According to Dave Roland, SSCI president, the roll of the steel service center is changing, and has been for the past several years. Today, most Steel Service Center Institute member companies are providing more value-added services than ever before -- beyond things such as just-in-time (JIT) delivery.
By Donald B. Dobbins, Editor
David R. Roland, CAE, president, Steel Service Center Institute,
Cleveland, OH: "SSCI is a trade association consisting of more than 400 steel service
centers companies with about 1200 locations in the United States and Canada. Combined
sales of member companies are in excess of $24 billion per year."
"Initially," observes Dave Roland, "service centers would buy large quantities of material, break those quantities down into smaller lots and sell them to their customers. Essentially, they were a pass-through operation. But, those days ended many years ago. As I visit service centers today, I am impressed with the many different kinds of value-added services they provide."
"We not only provide the roll of carrying inventory and providing material on a just-in-time basis," Dave Lerman points out, "in some ways we act as purchasing agents for our customers by trying to specialize on products we are good at -- buying in large quantities and negotiating the highest level of quality and the best value, which we pass along to our customers. If we do a good job, we stay in business, if we don't do a good job, we don't stay in business."
"We also are becoming more and more involved in the technical aspects of the business," says Dave Samrick. "We function as technical assistants in specifying the proper material -- making sure that customers have what they need, not more than they need, and that it is cost effective."
To explore changes taking place within the steel service center industry and pinpoint ways in which the industry can better serve the needs of the metalforming community, MetalForming and the Steel Service Center Institute (SSCI) hosted a roundtable discussion between six representatives from each faction, supplier and consumer.
Participants in this discussion are identified in Table One (page 40) and in captions that accompany their individual photographs. To simplify the presentation, comments from all participants are presented in a question-and-answer format. Please note that some discussion areas at the roundtable have been excluded. Also, some comments have been edited to present as much information as possible while keeping this report to a manageable length.
Q: On what basis do metalformers decide whether to purchase from a steel service center or directly from the mill? Is this strictly a quantity situation or do other factors enter into the decision?
Fred Long: Purchasing people today are aware of the things service centers have done, including putting in quality systems. Personally, I switched from mill buying to service center buying just because of all the advantages. I think service centers have prepared themselves for this kind of a switch. In addition to quality systems, supply, price and so forth, dealing through the service centers saves us from having to store a lot of inventory. From a cost standpoint, I think steel service centers are on the right track.
Jerry Seim: We have done the same thing. We do a lot of program-type work and are trying to get the service centers involved up front in providing the things we are looking for. The main reason we go to them is market knowledge. They are the experts, especially in a changing market. What I know about the steel market may be obsolete in six months or even a few days.
Bob Klotz: We used to be a big buyer from mill sources. There was a time when they used to provide value-added services. They would arrange for slitting and pickling and sell you a finished product. But, as changes of attitude came about, they no longer wanted to take care of some things and they did a less than favorable job on other things.
David L. Lerman, president, Steel Warehouse Company, Inc., South
Bend, IN: "We are a family-owned steel service center, more specifically a
flat-rolled steel service center that mostly works in the heavier gages of hot rolled.
But, we do some cold rolled as well. We serve the Midwest region of the country and work
with companies serving the agricultural markets, as well as appliance, automotive and
capital goods."
I think that's where the service centers stepped up to address these needs. Today, our customers require us to have a quality operating system. The service centers have realized this and put that capability into their system. The mills have been slow to react to that need, especially when it comes to getting top-quality material to meet our specifications to satisfy our customers.
Jerry Seim: Getting service out of a mill, especially when you are small, is something that's very difficult to do, but you can get service out of a service center.
Jim Magnetta: You mentioned small, is there a size company that would get better service out of the mill and therefore consider staying with the mill?
Jerry Seim: More and more people are going to the service centers for their material -- even the larger users, including the tier-one suppliers to the automobile industry. Our customers are requiring more and more service, JIT, as well as a lot of other things. That type of service just isn't available anywhere else.
Frank Nagy: In our case, Mill Steel acts as somewhat of an intermediary for us. If we did not have a Mill Steel with its buying power, we never could negotiate the type of price we get from them.
