The North American Steel Alliance expands its position in the market

April 2012 - For steel service center executives, the last five years have been a motley collection of ups and downs. They’ve had material flying out the door shortly after being unloaded from the truck and an abrupt crash where demand dried up with little warning.

It’s a fact of business that not every company survives tough times. For service centers, it’s extraordinarily difficult to manage inventories when material prices are all over the board as well as maintain everyday operations and keep customers happy. According to the U.S. Census Bureau, in 2007, there were 10,831 establishments classified as metal service centers and other metal merchant wholesalers. Although the actual number of service centers is difficult to determine, most would agree today’s number is far less. Some companies have been acquired by the service center giants and others have closed their doors.

In an intensely competitive market, independent service centers need to have a survival strategy. It could be entering new markets, broadening a product line, adding new equipment and capabilities, or joining a co-op like the North American Steel Alliance, Laguna Hills, Calif.

“One of the reasons I think NASA is becoming very important is because of consolidation within the steel service center industry,” says Steve Gottlieb, general manager and CFO of Ratner Steel, Roseville, Minn. “[The large service center companies] continue to grow by acquisition and greenfield. As they get larger and larger, it becomes more difficult to compete with them resource to resource. The vast majority of companies in NASA don’t have the resources to compete at that level.”

But by banding together with their entrepreneurial brethren, small to mid-size companies can take advantage of a vast pool of resources and knowledge. Companies of a certain size “have a much better chance being part of NASA rather than going it alone, especially in this market with continued consolidation,” says Fred Prine, president and CEO of Westfield Steel, Westfield, Ind.

Joining a co-op can provide a wide range of benefits to companies. According to the National Cooperative Business Association, all co-ops, which can range from small businesses to Fortune 500 companies, have certain key characteristics. They are owned and democratically controlled by their members, who elect the board of directors from within the membership. The NCBA also points out that co-ops return surplus revenues to members and are “motivated not by profit but by service,” existing to serve their members.

“A co-op exists for a purpose, but it lives on participation,” says Miles Donovan, vice president of NASA. “There would be no point in someone joining the co-op if they didn’t fully intend to participate on a level that is reasonable and makes sense for them.”

Prepared for continued growth
During the past five years, the NASA has focused on growing its presence and purchasing power in the market. The co-op was incorporated in November 1996 with 30 companies representing almost $1 billion in revenue. Today, it has more than 100 members with more than 360 distribution and processing facilities, collectively representing annual revenues exceeding $7 billion.

Doug Anderson, president of Anco Steel Co./Metal Partners Rebar, Montgomery, Ill., says the recent growth spurt can be attributed to new programs and a “continued understanding by metal service center owners that the world has been changing. The growth of large multi-location service centers has driven independent operators to continue to innovate and look for better ways to improve results. NASA is a great way to improve results.”

“Two, three, four years ago, NASA was still trying to figure out exactly who we were and how to go about operating in the marketplace,” from the best types of members to have to which types of programs to put together with mills, says Gottlieb. “Are we going to spend time on operational issues or is it going to be more on product development?”

The answers to these questions resulted in several different growth programs. One of them focuses on facilitating relationships among suppliers and members. NASA helps members connect with more than 50 preferred suppliers that can provide anything from steel products to operational equipment, services and consumable goods.

Randy Haas, director of marketing and program development, arranges one-on-one meetings for member companies and this group of preferred suppliers at the co-op’s annual meeting. “Mills tend to bring their top people as well as their regional representatives to our meeting, so you get the opportunity as a member to meet with a representative of a mill,” Haas adds.

Scheduled meetings give companies the opportunity to meet each other and ask questions. “People who didn’t even know the other existed have met each other,” says Gottlieb. “For most service centers, if you’re a $20 million service center, you’re not going to get an audience with anyone of substance at a mill. You’re not going to get a call back or be any type of priority. The big boxes are going to continue to grow and they’re going to continue to offer more and more resources to customers, and we have to be able to match that. Again, if you’re a $20 million service center competing against a big box, this is going to afford you an opportunity to help your business and build these relationships.”

These meetings also help enhance participating suppliers’ businesses, says Ed Leppien, vice president of Pacific Steel & Recycling, Great Falls, Mont. “Our corporation is based in Montana. We aren’t sought out by a lot of suppliers, necessarily. We’ve had suppliers that we’ve worked with in the one-on-ones because we were interested in trying to do something with them, and it took these meetings for them to realize who we were and get their interest in doing business with us. Being a member provided us and the supplier this opportunity.”

