Like in issue 8/2000 of the Metal, we would like to refer to the topic of metal supplies and sales on the domestic market.
METAL SERVICE WAREHOUSE
METAL SERVICE WAREHOUSE
Like in issue 8/2000 of the Metal, we would like to
refer to the topic of metal supplies and sales on the domestic market.
Having been an independent business for a decade, the metal
commerce is facing several alternatives for further development.
There are many reasons for that because the changing market
environment calls for fundamental changes in the bare system of sales.
As a result of metal trading companies becoming bigger, the
number of traders is growing smaller all around. For instance, back in the 1960s Europe
had 1,700 firms with over 2,000 warehouses for metal and products, while at the end of the
1990s the number of firms halved with warehouses remaining about as they used to be.
Recently, there emerged a need to establish regional metal
service warehouses that handle 20,000 tonnes and over, along with the existing warehouses
for 1,500 tonnes per annum.
Main efforts are made today to win clients not with the
speed of delivery of metal products, but rather with good marketing and related services.
All around Europe, a client who places an order before 12
AM would get the products he needs on the next business day if located 90 to 100 km away
from a warehouse. Usually it takes 24 hours to execute 60% of all incoming orders for
metals and products. The common system of communications in metal commerce makes it
possible to process any order just seconds after it was placed.
Western Europe has around 5,000 warehouses that handle an
average of 8,500 tonnes of metal per annum. European warehouses occupy the total area of
some 40 million square meters and hold permanent stocks of over 10 million tonnes of metal
products.
Each business day, metal service centres and service
warehouses dispatch around 160,000 tonnes of metal products, almost a half of which is
delivered to clients on the next day. Besides to railroad, metal is carried by about
30,000 trucks with gross carrying capacity for 250,000 tonnes. Metal traders render
services to some 750,000 large, medium and small-sized clients throughout Europe.
At the moment, US metal service centres (MSC) and metal
service warehouses (MSW) treat about 75% of all products they receive, while some 30 years
ago that ratio barely reached 30%. Overall, MSCs and MSWs service roughly 500,000
consumers in the USA. About a half of iron and steel made in the country is sold directly
to consumers. At the same time, the customers who get some 17% of direct sales from
metallurgical mills consume some 70% of total sales made by MSCs and MSWs.
The system of supplies and sales abroad comprises numerous
consumers and just a few manufacturers. Those entities are linked together with a network
of large, medium and small trading firms (either independent entities or MSCs and MSWs
owned by metallurgical mills).
Today, we eyewitness the emergence of a brand new approach
to metal trade in Ukraine. Zaporozhstal – the leading iron and steel works of the
country – is opening one of its first metal service warehouses in Kiev.
We have asked Sergey Purik, director of metal sales
department with Trading House Zaporozhstal, and Sergey Loichenko, director of Metal
Holding company, to tell about their joint project.
Sergey Alexandrovich PURIK, director of metal sales
department with Trading House Zaporozhstal.
- Mr. Purik, Zaporozhstal is not only among the leading
integrated mills of Ukraine, but also an innovative force in marketing research. Could you
please tell more about this activity of the integrated mill?
- Like the prior period, this year has seen growing
consumption of metal products on the domestic market. The overall recovery of metal
consumption in various sectors facilitates this process. A strong trend towards revival of
the domestic market for metal products is taking shape. To a certain degree, domestic
sales have increased due to growth of domestic prices up to the world rates, limitation of
exports following antidumping inquiries, reduction in EU quotas, and world steel outputs
exceeding global consumption. As regards Zaporozhstal, the integrated mill also encourages
the growing domestic sales with an active marketing policy backed with establishment of
direct business contacts with large consumers and co-operation with metal trading firms.
When it comes to large clients, the approach is more or less clear (the current tasks gain
emphasis on economics); however, many issues arise with respect to metal trade.
