M Lipsitz and Co. Inc.—Managing By the Numbers

This Texas-based scrap recycling firm takes advantage of accounting capabilities to make informed decisions affecting a broad range of its business.

BY ELISE R. BROWNE

Elise R. Browne is editor of Scrap Processing and Recycling.

Tom Salome may be president and chief executive officer of a multi-facility scrap recycling operation, but deep down at heart, he's a financial analyst. "I eat, sleep, and dream numbers," he admits--and it shows. M. Lipsitz and Co. Inc. (Waco, Texas), the firm he's helped lead for the last 36 years, reflects the kind of up-front, prudent management style you might expect from an accountant. In fact, it's evident in everything from the way the company is structured to its environmental-control strategies, from its personnel policies to its scrap buys.

Of course, it's also apparent in M. Lipsitz and Co.'s accounting capabilities, especially the one area that Salome figures 99 percent of all other companies in the industry are missing out on: "We know at all times exactly how we stand." That doesn't simply mean calculating the bottom line. The firm's detailed cost accounting system enables its managers to know how every operation is faring in every deal—information they can then use to make decisions affecting all aspects of the business.

The result? The company hasn't had a losing year since 1959, says Salome, not even in 1982, a year that saw much of the scrap recycling industry operating in the red. To simply say that it hasn't lost money, however, understates the story of how the firm has not only weathered the unpredictable scrap market, but also has prospered, all while expanding its processing capabilities many times over.

Building up the Profit Centers

The company that would become M. Lipsitz and Co. was founded in 1895 by Louis Lipsitz, whose small scrap operation handled steel and nonferrous metals, as well as glass bottles, rubber, hides, and bones. His son Melvin took over in 1933, bringing his wife Thelma into the business about 15 years later. In 1957, with a growing operation to manage, Melvin recruited Salome, who had just returned home from the Korean War and had no experience in the scrap industry. He learned the business quickly, however, and in 1969 was thrust to the helm when Melvin died, just a year after his and Thelma's son Melvin Jr., now vice president, had joined the company full-time.

Today, while a Waco scrap plant remains as the cornerstone of the business, the company also encompasses facilities in five other Texas towns— Brownwood , Bryan, San Antonio, Terrell, and Tyler—and in Ardmore, Okla., all of which contribute to the 10,000 tons of ferrous scrap and 2,500 tons of nonferrous materials M. Lipsitz and Co. markets on average every month. (Hides, bones, and rubber have long been gone from its commodities list, but the firm does still handle some glass.) What's more, the firm now also includes a commercial waste hauling business, though this operation, like each of the seven scrap plants, is managed as a separate entity--an arrangement that holds each accountable as an individual profit center. The Waco facility itself is even divided into processing-operation departments that are treated as separate business units.

Like independent businesses, each of the operations pays the others a fair market value for the goods and services they provide, but, like a single company, they share management and expertise. The marketing of all the scrap processed at all the facilities is centralized out of Waco, for example, and one of the two top executives—Salome and Melvin Lipsitz Jr.—usually visits each of the plants at least every other week. Furthermore, a board of directors headed by Thelma Lipsitz (who holds the distinction of being the first woman to serve on the board of directors of the Institute of Scrap Iron and Steel), along with Melvin Jr. and Salome, oversees the total business.

Will there be more facilities or related businesses added in the future? That depends. "We expand by opportunity," Salome says. "We don't go out and try to buy other companies." Most of the firm's facility growth thus far has been through companies that approached M. Lipsitz and Co. looking to be bought out, he explains, noting, "if they fit our program, we'll take a look." So what kind of operation fits? One that can produce a proper return on the investment, the accountant in Salome replies matter-of-factly. "We don't want volume for the sake of volume."

Buying Smart

The company's scrap purchasing policies take a similar bottom-line stance. Only two of its plants actively handle glass, for instance, because the economics don't justify it at the other facilities. And while the firm will accept and process plastic bottles as a service to individuals who bring them in, it doesn't buy the material.

When it comes to the more standard scrap plant fare, the rule is to pay a realistic price and be straightforward about it. This means posting prices at all of the facilities and, if it's necessary to prove to any supplier that the company is offering a proper value, sharing its facts and figures. "I don't mind telling someone what I'm making off of a deal, especially to show why I can't pay him what he's asking," says Salome. "If they think I'm going to handle something and not make a profit, they're wrong."

Because much of this up-front approach is geared toward retail purchases, it might seem a bit out of place for a firm of M. Lipsitz and Co.'s size, but unlike at many other larger companies, peddler business accounts for a considerable portion of the firm's overall scrap buys--about 45 percent, compared with approximately 30-percent dealer business and 25-percent industrial. The emphasis is no accident. "We'll take all the industrial scrap we can get, but we're still peddler-oriented," says Salome, explaining that the retail end of the business can be an important insulator during down times.

Spending and Planning Pays Off

No matter what the state of the scrap market, these strategies--and plenty of others at the firm--seem to come down to doing things that make sense according to the balance sheet. Even something as seemingly minor in the whole scheme of things as loading outbound trucks reflects this: In an effort to maximize the size of its loads of shredded scrap while still keeping within weight limits and eliminating the need to run trucks back and forth between the loading area and the scale to add or remove material and recheck total weight, the company uses scales built onto its loading equipment in Waco to keep track of how much shredded scrap is in a truck as it's being loaded. In comparison to the alternative of sending trucks out safely underweight, this can add up to big savings, Melvin Lipsitz Jr. points out. "If you lose 2 tons per trip, you lose a truckload every 10 trips."

