Supply Chain Management and Raw Materials

Case Study 8. 1 Sedgman Steel * Background * Sedgman Steel Inc. : * North American Co. (diversified) * Annual Sales of $1. 7 billion * Syracuse Plant * Produces cut to length steel tubing and steel sheets to the automotive industry. * Customers provide specs for orders (eg. chemical comp. , thickness, diameter, etc. ) * Raw Materials supplied from 3 sources. * Tubing from sister co. (internally sourced. * Steel coils used for steel sheet production multisourced (2 Co. * Physical Distribution * JIT (Just In Time) to customer base. * Policy * Materials required 2 weeks prior to production * Procurement headed by Director of Materials Management (Isaac Theisen) * Alice McKenzie is the Production Material Control Supervisor * Resposibilities are * Incoming/outcoming transportation * Inventory control * Production planning/scheduling * Fill rates Asked to investigate large amount of current on hand raw materials inventory * Purchase spend made by Syracuse plant was$ 65-75 million/year * P urchasing manager @ facility was closely involved with sales to ensure sales pricing was in line with purchasing costs. * Inventory of raw materials on hand is $20 million * Issues * Too much raw materials inventory on hand * Inventory is piling up rather than beign used as constant rate of production. * Data Analysis * $20 million in raw materials inventory Warehoused next to facility in 50,000 sq ft building * Fehr Logistics Company (FLC) contracted to run inventory and logistics (3PL) * Contract specified # of staff to be employeed and working hours * Alice’s visit * Warehouse is full with both types of raw materials * Trucks waiting to be unloaded * 5 staff working when 8 typically was the regular staff running warehouse operations * Delivery of Raw materials was to be at least 2 weeks prior to production * Customer orders based manufacturing Fehr logistics controlled inbound transportation * Decision Criteria * Lowering Cost * Lowering Amount of inventory * Maintaining p roduction flow * Meet time frame established * Compliance with poilicies * Alternatives * Do nothing * Ensure 8 staff are working warehouse at all times fulfilling FLC’s contract obligations * Suspend buying of raw materials for a short period of time until a good chunk of raw material is used up. Build new purchasing processes for forcasting and shipping requirements from suppliers * Refuse shipments of current PO’s so surplus raw materials can be used up. * Absolve contract with FCL due to lack of competancy and hire a new 3PL to replace of FCL. * Request Return of Good approval from suppliers to get inventory close to optimum production standards. * Assumptions * FLC is not fulfilling their contract obligations * Purchasing has not forcasted correctly or purchased demand amounts in line with production schedules.