Secondly, in the case of the mill, they're an extension of our quality system. They know how critical gage control and all the other characteristics of steel are to us. So, they make sure that what we get meets our quality specifications. It is a very proactive role on their part and requires a lot of effort. But, it is an absolutely critical function to us.
Jim Magnetta: Is having a service center with a metallurgical staff available to come into your plant important to you?
Frank Nagy: Yes, it is important and we have taken complete advantage of that type of service. Our suppliers have offered to sit with us when we are designing our products to make sure that we are selecting the correct material. Because of our size, the cost benefit to hire a metallurgist is not there.
Ed Farrer: Our philosophy is to heavily rely on distribution -- for a couple of reasons. We can devote more of our square footage to equipment and revenue-generating machines if we do not have to store a lot of coil stock. In addition to that, we are on just-in-time delivery programs with most of our customers. We cannot afford to be late.
There is no fat in the pipeline anymore. If we are a couple of days late we can end up shutting down our customer's production line. Things like that just can't be permitted to happen.
Q: When we talk about just-in-time, what kind of time are we talking about? What time window do you provide to your customer? In return, what do you require from your suppliers so that you can meet your customers' needs?
David Samrick, president, Mill Steel Co., Grand Rapids, MI:
"Mill Steel is a flat-rolled steel service center. The major markets we serve are
automotive, appliance and office furniture. We too are a family-owned company."
Jerry Seim: With some of our major customers, we now are delivering three times a day, and we're about ready to go to six times a day on a JIT basis. With this type of schedule, our inventory turns about every four days.
David Samrick: We have customers who have a delivery window as short as three hours. Our position, and I think our industry's position is: Tell us what you need us to do, then it's our role to do it, or we have no place in the market.
Dan Zecca: Part of our efficiency has shifted to program tons, where we build off of a forecast that we have with a number of customers who want delivery within two, three or four hours. However, having to deal with difficult trucking situations can cause a lot of grief. Because of this we wound up hiring a logistics firm to handle inbound traffic and also to coordinate longer shipments. Sometimes it's very difficult to come up with a truck, for instance, it could take two or three days to schedule a shipment out of the Midwest to a state like Nebraska. The logistics firm helped us out a great deal.
Fred Long: Pridgeon & Clay has a myriad of parts. We probably have more than 2000 active parts. It's very difficult to have a JIT program when you are dealing with that kind of volume. We tried putting a certain part of our volume on JIT on certain isolated items. But, we found that sometimes the premium freight charges would more than offset the advantages gained. I think that JIT is becoming a way of life. It certainly is the way of the future. Our customers will demand it and we are going to have to demand it if we're going to stay in line in this cost structure.
Ed Farrer: When we talk in terms of just-in-time, there actually are two types of just-in-time. There is just-in-time in manufacturing where you generate product in small lots and ship on a timely basis. Then there is just-in-time where the customer orders in large lots and tells you, "Just hold it and ship it when I need it."
I believe, to various degrees, everyone in this room practices both types of JIT. We try to set ready dates for expected consumption. We might have a production meeting in the afternoon and expect to have material on the floor first thing the next morning. When it is from our certified suppliers, the material goes straight to the press.
Jim Magnetta: How do you communicate your needs to your vendor? Does a salesmen come in and personally visit with you and your purchasing agents on a weekly basis, monthly basis or whatever works best for determining what inventory levels should be?
Frank Nagy: Once a month we talk in terms of the annual buys. If we see something coming up in our forecast beyond what we have been expecting, particularly if our requirements will be higher than expected or forecasted, we put that into the system and communicate to our vendors for actual deliveries via fax. If we run into a real problem, the quickest way to handle it is to reach for the phone.
David Lerman: One of the problem areas for just-in-time is during periods of relative shortages. Being in the market all the time and knowing the ups and downs of the market, the service center can use partnering relationships to anticipate the needs of its customers and buy ahead to smooth out market fluctuations.
Jerry Seim: On JIT, we tried various things, including MRP, but we weren't able to make them work for us. The only thing that we can live with is the Kanban program. We try to give our supplier a 12-week rolling forecast. The last week or two really is driven by the Kanban system.
