http://www.metalcenternews.com RSS feeds for Metal Center News 60 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6617/New-Rules-of-the-Road-Troublesome-for-Truckers.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5802&ModuleID=13902&ArticleID=6617 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=6617&PortalID=51&TabID=5802 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6617/New-Rules-of-the-Road-Troublesome-for-Truckers.aspx Panelists: • Jack Van Steenburg, chief safety officer and assistant administrator, Federal Motor Carrier Safety Administration, Washington, D.C. • Rob Abbott, vice president of safety policy, American Trucking Associations, Arlington, Va. • Jim Burg, president and CEO, James Burg Trucking Co., Warren, Mich. • Larry Hall, transportation manager, Severstal North America, Columbus, Miss. Editor’s note: The federal government’s new CSA (Compliance, Safety, Accountability) program seeks to improve truck and bus safety by establishing a Safety Measurement System, which analyzes all safety-based violations from inspections and crash data to assess a commercial motor carrier's on-road performance. The new safety program is designed to allow regulators to reach more carriers earlier and deploy a range of corrective interventions. The measurement system uses seven safety improvement categories called BASICs to examine a carrier's on-road performance and potential crash risk: Unsafe Driving, Fatigued Driving (Hours-of-Service), Driver Fitness, Controlled Substances/Alcohol, Vehicle Maintenance, Cargo-Related and Crash Indicator. By looking at a carrier's safety violations in each category, law enforcement will be better equipped to identify carriers with patterns of high-risk behaviors and can intervene before accidents occur, officials say. But as the following comments from panelists at FMA’s recent toll processing conference show, the federal government still needs to work some bugs out of the CSA system. “The principle behind CSA is to remove high-risk carriers and drivers from the industry,” said Jack Van Steenburg, chief safety officer and assistant administrator for the Federal Motor Carrier Safety Administration in Washington, D.C. CSA’s safety measurement system is designed to make better use of available data to identify unsafe drivers and give carriers guidance on where they need to improve, he explained. He acknowledged that enforcement could force some drivers out of the industry, worsening the already short supply, and that some of the rules still need to be fine-tuned to be sure they are fair. But all that is secondary to saving lives, he added. “Unfortunately, we lost 3,506 people last year in truck and bus crashes. That is what we are here for as the FMCSA, to ensure highway safety.” Regulators conduct 3.6 million inspections each year among the 700,000 carriers in the United States. Under the old system, only 11,000 compliance reviews were performed each year. “We are now using that inspection data as a performance-based system to better determine who we want to contact,” Van Steenburg said. Rather than relying on a safety fitness methodology that simply issues a satisfactory or unsatisfactory rating, the FMCSA can now utilize the inspection data to identify specific problem areas and take steps to alert carriers to driver safety behavior that warrants attention. “We feel that instead of the 11,000 compliance reviews, we will be able to touch about 100,000 carriers with the new array of interventions that we have,” he said. The three most common violations occur in the areas of fatigued driving, vehicle maintenance and unsafe driving. “Fatigued driving, driving too fast, texting, not wearing seat belts, these are indicators that a carrier is at risk of future crashes,” Van Steenburg said. Other panelists disputed the correlation between statistics on driver safety and their predictability of future accidents. The trade group representing the country’s carriers, the American Trucking Associations, based in Arlington, Va., is “generally supportive of CSA, especially the concepts and the intent of the program,” said panelist Rob Abbott, ATA’s vice president of safety policy. However, some of the ratings can be misleading and unfair and need to be addressed by FMCSA, Abbott said. For example, crash indicator scores are not necessarily reliable predictors of future crashes. Truckers say the system gives the same weight to all crashes, including those the trucking company could not have prevented, such as a case where a parked truck was struck by another vehicle. Disparities in regional enforcement also affect the reliability of the scores Abbott said. “Some states have much more robust enforcement programs, so carriers operating in those states are more likely to have high scores, not necessarily because they are less safe than other carriers, but because of where they operate.” Cargo-related rules, of particular interest to flat-bed steel haulers, also show little relationship to crashes. And they can also be troublesome in terms of enforcement. “Fleets are being cited for cargo securement violations on flatbed vehicles because they are more visible,” Abbott said. “For example, if a load requires 10 straps, but the driver uses 12 straps to make the load extra secure, and the 12th strap has a cut or tear, that counts against him in the system.” Cargo-related violations all bear the maximum 10 weighting in the system, regardless of whether the issue is minor. While the scores in some BASIC categories are reliable indicators of a carrier’s future crash risk, others are not, Abbott asserted. “To their credit, the agency has been responsive to the industry’s calls for changes. Eventually they are going to tie the ratings in the system to carrier fitness, however. We are very concerned about that because some of the scores are not accurate reflections of carrier safety performance. To give them a rating based on those scores would be very inappropriate.” Jim Burg, president and CEO of James Burg Trucking Co., Warren, Mich., maintains that CSA rules will impede the growth and capacity of the flatbed trucking industry. Compliance has added considerable cost to his operation, he said. “The counter to expected increases in operating costs is anticipated to come from the reduction of crashes. I have not concluded that the benefits to my company will