September/October 1988
A make-over for this Midwest scrap business meant recycling its management structure and its processing practices. Risk taking and bullet biting within the past five years modernized the firm and significantly boosted profits.
By Gerry Romano Spruell
Gerry Romano Spruell is editor of Scrap Processing and Recycling.
If such awards were granted to scrap processing plants, A. Edelstein & Son, Inc., would stand a strong chance of winning Most Improved. According to Vice-president and General Manager Joel S. Beren, the 65-year-old small- to medium-sized operation, in Toledo, Ohio, has seen about a tenfold increase in profits over the past five years.
One of the keys to the financial leap sits amid a mass of printouts on Beren's desk: a PC displaying the current good news about the company's ferrous and nonferrous production costs, now about half of the 1983 amount. The computer enables Beren to keep the kind of reports deemed necessary by a management consulting firm called in two years ago to analyze administrative procedures.
Treating A. Edelstein & Son "like any other manufacturer," the consultants made budgeting and accounting recommendations Beren says he wanted to follow but couldn't do manually. A big believer that knowledge is power, the 30-year-old executive admits that the reports his company used to generate "had useless information. … Now we have outstanding reports. We know our cost of goods; we know our cost per ton; we know our operating costs; we know what our payroll was; we know what the ratios are. We know for every dollar of merchandise we're buying, what percent it's costing us to turn it around and kick it back out the door. We're checking our cash flow and we're doing cash flow analysis--all of the things that a big company would do that we never took the time to even think about until we had a management study done. It has entirely changed the way this company is run."
A First Since the Forties
The need for managerial change became evident to Beren and his father, Gary, president of the firm, after three years of major operational changes. A. Edelstein & Son had been primarily a peddler operation since the 1940s. Gary, with Joel, who joined the firm in 1979, decided after the industrywide 1980-81 struggle that if they were going to stay in the scrap business, they'd have to choose between two alternatives. "One was to become just a transfer station," says Joel Beren, "to buy everything unprepared and sell it unprepared to a larger operation. The other alternative was to buy the equipment we needed and try to compete."
They bit the competition bullet and, in 1983, backed by a Small Business Administration loan, began purchasing the equipment necessary to service industrial accounts in addition to purchasing from peddlers. Says Beren, "The SBA, with our local banker, put a very attractive package together that enabled us to buy a 330-ton Mosley shear with a squeeze box and conveyors. That was the first piece of processing equipment that had been put in this [plant] since 1946."
Going, Going, Gone
The Mosley shear was just the start of the company's modernization efforts. In addition to buying the rest of the property on their block to expand their facilities, the company cleared out a lot of the old to find room for the new. "We got rid of a locomotive crane that originally had a steam engine in it," describes Beren, "and sold one of our two hand-fed alligator shears. We also moved about 5,000 tons of unprepared scrap that had been sitting for so long that it had vines growing on it. We made enough space to shoehorn a shear into the yard, and we bought a crane to feed the shear." Four more cranes followed.
Much thought went into plant layout and improvement to accommodate not only the equipment installed but the additional capacity the Berens planned. Their expanded lot was three acres (not counting two acres on other blocks). Says Joel, "We still were very confined for space. ... The yard was redesigned around getting our customers and our own trucks in and out in as little time as possible. Now most of our customers are here no more than 15 minutes."
Roofing came next so downtime could decrease. Employees are not exposed to the elements, so the company can run almost a shift and a half, six days a week.
Also in the past few years, the firm's trucking system underwent a major transition. The fleet of five single-axle dump trucks--none of which, according to Beren, was less than 20 years old--had to make way for a containerized system that could service industrial accounts. "We currently own two luggers and two roll-offs and have about 150 containers out, but we'll be replacing our entire fleet with four new freight-liner tractors. By the end of 1988, every truck we have will be brand new."
A 1985 addition to the plant was a 1,200-ton LaBounty shear, an answer to the torching that had been continuing as the company bought more and more iron. Says Beren, "We went from having six burners to one portable shear ... probably 98 percent of what comes in today can be sheared with either the LaBounty or the Mosley. What little that does need to be torched, we ship out."
People Primed for Change
Beren says that the switch in processing procedures, so beneficial from a profit standpoint, did not eliminate jobs. The same people who were laborers became crane operators or truck drivers.
