September/October 1992
Here's how the management team of this nickel/stainless scrap specialist has constructed a lucrative firm out of the remaining assets of a company gone under.
BY ELISE R. BROWNE
Elise R. Browne is editor of Scrap Processing and Recycling.
How do you turn the remaining shell of a bankrupt scrap recycling company into a profitable new firm?
If anyone knows the answer, it's the executives of Steelmet Inc. (McKeesport, Pa.). In 1983, the company—then a Pittsburgh-based publicly held scrap firm with processing facilities across the nation—went under. But within a couple of years, a "new Steelmet" began to emerge. ELG Haniel GmbH ( Duisburg , Germany ), reportedly the world's largest stainless steel and nickel-alloy scrap processing corporation, purchased the firm out of bankruptcy in April 1985 and soon assembled a new top management team to lead the firm's development.
Although there was a company name, some customer records, and a few remaining assets to work with, rebuilding Steelmet was no easier than starting a new firm, says Mross, the company's president. In fact, adds Gerald W. Stewart, vice president of international trading, because of the stigma of bankruptcy attached to the Steelmet name, rebuilding the company was probably more difficult than starting from scratch. Stewart, who had worked in middle management positions with the old Steelmet, recalls what it was like trying to buy scrap in the early days after ELG's acquisition: "When I first came back, I made lists of former suppliers to call to try to draw materials. And if I had 30 names on the list, I knew at least five would slam the telephone in my ear on the first call."
But by refocusing the company, streamlining all aspects of the business, and reestablishing relationships with scrap suppliers and consumers, Steelmet has increased its scrap volume by about 500 percent since 1986, Mross reports.
Focusing for Efficiency
You can bet that this growth was carefully planned. "We aren't interested in huge sales," Mross says. "We want to be profitable and manage a very lean business." Thus, one of the first steps taken to build the company was to establish a new focus for Steelmet's structure. Old locations were closed, and, as time went by, new facilities were added, given a trial run, and kept on board as dictated by their financial reports. Today, the Steelmet name hangs over the doors of plants in McKeesport, Chicago, Los Angeles, Houston (where the facility is known as Gulf Materials Recycling Corp. but is considered a division of Steelmet), and Mobile, Ala.
The Steelmet management team has also refocused its commodity concentration. While the pre-1985 Steelmet split its efforts between carbon steel scrap and stainless steels and other nickel-containing materials, today the firm only processes scrap in the latter category. "It's the industry we know inside out," Mross says.
Nevertheless, Steelmet does broker other scrap commodities—primarily as a service to its suppliers—though the firm never processes such materials. And Mross doesn't rule out the possibility of acquiring a facility to handle other types of scrap "if an attractive opportunity were to come our way." Still, he emphasizes, Steelmet's five plants are experts in stainless steel and nickel-alloy scrap and will continue to process only those metals. "Anything that is related to our business we do," he says, "but to add another business within our existing facilities wouldn't make sense to us."
And while the company is not actively seeking to expand into new types of materials, Mross notes that the firm is "looking at related businesses all the time."
Keeping Lean
In addition to fine-tuning these central aspects of the company, Steelmet executives have streamlined the business in other ways, all in an effort to run an efficient, lean operation. With only 165 employees at all five facilities, for example, the company might be considered understaffed by some. "People are amazed that we're able to do what we do with the few people we have," says Thomas W. Headley, vice president of U.S. trading. In McKeesport , he notes, about 30 employees handle all of the plant's receiving, processing, and shipping—a task that had been performed by more than 100 people in the past.
How has Steelmet managed to grow with such a relatively small staff? For one thing, Stewart points out, the company's employees are motivated to work hard and make intelligent decisions. In the early days of the new Steelmet, he explains, the company hired back a number of laid-off plant foremen and workers for less salary than they had been making before, with the understanding that when times got better and the business grew, they would be rewarded. "As the company prospered, they got back what they gave up, plus a lot, lot more," he says. "We've determined that it makes more sense to pay these guys a good wage and have high expectations of what they do than to pay them minimum wage to work at half-speed."
Another factor that has enabled Steelmet to operate with a lean work force is efficient plant design. William C. Fisher, vice president of U.S. plant operations, thinks the ideal scrap plant layout should resemble an assembly line: "We try to make sure that material flows as much as possible in one direction, moving down the line to its ultimate destination."
That was one of the considerations that went into building the company's new plants in Mobile (opened in 1990) and Chicago (where a new plant replaced an older facility in that city earlier this year). Efficient layout is also a key factor in the plant redesign now under way in McKeesport . The headquarters plant had been operating on 26 acres, Fisher notes, but will only use about half of that acreage once the renovation is complete. (The remaining land will be developed into what Mross describes as a "green space"—an area filled with trees and plants.) By centralizing operations to a much narrower area, he points out, "manpower doesn't need to travel as far, materials don't need to travel as far, and efficiency is increased."
Steelmet's equipment management strategies also demonstrate the company's efforts to streamline operations. For example, the materials handling equipment at all of the facilities is updated on a regular basis, Fisher says, noting that none of the company's cranes are older than five years. "You can save a lot of money by using up-to-date equipment," he says, adding, "This company likes to do things right."
