Steel Works, Inc. Essay

1392 words - 6 pages

Questions to consider:1. How would you characterize Steel Works' products? What about Steel Works' customers?2. What does the coefficient of variation tell us? Can you determine the coefficient of variation for the product lines?3. How much inventory has Steel Works been holding? How much should they have been holding?SPECIALTY PRODUCTS DIVISIONCustomer CharacteristicsSteel Works has a large number of customers for its specialty products - 130 customers for some 120 products. However, majority of these customers (82.3%) are small-sized customers with less than $1million in sales. For example, using data from Spreadsheet S0121958, we see that there is only one major customer, C194, demanding considerable volume of DuraBendTM R12, relatively to other customers.Given the large number of customers and the large variability in demand (80% of all specialty products had coefficient of variation greater than 0.5), it is comforting to see that Steel Works has made use of risk-pooling to reduce the variability of overall inventory demand for each product. Therefore, although it is important to concentrate efforts on the big customers that bring in more than $24 million in sales each, it is not advisable that Steel Works neglect the smaller-sized customers.Products CharacteristicsAs seen from Table 1, DuraBendTM R15 & R12 have very high impact on the annual revenue since they have very high demand and medium selling prices. The kink in Chart 1 tells us where products should be classified; in this case, we will divide them into two classes.Table 1: Percentage of Annual Value for Each Product ($ in thousand)ProductSelling PriceAnnual DemandAnnual ValueCumulative Value% Annual ValueDuraBendTM R15$1.0329,563$30,331.64$30,331.6467.3%DuraBendTM R12$1.0012,096$12,096.00$42,427.6494.2%DuraFlexTM R10$0.681,167$793.56$43,221.2096.0%DuraFlexTM R15$1.14658$750.12$43,971.3297.6%DuraFlexTM R23$1.55427$661.85$44,633.1799.1%DuraBendTM R10$1.15187$215.05$44,848.2299.6%DuraFlexTM R12$0.88223$196.24$45,044.46100.0%TOTAL 44,321$45,044.46Chart 1: Distribution of Products by ValuesOne class consists of DuraBendTM R15 & R12, which require the most managerial attention and review. The other class consists of the rest of the products that have less impact on the annual revenue. Characterizing the products this way will reduce wasted management time and attention on products with low annual value.As seen from Table 2, DuraBendTM R12 and R15 have very high standard deviations as compared to the rest of the products. However, the deviations are actually quite small when we look at them relative to the average monthly demand. In fact, DuraBendTM R12 and R15 have the smallest c.v. amongst the products, i.e. the demands for these two products are quite stable and therefore, fewer inventories (relative to demand) are required to obtain a high level of service.On the other hand, the variability of the demand for DuraFlexTM is quite high as reflected by the high c.v. (0.62 - 1.46)....

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