The basic functions of a metal service center involve stocking programs, Kanban programs, and inventory management. Manufacturers need a reliable availability of metal which they can have delivered ideally next day. This allows the manufacturers to decrease the inventory they need to house and, in doing so, increase their cash flow. It is important to understand the needs of your customer, and be able to predict what those needs will be in the future.
“The first word you have highlight in the name ‘service center’ is ‘service,’” says Joey Johnson, VP & Regional Sales Manager at Kloeckner Metals Corporation. “Our customers are coming to us because they need the actual raw material, but they also need a service. They need delivery services. They need processing services. They need credit services. All of those things are why service centers are really in business in the first place.”
Inventory management is one of the most important roles of a service center. It is crucial to keep enough stock to cover customers through dips and spikes. At the same time, you cannot hold so much that aging or obsolescence occurs. You are paying interest with no return. You also run the risk of reduced profit or loss due to potential negative fluctuations in the steel commodity pricing.
“It’s a balancing act,” Johnson says. “You have to be very nimble with your inventory.”
The price of steel, mill lead times, customer demand, and customer forecasts all determine what this balance needs to look like. While steel service centers often have contracts with their manufacturers, they are usually indexed. Any way you cut it, steel is a commodity, so the price is going to fluctuate with the market. Forecasting the price of steel is important, as is the ability to observe and adapt to changes in trends.
“The timing is critical in our inventory management,” Johnson says.
In addition to these basic functions, metal service centers need to figure out how they can offer other services that add more value for their customers.
“We know that we can’t just do the standard ABCs of our business and be viable long term,” Johnson says. “So we have to continually challenge ourselves with, ‘How do we create more value?’ A service center needs to create and capture value.”
One way to create value is by providing fabrication services. In cases where the manufacturer is fabricating the parts in-house, this allows them reduce or eliminate some non-core processes. This, in turn, allows them to do higher value-added work in their facilities.
If the manufacturer is getting their fabrication services done through a third party, this creates logistical complexities between the service center, fabrication service, and manufacturer. Dealing with multiple entities can create cash flow problems, as well as liability problems. If there is damage to the product, you have to determine whether it was damaged by the service center, the fabricator, or during transit between the two. By getting the fabrication done at the service center, you eliminate these problems.
“It’s kind of a one-stop-shop, if you will,” Johnson says.
Another way Kloeckner has created value is through their digitalization strategy. Kloeckner has introduced a tool called “Part Manager.” This allows customers to view their inventories in real time, 24/7. They can place orders at any time, through the application. It is web based, so it can be accessed anywhere by a computer, tablet, or phone.
“In the beginning we all scratched our heads and wondered how much value would be perceived, because it really is a perception of value by the customer in this case,” Johnson says. “As we started to roll the concept out to a few key customers, the reaction we got was overwhelmingly positive.”
This tool cuts out a lot of time and effort on both ends. Before customers would have to send an email order or request for inventory and wait for a response. Employees at the service center would then take that email and manually enter and order into the system, or create an Excel spreadsheet to input inventory details. That process was inefficient.
With a tablet, a customer can now actually go out onto the floor and order your inventory while he is looking at what he need. He can view his parts history, measure previous forecasts against reality, and see how much is ready, all in real time.
“He can walk through the aisles and look at, ‘okay here’s what I need.’ He can order it on the spot,” Johnson says.
Another key to a successful metal service center is to be diversified. By offering a variety of services and products a service center can provide more solutions, create more value, and better weather commodity fluctuations in the market. Having a broad offering helps a service center utilize its full strength to a broader market, as well as with a customer that has a broad range of needs in products and services.
“We continue to strive to diversify our offering to our customers, so we aren’t tied to just one thing,” Johnson says. “We’re in a very competitive landscape. With the business we have, companies are looking for solutions-based partners. You have to find ways to create that value proposition for your customers to remain viable, as well as producing a return that warrants the investment by our company in people, equipment, and inventory.”