Metal Center News

JAN 2018

Metal Center services the metal center and toll processor industry.

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Page 46 of 48

I n today's unpredictable and in- creasingly regulated business envi- ronment, we all spend an inordinate amount of time identifying and mit- igating risk as we balance the likelihood of the risk with the associated costs. Service centers are a working capital business and we naturally gravitate to evaluating the risk associated with the quality and quantity of our inventory related to our business levels. In addi- tion, we continuously weigh the qual- ity of our receivables along with the decision of whether to manage credit risk in-house or externally. The ever- increasing government regulations are time-consuming, costly and impact all areas of our companies. There are also the potential disruptors, such as, loom- ing changes in trade laws potentially disrupting traditional trade lanes and creating structural changes in the sup- ply chain. Other potential disruptors are the impact of technology on our ERP systems, material handling, value- added processing, back office opera- tions and finally the unknowns such as the impact of block chain technology and artificial intelligence on the econ- omy and business in general. These areas are everyday risks in our indus- try, some controllable while others are not, and we must be prepared invest the time, effort, and money to evaluate and respond to all such risks. This article addresses one such risk that has subtly crept into our industry – the shifting of risk from manufacturers and customers to distributors. Metal service centers traditionally have been a handshake business where people honored their word. The evolution of ERP systems, just-in-time inventory and more value-added relationships have caused the legalities in our busi- ness and the associated risk to become more pronounced. We are all faced with an increasing litigious society, and our industry is not immune. In addition, boards of directors with a mandate for overseeing enterprise risk are pushing to clearly define and mitigate exposure related to the goods and services their companies purchase and sell. As companies seek to limit their product risk in their purchase or sale documents, many requiring signa- tures, this has led to shifting risk to the middleman, potentially exposing our industry to holding the largest assump- tion of risk. Looking at the supply chain in a typical transaction, service centers have the smallest margin dol- lars per order and are the least likely in the supply chain to be the cause of a defect or non-conformance. We do not manufacture or engineer the product or have in-house metallurgists or sophis- ticated testing departments to confirm the material properties. We are the service component or distributor of the product offering a service in the supply chain. We may perform valued-added services as required by the end-use 46 ❘ Metal Center News — January 2018 Rebalancing the Supply Chain Risk Equation John Reid, Russel Metals View from the Corner Office " If distribution agreed to the terms and conditions of both the mill and customer, a claim can leave the service center in the middle of a difficult situation, taking on the largest risk in the supply chain and facing considerable financial hardship. " John Reid is the president and COO of Russel Metals, Mississauga, Ontario. He will become the company's CEO in May with the retirement of Brian Hedges. (continued on page 45) To sponsor this feature, contact your media representative

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