Aggregates supply planning requires communication between production and sales

Contributed

September 22, 2017

By Tina Grady Barbaccia, Contributing Editor
Communication and Relationships Impact Forecast Accuracy

Aggregates Manager Operations Illustrated PDF

Planning for production at Chicago-area Ozinga Materials & Logistics (OM&L) can be likened to examining legs of a stool. “We look at residential, what is public, what the state and Illinois Department of Transportation (IDOT) are doing, and what commercial is doing,” explains Ed Van Poucke, chief operating officer for OM&L, noting that they also talk to their customers to get their perspective.

All this information translates into what each operation is going to produce. The market outlet and these “legs of the stool” are key, Van Poucke says, to how his team makes material production projections and how they begin the planning process.

The forecasting process for the next year is typically started in October. In addition to using historical data, Ozinga developed its own tool that shows the past 12 months activity by location and by product. “We can adjust from there, including broader ‘global’ adjustments of volume and/or ASP (Average Selling Price) adjustment factors specifically developed for forecasting,” says Steve King, executive vice president of sales and business development for OM&L

To coordinate sales and production, each salesperson works with the customers in his region/geographic location. “Strategic customers, especially if they are fixed plant operations — which includes concrete, asphalt, and pre-cast customers — will have their own forecast put together,” King says. “They may tell us that it’s softer in some parts of the market and stronger in others. We take all this into account to get a real feel for industry geography.”

Once all the numbers are in, they are compiled and analyzed, often through several iterations, to arrive at an accurate forecast, King says. “Once we get what we believe is a reasonable forecast, we can then apply market logic,” he explains. “We can see which parts of the business or materials will increase or decrease and what the pricing trends will be. We can apply a global increase or decrease and then come up with a reasonable expectation of what may happen.”

Joel Galassini, regional president – Texas Region, says Cemex breaks products into two different categories. The first includes those purchased on a regular basis, including aggregates for concrete and asphalt producers. “Generally, the demand for these products can be predicted using statistical and seasonal trends,” Galassini says. The second group, including most base materials and materials for special one-time projects, needs to be forecast separately.

“It is useful to develop a true backlog for these projects and keep track of what has shipped,” Galassini says. “It is always surprising to see how many of these special projects either overship or undership the original amount. It always seems that contractors are in the hurry up and wait mode, which creates a lot of inventory headaches for the aggregate producer.”

With large projects, communication is particularly important. “The aggregate producer needs to understand where the contractor is in the schedule and if any significant changes have occurred,” Galassini says. “Don’t stop communicating when the purchase order has been signed.”

Our Experts

Steve King

Steve King, executive vice president of sales and business development at Ozinga Materials & Logistics (OM&L), is responsible for sales, marketing, and developing future and strategic opportunities across the OM&L group. King’s customer focus, industry experience, and passion for developing teams helps customers meet their goals through strong customer partnerships.

Ed Van Poucke

Ed Van Poucke serves as the chief operating officer for Ozinga Materials & Logistics (OM&L) where he is responsible for profit and loss performance, strategic direction, revenue generation, operations management, supply chain optimization, demand planning, and business development for the group. He has more than 25 years of management experience.

Joel Galassimi

Joel Galassini is Cemex’s regional president – Texas Region, previously serving as vice president/general manager of aggregates – Florida Region and heading the Global Sales Management Track. Galassini obtained his MBA from the University of Texas at San Antonio and his BBA in accounting and marketing from the University of New Mexico’s Anderson School of Management.

Steve King

There is no such thing as too much communication when developing a production forecast. “‘Over communication’ is very important from a sales perspective,” says Steve King, executive vice president of sales and business development at Ozinga Materials & Logistics, noting that he checks in with sales and production to track actual sales of specific materials against forecasts and adjust accordingly.

Everyone needs to understand the demand signal, whether it’s the end customer or the distribution point. This is especially important because of the extensive network of logistics that must be coordinated at OM&L, which include water, rail, and truck shipments, as well as mobile and contract processing.

“Everyone needs to be aware of anything that may cause a problem, such as too much or too little inventory, and understand the sensitivity of each request to make sure we are meeting the customer’s needs,” King says. “We accomplish this through both formal weekly, quarterly, and annual team meetings and informal communication — text and phone calls.”

Informal communication is an effective way to share hits and misses. A hit may be a project that the company wasn’t expecting to get or a higher-than-anticipated production reap, while a miss may be unforeseen equipment breakdown or a service failure. “You need to pay attention to the little things,” King says. “If you do those things well, it all pays dividends throughout the process.”

Everyone needs to discuss how things are going and share observations, such as what has been run through the pit and what may need to be adjusted. This communication better serves customers and enhances the business as a whole. “Communication, and over communication, will ultimately help us with the production planning process,” King says. “It enables us to be able to meet, and hopefully exceed, the needs of our customers.”

Ed Van Poucke

Effectively planning for production is not a one-size-fits-all approach. Geology and geography factor into developing a production forecast, but it’s also about understanding what your lifeline is, whether that may be housing starts or state DOT projects, says Ed Van Poucke, chief operating officer for Ozinga Materials & Logistics,.

Individual construction projects don’t typically influence material forecasts, particularly if the project requires a mainstream product, but a customer need for a non-mainstream product may require planning. Another exception would be if need could arise based upon micro versus macro factors, as was the case for OM&L with the I-90 Tollway project in Chicago. “If you can predict everything in the market is going to get sucked into a project, places normally served out of that project would move to different areas,” Van Poucke says. “Prices would tend to rise for the duration of the project. If we saw places running out of material, we would adjust and figure that into our planning process for pricing and production.”

Accurately predicting materials demand is also about developing customer relationships. “It’s difficult to check in with every customer all the time, but you need to stay in touch with them regularly,” Van Poucke says. “You should have a good idea of what is going on in their business without being a nuisance.”

He says his customers will call to tell them about special upcoming needs so they can plan for a specific volume. “This is a real relationship-based process,” Van Poucke notes. Otherwise, it can be difficult to get numbers to use for planning, especially since some companies can be skittish about sharing this information.

“As you develop good, trusting relationships, they learn that the better they can help predict things with us, the better we can help serve them,” he says. By understanding the changing market needs, it’s easier to stay well stocked and ready to respond.

Joel Galassini

To balance the overarching needs of sales and production in a forecast, both groups need to understand that they are after the same goal — profitability — and physically sit down to communicate.

“There is a natural stress between production and sales,” says Joel Galassini Cemex regional president – Texas Region. “It seems like sales always wants to sell more of the products that are difficult to make, and production wants to produce the products that are easy to produce. Left unchecked, animosity can form between the two departments.”

The physical nature of the conversation reduces animosity that can occur on calls or an email string, he notes.

Both groups should come prepared. Sales should develop a forecast by product, and the production team should provide accurate inventory information.“By making both groups accountable for producing something, everyone tends to have some ‘skin in the game,’” Galassini says. “It cannot be a situation where one group presents to the other and then gets beaten up the entire time. This will quickly create a dysfunctional team.”

A plant can be overwhelming with the numerous products that can be produced. “I have found that it is a lot easier to understand what the bottleneck product is,” Galassini says. “Once this has been identified, then production planning becomes a lot easier to determine.”

Identifying a bottleneck enables sales and production to have a more meaningful conversation about the effects of the planned production. “The two groups can determine if that sales portfolio is desirable in light of the other products that have to be produced and the hours required to operate the plant,” Galassini says. “The two groups talk at least twice per month, dealing with facts, not emotion. These conversations build overall trust, and together, the two groups can often find great solutions to problems once thought too difficult to tackle.”

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