July/August 1994
This Ohio-based processor has applied progressive management practices to all facets of its business, especially plant safety, and, in the process, has risen to the top of the competitive motor block processing business.
By Kent Kiser
Kent Kiser is an associate editor of Scrap Processing and Recycling.
Next to the truck scale at Annaco Inc.’s main plant, there’s a blue sign that informs you it’s “Safety First” in Annaco territory. Further down, the sign boasts, “This plant has worked 1,550 days without a lost-time accident. The number is written in chalk so it can be erased and updated daily. At the bottom, as reinforcement, the sign commands in no uncertain terms, “Avoid accidents.”
In case you’re not near a calculator, 1,550 days is about four years and three months without a lost-time accident and, at last report, that number was still climbing. That’s an enviable, against-the-odds safety record, especially for a scrap recycling company.
But safety is just one of the things that Annaco, an Akron, Ohio-based ferrous and nonferrous processor, can boast of. In its 65-year history, and especially during the past eight years, the company has recorded a variety of successes thanks in large part to its “progressive management approach” and aggressive strides in the specialized niche of motor block processing.
Management Mastery
While the term “progressive management” may sound like an empty phrase from a business textbook, at Annaco it’s a living concept that touches all corners of its business. In particular, being progressive has meant taking a numbers-oriented approach to its operations. “We feel that we spend more time than the average bear tracking numbers, tonnages, production rates, costs per ton, and the like through our operations,” says Bill Lowery, executive vice president. “We’ve got costs and analyses on practically every facet of our operations.”
Knowing the numbers helps Annaco pinpoint where and why it’s making money, where it’s constant, and where it could, well, use improvement. “We know our company very well, we know what makes it tick,” says President Morrie Berzon, adding with a laugh, “Sometimes I think we know too much!”
It wasn’t always that way. Samuel Berzon--father of Morrie and Larry, Annaco’s vice president of trading--was an entrepreneur who knew the markets “by feel rather than by calculation,” Morrie recalls. Samuel founded the company in 1929 on Annadale Avenue in Akron , initially naming it Annadale Junk and Glass and, later, Annadale Scrap Co. Inc. When Morrie entered the business in 1955, he began using professional management techniques to help run the business. “Entrepreneurial spirit is all well and good,” he says, “but if you haven’t got the rest of the equation, you’ve got problems.”
The company’s move into progressive management truly kicked in when it restructured in 1986. “Around that time, we found ourselves being reactive rather than proactive,” Bill recounts. “We seemed to be waiting for things to get better, and if you’re waiting for growth, it isn’t going to happen.” This period of corporate soul-searching, which included the firm’s name change to Annaco, brought many changes.
In its operations, for instance, Annaco sought to upgrade its plant and equipment, and put a lid on some of the cost-drains in its operations. This entailed, in part, getting serious about preventive maintenance, following Morrie’s philosophy that “what gets measured gets done.” Now, every piece of equipment--which includes a proprietary block processing system, a Harris ferrous shear, a Harris nonferrous briquetter, a CP Manufacturing can flattener, about 10 cranes of various makes, and numerous forklifts and front-end loaders--is inspected daily and schedule for maintenance at regular intervals, with each machine’s maintenance history being meticulously recorded. “The whole idea is to keep the equipment running and our production time up,” Bill explains, adding unabashedly, “We have one of the finest maintenance systems that I know of in the industry.” Much of the success of the preventive maintenance program is credited to Rich Robertson, plant engineer, who set up and implemented it. “It’s been an arduous couple-of-year task,” observes Bob Toth, human resources manager, “but it’s worked.”
Annaco’s restructuring also prompted it to launch its comprehensive--and wildly successful--safety program. While the physical well-being of its employees was, and is, the impetus behind its safety crusade, Morrie admits that “it’s not all altruistic” and notes that the firm’s safety record “has saved us about $300,000 a year in workers’ comp premiums.”
Before its safety awakening, Annaco used to labor under a 150-percent workers’ comp penalty rating, reports Toth, but now it enjoys an 85-percent credit rating. That’s great news for both the company and its employees. As John Vanik, account executive, explains, “If we can save money on workers’ comp, we can do more for them in the way of bonuses and better, newer equipment.” It also enables Annaco to gather its crew and their spouses together for an annual safety awards dinner every May, where its executives laud the record and dole out safety pins, certificates, and crisp cash awards of up to $150.