outpace the cost. I would like to see some issues resolved by the FMCSA and the federal highway administration. The journey so far has been difficult.” Pointing to some additional hard costs, Burg said his insurance carrier raised his rates by 18 percent at the last renewal, at least partly because of CSA data. His company spent $30,000 on a truck-based GPS system that monitors drivers’ speed and alerts them when they go too fast. Prompted by the CSA, the company hired a safety manager to monitor and educate drivers. It also set up a bonus system and tied driver pay increases to their compliance data. “I believe the net cost to the company is probably 1 percent of revenues, so that is a significant investment we have made to address these issues,” Burg said. Among soft costs to the company is an added recruitment burden. Management takes fewer chances when hiring applicants with even minor infractions in their past history and is quicker to terminate drivers with violations, at the risk of being accused of wrongful termination. “These actions relate to lost productivity and inefficient use of equipment,” Burg said. Burg Trucking has experienced a significant year-over-year reduction in traffic incidences since 2010, in part due to the data that CSA provides. But the company is still being assessed a CSA value for six crashes in which it was not at fault. Of the 20 violations the company has received in the last 24 months related to the hours-of-service rules, only three were actual hourly violations. The other 17 were bookkeeping errors. “We have drivers who were not even close to violation of the hours restrictions, but because they did not keep their logbook up to date it was still a violation. That is what we have to deal with in educating our people,” Burg said. He added that he would like to see the administration act more quickly to correct issues, such as non-involved crashes, and take responsibility to discipline drivers directly. “Right now they are saying it is my problem. And in a market where drivers can easily go get a job someplace else, I am just the overbearing boss they say terminated them without proper cause. They have a chance to continue employment elsewhere and still be an unsafe driver on the road.” Severstal North America, Columbus, Miss., is a minimill steel producer with three million tons of annual production, nearly half of which is transported by truck. So the tight supply of qualified drivers in the marketplace—made tighter by the new trucking regulations—is a major concern, said Larry Hall, Severstal transportation manager. He sympathizes with the truckers, who often work long hours for poor pay. “The economic fluctuations of the past few years have been brutal to the trucking guys. Just as they are starting to gain some traction, they get hit with more government regulation,” he said. Many small trucking companies went out of business during the recession and, despite the need for more capacity, new startups face substantial barriers to entry. “It used to be if you had a little ambition and a little money, you could be in the trucking business tomorrow. You can’t do that today. There are regulations to hold you up and a lack of credit from the banks. So the surviving trucking companies have leverage. With fewer truckers to bargain with, prices are on the rise,” he noted. The new CSA rules have made Severstal even more cautious about which trucking companies it uses. “I have an informal policy,” Hall says. “If you are a carrier that wants to do business with Severstal Mississippi and you are in violation of three BASICs, you are not doing business with me.” He foresees the possibility of a lawsuit in the future where a trucking company is accused of a wrongful death and CSA scores are introduced as evidence. “Managing risk, that’s what we are looking at here,” he concluded. Tue, 29 May 2012 13:57:00 GMT f1397696-738c-4295-afcd-943feb885714:6617 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6473/Case-Study-Schupan-Sons.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5802&ModuleID=13902&ArticleID=6473 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=6473&PortalID=51&TabID=5802 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6473/Case-Study-Schupan-Sons.aspx Michigan-based company using grant money to convert fleet of trucks to compressed natural-gas powered engines for one of its divisions, while anticipating one day its service center business may follow suit. Long before the rest of the metals industry discovered terms such as sustainability, carbon footprint and greenhouse gas emissions, Schupan & Sons was awash in green. The Michigan company was founded as a nonferrous scrap processor, when recycling metal was the manufacturing’s primary concession to environmental friendliness. Through the years, the company has evolved to become a multipronged enterprise, adding a service center division in 1978, 10 years after its founding. All the while, it has remained committed to being at the forefront of environmental issues. “Our company was in sustainability before there was sustainability,” says Chris Milani, vice president of operations and logistics for Kalamazoo, Mich.-based Schupan & Sons. “Our president says if we were any greener, we’d be frogs.” That president is Marc Schupan, the son of company founder Nelson Schupan, who passed away not long after starting the business. Marc Schupan says his company’s environmental bona fides go beyond the simple act of handling scrap metal. Some of the company’s divisions provide recycling education to its local communities. The company is fanatical in its treatment of waste oils and fluids. And all of its divisions were ISO registered “12 or 14 years before it was fashionable,” he says. The president says the company’s attitude on the green front is modeled after the philosophy of hockey legend Wayne Gretzky, who said, “don’t go where the puck is; go where the puck is going.” And in the world of transportation, the company has decided, diesel fuel is where the puck has been. Natural gas is where it’s going. And Schupan & Sons is leading the way. Through one of its recycling divisions, UBCR, the company has recently launched an entire natural-gas powered fleet of trucks. The conversion was paid for in part by a $2.2 million grant funded by TARP money and administered through the Clean Energy