Fred Long: This discussion really points out how important it is to have a partnering relationship between the steel users and the service centers. As everyone points out, things like JIT will work, as long as we have a partnering relationship with service center management.
Richard Skidmore: As a service provider, we need as much information as we can get, which allows us to program our inventory. This helps to enable us to assure you of a constant supply of material. Secondly, it gives us an opportunity to buy at the best price available, which is passed on to the stamper or end user. So, we need the best information we can get. It really gets down to being a matter of trust -- each of us working diligently together to make the system effective.
Jerry Seim: I'd like to go back to the point that David brought up about shortages. I know it's idealistic, but if we were all on JIT, there would be a lot less hedge buying, which creates shortages. As soon as we get the panic mentality, it becomes a self-fulfilling prophecy. If we think there are going to be shortages, there will be shortages because everyone goes out and hedge buys. That really is inefficient and counter to what we are trying to do. With the Kanban system, we don't do that because it's based on usage.
David Lerman: I think you're right. One of the inefficiencies of the system is the fear of shortages, but panic sends us off in the other direction as well. Eventually, we reach a point where we are overstocked. Then the mills are suddenly low on orders, making them less efficient. It's part of the ups and downs of a capitalistic system. On the other hand, I think the more we talk together and plan together, the more we can eliminate that type of problem.
Dave Roland: I really think communication is the key. We did some studies on a particular segment of the service center industry to determine the effects of partnering. Initially, partnering was really just another term for cost shifting. For a long time the automotive industry engaged in what is called cost shifting -- taking a cost and moving it downstream or upstream. Our study on tubular products showed that when we really take cost shifting to true partnering and apply it to the areas of marketing and inventory, just between mills and service centers, we are able to increase profitability by about 14 percent.
We want to extend that process and continue it down the channel. We feel that if we can increase the lines of communication between service centers and their customers, as well as between service centers and the mills, we can get over the barriers and enter into real partnering.
This is a substantial opportunity that is there for everyone. The real key is in establishing the lines of communication.
Q: The metalformer is trying to minimize inventory yet doesn't want to be caught without material when an emergency order is received. The service center stocks material to be able to handle a broad range of orders but does not want to be overstocked. From the metalformer's standpoint, is there a benefit to having more than one source of supply; and from the service center's side of the marketplace, is it practical to network with other service centers to make inventory available to each other to cover shortages and emergency rush orders?
Fred Long: From a buying standpoint, I think it is always advantageous to have more than one source for the very reasons touched upon in the question. There are many times when we get inadequate information from our customers. Therefore, we are not able to provide the service centers with a specific forecast of what we are going to need. But, even though I think we have to have our eggs in more than one basket, that doesn't mean we can't tie into a major role with a specific service center that has given us all the things we need.
Ed Farrer: We have what we call contract business. These are blanket orders from customers, which extend for a specific period of time. We also have what we call spot buys where we have tools for parts that customers order maybe three or four times a year. We don't really know what their buying pattern is going to be.
On our contract and long-term business, we share complete information with our suppliers. If it's an automotive contract, we explain the facts of life to them. If one of the big three says they are going to use half a million pieces next year, they may use 50,000, or they may use a million of them. They may use half a million in one month. They are hard to program.
Ernest Zeller: We make a lot of fancy-looking stampings and some tough stampings. The material we use was developed with a certain mill working through a service center. Normally, we have to stick with that service center rather than jump back and forth. Otherwise, we can't make a quality part. We used to buy from various service centers, but this has changed over the last five to six years because part quality requires that we use a better grade of material. I think a service center can do a better job than a mill can.
Fred Long, director of purchasing, Pridgeon & Clay, Grand
Rapids, MI: "We are in the automotive stamping business, both light and heavy gage.
We primarily concentrate on exhaust components.
David Lerman: Regarding the other part of the question, each of the service center companies here may make different decisions, but we do sell to other service centers -- in certain situations, on a spot basis. Most of us that have been in the business for a while know the other people who might have competing materials and know where to go for help in emergency situations. That's a part of our expertise.
Dan Zecca: We are specializing more, trying to get more market-driven synergy, so that we can focus on what we are good at. We are not going to try to be all things to all people. Since we specialize primarily in galvanized, we get calls all the time from other service centers, especially when the spot market gets tight. I think that most of our customers want to be able to show us a part and buy exactly for that end use, versus going to the spot market where one time it will work and the next time it won't.
