Tough Lessons Learned May Lead to New Normal
By Tim Triplett, Editor-in-Chief

You’re probably wondering: When will business get back to normal? In one sense, probably never. My guess is the service center market has been permanently altered by the trauma it has experienced in the past year.

The recession has given the industry a refresher course in the value of inventory management in a volatile environment. Service centers will likely be more conservative in their purchasing from now on. The temptation to speculate will be tempered by the first-hand knowledge of what can happen when a market suddenly turns. The entire supply chain has gone through the painful process of purging excess inventories and, like a dieter who has lost lots of weight, will be determined to keep off the flab.

This tendency toward lean management practices actually favors distributors. Even more OEMs and fabricators will come to rely on just-in-time deliveries from their local service center rather than keeping just-in-case materials on their own shop floors.

Customer relationships have also changed. Even in the current low-demand environment, service centers are snaring new business from customers who no longer buy in mill-direct quantities. If their needs are well met, they may remain customers even after their volume rebounds. The small-order, quick-delivery business model of the typical service centers plays right into the new market conditions. The volume of trade taking place between and amongst service centers is also on the increase. Large service centers report they are getting more orders from smaller competitors who, like many end-users, can’t or don’t want to buy in mill quantities.

Out of necessity, service centers have learned to do more with less. They have used the recession as a catalyst to slash their overhead costs, consolidate facilities, reposition equipment and cross train personnel. Out of wisdom, they will keep their organizations smaller and more nimble to capitalize on the productivity gains as the economy improves.

The service center industry re­ mains highly fragmented (the largest competitor claims only about a 6 percent market share). But the market malaise has shaken out many of the weaker competitors, and tight credit conditions will continue to claim borderline companies that cannot secure needed capital. The end result will be a consolidated service center sector that is more appropriately sized to meet current market demand.

A leaner supply chain, greater cooperation between trading partners, less speculation and more productivity—these are all likely lessons learned from the Great Recession of 2008-09. Perhaps we’ll never see the old normal again, but the new normal may actually be better.

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Wednesday, August 31, 2016