Coalition in Michigan. UBCR, which handles pickup of aluminum, plastic and some glass containers at the company’s Grand Rapids and Wixom operations, is ideally suited to meet the current state of natural gas-powered transportation. The trucks employed in the collection have a lower gross combined weight than other metal hauling semis, plus each truck route begins and ends at the same point. “We looked at a lot of different alternatives for reducing our carbon footprint in terms of technology,” says Milani, who oversaw the conversion. “We settled on natural gas for a number of reasons,” a list that includes simplicity of conversion, existing diesel fuel usage and the quality of the partners they’ve worked with in the conversion. Schupan and Sons has joined forces with Ryder Leasing, which handles the maintenance of the equipment. The company has existing knowledge of the requirements for natural gas-powered vehicles through a similar effort in California. Another partner includes DTE Energy MichCon, the energy utility that helped install compressed natural gas filling stations on Schupan’s property in Wixom and another nearby the company’s Grand Rapids location. The Wixom station is a private station, while the station in Wyoming, Mich., is a public one. Funding for the stations, plus some of the conversion costs from switching to the diesel-powered engines to the GNC-fueled machines, was included in the grant. The grant was made for the purpose of displacement of petroleum. Milani had already gone through grant process at other companies before coming to Schupan & Sons. He says there are grants like this available for other companies who might benefit from a similar conversion. “The Clean Cities Coalition is a great place to start to see what’s available from a transportation perspective,” he says. “They were very helpful in this whole process and another strong partner to help shepherd us through.” Once the grant was in place, Schupan and Sons turned to some major players in the trucking world to meet their equipment needs. The new semis are powered by Cummins’ 8.9-liter engine. It also comes with an Allison automatic transmission, making it the first fully automatic transmission vehicles the company has used. The transition has been remarkably smooth, Milani says. “There are a lot of misconceptions regarding natural gas and the safety to it. If there’s a spill, it vents and dissipates, but with diesel it’s on the ground and pools. We’re very comfortable with the safety element of it,” Milani says. He notes that it’s the company’s drivers that were the key to successful implementation. “They’re the ones who were going to make it a success or not, and so far they’ve been really terrific. They were really sold on doing something that can help the economy, the industry and our country by using domestically sourced energy.” And the transition is already paying dividends. The company’s move to natural gas is saving about $1.55 per gallon compared to the diesel equivalent. As for its footprint, “we’re saving about 9,000 barrels of oil annually,” Schupan says. Besides those costs advantages, the move to compressed natural gas provides more certainty. The company is able to go out five years on its fuel contract, as opposed to a single year with diesel. “There’s so much volatility with petroleum,” Milani says. “That was another reason we really liked natural gas.” That the company can save costs while also doing its part for the environment makes it a win-win situation. “We want to reduce our footprint, but we like to do so where it’s economically practical,” says Milani. “The economics are really very good.” Right now, the benefits are limited to this particular division of Schupan & Sons. The 8.9-liter engine is rated at 80,000 gross combined weight, which makes it suitable for the requirements of the UBCR segment but wouldn’t work for its service center or other operations. Schupan’s service center business segment, which grew out of its recycling operation, offers sales of aluminum and plastic products to a variety of end users. On the aluminum side, it sells plate, bar, rod, pipe and sheet. Additionally, sales of extrusions have become the fastest growing part of the business. On the equipment front, Schupan has a variety of precision saws, including two MetlSaw precision plate saws, cutoff saws from MetlSaw, Rohbi and B&O, band saws from W.F. Wells and Powermatic and a semiautomatic Kaltenbach saw. The company also offers a variety of CNC machines, plus bending, drilling and other fabrication services. In time, both Milani and Schupan believe the distribution business will be able to use natural gas-powered vehicles in its fleet. Cummins is already testing an 11.9-liter engine that would power semis with larger GCW requirements. Additionally, the engine maker offers a 15-liter bi-fuel engine that utilizes both natural gas and diesel fuel. The more significant impediment to widespread adoption of the technology by major haulers is the infrastructure. “When it comes to infrastructure, there are two primary challenges: location and range,” Milani says. The current scarcity of filling stations makes it almost impossible to use a natural gas-powered semi on long-haul runs. Exacerbating the problem is the limited range the average vehicle can travel before refilling. But there is hope. At February’s MSCI Carbon Conference, American Trucking Associations President Bill Graves pointed out Flying J Truck Stops is working to develop a nationwide grid of natural gas filling stations, compressed or liquefied natural gas. When such a network is in place, the transition to natural gas by major haulers will be much more rapid. And Schupan and Sons fully expect to be among the pioneers expanding its fleet options once these challenges have been overcome. “There are some potential fits with our van operations, especially when the new 12-liter comes on line. As more people become familiar with it and the barriers start to come down, which is the infrastructure, we see natural gas as a transportation energy source. It will be something we seriously consider as we spec equipment going forward.” His boss agrees. “As time goes on, we’ll have more opportunities,” Schupan says. “We have the potential to change another 65 semis in the next few years to natural gas.” Wed, 16 May 2012 20:28:00 GMT f1397696-738c-4295-afcd-943feb885714:6473 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6472/SBB-Steel-Markets-North-America.