Jim Magnetta: We are talking about one of the advantages that Feralloy Corporation has because we do have five divisions located throughout the Midwest and along the east coast. If one of us has a hiccup (material shortage), we can call one of our other divisions and see if they can help us out. In the Cleveland area, we have relationships with some area service centers based on our having supplied them with material in a time of need. So, I'm sure we could make some phone calls to get ourselves out of a bind should that become necessary.
Q: What are metalformer's quality expectations and what are their quality problems? Are steel service centers equipped to properly deal with quality problems and are internal quality controls adequate?
Fred Long: It's 500-percent better than it used to be. Service centers really have stepped up to the plate. They have put in the equipment and the expertise that is so important to service those of us that are in the metal-using industry. Most of the big service centers have put on metallurgical assistants. It's obvious they are being rewarded from the end users because they do perform that task. Also, I think we're seeing far fewer rejects because the service centers are culling out the out-of-spec stuff they get from the mill.
Jerry Seim: Our expectations are the same as our customers -- zero defects. We don't want any rejects. Consistent quality takes on an altogether different dimension when we get heavily into JIT. If we have to reject material it really causes problems in a hurry because we're only a few hours ahead of our customer. I agree with Fred that there has been a huge improvement -- gage seems to be under control, slit width seems to be under control. There is some work to be done in providing consistent mechanicals, particularly for the more-difficult parts like Ernie Zeller was talking about.
Ed Farrer: The mills also have come a long way in the product they are producing. At the same time, the processor and the end user have become more sophisticated in their material selection. In addition, the service centers are doing a better job of buying. They are finding out the strengths of various producers and are trying to steer business to the types of products that certain mills are strong at, which may permit them to get even stronger.
James Magnetta, general manager, Cleveland Div., Feralloy Corp.,
Cleveland, OH: "Feralloy is an operating unit of Preussag N.A., with locations
throughout the United States. The Cleveland Division primarily sells pickled, cold rolled
and galvanized steel into Ohio, Western Pennsylvania, New York and West Virginia. Our
major markets are automotive, construction and related industries."
Mechanical properties is the one area that needs to continue to be evaluated. We make a lot of difficult parts and if we go to the AISI book for quarter hard, it will give us a range of Rockwell values. We know from experience that if the material is at one end of the range, we can make the part all day long. However, if it's at the low end of the range, we can't make the part. We've found that partnering and communication with our supplier will give us the kind of metal that makes the part every time.
Frank Nagy: I agree with what Fred said in terms of there having been an improvement, but I think we have been measuring this improvement against ourselves instead of against the global marketplace. That's a big mistake because what we'll wind up being is "queen of the pigs."
When we've had dies made in Japan, initially, they ran them on their own steel. When we'd get them to our plant, they wouldn't run. Now, when we have dies made in Japan, they want our steel because they have given up on trying to get steel with gage control here like they get in Japan. I don't think the mills have done the job and I think they keep giving themselves too much credit for improvement. The improvement is far short of what it needs to be.
The service centers have been the ones that have tried to pick up the slack and cull the bad stuff out. They are doing more value-added but they also are doing a lot of correcting mistakes from the mills because I still see too much downtime in the presses for the kinds of things Ed was talking about in terms of mechanicals.
We are still having too much trouble with tensile and Rockwell variation, despite what they claim in terms of spending money on improvements. I don't know where they are spending it. Our Japanese competitors can run steel with a thousandth tolerance -- plus or minus one is no problem. Start talking that here and people's eyes roll.
David Lerman: I will speak in defense of the mills for a moment if I might, although sometimes its tough to do, I'll admit. I think the mills have come a long way during the last 10 years. I think they spent about all the money they could given their earnings situation, and they've improved their product tremendously. They have had to play a catch-up game because they started late. There probably are still some vestiges of an old view that "whatever I produce is what you need to figure out how to use." Still, I think the mills have come a long way in that area and I think you are going to see continued improvements from them.
