Are service centers friend or foe? It’s a straightforward question without a simple answer. Several months ago, we bid on a huge tube laser cutting job, millions of pounds of steel tube cut and delivered monthly. We collaborated with our vendors to negotiate a favorable material price, ran test articles, and optimized cutting programs to create the best possible bid. Regrettably, even with aggressive low margins and state-of-the-art equipment, we weren’t price-competitive in volume. Why? Our primary metal tube vendor also has a tube laser. We were bidding against our own supplier.
This isn’t news. Service centers can’t do every kind of work, but large jobs requiring relatively simple value-added services are an easy win. They command enough scale to earn direct-to-mill buying power and can therefore drive prices down far enough to win the big jobs. This can be frustrating for shop owners like myself, but it’s actually an important, healthy part of our manufacturing economy. We need those kinds of efficiencies to help reduce manufacturing costs in the U.S.
Meanwhile, shops that buy from service centers differentiate in other ways. Service centers tend to provide generic services like leveling, warehousing, and distribution, supporting hundreds of industries. There is an awful lot of specialization generally required to serve any particular industry. So while a service center might win large, easy jobs, other manufacturers can target particular industries and serve them better. That means making certain kinds of products better, of course, but it also means learning how to bid and sell into those markets. While service centers might dabble in some high-volume verticals, there’s a limit. They can’t be good at everything.
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