In the just passed Year of the Rat, this sudden financial crisis swept across the world, causing great impact and influence on the world steel industry. China's steel market fluctuated sharply, with prices fluctuating and fluctuating greatly. The continuous weak and sluggish market exposed the fragility of the supply chain between steel mills and steel traders today. Therefore, there is a call for establishing a tight strategic supply chain between manufacturers. The industry calls for the implementation of a "commission based agency" for steel circulation mode to cope with the business crisis under the financial crisis.
The financial crisis has brought about a crisis in steel operations
Indeed, the global financial crisis of 2008 had a significant impact on China's steel industry and steel circulation enterprises. The steel business crisis brought about by the financial crisis is one of them.
People in the steel circulation circle still vividly remember that after the second half of 2008, the booming domestic steel market rapidly cooled down, and steel prices went from a sharp rise in the previous year to an irrational drop in October, with three or four daily drops of one or two hundred. At this time, the "reservoir" function of steel trading enterprises was completely destroyed, and traders were unwilling to place orders with steel mills, resulting in poor sales and inventory pressure. Some steel mills even piled up steel on the roads in their factory areas, with hundreds of thousands or even millions of tons of steel piled up like mountains. Helplessly, steel mills have reduced production, restricted production, and even stopped production, frequently lowering prices to rescue the market. The price of hot-rolled coils has dropped from the highest of 6000 yuan/ton to 3000 yuan/ton, but no one is interested. The sales department manager of a steel mill exclaimed that the wholesale and inventory losses of traders have released the expected 80 million tons of "water storage" and transferred it to the steel mill, exacerbating the panic of the steel mill. The enterprise has lost its pricing power and suffered serious losses. The price of steel has fallen from more than 6000 yuan per ton, resulting in a loss of 1 billion yuan when sold. Although the monthly profit was 300 million yuan in the first half of the year, only 17 million yuan remained in October.
The operational crisis of steel mills during the financial crisis is due to various reasons, but the loss of the "reservoir" function of steel traders is an important factor. This fully exposes the fragility of the strategic supply chain between steel mills and steel traders today, without fundamental guarantees. Driven by economic interests and in a market environment where steel prices are in a downward trend, traders are naturally unwilling to place orders with steel mills in order to minimize risks, thereby exacerbating the operational crisis of steel mills.
Why is the strategic supply chain between manufacturers so fragile?
Establishing a strategic supply chain for manufacturers has been practiced and discussed in steel mills and traders for many years, achieving certain results. However, many problems that exist have not been fundamentally solved so far. The key is that there is currently no relatively complete system and mechanism for the supply chain relationship between manufacturers, because the current agency relationship between steel traders and steel mills, strictly speaking, is not a true agency system.
The sales agency system referred to in marketing is a system in which the principal grants independent "sales agency authority" to the agent. The agent represents the principal in collecting orders, selling products, and handling other sales related affairs within the scope of sales agency authority, such as contacting transportation, warehousing, and pre-sales and after-sales services. After completing the sales task, the agent shall charge a certain commission to the principal in accordance with the agreement. Nowadays, some domestic steel distributors have only established a long-term steel supply agreement with steel mills. Merchants and manufacturers sign a long-term supply agreement every year, and must order three to five thousand tons or seven to eight thousand tons from steel mills every month. They must pay a certain deposit in advance or make full payment. The sales price of steel, whether it is high or low or profitable, has little to do with steel mills; Some steel mills implement a price traceability system, and the long-term agreement between manufacturers and merchants is essentially a consignment relationship, not a true agency relationship. It is a consignment system, not an agency system. However, in the era of scarce steel resources, distributors only need to order goods from steel mills and resell them for an additional three to five hundred yuan, or even thousands of yuan. Selling 10000 tons of steel would result in a profit of three to five million yuan or even tens of millions of yuan. Distributors are also unwilling to engage in agency systems and receive commissions of three to fifty yuan per ton, lacking enthusiasm. Therefore, under such a supply-demand relationship, it is naturally impossible to establish a steel agency system.
How far is there to go to establish a solid supply chain for manufacturers
The operational crisis of steel mills and steel traders exposed in this financial crisis, as well as the fragile supply chain among manufacturers, reflect the deep-seated problems in the current steel circulation field, such as institutional and mechanism issues. This determines that there is still a long way to go in establishing a solid and tight supplier strategic supply chain in China.
The "Steel Industry Adjustment and Revitalization Plan" passed by the State Council this time proposes to raise the entry threshold for steel trade, standardize the steel sales system, promote the agency system, establish a production and sales risk sharing mechanism, and give full play to the regulatory function of the circulation sector in stabilizing the steel market. This has pointed out the development direction for the supply chain construction of steel mills and steel traders.
