9-2009 Case Study: Westfield Steel
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Westfield Fights That Empty Feeling

This Indianapolis-area service center has diversified its business by creating a separate transportation company.

By Dan Markham, Senior Editor

Hauling truckloads of steel to customers has long been part of the Westfield Steel package. Hauling truckloads of air on the return trips has long been a frustration. With the creation of Westfield Steel Express last year, the company has reduced this inefficiency by expanding its logistics services to customers beyond steel delivery.

QUICK FACTS

Westfield Steel Inc.
530 State Road 32 W
Westfield, Ind. 46074
Phone: 317-896-5587
Fax: 317-896-5343
Website: www.westfieldsteel.com

Key Personnel: Fred Prine, president; Fritz Prine, chief financial officer; Jon DeaKyne, inside sales manager.

Total Employees: 100.

Facilities: Two warehouse facilities in Westfield and Terre Haute, Ind., totaling 240,000 square feet under roof.

Products: Full-line steel service center with specialty in plate.

Services: Burning, high-definition plasma, shape cutting, beveling, sawing, shearing, forming, rolling, punching, notching, drilling, rebar cutting/bending and welding.

Equipment: Multi-head CNC oxy-fuel burning machines, CNC high-definition plasma burning machine, horizontal saws, vertical saws, iron workers, shears, press brakes, form rollers, rebar cut-to-length line, various welding equipment.

Westfield Steel Express

Key Personnel: Vic Vaughn, transportation manager.

Total Employees: 20.

Equipment: 17 tractors, 21 flatbed trailers.
“We started in 1977 with one used truck, a mud field and a telephone,” recalls Fritz Prine, the second-generation chief financial officer for the Indiana steel distributor. Through the years, the company’s transportation fleet has grown with the rest of the business, which now includes two warehouses, one in Westfield, near Indianapolis, and a second in Terre Haute. From its single used truck, Westfield’s fleet has multiplied to nearly 20 vehicles.

Recognizing that the fleet had finally reached a critical mass, management decided to create a separate transportation company, launching Westfield Steel Express in May 2008.

“We first explored the idea of a transportation company around 2000-01,” says Prine, whose father Fred founded the business and still serves as its president. “At the time, the truck fleet was not quite large enough for a separate company.”

Prompted by the strong steel market in early 2008 and a favorable Indiana law that qualified the company for state tax exemptions, the Prines finally decided it was time their trucking venture hit the road.

Their biggest incentive, however, was to better leverage their considerable transportation assets and generate more cash for the company, explains Fritz Prine. One obvious liability was the inherent inefficiency of Westfield’s trucks returning empty every day from deliveries throughout the region. Converting these deadhead miles into revenue-generating miles is the primary goal of Westfield Express.

“The economics made sense. We were already doing routes on a regular basis. If we could get the right information on return loads to supplement the routes, it was going to help our cost structure,” Prine adds.

Establishing the new company was not an easy task. Management at Westfield had no direct experience in the transportation industry, nor was there an industry blueprint to emulate. While some larger service center operations have trucking companies, few distributors of comparable size operate such an enterprise.

“If there’s a model for it, we didn’t have it,” Prine admits. “We’re not a transportation company, so we didn’t have the expertise to know exactly how much we needed on a per-mile basis. We had to develop all that.”

Fortunately, the venture did not call for much new capital investment. The company already had a big enough fleet, though some equipment required modification.

For example, Westfield’s fleet contained just one sleeper cab, so three of the day cabs were swapped out for additional sleepers. Four trailers were modified to handle steel coils, a product Westfield does not distribute at its warehouses. An additional rollback kit also was purchased, allowing a driver to convert a flatbed into a dry canvas-covered trailer for keeping a wider variety of finished goods safe from the elements.

Westfield’s pool of veteran steel haulers had the skills to transport other materials, and the incentive to take on longer over-the-road assignments. “In this economy, of course they want to make extra money,” Prine notes.

Launching a trucking company just before the recession hit may seem like a case of bad timing, but Westfield Steel Express has found the reverse to be true. As some of the larger carriers idled fleets and laid off drivers, the smaller and more nimble Westfield spotted ample opportunities to pick up business.

The company finds loads through various avenues, starting with the customers and vendors of Westfield Steel. It has moved capital equipment, steel coils and tubing from the mills, and has also worked with neighboring companies hauling lumber, salt and cement products. In addition, various logistics providers and Internet load boards have been tapped to reduce the deadhead miles.

But Westfield Steel Express has been selective in the business it has chosen. Part of the challenge of the new venture is developing a revenue-producing business model while keeping a keen eye on the company’s core business of steel distribution.

“We always want to make sure that the steel business comes first,” Prine says. “In this environment, you don’t want to let any customer be unsatisfied on the steel side.”

Over time, Westfield hopes to find more regular loads that complement its existing runs and eliminate those empty-truck miles. “Some of our customers are in remote locations. If we can go 50 miles out of our way to pick up a load that makes money, the net cash contribution is going to be better than what we had. And once we get our regular routes down for certain towns and cities, then we can start finding new customers that need hauling,” Prine says.

Westfield Express does not aspire to become a major logistics provider. Prine says he would be satisfied if it grows into a 20 percent contributor to the core business. “Once it becomes too big, then you’ve got to compete with the big boys, and that becomes just about volume,” he says.

“The short-term goal is to offset the cost of hauling steel for Westfield Steel and to create another revenue stream,” he adds. “The long-term goal is to maximize the profitability as a standalone transportation company. This further diversifies the company to better weather the next recession.” n

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