Hard Chargers in Soft Alloys
By Tim Triplett, Editor-in-Chief
Sapa has formed three companies into one soft-alloy extrusion leader with a focus on supply-chain efficiency.
One year after acquiring Indalex, Sapa Extrusions has largely completed the integration of the company and has settled on a market strategy in which service centers play a key role.
|Sapa swapped a smaelter in Europe for Alcoa's soft alloy extrusion business in North America, including this modern casting facility at Spanish Fork, Utah.
Sapa, which now claims to be the largest producer of soft alloy aluminum extrusions in the world, is a relatively new brand in North America. A subsidiary of Norway’s Orkla ASA, Sapa set up shop in the United States in 2000 after acquiring Anodizing Inc. in Portland, Ore. In 2007, the company raised its profile considerably through a joint venture with Alcoa, merging the two companies’ extrusion assets worldwide. “The Sapa name, particularly to the distribution channel, suddenly appeared from nowhere in 2007,” says Timothy Stubbs, president, North America, for Sapa Extrusions.
In late 2008, Orkla became the 100 percent owner of the extrusion venture, including Alcoa’s Cressona, Pa., and Spanish Fork, Utah, mills, in exchange for its interest in the Elkem Aluminum smelting business in Norway.
“The joint venture allowed Sapa to gain a stronger foothold in the U.S.,” Stubbs explains. “When the joint venture was done, Alcoa got a smelter in Europe and Sapa got complete control of Alcoa’s U.S. soft alloy extrusions assets.” Alcoa exited the soft alloy extrusion business through the deal, but remains in the hard alloy business.
Continuing its expansion in June 2009, Sapa acquired Indalex for $95 million. The Lincolnshire, Ill.-based aluminum extruder, with 11 plants in the U.S. and Canada and a total capacity of 315,000 metric tons, had filed for Chapter 11 bankruptcy protection in March. U.S. apparent consumption of aluminum extrusions declined from 1.42 million tons in 2007 to 1.06 million tons last year. Nine U.S. producers closed 16 plants during that period, according to industry data. Indalex was among those over leveraged when the market suddenly declined, says Stubbs, who was its president and CEO before moving with the company to Sapa.
Thus Sapa Extrusions, in its current form in North America, is a combination of three pieces: Sapa/Anodizing Inc., the former Alcoa assets and Indalex, which have all come together in the past decade. “What was really exciting was to take the best bits of these three and make a true supplier partner to service centers,” Stubbs says. From 30 to 40 percent of all Sapa’s products go through distribution, making service centers its largest customer group.
One of the biggest questions facing Stubbs in his new role was how to structure the combined enterprise. “One of the challenges historically for Sapa was that its facilities were overly decentralized. When we tried to bring a coherent service plan to our larger distributor partners, it was more difficult to do,” he says.
Stubbs does not describe Sapa’s new organizational structure as centralized, but rather “less decentralized.” While 60 to 70 percent of the business is done on a local level, Sapa corporate is set up to serve the needs of the large service center chains created through industry consolidation, he says.
“Companies like Reliance or Ryerson need to be able to interface with Sapa on more than just the plant or branch level. We need to be able to sit down at the corporate level and align our portfolio of products, not just nationally but globally. We recognize a big portion of the business is local, but we have to have this overlay that makes us relevant to the new distributor,” Stubbs says.
The structure also eliminates unnecessary layers of management and puts the decision-making into the hands of a few key executives. Notably, Stubbs hired Anthony Ashe, formerly with Alcoa, to be his director of national accounts/distribution.
“Anthony heads up all our relationships on the service center side and he reports directly to me,” Stubbs notes. “This enables us to bring a single offering to all our distribution partners. It sounds like a small thing, but it is extremely significant.”
Despite being a big company—with projected 2010 revenues of $3 billion worldwide and $1.3 billion in the U.S.—Sapa is free of bureaucracy, Ashe says. “There are not four levels of decision making in distribution. Price, product and service decisions are my direct responsibility, and I’m at Tim’s right hand, so we are relatively nimble. I think that in and of itself provides value for distributors.”
Prior to the merger of the three businesses, the distribution channel was serviced primarily out of the Cressona and Spanish Fork plants, which offered a limited selection. Today, all of Sapa’s facilities serve service centers, which now have ready access to a wide range of standard and custom products. “Distributors now have 16 plants in their toolbox in North America, not just two,” Stubbs says. “We think we have the opportunity to be a one-stop shop, to help customers find solutions for new markets.”
