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Editorial Advisory Board Roundtable
Thursday | 21 March, 2013 | 1:47 pm

Business in the fast lane

By Lauren Duensing

Modern Metals’ editorial advisory board reflects on the industry’s past, present and future challenges

March 2013 - A decade and a half can pass quickly—almost in the blink of an eye—but between the late 1990s and the present day, the metals industry has seen many cycles and many changes. 

“At this time in 2008, we were really humming,” says David Hannah, chairman and CEO, Reliance Steel & Aluminum Co., Los Angeles. He says the peak in volume came in 2006. “We think that was the best demand year we’ve seen in quite some time. From a demand standpoint, 2007 wasn’t quite as good as 2006, 2008 wasn’t as good as 2007 and 2009 was just a disaster.”

Hannah says people in the service center business made “more money than they had ever made in their history” between 2004 and 2008. “And then, of course, 2009 hit. Overnight, prices dropped 50 percent and demand dropped 40 percent. It was just awful. A lot of us thought we were in pretty good shape in terms of liquidity and inventory, but all of a sudden your demand goes down 40 percent and your prices drop by half, and it doesn’t look so good anymore.”

“Going back to the Great Recession, our industry was down 35 or 40 percent during that period,” says Scott Kelley, president and CEO, Service Center Metals, Prince George, Va. “Although things have improved, both year over year and month over month, it’s still down 15 percent from where it was in 2006 and 2007.”

The years prior to 2008 also held their fair share of boom and bust. “The late ‘90s were kind of booming years,” Hannah says. “Then, the high-tech bubble started to come apart in late 1999, early 2000. So 2001, even before 9/11, was getting weak, and 2002 was worse than 2001, and 2003 was worse than 2002. Those were the worst three years of business, at least in our service center industry, that I’ve ever seen. Everything was slowing down at once and we were still getting over the whole 9/11 shock.”

As business dropped between 2000 and 2001, there was a wave of mill consolidation that changed the way companies did business. “Prior to this consolidation, the mills had far less pricing power,” says Jeff Simons, vice president of marketing and business development, O’Neal Industries, Birmingham, Ala. “This resulted in more wheeling and dealing, and it was more likely that a mill would agree to a deal, even if it wasn’t in their best interest.”  

He also notes the latter part of the 1990s was pre-globalization and pre-China. “It was a whole different market.”

Peter Baines, corporate VP communications and corporate affairs, Samuel, Son & Co. Ltd., Mississauga, Ontario, also noted the effects of globalization, saying that one of the big changes in the market was decreasing volumes in North America. “The mills are getting hit pretty well,” he says. “Probably the reason for that is everybody is worldwide now, and the world hasn’t been doing too well. Up until this year, the effects of globalization on our suppliers have been pretty good.”

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Today, after dealing with all the ups and downs, Hannah says, “the industry has become better at managing its working capital, in effect managing inventory, because a lot of people that didn’t do that well aren’t here anymore. Although we lost some participants, the industry is stronger today. Compared with 2008, we’re probably better off, even though we’re at a lower level today. At least we’re moving slightly upwards in terms of demand.”

Clicking keys, quiet phones

Robert Levey, general manager, commercial, Gallatin Steel Co., Ghent, Ky., says the biggest change he’s seen in the industry recently is the amount of information available, from pricing indexes and scrap indexes to transparency surrounding transactional costs and models.

“All the information is so instantaneous and easily available, there’s complete transparency,” Kelley says. “So you have to spend a lot more time, manage it better and be a lot smarter about it than you were before.”

“The amount of information is incredible,” Baines says. “Customers are well-versed in terms of market trends and pricing. I think you go back to selling what you have within the scope of a more knowledgeable customer, who hopefully appreciates what you do all the more.”

Hannah says the quick exchange of information drives some of the volatility in pricing, which has an impact on demand. “When prices are going up, our customers will tend to buy more because they can buy more today at a lower price if they’re convinced that the price a month from now or two weeks from now is going to be higher. And on the other side, if prices are flat or they’re going down, customers tend to only buy what they absolutely need because they can buy it either at the same price or a lesser price two to four weeks from now. So it ripples through the buying patterns of our customers. In turn, when our customers’ buying patterns change, then our buying patterns with the mills change, and this start-and-stop cycle is hard on the mills.”

