Universal's Success Story

By Robert L. Reid

Robert L. Reid is managing editor of Scrap.

As the midmorning sun streams through windows and skylights 60 feet overhead, a small electric tram pulls two flatbed cars bearing Gaylord boxes across a concrete floor and between piles of scrap aluminum. This soaring room, longer than a football field, is called the “High Bay” by its owner, Universal Scrap Metals Inc., a predominantly nonferrous scrap processor on Chicago’s west side. This room and the tram dramatically illustrate two of the factors—space and systems—that propelled Universal’s twentyfold growth in the past 15 years from less than $2 million in annual sales in the mid-1980s to an estimated $40 million in 2000, notes Phil Zeid, president and treasurer.
   The High Bay, where Universal unloads, segregates, and stores the majority of its aluminum products, is just one part of this former granite- and marble-cutting factory that now also houses storage and processing areas for copper and brass, zinc and die-cast material, stainless steel, precious metals, and UBCs. (Universal also handles some ferrous, mostly as a service to its nonferrous customers.)
   Altogether, Universal’s facility features more than 121,000 square feet under roof, plus roughly another 3 acres of surrounding land on which it parks trailers, receives truck shipments, and operates a trailer dumper for its UBCs.
   As Zeid explains, “Space is a key to the success of our business—being able to take material, receive it, process it, ship it. Our business is pretty simple, but you need to have the space to do all those functions and not have them cross with each other.”
   But space alone isn’t the total solution. “Without the space, you can’t function, you can’t grow the business,” Zeid continues. “But without the systems to manage the space, the space doesn’t mean anything—it becomes a closet where you say, ‘How much can we stuff into it?’”
   So even as Universal was acquiring this spacious site—the company moved to the West Fulton Street facility in January 1997—it was also working hard to develop the right systems for receiving, processing, and shipping its more than 70 million pounds of nonferrous metal a year and for moving the material efficiently within the cavernous building.
   That’s where Universal’s trams come in. The two little yellow vehicles can quickly transport more than a half-dozen Gaylord boxes or barrels on each trip from the receiving area to the processing equipment, or from processing to inventory or shipping. It’s quite an improvement from the days when a forklift could only move a single box or barrel at a time, notes Zeid.
   Other Universal systems range from the facility’s physical layout—material flows in a giant “U” from receiving to processing to inventory and shipping—to its electronics. Computerized scales can be monitored from any terminal in the plant and print out duplicate scale tickets for cross-checking. Bar-coding tags mark all incoming and inventoried material with vital statistics and the now-ubiquitous pattern of black and white stripes. 
Plus, digital cameras can watch 16 separate plant areas simultaneously or zoom in on an individual barrel of scrap being weighed at a scalehouse.
Rounding out the company’s major systems, of course, is Universal’s approach to management. Zeid and his partner, Barry Riback, vice president and secretary, like to run a hands-on operation, often putting in 12-hour days and personally handling certain industrial accounts.
   “The owners are always there,” Riback explains, “so if there’s a problem—whether it’s with equipment or a customer—you don’t have to go through too many layers of management to get a decision. We’re available, and we’re able to react to any situation immediately.”
   Mid-level managers are also expected to follow that hands-on philosophy. For instance, it’s fairly common for the company’s plant manager, Donald Shank, or receiving manager, Adolpho Lopez, to take a turn driving a tramload of incoming material back to the processing areas.