What has enabled Annaco to achieve a safety records that many scrap recycling companies can only dream about? First, by preaching the safety gospel to its employees and inculcating a safety mindset. “To succeed,” Bob says, “you have to state the rules and regulations and make sure people follow them. Accidents don’t have to happen.” Bob, who describes himself as “a policeman and record keeper,” is the primary safety cop, but all the employees are called on to enforce the rules.
Another critical factor is that Annaco selects a “safety sleuth” to tour the facility once a month and point out any potential safety hazards he or she detects. “During the year, we call on every kinds of person to participate--from office personnel to yard employees--and they all find different things,” says John. The sleuth’s findings and other issues are then discussed and resolved at Annaco’s monthly safety meetings.
Annaco also gives employees their safety gear, including hard hats, protective glasses, gloves, and earplugs. Employees do have to buy their own steel-toed boots, but even here Annaco has helped them by arranging for a 15-percent discount on select safety shoes, which employees can buy using payroll deductions. “We’re doing what any company that wants to stay in business is doing--we’re taking safety seriously,” Bob says. “We’re going out of our way to make sure that we have a safe workplace and that accidents are minimized or eliminated.”
Personnel Panache
Aside from safety, Annaco’s 1986 restructuring has a strong “people focus” in other ways, with one goal being the long-term development of its management staff. “To get top-notch supervision people, it’s tough to go out and just hire them,” Bill explains. “You really have to develop them. We needed to hire people who had long-term potential, and we’re constantly filling the pipeline with good young talent.” John, Bob, and Rich Robertson, in fact, were all hired after the restructuring, as were most of the current plant supervisors. (Not that Annaco doesn’t have a few veterans on its staff. Yard Manager Kenny Williams, for example, signed on with the company in the late 1970s and continues to be the buck-stops-here man when it comes to Annaco’s operations.)
Since its restructuring, personnel development to Annaco has meant putting a greater emphasis on what Bill Calls “empowerment of our management people,” explaining, “We need our people in middle management to be key decision makers.” And the firm is constantly encouraging its employees--managers and line workers alike--to improve their skills to be able to advance within the company.
That’s the thought behind the Samuel A. Berzon Scholarship Fund, which offers financial assistance to employees and their families to further their education. “We’ve got to do our part in management as far as providing the proper training, leadership, and best equipment to work with,” Morrie says. “We’d like to see anybody who has the initiative be able to go somewhere with us. We don’t want them to leave us.”
This sentiment is only one part of what Morrie calls the firm’s “employee-conscious” approach to business. At the drop of a hat, in fact, Bob can spout off a list of more than 20 employee programs at Annaco--and that’s just the beginning. With typical understatement, Bill says, “We’re fairly progressive in the human resource area.” For a sampling of such efforts, consider these benefits offered in the health arena alone: an employee assistance program, a quit-smoking program based on financial incentives, eye exams, a stress management program, and an on-site registered nurse one morning a week who gives flu shots, checks blood pressure, conducts cholesterol screening, and more.
In terms of money, Annaco also offers a profit sharing pension plan, which, as Morrie explains, “gives employees the feeling that they have a little piece of the action and the sense that what they do benefits themselves directly.” In addition, the firm also offers an attendance bonus that gives every plant employee three hours’ worth of pay for each month of perfect attendance. Those who go a full year without missing a day receive a refund for their uniform costs for the year--about $450.
Perhaps Annaco’s most important employee benefit, however, is its open communication, an openness usually found only in public companies. “If you’re going to promote your company as a team,” Morrie says, “you have to be honest and up-front with your employees so they’ll understand when the company’s doing well, when it’s doing poorly, and how their efforts affect what the company does.”
Annaco’s open-book philosophy is realized, in large part, through meetings--daily production meetings, monthly management and safety meetings, and an annual employee meeting held in February. “For a small organization like ours, I can’t tell you how many meetings we have,” Larry says, adding that such openness comes down to “a matter of trust. We trust our employees to be intelligent enough to be interested in and understand what we do. We don’t have secrets.”
