Service center leaders detail how and why they moved downstream.
There was a time, not long ago, when fabrication was frowned upon in the service center industry. Those days are gone.
Today, fabrication, from cutting to bending to assembly, is, if not a staple of the distribution business, then an increasing part of the typical service center operation’s value-added menu.
“The way that Olympic thinks about fabrication is anything that is not part of our larger pieces of equipment. We had slitters and cut-to-length and that’s not what we consider fabrication,” says President and COO of Olympic Steel Andrew Greiff.
It began, most executives say, with the customer.
In the beginning, companies started to offer fabrication for many reasons. Vice President of O'Brien Steel Mike O’Brien and Fabricating and Machining Sales Manager for O'Brien Steel John Faletti agree that it was out of necessity and customer demand. The same was true elsewhere.
“It really started when our industrial manufacturers had a big backlog on their fabrication equipment and asked if we could laser cut parts to help them get caught up,” Greiff says. “Over time, we were asked to take on those parts as well as additional value-added work. Then, we went from laser parts to press brakes to machining centers, and it just grew that way in the last 10 years.”
Kloeckner Industries’ Executive Vice President of Plate Sean Heenan notes that a number of OEMs have converted from a full start-to-finish operation to being an assembly and engineering company. That meant they were looking to outsource more first-stage work. Naturally, they looked to some of their existing vendors and asked for help. “Our customers bring us to the table and say, ‘This is the problem we’re having. What solution can you provide?’ and that’s kind of how we’ve gotten to where we are today.”
But every operation has a slightly different origin. At State Steel, the company was doing flame cutting and shear and press work almost since its inception in the middle of the last century. “Back in the early days of our company, my dad, Jack, purchased a press brake from Verson Press Company which was owned by my mother’s family. That’s really where we started,” said David Bernstein, an officer with the company.
Today, companies are making regular decision whether to offer more types of fabrication. “I think that what the manufacturer recognizes, and I’m generalizing, is that the industrial OEM today really looks at their core competencies. While they do a lot of fabrication and a lot of work in their facility, there’s a lot that is outsourced,” Greiff says. “What companies have recognized is that having fabricated parts done offshore, it certainly had a price component to it that was cheaper than what they could do here. When they started looking at the total cost and how it was not as advantageous in all areas as they had expected to try to get their product to the market the fastest way, they started looking again at domestic fabricators, and as a service center, we’re the natural place.”
“So, us supplying a laser press brake machined part to the customer was important, but taking it to that next step which is a welded part became even more critical. Anything that the customer can do today to put out a product and getting the part from a trusted supplier like Olympic Steel is not only going to give the customer an advantage to get their product to the market faster but also it’s going to give the advantage to a company like Olympic Steel where we can capture everything under one roof. You start with the coil, we cut it and then we end up sending them a welded part,” Greiff says.
Heenan says Kloeckner’s strategy is simply going to the table with their customer base and their partners and asking them what they need to be successful and what can Kloeckner do to eliminate any waste they have on their side? “Our involvement with our customers is more of a collaboration than it is as a vendor so our sole purpose is to enable them to be successful. By doing that, we come to the table and we listen and we work with them to figure out what it is we can do to make them more successful.”
Bernstein says his company continues to not only evolve its fabricating offerings by adding capabilities internally but also with partnerships with other fabricators. The company did that in 2019 when it partnered with SPS Companies to acquire Kooima.
Of course, it is important to expand a company’s value-added services while not stepping on its customers’ toes. “It must be a good working relationship with our customer base. We try to be honest with what we’re doing with them or what we do,” says O’Brien, whose company was one of the early entrants into downstream work in the service center space.
How are companies doing this? Many offer processing to some of the job shops that used to do some of that themselves. In other cases, customers do not want to invest in that processing, so they ask their service center provider. And with the ongoing challenge finding workers, others do not want to tie up their labor force on these processes.
“The larger OEMs are, in my opinion, pushing people to get into fabrications more because of their demands. Take the basic burning. Customers are not as willing to spend the capital that’s needed to buy burning equipment to put in their shop when they know they can go to service centers and get burnouts at a very competitive number. We are trying to keep up with our customer base and our major OEMs as well. We’re very cognizant of that,” O’Brien’s colleague Faletti says. “Typically, too, if the job requires a lot more material than processing, those are the types of jobs we’re looking at because we know those typically won’t compete with our regular customer base.”
“Olympic Steel is not a job shop. We’re very specific with the customers that we’re doing fabrication with. It’s in conjunction with them. This is driven from the customer and so the customer is looking to find the most cost-effective way to get the product to them and for them to walk through our facilities and see where we can start with the coil and end with the finished product and it stays within our facility,” Greiff notes.
“We deal a lot with fabricators. We supply fabricators with our products which would be cut-to-length and plate. Most of the orders that we get are coming from OEMs that we’re insourcing material so we’re not out there looking at taking away fabricator business at this point,” Heenan says.
