Metals Price Transparency Brings Buyers and Sellers Closer Together by Building TRUST

If “imitation is the sincerest form of flattery, then perhaps being labeled a “disruptor” and compared to the likes of Amazon by an industry luminary isn’t such a bad thing either. Referring to the recent launch of MetalMiner (SM) Benchmark, Denny Oates, CEO and President of Universal Stainless named MetalMiner as a potential “threat” to the industry [stainless] at the recent Specialty Metals Conference hosted by MSCI in March.  
I guess it all depends on your perspective. When it comes to the inevitable arrival of price transparency in metals markets you can see the proverbial glass as half empty or as half full. We (and a growing number of other industry leaders) view it in a far more positive light. It’s simple really — when it comes to consumer demand for transparency, the choice is  pretty clear — get on the train or get run over by it. As former Chief of Staff of the U. S. Army, General Eric Shinseki, put it less delicately:  “If you don’t like change, you’ll like irrelevance even less.”
It’s natural to view any change to the status quo as potentially threatening but that most basic of human instincts — to fear something new — can often prevent you from seeing the opportunities that change brings. This, the first of a multi-part series on MetalMiner (SM) Benchmark, will attempt to shed light on this crowd-sourced application and show metal buying organizations as well as service centers and producers how this new capability can serve as an enabler creating trust between buyers and sellers, accentuating often overlooked value added capability, quality and on time delivery.  It also reduces uncertainty, speculation, and risk for all parties.
First, let’s set aside emotion and take a look at the facts — what has price transparency really meant in other industries? Let’s begin with the problem because most new solutions and innovations come from addressing an actual problem. In this case, the number one problem we hear from our audience always involves a version of “where can I get the price of (fill in the blank)?” And that “fill in the blank” typically covers aluminum, steel, stainless steel, copper, tinplate and GOES (grain-oriented electrical steel). In our world, if a customer wants something, figuring out how to give it to them is a good thing.
We’d argue that buying organizations constantly want to know:

• the price of the specific metal they are buying (form/alloy/grade/thickness)
• the forecast for that specific metal they are buying
• the historical price for that specific metal they are buying
• what other people are paying for that specific metal they are buying
• what the drivers are for the specific metals that they are buying

In that same presentation by Denny Oates, he argues wisely (below) the different strategies industry players, both mills and service centers will have to take in order to succeed.

The role of the “trusted advisor” appears prescient, except that we’d argue that being transparent with customers on what constitutes a “fair and reasonable market price” is something service centers need to embrace not fear. Trust between supplier and buyer is the currency of business in the new, high information, digital world in which we live. A case in point: An Accenture study of B2B sales suggests that 94% of B2B buyers say they conduct some form of online research before purchasing a business product. For large corporate purchases of more than $5,000, 34% spend over three hours researching products. Metals price benchmarking does not change buyer behavior, it simply makes it easier.  What’s interesting, though, is what happens when sellers embrace transparency and use it to endear customers to them.  
The insurance industry serves as a great example. Historically, people had to use brokers and/or call around to obtain rate quotes. That industry made a big shift 15 years ago by changing up how individuals could obtain price information. In fact, Progressive Insurance grew its market share 10% after making available their prices against their competitors, providing complete price transparency. Counter-intuitively, their market share went up (way up) with increased transparency not down because customers established greater trust with Progressive.
Others have done it as well. Think of Kelley Blue Book. KBB introduced range-based pricing for used-car values in October 2013. That service offered information in terms of how much buyers can expect to pay for a used vehicle as well as what sellers can expect to receive for their vehicle when they trade it in. The customer satisfaction scores tell the whole story, 95% of used car owners saying the information was valuable and 92% said they would use the Price Advisor tool to help them negotiate a fair price.
We see these two examples of what could happen with the proliferation of metal price information.

Greater Price Transparency Creates Stronger, Not Weaker Relationships

Our own beta testing supports the Progressive Insurance and KBB examples. Recently, a middle market food equipment manufacturer benchmarked their full range of 304 stainless steel sheet and coil as well as 1010 carbon sheet and coil and discovered that they were buying “better than market” from their existing service center. Now imagine what a rock star the service center looked like in the eyes of the customer!
Benchmarking will corroborate a supplier’s strengths just as easily and just as often as it will reveal a price that’s slightly above or below the norm. Think about it for a minute. Would you want to invest in a business that stakes its future success on concealing information from a customer?  That certainly does not sound like a formula for long-term success to us. The majority of the time, guess what benchmarking reveals? It reveals that a supplier is charging a fair market price, shifting the focus to all of the things Oates says are so necessary to reap future success: first in service, on-time delivery, processing capability, etc.
(Drop me a line if you want to know who that service center was, I’m happy to tell you: lreisman(at)metalminer.com).

Give the Gift of Benchmarking

Consider the small but significant range of benefits a service like benchmarking provides to both buying and selling organizations:
Buying organization benefits:

1. Quickly and effectively determine if prices quoted are market competitive
2. For contract purchases, see how the contract performs over time against the spot market
3. Provides the means for companies to manage their average costs
4. Provides the ability to swiftly identify alternative sources of supply by form/alloy/grade/size combination and by geography!
5. Identifies categories of material (from, grade, spec, and size) where the company has negotiated competitive pricing and where there is room for improvement
6. Reveals suppliers that are differentiating themselves not just on how well they buy from a mill but on on-time delivery, service and processing capability

Selling organization benefits (there are several more levels of intelligence available to strategic service center and producer partners, this list includes benefits to all selling organizations)

1. Obtain the current market price for the materials you sell
2. Provides the means of solidifying customer relationships, building trust and developing new customer relationships for targeted form/alloy/grade/size/geography combinations – in a new way
3. Understand price breaks/breaking points for quantity and size ranges
4. Avoid leaving money on the table when market prices change
5. Identify most popular forms, sizes and specifications of materials being consumed across multiple industries and buyer types
6. Identify the right time to raise/lower prices

Benchmarking Alive and Well in Other Industries

Clayton Christensen, the Harvard professor best known for his famous book, The Innovator’s Dilemma described innovation across a continuum of early adopters, early majority, late majority and laggards. Well, it’s not surprising that the metals industry falls squarely in the “laggards” category across most dimensions of innovation. After all, other industry segments have long ago adopted price benchmarking including the electronics industry, apparel, automotive and the plastics industry to name a few examples.
So, rather than view this innovation as a threat, the most innovative forward-thinking service centers and mills will not only embrace but adopt this technology and identify new ways to win market share, increase profits and create closer relationships with their customers.