. Improving standardized work is a never-ending process.” The approach consists of three elements:

  1. Takt time, or the rate at which products must be made in a process to meet customer demand.
  2. The work sequence in which an operator performs tasks within takt time.
  3. The standard inventory, including units in machines, required to keep the process operating smoothly.

Benefits of standardized practices include:

Not convinced such a simple approach can make a big impact? Case in point—McDonald’s, the world’s largest restaurant chain. As cited in this article by consulting firm WIPRO, McDonald’s has standardized it “manufacturing” process for hamburgers so well that most of the organization is focused on growing the business, product development and marketing.

As described here, metal manufacturer ThyssenKrupp reduced work-in-process by 40%, reduced operator movement by nearly 5,000 feet per day and improved productivity by 9% by implementing standardized work at two working stations at its Sao Paulo, Brazil plant.

In today’s fast-paced market, process control is essential for metal service centers that want to grow against competition. According to the industry brief, Strategies for Improving Workflow and Eliminating Bottlenecks in Industrial Metal-Cutting, as the pace on the shop floor increases, metal service centers can’t afford a blade failure or costly mistakes that can slow down and stop production. Today’s metal service centers must focus on the process to identify and correct any mistakes on the shop floor immediately. By implementing standardized work, metal service centers not only gain insight into potential workflow bottlenecks, but also have a solid foundation for a continuous improvement plan going forward.

Even if your metal service center has a cutting-edge improvement plan in place, take a step back and look at your processes. Are they standardized? Have they gotten too complex? By going back to the basics and standardizing work practices, managers can optimize operations and ensure that every employee—and every process—is successful, every time.

What process controls and improvements have you implemented at your metal service center? Is standardized work one of them?

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Using DMAIC Methodology in Your Industrial Metal-Cutting Organization

October 1, 2016 / , , , , , , , , ,


Being a leader in today’s industrial metal-cutting industry is tough. In addition to dealing with external challenges like high inventory levels, falling commodity prices, and a slowdown in China, managers still have to deal with operational pain points such as process and workflow bottlenecks, resource allocation, and delivery schedules.

As stated in the eBook, Five Performance-Boosting Best Practices for Your Industrial Metal-Cutting Organization, thriving in today’s unstable market requires metal-cutting executives to focus on continuous improvement. “Whether implementing a lean manufacturing tool to improve processes or investing in training to develop people, proactive leaders are focused on making positive changes in their operations so they can quickly respond to today’s changing customer demands,” the eBook states.

One methodology many leaders are using as part of their continuous improvement initiatives is DMAIC. As explained here by American Society for Quality (ASQ), DMAIC is a data-driven quality strategy used to improve processes. Although it is typically used as part of a Six Sigma initiative, the methodology can also be implemented as a standalone quality improvement procedure or as part of other process improvement initiatives such as lean.

DMAIC is an acronym for the five phases that make up the process:

According to an archived article from Six Sigma Daily, the heart of DMAIC is making continuous improvements to an existing process through objective problem solving. “Process is the focal point of DMAIC,” the article explains. “The methodology seeks to improve the quality of a product or service by concentrating not on the output but on the process that created the output. The idea is that concentrating on processes leads to more effective and permanent solutions.”

DMAIC can be used by any project team that is attempting to improve an existing process. For example, SeaDek, a manufacturer of non-skid marine flooring, used DMAIC methods to reduce major inventory stockouts in 2015. The company went from 14 major stockouts in 2014 to one stockout in 2015, resulting in a materials cost savings of more than $250,000 and improving on-time delivery from 44 percent the previous year to 95 percent in 2015. (You can download the entire case study here.)

Paul Bryant, senior OPEX manager of LENOX Tools, says there are two key ways companies can identify when and where to apply the DMAIC method:

  1. Target highest scrap cost by machine and/or cost center
  2. Areas with low production yield or poor quality (i.e., high defective parts per million)

In his experience, Bryant says that DMAIC can be especially helpful in lowering scrap costs. Last year, LENOX made the strategic decision to start making wire internally; however, the blade manufacturer was working 10-15 hours overtime to keep up with weekly demand. “Using the DMAIC process, we reduced scrap and improved production speeds by 19.2%, resulting in $75K plus an additional $30K in overtime reduction,” Bryant says. “In 2017, we expect to pick up an additional 15% in production using the DMAIC methodology.”

Of course, the real payoff is what DMAIC can bring to the customer. “The ultimate expected benefit is that customers receive products of the best quality, on-time, and at lowest possible costs,” Bryant says.

Could DMAIC help your industrial metal-cutting organization? To learn more about this Six Sigma continuous improvement tool, click here for a detailed DMAIC roadmap or here for an overview and short video tutorial.

customer delivery

Making Mobile Technology Work for Your Metal Service Center

July 5, 2016 / , , , , , , ,


Mobile technology is impacting every industry, including the manufacturing and the industrial metal-cutting segments. In fact, VDC Research estimates that the number of mobile connections in global factories is expected to double by 2017, reports Business Solutions magazine.

Manufacturing leaders are integrating mobile technology into their production processes and procedures to gain better communication, collaboration, and responsiveness. In addition, manufacturing environments with hazardous conditions are forecast to use mobile apps more to improve worker safety and productivity. As metal service centers hold safety as a top priority, mobile technology can help reduce incidents while optimizing overall productivity.

To realize the benefits of mobile technology, it is important for manufacturers to consider how, when and where it will be used throughout the operation. An article from Fabricating & Metalworking magazine suggests that manufacturers answer the following questions before they implement any mobile technology on the shop floor:

The answers to these questions will help guide managers toward the technology set-up that will work best for their shops’ specific needs and requirements. For example, an operator in your service center will likely need to move around easily and would benefit from a smaller, hand-held device, whereas, an assembler may be better suited with a full-sized tablet to read detailed drawings and schematics. According to the Fabricating & Metalworking article, tablets or large phones offer both portability and convenience for many tasks and can still be easily placed in a holster or pocket.

