Advantages of Strategic Sourcing in Steel Fabrication Industry

Introduction

Strategic sourcing is a critical aspect of the steel fabrication industry that enables organizations to maximize their purchasing power, minimize risks, align with business goals, continuously improve their processes, identify potential suppliers with strong competencies, foster better relationships with suppliers, enhance visibility and reporting, increase supply chain efficiency, mitigate geopolitical instability, and maintain flexibility in response to external factors.

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This article will delve into each of these advantages in detail to provide professionals in the steel fabrication industry with comprehensive insights and actionable strategies for implementing effective strategic sourcing practices.

Maximizing Purchasing Power through Supplier Selection and Negotiation

• One of the key advantages of strategic sourcing in the steel fabrication industry is the ability to maximize purchasing power. By consolidating procurement activities and analyzing the supply chain, organizations can identify areas where they can achieve cost savings through supplier selection and negotiation.
• Organizations can start by evaluating their current supplier base to understand spending patterns and identify opportunities for consolidation. This involves assessing suppliers based on factors such as quality, reliability, pricing structure, lead times, and overall value proposition.
• By consolidating their purchasing power with a select group of suppliers who offer the most value, organizations can negotiate lower unit prices and volume discounts.

Factors for Supplier Evaluation

Minimizing Supply Chain Risks

• Another advantage of strategic sourcing in the steel fabrication industry is the minimization of risks associated with supplier selection and supply chain disruptions. By analyzing historical data on spending patterns, organizations can identify trends and potential risks.
• This allows them to make informed decisions about supplier selection and negotiate favorable pricing terms. Factors such as production capacity, technology expertise, and financial stability should be carefully evaluated to minimize the risk of disruptions.
• Additionally, organizations must stay vigilant in assessing market conditions to proactively identify potential risks that could impact their supply chain. Factors such as changes in raw material prices, geopolitical instability, natural disasters, or economic fluctuations should be considered when selecting suppliers and developing contingency plans.
• To mitigate supply chain disruptions, and dependency on single source, organizations can also implement dual sourcing strategies by identifying alternative suppliers for critical components or materials.

Aligning Business Goals with Supplier Base

Strategic sourcing allows organizations to align their business goals with their supplier base. When aligning business goals with suppliers, organizations should consider factors such as quality requirements, technological expertise, sustainability initiatives, geographical location, and cost structure.

For example, if an organization prioritizes sustainability initiatives within their business goals, they may seek suppliers who have a strong commitment to environmental practices.

Continuous Improvement

• Continuous improvement is a fundamental aspect of strategic sourcing in the steel fabrication industry. Organizations should regularly evaluate supplier performance, market conditions, and internal processes to identify improvement opportunities.
• Organizations can implement feedback loops with suppliers to gather insights on their performance and areas for improvement. Key performance indicators (KPIs) should be established to measure supplier performance in areas such as on-time delivery, quality standards, responsiveness, and overall customer satisfaction.
• Simultaneously, organizations must stay updated on market conditions that could affect the supply chain. By monitoring factors such as raw material prices, technological advancements, regulatory changes, or shifts in customer demands, organizations can proactively adjust their sourcing strategies.

Identifying Potential Suppliers with Strong Competencies

Strategic sourcing enables organizations in the steel fabrication industry to identify potential suppliers with strong competencies. When assessing potential suppliers’ competencies, organizations should consider factors such as production capabilities (e.g., machinery equipment), technical expertise (e.g., welding certifications), quality assurance protocols (e.g., ISO certifications), innovation capabilities (e.g., research and development initiatives), capacity for customization (e.g., ability to handle unique project specifications), and financial stability.

Factors for Assessing Supplier Competencies

Fostering Better Relationships with Suppliers

Strategic sourcing emphasizes fostering better relationships with suppliers by actively engaging them in decision-making processes. By involving suppliers in crucial decisions, organizations can create a collaborative environment that encourages suppliers to deliver products and services aligned with the organization’s goals. Active engagement can take various forms, such as involving suppliers in product development discussions, soliciting their input on cost-saving initiatives, or seeking their expertise in improving supply chain efficiency.

