Compliance, Integrity is the Mantra for Evolving Global Distribution Trends
Matthew Reagan, president of Industrial Metals International Ltd., New York, and Craig Simpson, managing director, Europe, Titanium Industries Inc., Rockaway, NJ, shared their insights on ever-evolving global distribution trends at TITANIUM EUROPE 2015 held in Birmingham, England UK.
Reagan said distributors cautious about business conditions in 2015, with the biggest worries being the collapse of energy-related demand and the effects of the strong U.S. dollar on exports. Titanium mill lead times running 18-20 weeks, while items like 3AL-2.5V titanium tube have longer lead times of up to 52 weeks.
Offering perspective on the passage of time and the progress of technology, Reagan made reference to the old “card system” to help illuminate the current state of affairs in titanium distribution. Years ago, because inventory used to be kept on cards, this forced distributors to update card catalogs on a weekly and quarterly basis. The advantage to this old-fashioned method was that buyers and sellers were forced to take the time to study inventory levels on a regular basis; in effect, tracking inventory via the card system “forced” buyers and sellers to maintain a “hands-on” discipline. The disadvantage is that this method was “incredibly time consuming and lacked quick access to statistical information.”
He then made mention of the game of golf as a networking and relationship-building activity. Aside from enjoyment of the sport, as well as a day away from the office, a round of golf sometimes was used as a way for manufacturing and distribution to step back, separate themselves from distractions, and review market trends, including inventory levels, and make decisions about future programs. Reagan’s point: relationship building is priceless. However, he did acknowledge that sometimes golf simply was used as an excuse to get away from work, which resulted in lost productivity.
Using these examples, Reagan seemed to be saying that distribution in the 21st century—while it has exploited the many advantages of technology—has lost an important element of vintage wisdom gained by previous generations of business leaders. “Today’s buyer is new to the industry,” he said. “They are willing to learn how to use new technology, but they do not have time and lack the expertise in product information. Unlike the past, a lot of inventory is based on long-term agreements. The days of keeping a full inventory in every size is becoming extinct.”
As for maintaining inventory stock levels, today’s consultants suggest putting in inventory based upon the weights of items such as airplanes, according to Reagan. “Divide the weight of each plane by the total amount of raw material needed, and that would give you a starting place of how much inventory to stock. This gives you a starting place for what grades and products to stock, but it does not allow for items such as maintenance, new development or cross-industry requirements.”
He did note that the current titanium market has remained stable after a dramatic downturn during the economic crisis of 2008/2009. “Inventories are lower until late 2015 based on current data. A jump in lead times or a movement in the LME will drive inventories up. Inventories are based on long-term agreements today more so than in the past.”
Key performance indicators
Simpson focused on the importance of “compliance and integrity” work as the critical way to measure success in distribution. “The bottom line is that integrity and compliance work must be a core competence of the firm,” he declared.
Integrity and compliance work, as outlined by Simpson, spans the entire distribution organization, encompasses the full range of business operations and products, goes far beyond regulatory issues, and applies both internally and externally. He said external compliance on the part of distributors should be governed by confidentiality, purchase orders, general terms and conditions and long-term agreements. Internal compliance to maintain a global supply chain will be governed by AS 9100 Rev C +, supply-base audits, third-party testing, alloy and heat traceability, documentation archiving, and a robust corrective action and preventive action (CAPA) process.
“Customers seek higher value at lower cost which is only accomplished through nimble materials management,” he said.
He also pointed out that KPIs (key performance indicators) are a business metric used to evaluate factors that are crucial to the success of an organization. Various business essays found online (for example, http://www.s4growth.com/publications/articles/28.cfm) explained that KPIs are tools used by an organization to define, measure, monitor, analyze and track performance over time toward the attainment of its stated organizational goals. KPIs must be quantitative and quantifiable (“if you can’t measure it, you can’t manage it.”).
Simply tracking data over time and reporting it back to management is not useful if the data itself is not meaningful to an organization’s measure of success. In the world of KPIs, there is a big difference between “need to know” and “nice to know.” In the former, the resources required to collect, analyze, interpret, and distribute the KPI information will almost certainly be worth the effort. This “need to know” data and information is what management will ultimately use to make its decisions for moving forward.
Global supply chain will continue to grow and value-added services represent the greatest growth potential for distributors, Simpson pointed out. “It’s expected that distributors will begin to carry a bigger load as market changes occur and the global supply chain continues to expand.” He also noted the unfolding shift in responsibility from original equipment manufacturers to Tier 1 and Tier 2 suppliers in the supply chain, in areas such as part and system “design authority.”
Citing data compiled by Bill Bihlman, the president of Aerolytics LLC, South Bend, Indiana USA, Simpson said that, for the aerospace sector, nearly 20 percent of titanium is sold by distributors compared with over 80 percent for aluminum. Fifty-eight percent of aerospace material sold via distribution is in North America, while 32 percent is in Europe.
Taking a snapshot of the overall 2014 aerospace distribution market, Simpson said Bihlman’s research indicates titanium represented 4 percent of the total 525 million pounds and 15 percent of the total value, $3.4 billion, compared with aluminum, 68 percent of the total pounds and 54 percent of the total value.