There is more than just choosing the right mobile device when it comes to mobile technology, however. To truly optimize production, metal service centers need to also choose and implement the technology so that it truly meets the needs of the operations.

According to Merit Solutions, an IT consulting and development firm, there are four best practices manufacturers should consider when selecting and implementing mobile technology to ensure it benefits the business:

  1. Put problem-solving first. Before deploying mobile technologies within your manufacturing organization, ask what problems you’re trying to solve. Be sure to get feedback from employees on the needs the challenges they face. Their input is valuable and will likely guide you toward the right solution.
  2. Evaluate current infrastructure investments. When considering mobile technology for manufacturing, it’s important to assess what infrastructure already exists. Your current infrastructure will determine whether certain technologies are supported or if they are compatible and will function properly. Knowing your current set-up will also prevent wasting dollars on a duplicate investment or one that is similar to what you already have.
  3. Don’t neglect security. Security is a vital component of any mobile technology solution that prevents hackers from accessing confidential data. Make sure your mobile technology solution has a built-in security feature to help protect your business.
  4. Educate your employees. Mobile technologies will only make a business more efficient and productive if the end users accept and adopt the technology. If employees feel forced to use something they don’t understand, the technology will go unused. Be sure to explain why the service center is implementing the technology and, more importantly, how to use it before it is implemented. Employees should also know the proper security guidelines and adhere to them.

Like any investment, it’s also important to ask how the use of mobile technology could benefit your customers. As advised in the white paper, The Top Five Operating Challenges for Metal Service Centers, a rule of thumb before investing in any technology upgrade is to consider whether or not it enhances customer service. For example, how could it be used to help improve quality or increase delivery time?

While mobile technology can provide benefits such as improved portability and efficiency on the shop floor, implementing the technology so that it truly optimizes your shop’s set-up and production can be challenging. By understanding what your operation needs, how your employees will use mobile technology, and how it can improve customer service, metal service centers can better position themselves to get a full return on their investment.

To read more about using mobile technology on the shop floor, check out the blog post, “Adopting Mobile Technology within Your Industrial Metal-Cutting Operation.”

customer delivery

A New Inventory Management Strategy for Metal Service Centers

May 5, 2016 / , , , , , , ,


For any metal service center, inventory management is an ongoing challenge. Ensuring that the right amount of inventory is in-house while simultaneously working to reduce overall operating costs is not an easy task. Service centers have had an especially tough time striking this balance over the last few years.

As reported in our Metal Service Center Outlook for 2016, service centers spent most of 2015 working to wipe out their leftover inventory from the year before. Due to declining prices, service centers held their purchase orders in hopes prices would improve. According to data from the Metal Service Center Institute (MSCI), U.S. service center steel shipments declined in February by 4.6% from the prior-year, while shipments of aluminum decreased by 2%. As metal service centers focused on offloading high-priced materials, steel and aluminum inventories decreased by 20.6% and 21.6%, respectively from the prior-year.

Despite hopes the market would improve, prices only declined further, pushing service centers to continue offloading inventory and holding orders for better prices. The latest figures from MSCI report U.S. service center steel shipments in March decreased 9.2% from March 2015, and shipments of aluminum products decreased by 11.3% compared to the same time last year. Inventories in March also decreased 1.4% and 1.9%, respectively, from February alone.

A New Approach
Like any other operational area, managers need to approach inventory management with a commitment to continuous improvement. As stated in the eBook, Five Performance-Boosting Best Practices for Your Industrial Metal-Cutting Company, this is critical to thriving in today’s market. While there is likely no one “silver bullet” answer to the industry’s current inventory challenge, one strategy may help service centers find that critical balance.

As reported by Supply Chain 24/7, a new tactic called the Science of Theoretical Minimums (STM) is said to reduce cost and increase customer service. Unlike other inventory strategies, such as Just-In-Time and forecasting that only push the costs of inventory back to the supplier, STM reveals how much profit is currently untapped throughout the entire supply chain. This provides service centers with a clear picture of where to focus their efforts so they can monetize those supply chain gaps.

The basic premise of STM links actions to results by tracking two metrics—physical lead time and informational lead time. Physical lead times (PLT) are related to how long it takes to procure parts and transportation times. Informational lead times (ILT) track the time it takes for information to move between supply chain participants. After assessing both lead times, areas that can be improved are made evident, pointing out where operations can focus on optimizing the process to reduce costs.

According to the article, managing STM involves three key steps:

  1. Define a supply chain with zero ILT
  2. Define the PLT and its corresponding variability
  3. Define the cost difference between ILT and PLT

Together, the three steps inform managers where they can make beneficial changes with the most impact on cost. “The theoretical goal of supply chain management is quantified as the theoretical minimum, which is defined as that point where informational lead time is zero,” the article explains. “STM provides a theoretically grounded foundation for this goal, and does so in a way that is actionable for supply executives.” (To read more about the specifics about STM, you can read the full article here.)

Strategy into Action
Of course, the real test is when a theory is put into practice. According to the article, several big names have achieved quantifiable success after applying STM principles:

While today’s metal service centers need to operate lean and reduce operating costs in the wake of declining prices and shipments, they also need to complete orders in a timely manner and meet increasing customer demands. Finding the right inventory level will likely always be a challenge for service centers, but industry leaders focused on continuous improvement know that even age-old problems can be solved with new solutions.

What new strategies have you implemented to manage inventory levels while reducing costs?

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