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Worthington Industries Supply Chain Management

Joshua Alm

OSCM 450 Supply Chain Management

Professor Abdy Baharlou

November 7, 2019
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Table of Contents

Executive Summary……………………………………………………………………Pg. 3

Bullwhip Effect…………………………………………………………………….… Pg. 4

CPFR …………………………………………………………………………………. Pg. 5

Lean Operations ………………………………………………………………………. Pg. 7

Purchasing Decisions ………………………………………………………………… Pg. 10

Distribution …………………………………………………………………………... Pg. 11

Customer Relationship Management ………………………………………………… Pg. 13

SCOR ………………………………………………………………………………… Pg. 14

Information Systems/Information Technology …………………………………….… Pg. 15

References ……………………………………………………………………………. Pg. 18

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Executive Summary

Worthington Industries, Inc. is a highly diversified metal manufacturing company. Worthington

is focused on the value-added processing of steel and manufactured metal products. The

company is based in Columbus, Ohio and is considered to be North Americas premier steel

processor and leader in the manufacturing of metal products. Worthington products include,

steel laser cutting, steel bending and forming, high-pressure steel, cryogenic pressure vessels,

steel and fiberglass storage tanks, separation equipment, reusable custom steel platforms, pallets

and propane-filled camping cylinders. Worthington also manufactures ceiling grid systems and

light guage steel framing services. The company operates in various markets including oil and

gas, construction, HVAC, leisure, agricultural, office furniture, aerospace and automotive.

Worthington Industries operates 85 manufacturing facilities in 11 countries and employs

over 10,000 people. For the fiscal year of 2019, Worthington had net sales of $3.76 billion, an

operating income of $145 million and net earnings of $153 million. Worthington has a customer

base of over 1,700.

In 1955, a young steel salesman named John McConnell saw an opportunity for custom-

processed steel—and he dove right in. He purchased his first load of steel by borrowing $600

against his 1952 Oldsmobile, and then used that money to start Worthington Industries in

Columbus, Ohio. In his first year of business, McConnell grossed $342,000; his profit was

$11,000. Throughout the late 1950s and 1960s, he continued to add processing facilities. In

1966, he started sharing his profits with the people he worked with. At the same time, all

production workers were put on a salary rather than an hourly schedule. In 1968, Worthington

Industries made its first public stock offering of 150,000 shares at $7.50 per share. In 1976, after

only 21 years in business, they celebrated $100 million in sales. Throughout the 1980s, business
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continued to expand rapidly. In 1996, John McConnell’s son, also named John, took over as

chairman and CEO. He had worked for the company more than 20 years; he started as a general

laborer and later advanced to sales, operations and personnel. During the 1990s, many of

Worthington’s non-core businesses were sold so they could focus on their core strengths: steel

processing and metals-related businesses. In 2000, they moved to the New York Stock

Exchange. (worthingtonindustries.com)

Bullwhip Effect

The possible bullwhip effect in Worthington Industries supply chain will occur as a result

of fluctuating steel prices. These fluctuating steel prices have been impacted by ongoing steel

tariffs and have resulted in increased selling prices for steel processing. When these steel prices

are low, the company purchases more than steel than is demanded by customer orders, resulting

in a higher amount of inventory than usual. Worthington Industries does not have long term

contracts with its customers, they purchase their products on an order-by-order basis.

(Materials.proxyvote.com) This can also result in a surplus of inventory. These inventory

surpluses result in a bullwhip effect on the steel companies and raw material providers. This

bullwhip effect affects the key industries of Worthington Industries. These industries include the

automotive, oil and gas, construction and heavy mobile equipment. (Worthington Industries)

The severity of the bullwhip effect has impacted Worthington Industries regarding the

cost of holding inventories. When the cost of steel decreases it can lead to inventory holding

losses,” inventory holding losses of $ 10.8 million in” (Metal Center News May 2019) in 2019 or

“inventory holding gains of $17.8 million in fiscal 2018” (Worthington Industries, Inc. SWOT

Analysis 2019)
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Worthington Industries recently updated its Oracle E-Business Suite to include advanced

supply-chain planning modules, Demantra Demand Management Managed Cloud Service and its

core ERP applications which includes Oracle Procurement. (oracle 2019) The company’s

existing supply chain integration activities include a work-in-progress (WIP) inventory system at

key steps in their plants. This has helped to lower inventory levels by 40 percent and on time

delivery goals have been met as well.

