Steel Buyers Basics: Consignment Inventory Deals

In order to keep their operations running smoothly, steel buyers have to manage the difference between their company’s predicted use of steel and the actual demand.  Since flat rolled steel lead times from Steel Mills can be many weeks, buyers have to maintain large safety stock inventories to handle this discrepancy.  That does not mean, though, that the buyers have to maintain this stock themselves.

As discussed in a previous article, part of the value Steel Service Centers provide is to hold inventory for their customers.  Service centers can average the variation in supply across a wide range of customers and therefore are more efficient at planning inventory levels than any single user of steel can be.  However service centers charge for this service — a large steel buyer has another option, they can negotiate with their suppliers to establish consignment inventory.