Above: LexCentral Steel shows its customers the market trends and involves them in the process regarding how to react to those trends.

Flat-rolled distributor delivers permanent cost savings through close understanding of customers’ processes

August 2019 - There are multitudes of services that a distributor can offer, but there is a great deal of competition for all of them, especially in a market like the greater Chicago area. One must do more than offer the best price, fastest delivery and high-quality product.

At LexCentral Steel, the keys to steady growth have been to provide on-the-nose market forecasting most of the time; to offer sage advice on inventory management and purchasing strategy; and to learn how to help customers in a significant and lasting way.

William L. Douglass, president of the Bedford Park, Illinois-based company, adds that vendor relationships are also crucial.

“We have to be responsible in how we buy and sell and lead customers in the right way,” Douglass says. “It’s not just being an expert on this. No one outsmarts the market every time. We herd just like everyone else. We sometimes call the market wrong like everyone else. But the trick is just to be right more than wrong. Customers are now asking about going long. I tell them, ‘Buy what you need until a direction emerges.’ Perfectly timing the market is an illusion. Getting the trends correct may not yield the home run but will consistently deliver savings with less risk. ’ We line the mills up right and consistently supply at consistently competitive prices.

From left, Robert Douglass, CEO of Lex Holding Co., Tim McFarland, president of Lex Holding Co., and William Douglass, president of LexCentral Steel.

“We try to match our mill purchases with what our customers are trying to accomplish. They all have unique markets for their products.  As such, their purchasing strategies should be tailored to their circumstances,” Douglass continues. “For example, if they have a six-month contract with Walmart or Home Depot, we will try to lock in tons at a fixed price to create a guaranteed margin.  If the trends favor waiting on some of the tons, we will discuss the risk and reward with the customer and collectively decide to employ other strategies. We show our customers the trends and involve them in the process regarding what we see in the marketplace.”

LexCentral also helps customers turn their own inventory faster. “If they call us before noon, we will have an order to their door tomorrow morning. We have inventory, we have trucks and drivers. We help them control their inventory and take out their speculation,” says Douglass, thereby reducing cost risks.

Studying specifications

One of the ways that a service center becomes a valuable partner is to study what the customer is doing and why they do it a certain way. Douglass cites a metal forming customer that deep draws parts. “They had a generic spec for the steel sheet but had a lot of problems in the field. Their spec was too wide.

“So you run one coil and it runs great. Second coil, not so good. It was a problem part. We took the chemistries and went to different sources to see what might work more consistently.” After investigating, LexSteel offered, “How about we get this steel from this source, put it on an index, run trials and hit a spec that is half the spec you currently have—and it will be right every time. We did that.”

LexCentral saved the customer $100,000 on that one part last year, “because they had zero rejects. They didn’t have a rework. They had no problems whatsoever. The headache is gone.”

It would be difficult for any other service center just offering a good price to come in and beat that total cost savings. The customer, says Douglass, “cannot even try to go back to the old way. You would be amazed how often, when you study the spec, what difference can be made.”

It is not merely the reduced reject rates, however. “It is how the coil tends to run through the end user’s process. Many manufacturers may not reject the part, but they had to work through it to get it right. Among those that quantify their processes, we do really well with them,” he says.

“Even if I offer a grade or tolerance that didn’t work well, I will ask why not. Assuming we mitigated the price risk, the inventory carrying cost, why is that not working well? If we can get it to work better, then the questions are: Does it cost more? and, is the cost worth it?

“In a lot of ways, we are able to work smarter,” which means that total cost can be lowered even when initial material cost rises. Douglass cites another example. “Batch annealing can be better for deep draw than continuous annealing. Both are great steels, but one may not be the best for a particular part. There are those need certain Rockwell hardness or a certain profile to be consistent. How many sales people spend the time to go through all that with a customer?

“The more technical our customers get, the better it is for us.”

A worker at LexCentral Steel stacks packaged blanks for shipment. The company plans to buy a new slitter later this year, which will expand its product mix and improve finish quality.

Manpower

Douglass has seen the skills gap in the U.S. labor force affect the entire manufacturing sector. On the demand side, “I spent the past six months to a year with customers saying they cannot find welders and tool-and-die guys. The skills gap has impacted demand. Our customers, even if they want to ramp up, don’t have the skilled manpower to do it. End users’ complaints about the steel tariffs are muted by comparison, he remarks.

Welding, machining, mechanical and other trades should be a priority for schools, he says, “but it hasn’t been,” in spite of high salaries those trades offer.

There are two other issues that make recruitment somewhat difficult. In front office jobs, from sales to accounting, Douglass finds that many candidates coming out of universities are less able to talk to people. “They email and text. I made a joke once—while discussing sales training—that I wanted to take them to the Hyatt, find a wedding and have them crash it and act like they belong. We’ll determine who can stay the longest before they figure out you don’t know either party.

“I look for people skills.” For white collar jobs, “that’s the biggest challenge.”

For jobs on the shop floor, Illinois’ move to legalize marijuana is cause for concern.  “The greatest difficulty may very well be having enough candidates who are able to pass a drug test. But drug tests are necessary for safety and liability reasons, Douglass says.

“So now your labor pool is even smaller. As a result, companies will be forced to look at automation as a way not to have people. You engineer humans out of the process,” he says.

Versatility investment

LexCentral is working with vendors to install a new 72-inch-wide slitter in the near future. The new one, with a wider thickness range, will replace two existing slitters. Down the road, Douglass may still bring in a new, narrower slitter (36 inches wide) with an edger to take care of specific customers. He also plans to upgrade an existing cut-to-length line.

“We will expand our product line in terms of thickness, shape correction and finishing, and we will start getting into higher carbon, 1045 and 1050 (cold-finished grades). With our cut-to-length line, my problem there is my packaging line is slowing that down. So we will add conveyors to extend the packaging line so I don’t have to stop the cut-to-length machine.” Just by having packaging keep up, LexCentral can cut its lead time in half. In addition, the investment will bring more work in house.

“We have to be smart about how we handle our space in Bedford Park. We have 90,000 square feet, and we push a lot of tons. We want to find ways to get more tons out more efficiently.”

Strategies

Everyone on the LexCentral team is encouraged to try to find savings in the way things are done “because those become permanent,” Douglass says. The goals are to “do it better, turn it faster, get reliable suppliers and good service. Be able to cut raw material inventory down. Spend time on internal forecasting so you can buy smarter and ensure greater certainty. Calculate what the value is of each of your suppliers. Capitalize on what each does best. Figure out which ones do what you need comfortably. Let it be easy for them. When you line that up right, that creates permanent savings.”

Finally, he says, “Know how to apply those abilities.” MM