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Executive Summary

Steel is one of the most used materials in the construction industry and the economic situation has direct impact on the various stakeholders in the steel supply chain. Demand for steel in the Netherlands has declined from 5,7 million ton in 2008 to 2,6 million ton in 2012. Innovation and collaboration between parties involved in the steel supply chain is necessary in order to cope with this crisis.

Steel stockholders are an important echelon in the steel supply chain. Keeping inventories low, maximizing stock turnover rate, reducing stock-outs and creating efficient operations are essential to keep the steel stockholder business profitable. INAD Industrie Software has developed StockOP; stock optimisation applications to facilitate these objectives.

The advantages of StockOp for management:

Simulations over 2012 with data of INAD clients have shown the following results:

  • ✓ Yearly cost reduction of stock 19-31%
  • ✓ Inventory reduction 38-47%
  • ✓ The Bleeder Identification tool showed that on average 30% of the inventory consists of bleeders.
  • ✓ In the pilot more than 60% of the bleeders can be pooled with other stockholders.
  • ✓ Management can evaluate the cost impact of different scenarios by changing the required input parameters.
  • ✓ Less dependency on buyer knowledge and intuition. StockOp calculates the optimal buying strategy based on historical information.
  • ✓ All SKU’s (Stock Keeping Unit) can be ordered automatically since the program calculates the minimal stock levels.

The buyer can concentrate on more complex products and projects. The objective of StockOp is to help the buyer making decisions on:

  • ✓ How much to stock
  • ✓ When to reorder
  • ✓ How much to reorder
  • ✓ Which products to stock and which to buy via the StockOp Pooling program

The application StockOp consists of two programs; StockOp Local Optimization and StockOp Pooling Optimization.

StockOp Local Optimization

StockOp Local Optimization will help steel stockholders reducing the total stocking cost, which includes ordering costs, inventory holding costs and stock-out costs. Nowadays stock management is based on work experience of planners and buyers.

StockOp Simulation compares the actual stock levels and buying activities over a certain period of time with a simulation over the same period by using the calculated reorder point (s) and the fixed reorder quantity (Q). The tool takes parameters into account such as minimum order quantities, batch sizes and variable lead-times. This will give management insight in the possible savings.

StockOp Production recalculates on a daily basis the policy parameters s and Q of each SKU. It adjusts the inventory levels for the operation, advising the purchase department about how much to stock, when to reorder and how much to reorder.

StockOp Pooling Optimization

Presently stockholders buy products from different colleagues when they run out of stock. This creates pressure on promised delivery times that are normally 24/48 hrs. Therefore security stocks are high. With an inventory-pooling program in place buyers are certain that stock is available.

StockOp Pooling Optimization generates additional savings for stockholders when pooling non-strategic and bleeder products with colleagues/competitors. Only stock-holders that have implemented StockOp can participate because it is necessary to predict the behavior of stocks for having a consistent inventory pooling strategy between stockholders.

Main obstacle in this strategy is trust. Stockholders are not always willing to co-operate with other stockholders, even if there are proven benefits. To overcome this obstacle we designed a strategy that will give stockholders freedom to choose with whom to share stocks. In that way willingness of cooperation and trust between parties become more feasible.

The result is a completely decentralized inventory pooling strategy.

The Stock Pooling program consists of three tools: Identification of Bleeders, Maximum Price to Buy and Minimum Price to Sell.

The Bleeder ID tool will identify the SKU’s in stock which are not profitable. These are likely to be shared. The stockholder has two options:

  • ✓ Remove the SKU from stock and buy as a Cross Dock product from a colleague when needed or
  • ✓ Keep additional stock to fulfil the demand of other interested colleagues. Because of the additional sales a bleeder can become a profitable SKU.

With the Maximum and Minimum Price tools the buying stockholder can define the maximum price to pay in case of not keeping stock.

The seller can define the minimum price for selling stock. Both profit from the negotiations by reducing loss or increasing profit compared with the actual situation.

If the minimum selling price is lower than the maximum buying price, an arrangement between parties is feasible. A price in between is a win-win situation for both stockholders.