Current Issue

Push to Fabrication


By on
MCN Editor Dan Markham Service centers continue to move deeper into the manufacturing process to improve margins and serve customers.

There are a number of two-word phrases that speak to the focus of the metals industry today, “escalating prices,” “supply constraints” and “Help Wanted” among them. But no two words get to the heart of the modern service center operation better than “value add.”

Gone are the days when buying metal in large quantities and selling it in smaller ones was the business model of choice. Doing something with the metal before moving it on is not just a consideration, but a requirement for most metal distributors. 

And the processing options continue to grow. While slitting, leveling and cut-to-length remain the backbone of any flat-rolled processing operation, service centers continue to look downstream for more opportunities to satisfy customers and increase margins. And no one expects the southern migration to stop any time soon. 

“I think you would have a hard time finding too many distributors today who aren’t adding any value,” says Mike Young, president of Klein Steel, Rochester, N.Y. “There could be people in their infancy stage, their toddler stage and their adult stage, but that’s relative to when they started in the value-added mode.”

His company has been there for quite some time, following something of a time-worn path to the rather specialized location they’re in now. They began with some sawing or shearing, moved into burning and plasma, then expanded into laser, waterjet, machining and the like. “We’ve dug deep across many years, but it’s been in the last couple of years where we’ve really expanded our laser and waterjet capabilities.”

The driving force propelling service centers downstream is usually the customer. 

“Ultimately, it was more of a preservation tactic,” says Charlie Lenn, general manager of WST Fab, a Manitowoc, Wis.-based sister company of Wisconsin Steel and Tube. WST had a large OEM customer it provided raw materials, one of many suppliers for the company. When a small job shop went of business, the OEM customer approached WST President JT Teich about what it could do to help. “We tried to buy them, but it didn’t work out. Since the ball was already in motion, we just went with it.”

The company stepped in slowly, adding three CNC machines in a small, leased space, an effort that ultimately grew into WST Fab, a precision machine shop that provides a host of services. 

“We’re not hiding from who we are. We’re a single-location service center that serves Eastern Wisconsin and Milwaukee metro. We’re not growing selling bars and tubes, so we need to own the fact that value-added services are where we’re going to continue to grow,” Lenn says. 

Not far from WST Fab is Processed Metals Innovators. The Bloomer, a Wis.-based company, took a slightly different route, launching at the turn of the century as a company that offered both coil processing and stamping, then adding fabrication in 2010. 

“We added laser cutting. After that came the punch and press brakes. Fabrication is the newest part of our business, but it represents about 35 percent of our revenues,” says Christopher G. Conard, president of the 100 percent employee-owned operation. 

“We welcome growth. We think the next decade is going to be pretty impressive for Wisconsin and U.S. manufacturing with all the pressures on companies sourcing globally,” he says. 

State Steel also respresents a way distributors expand their value-added offerings. The Sioux City, Iowa-based company began offering some first stage manufacturing services in the 1990s, growing them to meet customer needs. But in 2019, State Steel demonstrated another way forward, joining forces with fellow distribution company SPS to purchase Kooima Company, a leading fabrication job shop facility. After completing the acquisition, State Steel and SPS stepped aside and let Kooima continue to keep doing what had made it an attractive acquisition target.

“We’re very hands off. The management team at Kooima is stellar. We likely learn more from them than we add to their business,” says David Bernstein, co-owner of State Steel. 

Moving downstream may be necessary for some, but the push doesn’t come without challenges. It starts with the decision of whether the investment is sound.

“When you get into some of these newer lasers and automation, you’re talking about a couple of million dollar investment. Sometimes, your payback is elusive out of the gate. Your analysis has got to be good,” says Young.

That wasn’t always the case. A burning machine 25 years ago might have cost $200,000, which is not pocket change but was still easier to absorb than a $2 million mistake. “The analysis we do and the payback studies we facilitate and customer buy-in we have to achieve before we buy those machines is much greater today,” he says. 

Bernstein agrees. And not just about whether the investment should be made, but in what type of processing you want to do. “You have to be really thoughtful in analyzing what you’re going to provide. The challenge to be successful is picking the right model.”

He points to a tube laser the company installed as a good example. Initially, State Steel contemplated purchasing a jumbo laser when it saw there was limited capacity in the market. Subsequent research demonstrated there was also limited demand in the space, causing the company to change direction before the order was made. 

“Some really good analysis we did ultimately caused us to shift gears at the last minute. I’m glad we entered the space with the capacity and equipment that we did as opposed to the jumbo space. That was a careful decision that paid off.”

But putting in a new machine is only half, or less, the job. Perhaps the most important aspect of the downstream foray is finding the right people to operate it. Running these machines often requires entirely different skill sets and talents than operating a slitter. 

“Fabrication is a whole different animal when it comes to the labor content,” says Conard. “You’re working with a whole different set of raw materials as you’re doing sheet products as opposed to master coils. Your raw material acquisition is different.”

