March/April 1991
John Thalheimer has built a voluminous business--one of the biggest nonferrous operations around--by, he says, knowing a bit more than the other guy, competitor and customer alike.
By Jeff Borsecnik
Jeff Borsecnik is assistant editor of Scrap Processing and Recycling.
John Thalheimer, president and owner of Thalheimer Brothers (Philadelphia), is not satisfied to merely turn scrap into profits. His goal is to maximize profits by buying and selling scrap in "the ultimate market"--buying directly from generators and selling to consumers that can use the material to its optimum value.
Looking beyond the most obvious, easiest markets has helped Thalheimer turn a small specialty scrap processing business his father and uncles started more than 50 years ago into one of the largest operations of its kind. As evidence that this philosophy works, Thalheimer offers that the volume handled by the company has quadrupled over the last eight years and the company hasn't had a losing year in its history.
In many instances, Thalheimer points out, the ultimate market is a consumer that had never before used scrap in place of virgin materials. He says he has been successful in this market by making potential customers realize that "labor rates are fixed. The only way they can save a buck is on raw materials." They are willing to be convinced to use scrap, he says, if the right scrap is available. And Thalheimer produces that scrap.
Catering to a Specialty Market
Thalheimer Brothers caters to specialty steel and alloy foundries and fills special orders from large steelmakers. These customers will pay a premium for the right scrap, which allows the firm to move scrap halfway across the country--with its own fleet of 25 trucks. "The reason we run them is for service," says Thalheimer. "If one of our clients says he wants a pickup at 8 o'clock, he means 8 o'clock. With outsiders you can't depend on that truck being there." That kind of service has made Thalheimer Brothers a supplier to several large steel companies for 30 to 40 years. "We pretty much keep our customers, we never lose them--unless they go out of business," boasts Thalheimer.
The company handles about 10 million pounds of scrap metal each month, the vast majority of which is nonferrous. Brass, copper, and bronze comprise a little more than half of the firm's volume, with copper wire the biggest single item handled; about a third is nickel alloys and stainless steel; and the balance is mostly aluminum and high-value specialty metals such as molybdenum and tungsten.
Approximately half of the material comes from industrial plants--at which Thalheimer Brothers keeps 250 containers and 100 trailers, about a quarter from other dealers, and the remainder from wreckers and government. The company also does some brokering, amounting to 5 to 10 percent of its business, and has some tolling arrangements.
Regardless of the state of the economy, Thalheimer Brothers buys. "You can't work from an empty place," Thalheimer says, so he is always buying, always has a price ready. He says the company "keeps millions of pounds of alloys around for our customers"--and has room to spare.
The company handles everything from shiny new brass trimmings to grimy residues. "We profit on material going in and buy residue coming out, we even buy tailings," says Thalheimer, adding, "You have to really know what you're doing with residues.”
Keeping Abreast
Thalheimer prides himself on keeping the big picture of the scrap market in focus, discussing the direction of the market, effects of events in the Persian Gulf, and business potential in Eastern Europe. (Thalheimer Brothers currently exports about 10 percent of its material--mostly copper-bearing residues and mostly to Western Europe.)
He also keeps a tight grip on the details of his business's day-to-day activities: "I'm on top of everything myself. ... I'm on top of purchasing; every piece of paper that goes through here-whether it be a receipt, a delivery slip, or whatever--I see it."
Charles Becker, the company's operations manager, who’s been with the firm for 20 years, concurs. "John knows about 90 percent of everything bought and sold," he says. Thalheimer might nudge that figure higher. He spends time in the plant at least twice a day and likes to check every shipment coming and going. "I like to know what's going on so when a customer calls I can give him an in-depth report" without checking, he says. He also tries to know his customers' businesses in depth: "I have to know exactly what the customers can and can't use."
Describing inventory, Thalheimer says, "I know as well as the computer what's out there.” This could be attributed, in part, to what Becker calls Thalheimer's "excellent memory." Becker says, "I've seen him make 20 or 30 long distance calls without checking the numbers."