Since David Bernstein’s company, State Steel Supply, Sioux City, Iowa, joined NASA, the co-op has become “more refined and focused.” He says the access to suppliers provides a lot of opportunities for members. “The crux for a lot of us is the supplier base that we have. To get more suppliers and improve programs with the suppliers, the more participation we’ll have, and that really enforces what we’re doing.”

More than a rebate
Although all members of NASA’s board of directors agree the rebate they receive certainly is important, the benefits of membership extend beyond a bottom line boost. In fact, they can amount to a leg up in an increasingly competitive environment.

“When people come in, I think they’re surprised at how much more there is to it,” says Bernstein. “There are other co-ops where you buy some product and you get a rebate. That’s important, but there’s so much more. The one-on-one meetings, the fact that you can interact with each other, get exposed to operational programs and network with a bunch of your peers and have dialogue with peers that’s not threatening or inappropriate. We’re all service centers or suppliers, and there are a lot more similarities than differences. It’s so much more than just a buying group.”

Even though some of the members directly compete with each other, “we all get along,” adds Prine. “It’s not them that we worry about. It’s really unique to have competitors get along like that. You’re not going to find that in a lot of organizations.”

Establishing relationships within the co-op is a benefit without measure, says Rich Merlo, president and CEO of JDM Steel Service Inc., Chicago Heights, Ill. Because of antitrust regulations, members do not discuss pricing, but they share information about equipment, suppliers, even buying and selling material among themselves.

“The economic benefit of the group is wonderful, but the true benefit comes from many smaller areas,” Anderson says. “The consultation with fellow operators in other parts of the country allows us to help each other without fear of hindering our own success. I have been helped in areas such as preference payments, machinery purchases, accounting and computer software. Often, the help comes because of the friendships that have been started and cultivated in the organization. The group is simply the warmest organization I have been involved with. We hope others have success.”

“We help each other out,” adds Orlando Garcia, vice president of Everglades Steel, Miami. “I can pick up the phone and call someone in Detroit, someone in Chicago or someone in Birmingham and say, ‘Hey, what do you think about this?’”

One goal
Donovan says the thread that binds NASA members together is their common goals. “This is one of the few organizations where everybody involved has the same goal,” adds Garcia. “You can’t say that about a lot of organizations.”

All 109 members are entrepreneurs “who are trying to make their businesses better,” says Rick Costantini, vice president of Scion Steel, Warren, Mich. “It is our entrepreneurial spirit that pulls us together and pushes a lot of limits, barriers that we had before that we’ve broken through because we’re not satisfied. Everybody is trying to make [NASA] better and make their own companies better.”

“As our organization has matured, as the members ‘get it,’ they understand the value of participation,” says Lonnie Terry, president and CEO of NASA. “They own [the co-op]. Once they understand that they can function as a $7 billion company, they adjust their thinking to focus on being something greater than their individual organization.

“NASA has been blessed with excellent leaders,” Terry continues. “Going back to Larry Liebovich, our first chairman, every chairman has brought something unique to the table. It wasn’t just commitment, it wasn’t just time spent, but it was something they were passionate about.”

Terry says current board chairman Prine, who’s been in the position for the past two years, “wanted to find a way to get more people involved—find a way for people to feel responsible and feel their voice was heard.”

His strategy to increase participation was to make committees a focal point. “He expanded five core committees of the board that support our key objectives,” Terry notes. “Each of those committees are comprised of a board member plus the addition of other co-op members who have expressed a desire to serve as a director and have proven to be good communicators. This action broadened the sphere of influence from our general membership by basically tripling the number of individuals providing input into directional issues of the organization.”

Future growth for NASA is limited only by the goals of the leadership, Donovan notes. “We have no boundaries in terms of what we can look at and areas we can go into because there is no set model.”

“This is what happens when you live, eat and sleep business,” says Roger Simmons, president, Simcoe Steel Ltd., Mississauga, Ontario. “I’ve been around since day one, and now we’ve gotten built up to the point where those of us that are still around aren’t worried about survival as much. I think we’re going to focus on changing the industry in many ways that can’t even be imagined yet. The opportunity is here, and this community has a tremendous amount of capacity.” MM

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