By Karen E. Thuermer, AJOTJust-in-time (JIT) supply chain management is a must-have business practice industry around the globe. Given the tight margins under which companies operate, time is money. Transportation needs to be closely scrutinized for efficiencies and savings. The metals industry is a sector still lodged in outmoded business practices. To reach the end customer, metals travel through many channels. Steel mills, steel refiners (producers), steamship lines, rail and/or barge providers, service centers, and truckers all play their role. Complicating the industry is an old boy network within service center and processor businesses. Attitudes here tend to shroud the industry in secrecy, rather than sharing ideas to facilitate better methods of supply chain management. “In other industries most manufacturers buy what raw materials they need when they want them,” says David Sinclair, vice president, Information Technology for Niagara LaSalle Corp. in New York City. “They are quoted against their supplier’s production schedule. Since the supplier can plan their own production consistently, they can usually quote the manufacturer a fairly reliable lead time.” The steel industry is not like that. First, mills (“the supplier”) operate with close margins and, therefore, produce steel in large quantities. Second, minimum quantities are quoted to buyers in tons. Third, even a company such as Niagara LaSalle, America’s largest independent cold-finished steel bar manufacturer, cannot buy enough steel to keep its mills humming. Fourth, whatever price a buyer is quoted may or may not be accurate. The price may end up being less, or much more. “There is a latency in the supply chain and a volume constraint up front,” says Sinclair. “Since the supply is not reliable, companies hedge inventory and create artificial demand if they think prices are going up. They will also stop buying if they think prices are going down. That, in turn, causes erratic demand patterns.” Despite the fact that the steel industry has been through significant consolidation, the business is still highly fragmented. Worse, although producers and service centers may have visibility into their customer’s inventory—and, therefore, can plan their own inventory accordingly, they play the hedge game. “Since customers can easily move between accounts, we can only plan on what we think the ultimate customers needs actually are,” Sinclair states. “There is a lot of guess work.” Arbitrage businessService centers, in particular, operate on an arbitrage basis where metals are purchased at the lowest price and sold for the highest price. Most are local companies that operate within 100 miles of their customers. An average sale hovers around less than $200. The way they handle their business impacts how they manage transportation needs. Russel Metals of Mississauga, Ontario, which operates 45 service centers throughout Canada, is typical. “The reason we have so many service centers is because we have thousands of customers,” explains David Halcrow, Russel’s purchasing and inventory management vice president. Its largest customer encompasses just two percent of its overall business. Service centers exist because Asian mills that produce most of the world’s steel today cannot provide JIT inventory. This side of the business must be closer to home. Consequently, the material Russel is responsible for picking up is stored in its warehouses. For this task, Russel Metals utilizes third party providers. Russel hires dedicated trucking services to ship the metals daily to customers on a JIT basis. With some OEMs requesting specified lot amounts, service centers are finding they must hold inventory until shipments are needed. Lead times for domestic produced steel may take eight to 10 weeks to reach the service center; 12 to 26 weeks if it is being shipped from overseas. The prices and demand from customers can shift when steel shipments are en route. Given the rapid increase in metals prices over