July/August 1989

Away from it all, but on top of a lot...

The firm runs as a ship at sea. Based in a small Great-Lakes-area town, Holland, Michigan, far from any major industrial center, Louis Padnos Iron and Metal Company learned through necessity long ago to apply pleasure-sailing principles to business.

"We've always been sailors," says Jeff Padnos, president, about the family behind the firm. "And we know that our company basically has to take care of itself; it can't get help from anybody else." Because of the company's location, Jeff says, they've adopted a do-it-yourself philosophy, continually ensuring they're prepared for business nourishment and self-repair.

You can see their self-sufficiency in the Sears--like storage room of about 3,500 parts. It supplies a massive machine shop purchased 20 years ago, enabling Padnos not only to maintain their own equipment but to build much of their own.

The need for self-sufficiency is considered by Padnos principals one of several blessings of being situated in Holland. Describing the company as one of the 15 or 20 largest scrap processors and traders in the United States, Seymour Padnos, chairman of the board and chief executive officer, says, "We recognize that we are in a community that is small, that we don't have the drawing power of Philadelphia or Newark Harbor or that sort of location. So since there is less scrap generated in this area, we've tried to maximize on any opportunity available to us."

Mainly industrial scrap is handled, and the reach for scrap--which is 90 miles north, 50 miles south, and 50 east--has been responsible, Jeff says, for the company's innovation in transportation equipment. "We designed and built a triple lugger system, so we could pull three boxes at once, and a double roll-off system," taking advantage of Michigan's unique permitting of double trucks.

"We are blessed," adds Stuart Padnos, senior executive vice president, "by not having a big consumer anywhere near us. We've never wanted to be beholden to anyone. If I had a steel mill right here and I didn't supply that mill, I might as well lock my door." He says that the high freight costs incurred to ship anywhere from Holland puts Padnos in the flexible position of going wherever the market is best.

Their markets have included Alabama, Oklahoma, and Iowa and at times have been overseas. The plant is located on Lake Macatawa, and in 1963 Padnos founded Macatawa Bay Dock and Terminal and entered international seaway traffic. "Tremendous foresight was shown by Seymour and Stuart during the digging of the St. Lawrence seaway," Jeff says of his uncle and father, respectively. "They took what was literally a swampy landfill and turned it into our dock facility."

Work Ethic Strong

Jeff points out what he considers a strong benefit of their location: "We're in a conservative community with a strong work ethic," which he attributes to the Dutch heritage. This ethic--and the Dutch language--were a fit for his grandfather, Louis Padnos, who as a teenager left czarist Russia for the Netherlands, then immigrated to the U.S. He peddled and bartered through the country, finally settling in Holland in 1905 and founding the business.

In 1919 Louis married Helen Kantor, who became a partner in the Padnos enterprise. During the Depression years, when Louis became seriously ill, Helen ran the business for almost a year while raising their two children, Seymour and Stuart. The brothers joined the business full-time following military service in World War II, in time for the beginning of the series of facility and equipment acquisitions that made the company what it is today.

Louis Padnos Iron and Metal comprises four facilities in addition to the now 23-acre Holland plant, which handles ferrous, copper, aluminum, lead, zinc, stainless, paper, glass, and plastic. ("Being in a small town," Jeff says, "we're never able to turn anything away; if it's recyclable, we handle it." The glass is from community organizations, while all other materials--including plastic and paper--currently are from industrial sources.) The large volume of scrap originating in western Michigan, once handled by the Holland plant, is now processed at two smaller Grand Rapids facilities, overseen by Shelley Padnos, executive vice president for the company. One is the Turner Avenue plant--formerly Berman Brothers Iron and Metal Co., a 1983 acquisition--which is an auto shredding operation. The other Grand Rapids acquisition was in 1985: Joe Brown and Sons Co. This is a No.-1 -steel processing plant with two balers and a nonferrous processing operation. Padnos also owns two retail facilities, one in Holland and the other in Ludington, Michigan.

According to Seymour, company sales have multiplied by five over the last eight years; he estimates that the volume of materials handled over the last five years has doubled. "This is with an employment that has for the last five years been fairly steady," he says (current total employees is 230). The major investments other than additional facilities that have sparked these results have been employee incentive programs and equipment.