From High School to High Bay
   Phil Zeid and Barry Riback didn’t start Universal Scrap Metals—two other scrap dealers did in 1972. But Zeid and Riback do come from Chicago scrap families, and they’ve been friends for longer than Universal has existed, having known each other since their high school days in the late 1950s.
   Zeid’s father Sam was a medium-sized scrap peddler who had several trucks and even a small yard in the 1940s and 1950s. But his business shrank to just a few accounts as the industry changed in the 1960s and 1970s. Meanwhile, Phil Zeid studied business and journalism in college and went to work first in the publishing industry, then films, before ending up at telecommunications giant MCI as a senior marketing manager.
   Sam Zeid fell and broke his hip in 1979, ironically while walking out of Universal Scrap Metals’ plant, then located on the north side of Chicago. With his father incapacitated, Phil took over Sam’s accounts, which meant heading out at 6 a.m. to pick up metal and sell it to companies like Universal before starting his regular day job in the corporate world. 
   During this time, Phil also got to know Universal’s founders, Herb Polikoff and Jerry Jacobs, well enough for Polikoff to suggest that Phil help him out temporarily. Jerry Jacobs had died the year before and Polikoff was planning to take an extended vacation.
   Unhappy with the corporate world by that point, Phil agreed—only to have another tragic twist leave him in charge of the company when Polikoff was killed in a skiing accident on New Year’s Eve of 1984. Zeid then briefly ran Universal for the Polikoff family before buying the operation in the spring of 1985 when the remaining Polikoffs decided to exit the business. Barry Riback came onboard that December, merging his third-generation scrap business, Maltz Metal Co., into Universal. He and Zeid now each own 50 percent of Universal.
   Back in 1985, Universal handled roughly 2.5 million pounds of nonferrous metal a year, working out of a three-story, 9,000-square-foot building in which the second and third floors were useless because there was no elevator to move material up and down. Such limitations cost the company business. “Dealers were selling elsewhere because we didn’t have the space, we couldn’t service them well,” Zeid notes.
   So in late 1986, Universal moved to a 50,000-square-foot warehouse on Chicago’s west side, just a few blocks from the granite- and marble-factory where it now operates. At the time, Zeid recalls, “my first thoughts were: We’ll never fill this place up, we’ll have to rent out the space.”
   But the company grew quickly at its new location and even launched an ultimately unsuccessful joint venture with fellow Chicago scrap firm Cozzi Iron & Metal Inc. called Unico Recycling. This was an aluminum shredding operation that seemed like a good idea until the spreads diminished, Zeid notes. He says Universal “drifted away” from the project by the mid-1990s.
   Overall, though, the company was growing so much that its new facility quickly became overcrowded. Metal had to be stored right in the loading docks, which meant that it took about an hour and a half each morning to move the material into the parking lot so Universal could accept more metal during the day. Then that same inventory had to be moved back into the loading docks at night for safekeeping. Plus, the same scales had to be used for receiving, inventory, and shipping.
   After a decade of working under these tight conditions, Universal bought its current location. But that move presented a potential problem of its own in the form of environmental contamination. One piece of ground, roughly 40 by 40 feet, was contaminated with substances like paint thinner from a previous owner of the site, before even the granite/marble company.
While not a hazardous or potentially Superfund-type situation, the contamination did need to be remediated, Zeid says. So Universal worked with the state of Illinois, the city of Chicago, and LaSalle Bank N.A. to clean up this brownfield site at a time when the term “brownfield” was still fairly new. Universal spent about $200,000 to clean up the site, taking on an unknown amount of risk in that the cleanup itself might have uncovered much greater environmental problems. But no such problems emerged, and in the end Universal received a letter from the state acknowledging that no further remediation was necessary at the site.
   Though the process did involve plenty of “red tape and gnashing of teeth,” Zeid says, “by and large everyone was cooperative—business, industry, government, and banking all worked together and everybody had faith in everybody else.”

Around Universal’s ‘U’ 
In addition to the environmental remediation, Universal had to remove certain equipment that the previous owners had left behind as part of the final negotiations for the property. This included enormous computer-controlled saws, some 20 feet high, that had been used to cut the granite and marble blocks into thinner slices for things like tabletops and counters. Most of these were sold overseas, though one saw is still in use at Universal for cutting big pieces of aluminum. The company also took possession of the remaining granite and marble inventory, which now adorns furniture in Universal’s offices and conference room, resting on bases made from scrap aluminum.
   Receiving and shipping docks were added, along with scales and scalehouses, plus processing equipment that ranges from alligator shears to large balers and devices for lifting and dumping trailers. A 25-ton overhead crane that spans the width of the High Bay came with the building and is used for heavy material handling.
   Incoming scrap follows a U-shaped flow, beginning along the upper left arm where one set of receiving doors accepts material from Universal’s suppliers while another set of doors is for scrap picked up by Universal’s fleet of owned and leased trucks or common carriers. Though Chicago’s industrial base has declined somewhat in recent years, the region still has enough manufacturers such as stamping and machining operations and aluminum die-casters to provide Universal with a good source of prime scrap, Zeid notes. But the company also buys some material from neighboring states like Wisconsin, Indiana, and Michigan.
   After incoming scrap is weighed and tagged with bar-coded information, the material proceeds down the left arm of Universal’s U-shaped flow to processing equipment along the rounded end. Here, large pieces of scrap aluminum are packaged into bales on a Harris HRB 918W unit, while copper, brass, and zinc are formed into smaller bricks on the company’s Logemann 12x12 31-SES briquetter. An Al-jon 550 briquetter also packages automobile radiators and various smaller aluminum products. Plus, a Granutel granulator and Oliver separator help process composite material of plastic and metal.
   Each bale and brick receives a new bar-coded tag once its enters inventory, but it doesn’t stay there long. On average, Universal turns its total inventory more than twice a month, with most material shipped via truck and the majority heading to consumers in the Midwest. But the company’s export market is growing. In fact, though exports still account for just over 6 percent of Universal’s business, that figure was only half as much a few years ago and is propelled by the collapse of domestic markets for items like No. 2 copper. Asia is the primary buyer of Universal’s exported material, though some of it also goes to Canada and Mexico.

