For those of you with a consulting background, let us throw out a word commonly used in the first B2B Internet era – disintermediation. Back in 1999, the panic among the wholesale distribution industry centered on that concept: the notion that a manufacturer could reach an end-user cost effectively without the aid of a “middleman,” e.g. distributor. Then (and, ironically, still today) the threat largely came in the form of one company – Amazon.
Luckily for most distributors, including metal service centers, Amazon has provided an ample runway for the former to develop competitive strategies for differentiation. After all, the Amazon B2B threat, specifically Amazon Supply, has only launched within the past couple of years. And some may even argue that Amazon Supply poses less of a threat to the wholesaler distributor and serves more as a co-operator of sorts – by providing value-added services to suppliers and manufacturers.
In 2014, however, we look at the market a little differently than we did in 1999. To do that, MetalMiner began taking a look at metal service centers to better understand how companies compete today.
We didn’t have to search hard to find great examples of firms that have embraced some of the best practices espoused by organizations such as the NAW (National Association of Wholesaler Distributors).
In fact, one such service center, Klein Steel, has one of the foremost distributor experts on its board – Bruce Merrifield. After the 2008/2009 recession, the company remade itself into something of a supply chain integrator. Rather than supplying merely the steel or the simple part contained in a finished subassembly, the company orchestrated multi-supplier collaboration and finished part assembly for its customers.
In one case, Klein Steel worked with a company that produces parts for the oil and gas industry. Previously, Klein Steel processed and supplied one part with very tight tolerances while multiple suppliers each supplied sub-components within different tolerance levels. The result: the integrated parts didn’t always work together. By becoming the supply chain integrator, Klein Steel shrunk lead times from 25 weeks to 6, minimized inventory and provided an immediate cost-savings to the customer all without the customer needing to add any new machinery or processing in-house.
So how does a service center go about marketing these types of services to new customers?
“The key is having trusting relationships with our customers and finding those who truly understand their costs,” said Jon Kleinman, procurement manager at Klein Steel.
Gaining these types of customers remains a challenge, yet the results achieved ought to grab anybody’s attention. The company takes a more collaborative approach to supplier relations through its continuous process improvement (CPI) approach. For example, Klein Steel may examine making a circle from a square piece of material to minimize scrap and thereby bring in less material. IT initiatives and secondary processes also help drive out cost.
Klein Steel, with its customers, regularly measures cost savings (metal spend and ancillary spend), shortened lead times, reduced headcount, increased throughput, and increased productivity among other metrics.
In a follow-up piece, we’ll examine how Klein Steel grew its regional customer base nationally with a new certification.