Machinery Landmarks

Mechanization began for Padnos in 1940 with the purchase of a used truck crane. The first new-crane purchase, in 1951, was an exciting investment, as Seymour recalls, of $17,762.

A fragmentizer, manufactured by American Pulverizer Company and installed in 1970, makes the company's landmark equipment purchases list. Seymour says it was the first small machine of its type in the world, and it received national attention through The Saturday Review, The New York Times, even "The Arthur Godfrey Show."

The next major operation was the motor block breaker, engineered and constructed in 1974. Seymour explains that this was in response to the fact that consumers did not want high-carbon shredded scrap. In order to produce the grade of scrap consumers wanted, engine blocks had to be removed from cars before shredding. To make maximum use of their purchased material, he says, the company decided to begin the business of breaking and washing the engine castings. "We created a market for that material apart from the shredded automobile."

According to Seymour, the operation has been a big success. "We redesigned the whole concept ourselves. It's a unique piece of machinery; while there are others similar to it, we think that ours is probably the most productive of its type in the world."

Profits from this operation come from more than the processing of engine blocks from Padnos-purchased cars. The machine is capable of handling a minimum of 30,000 tons a year, and there aren't that many tons of blocks in the amount of automobiles the company buys. "So we became a merchant market for dirty engine blocks," Seymour says. "it enables us to buy from a lot of other dealers, which then leads to a number of other things that we do with the same people--we buy other grades of scrap from them."

Padnos is one of just three or four scrap processors in the country with a hot briquetter--a mass of machinery, much of which was designed and built on-site. Since 1976, they've been custom briquetting, thanks to the original design, says Vice President of Operations Bill Clay. The capability comes from the four-tank configuration in the process, he says. "There's never been anybody else that I know of with four storage tanks--they usually have one or two."

The unusual and made-in-Holland machinery also includes a switch truck. Ken Rabbers, manager of the machine shop, was responsible for finding and combining old parts with new to create a switch truck at less expense and that performs better than any you can buy, says Bill. The overall guideline, he adds, in make-or-buy equipment decisions is this: if the company believes they can build something stronger and for less money from scratch, they do. So while roll-off boxes don't fit into Padnos's better-homemade category, trailers and lugger boxes do. And in the works in the machine shop is an auto flattener.

Maintained to Last and Last and to Look Good

Much of the machine shop is devoted to maintenance, including rebuilding of parts. This is what has kept the company's shredder going for so long, Bill says; they've rebuilt the original complex of machinery over the past 19 years. "There are people who have had three shredders for the same time we've had just this one." He attributes much of this to the preventive maintenance efforts on the part of the machine operators. "They are always looking to fix something before it breaks.

"We run a four-day schedule," Bill continues. "Then we take a whole day to do maintenance ... and we get more from the equipment than the guy who runs five days because ours doesn't break down."

The company's commitment to maintenance (one in five employees is involved) is displayed in a few very obvious ways: driving throughout the Holland plant (on paved roads) are two fully equipped electrician trucks and a good-guy-white street sweeper.

Beautification efforts go beyond planted shrubbery and flowers ... Padnos boasts a sculpture lane. Along the public roadway that divides the plant are several pieces, most designed by Stuart and all composed of scrap found, fabricated, and painted on-site.

Special Attention to Service

Bill tells a service success story from 1982, when Michigan suffered a horrendous winter: "We actually got a letter from a customer saying that Padnos was the only vendor which never missed a delivery that winter. And we had to drive a lot farther than the other guys to get there. Service is important. That's what we tell our traffic department: all we've got to sell is service."

Executive Vice President Mitch Padnos describes a service made possible with the company's analytical lab and Baird spectrometer: "We have amazed a number of our customers by letting them know that the material they think they're purchasing is, in fact, not the material they've bought." He says the lab information has enabled steel buyers to go back to their suppliers more knowledgeable and better protected in their purchasing.

"As far as aluminum scrap," Mitch adds, "our lab results have been very important. … One customer of ours thought he was getting a certain grade of aluminum, when the warehouse, it appeared, was just shipping him anything they had. Our customer could have been in a position for some major liability problems down the road. … It just shakes customers up that a scrap processor would know more about the material they're running than they do. It just further enhances our reputation."