It is still our job as service centers to add to the quality of the cycle. Quite a bit of the product that we get is in some definitions, semi-finished product. If a mill is, for example, temper passing in coil, it takes three or four wraps on their machine until it can start pulling proper tension and attack the coil in the right way. This means there are a few feet of material on each end of the coil that are not going to be quite to the specifications you would like. Right now, I think it is our function, to take that product to the next level.
I think the next generation of mill equipment will improve in this area. To the extent that they make some money and are willing to spend it, which I think they need to do to stay competitive, we'll see some continued improvements.
Richard Skidmore: When we are looking at tight tolerance parts, you have to put those parts through your partnering arrangement into a mill that is capable of consistently producing that tolerance, in good times and in bad times. When things speed up and the mill can crank out more tons, they will still look at tons only. I suppose there will always be that tendency. But, if you don't source tight tolerance material at a mill that can consistently produce it, you're always going to have trouble.
Frank Nagy: The point is, if they had process control to begin with, the condition that Dick just described would not occur-regardless of how many tons they're shipping, whether it is up or down. Process control is what we're all struggling with and working on. As Gerald pointed out, when you are operating in a just-in-time mode with a four-hour delivery window to your customer, it has to be zero defects.
Dave Roland: SSCI does a series of meetings each year with a select group of mills. Probably the biggest issue we see being brought to the table is the question of quality. The mills are investing today. They aren't where they need to be and I think they recognize that. I also think most of the domestic mills recognize that they're going to have to become worldclass competitors. The mills know they are going to have to deliver high-quality product at a fair market price. What they are telling us is that where they are able to invest money back into their process, they are spending it to improve quality.
Dan Zecca: I've had 15 years of experience with a mill and I can see they are still tonnage oriented. If you came to our plant at the end of the month, we'd have 40 trucks lined up around our buildings. But, if you looked on the sixth day of the month, there might be three or four trucks. The mills ship approximately 40 percent of their monthly total during the last week of the month.
Having been on the inside, I know that they are worried about billables, and if there is any questionable quality during that time, they blow it out. That's the truth.
On the other hand, sticking up for them along with Dave, their quality has improved. Every year, more and more product is produced on a continuous caster. We don't see the laminations or a lot of the seams that we saw five years ago. So, I think there has been tremendous progress but I agree there still is a long way to go.
Richard E. Skidmore, chairman, Metal Service & Supply Inc.,
Indianapolis, IN: "In addition to our Indianapolis facility, we have plants in
Louisville, KY, and Aiken, SC. We serve the Southeast market with a full range of carbon
steels 3/16 in. and lighter. Mostly, our market consists of automotive and appliance part
manufacturers."
David Samrick: I agree that strategic alliances or partnering issues are very important when you have difficult parts that you really struggle with. Getting the mill into your plants and into your processes, and getting them to have some ownership along with us, really helps them do the job much better -- as opposed to us just taking an order from you with a spec. on it and throwing it into the mill.
Ed Farrer: For all of the investments in quality and technology and improvements in the mill, the skepticism remains that we haven't seen any changes in the industry specifications and standards. When we look at physical properties, gage charts, that stuff goes back to 50 years ago -- Bessemer and open hearth stuff.
I hear about z-mills and x-ray gages and know they're saying we need six thousandths or eight thousandths total tolerance. We know that they are able to produce better. At some point I think they have to step up to the table and say there is a tightening of industry standards.
David Lerman: As a matter of fact, I think the AISI, through ASTM, is looking at revising those standards. We have some members of our steel service center group involved in that.
It is a major political, as well as technological, effort to revise those standards. There is a large variation in talent and effort on the mill side as they try to pull together to come to an acceptable standard among all of them. Unfortunately, sometimes a standard becomes what the lousiest guy can do and that's one area where our industry has to step up a little bit more.
Bob Klotz: As Frank said, the mills haven't stepped up fully. I say this because hot rolled used to be 14 thousandths tolerance. For one part we ran, that wasn't good enough. We negotiated and got it down to half standard, which is seven or eight thousandths. That still wasn't good enough. But, with the value that service centers could add by temper passing, we now can buy a good coil that's running between one and two thousandths. So thank goodness for the service centers that have added this additional equipment to give us the better tolerance because I don't think the mills will ever get there.