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5802&ModuleID=13902&ArticleID=6472 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=6472&PortalID=51&TabID=5802 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6472/SBB-Steel-Markets-North-America.aspx The service center sector is in the early stages of an uptick in consolidation that is likely to last another several years, according to Dan Sullivan, director of the industrial group for Chicago investment banking firm Houlihan Lokey. Sullivan delivered his thoughts on industry M&A during last month’s SBB Steel Markets North America Conference in Chicago. Sullivan appeared as part of a panel dealing with distribution issues. He was joined on the dais by Lourenço Gonçalves, chairman, president and CEO of Metals USA; Jeremy Flack, CEO of Flack Steel; and Mark Breckheimer, president of the heavy carbon group at Kloeckner Metals. Sullivan said the market for buying and selling service centers, like the metals industry itself, is a cyclical one, with each cycle typically lasting five to seven years. The current upswing is in its second or third year. “Our firm’s view is that there is a fair bit of ground to go in terms of M&A deals over the next few years. We’re really just getting started.” Most of the factors are in place for increased M&A activity. It starts with the need for growth, he said. While corporate profits have been high in recent years, the gains stem from curbing expenses, “and there’s a limited amount of profit you can wring out of cost cutting.” So companies seek out acquisitions, which become more attractive as distributors enjoy better results. “Companies are able to make strategic decisions on the buy side, and on the sell side you have 12-18 months of strong earnings behind you,” he noted. Other conditions working toward increased M&A include a high level of liquidity, better availability of credit, tax concerns for 2012, pent-up demand from the natural ownership turnover that was delayed by the recession, and simple psychology. “People like to do deals. M&A is a symptom of optimism. In an environment where economic growth will only get you so far, M&A is a way to make a splash and point to something concrete,” Sullivan said. There are some impediments to deal making, he noted, including end-market cyclicality, memories of overpaying in the last upcycle and a low barrier to entry that makes it difficult to truly eliminate competition. It’s likely that more foreign entities will buy into metals distribution in North America, including large, transformative mergers like the one that took place between Namasco and Macsteel in 2011. What Sullivan and other panelists consider unlikely is any trend toward greater mill ownership of service centers. “Mills would have to buy a lot of service center capacity to impact the end-user market,” Flack said. “I don’t see any difference between Nucor buying a service center and Kloeckner buying a service center. I don’t think it’s a huge event, unless mills start to commit billions of dollars to buy capacity.” Before the mills consider getting into the market, the service centers themselves will have to do the heavy lifting on consolidation, Sullivan said. Right now, to achieve the necessary scale, a mill would have to buy four of the largest service center companies “to make a difference and avoid the inherent channel conflicts they’d get into if they try to run a service center business.” Kloeckner’s Breckheimer, whose Roswell, Ga.-based service center company is one of the nation’s largest after last year’s combination of Macsteel and Namasco, said the only mill ownership he expects to see is a modest move into the automotive supply chain. That is close to the European model and the only area where such a strategy makes sense, he said. “The historical landscape is littered with examples of why steel mills should not own steel service centers, specifically in the United States,” Breckheimer said. “The steel producers should pay attention and not repeat the mistakes of the past. I don’t see much going on beyond integrated facilities investing in processing facilities for automotive applications.” Dealing with volatility The service center panel also discussed a number of other issues affecting distribution, starting with volatility and its impact on the market. Breckheimer said volatility is not just a matter of the vacillation of the price, but is an ongoing concern in other aspects of the industry, such as demand, financing capability and capacity. “It’s everywhere in this business.” One response to volatility is to reduce the amount of physical hedging that service centers do, he said. In the past, service centers routinely would buy long to make $40 to $50 per ton if they thought the market was on the verge of a shift. Today, it’s not a worthwhile gamble. “With a hypercyclical market, you can see steel prices change by 30-40 percent in 90 days, and even $100 per ton isn’t enough of a reward to take the risk.” Gonçalves, in contrast, said that while volatility exists, it’s often overstated. He blames misinformation, both intentional and unintentional, for artificially lifting the perception of price volatility. Intentional disinformation can be provided by anonymous sources cited in various publications who talk the price up or down. “If a person doesn’t have a name attached, it’s hard to tell what he’s trying to accomplish with that information.” An example of unintentional misinformation, Gonçalves said, is the ongoing complaints about overcapacity and how that will dampen prices. He said the United States has not been in a state of overcapacity at any point in the last 40 years, pointing to the unbroken string of U.S. steel consumption outpacing domestic supply every year. Citing another change, service center executives’ attitude toward inventory has changed, Breckheimer said. For the last 11 years, most distributors have been steadily cutting down their months on hand to reduce their price risk. Others in the industry, however, have not fully adjusted to this reality. “Every time we get down to 2.4 months supply, many of our suppliers think we’re going to add inventory as soon as we think business will get better. And they plan on that,” he said. “But