Here is some statistics. Last year Zaporozhstal increased
the share of its sales on the domestic market and in the CIS from 15-20% to 30% of the
total. Not only the large clients, but also small and medium-sized businesses facilitated
this growth in sales. Let’s not concentrate on the conflicts among large integrated
mills, like Zaporozhstal, and small-sized consumers and on the reasons for emergence of
metal trading firms as those issues have been a matter of debate in other publications.
However, one cannot simply ignore this direction in metal trade. Having acknowledged metal
trade as a separate sub-sector inside the metal industry, we – as the leading integrated
mill – have to take responsibility for arrangement of civilised commerce with metal in the
country. This is among the main strategic goals of Zaporozhstal within the framework of
the mill’s development.
- Could you tell why you have chosen to make joint
efforts with the existing metal trading company based in Kiev region?
- Prior to answering this question, I would like to tell
about our strategic targets, namely:
establishment of metal service warehouses and service centres throughout
Ukraine to act as independent agents;
expansion of the scope of business and raising of revenues from rendering
additional services to clients;
definition of common principles of business with other companies in that
sector, including both manufacturers and traders.
Execution of these tasks depends on numerous factors.
Obviously, the metal commerce survives mainly due to competition among metallurgical mills
rather than metal trading firms. This adds some more problems to the existing ones.
Therefore, it becomes clear that horizontal integration is required along with the
vertical one. Understanding all this, we have chosen the types of business arrangement
when setting up an MSC in Kiev region. Indeed, we have joined our efforts with one of the
largest trading firms in that region. This integration yields regular advantages, such as
concentration of capital, regional specialisation, common information support and
consulting services, optimisation of management system, production and financial planning,
highly skilled management. This approach has been selected for Kiev region. Use of certain
approaches in other regions of Ukraine depends on many factors, including the level of
consumption in the region. In any case, we stand for open business; the professional
business based on partnership, for long-term and predictable business. After all, both
metal traders and manufacturers play the same game, i.e. encourage growth of sales.
Let me say a few words about our choice of Metal Holding
company, our business partner. We performed a thorough analysis of Ukraine-based trading
companies and found out that, though the number of such companies is overwhelming, just a
few own significant resources. Metal traders should realise that sales network, business
contacts, offices, staff, image, etc. (i.e. the points that are quoted when metallurgical
mills try to set up their own sales networks) have little to do with resources. For
instance, if one owns a TV set and a plug, it does not necessary mean that he has some
more of a resource. There could always be another one who could turn off the power.
Additionally, the problem is not in availability/lack of professional management. It is
just that many managers are not ready for that kind of integration. Development of private
business only exists in certain areas.
We enjoy working with Metal Holding because we share a
common opinion on how metal commerce should evolve in Ukraine, namely via effective and
professional management within the framework of integration processes.
- You have mentioned a common strategy of Zaporozhstal.
What new services are you offering to clients via establishment of the first metal service
warehouse in Kiev?
- Opening of the first metal service warehouse is indeed an
important step towards creation of the organised market in Ukraine. However, before
concentrating on the benefits our warehouse gives to clients, I would like to mention a
fundamentally new approach of Zaporozhstal to all lines of business. Understanding that
development of Ukraine’s metal market is directly linked to progress in other economic
sectors, the integrated mill has revised its sales policy towards greater activity on the
domestic market.
The integrated mill has a team of professional managers who
possess the sufficient skills to work in the market economy. The company’s management
and Vitaly Satsky, Chairman of the Board, have decided to hire young specialists capable
to making fresh decisions.
Those decisions came shortly after. For the first time, the
integrated mill held joint conferences with tube mills and machinery companies and
subjected business relations with those entities to a profound analysis. The whole cycle
from production to consumption was revised. Today, metal sales involve flexible and
transparent pricing and various types of settlement guaranteeing that all parties would
meet their obligations.
To revert to the original question, I want to address the
consumers of our flat rolled products. We hope that establishment of the metal service
warehouse will meet your demands as you would get a chance to instantaneously check what
types of products are in stock, to buy the products you need, make use of different types
of settlement and discounts, get the product delivered and obtain other services.
