MMI is the largest manufacturers of welded wire concrete reinforcement and fencing related products in the US and as such is the largest consumer of related steel wire rod. Following a period of down turn, the business engaged ADR to review their direct materials spend with a view to delivering savings.
The client was buying from 9 domestic mills plus 8 traders of import product into its 13 plants across 8 states. The steel wire rod purchase contributed some 70%-80% of sales. The main constituent of wire rod was ‘scrap’ and was bought by the client’s suppliers on the North American and global commodity markets.
Scrap prices had fallen by 50% over the 6 months to the point of ADR’s engagement but inventory levels (+8 months) did not allow the client to take advantage of scrap market price reductions.
This lead to the client having an urgent requirement to establish new contracts with reduced volatility (long lead time procurement and volatile scrap prices), better cash management, lowest cost position and assured supply
A detailed and formal tender document was developed and issued after substantial conditioning of 7 domestic suppliers (2 mills had closed). This was followed with detailed supplier presentations and rigorous cost break down analysis.
A series of negotiations resulted in contracts being established with just two domestic suppliers.
The results of the project:
- 12% savings on value added contribution (sales price minus scrap) at suppliers
- Introduction of scrap price mechanism to achieve industry lowest prices
- Inventory reduction being driven down from 8 months to 1 month
- 30 day improvement on supplier payment terms
- Effective contracts to secure supply
- Platform for further and continuous improvement
Reduce costs and increase savings
12% savings and improve supplier payments terms