Steel Buyers Basics: Painted Steel - Rebates, Scrap, Warranties & Service

This coil coating process runs continuously, so the process is most efficient on long paint runs where the color and type of paint do not change.  A coil coater’s most desirable customers order large volumes with minimal changes to paint colors or paint systems.
 
Finally, many coil-coated applications (particularly in the construction industry) require a long-term warranty that covers paint fade and adhesion of the paint to the substrate.  For larger buyers in the USA these warranties are given directly by the paint supplier to the end-user and so these paint suppliers sell, service and compete for both the coil coater’s and the end-user’s business.   
 
As I have mentioned in the past, a good buyer understands that everything is negotiable. This does not mean the buyer will be successful when asking for reduced pricing, changes to extras, adjustments to credit terms, toll processing costs or paint costs.  However, there is 100 percent chance that the buyer will not achieve anything if they fail to ask.  This ithe first rule for buyers: Don’t be afraid to ask….

Paint suppliers and coil-coaters will give their best deal to those buyers who build long-term relationships and those buyers who have the greatest understanding of how the paint process works.  The best deals have four components that go beyond the purchase price of painted coil.  They are;
 
•    rebates,
•    scrap amount and credit,
•    improved warranties and
•    service levels.
 
In my experience rebates can take the form of dollars per ton of steel shipped, dollars per gallon of paint shipped, money for marketing expenses, up-front money at the start of a long-term deal or all of the above.  Paint suppliers in particular compete against each other on rebates that bypass the coil coater and go directly to the end-user.
 
In terms of scrap (and this is only for Toll-processors), first understand what your costs are and make sure that they are being tracked each month (this can be tricky with paint adding to the weight of the steel being produced).  Then see what the scrap credit is and if it matches what the market is paying for it.  Finally, ask your Toll-processor to commit to reducing the amount of scrap being produced from your steel each year.
 
For a large long-term customer, paint companies will also consider improving on their standard warranties.  I can’t go into the details but as a buyer you can check your competitor’s warranty and, if better, ask your paint supplier for an improvement.  You should also check with your marketing/salespeople to see what might be of importance to your end customers and go ahead and ask for it.
 
Finally, a buyer can negotiate improved standards for service.  These might include turnaround time for color matches from the paint supplier and/or paint stocking levels at the coil coaters for faster painted coil delivery times.
 
Negotiations are not conducted in a void.  Based on the size and type of relationship a buyer has with their coil coater and paint supplier, there can be drastic differences in the willingness of your supplier to negotiate each or any of the four suggested components listed above.  Also, in return for the kind of considerations above, the paint supplier and coil-coater are going to want a long term commitment that either has specified levels of tons or a high (maybe 100 percent) level of participation.  

One note of caution, once you commit to a particular paint supplier/coater combination it can be very difficult to change suppliers.  Setting up matching colors from a new supplier can take a great deal of time (no machine can do this, make sure you have on staff someone with really good color vision – here is a online color vision test http://www.xrite.com/custom_page.aspx?PageID=77&Lang=en).
 
Even if you do match all the colors, there will be changeover issues with the inventory being slightly different from one supplier to the next.  Finally your company may have marketing/warranty literature and a sales story tied into the current supplier.  Paint suppliers know all this and it may lead them to toughen their negotiating position.
 
Typically there is more room to negotiate on paint pricing than there is on the steel coil and therefore a larger savings potential.  So, to summarize, here is some advice if you want the very best deal.
 
First, be a desirable customer; build a solid, professional relationship with your suppliers.
 
Second, prepare well ahead of the time for the negotiation.  New supplier paint matches take a long time so start at least 6 months ahead of the negotiation.  Get agreement from your management team on the savings it takes to justify a change and make sure your organization understands that they have to be ready to change. Without this commitment from management your supplier will not believe you have the ability to change from one supplier to another.
 
Third, don’t just negotiate a delivered price.  Rebates can be very large and may be easier to improve upon than the price.  Go through the warranty and ask for more if it makes sense for your company.  Check what your scrap has been (if through a Toll-processor) and see what you can do to reduce it and/or get a higher scrap credit.  Finally, see what the paint supply chain will do in terms of holding coil and/or paint to improve your lead times.
 
Next time – Painted steel – making lemonade from lemons

SMU Note: Mario Briccetti is the Principal of Briccetti & Associates a consulting firm dealing with supply chain. Previously he held vice president level or lead steel purchasing positions at Nordyne, Gibraltar Strip Steel and Metal Sales Manufacturing Corp. Mario can be reached at: Mario@MBriccetti.com