AWMI Meeting

On the Spot

Members of the Association of Women in the Metal Industries peppered Steel Dynamics’ Christopher Stock and Ryerson’s Thomas Endres with questions on the state of the metals industry in a lively discussion in Chicago last month.

Question: In the past decade, consolidation has reshaped our industry. What role with that play in the future?

Christopher Stock: We think it will continue, but at a slower pace, mainly because there are fewer good assets to acquire. From a mill standpoint, the question is do we want to be in the pipe and tube business or the distribution business? From Steel Dynamics’ standpoint, we would like to produce steel and ship it to you guys.

Thomas Endres: Unlike the mill space, the service industry is very fragmented. By our count, there are probably 7,000 different service centers. I don’t think you can get to any meaningful number in consolidation. If we reduced it by 50 percent, we’d still have 3,500 service centers. I think the bigger ones will continue to get bigger. But I don’t think about consolidation; I think more in terms of capacity. You read about closing mills in China, but it’s a meaningless number when they keep outproducing what they did the year before. It’s about the capacity; it’s about production. I think it’s the same thing in our space. It’s about the capacity here.
People consolidate for different reasons. Some people do it for geographic scope, some people do it for niche products, some people look to extend their value-add services. We’ve probably played in all three.

Q: On the mill side, some assets have been closed and scrapped so they can’t rise again. Do you see that happening with distribution?

Endres: It depends who the acquirer is. We probably have shut down as many locations as we have operating. If we had multiple facilities within a city, we consolidated to one. We took capacity out. We do have competitors that don’t play that way, and you don’t get the consolidation. And even when a company gets bought out, three or four of them go and start a new service center. It’s one thing to have 7,000, but each time you take one out, one or two rise to take their place. It’s a never-ending list of service centers.

From the purchasing side, we’ve seen some differences. You look at structural tubing. Nucor has bought two independents and Southland Tube, so that creates a difference in who you buy from. If you were splitting your business so you didn’t go all in with one, now what do you do? How the mills have consolidated has impacted how we look at the purchasing side.

Q: Is there overcapacity with 7,000 players in the service center business.
Endres: I don’t think there needs to be a cut-to length line sold in this country. We can never fill them all. There is way too much capacity. We’re not running three shifts at every location. We have the ability to scale up.

Q: How does it affect the market with large steel mills buying into service center business?

Stock: We haven’t been a participant in that. It’s kind of the European model in a big way. The real question is, to us: how are you guys going to deal with it? How are you going to approach a mill that has a service center or couple of service centers, or now a tube mill, and I’m not picking on anyone specifically. It really is a decent question. Also, ownership can be very hands off and run the business independently. I don’t know if there’s a clear answer.

Endres: I have a little different perspective. In my history, Ryerson was owned by Inland Steel. I’ve been part of a service center that was owned by a mill. I think it was a disadvantage being owned by the mill. It limited our supply source. Were Bethlehem and U.S. Steel going to come and really try to cut the best deal they can with Ryerson knowing our parent is Inland Steel? And Inland Steel didn’t make everything, so we had to rely on the whole supply chain to fill the needs of our customers. It can be a limiting factor and work as a disadvantage.

Q: How is your company using data analytics, and what types of innovation is the data providing?
Stock: From a data and computer and software standpoint, we have a system that’s constantly learning in the mill. We’re trying to learn to bring ourselves to schedule the mill better, more efficiently and bring us a better yield. You can imagine one percent, or one-tenth of a percent, in a steel mill making three million tons is huge dollars. That’s one area where we spend a lot of money trying to learn how to schedule better and how to take the human factor out of it.

We’re also trying to create this on our freight side. There is so much money lost in the freight business. We have thousands of rail cars coming in from our own division OmniSource, and why aren’t we loading coils back out on those same cars? There are all kinds of excuses, but we’re trying to look at that side of it, too.

Endres: I think data analytics is fascinating. We’ve all had data, but now we embrace the analytic side and have software tools where we can analyze it quicker. Data by itself can be overwhelming. What you want to get is decision-quality.