This personnel development is reflective of the general job growth that resulted from the new operating complexion at the plant and from the administrative analysis. "Two years ago, when the consultants came in, our business had gotten to the point where it was running us, instead of us running the business," Beren says. "We had no infrastructure to support the increased business we'd taken on. While we had bought new equipment [approximately $2 million worth] and we had hired more people [currently 25 employed], we hadn't changed our management style from the days when we were running a small peddler operation."
The consultants uncovered a basic frustration by employees regarding their reporting relationships. "Everyone thought there were two or three people telling them what should be done; they felt constantly caught in the middle. … So the consultants designed a management structure for us, with job descriptions and defined reporting relationships.
"The biggest change was for our middle-management people, who thought they were constantly being overshadowed by the administrative management," Beren continues.
"Although they were called foremen or warehouse managers, they really were given no authority to make decisions, and they wanted it. While we were hesitant at first to give them this responsibility, we did; and they have done an outstanding job."
Pain and Gain
Beren mentions the usual initial response to turning over some decision-making reins: "it was painful." But, comforted by his middle managers' displayed ability, Beren turned his attention to other tasks. "I spend a lot less time in the yard than I used to. Now I spend time with my industrial accounts and with our brokers. I spend more time on the financials trying to figure out whether we can afford to buy certain merchandise and whether we're making any money off of it. And I do a lot of long-term strategic planning, looking for more opportunities for business."
The search for increased opportunity has spawned, among other things, a unique business arrangement with one industrial customer. A. Edelstein & Son runs a remote baling operation at the customer's site, providing scrap processing and removal service on an almost 24-hour basis, seven days a week. "We've become an integral part of their operation," Beren says, adding that they've been doing this for nearly two years "without a single hitch."
Another offshoot of Beren's newfound time and natural ambition to expand the business has been a look into recycling plastics. His interest, coupled with a concern about local legislative efforts to "mandate" recycling, triggered a recent trip to Washington, D.C., to learn more about handling this commodity.
He turns most of his attention, however, not toward handling additional types of commodities, but toward increasing capacity for commodities currently handled. (Along with iron and steel, Beren's plant processes copper, aluminum, lead, zinc, and stainless.)
Questioned about his most driving dream to continue company expansion, he says, "I'd like to buy another yard ... somewhere within an hour's drive from here." Summing up the present operations, he says, "We've got this place pretty well smoothed out. ... The only way that we are going to continue to grow and that I'm going to continue to be met with new challenges is if we buy another facility or start up another one."
Risk Essential
Beren more than enjoys taking risks, he believes doing so is essential to a scrap plant's success. "I think you have to say, 'Listen, we're not a little scrap company anymore-we face the same problems as every other business; and we're either going to grow and develop our company, or we're going to go out of business.' You have no choice today but to spend money, to replace old equipment, and to upgrade your facility. ... You've got to take some financial risks."
He points out the importance of other, more personal, chances he believes necessary in the mostly family-owned-and-operated scrap processing industry. "The older generation has to be willing to take some risks with the younger generation. Let your kid go out and buy that piece of equipment that he thinks he needs, and let him prove to you that he can make it pay for itself." Reflecting on his own experience with his father, Joel Beren says, "We fought long and hard before we bought that first shear [Joel was for it, Gary was against] ... but it proved itself out."
What else, in Beren's opinion, does a plant need to succeed?
"Strong attention to housekeeping, to inspections, to your people, and to the environment that your operation is located in--to trying to integrate yourself with the neighborhood." Toward this end, he has expended landscaping efforts at his facility.
"Also," [and this comes as no surprise in this media-crazed era] "attention to communication." In addition to encouraging more open dialogue between management and employees, Beren has introduced a concrete open-communication system-the portable radio. "Almost everybody here carries one; it's been a lifesaver. I can remember going out and throwing stones at the crane to get the operator's attention.
"I've also got a car phone, so there's no way that somebody can't get ahold of me. A good communication system--that's the main thing."
Or maybe just one of the many main things Beren has mentioned as key to his company's boosted productivity. A. Edelstein & Son, Inc., has implemented changes that have increased volume from 300 tons a month in 1980 to 6,000 tons a month today--about a 2,000 percent increase in eight years--and, Beren says, "we're confident the company is going to continue to grow."
A make-over for this Midwest scrap business meant recycling its management structure and its processing practices. Risk taking and bullet biting within the past five years modernized the firm and significantly boosted profits.