Data-Driven Decision making

• Strategic sourcing relies heavily on data analysis to enhance visibility into spending activities, supplier performance metrics, and compliance standards.
• By leveraging technology platforms like eSourcing software, organizations can generate comprehensive reports that provide insights into sourcing projects’ progress, supplier performance metrics, compliance standards adherence.
• These reports enable informed decision-making by providing organizations with valuable information about their strategic sourcing initiatives.
• Moreover strategic sourcing enables businesses to optimize their procurement process by streamlining workflows and eliminating bottlenecks.
• By automating repetitive tasks like obtaining quotes from suppliers, comparing bid proposals or issuing purchase orders, organizations can reduce manual errors and focus on more strategic activities.

Increasing Supply Chain Efficiency

• Strategic sourcing enables organizations in the steel fabrication industry to increase supply chain efficiency by optimizing processes. One way to optimize the supply chain is by implementing lean manufacturing principles. This involves eliminating waste, reducing unnecessary processes, and improving overall operational efficiency.
• Another approach to optimize the supply chain is through demand forecasting accuracy. By leveraging data analysis techniques and historical sales data, organizations can predict customer demand more accurately.
• Inventory management plays a crucial role in enhancing supply chain efficiency. By implementing Just-in-Time (JIT) inventory practices or vendor-managed inventory (VMI) strategies, organizations can minimize stockouts, reduce carrying costs, and ensure timely delivery of materials.

FAQs

Overview: Retailers, Suppliers & Mills

When sourcing raw steel plate, purchasing managers have three primary steel plate sources: retailers, suppliers (also known as distributors) or mills.

Retailers include everything from big-box chains – such as Home Depot – to independent metal specialists, in-stores and online. With retailers, customers can simply walk into a store or browse a website, select an item and purchase the item at will.

Suppliers are “material middlemen.” They buy steel plate in bulk from a mill at discounted rates, store it in high quantities in warehouses and then sell the material to buyers with medium or high quantity needs.

Suppliers often sell by the “truckload,” or between 20,000 lbs. and 40,000 lbs. Suppliers offer a greater selection of steel plate product at lower per-hundredweight cost than retailers, since they deal primarily in bulk.

Mills are the producers of steel plate materials and offer a varied selection of steel plate product. In most cases, mills only sell direct to buyers in need of very large volumes of steel plate.

Service centers are another common source for processed steel plate (such as plate cut to specific sizes or shapes), but we will not focus on service centers in this article due to the variety of metal processing service options.

Related: Common Ways Steel Plate is Processed

Choosing Between Retailers, Suppliers & Mills

So which steel plate source is best for you? The answer depends on buyer needs surrounding five primary factors:

• Convenience: how quickly and easily do you need access to steel plate material?
• Product variety: are the grades and sizes you need common or specific?
• Price per hundredweight.
• Volume: how much product do you need?
• Inventory risk: can you buy in bulk and store excess? Or do you need smaller orders delivered over time?
• Buying methods: what options are available for placing an order?

Understanding your specific needs in each category will help determine which sourcing method(s) may be best for you.

Convenience

The most distinct difference between buying from retailers, suppliers and mills is the degree of convenience offered by each source.

Retailers are highly convenient. They carry very few steel plate products, but have these products readily available at all times. Retailers typically allow buyers to place a steel plate order via their website, which gives buyers the option to buy plate in just a few clicks.

Suppliers are significantly more convenient than mills, because they often have deep inventories and multiple inventory locations. They can respond to steel plate needs quickly (sometimes even within the same day), whereas mills usually require more than a month lead time on an order. Some suppliers, like Leeco Steel, are beginning to offer customers the option of ordering steel plate online via an ecommerce website to add convenience to the buying process.

Additionally, suppliers usually have experienced in-house teams that understand how to deliver large steel plate orders, which is an important convenience for many medium-to-large volume buyers.

Mills offer the lowest level of convenience, as they fill their production “books” (AKA: schedules) months in advance. Suppliers and retailers can handle these longer lead times due to large on-hand inventories, but buyers typically cannot. This is why only large buyers with specific, known material needs tend to purchase steel plate directly from mills.

Convenience of Credit

Retailers usually accept cash, check or credit card payments at the time the order is placed, making them highly convenient for smaller buyers.

Suppliers and mills almost never accept credit card payments due the large value of the average order. In fact, most suppliers and mills require buyers to undergo a business credit evaluation before the buyer can even buy.

Once a supplier or mill extend credit limits, buyers do have the convenience to place orders in advance but pay when material is received. In these situations, mills adhere to a strict 30-day payment window.