our working capital models preclude that. We’ve worked very hard to turn stock much faster and create a more efficient financial engine. You’ll see spikes, but the long-term trend has been down and will remain at these levels going forward.” Future of futures In any meeting of steel executives, the subject will inevitably turn to futures trading. Or, as Gonçalves said, “For all the time we’ve spent talking about futures, if it was for real, we should be calling them ‘presents.’” The industry veteran, who spent time on the mill side before taking over the Fort Lauderdale-based service center company, remains opposed to futures trading. “This is just another way of people who have nothing to do with our business trying to grab a share.” But Flack and Breckheimer see otherwise. Flack’s company, which has no equipment, specializes in the transaction end of the business. “We see ourselves as structure, coming up with ways to help our customers grow their business through the way they buy steel.” And one of the ways they can do that is through the use of financial hedging in the futures market. He said companies can either learn how to use futures, or get left behind as customers seek out distributors who do. “The attitude in our industry is going to change, there’s no going back,” said Flack, who founded the Cleveland-based company in 2010. “If you’re involved with OEMs in this market, they’re going to want these products from us as an industry. The faster you get them to your customers in way that makes sense to them, the more business you’re going to capture.” He’s unconcerned about the presence of outside interests. “Do speculators get involved? Sure. But all they’re doing is providing liquidity to us.” Breckheimer had a similar assessment. “More and more of our customers are looking for certainty of supply and certainty of price. We expect that’s going to grow.” [callout] “People like to do deals. M&A is a symptom of optimism.” Dan Sullivan, Houlihan Lokey Wed, 16 May 2012 20:24:00 GMT f1397696-738c-4295-afcd-943feb885714:6472 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6471/ERP-Systems-Step-Up-to-Fabrication.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5802&ModuleID=13902&ArticleID=6471 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=6471&PortalID=51&TabID=5802 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6471/ERP-Systems-Step-Up-to-Fabrication.aspx As more and more service centers move beyond basic value-added processing into actual part production and even manufacturing, software vendors are adapting their programs to handle the specific IT demands of fabrication. “We are trying to move more into the fabrication side of the business for folks that do at a minimum first-stage processing, and a lot of times second-stage processing. That is where we are finding a little more activity,” says Brian David, national sales manager for Compusource Corp., La Palma, Calif., vendor of the Metal Center Management System. The more forward-thinking service centers are focusing on value-added services and even light manufacturing, “and to do that efficiently takes software,” says David Morgenstern, vice president of marketing and sales at Verticent, Tampa, Fla. Thus the trend toward value-added processing and fabrication is driving the demand for systems upgrades. Tim Wilson, sales manager for the Metalware division of Paragon Consulting Services Inc., York, Pa., sees two groups of software buyers in the service center sector. At the low end, some small service centers that have been using general purpose accounting software and spreadsheets are finally moving up to entry level ERP systems. At the high end, more are inquiring about functionality for fabrication. “Once a metal service center moves from processing into fabrication, that presents a whole host of opportunities and challenges related to job costing and process control,” Wilson says. This interest in ERP systems at both the low and high ends of the market is good news for software vendors, who experienced some lean years during the economic downturn. “Business is booming right now, almost everywhere we go. Our sales activity is very strong, which means the service center model is working very well. They typically put off purchases until the money is there,” says John Bilek, president of Enmark Systems Inc., Ann Arbor, Mich., echoing the sentiments of most vendors. “We were extremely busy in 2011. What most people are looking for is an ERP system that can capture all the costs of their inside and outside processing at the quote level” says Paul Parsons, vice president of sales and marketing at 4GL Solutions in Markham, Ontario, makers of the Steel Manager III system, Among their recent technical innovations, software makers are developing tools that allow customers to access their companies’ data on popular handheld devices like Apple’s iPad. The new generation of tablet computer is migrating toward industrial applications, says Gary Marzec, director of supply chain management at Northrop Grumman Information Systems, Canonsburg, Pa. “These devices are permeating society. If you don’t have a system that keeps up with them, you will go by the wayside sooner or later.” Not everyone is a fan, however. Such consumer devices are not really designed for industrial environments, says David at Compusource. “That is kind of customer-driven for us. We would rather see folks use an industrial handheld device than a tablet that could easily break. But for a salesman sitting in a Starbucks checking his customers’ orders, that works fine.” A growing number of software vendors have begun offering their products on a subscription or fee basis, sometimes called software as a service, on-demand software or cloud computing. Rather than purchasing and installing the software on their own computers, service centers access the applications via the Internet and store their data on remote servers maintained by their ERP provider or a third party. This approach offers a number of advantages, say some vendors: Users no longer need large IT staffs to maintain their hardware and software. They have round-the-clock access to their data, which is stored on redundant servers so it is highly secure. As the software is upgraded, it is immediately accessible and does not have to be deployed on multiple users’ desktops. Peter Doucet, vice president