There are many ways of maximizing your steel sheet buy to save money and also to create productivity within your business. My advice to all steel buyers, big or small, is to closely follow the market. By becoming market savvy, you'll have a better perspective on the initial aspects to be considered, which are:

• The volume of sheet you buy
• The assortment of different qualities you buy
• How fast your operations turn over purchased stock
• Your ability to accurately forecast your steel requirements
• The need for multiple suppliers

There is no strict rule of thumb as to what is the minimum tonnage you need to buy direct from the steel mill, instead of a distributor. Most mills will have different rules. But if you buy a minimum of 500 tons of a standard product every month in a single size/thickness in coils, then most steel mills should agree to sell to you. If you buy smaller quantities, or a large variety of different sizes and thickness, then you will most certainly have to buy from a distributor.

The distributors and service centers always need volume to increase their buying power, so a buyer often can make very good deals with a distributor even for large volumes of standard steel in coils, which will then be shipped directly from the producer to the factory. The distributor will then add a margin of around 2–2.5% as long as there is no storage involved. If you source out of a distributor's stock, they usually will add between 8–10% margins on top of what they paid for the product.

Insist that your factories qualify at least two grades from various suppliers, in order to have more flexibility and to increase your negotiating power. This is especially necessary in times of shortages of steel—or, as now, when the mills are squeezing middlemen on supply and pricing.

To be really creative in making your steel purchasing strategy you need to have insight into such costs as:

• Inventory stock
• Turnaround time of material from stock
• Manufacturing
• Machine downtime, as well as changeover costs/stoppages
• Capital

Having insight into these costs gives you the ability to split your steel buy into big volume standard grade coils—these you could buy directly from the steel mills. You will have to source the smaller turnover, smaller volume, or cut-to-length/width products from a distributor/service center.

If you use many different variations of thickness, width and length, if your stock turnover is not that high, if it is difficult to forecast long in advance of your steel requirements, then you will have to source from a distributor or, two distributors. The benefits of buying from a distributor are:

• Just-in-time delivery
• Cut-to-length/width much cheaper than mills
• No need to take large deliveries; reduce stock by buying one truckload or half a truckload at a time
• Choice of different qualities from various sources

Steel buyers need to get updates on what is happening in steel worldwide. Steel salesmen will know very quickly if they are talking to someone who is not well informed on market conditions, and that will, for sure, be reflected in your pricing. (Editor's note: See purchasing.com and the subscription site purchasingdata.com)

Market knowledge gives insight into whether you want to import from abroad when the prices there are much lower, or take on higher stocks if you see that prices are going to rise. But most of all you will get a better deal if sellers see you are well informed.

One should also always differentiate one's requirements. Consider perhaps B-grade material, which will always be cheaper. Usually that will mean imports from third-world countries. But if you have a manufacturing process which requires you to constantly re-adjust your machinery for material which varies in quality, or you require a high quality finish, never be a price buyer only. Rather, pay a bit more for A-grade material. It will save you huge amounts in your manufacturing process.

When you only buy from distributors you are able through them to qualify different grades from different suppliers.

Your supplier will charge you a fixed transport price. I always got quotations from transportation companies to check this price. It's often better to buy FOT (free-on-truck) ex-works and pick up the material yourself.

Each supplier has its own extras list. These are then charged without any discussion, or sometimes you receive a letter simply informing you that extra list has been re-published. Very few buyers challenge this. So challenge it.

Discuss whether it would reduce costs if you placed bigger orders, or gave longer leadtimes. Doing this can in many instances lead to considerable cost savings.

There is also the possibility of joining a buying consortium. By combining your volumes with other buyers you create a much bigger negotiating position with the mills or distributors.

Also, make your buying a cross-functional activity within your company and this will always give the best results. Be aware of all the cost implications, involve your logistics department to help with transport and warehousing costs and involve sales and marketing to get better forecasts. Keep everybody informed of market and pricing developments. Then you can plan to buy in extra if the market is rising, or get rid of stock if it's falling. Then, the whole supply chain is better managed, everybody within the company better understands the purchasing process and it makes the whole buying process much more fun.