Jerry Seim: Let me ask you service center guys a question. Certainly you are more familiar with the mills than most of the forming people here because you're dealing more closely with them. Why do we see more inconsistency in actual dimensions, gages and the mechanicals in material from the U.S. mills compared to the consistency you see in Japanese steels?
Dan Zecca: U.S. mill incentives are based on tons per hour. That's part of it. For instance, at one time, the company I worked for wanted to get greater yield. The hot mill decided to fudge a little bit so they didn't crop back the heads and the tails. When that steel went to the cold mill, that plant manager wasn't going to take the hit either. Then it went to the galvanizing line and the superintendent said I'm not going to take the three or four percent hit, and so it's out the door.
To this day, we still get a number of coils that are maybe six or seven thousandths heavy on the ID or the OD, and 30 or 40 ft. in it's great. So, it's still a problem, it really is. And, the cause is that incentives aren't based enough on quality, they're based on tons -- and that tends to promote bad product.
Ernest Zeller, Metalstamp, Inc., South Bend, IN: "As our
name implies, we are in the metal stamping business. We make parts from light gage up to
0.647 in. thickness for automotive, aircraft and other industries. For the most part, we
are in the heavy end of metal stampings."
Jerry Seim: It starts from the top and goes down. I read a newsletter from one of the mills that I got second hand. I read through the whole thing and became depressed because everything was talking volume, volume and volume. In that newsletter I did not see anything that mentioned stepping up the quality.
Ed Farrer: I have a question about not cropping coils. Why do you guys accept it? We don't accept it.
Dan Zecca: We don't accept it. We fight it. That's why we bought the gamma ray gage used at our place to check footage. We found that when we are buying on a TMW, it didn't matter as much. But, we found that some of our sources averaged seven to eight percent high, and most of them averaged three and one half to four percent high.
Ed Farrer: If your industry would be unified in not accepting it, this practice would cease because it adds extra cost.
David Lerman: It depends on the product. If you are buying a hot band, which is our basic product, the nature of production of a hot band is that you have a major temperature difference between the first few laps of the coil, then the body of the coil and then the end of the coil.
The Japanese as well as anybody else have not yet worked out all the issues that it takes to modify automatic gaging equipment to make that work exactly. So I view it to some extent in the context that if we're buying a semi-finished product, it's our job to get it to a finished product for you. That is part of our value added in those circumstances.
There are other circumstances where we need to be and should be tougher and sometimes we need encouragement to be tougher. So thank you for that encouragement.
Fred Long: Dave, don't you think that the Japanese or the other foreign steel companies are more willing to crop back and take the loss because the material comes a long way and the foreign mills don't want it sent back. So, they do crop back until they get to good gage. Therefore, we get better quality and better gage control.
Dave, as you said, domestic mills are certainly tonnage driven and they don't want to crop anything back that they can sell. But, I guess the question I have is: Are they sending you steel that is out of spec? If you are getting it out of spec, then obviously you are going to reject it and send it back. So many times our experience is that it isn't out of spec, but we can't make a good part with it because there is such a wide variation side to side and within the coil. I think this is where a lot of work has to be done by our domestic mills.
David Samrick: The service center industry has stepped up to these issues. We have a lot of companies becoming ISO qualified and using all the quality systems and opportunities out there. As an industry, the service centers have paid attention to your needs. That really is all we can speak to.
Fred Long: It's obvious that steel service centers really have taken on an additional burden that rightly belongs back at the mill. But again, you folks have the expertise to know where to buy steel that is going to give you the kinds of things that we need. Many of us don't have that. We don't know which mills are going to give us the better gage control and all of the other mechanical factors. This is one of the reasons a lot of us have switched over and gone back to service center buying. We didn't want the problems that we were getting. Now you have the problems but you minimize them because you know how to compensate for those kind of problems.
David Lerman: The fact is we do have a function to fill and many of us do that. We also show the domestic mills some of their competitive product because most of us also buy some imported product. We try to show these guys what a tough benchmark is in many ways, and we get a variation of reactions -- from a yawn to taking those comments seriously and trying to do something about it. But in today's world, with competing pressures on volume instead of quality, sometimes they don't get heard.