Thalheimer is never far from a telephone "I spend the day on the phone," he says "A hundred calls a day." Besides the walkie-talkie he carries in the plant and the cellular phone in his car, Thalheimer keeps a phone in his golf bag.
Sticking With the Family Business
Thalheimer Brothers was built by three brothers who emigrated from Germany with their families in 1936. John was two years old at the time. His family lived briefly in New York City, then moved to Philadelphia. His father and two uncles, who had backgrounds in clothes, plywood, and scrap, decided that a scrap business could be started with the least capital and had a good chance in the United States, a land of plenty scrap. Some of the first material they handled was residue from foundries they were allowed to simply haul away. The brothers specialized in nonferrous scrap, especially copper, brass, and bronze--metals they had worked with in Germany.
John Thalheimer attended college at Lehigh University in Bethlehem, Pa., and spent his summers working for a variety of companies--a company that produced radios for Ford automobiles; a brass company; and a centrifugal casting foundry. After earning a metallurgical engineering degree, he went to work for a large steel company in a training program that moved him from department to department. Happy with John's career direction, his father advised, "Stay out of scrap. Stick with your job--you'll be president someday and you'll be a lot better off."
But Thalheimer was more comfortable with the family business. He says that, despite years of experience, "a lot of guys were afraid of their shadows" at the steel plant. He decided, "The last thing I wanted to do was work for a big company with periodic purges." So he left after one year and joined the family business as a scrap sorter. He describes the transition: "At my old job, I was getting paid $120 dollars a week for doing nothing. On the Friday of my first week with the family--after a 70-hour week--my uncle gave me 41 dollar bills and said, 'This is $40 more than you're worth.'" John stuck it out. He encouraged the family to expand its business to include nickel alloys and aluminum. His role in the company grew and he ended up buying out the rest of the family's interest, held by his cousin Hans, in 1969. Hans remains with Thalheimer Brothers as a vice president and trader.
Space to Work
Today, the company sits in a quiet neighborhood, facing a Navy supply depot with a well-kept lawn and close to a residential area. Little of its operation is visible from the street. What is not enclosed in the company's 400,000 square feet of factory buildings is obscured by a tall fence.
The facility, formerly a failed Consolidated Aluminum plant, occupies 19 acres. Two huge, dormant aluminum furnaces and several overhead cranes are among the items the new owners inherited. "I don't think there's another nonferrous plant like this in the country," says Thalheimer. "It just so happened we bought the whole block, so we have plenty of room. When I was growing up as a kid, we had a very small place and we used to have to put stuff on the sidewalks in the morning so we could open the doors because we had no room in the place. I made up my mind that someday I would have a place at which space was not a problem, and that's why I bought this huge place.
The company is divided into five divisions: copper, brass, nickel, stainless, and copper-bearing residues. Each division has, to a large extent, its own equipment and its own work force, an arrangement designed to help employees develop expertise in a given metal.
Thalheimer identifies the scrap sorter in each division--who he says takes years to train--as the key to quality control. About one out of 10 laborers, he says, has the skills to become a sorter, then possibly a foreman. Once a foreman has mastered his division/metal type, he might be moved so he learns the other materials and gains the experience needed to become an operations manager. "We've got two operations guys who know the gamut, like I do," Thalheimer says.
Thalheimer makes a point of knowing all of his employees and he negotiates labor contracts himself (“we've never had a strike,” he points out). He also invests in psychological evaluation of candidates for promotion to foreman or above. "If you're going to have a guy long-term," Thalheimer says, "you want to know something about his character." He says the results justify the expense.
Relying on Machinery
"We are very oriented toward mechanization; we have a lot more equipment than the average scrap processor," says Thalheimer. That includes six briquetters, three baling presses, nine shears, two incinerators, two crushing systems for turnings, 38 forklifts, and two hydraulic cranes The equipment is operated by 80 production employees who are part of a total work force of about 100.
