Another “Bust” Cycle for the Steel Industry?
I just got off the phone with the president of a steel finishing plant / service center. He said that their on-time delivery performance was terrible, and that their lead times had extended considerably. When I mentioned some ways to fix this issue, his response was classic: “The customers have learned to expect it” “We can't turn down orders. We just promise what they want to hear, then beg forgiveness”
And what do the customers do in these situations? You've got it! They order high “just in case”. They ask for it early, knowing full well that it will be late. Some of them will even double order.
And what do you think this same service center is doing with their orders for the steel mills? Right again. They're ordering high, and asking for it early.
It's called the “Multiplier Effect”. As lead times extend, and delivery performance slips, every level in the distribution chain starts “padding”.
And what then happens when things slow down, just a little bit, and suppliers begin to get on time?
Right again! The customers start canceling orders, and pushing out deliveries. They'll ask you to “hold it” for them until they really need it.
We go from “Can't Make Enough” to “Can't Give It Away” … virtually overnight!
Sound familiar? Classic Boom - Bust cycle.
Ask any customer which he'd rather have: An unfavorable, but realistic promise date? Or a “Tell them what they want to hear, then ship it when you can” promise?
When I mentioned that we could help them fix this situation, he said, "It isn't a priority. We're too busy. We're having a banner year".
His response is doubly interesting since we had also spoken a few years ago. He didn't want any help then either. Why? Right again! They were too slow then! Odds are, the answer will be the same in another year or so when this bubble, caused by artificially inflated demand, bursts.
When are we going to learn?
There are some simple, yet powerful ways to reliably promise, and deliver on time, and NOT turn down lucrative “urgent” orders, and, while still keeping the plant running at capacity, i.e. no “lost” tonnage.
You may not be able to protect the entire industry. But by maintaining reasonable lead times and reliable delivery performance with, at minimum, your "A" customers, you can dampen your own boom - bust cycle considerably.
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1262
Date Published :
Jul 8 2008