Filling the New Space
   From the moment Universal bought its new facility in 1997, the company knew it had to grow. “To sustain a property of this size, we needed to increase our business,” Zeid says, “and that meant sourcing new business—which we did—as well as acquisitions or mergers.”
   Two such purchases quickly followed Universal’s relocation. First, in May of 1997, Universal acquired Mandel Metals Recycling Division, a 50-year veteran of the scrap industry specializing in mill-grade aluminum. Later that December, Universal acquired the assets of Sloan Metal Co. Inc. and assumed Sloan’s former role as the contract processor UBCs for Alcoa Recycling Co. in Chicago. This also marked Universal’s entry into precious metals recovery, an operation handled by marketing and sales manager Paula Klein and Jack Whalen.
   Buying Mandel’s business (but not the company’s property) increased Universal’s overall volume by about a third without significantly adding to operational costs. Likewise, the move into UBCs, which had not previously been a major part of Universal’s business, added a steady source of revenue that isn’t as directly affected by the markets as are other scrap commodities. “We know that we’ll get paid so much to process these cans for Alcoa, so our job is to keep it efficient,” Zeid says.
   The UBC and precious metals operations exist as their own division, called Universal Processing Ltd., which initially was housed at a separate location before being brought under the West Fulton Street roof in 1999. Still, quality concerns keep the can business as separate as possible from other nonferrous processing since cans are considered a contaminant by aluminum mills.
   Universal is pleased enough with the Mandel and Sloan acquisitions to consider pursuing more. For one thing, Zeid sees processor/consumer arrangements like the Alcoa deal as a wave of the future.
   “It’s going to be necessary for consumers to look at the scrap processor not as an adversary but as a partner,” he predicts. “It’s a good opportunity for synergy—we can put a consumer onto our suppliers who aren’t already buying from them, and the consumer can turn us on to some of their customers who aren’t selling material through us.”
   Plus, Universal is still operating at just about half its capacity, so there’s room to grow. And while the firm is interested in acquiring, it’s definitely not interested in being acquired. In that regard, it’s a case of “Been there, almost done that.”

Conservative Buying
   The tale of Universal’s almost-acquisition goes like this: As the wave of scrap industry consolidations crested in April 1998, Universal agreed to be acquired by Chicago’s Metal Management Inc. in an all-stock deal. By September, though, Metal Management’s stock had sunk from nearly $13 to $4 a share, scuttling the deal and serving as an early warning bell to the industry of the coming rollback in rollups.
   “We’re happy with the outcome,” Zeid says of the cancelled merger. “Being big today is not so good. Having a lot of metal to sell today is not so good.”
It’s a view that carries over into what Zeid describes as Universal’s conservative metal-buying strategy.
   “We’ve never been big chasers of metal,” he says. “We’re competitive in this market, but we’ve never said we had to have all the metal and at any price.”
   In fact, Universal says it operates essentially without a sales force, other than Jack Whalen for precious metals. In other areas, though, most of the functions of a typical sales force are handled directly by senior managers like Zeid and Riback as well as Mitch Gordon, the senior aluminum trader, and Paula Klein. Moreover, Universal relies heavily on other processors and peddlers for material, so the need to go out and win new accounts isn’t that great. Many processors and peddlers are already bringing their metal to Universal, so “why would we want to take the accounts away from them?” Zeid asks.
   Unfortunately, though, the pool of potential peddlers and processors in Chicago is shrinking. Fifteen years ago, Universal received about 70 percent of its metal from such sources. Today, it’s only about 34 percent, with the medium-sized peddlers—like Phil Zeid’s father—declining at the fastest rate. Universal still sees itself as a major buyer for the smaller dealers, Barry Riback stresses, but the company has been forced to increase its reliance on industrial accounts, recycling centers, and other sources of metal.

A Strong Future
Though the recent business slowdown has made some of Universal’s consumers cut back or delay orders, the company remains “in a stronger position today than we have been in the last five years, even with current markets,” Zeid stresses.
   The new facility is financed, and its value has already increased. The Sloan and Mandel acquisitions are fully paid for. “We have everything in place and no real drain on capital,” Zeid says.
Likewise, the company enjoys a loyal, long-standing work force and customer base. One customer that started doing business with the company in 1939—before either Phil Zeid or Barry Riback was even born—is still a customer today. And while the booming economy of recent years did entice some Universal employees to leave for other jobs, some of them also came back.
   Looking to the future, Universal can expect a new generation of Zeid and Riback leadership. Phil’s son Jason has been with the company for nearly 10 years and serves as manager of information systems, where he was instrumental in setting up the company’s bar-coding system and Web site, while Barry’s son Sam came onboard about two years ago and is presently learning various aspects of the company as special projects manager. Should both Phil and Barry retire anytime soon—something that doesn’t appear likely—there would almost certainly be some kind of interim leadership appointed to both run the company and mentor Jason and Sam for their future responsibilities, Phil Zeid says.
   In a somewhat humorous way, though, Jason Zeid has already contributed to Universal’s proverbial 15-minutes of fame by buying his father a small hot dog wagon a few years ago, which Phil uses to cook lunch every month or so for employees and customers on what have become known as “Wiener Wednesdays.” This small gesture resulted in a Wall Street Journal writeup and got Universal included in a book called The Hot Dog Companion, notes Phil, who muses, “You never know what you’ll get some positive publicity for.”
   Success, of course, is its own publicity and, in that regard, Universal wants to keep doing what it’s been doing. “We try to develop relationships with a few main customers who are financially sound, can absorb the products we offer, and whose specs we can meet,” Phil Zeid explains. “We’ve done that over the years, and it’s been a big plus for us. Where other people can’t get delivery appointments, we can. And when these consumers need metal, even if they don’t offer the best price, they’re still going to get the metal because we remember what they did for us. Those are the kinds of relationships we’ve developed.” •