- And here comes a tradition question about the future
plans of yours.
- Indeed, we have big plans, yet it is too early to talk
about them now. To achieve further progress, we should prove that we have created
something new, necessary, useful and effective in this sector.
Sergey Valentinovich LOICHENKO, director of Metal
Holding company
- Mr. Loichenko, could you tell about the joint project
of Metal Holding and Zaporozhstal?
- The idea behind establishment of Zaporozhstal Metal
Holding company was to unite Metal Holding’s 9 years of experience in management with
capacities of Zaporozhstal, the largest integrated mill, in order to produce a new leader
for the market of flat rolled steel.
At first, I would like to say a few words about joint
venture Metal Holding. Our company has been in the Kiev market since 1992. We have broad
business contacts, from CIS member-states to overseas. Today, we are among the leaders of
the regional market. The company owns high-tech equipment and offers a wide selection of
flat rolled products. Owing to business contacts with metallurgical mills in Ukraine and
abroad, the Company has a chance to purchase various types of products to meet clients’
demands. Our major clients are construction companies and metalworking enterprises,
including Metallist Factory, Construction Blocks Factory, Kievgorstroi holding,
Poznyakizhilstroi, Kievmetrostroi, Ukrainian Railroad, manufacturers of concrete products
and private builders. The clients get an opportunity to purchase the kind of flat rolled
product they need and get many other services. Notably, the Company reduces billets to the
size that the client wants, performs welding and so on.
When required, Metal Holding delivers long products to any
point in Ukraine by its own motor vehicles or by railroad. Since our warehouses are placed
in central parts of Kiev city, consumers can quickly choose a product and formalise the
purchase.
During the two years of business experience with
Zaporozhstal, we have been able to get accustomed to each other. We have striven to act as
reliable business partners and permanent clients who pay on time.
Zaporozhstal Metal Holding should become one of the leaders
in metal trade in Kiev city and Kiev region. The first stage will see establishment of a
metal service warehouse that would take the first lane in sales of sheets and tubes later
on. When the consumers of Kiev region acknowledge this entity as useful, our goal will be
met.
- The modern international experience shows that metal
service centres are becoming more important year after year. What is your estimate of the
competitiveness of that new metal service warehouse in Kiev?
- Sales via metal centres grow year on year. Those
warehouses accounted for 10 to 15% of total sales back in the 1970s, about 30% in the
1990s and 60% from now on.
The Ukrainian market experiences a similar trend.
Service centres are becoming more important today. Domestic
sales of metal should be done via trading firms. Everyone would benefit from that:
clients, manufacturers and traders themselves. The first step towards integration of a
large manufacturer Zaporozhstal and the trading company has been made now. It will
facilitate establishment of vertical links among manufacturers and traders. Later on, it
shall revive the planned economy and the integrated mill will receive stable orders.
About 150 metal traders do business in Kiev now, though
none of them uses the principle of common supplies. As a result of this vertical
integration, metal commerce will partially and later fully turn into a retail business. To
put it in other words, trade in metal will further transform into smaller dealer entities.
When fighting for this sector of the metal market, it is
important to establish metal service centres are an independent technological link in the
sales chain. Secondly, the scope of business should be broadened via additional and
exclusive services offered to clients, e.g. cutting of products, delivery, handling,
e-commerce and information.
Zaporozhstal Metal Holding should turn into an intermediary
link between manufacture and consumers and will sit the leading position in the regional
metal trade.
- What do you think about competition on the metal
market?
- We pay proper respect to competitors and are not afraid
of them, while keeping close track of their developments. One has to constantly improve
his services and offer greater choice to clients. There are plenty of metal trading firms
on the market now and everyone has enough work to do. One has to make greater efforts to
attract customers and turn them into permanent clients. If a client leaves us, we must
analyse why and eliminate the deficiencies. The market always means competition, a
never-ending quest for perfection.