Procurement in the global metal industry is no easy feat, as it grapples with a multitude of challenges unique to the sector. From navigating volatile raw material prices to managing complex supply chains, procurement professionals in the metal industry face a myriad of hurdles. These challenges require companies to build resilient procurement strategies to mitigate risks, optimize operations, and drive long-term success. In this article, we explore the critical procurement challenges that confront the metals industry and showcase successful strategies implemented by companies to overcome them with resilience and ingenuity.

What are the procurement challenges & solutions in the Metals Industry?

Volatility of Raw Material Prices

One of the most significant procurement challenges in the metals industry is the volatility of raw material prices. This volatility is caused by various factors, such as supply-demand imbalances, geopolitical events, and currency fluctuations. As a result, companies may face difficulties in managing costs and predicting prices. To address this challenge, companies can implement a commodity risk management program that includes price hedging, supply chain optimization, and market intelligence. This program can help companies manage price volatility and optimize their procurement decisions.

According to a report by Deloitte, metal price volatility has been a significant challenge for companies in the metals industry. The report suggests that companies can use hedging strategies to manage their price risks and mentions that many companies use financial instruments such as futures contracts, swaps, and options to lock in prices. The report also mentions that companies can use price indexing to negotiate long-term contracts that are tied to metal price benchmarks.

Another example of a company that uses hedging strategies is BHP, a global mining company. In its 2020 annual report, BHP mentioned that it uses financial instruments to manage its exposure to commodity price risks. The report states that the company had hedged approximately 70% of its copper and 40% of its oil production for the year. Another example of using hedging strategies is Alcoa, a global aluminum producer. In its 2020 annual report, Alcoa mentioned that it uses financial instruments to hedge against aluminum price volatility. According to the report, the company had hedged approximately 45% of its aluminum shipments for 2021 as of December 31, 2020.

Quality Control and Compliance

The metals industry is subject to strict quality control and compliance requirements, as metals are used in critical applications such as aerospace, defense, and medical devices. Compliance requirements include product quality, safety, and documentation. To address this challenge, companies can implement a robust supplier qualification program that includes audits, risk assessments, and ongoing monitoring. This program can help ensure that suppliers meet quality and compliance requirements and are able to provide high-quality materials. For example, ArcelorMittal has a supplier qualification program that includes audits, risk assessments, and ongoing monitoring to ensure compliance with quality and compliance requirements.

According to a report by McKinsey, quality control is a critical issue for companies in the metals industry, as it can have a significant impact on product performance and customer satisfaction. The report suggests that companies can use various tools and techniques to improve their quality control processes, such as statistical process control, root cause analysis, and failure mode and effects analysis. FactWise empowers teams to conduct multiple rounds of detailed, reliable quality checks on materials received from trusted and new suppliers via simple workflows that can be easily customized by end-users directly. Holistic supplier insights across key metrics ensure that procurement teams always have access to critical information that empowers them to make data-driven decisions.

Long Lead Times and Supply Chain Disruptions

The metals industry relies heavily on complex supply chains that can be susceptible to disruptions. Disruptions can occur due to various reasons, such as natural disasters, geopolitical tensions, and pandemics. To mitigate the impact of supply chain disruptions, companies can take steps to diversify their supply chains and build redundancies into their procurement processes, diversifying their supplier base, and developing contingency plans. Companies can implement a robust supply chain management program that includes contingency planning, inventory optimization, and supplier collaboration. This program can help companies manage supply chain disruptions and ensure the availability of materials. FactWise enables supplier diversity across industries, offering procurement teams access to vetted, reliable suppliers who consistently meet delivery requirements and quality standards and can be qualified and onboarded directly while generating best-in-class RfX that detail item specifications and delivery schedules.

For example, Nucor has implemented a supply chain management program that includes contingency planning, inventory optimization, and supplier collaboration to manage supply chain disruptions and ensure the availability of materials. In its 2020 sustainability report, Nucor mentioned that it has multiple suppliers for key raw materials and that it maintains strategic inventories of critical inputs to ensure continuity of operations in case of supply chain disruptions.

Another example of a company that has implemented such measures is Tata Steel, a global steel producer. In its 2020 annual report, Tata Steel mentioned that it has a robust supplier management program that includes risk assessments, performance evaluations, and supplier development initiatives. The report also states that the company has implemented a business continuity management system that includes contingency plans for supply chain disruptions.

Sustainability and Environmental Impact

According to a report by the World Economic Forum, the metals industry is responsible for approximately 7% of global greenhouse gas emissions and is under increasing pressure to adopt sustainable practices to reduce its carbon footprint. This can be a challenge for companies that rely heavily on energy-intensive processes and inputs. To address this challenge, companies can take steps to optimize their procurement processes and reduce waste and emissions, such as using renewable energy sources, improving energy efficiency, and adopting circular economy principles.

One example of a company that has made significant strides in sustainability is Rio Tinto, a global mining and metals company. According to its 2020 sustainability report, Rio Tinto has set ambitious targets to reduce its carbon footprint and improve its environmental performance. For example, the company aims to reduce its greenhouse gas emissions by 30% by 2030 and achieve net-zero emissions by 2050. Rio Tinto is also investing in renewable energy sources such as wind and solar power to reduce its reliance on fossil fuels.

Another example of a company that has made significant progress in sustainability is Outokumpu, a global stainless-steel producer. In its 2020 sustainability report, Outokumpu mentioned that it has set ambitious targets to reduce its carbon footprint and improve its environmental performance. The report states that the company aims to reduce its CO2 emissions by 3.5 million tons by 2023 and that it has already reduced its emissions by 22% since 2015. The report also mentions that the company has implemented various energy-saving measures, such as using waste heat recovery systems and optimizing production processes.

In conclusion, the metals industry faces unique procurement challenges that require resilient procurement strategies and tailored solutions. By implementing best-in-class practices, such as commodity risk management, supplier qualification, supply chain management, and sustainability and using relevant software solutions like FactWise, companies in the metals industry can mitigate these challenges and achieve significant benefits.

At FactWise, we are committed to building truly distinctive procurement software solutions that delight users and provide sustainable positive impact to the organizations we serve. We do this by providing transparency and insights to leaders (31% increase in governance), streamlining and automating processes to improve efficiency (20% increase in efficiency), and driving bottom-line impact by unlocking savings potential (25% cost reduction for direct spend).