Annaco’s focus on communication does more than just “keep everybody on the same page,” as John puts it; it builds a sense of camaraderie. This “team” concept is a big deal at Annaco. Aside from its safety efforts, which draw employees together toward a common goal, the company builds team spirit through such off-work activities as the Corporate Challenge, in which employees form Team Annaco and compete in sporting events against other companies. Also, Annaco’s annual Earth Day aluminum can promotion requires the employees to pull together to accommodate the 1,000 to 1,500 customers that pass through the plant on that day.
When employees relate as a team, the reward is a more-unified work force, a type of corporate family, the company maintains. “We run a family business,” Morrie says, “and our staff is sort of a family.” And the Annaco family isn’t restricted just to its 75 employees, but also encompasses the city of Akron , as can be seen in the firm’s support of many local organizations and groups. “We’re involved in just about anything you can think of, too many really to mention,” Larry says. Still, here’s a few: Annaco support RiverDay to clean up the Cuyahoga River, which passes near its operations; participates in the annual Akron Zoo fundraising event; collects and processes aluminum cans to raise money for the Akron Children’s Medical Center and the Aluminum Cans for Burned Children program (John, in fact, serves as secretary of the Akron chapter for this group); and supports the Keep Akron Beautiful Flowerscape program. “I think all of us are pretty proud of what we do in the community,” Larry says.
Morrie sees such community participation as nothing less than Annaco’s corporate obligation. “Everything about this company started here, and what goes on in the lives of our employees is inextricably tied to our community,” he explains. “What we take from the community, we feel we need to give back to help balance the equation. It’s a two-way street.”
Niche Sweet Niche
Though Annaco handles most grades of ferrous and nonferrous scrap, it is a specialist in the competitive business of processing motor blocks. The firm entered this niche in the mid-1970s, and now block processing accounts for a significant percentage of its annual production volume and revenue. As Bill remarks, “There are other companies that do what we do, but no one relies on it for survival as heavily as we do.”
Surviving, much less succeeding, in this niche is indeed a feat. The challenge, in essence, is to process oily, potentially hazardous motor blocks without running afoul of environmental regulations or losing money due to high manual sorting costs involved.
From all appearances, Annaco has met this challenge thanks, in large part, to its state-of-the-art block processing system, which was computer-designed by Rich and built in-house. In the system, suppliers dump their blocks directly into a pit that Annaco built like the base of a landfill, laying down 6 inches of sand, then a plastic liner, then 6more inches of sand, all topped with 8 inches of concrete and 1-inch steel plate to protect the concrete. Any oil that does trickle from the blocks--into the dumping bin; onto the larger, adjacent holding pad, or within the block breaker itself--is funneled into an oil/water separation system.
After blocks are broken, the first group of hand-sorters remove torque converters, rubber, and other oil-heavy components. The remaining scrap is then washed with a detergent at about 165 degrees F, and these clean pieces then proceed down the sorting line. The dirty water passes through the oil/water separation system and the resulting product streams are reused, with the clean water recycled back into the scrap washing system and the recovered oil and grease fed into a rotary burner and used as a fuel to generate the heat that warms the water. The block processing system as a whole, in fact, is virtually pollution-free, generating only one load of baghouse dust every three months and none of the potentially hazardous sludge common in other block breaking systems, Annaco points out.
The block processing system is certainly Annaco’s environmental flagship, but it is only one example of the company’s progressive environmental commitment. “We’ve always tried to be ahead of everything environmental,” Larry says. “We don’t wait for people to tell us what to do. We try to anticipate.” As evidence, Bill points out that the firm has worked with an environmental consultant for more than 12 years. And Morrie says half-jokingly, “We’ve put in enough paving here to pave half of Akron ,” adding that “there isn’t anything we wouldn’t do to improve our environmental situation. We look for the best technology at the time, and if it’s not available, we see what we can devise.”
The Service Knack
As a processing specialist, with a lot of its scrap in one basket, so to speak, Annaco has to compete for material in a broad radius--800 miles, to be exact--and work to win and keep its consumers. It has managed to do this by using the oldest, but rarely perfected, trick in the business book--providing excellent service to both its suppliers and consumers. “We’re very responsive on service,” John claims. “If we get an account, we don’t figure that we’ll ever give it up because we’ll never give the customer a reason to say we dropped the ball. We have to make sure our customers are happy because if we don’t satisfy them, somebody else will.”