of consulting at Houston-based Invera, maker of STRATIX enterprise software, says acceptance of cloud computing is growing rapidly. More than 50 percent of Invera’s new customers now choose STRATIX On-Demand, the cloud version of the ERP system. “Our on-demand customers no longer have to worry about upgrading their hardware or backing up their software. They can focus 100 percent of their attention on their business,” Doucet says. The cloud computing concept still faces some resistance from companies reluctant to relinquish control of their vital information, however. Compusource is not a proponent of software as a service. “We still think there are a lot of issues. The applications typically are not as robust,” David says. “People who go that way often end up going back. They don’t have as much control.” Verticent also favors on-premise systems over software as a service, at least for now. “Once you get into large operations, there is complexity that does not work well in a one-size-fits-all environment. Lots of companies are still concerned about the security of their data,” Morgenstern says. Northrop Grumman Information Systems, makers of Open Trac software, want service center executives to think of their businesses in a virtual sense and help optimize the entire supply chain. Web applications administered in the cloud and offered as software as a service provide the basis of this virtualization idea, Marzec explains. For example, rather than service centers investing in more brick and mortar, or increasing their inventory levels, they can now share product and processing capacity by establishing a virtual network with suppliers and customers. “Virtual supply chain partner relationships are popping up all over the country, with customers generally leading the way toward a paperless relationship with suppliers,” Marzec says. “More importantly, the network is expanding to include raw material producers, service centers, toll processors, freight companies, foreign ports and warehouses. All connected, disconnected and connected again as business opportunities arise. “It is time steel suppliers get with what is happening among the more sophisticated customers. When it comes to supply chain IT capability, some service centers get it, others don’t,” Marzec adds. Also surprising is the large number of legacy systems that remain in use in the market, some decades old, adds Morgenstern. “At the risk of being insulting, the service center industry is not just a little bit behind, but tremendously behind, other industries. Many still have not seen technology as a differentiator for their business.” Recent product enhancements: Compusource—Compusource offers the Metal Center Management System, a fully integrated metal distribution and accounting management system designed to meet the specific demands of metal service centers. Recent enhancements include web integration and fabrication-oriented features. Enmark—Enmark Systems Inc. offers Eniteo, a Windows-based ERP solution designed for metals service centers. It is offered in a cloud version that allows customers to bypass the high cost of purchasing and maintaining their own hardware. A web-access module gives customers access to their data 24/7. Recent enhancements include an integrated shop floor module that is touch-screen enabled. Barcode scanning in Eniteo is a real-time, wi-fi solution designed to eliminate the need for paperwork throughout the operation. Eniteo Scanning can be used to develop and schedule loads, prioritize picking for processing and shipments, load trailers, manage inventory transactions between locations and count physical inventory, the company says. 4GL Solutions—The Steel Manager III system from 4GL Solutions is an integrated ERP system with a host of features designed to simplify procedures for service centers. Most recently, the company has been working on a nesting module for long products that automatically selects the right pieces from inventory to ensure the least amount of waste; integration with the major plate nesting programs on the market; and an EDI interface that can capture information from various business documents and input it directly into the ERP system. Steel Manager III is not offered in a cloud version. Invera—STRATIX, the enterprise system from Invera, now includes a bidirectional interface with SigmaNEST nesting software. The interface enables plate inventory and cut plate orders to be automatically uploaded into the SigmaNEST system as the material is received and orders entered. Then once the planner, using SigmaNEST, figures out what plate to use and how to nest the various orders, the job is electronically sent back into STRATIX without any user intervention. Invera also has developed a comprehensive multi-company, multi-currency system that enables a large enterprise to view the inventory across all its divisions and automates inter-company sales by eliminating all duplicate entries. STRATIX also now includes a whole suite of features specifically for processors of OCTG and specialty metals, who often change the dimensions of products through turning, grinding, boring and trepanning, which poses challenges for inventory control. Invera is also working on new web self-service enhancements, such as more e-commerce options. Northrop Grumman—Northrop Grumman Information Systems offers the OpenTrac suite of supply chain management solutions for the metal industries. The company was an early proponent of software as a service and only offers its products on a cloud computing basis. Most recently its focus has been on supply chain communication and “virtualization.” It also has added functionality for the latest handheld tablets and touchpads. Paragon Consulting—Vendor of Metalware, MetalNet and Metalware Express, Paragon Consulting Services Inc. offers systems that handle purchasing, order entry tracking, stock transfers for multi-site companies, sales analysis, material processing and scheduling, as well as basic accounting functions. Recent enhancements are designed to support fabrication services. The software is available in a traditional or software-as-a-service form. Verticent—Verticent Inc. offers ERP software specially adapted for four industry verticals: metal service centers, flat-roll processors, tube mills and metal fabricators. Designed as a complete solution, it handles