Using prior month’s metal pricing puts the industry at a disadvantage, Kelley says. “Since we quote one-week lead times and our competition sells depot inventory they have sitting on their floor, it allows customers to game the system. If they see metal prices running up, they pull a lot of orders into the current month, and if they see metal headed down, they hold off and wait until the next month to order. This makes it very difficult to handle your raw materials.”

The speed of the daily work environment causes more orders to be emailed or submitted online. 

“A colleague of mine was in one of our larger locations the other day,” Baines says. “This is a busy place, and he sat there for half an hour and hardly any phones rang. And the reasons for that are more and more people are emailing information to make sure they get it right and it is organized. People are emailing back and forth with their customers because it seems to be faster. Nobody has the time to talk; it’s all business.”

A multigenerational workforce

Because people are living and working longer, by 2020 companies will be faced with the task of balancing five generations in the workplace—from some members of the Greatest Generation, who will be 75 in 2020, to Generation 2020, who will be just beginning their careers. These five generations approach work in different ways, but each group brings highly beneficial skills to their employers.

“The baby boomer generation has a lot of experience and a lot of knowledge,” says Frank Kevane, president and CEO, ThyssenKrupp Materials NA, Copper and Brass Sales Division, Southfield, Mich. “With the Generation Ys, they are technologically savvy and have a lot of flexibility, as well as the ability to keep up with high-speed communication, which appeals to a lot of people. The Generation Xers, they’re our future leaders or our current leaders, and they’re kind of the bridge between generations.” 

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Kevane says working with these different groups provides “a fantastic opportunity to have diversity of thinking. I think there are a lot of people who are trying to stay modern, and I think there’s a lot of energy around. We have to be adaptive, and we have to come up with modern media solutions and stay current.”

“Most of our production workers are younger guys,” Kelley says. “We look for guys with great work ethics that are dependable and can see a future with the company because we try to keep our young people around. The more experienced they get the more productive they get, and they become better employees. That’s important to us.”

The younger generations’ familiarity with technology is contributing both to the speed at which they conduct business and move up the ladder.

“I started with O’Neal in 1987, and after six months of experience on the sales desk as an inside sales rep, I thought I knew everything there was to know about the steel business, and I wanted to go on the road. Little did I know how much I didn’t know,” Simons says. “Back then, you typically had to be in inside sales about two, three or four years before you had the product knowledge, the experience and the skill set to be able to go and be a solutions-based salesperson. In the late ‘80s, product training was very different. Obviously we didn’t have the Internet; we studied product books and then used stacks of three-ring binders that contained books and catalogs on all of the products we sold. You’d get a call on something you were unfamiliar with and then take the time to flip through the books to find the answer. After you did that for awhile, you became pretty well-versed in all the products.

“Now, the Internet has leveled the playing field regarding product knowledge,” he continues. “All you need is the product name and you can become an ‘expert’ in a matter of minutes.”

However, balancing the generations can be tricky, especially in a situation where an “aggressive newer salesperson is calling on an experienced, more traditional, relationship-building purchasing agent,” Levey says. “There’s some give and take that has to occur from both parties. When some of us broke into the business, there were more senior people available who, even though they wouldn’t have been considered mentors, were willing to help you grow in your understanding of the business. You could talk with them and ask them questions if you were unsure or just didn’t see how the business was working. Today, younger people may be more comfortable looking online for the answers to their questions. And that’s a very different reaction and a different world. 

“I think the best situations are when those nuances of the different age generations are tempered,” he continues. “One of the keys is to have open communication because I think the newer people can learn from the experienced and the experienced learn from the newer people.”

“Without the technology I have today, there’s no way I could keep up with a company our size,” says Hannah. “That means relying on some of this new technology and some of the people that are really good with that technology to provide me and our management team with the data that we want. We try to give the younger people with the knowledge that some of us don’t have the opportunity to show what can be done with this technology rather than outright dismissing it just because we’re uncomfortable with it. 

“On the other hand, when you’re talking to the younger folks, you can have the discussion about why you want this information and what you’re going to do with it,” Hannah continues. “That helps them understand what’s important in the business and why you want to look at it and what you’re going to do with it once you get that information. That’s knowledge they don’t have. That’s knowledge they can’t teach in school. It has to be learned on the job.”

