5-2009 Case Study: Angeles Steel Services
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An Unconventional Steel Hybrid

The leader of this Southern California distributor and fabricator doesn’t just think outside the box, he thinks outside the country.

By Tim Triplett, Editor-in-Chief

Outsourcing Some Jobs Can Save Others

Faruk Zia, whose family hails from India, immigrated to Canada when he was a young child. He has been a resident of the Los Angeles area for the past 27 years and is as vocal a proponent of U.S. manufacturing as any native-born American.

Much of California’s heavy manufacturing has relocated to Mexico or China due to the state’s strict environmental laws and high costs. “When you hear about the millions of manufacturing jobs lost in this country, my attitude is that we have to find ways to preserve U.S. manufacturing. It sounds nice to have a high-end service economy, but what will happen to the big percentage of the population that can’t do that type of work? You end up with unemployment and poverty. If we want to maintain our standard of living, we need to find a place for lower-skilled workers, too.”

That’s why it seems so contrary at first to hear the president of Angeles Steel Services excitedly describe his engineering department—which is located on the other side of the planet.

Zia says his company’s approach is a model others should follow. By hiring engineers in India, the steel distributor and fabricator is helping to secure its foothold in Southern California.

“A lot of our CAD work and engineering calculations and estimations are now done in India. We have our own facility there with about a dozen engineers. They do a lot of the detail work there at a lower cost,” Zia explains. “That actually is a secret to our success. By shifting some high-end costs over there, it allows us to stay competitive here.”

When a customer sends a request for quote to Angeles Steel Services, the information is transmitted to its office in India. While its U.S, workforce is sleeping, its Indian engineers are doing the calculations. “In the morning when we come in, the estimate is done. We send it to the customer, and they give us the order. Then we send the file back to India where they do all the material calculations, lay the job out, nest it, do all the programming and send us a file we can transfer directly to our cutting machine. We’re working on the part within 24 hours.”

Global competition is challenging U.S. industry as never before. While moving offshore may offer labor savings, it puts companies at a disadvantage in terms of lead times, freight, communication and culture. “We go to our OEM customers and say: ‘Why don’t you keep your plant here? Let’s partner up. Here’s all the services we can offer to help you lower your costs.’”

India and other foreign countries are doing a better job of training the next generation of technical experts, such as engineers and programmers. Rather than putting Americans to work, U.S. companies will be forced to lure foreign workers to this country to meet their future technological needs. “What we ended up doing with our engineering department, instead of importing expertise, we exported the work,” Zia says.

Granted, setting up a remote engineering department took a lot of organization, training, communication, handholding and debugging, he recalls. “Initially there was a lot of frustration. The culture and work ethic over there are very different than here. But the system is working smoothly now.”

In another outside-the-box, outside-the-country initiative, Angeles Steel Services is investing in a comprehensive estimation and scheduling software package, being created by a staff of programmers in Pakistan. Combined with its engineering expertise, Zia feels the company will soon have the information engine it needs to offer its services anywhere in the country as a sort of “virtual processor.”

“The estimation and scheduling software will become the jewel in the crown. Once we have that in place, we can sell that concept throughout the U.S. by outsourcing the back end to toll processors located virtually anywhere,” he explains.

In other words, Zia sees the opportunity to expand as a fabricator, serving customers nationwide, without ever opening another plant. Through its membership with the North American Steel Alliance, Angeles Steel already has relationships with processors from coast to coast who could fabricate and deliver the parts that Angeles sells and engineers.

“It’s a mousetrap...a better one,” he says.

Turnaround specialists typically fix a troubled business and then move on. Faruk Zia put his mark on Angeles Steel Services and made the family-owned company his home.

The Santa Fe Springs, Calif., carbon steel fabricator and distributor has deep roots going back to its 1935 founding as a small welding shop. After more than six decades of growth and success, however, the company was nearly compromised by family squabbles following the death of matriarch Helen A. Hansen in 2000.

With majority ownership passing to her daughter, current chairwoman Gail Allen, some family members and friends involved in senior and middle management found themselves at odds. Without going into detail, Zia recalls: “The company faced certain family disputes. That’s why I was hired in 2001 to run Angeles Steel. When I came in, it was very unclear what the future would be.”

Upon her mother’s passing, Allen wisely turned to Zia, an outsider, to keep the organization moving forward. “It took several years to rebuild the management team and create a new culture here. It may have been formed in 1935, but this company was basically reborn in 2001,” says Zia, now the company’s president and chief executive officer.

This unfortunate situation offers a lesson for other family-owned businesses, he notes. “It’s very important to address succession planning when there are competing siblings involved. It’s very difficult to talk about these things—it’s often easier not to deal with it and just carry on—but you need a clear understanding of what will happen when a major event occurs.”

It’s all about adding value
Angeles Steel Services is a hybrid operation—part fabricator, part job shop, part service center—with a single, 220,000-square-foot location on a 12-acre site in the Los Angeles suburbs. Its 120 employees are skilled in a variety of steel processing disciplines.

Like the services it offers, Angeles Steel’s equipment is wide and varied. It includes cut-to-length lines, shears, press brakes, cutting tables with flame, plasma and laser capabilities, plus a variety of rolling, bending and welding equipment.

Angeles Steel’s market area is primarily Southern California, though it occasionally gets orders from farther afield, such as the one for the Denver Broncos new football stadium. It provides carbon flat-roll, plate and fabricated parts for such industries as construction, mining, heavy equipment, utilities, water desalination and transmission, and a host of others.

Declining to cite an annual sales figure for the privately held company, Zia estimates revenues have grown by about 300 percent under his watch.

