10-2009 Case Study: Clingan Steel
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Living on the Edge
 
This Chicago-area service center has found a comfortable niche specializing in the edging of narrow slit coils.

By Tim Triplett, Editor-in-Chief 

Steve Clingan is something of a contrarian. The 76-year-old steel industry veteran readily admits his company is not the typical bundle-breaker. He carries far too much inventory, he says, and he’s more interested in making a profit than just making a sale. “Our specialty is value-added processing. Almost every pound we ship has something done to it,” he says.

Clingan believes many service centers fall victim to a high-volume mentality and sacrifice profitability unnecessarily. “There is a lot more price flexibility in steel than most merchants want to acknowledge. We have made it seem inflexible by commoditizing everything. If more distributors would recognize that, they would have a better looking balance sheet,” he says.

Clingan Steel avoids much of the price competition by offering specialized processing services that not many competitors can duplicate. Certainly, the company’s selling prices are lower today due to the difficult market conditions, but its margins have remained relatively unaffected because of the declining cost of materials, he says. “We are kind of a conservative company. We solicit business that maintains reasonable gross margins. That is what has given us the power to withstand any problems.” He estimates company revenues will decline in 2009 by about 35 percent, “but we will make money at that number.

“I promised the employees at the Christmas party last year that we would not lay anyone off this year, and we haven’t. I just think that’s good business. We think we have the highest morale of any shop in Chicago.”

Clingan Steel specializes in high carbon, low carbon, alloy, HSLA, brass and stainless steel strip. It offers round edged, skived edge and cut-to-length products, as well. In order to help customers maximize their productivity, Clingan offers slit-edged and round-edged stock in a continuous traverse (oscillate) wound package, as well as coil to coil (pancake/ribbon wound).

“The amount of inventory we carry relative to our sales is wrong by industry standards. We are an inch deep and a mile wide. By that I mean we carry a little bit of everything,” Clingan says.

His company serves about 600 active accounts from an inventory of around 20 million pounds. With sales of three million pounds a month, Clingan only turns its inventory about one and a half times a year, well short of the industry standard four turns. It’s more important to have what customers want when they want it, Clingan maintains.

Clingan began his career as a mill rep in 1962, but bought a struggling steel distributor in 1983 and worked to turn it around. In 1988, he decided to cash in his investment, and he sold the company to an $80 million industrial strapping manufacturer—a move he regrets to this day. “It was a terrible mistake, one of those things where your head gets ahead of your heart,” he says.

Clingan thought the service center would do better with the backing of a larger player. “I thought we were undercapitalized. I was on their board and I thought we could use that as a stepping-stone to putting together a service center group, but it did not work at all. Their philosophy was entirely different.”

Without the corporate backing, the service center deteriorated, and Clingan bought it back in 1994. By that time his son, Doug, was in business with him, and the pair started over from scratch.

“It was fun building up an entirely different company, one focused on edging and the reduction and sizing of steel. At that time, we were doing things that were brand new,” he recalls. “We changed our old business model and made edging our premise. There are a lot of slitters in town, so we wanted to niche ourselves into a little different business.”

Today, Clingan Steel employs a total of 70 workers, including a union workforce on the shop floor. “We have the greatest group of employees. At 5:15 on a Friday afternoon, half the inside staff is still in the office.”

The company uses its own trucks to service the Chicago metropolitan market, though it gets orders from all over the country, including some from larger distributors that can’t handle such specialized edging. Stampers comprise its largest end-use customer group.

Clingan uses an Enmark ERP computer system to track materials in and out of the warehouse. It also has an on-site test lab equipped with electospectrography, tensile, Rockwell, gauge and Olsen testing equipment to enhance material traceability and certification. The company has been ISO 9001 certified since 1999.

Clingan Steel is also part of the North American Steel Alliance, a buying co-op comprised of small to midsize service centers. Membership in NASA gives Clingan some added clout with suppliers.

Clingan and his management team have seen an upturn in orders lately, and remain hopeful the market will turn around in 2010.

“The imponderable for everybody is whether this is just a refilling of the pipeline or if it’s sustainable. I don’t think anyone knows for sure,” he says. n

Clingin’ to a Green Philosophy

Clingan Steel is fired up about energy efficiency.

The company formerly operated out of a 30,000-square-foot processing center in Melrose Park, Ill., and a 70,000-square-foot storage facility in Hammond, Ind. With the help of some tax incentives from Cook County, company President Steve Clingan purchased a 120,000-square-foot steel plant located on the west edge of Chicago’s O’Hare International Airport, where he consolidated his operations in 2004.

The decades-old structure, formerly owned by National Materials, had been unoccupied for two years and needed some updating. That’s when Clingan decided to go green. “We had a helluva year in 2004, so we decided to reinvest some of the money in green technology,” he recalls.

