Russel Metals and Reliance Steel & Aluminum are among the largest service center operations in North America. Though different, their approaches to information technology have contributed mightily to their success.

By Tim Triplett,
Editor-in-Chief

Unlike smaller companies, the sheer size of Russel Metals Inc. and Reliance Steel & Aluminum Co. present special challenges to managing information. Though the two industry leaders have adopted different strategies toward software development and corporate integration, both have achieved comparable results.

Reliance, based in Los Angeles, is a $2.9 billion full-line metals distributor with 105 stocking locations and a workforce of 5,400. Competitor Toronto-based Russel Metals, with $2.4 billion in annual sales, operates 70 locations with 2,700 employees.

Most of Russel Metals’ service center facilities in Canada and the United States are tied into a Toronto data center, explains Maureen Kelly, Russel’s vice president of information systems.

Russel’s enterprise resource management system runs on IBM AS400 hardware. The software is an in-house adaptation of a program originally purchased in 1998 in anticipation of Y2K. Russel’s 31-member IT staff has continually adapted and customized the software into a system that is unique to the company. The ERP program handles everything from order to cash, Kelly says, including order management, purchasing, shipping, invoicing, collection, credit, accounts payable, physical inventory, processing, and more.

The new ERP software replaced an old internally written system that was very different, forcing a painful but necessary learning curve on Russel employees.

“We had no choice because we needed to be Y2K compliant. But it was a major change for everybody,” Kelly recalls. For example, salespeople had to relearn vendor numbers, customer numbers and part numbers that they had come to memorize, adding a layer of inconvenience to everyday tasks.

“Yes it was painful, as any change is. But the big difference is it was supported by senior management, with user involvement,” Kelly says.

Russel set up a project team including personnel from information systems, sales, purchasing, finance and other functional areas, and gave them the autonomy to make key decisions about how the system should be implemented. “We knew that if it became just an IS (information systems) project, it was going to fail,” Kelly says. “We were fortunate to get the support of our user base, who were actively involved in establishing our new business processes.”

While some companies attempt to run their old system and new system in parallel as they work through the transition, Kelly believes it is best to just take the plunge. When the time was right, Russel pulled the plug on the old system and switched on the new one.

“That’s really the only way to do it,” Kelly says. “You can’t keep two systems running, because they handle the data so differently. People have jobs to do; they don’t have time to input data into two systems. They will continue to use the old familiar system as long as they can. I am a big believer in the bing-bang approach.”

The new system was implemented one region at a time, with newly trained users going to the next region to help train others. Lessons learned in one conversion were used to smooth the transition in subsequent ones.

As with all computer technology, Russel’s system is a work in progress. Kelly outlined three main areas the company is working to improve:

• Bar coding: Russel currently prints bar-code labels for some customers, but is looking to expand the use of bar-code technology throughout the process, from receipt of material, picking, shipping, inventory updating, invoicing, etc.

“Most inventory we get in now is bar-coded, though it may not include specific fields. A lot of it would involve negotiation with vendors to get the specific information we need on the bar-code label coming into us.” Russel customizes bar-code labels for buyers of its goods, so obviously its vendors could do it for Russel, she adds.

• Electronic data interchange: Russel is trying to push for more EDI communication with both customers and vendors, to improve efficiency and data integrity. “EDI eliminates a lot of the manual entry and therefore potential errors. It saves time and improves accuracy,” Kelly says.

EDI communication is difficult because companies often use different management systems that require different data. “We are doing EDI by negotiating with every vendor and customer on an individual basis,” Kelly says. The metals industry is working on guidelines to standardize and simplify the process.

• Processing: Every year, Russel increases its processing business with customers, delivering finished parts and kits. So its programmers are working to improve the way the system tracks multi-step processes.

“It is easy to give a customer a price on as-is material we are just going to take off our shelf and ship the next day,” she says. “But when you have a job to process material according to a customer’s drawing, that takes more time to estimate. With this type of system, we will be able to quote more accurately and get back to our customer [with a quote] more quickly.”

The integrated scope of Russel’s system gives the company a major competitive advantage by tying most of its facilities together. “If one branch does not have material on hand, or if a processing machine is busy, we can look at another branch on the system that may have the material and processing capability to meet the customer’s needs,” Kelly explains.

Managers have a wealth of information available through Russel’s decision support system or “data warehouse.” Every night data is transferred from the ERP system on sales, inventory, purchasing and bookings using software from Cognos, a leading provider of business intelligence and corporate performance management software.