Angeles Steel Services is not a conventional service center. In fact, only about 25 percent of its business comes from steel distribution. The other 75 percent is from processing. Located near a major seaport, and with rail service directly into its facility, Angeles Steel can buy in large carload quantities and take advantage of foreign offers.

“We are a very large fabricator. At the same time, we buy direct from the mills and have significant inventory on-hand as a service center. So we enjoy a cost advantage over other fabricators,” Zia explains.

In addition to its own fabricating operations, another big customer group is other service centers. “Other small distributors who carry multiple varieties of steel and can’t keep everything in stock do their buyouts from us. So we have a service center element as well as the fabricator element to our customer base,” Zia says.

His focus is not on maximizing inventory turns, but rather adding value to as many orders as possible. “If a customer buys plate, that gives us the opportunity to ask them what they are going to do to that plate. If they are going to have it cut in one place, drilled in another and perhaps rolled in a third, we can offer all those services and help them avoid multiple handling and freight costs.”

As both a distributor and a fabricator, Zia is very conscious of not competing against his own customers. It’s a matter of maintaining their trust, he says. “It is such a crossover relationship. You can be a competitor, a supplier and a customer. But as long as you act responsibly, it seems to work out somehow.”

Angeles Steel is a member of the North American Steel Alliance, a buying co-op composed of nearly 100 small to midsize service centers spread across the country. On behalf of its members, NASA negotiates deals with metal producers and operational suppliers, such as providers of insurance or maintenance products. Based on how much they buy from NASA’s preferred suppliers, members receive a patronage check at the end of each year—money that is particularly appreciated in this down economy. In a market where consolidation continues to create larger competitors, membership in NASA gives relatively small companies like Angeles Steel some much-needed cover and clout, Zia says.

He sees expansion in Angeles Steel’s future, but not necessarily in a conventional form. The company is now organized around four operational groups: service centers, job shops, engineering and fulfillment. It functions as both a service center, selling to end-users, and as a master distributor, selling to other service centers. It functions as a job shop, partnering with manufacturers and other fabricators to produce parts. It functions as an engineering consultant, helping customers design parts or even finished products. And it functions as a toll processor, processing and delivering other companies’ steel for a fee.

Zia sees the most opportunity for future growth in providing engineering and fabrication services for manufacturers. The company now employs a dozen engineers, all based in India. “If we were to hire engineers over here, it would be very expensive. We don’t always have enough work to keep them busy. Over there, we get six engineers for the price of one,” he says (see related sidebar “Outsourcing Some Jobs Can Save Others”).

“The principals of business are the same everywhere, it just depends on people’s willingness to work together and find some common ground,” Zia concludes.

Some Observations on a ‘Puzzling’ Market

Like other parts of the country, Southern California was hit hard and unexpectedly by last year’s sharp fourth-quarter downturn. “We went on Thanksgiving holiday and came back, and all of a sudden the world had changed,” says Angeles Steel Services President and CEO Faruk Zia.

While his company is faring better than many because of its strong cash position and diverse customer base, Zia is concerned about the market psychology. “Up until last September I would have told you all our markets are good. Now I find myself questioning whether we need to cut costs, cut overhead, cut labor—just in case. There is a just-in-case mentality in the marketplace that shines a spotlight on areas companies might otherwise ignore. Then they start taking action, and it just adds to the negative momentum.”

Service centers are compensating, he notes. “What I am seeing is a lot more trade going on within the distribution channel. Instead of buying a carload of coils or plate from the mill, service centers talk to each other and work out a trade. Even competitors, perhaps through a broker, are putting their heads together.”

Correcting the credit crisis is key to the market’s turnaround, Zia emphasizes. “I don’t think it has anything to do with the demand side. I think the demand is there. A lot of it has to do with the confidence side, the lack of confidence in the banking system. Projects don’t just disappear overnight. There are a lot of projects on the drawing board, they just can’t get the funding.”

What’s in store for the rest of the year? That remains unclear. “There are all these pieces of the puzzle in front of you, and you try to put them together, but you still can’t see the picture. That’s where I feel I am right now. Every time I get a new piece, it gives me a little bit of a hint, but I still can’t see the picture.”
QUICK FACTS

Angeles Steel Services
9747 S. Norwalk Blvd.
Santa Fe Springs, Calif. 90670
Phone: 562-692-0876
Fax: 562-699-2115
Website: www.AngelesSteel.com

Key Personnel: Faruk Zia, president and CEO; Gail Allen, chairwoman; Aamir Zia, CPA and strategic business development; Ron Atilano, plant manager; Terry Buchanan, vice president of sales; Ed Page, CPA, human resources, health & safety director; Mo Gayasuddin, director of engineering.

Total Employees: 120

Facilities: One 220,000-square-foot location.

Products: Steel plate and coil in hot-rolled carbon, high-strength low-alloy, cold-rolled, pickled and oiled, diamond floor plate and coil, Cor-Ten, T-1, abrasive resistant plate, pressure-vessel quality.

Services: Fabrication, welding, cut-to-length, edge trimming, leveling, shearing, flame, plasma and laser cutting, rolling, forming, bending, beveling, grinding, cambering, punching, tee splitting.

Equipment: Two cut-to-length lines, for material up to 96 inches wide, gauge to 5/8th-inch; eight shears, for material up to 30 feet long; tandem press brakes with a 44-foot bed length and 1,500-ton capacity; three burning tables that handle material measuring up to 24 feet by 55 feet, and 3 inches thick; a Trumpf 4,000-watt laser for material up to 83.5 inches wide, 240 inches long and 0.75-inch thick; plus miscellaneous beam and plate rolls, iron workers and welding equipment.

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