Obstacles that Worthington Industries faces for supply chain integration are fluctuations

in the raw material markets, tariffs and consumer demand fluctuations in any of the industries

they sell to. The largest these industries are the auto industry.

Worthington Industries should integrate Demand Management processes to improve

forecasting demand and coordinating that information with distribution, purchasing and

production. The company should have contingency plans in place to respond to the fluctuating

cost of materials. Worthington should continue to service their supplier relationship to help meet

cost and quality standards.

CPFR

Determine the best quantitative forecasting method for the four different forecasting

horizons. The best quantitative forecasting method for yearly and quarterly forecasting horizons

is medium range. Monthly and weekly horizons are considered short term methods.

The most important partners for Worthington Industries are Praxair inc., Wauseon

Machine ,Axalta and Harris Products Group. For the purpose of this assignment I will use

Praxiar, who is supplied and a supplier of Worthington Industries.

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1. Seek long term holistic solutions. Worthington Industries and Praxairs long term holistic

solution is to work together as a whole to find solutions to their supply chain issues.

2. Reconcile conflicting goals and metrics. Praxair and Worthington Industries both have

goals of being profitable while maintaining integrity.

3. Pursue inclusive problem solving; do not depend upon “experts” who don’t have

accountability for the business. Use the people who work with and on their product every

day to assist with problem solving

4. Instill collaborative processes that encourage idea creation, shared problem solving, and

high adoption rates across organizational boundaries. Encourage the development of new

ideas and products that the companies can collaborate across boundaries.

5. Use a disciplined and iterative set of methodologies such as CPFR, SCOR, or Six Sigma

to help teams define issues, root causes, and solutions. Praxair communicates issues to

Worthington about products. Teams from both companies are put together to define

issues and work together to find solutions.

6. Develop a culture of continuous improvement, particularly at the customer-facing

associate level, because those employees are most likely to know what is needed. Have

an open-door policy and a forum in which employees can bring their ideas for

improvement. Additionally, incentivize them to do so.

7. Create clear accountabilities and assign authority with a focus on core business processes

rather than on traditional organizational “silos” or loyalties. Put people in place that live

and breath the companies core business principles. Hold those individuals accountable

for creating that culture.

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8. Commit to technology enablement for execution, communication, exception

management, and root-cause analysis. Ensure that the oracle system that Worthington

uses communicates with Praxair’s technology, and vice versa.

9. Reduce decision cycle times. Decision cycle times are reduced by limiting the amount of

decision makers and making the decisions a priority by the individuals who make them.

10. Implement rapidly. Get the word out about the changes being made, along with the why

and how behind the changes. Set up a time frame of when the changes are going

live.(Wisner p.163)

What obstacles would you expect during this implementation? How would you overcome them?

Obstacles that I would foresee during implementation include reducing decision cycle times.

With two, large, publicly traded companies, who have boards that make decisions. I could see

resistance to letting someone under them make these decisions. I would have these boards hand

pick who these decision makers are.

Lean Operations

Worthington Industries, like most manufacturers, has many opportunities to find

and eliminate waste both for themselves and in their supply chain. As both a supplier and

customer of suppliers, Worthington helps its partners find and reduce waste. Without using the

term, Worthington practices yokoten, sharing best practices to make the supply chain leaner.

(Wisner)
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Taiichi Ohno discovered seven elements of lean that industries can use to identify and

reduce wastes (Wisner). The first of the areas that Ohno identified is waste. Eliminating waste

is the primary concern of lean thinking (Wisner). Worthington Industries testing of their 20-

pound propane tanks used to take over two and a half hours to complete. By moving the test

order around and by developing a new part for the tanks testing, Worthington was able to cut the

processing time by 92 percent (Worthington)

The second element of lean is lean supply chain relationships. Worthington works with

its partners to eliminate wastes, specifically in the area of scrap metal. Worthington offers a

program that will help partners manage their scrap metal programs by taking over the process

entirely. If the partner wishes to and their operations permit it, the company can choose to use

"First Operation Blanking." First operation blanking is a program that decreases shipping costs,

scrap, labor, and the production time of the partners' product. This is done by cutting the blanks

the partner needs for them and only shipping those blanks; instead of the rolls of steel, the

partner would generally ship.