One way Annaco makes its suppliers happy is through its bonus club. Every supplier, from peddlers to industrial accounts, receives a raffle ticket for each load delivered. At the end of the month, Annaco draws a ticket and gives away what Bob calls a “big prize”--an air conditioner, color TV, lawn mower, garage door opener, or barbecue grill. Suppliers love the program, he says, and it has done wonders to create goodwill and keep them coming back.
Annaco also makes life easier for its smaller suppliers by operating Harry’s Metals, a 10-acre retail facility located across the street from its 18-acre main plant. Harry’s, run by only three Annaco employees, focuses on peddler and contractor trade, and accommodates about 100 customers a day. Since the facility serves mainly as a feeder yard for the larger Annaco plant, Harry’s does minimal processing, operating only a Mosley briquetter, a small alligator shear, and a brass “nibbler.” The plant’s main advantage is that it gives smaller suppliers a more-accessible place to deliver their scrap, out of the bustle of big truck traffic at the main plant.
For Annaco’s consumers, service primarily means quality control, and if you’re a piece of scrap, you’d better believe you get quite a workover before you receive the Annaco quality seal of approval. Every load that enters Annaco goes through four quality checks: First, the material is inspected at the scale, where a truck greeter transmits a verbal quality report to the scale master. Second, the scrap is examined as it’s unloaded to ensure that no unwanted material is hidden at the bottom. Third, the material is scrutinized and sorted by grade during processing. And finally, all processed scrap is examined as it’s being loaded for shipment. At this stage, a crane loads a truck or railcar in four “spreads,” and an Annaco employee walks each spread, picking out any off-grade items. Sometimes, if the firm has processed particularly heterogeneous material, it will even spread the finished product on a concrete pad to allow a closer inspection. It is this kind of attention to quality that prompts Morrie to say, “There are many products we ship that set the standard for the industry.”
And the firm’s quality control efforts don’t stop there. In its nonferrous operations, for instance, Annaco keeps much of its inventory sorted in concrete-walled bunkers to eliminate cross-contamination. For years, it also has sent postage-paid response cards out with every load, asking consumers to give its loads a quality rating, and “every constructive criticism is taken seriously,” Larry says. The firm has even sent some of its employees to consumers’ facilities to learn about their scrap-quality expectations firsthand.
And how successful has Annaco been in meeting its quality goals? All Bill will say is, “We pride ourselves on little or no rejections.”
In Search of New Niches
Though Annaco is proud of its accomplishments and savors its position in its current niches, the company’s principals say they’re continually striving for improvement. “Almost everything we do here, we don’t consider that it’s finished,” John says. “We figure that all of our operations have a rough edge on them and we can grow and build on them.” From Morrie’s viewpoint, Annaco is dedicated to “finding better methods for doing things. We’re very well aware that if we’re not better next year than we were the year before, then we’ll lose out to some of our competitors.”
In the near term, Annaco plans to focus on remaining strong in its current markets. “We need to capitalize on our strengths and make sure we’re in a firm position in the markets in which we’re competitive,” Bill says. In the longer term, however, the firm plans to embark on what Morrie calls “controlled diversification” by moving into other niche markets that have promising growth potential. “We’re investigating a number of growth areas that are both horizontal and vertical to what we’re doing,” he explains.
Delving into new niches, however, may mean Annaco will have to modify its conservative financial practices. “The majority of our growth thus far has been internally financed, through profits, but that may change in the next few years,” Larry says. “You must show signs that you’re willing to get a little bit bigger each year. You can’t close your eyes to what the future’s going to be like.”
No matter what new niches Annaco enters, however, it will continue to rely on the progressive management outlook that’s gotten it this far. As John sums up, “The ultimate goal is to try to take care of your employees, suppliers, and consumers, and if you do that, I don’t see how you can fail. The market could drop like an elevator, and still somehow you’d survive because you have that solid foundation.”•
This Ohio-based processor has applied progressive management practices to all facets of its business, especially plant safety, and, in the process, has risen to the top of the competitive motor block processing business.