Members of the Association of Women in the Metal Industries peppered Steel Dynamics’ Christopher Stock and Ryerson’s Thomas Endres with questions on the state of the metals industry in a lively discussion in Chicago last month.
In the past decade, consolidation has reshaped our industry. What role will that play in the future?Christopher Stock: We think it will continue, but at a slower pace, mainly because there are fewer good assets to acquire. From a mill standpoint, the question is do we want to be in the pipe and tube business or the distribution business? From Steel Dynamics’ standpoint, we would like to produce steel and ship it to you guys.
Thomas Endres: Unlike the mill space, the service industry is very fragmented. By our count, there are probably 7,000 different service centers. I don’t think you can get to any meaningful number in consolidation. If we reduced it by 50 percent, we’d still have 3,500 service centers. I think the bigger ones will continue to get bigger. But I don’t think about consolidation; I think more in terms of capacity. You read about closing mills in China, but it’s a meaningless number when they keep outproducing what they did the year before. It’s about the capacity; it’s about production. I think it’s the same thing in our space. It’s about the capacity here.
People consolidate for different reasons. Some people do it for geographic scope; some people do it for niche products; some people look to extend their value-add services. We’ve probably played in all three.
How is your company using data analytics, and what types of innovations are the data providing?Stock: From a data and computer and software standpoint, we have a system that’s constantly learning in the mill. We’re trying to learn to bring ourselves to schedule the mill better, more efficiently and bring us a better yield. You can imagine 1 percent, or one-tenth of a percent, in a steel mill making 3 million tons is huge dollars. That’s one area where we spend a lot of money trying to learn how to schedule better and how to take the human factor out of it.
We’re also trying to create this on our freight side. There is so much money lost in the freight business. We have thousands of rail cars coming in from our own division OmniSource, and why aren’t we loading coils back out on those same cars? There are all kinds of excuses, but we’re trying to look at that side of it, too.
Endres: I think data analytics is fascinating. We’ve all had data, but now we embrace the analytic side and have software tools where we can analyze it quicker. Data by itself can be overwhelming. What you want to get is decision-quality.
There are a couple of key areas we’re focusing on. Four years ago, we started focusing on inventory stratification. The commercial side was stratifying customers. We should be able to do the same thing on inventory. You have to have the right inventory in the right place. The only way to do that is to look at each one of your SKUs and put a rating too them. They’re all different. What do you carry, what don’t you carry and where do you put it? The only way to get at that is through data analytics. There is no way you can manage that on spread sheets and Excel.
Another one we just started on, using SPS, for all you mill people we are analyzing your reliability on delivered products. If it works right, we’ll be able to look at any mill at any location and break it down by product. If you say the order was due Jan. 1, we’ll put analytics to that: if it’s cold-rolled sheet coming out of this location coming into our specific location, on average you’re eight days late. Or five days early. We can start to build that into our plan. We can have some pretty intelligent conversations with the mills on very specific products going into specific locations. The problem might not be you. You’re shipping into Atlanta and it’s great and 90 percent on time, but you’re shipping into Jacksonville, Fla., and you’re 50 percent, and we look into it and find we limit receiving hours or we’re tied up at the bay. It’s not pointing blame. It’s using analytics so we can have predictability and have more meaningful conversations with our suppliers.
What do you think about e-commerce platforms, and what is the future for online buying of metals?
Endres: We have an e-commerce platform at Ryerson. We want to give our customers options on how they want to transact business with us. If they want to go to an inside rep, if they want to go an outside rep, if they want a fax. Some people choose e-commerce. Stats say e-commerce grows at a rate of about 15 percent per year. I would assume the majority of that is retail. But the people who buy retail go to work and they buy steel. They like the convenience, they like 24-7 sales, they like to be able to work from home. An e-commerce vehicle is paramount to serve our customers moving forward.
It will continue to grow. I honestly think, if we don’t embrace it and put platforms out there with that ease of transaction, somebody like Amazon will.
Stock: You might remember, SDI was involved in a company called MetalSite. I don’t think the industry was ready for it; obviously it wasn’t because of the failure of MetalSite. But it’s coming. As my generation and older moves onto retirement, the younger crowd comes in. They don’t need to go to the mall, they’ll just order it online. Go to Amazon. We have an e-commerce strategy, it’s not very sophisticated. But we are already in Butler selling all of our secondary and excess on e-commerce. It’s all going out by the internet. It’s been a good process for us. We see what we thought was valuable, and what we didn’t think was valuable, and we weren’t always correct. We’re dabbling in it, but it’s a slow process.
What steps need to be taken for a sustainable steel industry?Stock: To us, it’s our cost. At SDI we are fanatical about lowering our costs every day. Part of the bonus program for our employees is if they find a way to lower our costs and not sacrifice our quality and on-time delivery. We are constantly trying to push that responsibility to the men and women in the mill to see and find ways to lower our costs, whether it’s getting more tons with the electrodes or natural gas or zinc or whatever it is. We don’t control the price of steel, obviously, so we’re always trying to control our costs.
Endres: We have to know what our customers want. We have to deliver what they want, every day. As our CEO says, we have to create the right customer experience. That can be different by every customer. Some customers want to outsource parts, you have to be there for that. Some customers have working capital issues, so you have to work with them on their inventory. You really have to figure out what your customer needs are and work backward. That’s what’s going to make us sustainable for that particular customer.
Outside of that, it comes down to having a healthy manufacturing base. If you look at the charts from a service center perspective, since the recession in 2008, the volume levels have not come back. That’s what gives us pause about sustainability. How do we get that manufacturing back? We keep trying to figure out where it went. Did it go offshore? Did it go mil-direct? We don’t have the answers to that. We’ll all succeed and do better if we have more manufacturing in this country.