purchasing, sales quoting and order management, material optimization, capacity planning, production planning and scheduling, barcoding and wireless scanning, shipping, finance and other functions. Verticent is planning a major new release of its software later this year aimed at mid- to large-size service centers that need to handle complex multisite and international businesses. -30- Wed, 16 May 2012 20:20:00 GMT f1397696-738c-4295-afcd-943feb885714:6471 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6470/If-You-Build-It-Will-They-Come.aspx#Comments 0 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/RssComments.aspx?TabID=5802&ModuleID=13902&ArticleID=6470 http://www.metalcenternews.com/DesktopModules/DnnForge%20-%20NewsArticles/Tracking/Trackback.aspx?ArticleID=6470&PortalID=51&TabID=5802 http://www.metalcenternews.com/Editorial/CurrentIssue/April2012/tabid/5802/articleType/ArticleView/articleId/6470/If-You-Build-It-Will-They-Come.aspx Recovery of the North American auto industry has been surprisingly strong, especially in the last several months, making it perhaps the most robust sector in the U.S. economy. This is good news for automotive parts and metals suppliers, who continue to hitch a ride with carmakers out of the economic doldrums. “Normally automotive trails GDP in an economic recovery. Things get better and then people start buying cars. This time around it’s backwards. The auto industry recovered before the general economy,” says Bernard Swiecki of the Center for Automotive Research in Ann Arbor, Mich. (see related sidebar). He is not alone in this assessment. “Automotive demand has been excellent, better than it has been for a long time,” says Doug Richman, chairman of the technical committee of the Aluminum Association’s transportation group and vice president of engineering and technology at Kaiser Aluminum Corp., Foothill Ranch, Calif. Following slow and steady increases ever since the economy began to recover, auto production has seen strong growth thus far this year, reports George Magliano, senior economist for New York-based IHS Automotive. North American auto output reached an annualized 15 million vehicles in February, a 22 percent improvement year on year. While production is not likely to maintain this heated pace, 2012 promises to be good for everyone in the auto supply chain, says Mark Cornelius, president of Morgan & Co., West Olive, Mich. This includes not only metals suppliers, but also parts suppliers, some of whom suffered a setback last March when the earthquake and tsunami in Japan disrupted the supply chain. Now with the Toyota, Honda and other Japan-based New Domestics cranking up production to make up for lost volumes—at the same time the traditional Big Three try to hang on to their opportunistic market share gains—experts predict full-year North American auto output will reach from 13.9 million to 14.5 million passenger cars and light trucks in 2012. This compares to 13.1 million light vehicles produced last year and just 8.6 million made in 2009 during the depth of the recession. Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa., predicts that North American auto output could exceed 16 million light vehicles by 2015, which would boost demand for steel and aluminum significantly. While automotive parts suppliers are concerned that rising gasoline prices, volatile material prices and contagion from the European debt crisis could dampen demand or squeeze margins, they generally continue to be optimistic about the next 12 months, says Dave Andrea, vice president of industry analysis and economics for the Troy, Mich., based Original Equipment Suppliers Association. Cornelius is not surprised by the positive outlook among parts suppliers, many of whom source their raw material from service centers. “With all of the bankruptcies in the last few years, the supply base got weeded out. Those that are left are seeing signs of significant recovery ahead,” he says. Not only is their capacity utilization up significantly, but the vast majority were profitable in the first quarter, Andrea adds. “We foresee that [part] suppliers’ production schedules will remain strong.” Supplier margins vary with the auto platforms they support and the products they supply, so an overall increase in the vehicle build will not necessarily translate into higher profits for an individual company, Andrea notes. For example, suppliers whose parts use rare earths are seeing dramatic cost increases. Likewise, those that operate further downstream, such as fastener suppliers, are more at the mercy of swings in material prices. All parts suppliers are monitoring their margins carefully, Andrea says. Some are changing the designs of components to use lower cost materials where possible without affecting the parts’ performance. They also are trying to control costs through the price negotiation process, adding escalator clauses into materials contracts. The biggest wildcards to affect the automotive product mix and the materials content of vehicles over the long term is the price of gas and more stringent federal corporate average fuel efficiency requirements. CAFE standards for passenger cars jumped to 29.5 miles per gallon this year, up from 27 mpg, and call for a further step up to 38 mpg in 2017, 40 mpg in 2020 and 46 mpg (and possibly as high as 54.5 mpg) by 2025. “We have found that the percent of trucks vs. passenger cars sold tends to be a direct function of gasoline prices,” says Ronald Krupitzer, vice president of automotive applications for the American Iron and Steel Institute, Washington, D.C. According to the Center for Automotive Research, crossover utility vehicles currently hold a 23.5 percent share of the U.S. auto market, followed by midsize cars with 21.3 percent, small cars with 19.9 percent, pickups with 13.4 percent, SUVs with 7.7 percent, luxury cars with 7.5 percent, vans with 5.2 percent and large cars with 1.7 percent. America’s love affair with large, truck-frame-style SUVs seems to have cooled in favor of the lighter, car-based CUVs, experts agree. Only about 25 percent of U.S. vehicles currently are built on truck frames vs. about 50 percent historically, says Richman at Kaiser, with about half of those pickup trucks and SUVs being used for commercial purposes. This shift toward smaller vehicles also opens up opportunities for aluminum, magnesium, carbon