At the same time that Steelmet has modernized its equipment, the company has standardized the types of machinery employed among its five plants. All of the cranes, for instance, are rubber-tire machines manufactured by Liebherr, and all of its portable alloy analyzers are identical instruments manufactured by Outokumpu Electronics. With this sameness, Fisher notes, if there's a problem with a piece of equipment at one location, another location may know the answer. And in the case of analysis instruments, using the same model set to the same specifications at all of the plants means a scrap analysis at one facility can be easily interpreted at the others, he points out.
Balancing Interests
The information exchange at Steelmet isn't limited to these examples. Managing a business with five facilities spread across the country requires special attention to communication, and Steelmet meets that obligation with a computer system that links the locations, well-used fax machines, and frequent inter-facility management discussions. "We're informed to the last minute of what's going on in terms of incoming materials, outgoing materials, inventories, pricing, and so forth," says Mross. In addition, as a part of a worldwide scrap group, Steelmet is privy to technological and market information provided by ELG's other scrap companies—located in Germany, France, United Kingdom, Netherlands, Spain, Italy, Switzerland, and, most recently, Australia—giving the U.S. firm what Mross calls "a very global outlook."
Although this access to data helps them make smarter trading decisions, he notes, Steelmet executives aren't speculators. "We consider it our job to supply the mills on a regular basis, in good times and in bad times. To withhold material while waiting for the market to turn around would ruin any relationship."
And while Steelmet has an international perspective, its primary interest is in providing scrap to the domestic market, Mross emphasizes. This was a point the company had to underscore repeatedly in the first years following ELG's acquisition, when many of the U.S. specialty mills Steelmet wanted to supply may have feared that, as a German-owned company, it might give preference to European mills when the stainless scrap market got tight.
The company doesn't discourage international business, however. "Of course not, the world's too small for that," Mross chuckles. Indeed, about 30 percent of the scrap Steelmet handles is for export, with the Los Angeles plant shipping a good portion of its materials to Japan and the Houston facility exporting to Korea. The firm has also done business in Europe , he notes, though market conditions have essentially eliminated that trade flow for the last two years.
Proving Its Staying Power
Mross declines to reveal just how much business this marketing strategy has produced, saying only that the company is "one of the prime suppliers to the big mills in this business." Getting to that stage wasn't easy; Steelmet had to restore scrap suppliers' and consumers' confidence in its bankruptcy-tarred name.
The financial strength behind the company was an important means to that end. ELG, Steelmet's parent company, is owned by Franz Haniel & Cie. GmbH ( Duisburg )—an international, multi-industry conglomerate that's said to be the largest privately held company in Germany—Mross points out, so suppliers and consumers know "they're dealing with a very stable company that will be here for a long time."
That financial foundation has also allowed the firm to extend special services to those it does business with. For instance, when the new Steelmet began to seek scrap for its operations, it was able to woo back some of the company's former suppliers by paying cash for the raw materials, Mross says. The company continues to offer flexible payment terms, Headley adds, noting that its fiscal strength has also enabled Steelmet to gain access to "big deals"—such as purchasing 500 to 1,000 tons of stainless scrap—that few other companies could handle. On the selling side, Mross says, that translates to an ability to guarantee its mill customers "a continuous flow of material on a monthly basis, year in and year out."
Among the other factors that make the company attractive to scrap suppliers and consumers is its environmental program, Mross says. "It's only a matter of years before all the mills begin to require that the companies they deal with have a clean bill of environmental health," he predicts, "and we want to be ready." Thus, Steelmet is taking steps to get ahead of environmental requirements, paving all the operations areas of its properties, installing oil/water separation systems, storing and processing all turnings under roof, and even developing movable baghouses to clean the air in torching areas.
Steelmet executives expect these efforts to benefit their suppliers too. "One of the biggest worries on people's minds today is that they'll be nailed for someone else's environmental problem down the road," Headley points out. "When they deal with a company like us, and see how we're spending millions of dollars on environmental improvements, they have the assurance that we're going to be here in the future and they're not going to get stuck with an environmental cleanup."
Building on Relationships
Establishing this kind of trust with its suppliers and consumers is a constant aim, company executives say. In fact, notes Stewart, the foundation of the new Steelmet was—and continues to be—"close relationships" with buyers and sellers of stainless steel and nickel-alloy scrap. "They are our backbone," adds Thomas D. Panepinto, executive trader, "and we want to treat them fairly."
In its dealings with consumers, this includes just-in-time shipments pre-blended to guaranteed chemistries. Through this practice, says Headley, "We're reducing the mills' costs and enhancing the value of the product we deliver to them."
On the other side of its business relationships, Steelmet has taken steps such as making each of its traders responsible for his scrap purchases from the initial phone call or visit through settlement. What this latter example means, explains Stewart, is that if there's ever a question or problem with a deal, "the supplier and the trader know about it immediately and can get on the phone and try to correct it. There are no surprises."
The firm also has a policy against retail business, since purchasing small quantities of scrap would not only be inefficient within Steelmet's structure but also would force the company to compete with its suppliers for material. Therefore, accumulations of less than a couple of tons are generally referred to one of the processors the company works with.
And if there's anything else the firm can do to build its relationships with suppliers and consumers—and thus build on the success of the new Steelmet—it seems likely the company will take those actions. "We want to be one of the most important recyclers in our business on a global basis," Mross says. "We're making every effort to ensure that future." •
Here's how the management team of this nickel/stainless scrap specialist has constructed a lucrative firm out of the remaining assets of a company gone under.