Business Tips: How to Improve Demand Planning

The recent turmoil in the worldwide steel industry has proven to be a challenge to today's demand planners in this industry. Foreign imports, poor market conditions, bankruptcies, voluntary and involuntary closings, and other factors have all combined to make the market a volatile area to be involved in. United States Steel's Tubular Products Division (USS Tubular) is no stranger to these problems. While bankruptcies have not had a significant impact on the tubular products market (steel pipe), foreign imports have made an impact. For USS Tubular, the order books have slowly started a recovery. Not very long ago though, these order books were unpredictable. One month the books would be 80% full, the next month the order books were only 30% full. When the order books are only 30% full, many sizes and grade of pipe will be produced in a small amount of time. In turn, this increased variability plays havoc with the scheduling of the mills and the ability of the plants to order the raw materials necessary to produce the pipe. An order for the raw materials (the solid steel rounds produced by a steel mill), usually takes about three weeks to order, be produced, and be received at the pipe mill.

Current Planning Techniques

In the past, demand planning was conducted using industry experience, historical orders, current bookings, and current projected demands. These factors combined to let the demand planners schedule the pipe mills with some accuracy and allowed them to minimize the impact of material changes.

Historical orders were used to estimate orders that would be coming in. The pipe industry is pretty steady over time for certain types of pipe for certain times of the year. The demand usually follows a cycle that coincides to the oil and gas industries. During their drilling busy season, the demand for pipe usually increases. As the drilling season tapers off, the demand usually follows as well.

Current bookings are defined for the purpose of this paper as: any orders that have been placed for pipe in the future. These orders can be for several months or more into the future. Because of the lead-time on some types of steel pipe, these orders allow the mill to plan their production schedules usually about one month in advance. One reason for this is the lead-time needed to get the raw materials into the mill (solid steel rounds to make the pipe). These rounds are produced by a steel mill and then shipped to the pipe mill. Usually the plant stops accepting orders for a rolling for anything but the most common pipe about three weeks before it actually rolls on the mill. The mill is still affected on a daily basis because of the smaller orders and the necessity to change sizes often.

Projected demands for pipe are the also used to help demand planning for the pipe mills. Like historical data, these projections track very closely to the oil and natural gas drilling industries. When demand is projected to increase for these sectors, more wells are brought on line. The more wells that are online, the more pipe that is needed. Projected demand also takes into account the number of competitors that are producing pipe and the amount of projected stock that is available to the industry.

The final method used to plan for demand is industry experience. This is the human part of the whole process that ties all the other methods together. This experience allows the demand planners to interpret all the other methods mentioned and look for trends. It is the knowledge of the markets and how they function over time. With the ups and downs of today's markets, this has become the most important part of the demand planning.

Recommendations

For today's volatile market conditions, I would recommend a comprehensive software solution be used to help in demand planning. While all the orders are accepted in advance for the rollings, there are still many changes on the mills that result in lost time and productivity. This software, something similar to a Factory Planner solution, will allow the master schedulers the ability to play what if games without actually having to change the system. These "what-if games" will be used to mix and match on the mills until the optimal efficiency is gained for the product mix that is needed for the week. A second reason to start to use planning software is the availability of the raw materials. Usually one of the plant receives materials from a local steel mill. However, this mill is in bankruptcy and is not expected to survive. This increases the lead time necessary to get the raw materials by at least one week and up to as much as two months (for rounds coming from foreign mills).

A second recommendation would be for the demand planners to not rely on historical data as much. This recommendation stems from the unique market conditions that have come about. Although many types of steel pipe have been excluded from the ruling, it is still having an effect on the industry.

Conclusions

With the recent market conditions affecting the steel industry as a whole, the steel pipe market is being affected as well. The affects of unfair competition, low prices, and slowed demand have proven to make the demand for steel pipe hard to predict. USS Tubular Products uses a combination of historical data, current bookings, projected demand, and industry experience to try to predict the future requirements of the pipe mills. This paper recommends that they start to use a proven factory planning software to try to maximize the use of the facilities and decrease production costs associated with the more varied product mix. In addition, this paper also recommends that the use of historical data be reduced because of the uniqueness of the current market conditions.

References

Krajewski, L. J., & Ritzman, L. P. (1999). Operations Management: Strategy and Analysis. Reading: Addison-Wesley.