At present, the steel circulation system and mechanism in China still need to be reformed and deepened. From the current steel circulation system, steel circulation lags behind steel production in terms of operating entities, business scale, and business formats. Nowadays, there are many problems with China's steel trade model, mainly reflected in the following aspects: firstly, small steel trading enterprises are competing with large steel mills. According to relevant statistics, there are currently over 200000 steel trading companies in China. There are numerous steel trading enterprises with small scales and low concentration, which create sharp contradictions between thousands of small steel circulation enterprises and large steel mills and markets. The second issue is the lack of a credit system and underdeveloped commission agencies, making it difficult for steel mills and circulation enterprises to form strategic alliances and form a community of shared interests. Thirdly, the development of online steel trading in China lags behind, and the tangible wholesale market for steel still holds an important position. Developed countries have long been replaced by intangible markets. Fourthly, steel is currently in a high consumption period in China, but due to resource constraints, it is a key area for the country to strengthen macroeconomic regulation. Its production capacity and consumption are greatly affected by economic cycles and macroeconomic regulation, and prices fluctuate greatly. As most steel mills are state-owned, they have strong risk resistance capabilities, while most steel circulation enterprises are private and have weak risk resistance capabilities.
Therefore, the current steel circulation model must be innovated and reformed, using modern circulation theory and modern circulation models to transform and replace traditional circulation concepts and models.
Innovate the steel circulation mode and establish a true agency system
What is the true meaning of agency system? At present, the most successful proxy system for steel circulation in the world is implemented in Japan and South Korea, known as the Japanese and South Korean steel sales model. The vast majority of steel produced by steel mills is distributed through comprehensive or professional trading companies (i.e. agents), and only 3% -5% of steel mills sell directly and self. This steel agency system, dealers are not just simply selling steel, but also responsible for product market cultivation, market development, terminal sales channel development, and customer pre-sales, sales, and after-sales services; At the same time, distributors are not simply charging a labor fee of three to fifty yuan per ton. Manufacturers and merchants shall reasonably determine the rights, responsibilities, obligations, and interests of both industrial and commercial enterprises in accordance with the principle of "risk sharing and benefit sharing", and establish a steel agency system in the form of legally binding economic contracts.
At present, due to the imperfect steel circulation system and mechanism in our country, the agency form, agency price, settlement method, benefit distribution method, product circulation method, relevant rights and obligations of both parties, breach of contract liability, and arbitration institution of the steel agency system have not been truly established, and there is no real implementation of the steel agency system. So it is necessary to reform and innovate the steel circulation system and mechanism.
For example, using the principles of supply chain to construct the supply and demand chain structure for steel production. That is, suppliers, manufacturers, logistics providers, financial providers, and wholesale agents form an alliance. Gradually changing the traditional steel circulation method and forming a stable circulation channel based on contracts or orders, with agency sales as the main focus; Gradually enable production enterprises to organize production according to market demand; Gradually adjusting organizational structure, reforming business models, enhancing service functions, reducing circulation costs, improving circulation efficiency, and achieving scale operation in circulation enterprises; By signing agency agreements that are different from general economic contracts, production enterprises and distribution enterprises can clarify and strengthen the rights, responsibilities, and obligations of both parties, establish a new type of business relationship of risk sharing and benefit sharing, gradually form a community of shared interests, jointly explore the market, stabilize prices, and achieve the development of the enterprise; Explore the establishment of scientific settlement methods, and achieve a virtuous cycle of enterprise funds through settlement methods such as bank acceptance bills and commercial acceptance bills.
For example, establishing and improving a modern logistics system for steel. Industry experts believe that in the state of overcapacity in steel production, it is the best time to initiate modern logistics. Steel mills should consider the reduction of logistics costs during the production process, and circulation enterprises should also consider the reduction of logistics costs during the sales process. This is the best period for the combination of production enterprises, circulation enterprises, and logistics providers. Therefore, it is necessary to accelerate the transformation of the steel plant's logistics process, establish a logistics promotion headquarters, and set up a procurement and logistics director. Especially for steel sales enterprises with an annual sales volume of over 1 million tons, or an annual sales volume of over 500000 tons, they need to rely on their own strength or borrow external forces to build processing and distribution centers or steel distribution centers, transforming from a simple commercial flow to an integrated service of commercial flow and logistics. They can also have the support of information flow and capital flow, and develop towards trade, investment, logistics, and information services.
Industry insiders propose to cultivate dozens of internationally competitive large-scale steel distributors and pilot the steel agency system. The implementation of agency system in steel trade is an inevitable trend of development, and agency system is a marketing method widely adopted by many industrial and commercial enterprises in developed countries today. The implementation of the agency system is an important reform of China's circulation system and a crucial measure to establish a unified, open, competitive, and orderly market system. The agency system helps to adjust the economic relationship between industry and commerce, making both parties risk and benefit sharing trading partners, achieving an organic combination of production and circulation, regulating circulation order, stabilizing market prices, optimizing resource allocation, achieving scale operation, and promoting the development of the steel industry. So, through the pilot of steel agency system in large steel trading enterprises, the true steel agency system can emerge in the Chinese steel circulation industry as soon as possible.