The third element Ohno describes is Lean Layouts. Worthington Industries, in an effort

to become leaner, introduced a transformation program they call Transformation 2.0.

Transformation 2.0 is a Kaizen based program that focuses on the processes and is aimed at

providing level workflows. As part of this program (WIP) is a kaizen that is an area of focus.

Inventory and setup time reduction is the fourth element of the seven wastes. In 2014,

the cold-rolled strip steel business unit required approximately 45 flow days to produce a coil of

steel from receipt of raw material to shipment of finished goods. Also, the firm was operating

with a high level of inventory—well beyond its target (Worthington Industries). By

implementing (WIP), their inventory has been reduced by 40 percent.

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Small batch production scheduling is the fifth step in reducing waste. Worthington

Industries does not currently produce items in what is considered small batches. If an order is

produced in a small batch, it is as a result of a small order being placed. This small order is

discouraged as it will increase the cost to the customer in the form of shipping cost and setup

costs. For instance, a truck that is only partially filled costs the customer the same amount as a

full truck.

Continuous improvement, step six. Worthington Industries' success is based on

experience and ongoing improvement efforts (Worthington Industries). Worthington has the

ability to design and custom-build its own machinery. This ability allows them to continually

improve their equipment and even reverse engineer it to produce what is needed (Worthington

Industries).

Workforce empowerment, a very important and necessary part of the lean process. As

part of Worthington Industries Transformation 2.0, workers use Kaizens to identify areas for

improvement and pinpoint activities to experiment new ways to perform. “At each Kaizen, it's

all hands-on deck, from senior leadership to employees in each area impacted by the process.

You've got decision-making power and knowledge experts together, making things happen.

That's what makes T2.0 so successful” (Worthington Industries).

It is quite challenging to find areas of needed improvement for a company like

Worthington Industries. I am positive they have their areas; I, however, have not been able to

find these issues. The above steps are regarding concerns they have identified and have worked

to solve.
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Purchasing Decisions

Identify the products and/or services that your organization purchases from suppliers.

Worthington purchases around three million tons of steel, hot-rolled, galvanized, and cold-rolled

per year. They purchase large quantities of steel regularly from major suppliers both foreign and

domestic. Raw materials are purchased in the open market at prevailing market prices. Major

suppliers of steel are: AK Steel Corporation; ArcelorMittal; California Steel Industries, Inc.;

Gallatin Steel Company; North Star BlueScope Steel LLC; Nucor Corporation; SeverCorr, LLC;

Severstal North America, Inc.; Steel Dynamics, Inc.; Stemcor Holdings Limited; United States

Steel Corporation; USS-POSCO Industries; and WCI Steel, Inc. Alcoa, Inc. was the primary

aluminum supplier for the Pressure Cylinders segment. Major suppliers of zinc to the Steel

Processing segment are: Considar Metal Marketing (a/k/a HudBay), Industrias Peñoles, Teck

Cominco Limited and Xstrata Zinc Canada. (Worthington Industries)

Identify the operational processes that this company outsources. Worthington does not

outsource much. It has built itself on this platform and continues to thrive. Worthington can

design and build most of the equipment it uses to produce its many steel products. Worthington

has outsourced the software program for integrated enterprise resource planning (ERP) and

supply chain management system on a managed-cloud-services platform to take advantage of

global support, high system capacity and availability, disaster recovery, and service continuity to

ensure manufacturing plants can run 24/7. (oracle.com).

Is your organization capable of producing these products or services or the outsourced

processes in house? If so, does it make financial sense to produce these services or products in

house? Worthington Industries could hire software developers to develop and integrate the

technology. Outsourcing a company like oracle who has developed their own software would be
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more cost effective. Oracle specializes in computer software and has already worked out any

problems that may arise.

