The recession has given the metal service center industry a refresher course in inventory management and it's not metal-specific. According to the November issue of Metal Center News, distributor inventories of aluminum are down an average of 42% from a year ago and steel inventories are down an average of 46%. One can safely assume similar conditions for inventories of other metals. Now that inventories are slowly approaching a state of equilibrium, distributors will be reluctant to add significantly to their stocks.
The mills, in turn, produce mostly for production and partly for depot stock. As distributors have turned to depots to replenish low inventories, purchasing low volumes of standard items, mills are likewise reluctant to add to expensive depot stocks preferring to run more profitable production orders that can be shipped relatively quickly. As depot stocks are depleted, mills will likely leave them as close as possible in that condition.
Our customers have been demanding smaller, more frequent shipments for many years now. In a low-demand environment like today's, that is the rule rather than the exception. And their customers are just as reluctant (and, ok, sometimes absolutely unwilling) to sit on inventories whether in raw, WIP or finished goods.
What I know to be reality is that the supply chain will be leaner moving forward. What I hope to be just as true is that customers and suppliers will likely learn to work more closely with each other so that, in my backwards game of "musical chairs", no one part of the supply chain will be left sitting on the "inventory chair".
-John Belzer
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