The best method for expediting the learning process is to purchase it by hiring someone familiar with the processes from another company. But there will still be some feeling your way through the process. “Unfortunately, trial and error is a big part of it. You can purchase some of the learning curve, but the rest you and your customers cut your teeth on.”

Additionally, equipment manufacturers can assist with costing, scrap generation and other aspects of the process. 

Still, there are some elements of the fabrication process that are simply tough to master. “Probably the hardest thing is the science of tube bending. It’s not like a press brake. No matter how much of a machine you have and how much CNC is involved, it’s still a black art,” says Lenn. 

One avenue around the issue of finding the right people, which every executive supports, is automation. That’s become particularly important given the difficulty in finding quality workers for all roles. 

“Over the last 10 years, automation has become a greater requirement. Years ago, you bought a laser and it didn’t have automation. Now, these things can run lights out, not on every order, but on a lot,” Young says. “It adds cost to the investment, but it speeds the payback up.”

PMI has invested significantly in robotics in its welding division. They still require a skilled welder to oversee their operation, but a qualified individual can run two or three weld cells. 

Of course, the one pushback to service centers moving downstream is the reception such an act can get from the customer, though that sentiment seems to be softening in recent years as the practice becomes more commonplace. “That went by the wayside many years ago,” Young says. 

But sometimes, the sense of direct competition leads to a lost customer. “You’re going to have that because there are people out there who don’t understand there are millions of customers that have billions of dollars and they won’t be competing for the exact same thing,” Lenn says. 

To ease fears, service center operators may draw a hard line between what they will and won’t do or by effectively explaining their rationale to the customer. “When they can run a machine two or four hours, and we can run 24 hours, it doesn’t take long to figure that’s going to be a better set up,” Young says. 

If not outright survival, moving downstream may be the single best way for a service center operator to grow the business. “Sixty percent of our business is contract based, and 40 percent is someone who sends us an RFQ at 2 and wants it delivered by the next day. That’s great business, but anybody who wanted could beat us on price, so we have to do what’s best for us while supporting those long-term customers we have,” Lenn says. 

“When steel prices aren’t as good as they are today, it’s a must-have piece of your arsenal. When the margins get skinny, if you can’t add value you’ve got to spin a lot of volume,” Young says. 

Equipment Manufacturers See Shift
If service centers are performing such traditional downstream tasks as press braking or welding, that’s going to become evident to the makers of such equipment. Two companies that sell certain products to fabricating customers say that very thing is happening. 

“This has been going on for some time, but I’ve seen a real surge, even from the big metal service centers. There are waves of it. I’ve seen different periods of time where it seems metal service centers want to ramp up, add technology and do more parts. I’m currently seeing that right now,” says Brian Sherick, vice president of global system sales for Flow Corp., Kent, Wash.

“I wouldn’t say it’s a large majority, but we have seen a few typical service centers now moving into roll forming or some other product where they’re going to sell more of a finished product,” says Steve Baker, sales area manager for Bradbury, Moundridge, Kansas. 

And the same works in reverse, with companies that had been exclusively operating as fabricators looking at expanding upstream into more traditional service center processing. “We are seeing typical roll forming companies looking at moving backward and looking at adding slitters, typically lighter gauge stuff,” he adds. “There are a few who are testing the waters to see if they’re big enough to put their own slitter in.”

These moves are part of the never-ending blending of the supply chain, where companies in a perpetual quest to add value see opportunities up or down stream. 

The sales process can be a little different from the fabricator to the service center customer. 

Flow’s Sherick says the fabricators he works with tend to have a streamlined conversation, with the owner and perhaps a production person involved. Service center sales conversations may include an operator, general manager, regional manager and even a maintenance person. 

“They look at things like operating costs and maintenance practices and floor space. There’s a different set of criteria that’s become the main decision factors for service centers vs. end fabricators. There’s crossover, for sure, but there’s a little different set of priorities.”

Having an existing relationship with a customer on the coil processing side doesn’t typically give a leg up in the sales process of roll forming equipment, Baker admits. Their customers are smart enough to fully research the market for the equipment they need. 

But, that knowledge can help in other ways. “I can share what type of customer a company is. This guy is willing to spend money on new technology. He likes new equipment and higher production stuff vs. a customer who just wants the basics,” Baker says. “We have more information going in the door than our competitors in that aspect.”

Besides customer dictates, the challenges associated with distribution are key drivers behind the push downstream. “I’ve had a few customers tell me toll processing is almost becoming a commodity-type process,” Baker says. “They’re starting to ask, ‘How do we make more money with our business?’”

And, as always, the service center who is exploring the move downstream must be cognizant of its customer base. “I think it’s a delicate balance they have to walk to some degree, as they don’t want to be viewed as competing with their customers,” Sherick says.

Finding skilled operators is one of the most important aspects of expanding a company’s capabilities, executives agree. (Photo courtesy WST Fab)