Downturns in the 2000s disrupted hiring patterns in the metals industry. “In the year 2000 and of course in 2008, we stopped hiring, so you have an incredible number of older folks around. Therefore, there isn’t a lot of room for the younger people,” Baines says. “Now that can’t last forever, but it is a pretty old business.”

“The North American steel industry is facing a critical workforce challenge as thousands of skilled workers are needed over the next decade to fill vacancies left by retirements,” says Bill Steers, general manager, communications and corporate responsibility, ArcelorMittal Americas, Chicago. “As a point of reference, the average age of ArcelorMittal USA’s workforce is more than 50 years old. An aging, skilled workforce in the manufacturing industry creates an acute need for skilled workers with strong technical and engineering skills. The baby boomer generation approaching retirement, coupled with the restructuring economy and rapidly advancing technology, has created an increased demand for individuals to enter the United States workforce with higher skills in science, technology, engineering and math.”

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Steers says in addition to building a STEM-educated workforce to support the needs of the manufacturing economy, manufacturers need to make potential employees “aware of the high-tech nature of many of our jobs, the highly competitive compensation and benefits we offer and quality employment opportunities that are available within the industry. … High-tech jobs aren’t limited to Silicon Valley. At ArcelorMittal, modern steelmaking is cutting-edge, exciting and globally competitive. Our equipment is state-of-the-art and requires highly skilled, tech-savvy employees capable of thinking strategically, identifying solutions and working as a team.”

Raising awareness of the value manufacturing brings to the U.S. economy is vital to the industry’s future, Hannah says. “We need to make sure we maintain and increase our manufacturing base in this country,” he says. “From a more industry-specific standpoint, a lot of us in the industry are getting older, and we need to work on attracting good young people to our industry and get the next generation in here so they can take what we’ve done and do it even better going forward.”

A handshake seals the deal

Amid an increasing turn to technology, there’s still a place for face-to-face meetings. Because of the industry’s volatility, partnerships and long-term relationships are an important part of business.

“You have a lot of capacity that’s not in the market anymore, but you still have an industry today that’s running at 76 percent of adjusted capacity, which is a different paradigm than what it was 25 years ago,” Levey says. “[The cycles] are much more volatile and much shorter, and that doesn’t necessarily change your strategy, but it certainly affects your tactics. You just have to continue to keep an eye on where it is you want to be, but it all comes down to those relationships between companies and the ability to act during those cycles and do what’s right for both parties.”

Trusted relationships are “the cornerstone of making things work long-term,” he continues. “It is difficult for most people to make the time to actually build those relationships, but it’s crucial. When push comes to shove, you want to do business with companies and people who are aligned with your same core values. That becomes an integral part of the discussion, and the difficulty is that it doesn’t really translate to email very well. You get that out of good conversations, good problem-solving exercises and spending time in each other’s facilities.” 

Hannah says although much of the service center business focuses on relationships, e-commerce has increased over time. However, he notes e-commerce is “still a very small part of the business. As we get more younger folks into the business at the customer level, as well as in our own industry, it will probably continue to increase because the younger folks are more comfortable using the technology.”

Simons says e-commerce is a “great solution when you’re selling items at a published or contracted price, but when you’re dealing with a commodity, there are many factors that will influence a specific price scenario. Coming up with a solution that addresses those factors in a way that is securely managed is a big challenge. One that we’re going to need to figure out.”

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He notes, “E-commerce will change the way we transact business over the next ten years.  Contracts will still need to be negotiated; however, a lot of transactional business will be completed with e-commerce solutions. And to stay relevant, companies will need to have electronic solutions to manage those contracts, too. Forecasts, order entry, shipping notices, delivery tracking and electronic payment methods won’t be unique. They’ll be expected.”

Flexibility is the key to keeping up with stronger competition both globally and within North America’s borders. “If you don’t feel like you are either working toward or are the lowest-cost supplier providing the best quality and service in the manufacturing arena, you’re probably not going to be around in the future,” Kelley says. “So our mission really is to be as efficient as possible and provide the best quality and service and take care of our employees.”

“I don’t know exactly what the challenge will be in terms of demand from our customers, but I know there will be a lot of changes,” Kevane adds. “I think that we have to accept that everything is going to stay in flux—including the status quo. If you’re not ready to accept the challenges and move with high speed, you’re going to get left behind. You can get caught flat-footed. Things are moving fast, and they are just going to move faster over the years.” MM

Interested in purchasing reprints of this article? Click here

 

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