General Motors is overhauling the way it buys and distributes steel, with the help of a supplier joint venture.
The centerpiece of the strategy is the Regional Steel Distribution Center, an $80 million warehousing and processing facility. Construction of the center, to be owned and operated by a supplier joint venture, will begin this summer at a site in Delhi Township, Mich., near Lansing. By moving to a centralized distribution point, GM hopes to get better prices for its steel and trim stamping plant inventory.
'We're going to be a heck of a lot more efficient in the way we order and receive our steel,' said Ron Schuster, steel purchasing director for North American Operations.
Each year GM consumes more than 1.7 million metric tons of steel, spending more on it than any other raw material: $6 billion worldwide.
Under the current method, the automaker's 13 stamping plants order steel from more than a dozen mills and several independent steel supply and processing centers. That requires each GM stamping plant to manage its delivery and inventory of flat-rolled sheet steel.
By getting the stamping plants out of the distribution and inventory business, GM hopes to improve work flow throughout its metal fabricating system. The distribution center will make regular just-in-time deliveries via truck to stamping plants in Flint, Grand Rapids, Grand Blanc, Kalamazoo, Lansing and Pontiac, Mich.
The quality and consistency of some of the prep work that is now done by outside firms should also improve, GM predicts.
By late 1998, when the distribution center is fully operational, steel mills will be able to ship 95 percent of the 1.2 million tons of sheet steel GM uses in Michigan directly by rail to the Lansing warehouse. Rail will allow GM to buy larger coils of flat rolled steel, which means better prices, Schuster said.
The center will have storage capacity for a 30-day supply of raw steel and a two-week supply of steel already processed for the stamping plants.
Ohio, Indiana next?
GM is so convinced of the promise of the Michigan center that it is seeking bids for two more steel warehousing operations for stamping plants in Ohio and Indiana.
Schuster said the distribution center, because it will be doing prep work now performed by outside suppliers, will not take any work away from GM stamping plants. But the automaker will use fewer outside processors, who act as intermediaries between the mills and stamping plants, Schuster said.
'This is not a process to eliminate steel suppliers,' he said. 'But we will have fewer processors.'
The joint-venture partners are Kasle Steel Corp., a steel processor based in Dearborn, Mich., and Nova Steel Processing Inc., a subsidiary of Itochu International Inc., a Japanese trading company that owns a variety of steel operations. The partners declined to disclose shares of ownership in the venture.
Automakers have purchased steel from independent distributors for years. The distribution center, however, pushes centralized distribution and processing to an unprecedented level, said Reginald Campbell, president of the Regional Steel Distribution Center and a vice president at Kasle. 'It's a big challenge,' he said.
Ford regional, too
Each of the Big 3 focuses on the steel purchasing and distribution system as an area ripe for quality improvements and cost cuts.
Ford Motor Co. uses regional steel distribution centers owned and operated by outside suppliers to store, process and deliver steel to its stamping plants in the Midwest: two in Detroit, one each in Cleveland and Buffalo, N.Y., and a fifth under construction in Chicago. Ford's distribution centers, while smaller than GM's, also are designed to 'leverage' the expertise of suppliers to reduce costs and improve quality, according to Mark Casey, Ford's global manager for raw metals purchasing.
Chrysler Corp. purchases sheet steel in volume for its own plants - and suppliers - and leaves it up to the mills to deliver the goods on time, said Jim Carleton, director of raw material and stamped components and assemblies.
Chrysler does not plan a shift to regional distribution centers. But Carleton said the company is 'intently looking' for ways to extract more efficiency out of its steel supply and stamping operations.