fiber and plastics suppliers, Krupitzer admits, as carmakers strive to remove mass from their vehicles without compromising passenger safety. He is optimistic the steel industry will maintain its share of the auto market, however, through the use of new high-strength and advanced high-strength steels and new manufacturing technologies that allow them to be used where needed. (For more detail on the steel industry’s automotive materials strategy, see Krupitzer’s column in this month’s Business Topics, page 2.) At the same time, the aluminum industry is working to make its case for a larger slice of the automotive pie. Aluminum’s share has been creeping up gradually for the past 40 years, but Dick Schultz, managing director of Ducker Worldwide, Troy, Mich., expects an unprecedented jump in the coming years as carmakers struggle to reach the government’s aggressive fuel-efficiency goals. Aluminum’s share of the average U.S. passenger car will go from the current 343 pounds up to 550 pounds by 2025 despite its higher cost, Ducker predicts, mostly through gains in the use of aluminum sheet and extrusions in body structures and closures. Over the same time period, steel content per vehicle will decline to 46 percent from the current 58 percent, with a shift from mild steels to high-strength low-alloy and advanced high-strength steels, Ducker forecasts. With the shifts in steel and aluminum content, as well as increases in the use of magnesium and certain other lightweight materials, the average vehicle will be approximately 400 pounds lighter, Schultz says. Steel industry executives foresee a much different scenario, with steel holding on to most of its share. Steelmakers such as Nucor, ArcelorMittal and ThyssenKrupp are working vigorously with the auto industry, through joint projects such as the Auto Steel Partnership, to develop lightweight steel solutions in automotive design. “Steel remains and will continue to be the low cost, low emission lightweight material solution for automobiles,” says John Ferriola, president and chief operating officer of Nucor Corp. Charlotte, N.C. Steel—particularly steel produced through the minimill process—is much more environmentally friendly than alternative materials in their production phase, he says. “As automobiles increase their fuel economy, the material production phase becomes more important in the total lifecycle assessment of each car. By 2025, we estimate the production phase of a vehicle will have more impact on the environment than the use phase of that vehicle.” Keith Laurin, director of automotive sales for ThyssenKrupp Steel USA LLC, Calvert, Ala., admits that aluminum has inherent advantages for some powertrain applications, as well as in wheels and some closures. But for high-volume applications, steel holds up well, both in terms of reducing weight and cost, he says. “There is more and more activity on steel design initiatives and such new auto manufacturing technologies as tailor rolled blanks and hot stamping, which bodes well for steel,” Laurin says. “Steel will prove itself.” “We have done studies that show auto companies can use advanced high-strength steels without a significant cost penalty [vs. mild steel] and, in many cases, there is a cost benefit,” adds Robert Dicianni, marketing manager for ArcelorMittal USA, Chicago. “Even though the steel they are buying is more expensive on a per-ton basis, they use less of it, which results in the potential for a cost benefit.” Not all steelmakers currently make the more advanced high-strength steels, and make them well, notes Dicianni. “Companies that are lagging behind today will try to catch up over the next several years, and companies that are leading today will try to move into even more exotic steel grades.” As a result, Krupitzer adds, just about every North American steelmaker serving the automotive market is either adding new lines or upgrading existing ones, bringing on new high strength steel, annealing and galvanizing capacity. Nucor, for example, has invested over $1 billion in the past three years on new equipment and new products designed to grow its automotive business. The company has installed vacuum degassers at two mills, has invested $300 million on SBQ expansion, and spent over $100 million to expand its sheet width capabilities to 72 inches, among other improvements. Approximately 10 percent of Nucor’s sheet business is now automotive related, Ferriola says. In January, Severstal North America hot-commissioned a 500,000-ton-a-year exposed hot-dipped galvanized and exposed hot-dipped galvanneal line in Dearborn, Mich., which will produce, among other products, high-strength and advanced high-strength steels for the automotive market. Some of the capacity from that line will also be used by other high-end markets, including the appliance and furniture industries. Much of the galvanized capacity at the new ThyssenKrupp Steel USA facility ramping up in Alabama is aimed at supplying the automotive market, particularly the New Domestic facilities in the South. U.S. Steel reportedly is restarting another galvanized line in Hamilton, Ontario, in May. Aluminum producers are making similar moves, including Alcoa’s $300 million investment in its Davenport, Iowa, facility and Novelis Inc.’s $200 million Oswego, N.Y., expansion. At the end of the day, achieving the needed fuel economy will not just be a matter of choosing steel or aluminum. Automakers will have to take a holistic approach to materials, design and technology, says Richman at Kaiser. “Weight reduction is expected to deliver about a 2-3 mpg improvement in fuel efficiency, but the new CAFE standards require at least a 22 mpg improvement. Weight reduction can account for about 10 percent of that reduction, but the rest needs to come from new technologies.” Richman maintains that the aluminum industry doesn’t see the new advanced high-strength steels as competition. “The steel industry has done a superb job with what they can do,” he says, but the auto industry will have to think beyond advanced high-strength steels—and even beyond aluminum—to meet its ultimate goals. “The vehicle of the future is not going to be a monolithic vehicle,” he says. “The body in white will have aluminum, steel, magnesium and other materials in it, as well.” Wed, 16 May 2012 20:13:00 GMT f1397696-738c-4295-afcd-943feb885714:6470