One reason this is possible, he says, is the existing strain on the entire supply chain. “There seems to be not enough capacity out there in the marketplace. A lot of the fabricators that you would deem we would compete with we’re just nowhere near as sophisticated as they are. We want our involvement to be collaborative with both sides of that story. With fabricators, we want to help them get further downstream or use their capital in a better area than what they’re currently doing. I don’t see us competing with the fabricator marketplace at all.”
Bernstein says State Steel very carefully balances its need to expand and not step on its customers’ toes as it tries to focus on adding services and capabilities that its customers don’t necessarily have or that its customers can use when they are busy. “We put in our first laser at the request of a customer who was a fabricator because they needed laser-cut parts and they didn’t want to put a laser in themselves. That’s always been our mantra.”
Incidentally, there are challenges that come from fabricating that do not exist in the traditional service center business. “Inherently, there’s a lot more risk,” Faletti says. “The more processing that you’re doing for customers or the more value-add, there’s more risk. There are more issues that can go wrong throughout the entire organization. Probably the biggest challenge throughout the process has been the labor.”
Olympic Steel initially started looking at fabrication from the viewpoint of a flat-roll distributor, seeing the complexities of fabrication. Truly understanding it from a manufacturer’s perspective was a significant learning curve for them. What they have found is they have invested a lot of money in downstream fabrication, constantly upgrading lasers and press brakes, but more so lately with robotic equipment, in particular robotic welders.
“New processes always involve a learning curve and demand a lot of expertise which can be difficult in a tight labor market. Moving from sheets and flat parts to weldments and assemblies require us to be very thoughtful about our use of space and process flow within each plant. A lot of what we’re doing is getting that information from the OEMs that are providing the equipment and learning from the OEMs who are asking us to move into a certain segment of business. They’re already doing the business that they’re asking us to get involved in so they’re working with us hand in hand to ensure that we are successful in delivering a part that meets the expectations of the OEM,” Heenan says.
Bernstein says fabricating is a lot more complicated. There are typically several extra steps that have to be completed and there is an awful lot more quality compliance that needs to happen.
Next, companies need to develop expertise on entirely new processes. “We’ve been doing this now for over 20 years,” Greiff says. “We have people that we have brought in over the years and the people who were trained originally now train the new people who we bring in. Skilled labor is very tight today so finding good, qualified, skilled laborers is a challenge and so we try to teach from within. We work with some of the local trade schools but it really is just finding people with experience to be able to come in.”
“We look at vendors and partners and customers along with the existing knowledge and experience within the company,” says Heenan. “Kloeckner has over 40 locations. We have a lot of different skill sets inside our company and we’re able to leverage the different people we have in different locations. For instance, when we bring on something new, we’re able to garner all the experience from all the locations we have throughout the country to bring in on a ‘swat team’ basis to ensure that we are successful as we bring any new business on, and, of course, that’s going to be working hand in hand with our customer base.”
Bernstein says getting expertise on new processes is painful. “You need to be flexible and learn as you go and continue to refine your process so that you are responsive to what actually needs to happen and is happening.”
Last, but not least, is the value that a company brings to the fabricating process.
“If we emphasize more on the larger OEMs, we’re a one-stop shop,” says Faletti, the fabricating and machining sales manager for O’Brien. In many cases, there’s a natural progression.
“What really got us into this business is the customer says, ‘I want to buy a plate from you. Now, I want to buy this burned part from you out of the plate and then I would like you to put a hole in that plate. Now, I’d like you to form it, and now I would like you to weld something to it and then I would like you to paint it,” he adds.
Many OEMs want to remove as many steps as possible from their in-house operations. When they do, they also want to place as many of those steps on a single vendor.
“They are continuously asking us to do more and more and so that’s our ability to become a partner from A to Z, to be able to do the part for them. If it requires assembly, then we look at assembling the part as well. It really is based on what the customer is asking us to do,” Faletti says.
Greiff notes the customer wants to make sure that “you have full traceability and that you can do things to ensure that you are following this process.”
Since Olympic Steel buys direct from mills, starting it on either their temper mill or stretch lines and watching the whole process through and having hand-offs done internally is a differentiator for them.
“It is bringing a tremendous level of service with a customer-focused mindset. I think our biggest advantage, though, is the way we control our supply chain from our facilities both on campus at mills and producing finished goods close to our customer base. As we get material from the mill, it’s taking a very short trip from the mill to our facility which oftentimes is on campus and as we bring that metal to that facility locally, we’re not shipping a whole bunch of scrap or waste,” Heenan says.
In the near future, Kloeckner will have the first plate processing facility on a mill campus and they will be putting a 200,000-square-foot facility at the Nucor Brandenburg site, which will have cutting and forming and machining capabilities to decrease the amount of time, decrease the amount of waste and increase the capacity that they have inside Kloeckner.
“I do think we bring great value to other fabricators who are our customers where we can offer them excess capacity when they need it. I think that’s our biggest value that we bring. We also bring the value at times of readily available material very quickly since we’re also providing material that we would use in our fabricating process directly,” Bernstein says.[Caption:]
Kloeckner Metals considers its fabrication work a “collaboration” with its customers. (Photo courtesy Kloeckner Metals)