How should this organization monitor supplier performance? Suppliers are rated

quarterly on PPM, nonconformance and delivery. All new parts go through a rigorous purchase

parts approval process (PPAP) to ensure the parts integrate into our operations safely and

efficiently. Worthington is a loyal customer to suppliers who earn Certified Supplier status

through consistent, quality supply. If benchmarks are achieved, the supplier can achieve

certification. In addition, one supplier is awarded ‘Supplier of the Year’ on an annual basis.

(Worthington Industries)

Distribution

Worthington Cylinders has fifteen worldwide locations. The location in Worthington,

Ohio is supplied by US Steel from the Lorain, Ohio plant and the Pittsburg, Pennsylvania plant.

Worthington Cylinders manufacturers numerous types and designs of cylinders. The most

common type of cylinder that Worthington manufactures are hand torch cylinders. Worthington

Cylinders is the only manufacture of the industry standard hand torch cylinders which contain

MAPP® gas, propane, oxygen, or propylene. Worthington also manufactures lines of propane

tanks used for grilling and camping as well as Balloon Time® Helium Balloon Kits.

(Businesswire.com) These consumer products are sold to retailers like Menard’s. Menard’s

closet distribution center is in Holiday City, Ohio. From Holiday City these products are shipped

to Menards stores throughout the region.

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(GmapGIS)

Represent the shipping of raw materials to Worthington Cylinders

Represents the shipping of the cylinders to the retail distribution center
Represents the shipping of the products from the DC to the retail stores

Worthington Cylinders and Menard’s use a combination of distribution network designs.

Retail storage with customer pickup, Manufacturer or distributor storage with consumer pickup,

Distributor storage with carrier delivery and Manufacturer storage with direct shipping. The use

of these different design allows Worthington and Menard’s to be flexible to the customers wants

and needs.

Worthington Cylinders is dependent on third parties for freight services. Worthington

relies primarily on third parties for transportation of the products to customers, as well as

delivery of the raw materials. Transportation of products and materials is done primarily by

truck. By depending on third party freight companies, Worthington puts a lot of stock in their

timely and safe delivery. “If, due to lack of freight services, raw materials are not delivered to the
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company in a timely manner, the company may be unable to manufacture and deliver the

products to meet customer demand. Likewise, if due to lack of freight service, the company

cannot deliver the products in a timely manner, it could harm the reputation, negatively affect the

customer relationships and have a material adverse effect on the results of operations”

(Worthington Industries SWOT). These issues could result in increased freight costs. If the

company is not able to recoup these costs by passing the cost to the customers, this will affect the

company financially. In other word, depending greatly on third party freight services can put a

strain on the transportation of products and materials which can affect the revenues of the

business. (Worthington Industries SWOT)

Customer Relationship Management

Customer relationship management is a necessary practice in a manufacturing setting,

such as Worthington Industries. Several strategies of CRM are practiced in the organization.

One of these strategies is cross-selling. Cross-selling is when customers are sold products, in

addition to their initial purchase. The salespeople at Worthington are trained to sell other

products and services to clients. Successful salespeople are trained to discover the correct

information to provide as many products and services that Worthington can provide to them. For

instance, if a client requires a product, the salesperson could also supply other accessories that go

along with that product or a service such as waste reduction.

Another strategy used by Worthington Industries is personalizing customer

communications. Knowledge of customers, their behaviors, and their preferences allows

Worthington to customize communication with their customers. Worthington uses an advanced

ERP system giving them clear visibility and tracking, making it easy for customers to do

business. Worthington can view existing and past orders, invoices, claims, inventory, and
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forecasts. Making order management and repeat orders easy. Also, the ease of obtaining

documentation or pulling analytics for improvement is enhanced because Worthington utilizes

the latest technology offered. For example, they can provide chemistries for a coil that shipped

over a year ago

Describe an ideal customer relationship management process for your organization.

“Worthington Industries is a supplier of hot-rolled and cold-rolled cut-to-length steel sheets to

John Deere Harvester Works in East Moline, Ill., John Deere Horicon Works in Horicon,

Wisconsin and John Deere Ottumwa Works in Ottumwa, Iowa, for the fabrication and assembly

of combine harvesters, hay and forage equipment, lawn & garden equipment and utility

vehicles.”(Worthington White Papers) Worthington Industries was awarded the Achieving

Excellence award by John Deere to recognize their excellent supplier and customer service.