There are a couple of key areas we’re focusing on. Four years ago, we started focusing on inventory stratification. The commercial side was stratifying customers. We should be able to do the same thing on inventory. You have to have the right inventory in the right place. The only way to do that is to look at each one of your SKUs and put a rating too them. They’re all different. What do you carry, what don’t you carry and where do you put it? The only way to get at that is through data analytics. There is no way you can manage that on spread sheets and Excel.

Another one we just started on, using SPS, for all you mill people, we are analyzing your reliability on delivered products. If it works right, we’ll be able to look at any mill at any location and break it down by product. If you say the order was due Jan. 1, we’ll put analytics to that: if it’s cold-rolled sheet coming out of this location coming into our specific location, on average you’re eight days late. Or five days early. We can start to build that into our plan. We can have some pretty intelligent conversations with the mills on very specific products going into specific locations. The problem might not be you. You’re shipping into Atlanta and it’s great and 90 percent on time, but you’re shipping into Jacksonville, Fla, and you’re 50 percent, and we look into it and find we limit receiving hours or we’re tied up at the bay. It’s not pointing blame. It’s using analytics so we can have predictability and have more meaningful conversations with our suppliers.

Third one. Many of you have heard of the Internet of Things. Two of our employees went to an IOT conference, and what they came back with is they now have sensors that can put on equipment. With older equipment, if it breaks down, and you find out it takes eight weeks to get the part, and then you disappoint the customer. Now, you put these sensors on the part, and they begin to run failure analysis so they can start predicting, using analytics, when your piece of equipment might go down. Instead of doing preventive maintenance or waiting for your equipment to break down, you use analytics to look at your equipment to keep your uptime and be able to satisfy customers. We’re not sure we’re going there, we’re looking at several different things. You have to break first, and then you build up the history. It won’t predict the first failure, but it will predict the net one.

Q: What do you think about e-commerce platforms, and what is the future for online buying of metals?
Endres: We have an e-commerce platform at Ryerson. We want to give our customers options on how they want to transact business with us. If they want to go to an inside rep, if they want to go an outside rep, if they want a fax. Some people choose e-commerce. Stats say e-commerce grows at a rate of about 15 percent per year. I would assume the majority of that is retail. But the people who buy retail go to work and they buy steel. They like the convenience, they like 24-7 sales, they like to be able to work from home. An e-commerce vehicle is paramount to serve our customers moving forward.
It will continue to grow. I honestly think, if we don’t embrace it and put platforms out there with that ease of transaction, somebody like Amazon will.

Stock: You might remember, SDI was involved in a company called MetalSite. I don’t think the industry was ready for it; obviously it wasn’t because of the failure of MetalSite. But it’s coming. As my generation and older moves onto retirement, the younger crowd comes in. They don’t need to go to the mail, they’ll just order it online. Go to Amazon. We have an e-commerce strategy, it’s not very sophisticated. But we are already in Butler selling all of our secondary and excess on e-commerce. It’s all going out by the internet. It’s been a good process for us. We see what we thought was valuable, and what we didn’t think was valuable, and we weren’t always correct. We’re dabbling in it, but it’s a slow process.

Q: How do you recruit and retain young talent to our industry? What types of programs has your company developed to achieve this:
Stock: At Steel Dynamics, and most of our steel-producing locations, we sponsor scholarships at colleges and local trade schools related to our business. We try specifically to favor that toward engineering and metallurgical engineering. We’re spending our time and money there with some of those programs in the local communities where our mills are located, and some of our fabricated divisions. We have an extensive program for college interns. We’ve hired quite a few of them as fulltime when they graduate. We need that younger crowd. They need to understand there are great jobs available in the steel business. The jobs are across the board, but our emphasis on engineering, electrical engineers, mechanical engineers. You want to find them and keep them.

