Partnerships between supply chain partners, enabled by the latest cloud computing technology, can help companies avoid risky investments in brick and mortar.
Service centers today are concerned about running their business operations at an optimal level. They must scrutinize the feasibility of each new brick and mortar or production line investment to make sure the anticipated volume will more than offset the fixed costs. In general, if the projected volume is less than one shift’s worth of business, the investment will not be very profitable. If the facility can run at least two shifts, however, the investment is less risky.
Even more challenging is the sales risk of buying unprocessed steel at a reasonable price so the service center is able to sell it at a reasonable price to its customer. With steel prices sometimes as volatile as the stock market’s, inventory purchase and control becomes almost as risky as a new capital investment.
Today’s IT technology can help service centers grow by reducing both types of risk. Let’s assume a company has established a virtual network with various steel suppliers, customers and even other service centers. If the network can provide the eyes and ears of business events between trading partners, then unit capacities can be better optimized across the supply chain.
Consider the case where a metal producer has a good opportunity to sell to a new customer at a location remote from its current operation. The producer could choose to build a processing facility close to the customer’s location. However, it might be a better bet to choose an existing service center near the customer’s facility and ask about their available line time. If this service center is currently running just two shifts, the prospect of adding a third is additional potential revenue that cannot be ignored. In addition, the service center will not have to tie up its cash for the purchase of unprocessed steel and only needs to be able to connect to the virtual network between the metal producer and the customer.
Web applications administered in the cloud and offered as Software as a Service provide the basis of this virtualization idea. Add in e-communication capabilities to allow various business systems to talk to each other without manual interface and the reality of today’s virtualized community is established. Partnerships between supply chain links can endure as a long-term or short-term opportunity based on the business requirement.
Another customer issue is delivery lead times. A virtualized network may enable the flow of schedules, production activity and inventory visibility to promote a faster supply chain delivery time to each customer. Service centers may be able to greatly expand their business by entering into toll-processing agreements and charging for line time instead of incurring the cash flow risk of buying unprocessed steel at the wrong price.
Virtual supply chain partner relationships are popping up all over the country, with customers generally leading the way toward a paperless relationship with suppliers. More importantly the network is expanding to include raw material producers, service centers, toll processors, freight companies, foreign ports and warehouses—all connected, disconnected and connected again as business opportunities require.
Editor’s note: This article was contributed by the experts at Northrop Grumman.
Northrop Grumman Information Systems, Canonsburg, Pa., offers OpenTrac ERP systems for the metals industries. For more information, visit www.opentrac.com