The firm applies similar calculations to the operation of a street sweeper that keeps its 20-acre headquarters plant clean. "We feel it's more of a requirement than a luxury considering how many flats our trucks would have without it," says Lipsitz. "The flat tire can be fixed, but the lost run can't. And if a truck that can make 12 runs a week only makes 10 because of flats, that could mean 100 runs lost over a year."

Safety is another area where M. Lipsitz and Co. has found that a modest investment can go a long way. By following all the rules themselves, accepting no less from their employees, and emphasizing the importance of safety through regular meetings on the topic and special events such as an annual employee safety poster contest, the company's managers have set the stage for an enviable safety record. In fact, its losses are so low that the firm's workers' compensation insurance premiums are now 82 percent less than the standard rates for Texas scrap firms. "We'd have to own another two or three scrap plants to make up for that savings," Lipsitz notes.

The benefits realized from the 10-inch-thick concrete covering the plant grounds in Waco are less-easily quantifiable, but the payoffs are no less meaningful. The hard-surfacing helps keep equipment cleaner, easing maintenance, Lipsitz notes, adding that it also reduces the chance of losing work days to bad weather.

Furthermore, he says, making moves like paving now, before it's mandated by law, enables the company to improve its facilities at its own pace, a more manageable proposition than racing to meet new rules as they're enacted or, even worse, confronting a site cleanup down the road. And he speaks from experience: The company, which used to recycle transformers for most of the major utilities in Texas, faced the cleanup challenge in 1979, when it discovered that the transformers had contaminated its property with polychlorinated biphenyls.

And so, M. Lipsitz and Co. has taken a number of steps to prevent environmental hassles and keep ahead of potential environmental regulations. Baghouses installed over its wire chopping equipment, for example, keep the air around the operation pristine. Meanwhile, an extra wet scrubber and special filtering equipment recently added to the shredder's emissions control system ensure that emissions are far cleaner than what the permit requires. Plus, the shredder takes advantage of a water drainage pond built more than 20 years ago, recycling the water collected for use in the wet scrubbers as well as in the mill, where it helps lubricate and keep dust down. And don't be surprised if the company puts all of its operations under roof in the near future. "I'll see it before I die," Salome predicts.

Taking Care of Their Own

Keeping ahead of environmental regulations doesn't just pay off in an economic sense, the company's executives point out. After all, by ensuring that its operations are clean and environmentally sound, the firm sends a signal to its employees and the communities it operates in that it's committed to ensuring their future as well as its own.

But that's not the only way M. Lipsitz and Co. invests in the people and neighborhoods that have become part of its corporate personality. The company is a prominent player in all the towns where its facilities are located, but especially Waco—the home town of both Lipsitz and Salome—where the firm sponsors everything from Little League teams to public school programs and supports, among other things, the local hospitals, museums, and universities.

In addition, Salome serves as president of the Waco Chamber of Commerce, a responsibility that takes up about 20 hours of his time weekly. It's a task he seems to have been destined to handle; at a time when most of the world associates the city with David Koresh and the Branch Davidians, Salome proudly points out that Waco is home to the Texas Ranger Museum and Baylor University, as well as one of the Gulf Coast region's most prominent scrap recycling firms.

While the fundamental strategy behind these activities is to give something back to the community, M. Lipsitz and Co.'s efforts have also helped it maintain easy access to the city councilmen and the mayor, who work with the scrap recycling firm whenever they're considering issues related to recycling.

The company's 240 employees gain from many of these community-related projects, but the firm's personnel policies encompass various other investments aimed at promoting a quality working environment. For instance, in addition to the basics—paying all employees a realistic salary and providing adequate vacations, holidays, health insurance, and a profit-sharing retirement plan—the company has taken steps such as offering an on-site English language class during work hours (in other words, while they're on the clock) for its Spanish-speaking workers and building a roof over employee parking areas to keep down the heat inside cars on hot summer days.

Managerial employees are also eligible for bonus pay, with each receiving a certain percentage of the company's overall profits on top of a modest salary. By structuring compensation this way, Salome says, the company keeps its fixed salary costs under control at all times while also sharing the company's good fortunes with these employees during prosperous years. In some instances this can mean incredible bonuses larger than salaries, but that's fine by the company's president and chief executive officer. "We never change the rules because someone's making too much money," he says. "If one of our managers makes a million dollars according to his deal, that's great."

On the flip side, the company expects its employees to play by its ground rules of being open and fair with each other and the company. Above all, Salome says, there is one dictate he lives by and will not change: "We don't rehire. If you leave this company you can't come back—I don't care if you're my sister."

Business Is Business, Family Is Family

Salome's sister actually does work for the company, as do two of his sons. And when you add in Lipsitz and his mother, there are plenty of family ties to the firm. Even so, don't ever call it a family business. In fact, don't even use that term in front of Salome. "There's no such thing as a family business," he contends. "There may be family members that work in a business, but the worst thing that a company can ever say is that it's a family business."

His problem with the expression is that it implies that family members are somehow different from other employees--an idea that offends him. "If a family member wants to work in the business, that's good as long as he's willing to abide by the same rules as everybody else." At M. Lipsitz and Co., that means keeping the same hours, taking the same salary, and getting the same perks, or lack thereof—for that's another thing that drives Salome crazy. Country club memberships, boats, vacation homes, and the like don't belong in any employment benefit package, he maintains. And though he sees a need for company cars, he doesn't think it's appropriate for a company to own a fleet of Mercedes. In fact, Salome doesn't believe a company car should cost more than $20,000, and neither of the two M. Lipsitz and Co. owns exceeds this value.

It all comes down to the bottom line. "This is a business and we run it like a business," he says "Our focus has to be on returning a good rate of return to our investors. That's it." •