Endres: We have an active intern program throughout the country. We’ve maintained some tight relationships with three major colleges that have industrial distribution majors – the University of Nebraska-Kearney, University of Alabama Birmingham and Texas A&M, Over the years we’ve cultivated relationships with them.
In 2013, we started Ryerson Academy. We go out and recruit people out of college, run classes of about 20-25, put them up in Minneapolis for six months for training. We’ve had about 100 graduates come out of that. This year, we’re going to have them stay for an additional six months for sales experience. I think our academy has been a big success, and these people have moved all throughout the country. One of the things we’ve put in place is a sponsorship for women in our company to mentor and coach to bring along some of the younger women who could be vital parts of our executive staff. That’s a little bit of a missing link.

Q: What has been the retention rate?
Endres: I don’t know exactly. We’ve had some success with the academy. They sign a 2 ½ year contract. The first six months, then stay a minimum of two years. If after 2 ½ years we haven’t figured out how to sell them on the company or the industry or given them the right opportunities, maybe they should find something else, because that’s on us. Not everybody fits. Our grad rate for the program is about 95 percent. Some we recruit aren’t a fit.

Stock: It’s probably about 70 percent retention for the interns. Let’s be frank, some of them we don’t want to retain. It depends on the person and the availability of what we need at the time.

Q: What steps need to be taken for a sustainable steel industry?
Stock: To us, it’s our cost. At SDI we are fanatical about lowering our costs every day. Part of the bonus program for our employees is if they find a way to lower our costs and not sacrifice our quality and on-time delivery. We are constantly trying to push that responsibility to the men and women in the mill to see and find ways to lower our costs, whether it’s getting more tons with the electrodes or natural gas or zinc or whatever it is. We don’t control the price of steel, obviously, so we’re always trying to control our costs.

Endres: We have to know what our customers want. We have to deliver what they want, every day. As our CEO says, we have to create the right customer experience. That can be different by every customer. Some customers want to outsource parts, you have to be there for that. Some customers have working capital issues, so you have to work with them on their inventory. You really have to figure out what your customer needs are and work backward. That’s what’s going to make us sustainable for that particular customer.

Outside of that, it comes down to having a healthy manufacturing base. If you look at the charts from a service center perspective, since the recession in 2008, the volume levels have not come back. That’s what gives us pause about sustainability. How do we get that manufacturing back? We keep trying to figure out where it went. Did it go offshore? Did it go mil-direct? We don’t have the answers to that. We’ll all succeed and do better if we have more manufacturing in this country.
Q: In 5-10 years, how do you see how our business is transacted? How are your companies poised to handle that?

Stock: E-commerce will probably be the norm. Everyone in this room grew up in a big-time relationship business. But look at the insurance industry and how that has changed? How often do you see your insurance person, or do you even have one? That probably is an indication of where we’re going in some ways. There always will be sales and purchasing people in the metals business, but it’s going to change. As the fifty-somethings and forty-somethings move through here, this next generations approaches their buying habits completely differently than we will. We’re trying to prepare for that.

Endres: I agree with Chris. E-commerce is going to continue to grow. I think the biggest change is how do we lean out the supply chains. Connectivity. How we do business today in our industry is pretty archaic. I’ve spent 39 years in this industry. I keep looking at the retail side. There’s no way Wal-Mart is calling up a mill and saying where’s my steel, and someone on the other side saying let me check, I’ll call you back. It’s all data that’s transferring in real time back and forth. What we’re going to see in 10 years from now is people saying, “I see from the data we may have a problem. How do we trade out items, how do we make changes? How do we solve the issue?” The whole buyer-supplier relationship will change dramatically in the next 10 years, and I think it has to. I think we’re archaic in how we share information back and forth. I think that will create greater links in the supply chain.
Q: What do you see the role of futures trading in the steel business?

Endres: I have a full-time employee who works for me and that’s what he does. We use oil futures for gas for our trucks, we hedge currency when we buy equipment offshore and we hedge steel for our customers. I see this as good for Chris. Most of the minimills don’t want to sell on a fixed price. Hedging is a great alternative. Chris gets what he wants – variable pricing on a month by month basis. The customer gets what he wants – a fixed price. And I don’t have to worry about the risk. I think it has advantages in certain spaces and certain spots. It takes some work, you have to balance the buy and sell or you can get upside down on the hedge. There are some minor risks in there, but I think it will continue to grow.

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Thursday, March 22, 2018