1981 - real per-tonne price but lower overall cost
As an independent steel producer, how can an independent customer -
say a forgemaster in Birmingham - benefit from steel at a lower
overall cost despite paying the real per-tonne price for steel? Where
subsidised steel from Government-owned nationalised producers is
There's two overall explanations
the "time value of money"
specific requirements accurately met
"Time value of money" was predominantly represented by
Literally, a lorry driving out of the gate with a load of steel was
taking it to a customer who had phoned in that order only two weeks
previously; this being in the manufacturing of a vast range of alloy
Delivery in 2 weeks, rather than 6 months (saves a lot of money on
stock levels and planning).
This saved customers an enormous amount of money on stocking and
planning. In being able to always immediately fulfil their customers'
requirements without needing to hold enormous precautionary stock
levels which a six-month delivery time requires.
"Specific requirements" was a very wide disparate range of details
each important to that individual customer.
Most were apparently entirely simple; however only an independent
Company with a lean effective leadership structure can mobilise
the detailed interventions when-and-where required to meet these ad
The Customer presses forgings with no "flash" (rather than hammering
with a "flash"), so size accuracy is very specific, in order to just
fill the die. The requirement is narrower than the rolling mill can
achieve 100% even with two trainees sent to assist the "rollman" take
at the hot-saw a sample for size measurement from every product. With the
"rollman" signalling to the roll-drivers "up", "down" or "same"
for every final rolling pass. However, the steel grade is common and
any out-of-size is diverted to general small order stock, leaving 100%
of the delivered steel to size requirement. The significant added
value which the customer paid far exceeds to small cost of the
simple pragmatic production intervention
The Customer specifies "3 tonnes maximum bundle weight". That's
because this is the maximum Safe Working Load (SWL) of this very small
customer's crane. Higher bundle weight and it can't come off the
lorry. The requirement matters. The Customer pays what is to this
steel manufacturer is a rather excellent per-tonne price - which to
the Customer is advantageous compared to a steel stockholder's price.
The customer specifies a very accurate length, bundled together. They
do take all "shorts" though these must be bundled separately.
Explanation - the customer has a highly automated forging line, which
can run fast with minimal intervention when supplied uniform stock of
expected length. Processing any other length requires intervention -
so the "shorts bundled separately" requirement is solicitously
fulfilled, enabling the customer to only occasionally intervene to
process a "run" of "shorts". The money explanation - the customer
gets charged very little more money for this very specific length
requirement because they still take 100% of the product in this
mutually agreeable arrangement.
(R. Smith, 12Dec2017, 10Feb2018)