To be successful, Thalheimer says, scrap processors "have to mechanize as much as possible so they can handle a greater tonnage for the same number of dollars. And I think the key to success in this business is to keep the material moving and don't speculate.”
Thalheimer emphasizes the importance of growth as a means toward staying ahead of rising costs. But, he cautions, "The thing is to not grow so quickly that you become too heavily leveraged." He says scrap operations should develop service for new customers but do so using their own capital whenever possible. "In this business, if one is too heavily leveraged--if you're borrowing too much money in relationship to your net worth--you become vulnerable because of the market trends,” he says. “You want to be able to digest the growth.”
Thalheimer wants his company to grow 10 percent annually. "We've been able to do better than that in most years," he reports. "I don't think we're going to be able to do that in 1991, but if you go into a bad economy and you are able to hang even, that's not bad."
Keeping up With Regulations
“Everyone today wants to do business with someone who is environmentally safe, who does the right thing," Thalheimer says. "The little guy can't give the consumer that assurance, so the large companies today are not looking to the little scrap processor that used to service them 30 or 40 years ago. They're looking for a large company that they can pinpoint in case there's a problem."
The company has stayed ahead of environmental requirements, paving its entire plant and installing an oil-water separation system. Nevertheless, Thalheimer says, keeping ahead of regulations doesn't ensure freedom from environmental concerns.
Most ominous, from Thalheimer's perspective, is the Superfund threat. He describes a case his company is involved in concerning cleanup of a customer the company sold scrap to approximately 20 years ago: "He went out of business maybe 15 years ago--there are about 200 scrap dealers involved in that case and the cleanup of the ground. ... It's unreasonable. How can I be held responsible for what every customer does with the material I sell him?"
Other clouds on Thalheimer's horizon are the growing cost of medical insurance and worker's compensation, which can top a quarter of an employee's salary, he says. Safety regulations are also an issue, says Thalheimer, because lawsuits today often threaten not only the company alleged to be at fault, but also aim to prove the owner negligent. This has prompted Thalheimer to take a very direct role in safety programs at his plant, not only to demonstrate the importance of safety, but to take the onus off himself as owner. He has also hired a safety director to manage safety and environmental concerns at the plant, an investment that he says has paid off both in decreased accidents and decreased insurance costs.
Hedging His Bets
Charles Becker calls his boss a shrewd businessman. "John is cautious, but in some respects he's a gambler," he says. “He plays the market like a stockbroker." But Thalheimer says, "I never speculate." In December, he was expecting the market to rise after the New Year, but he continued selling--though less than he was buying. "In case I guess wrong, I don't get killed," he says, adding, "The pigs who are greedy get killed."
Thalheimer's cautious approach and steady growth have put the company in a strong position to weather difficult times.
However, he predicts, "Our year won't be as bad as everyone thinks," noting that inventories at consumers are low, unlike during the troubled period in the early 1980s.
Thalheimer Brothers enjoys some protection from fluctuations in the economy through a diverse customer base that brings in regular orders. In December, while other processors were reportedly averaging about 20 to 25 percent less business than usual, Thalheimer Brothers was only off about 10 percent.
Despite growing environmental concerns and a shaky economy, Thalheimer is confident in his ability and in his company. He sees only one limit to his company's growth, a voluntary limit: He wants only one plant--huge though it may be. When he bought out the family business, Thalheimer was approached by a big company that wanted to buy his firm. "They said, 'Look, you could probably manage a whole division, six, seven, eight different companies.' Well," he says, "that's really not my management style. I'm good at managing one plant because I'm on top of everything. If I were to manage a group of plants, I would try to get on a plane and go to every one of those plants all the time. And I'd lose sight of the big picture."•
John Thalheimer has built a voluminous business--one of the biggest nonferrous operations around--by, he says, knowing a bit more than the other guy, competitor and customer alike.