Dec. 10, 2014
Don't Just Cut More, Sell More
Historically, steel companies respond to declining profitability in two ways: they look to lower costs by rationalizing capacity or cutting staff. Instead, they should rethink their sales process, maintains Kunal Shah, an analyst for Roland Berger Strategy Consultants, who spoke at last month’s CRU steel conference in Chicago.
Cost-reduction is useful, of course, but it only goes so far. And efforts to spread out fixed costs by increasing volumes generally backfire, as they reduce the margins on all products, not just the intended incremental volumes. This leads to a vicious circle of decision making, Shah said, where companies respond to the still-lower profits by repeating their mistakes.
Better to take a new approach to sales. Simply because steel is considered a commodity does not mean it must be sold like one, he said. Mills and service centers often leave money on the table by not extracting all the value out of a sale that they put into the product. Services such as warehousing, payment terms, expedited lead times, promised performance, personal relationships and other extras can and should be baked into the price of the material, along with an understanding by the customer of just how much value the supplier is providing.
For more from Shah and the CRU 2014 North American Steel Conference, see the December issue of Metal Center News.