In steel distribution, inventory is both your sword and your shield. It protects you against supply disruptions and long lead times—but it also ties up millions in working capital. For CFOs, the challenge is surgical: how do you reduce days inventory outstanding (DIO) without sacrificing service levels that customers count on?
Steel inventory is not like finished goods in retail. A single 25-ton coil can represent $20,000 to $30,000 in capital, and most service centers carry dozens of grades across multiple thicknesses and widths. Stock too much, and you sit on aging steel; stock too little, and you lose business when a customer needs next-day delivery. It’s a balance that finance and operations must strike with precision.
Traditionally, many firms used fixed reorder points based on average historical demand. But steel’s demand patterns are lumpy and seasonal—especially in sectors like construction and automotive. Now, leading CFOs are embracing dynamic demand forecasting. That means aligning inventory levels with real-time sales velocity, factoring in seasonality, supplier lead time volatility, and order cycle trends.
Take a processor in Ohio servicing HVAC and OEM accounts. By integrating sales data into their inventory planning system, they identified that galvanized coil demand spiked from March to June. Rather than blanket stocking for the entire quarter, the CFO worked with supply chain to ramp up just-in-time buys every three weeks during that window. The shift reduced DIO by 18 days while maintaining 98% fill rates.
Forecasting alone doesn’t drive improvement—execution does. This is where CFOs lean into cross-functional collaboration. Sales teams are given visibility into inventory carrying costs and are coached to prioritize SKUs with higher turnover. Operations is tasked with reducing changeover time, so smaller coil batches can be processed more flexibly without ballooning labor cost.
In one Texas-based service center, these changes allowed them to switch from monthly to weekly production planning. The effect: fewer stockouts on niche grades and a 22% drop in excess coil inventory over six months. That freed up $3 million in working capital—cash that was redeployed into faster AR collection and a partial debt paydown.
Still, cutting inventory too aggressively can backfire. Fill rates are a key customer loyalty driver. In steel, where same-day fulfillment can mean the difference between securing a fabrication job or losing it, availability matters. That’s why smart CFOs differentiate inventory by demand predictability and margin contribution.
Commodity SKUs—like standard hot-rolled coil in common gauges—get leaner safety stocks, sometimes just 20 days. But high-margin or long-lead items, like cold-rolled DP980 used in automotive parts, may warrant 60+ days on hand. This segmentation ensures capital is allocated where it returns the most.
Another overlooked tactic is supplier collaboration. CFOs are increasingly turning to consignment models and vendor-managed inventory (VMI). In a VMI setup, the supplier owns the inventory until it’s pulled into production, meaning it doesn’t hit your balance sheet until it’s used. This delays cash outflow without affecting availability.
One distributor in the Pacific Northwest negotiated a VMI agreement on pickled and oiled coil from their mill partner. The result: 30% of their high-volume SKUs moved off their books, shaving $5 million off average inventory without a single missed delivery.
Digital tools also play a growing role. Modern ERP systems now offer ATP (available-to-promise) and CTP (capable-to-promise) features that let sales reps check real-time stock and processing schedules. This prevents overpromising and reduces the need to hold large safety buffers “just in case.”
Some CFOs go further, implementing slotting algorithms in warehouses to reduce coil retrieval time. This improves order fulfillment speed without increasing inventory levels. One Ontario-based processor even tied warehouse layout to ABC analysis—high-turn coils were placed closest to cutting lines, reducing forklift movements and boosting daily throughput.
Metrics matter. The most effective CFOs track not just DIO, but inventory turns by product group, stockout frequency, and margin impact per day of inventory held. These KPIs give a fuller picture of how well inventory is working—not just how long it’s sitting.
Internally, finance teams are trained to think in inventory velocity terms. Every 10-day reduction in DIO adds 0.3–0.5% to ROCE (return on capital employed). That’s real value, especially in an industry where EBITDA margins can be thin. By linking inventory goals to incentive structures, CFOs ensure alignment across the business.
Ultimately, reducing inventory without hurting fill rates isn’t about cutting—it’s about reshaping. It requires better data, tighter planning, smarter segmentation, and continuous coordination across departments. For CFOs who get it right, the reward is lower capital lockup, stronger cash flow, and higher customer loyalty.
In the steel business, time is money—and inventory is time. The firms winning the working capital wars are those turning their inventory faster without turning away customers.
