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Demand Variability in Supply Chains: The Influence of Global developments and Globalization on the Local Dutch Steel Industry

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  • Herman de Kwaatsteniet

    (Maastricht School of Management, the Netherlands)

Abstract

For many decades the steel industry has developed on a slow but steady pace. Since 2004 the developing economies in Eastern Europe, Asia and South America radically influenced this situation. The growth in these regions was an important cause of shortages in raw material and resulting price fluctuations. Other aspects were improved logistics, speculation and the creation of global multinationals in the steel and mining industries. The local Dutch steel market evolved differently. In recent years, the market volume has shown a slow but steady decline as a result of economic, social and demographic factors as well as outsourcing and off shoring. As a result, local competition increased, causing pressure on operational margins and increasing financial risks. The current increased demand variability has a negative impact on these effects. This study aims to identify the causes and the consequences of the variability in demand that has been experienced by the Dutch steel sector. The study focuses on steel sheets and sections (beams); products which are used in different markets. Steel construction companies (SCCs) purchase steel sections for uniquely designed building projects. Steel sheet processing companies (SSPCs) are process orientated and supply a wide range of industries, often on the basis of medium term contracts. This orientation provides them with the options to hold stocks, in sharp contracts to steel companies operating in the construction sector. Second, this study aims to find solutions for the supply chain to mitigate the negative consequences of demand fluctuations. Secondary company data was analyzed to establish to what extent variability of demand in the Dutch supply chain of steel sheets and sections exists. By using a survey, the consequences for the Dutch steel sector were quantified for SCCs and SSPCs. The study identified the causes of the variability of demand by conducting a survey among a group of SCCs and SSPCs and by comparing demand data to both local and global market indicators. Finally, possible solutions were discussed with steel processors by means op in-depth unstructured interviews. The study confirms that different echelons in the supply chain inflict different levels of demand variability on their upstream suppliers. SCCs and SSPCs increase variability demand significantly, while steel distributors facilitate a smoother demand pattern for steel mills, a phenomenon known as the reversed bullwhip effect. The most important factor that influences the level of variability of demand is (expected) price fluctuations, followed by batch ordering. Price fluctuations are identified to be largely dependent on global factors. To a lesser extent they are related to local economic development. Therefore we can conclude a direct influence of global developments and globalisation on the local Dutch stele sector exists.

Suggested Citation

  • Herman de Kwaatsteniet, 2011. "Demand Variability in Supply Chains: The Influence of Global developments and Globalization on the Local Dutch Steel Industry," Working Papers 2011/32, Maastricht School of Management.
    • Handle: RePEc:msm:wpaper:2011/32
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • L61 - Industrial Organization - - Industry Studies: Manufacturing - - - Metals and Metal Products; Cement; Glass; Ceramics
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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