“It allows all our authorized users to go in and check on the status of their bookings and sales, or to get information by time period, by customer, or by sales territory,” Kelly says. “They can slice and dice the data any way they want without having to call IS and request a report on this or that. It’s been a really effective tool.”

For security, Russel is considering implementing a “high availability” system in which all data would be mirrored on a second system. “If the main system goes down, you can just flip users over to the backup system,” Kelly explains.

Despite the ready availability of software products for service centers of all sizes, an individual company can still differentiate itself by the way it utilizes technology, Kelly maintains. “There are things you can do to make it easier for customers to do business with you.”

Mill test certifications can be put into a document management system so they can be e-mailed or faxed quickly rather than accompanying the product, for example. “Eventually we will allow our customers to come onto a secure Internet site to pick up the test certs themselves, along with [checking their] order status,” Kelly says.

This type of sophistication may be out of reach of smaller service centers. Russel employs an IT staff of 31 to handle programming and support functions for its many employees. The company spends 0.5 percent of its revenues on systems-related personnel, hardware and software, which is extremely efficient compared with the average cost for a manufacturing company of 1.2 to 1.8 percent of sales, Kelly says.

Besides improving customer service and automating routine business processes, that investment helps to ensure data integrity. “Compliance is a priority now, too, because of Sarbanes-Oxley,” she notes.

The Sarbanes-Oxley Act, passed three years ago in the wake of various corporate accounting scandals, sets enormous fines and even jail terms for CEOs and CFOs who release financial reports that do not fairly portray the financial condition of their company. The CEO and CFO must also certify that they have established proper disclosure controls and procedures. Thus they have a serious personal stake in the effectiveness of their company’s software and its internal financial controls.

The Reliance approach
Unlike Russel, which essentially developed its own system in-house, Reliance Steel & Aluminum Co. opted to work with software provider Invera to replace its old mainframe system back in 1994 (the year the company went public).

“Reliance as a company decided its business was selling metal, not developing software. We decided we’d stay more current by using a vendor package,” says Karla Lewis, Reliance executive vice president and chief financial officer.

Reliance has grown dramatically in the past decade, and needed a software package that could meet the diverse needs of its many entities. After investigating several packages on the market, they chose Invera’s STELPLAN, which was tailored specifically for the metals market.

Reliance is known for its aggressive growth-by-acquisition strategy; it has purchased over 20 service centers since 1996. It is also known for its hands-off, why-fix-it-if-it-ain’t-broken management style. As a result, only about half of its companies are using STELPLAN today. Seven of the larger acquisitions still use their own systems, which continue to serve them well.

It’s not part of the business model to get everyone on same system, Lewis explains. “We are comfortable with the systems they are running, so there is no plan [to change them over to Invera]. Our main need for the data is from a financial reporting standpoint, and we do have the systems and controls in place for that.”

Though all locations are not integrated on one system, every day each sends financial data electronically for centralized financial reporting and accounting functions, “which is important, especially to my new friends Mr. Sarbanes and Mr. Oxley,” Lewis says.

Reliance IT Director Anna Macalino’s staff of 24 LA-based technicians support about 50 percent of the company on STELPLAN. Four staffers man the help desk 24/7 to support about 1,200 STELPLAN users, not counting other personnel supporting legacy systems in the field.

Macalino notes that STELPLAN handles inventory management functions extremely well. “It is great at the site level for handling all operations transactions and keeping an audit trail. Input from users suggests sales and purchasing functions could be streamlined, which is what they are hoping to achieve with STRATIX, Invera’s new-generation software.”

Reliance is also evaluating STRATIX with an eye on how it handles multi-step, multi-location production operations.

“Our strategy is not to move as fast as technology changes,” Macalino adds. “As much as we can, we try to plan out our migration. Just because something new comes out doesn’t mean we have to have it.”

Lewis is convinced that Reliance’s transition from its old accounting-oriented system to Invera’s has directly boosted the company’s gross margin.

“With STELPLAN, we have better information available to our salespeople about the cost of the metal, and guidance on pricing. Our inventory is more up to date, so salespeople don’t waste time walking out to the shop floor to make sure we really have the material. We improved our business processes, though it took a while for people to get used to the new system. Long term, we have been able to cut some positions at different locations because the workflow has improved.”

While large players like Russel and Reliance have the financial resources and staffing to maintain state-of-the-art information systems, even the smallest service center could learn a lesson from them about investing in technology.