Clingan Steel’s approach to energy saving is quite comprehensive. Whereas most service center owners feel there is limited opportunity for a warehouse-type operation to save significantly on energy costs, Clingan and his General Manager Tom Bulwan left no ohm unturned.

Perhaps the most notable of the company’s green initiatives was the installation of two wood-burning furnaces in the warehouse. By incinerating old wooden pallets, skids and scraps, the company is able to heat the workplace and reduce its waste disposal costs at the same time. “We can get the plant as warm as 60 degrees with the wood furnaces,” Bulwan says.

Clingan gathers and stores waste wood in the fair-weather months so it has fuel for the cold months. It even takes unwanted pallets and skids from customers. “We take the good ones and reuse them, then take the bad ones and burn them,” Bulwan explains.

Air-quality regulations only allow the burning of wood, not paper, cardboard or other waste materials. The furnaces are designed to reignite waste gases in a second chamber so they totally eliminate any harmful emissions.

Thirty old, inefficient gas heaters were replaced by nine new high-efficiency gas burners that assist the wood furnaces as needed.

To move the air around without ductwork or vents, large 18- and 24-foot fans were installed at various locations overhead. The fans distribute the warm air in the wintertime and help cool the workplace in the summer. “They move a tremendous amount of air. It makes the place much more comfortable year-round,” says Bulwan.

He estimates the company saves $25,000 a year in heating costs, and another $3,500 in waste disposal charges by reducing its trash outflow to 20 yards a week, down from 32 yards.

Another major investment was the replacement of all the buildings’ conventional lighting fixtures with new T5 high-output fluorescent fixtures, which provide increased illumination at 60 percent less energy consumption.

Forty percent of the light fixtures are operated by motion detectors. When there is no activity in an area such as the loading dock, coil storage, washrooms or offices, the lights turn themselves off. They automatically turn back on when someone enters the vicinity.

“It will probably take five years to recover the investment, but meanwhile we have much better lighting in the plant,” says Clingan.

To keep the cold air outdoors and the warm air in, the company replaced old windows with thermo pane models that feature two panes of glass with a layer of insulating air in between. Insulation was added to walls and ceilings.

Loading docks in the building were only 50 feet deep, which meant that long trucks extended out the door. So Clingan hired a contractor to dig out the docks and add an extra 25 feet. Now when trucks back in to make a delivery, the doors can be closed to the elements.

Clingan and Bulwan point to several other simple energy-saving steps they have taken:

n When possible, they use a smaller pickup truck with better mileage to make deliveries, rather than a big truck that burns more fuel.

n Processing lines were upgraded with new solid state controls, replacing motor generators and transformers that used more electricity.

n Employees are encouraged to carpool, and they work extra hours on weekdays so they don’t have to come in on Saturdays, saving on gas and weekend heating costs.

n Temperature in the offices is controlled with programmable thermostats that turn down the heat and air conditioning during off hours.

n Last, but not least, of course, all scrap metal is recycled.

“This is not just altruistic. All of these things are going to make us money eventually, and they create a better operating environment in the meantime,” Clingan adds.

QUICK FACTS

Clingan Steel Inc.
2525 Arthur Ave.
Elk Grove Village, IL 60007
Phone: 847-228-6200
Fax: 847-228-6215
Website: www.clingansteel.com

Key Personnel: Steve Clingan, president; Tom Bulwan, general manager; Doug Clingan, sales manager; Ralph Herdrich, purchasing manager; Paulette Fischer, comptroller; Brian Cram, quality control manager.

Facilities: Headquarters in 120,000-square-foot warehouse and processing center in Elk Grove Village, Ill.; 20,000-square-foot warehouse in North Jackson, Ohio.

Products: stainless steel, coated products, HRPO, tempered and cold-rolled steel, annealed spring steel, copper and brass, phosphor bronze and nickel silver, beryllium copper, bright basic wire, alloy strip (4130, 4140, 6150, 10B38), HSLA, aluminum sheet and strip, 1018 thin flats

Services: Slitting, edging, precision cut lengths, precision skiving, traverse winding, custom decambering, cold rolling, temper rolling and reduction, custom tempering.

Equipment: Five slitting lines, including an eight-head oscillating slitter, that handle gauges from 0.008 to 0.250 inch, slit widths from 0.250 to 48 inches; 10 edging lines and two skiving lines that handle gauges from 0.010 to 0.312 inch and widths from 0.250 to 8 inches; one 24-inch cut-to-length line that handles gauges from 0.025 to 0.125 inch.

Green Equipment: Two 800,000 BTU wood-burning furnaces; 350 T5 lights, 18 macro air fans.


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