Times Call for Strategic Partnerships with Customers
Trish Cooper recalled the pride she felt when her company, MKS Instruments, received a top supplier award from a major customer. Then she described the frustration she felt a week later when the same customer dropped MKS in favor of an overseas competitor who was just 7 percent cheaper.

MKS Instruments, Wilmington, Mass., is a global supplier of manufacturing process controls. Cooper, MKS manufacturing manager, was part of an end-user panel at the Metals Service Center Institute’s Tubular Products Division Conference Jan. 14 in Miami.

Cooper was critical of recent steel industry price increases and surcharges, which lead to more outsourcing of American industry to low-cost regions of the world, she said. “Remember that cost is the driver. We are striving to stay competitive. Steel surcharges are a price increase to us.”

Cost reduction is a way of life at MKS, said Cooper. Even her company has moved some operations and departments offshore, though reluctantly. It requires a savings in the neighborhood of 20 percent for MKS to consider such outsourcing, she estimated, because doing business in a low-cost region presents so many drawbacks.

For example, language barriers and cultural differences are significant obstacles, and local travel can be difficult. More time must be spent on building relationships. Finding partners that can maintain product specifications is a challenge. The logistics of shipping material great distances requires long lead times, making it harder to take inventory out of the system. Fluctuating currency exchange rates mask the true effects of price increases and decreases.

The biggest challenge is maintaining quality, she said. “I would much rather buy from my machine shop down the street. We must never lose focus on quality and service.”

The key to combating the loss of manufacturing in North America will be the success of cooperation between producers, distributors and end-users to take cost out of the supply chain, said Dan Cadotte, senior manager of steel sourcing at Manitowoc Crane Group.

Manitowoc Crane seeks suppliers who are fair and trustworthy, who have a global reach, a constant focus on quality, high-level technical expertise, market savvy, and a willingness to change their approach when necessary, he said.

Offering a similar end-user perspective was Chuck Dombrowski, purchasing and program director for Parker Hannifin Hydraulics Group. His company seeks partnerships with metal suppliers who can offer technical strengths, consolidate purchases for volume advantage, and help identify niche markets and creative opportunities for cost containment. “These are the types of innovations we are looking for,” Dombrowski said. “Our customers want Parker near them. We want our suppliers near us.”

Call for greater partnership
“It is clear that between mills, distributors and end-users, there has to be at least an informal strategic partnering and sharing of information at a time of great concern to all three constituencies,” said keynote speaker and moderator Joseph Massey, director of the Center for International Business and professor at Dartmouth’s Tuck School of Business.

Summing up the day’s discussion, Massey listed six ways mills and distributors can help customers gain efficiencies and reduce costs:

First, the steel industry needs to do a better job of standardizing communications, bringing suppliers and customers together using the same terminology and formats for product specifications, prices, costs, etc.

Second, metals suppliers need to get involved with customers early on in the development of new products, to help design in the most efficient use of raw materials—and solidify the supplier-
customer relationship.

Third, service center salespeople need better training. “The salesperson needs to be an advocate,” Massey said. “He needs to understand the products and prices, but particularly how the customer’s needs match with what you can provide.”

Fourth, customers should be made to understand all the different ways the service center adds value to each order, from processing to packaging to delivery, so they fully appreciate the intangible benefits they receive and can analyze how much value-added they really need. (For example, a customer might be able to save money with simpler packaging.)

Fifth, more accurate forecasting can reduce overproduction and limit the accumulation of excess inventory at both the customer and service center levels.

Sixth, service centers should encourage customers to analyze the total cost of acquisition when selecting a supplier—including freight, handling, lead times, payment terms, reject rates, etc.—not just the base price of the metal.

“The challenge is how North American manufacturing—especially mature industries such as steel—can stay competitive under serious, sustained, increasing and dangerous competitive pressures from overseas,” Massey said.

To stay globally competitive, “we must have a competitive manufacturing sector. The intellectual capital of a modern society is tied to its manufacturing; its service sector cannot drive it alone,” he added.

Massey urged executives to take a realistic, balanced view toward the threat posed by China and other foreign competitors. Today, American industry has an advantage in technology, expertise, quality and proximity to the U.S. market, but the Chinese are highly motivated to improve.

“We can’t stay too optimistic,” he warned. “Irrational optimism about offshore suppliers’ inability to overcome these inefficiencies would be misguided. At the same time, we don’t need to be irrationally pessimistic, either. There are areas where North American companies can become more competitive, perhaps in partnership with Europeans and others, [in] offering high-quality products.”

Prompted by similar comments from service center executives, Massey criticized the U.S. government for its lack of a clear national strategy in support of American manufacturing. Pointing to regulatory costs not borne by foreign competitors, such as worker health care, pensions, environmental rules and currency fluctuations, he asked rhetorically: “Is the government helping or getting in the way?”

He urged MSCI and other trade groups to “put pressure on the U.S. to think of ways in which government policy can be changed, adapted, moderated or modified to unburden industry. If that doesn’t happen, my guess is the erosion we have seen will continue for a long time.”