“We have the largest, most experienced sales force in North America, and we are going to mobilize that sales force to help distributors grow,” Ashe adds.
Sapa does no primary smelting, but has a significant position in the remelting of aluminum scrap. Approximately 80 percent of its products have recycled content, note the two executives, who are proud of the “greenness” of their industry. The company’s remelt capacity factors into the cost it can offer, the products it can offer, and the speed and flexibility it can offer, Stubbs says. “We can change from one billet size to another or one alloy to another very quickly based on the needs of our distributors.”
Both Stubbs and Ashe are “cautiously bullish” for 2010 and 2011. “We think there will be a steady trend upward until and unless there is an inflection point in the economy, unless something major happens that creates another downturn,” Ashe says.
In fact, Stubbs sees the possibility that economic growth could outpace supply in the extrusions market. Sapa’s financial strength will enable it to fund increased demands on working capital as the market improves, giving it staying power that other competitors may lack, he says.
“I can see a condition where supply could actually be constrained. Because we have committed to put all our 16 mills on the line, I am extremely confident that even if the market doubles, we will still be there to supply customers when competitors have said ‘sorry, we’re full.’”
Stubbs estimates that Sapa now holds about a 28 percent share of the world soft alloy extrusions market, making it the market leader. “But we have to continue to be innovative. This world is not going to get any less competitive anytime soon,” he says.
At a Glance
9600 W. Bryn Mawr Ave., Suite 250
Rosemont, IL 60018
Key Personnel: Timothy Stubbs, president, North America; Anthony Ashe, director of national accounts/distribution.
Total Employees: 3,800
Facilities: 16 North American plants, including Montreal, Que.; Mountaintop, Pa.; Mississauga, Ont.; Delhi, La.; Gainesville, Ga.; Yankton, S.D.; City of Industry, Calif.; Portland, Ore.; Vancouver, B.C.; Connersville, Ind.; Cressona, Pa.; Elkhart, Ind.; Kokomo, Ind.; Spanish Fork, Utah; Burlington, N.C.; Magnolia, Ark.
Products: Standard and custom extruded shapes, seamless and structural pipe and tube, and standard and specialty rod and bar.
Equipment/Services: 53 extrusion presses, 11 liquid paint lines, two powder coating lines, anodizing, design, fabrication.
Markets: Distribution, industrial and consumer durables, commercial and mass transportation, automotive, solar and renewable energy, residential and commercial building and construction, fabrication, defense, LED, green technology, finishing, highway and bridge construction.
‘Supply Chain Efficiency Has Changed for Good’
Like in most other markets, the aluminum supply chain has changed, probably forever, say Tim Stubbs and Anthony Ashe at Sapa Extrusions.
“We will never see service centers or extrusion plants holding the levels of inventory or safety stocks that we have seen in the past, which means we have got to be more reliable and flexible than ever before,” says Stubbs. “There is no question in my mind that supply chain efficiency has changed for good.”
Service centers have learned they can make as much or more money with less inventory and less risk—as long as they can rely on their suppliers. “Metal is dollars for distributors. They had to deplete their inventories significantly through the downturn. Now they uniformly say they are operating at inventory levels they never thought possible. I don’t believe we will ever see the cycles of stocking and destocking that we saw in the past,” Ashe says.
“I hope not, otherwise we didn’t learn anything,” adds Stubbs. “All of us, I hope, have learned the lesson that we need to get profoundly more efficient.”
Key to that efficiency is how suppliers and service centers work together in the future. While Ashe and Stubbs expect minor inventory rebuilding as some distributors stock up in anticipation of an improving economy, they hope it’s not the beginning of a trend.
“It’s inevitable there will be some increase [in supply chain stock levels], but I for one do not want to see it go back to historical levels, making us prone to the same issues that generated the downturn in the first place,” says Stubbs.
“The shortsighted view is that it would be to our advantage for service centers to rebuild their inventories, because that means additional volume and revenue for us,” adds Ashe. “But a downturn would inevitably follow. We think the more efficiently we can operate, the more we can service distributors’ inventory needs without building inventory ourselves. So it is about streamlining our systems and building better communications around the true demand.”