“Suppliers who participate in the Achieving Excellence Program are evaluated annually in

several key performance categories, including quality, cost management, delivery, technical

support, and wavelength, which is a measure of responsiveness. John Deere Supply Management

created the program in 1991 to provide a supplier evaluation and feedback process that promotes

continuous improvement.” (Worthington White Papers)

SCOR

The SCOR (Supply Chain Operations Reference) model is one of the most recognized

approaches for incorporating supply chains and performance measurements. “The SCOR model

helps to integrate the operations of supply chain members by linking the delivery operations of a

seller to the sourcing operations of a buyer” (Wisner). The SCOR model uses five categories.

Reliability, responsiveness, agility, cost and asset management. Reliability is the ability to

perform tasks as expected. Metrics for the reliability attribute include: On-time (Gurufocus.com)
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delivery performance, the right quantity and the right quality. Responsiveness is the speed at

which tasks are performed, and the attribute related to this are, order lead times and speed.

Agility is the ability to respond to external influences, the ability to respond to market changes to

gain or maintain competitive advantage. Agility metrics include flexibility and adaptability.

Costs refer to the cost of operating the supply chain processes. Labor costs, material costs,

transportation and management costs. The attributes associated with costs are costs of goods

sold, warranty and returns and management and logistic costs. Asset management is the ability

to utilize assets. Asset management performance attributes are cash-to cash cycle times,

inventory days of supply and asset turnovers.

“Worthington Supply Chain Solutions means providing products in the most efficient

way, to save time and money. Worthington Industries provides a full-service Supply Chain

business unit that delivers comprehensive solutions for a broad range of industries. The team at

Worthington works with

a network of qualified processors dedicated to providing high-quality products and serving our

customer’s needs as a part of Worthington Supply Chain Solutions dedicated customer service”

(Worthington).

Information Systems/Information Technology

Worthington Industries(WI) is known as an innovative company whose technology is at

the forefront of the steel industry. Worthington's innovation includes the use of Information

Systems(IS) and Information Technologies(IT) for its supply chain management (SCM). “Data,

information and knowledge are critical assets to the performance of logistics and supply chain

management (SCM), because they provide the basis upon which management can plan logistics

operations, organize logistics and supply chain (SC) processes, coordinate and communicate
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with business partners, conduct functional logistics activities, and perform managerial control of

the physical flow of goods, information exchange and sharing among SC partners” (Shi, Chan).

Shi and Chan (2006) classified the development and applications of IS/IT in SCM into four

primary levels. The following is an assessment of how WI uses these for levels of IS/IT in their

SCM.

Level one: Transaction support IS/IT. “At this level, IS / IT is mainly used as an efficient

tool for supporting logistics operations, and the main concerns are whether IS / IT can provide

reliable, accurate and real-time operation data and information to support core logistics

activities” (Shi & Chan). WI’s uses IS/IT to communicate with its customers, shipping,

transportation, and regulatory teams to coordinate its complex logistics around the world. One of

the innovations that WI has instituted is computer kiosks for drivers to check in shipments and

tablets for e-signatures. These innovations supply data to the IS/IT systems.

Level two: Integrated organizational IS/IT. “Integrated organizational IS / IT provides

intranet systems that facilitate data, information, and communication within an organization,

among widely dispersed logistics departments and locations” (Shi & Chan). The most widely

used intranet system is ERP (Shi & Chan). WI uses Oracle E-Business Suite Managed Cloud

Services for its ERP. Oracle allows WI to take advantage of programs that increase functionality

in credit management, trade management, accounts receivable, and to identify opportunities to

reduce costs (Oracle.com).

Level three: Information sharing and exchange IS/IT. “EDI is the most widely deployed

extranet system for inter-firm information exchange "(Shi & Chan). WI uses EDI to pass along

significant savings to their customers in the form of fixed steel pricing. For this to happen, the

customer must communicate their need to WI, WI can then sign a fixed-price contract with a
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bank within the same time frame and value of the raw steel. By using commodity futures, WI

can offer a variety of pricing for its customers. This only works if the information is being

shared and exchanged between the customer, WI, and steel mills.