Stuart echoes the importance of service: "Many scrap dealers, I've found, take the attitude that this is what I've got to sell, now you find a way to use it. We've taken the attitude that you tell us what you want and, if you're willing to pay for it, we'll try to find the way to supply it."

Focus on Personnel

Stuart also applies this listening policy to Padnos personnel. "We're always open to suggestions," he says; "my door is never closed."

Attention to people is extended through other means, including a production incentive program, a management development program, a promotion-from-within policy, and an extensive program aimed at ensuring employee safety.

Group production incentives have been set wherever possible, says Jeff, "wherever production is quantifiable and can be measured reliably. We also have quality built into the program. The quality inspector--the man on the end of the line--has a button so he can stop the line if material coming through has a possible quality problem. He does not share in the production incentive, because that would be counterproductive; but he gets paid more per hour than the other employees. And if a load is rejected, he stands to lose that position." Jeff says workers are noticeably motivated by the program. "A common focus of conversation during breaks is how they're doing at meeting production goals and reaching incentive standards."

An ongoing management development program has been in place for the past 10 years. According to Bill, who directs the program, topics covered have included management by objectives, writing job descriptions, the art of listening, how to communicate, and one-minute management. Every other week there is a meeting of the supervisors, who take turns putting together the agenda and leading the meeting.

In discussing the Padnos policy of promoting from within, Bill says he can't remember the last time that someone other than an entry-level employee was hired from the outside for operations. "Every supervisor here started as an hourly employee and moved up-we trained each one."

On the administrative side, Bill was an exception to this rule--he came to Padnos in 1970 as personnel director, then moved into operations--but Director of Human Resources Karen Gardner was not. She started in 1979 as a temporary secretary, then became a personnel assistant, then was promoted to director. Among other functions, Karen oversees the multifaceted safety program. One of the highlights is safety awareness week, which was established in 1983. During the week the company sponsors safety poster contests, distributes safety literature and other items, and hosts special events. Safety awareness is encouraged throughout the year by a committee established in 1980. Consisting of five people--Karen, the briquetter superintendent, two additional superintendents, and an hourly employee--the committee chooses a department once a month and conducts an inspection.

Karen describes another safety program, this one six months old: "It's called STOP--Safety Training Observation Program; it's marketed by Du Pont. The objective is to cut down injury rates. Supervisors now going through this training program focus on stopping and looking at their situations with outside eyes--watching the positions of employees, what kinds of tools they're using, whether they're using the correct protective gear and procedures. Supervisors are trained to really watch what's going on, as though they've never seen it before."

Outside Involvement

Padnos principals are conditioned to keep watch on local, state, and national legislative and regulatory developments that could affect their business. "Our company has always taken the attitude in regulatory issues that if we could see the handwriting on the wall, we would rather have everything in place prior to regulation than wait for regulation to occur," says Shelley, who currently chairs the Legislative Committee of the Institute of Scrap Recycling Industries. She mentions as an example that the company has been discussing putting liners beneath certain storage areas, an action not mandated (yet, anyway) but perhaps smart considering the present regulatory climate.

In line with this one-step-ahead policy is the company's philosophy regarding contact with legislators. "These relationships can't be cultivated at the point in time when you need help," Shelley says. "You have to cultivate them on a daily basis so the relationships are there when you need help. If you haven't worked at establishing some sort of communication with your legislators prior to the advent of a problem, you've got an almost hopeless situation as far as creating that relationship after the problem occurs." She says the principals of Padnos frequently go beyond writing checks and dropping them in the mail or even hand-delivering them--they attend the fund-raising functions and make contact with their legislators on a regular basis.

This time-consuming activity is coupled with time-consuming involvement by the company in various community programs and events. Plus, all the Padnos executives have played active roles in their trade associations.

It would seem to leave little room for thinking about expansion of the firm, but not so. A new facility for processing paper is planned, according to Jack Rynbrand, manager of the secondary fiber division. Part of the expansion of the paper division involves adding another person: Doug Padnos will join the firm this fall.

Reinventing the profit's in facilities and equipment--that's a key part of the company's overall strategy, Seymour says. And once again we hear a sailor: "My brother and I always plowed the profits back in.  We didn't buy 60-foot yachts, things like that.  We had boats, but there is a difference.