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Suppliers have dedicated credit evaluation teams to assess credit risk and can therefore offer more flexible payment windows (i.e. 45-60 days), making them more convenient for medium-to-large buyers.

Product Variety

Retailers offer a limited variety of steel plate products. They typically only carry common grades, such as ASTM A36 and AR400, and usually only in smaller sizes.

Mills, of course, offer the highest degree of product variety, as they can produce-to-order hundreds of grades across a wide range of thicknesses, lengths and widths.

Suppliers may not carry as wide of a variety of grades as mills, but they can often quickly procure whatever grades and sizes are needed because they buy from a network of mills. In these situations, suppliers offer a service to customers by doing the sourcing leg-work for them.

Price Per Hundredweight

Steel plate is priced per hundredweight – or cwt. Retailers offer significantly higher cwt than suppliers and mills as a tradeoff for the convenience of immediate product access and easy cash or credit payment.

Related: How much does steel plate cost?

Suppliers have stronger buying relationships with mills that allow them to buy steel plate at more competitive rates than retailers and most large buyers. Additionally, suppliers usually have lower operational overhead, as they have fewer facilities and greater fulfillment efficiencies, since their orders are larger in volume.

Mills can sometimes offer a lower cwt price than suppliers (depends on the grade), but they only sell to very high-volume buyers, and orders can take months to fulfill. What buyers might get with cost savings, they lose with convenience and speed.

Average Order Volume

The volume of a buyer’s need often helps narrow the choice of supplier. Retailers specialize in handling low-volume needs, especially orders less than 200lbs. Orders under 200lbs. can be shipped via standard ship methods, unlike heavier orders that require freight transit.

Suppliers’ sweet spot is any order greater than 20,000 lbs./10 tons (about half a truckload) up to whatever inventory limitations the supplier has for the requested grade and size.

It’s not that suppliers would never fulfill a low-volume need, it’s often that they simply do not have small-sized material. Most steel plate stocked by suppliers is 8-10ft wide by 20-40ft long. This would be well beyond the volume need of many retail customers, who typically request plate under 2ft wide by 2ft long.

Mills, on the other hand, thrive on high-volume orders. Mills produce heats – or batches – of steel plate products, usually in quantities of 120-150 tons per heat. When mills supply to direct buyers, they are usually supplying one or more heats multiple times per year.

Inventory Risk

One huge advantage of buying steel plate from suppliers or retailers is reduced inventory risk. Buyers can receive the exact inventory they need, when they need it, and not have to worry about running short or not having space to store excess material.

Suppliers offer the lowest amount of risk related to inventory levels, since they themselves have healthy levels of material on-hand and have a network of mills from which they purchase. If one mill delays an order, suppliers can turn to other mills for the material.

Retailers also offer low inventory risk, but have less demand visibility than suppliers (who often sell a bulk of their orders via contract, and can predict demand). For this reason, retailers have higher inventory depletion risk than suppliers.

Purchasing through mills comes with a lot of inventory risk. Buyers typically must buy larger loads of material and store the material until depleted. This requires ample storage facilities and the ability to move and manage steel plate (i.e. overhead magnetic cranes).

Additionally, mills are more at risk of running behind in production. These delays in inventory could leave a buyer scrambling to find material to bridge the gap between depletion and the next mill delivery.

Buying Methods

Retailers, suppliers and mills each offer different methods for buying steel plate, and it is important to consider which method best suits your order needs and which source is able to accommodate those needs.

Retailers offer the most buying methods, with the option to purchase steel plate in-person, on a website or over the . This gives buyers great flexibility in how they can purchase plate materials. However, buying from a retailer tends to be more impersonal, so they may not be able to accommodate special requests for less common grades or extensive processing.

Suppliers traditionally take steel plate orders through direct communication with a sales representative. But some – like Leeco – also offer the option to buy through an ecommerce website. Flexibility in how orders are placed allows buyers to customize the purchasing process based on their requirements. Buyers with simpler needs who are looking to quickly order a popular plate grade can opt to buy online, while buyers with more complex, specific needs can work directly with an experienced sales representative.

Mills offer the least flexibility in buying options, as they typically take orders via or with a sales representative. Most mills due not offer the option to buy steel plate online.

Weighing Your Options

With each steel plate supply source, there are strengths and trade-offs. Determining how important each factor is for you – as well as any other factors important to your business – will help guide you towards the right steel plate supply source.

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