Level four: Internet-based SCM systems. “The internet is becoming the most useful

business communication and information exchange system. It will eventually replace EDI

because all information flows performed by EDI can be carried out through the internet, with low

access costs and consistent transfer standards. (Shi & Chan). “Most companies now use a

combination of Extensible Markup Language (XML) and the World Wide Web to format and

send business documents to one another electronically. The method is inexpensive, readily

available, platform-independent, and anyone can do it.” (techtarget.com). Large industrial

companies like WI, who have had the same supplier networks for years, still use EDI. Bryan

Beske, the chief information architect at Worthington Industries and an 11-year veteran of EDI

technology, expressed doubts about XML's worthiness as a replacement for EDI. "As a heavy

manufacturer, our mentality is that, if it isn't broke, don't fix it," Beske said. "EDI is a proven

technology, and I don't really think that it will go anywhere." He said that XML is good for

moving information from application to application, but that he doesn't see it taking off in terms

of transmitting mainstay business documents like purchase orders, invoices, and advance

shipping notices. "By and large, most businesses' core business transactions are EDI. EDI is

tried and true," Beske said. "All of the hype around XML isn't really coming to fruition."

(techtarget.com)
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References

Wisner, J. D. Principles of Supply Chain Management: A Balanced Approach. [MBS

Direct]. Retrieved from https://mbsdirect.vitalsource.com/#/books/9781337672016/

Case studies & white papers - Worthington industries. Retrieved

from https://worthingtonindustries.com/Expertise/Case-Studies

Reinforcing productivity in the steel industry - Worthington industries. Retrieved

from https://worthingtonindustries.com/Special-Pages/Reinforcing-Productivity-in-the-Steel-

Industry

Transformation 2.0 drives improvements - Worthington industries. Retrieved

from https://worthingtonindustries.com/Special-Pages/Transformation-2-0-Drives-Dramatic-

Improvements

Supplier quality program - worthington industries. Retrieved

from https://worthingtonindustries.com/Expertise/Value-Add-Services/Supplier-Quality-Program

Worthington industries leverages engineered systems and cloud solution to support global

growth strategy. (2016). Retrieved

from www.oracle.com/customers/worthington7engineeredsystems.html

https://www.oracle.com/customers/worthington7engineeredsystems.html

Supply chain solutions - worthington industries. Retrieved

from https://worthingtonindustries.com/Expertise/Value-Add-Services/Supply-chain-solutions
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Worthington cylinders adds hand torch cylinder to growing consumer products line.

(2007). Retrieved from

https://www.businesswire.com/news/home/20070619006425/en/Worthington-Cylinders-Adds-

Hand-Torch-Cylinder-Growing

Worthington industries, inc. SWOT analysis. (2017). Worthington Industries, Inc. SWOT

Analysis,https://links.franklin.edu/login?url=https://search.ebscohost.com/login.aspx?direct=true

&db=edb&AN=123010967&site=eds-live

First operation blanking white paper. Retrieved from http://steelbestpractices.com/first-

operation-blanking-white-paper/

Supply chain solutions - worthington industries. Retrieved

From https://worthingtonindustries.com/Expertise/Value-Add-Services/Supply-chain-solutions

WOR inventory turnover | worthington industries - GuruFocus.com. Retrieved

from https://www.gurufocus.com/term/InventoryTurnover/WOR/Inventory-

Turnover/Worthington-Industries-Inc

Brunelli, M.EDI maintains enterprise relevance. Retrieved from techtarget.com

Worthington industries ensures global manufacturing operations have 24x7 access to

enterprise resource planning. Retrieved from https://www.oracle.com/customers/worthington-1-

mcs.html

Logistics - Worthington industries. Retrieved

from https://worthingtonindustries.com/Expertise/Value-Add-Services/Logistics
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Taking the volatility out of steel pricing - Worthington industries. Retrieved

from https://worthingtonindustries.com/Special-Pages/Taking-the-Volatility-Out-of-Steel-Pricing

Global logistics: New directions in supply chain management (2010). In Waters D.

(Ed.),. London: Kogan Page. Retrieved from http://ebookcentral.proquest.com/lib/franklin-

ebooks/detail.action?docID=557069