Dave Samrick: They don't always get down to the operating levels at the mills either. That can be a problem. We get some attention at certain levels, but the guy who is really pushing the buttons on the computer and really controlling the quality at the hot mill or cold mill hasn't heard any of it. Some of the things we try to do is get some of these operating people into our plant and show them what gage control means when you have 40 ft. or 50 ft. that is out and what machinations we have to go through. Often it will improve for a while. Then it will slip back into the "same old, same old."
Q: How can metalformers involve the steel service centers at the design stage when specifications are in development? How can service center practical experience be accessed to benefit metalformers?
Dan Zecca: More and more companies are opening pathways between our people and their engineering departments. For many years, an engineering person would develop a job and maybe he or she wasn't in touch with the market. The service center might be able to develop the business based upon what is available out there. Maybe they have some like items that they are selling to someone else, but I think we really have to get in to talk with the plant people, the engineering people, and develop this as team effort instead of maybe just a handful of inside people that really don't have the metals experience.
Richard Skidmore: We can do a great deal working with our customers to help them if we are in on the initial development of the part. Many times in traveling, I see parts that are over-specified material wise. This is a cost to you and it is a cost to the customer. If we have some conversation with you when the part is being developed we might be able to reduce your costs by recommending lower cost materials that can do the job just as well. Many times we have customers come in or call us for materials that are difficult to come by. But, when we look at the part, there is no reason to have it that way. I'm sure this occurs to you all the time.
Bob Klotz: We worked with a customer who was a tier-one supplier to one of the U.S. automobile companies. They had specified 980 material for the stamped parts on a seat assembly. There was some pretty tough bends in the part and we had fracture problems in some areas.
We went back to the customer and asked if we could try 950 instead. The customer said, "Fine, let's try it." We got material samples and they sent it on to their customer. It sat there for months and months before it even was tested. I believe it took more than a year, but they finally switched to 950, and at quite a savings. But, it took that long before their engineers even considered the substitute material and did the final testing of assembled seats.
Robert Klotz, president, Metalstamp, Inc., South Bend, IN:
"My partner is Ernest Zeller. We service the automotive, RV, mobile-home and aircraft
industries, specializing in heavy stamping. We have another company that services the
metal stamping industry, which is Dallas industries, a supplier of coil-feeding
equipment."
Fred Long: One of the problems we have at Pridgeon & Clay is that customers aren't willing to pay for a lot of these services. We employ all of our customer contacts -- our sales engineers. In the past, we would sit down with the customer and help design products. But, some customers tighten down on us so much that we really can't afford to have our design people working for their engineering people to specify the kinds of things that make it practical to produce? There is a big learning curve here. Hopefully automotive people will start to understand that they are going to have to give us some relief if they want all these services.
David Lerman: Most of us have put the overhead in place to provide those functions. We feel that is part of the value added that we see as our mission in the future. We certainly want to encourage the use of that service with you people and truly develop the value-added function.
Fred Long: That goes back to the partnering aspect I was addressing earlier. The service centers really have come a long way in that regard. You folks have made up for some of the short falls at the mills and you have really helped us to be able to compete in the marketplace. Unfortunately, sooner or later we have to try to transfer some of this responsibility back to the mills, because it should start there.
Q: When prices go up, how can metalformers and steel service centers minimize the impact of these increases?
Richard Skidmore: Earlier involvement of suppliers certainly can be a contributing factor. Inventory reductions, just-in-time deliveries, all of these things can help to provide a cost reduction. Telling the mills that you are not going to pay the higher price is not going to work during periods of tight supply, I'll tell you that.
Dan Zecca: We still need a greater commitment from some metalformers. For instance, there still are a number of metal stampers and roll formers that do not want to give any forecast. They want to shop every item around. This takes a tremendous amount of time and drives up our overhead. The trend is going to forecast program tons.
Also, we have done a lot of re-engineering or value engineering with our customers. We look at each and every part and ask questions like, "Can we lower the coating weight? Can we go with a lighter gage?"
There are a number of ways to reduce material costs -- larger coils, for instance. You just have to look at every item because there are a lot of producers working to old specifications that are totally obsolete.
Gerald W. Seim, president, Sacoma International, Inc., Columbus,
IN: "We manufacture a variety of stampings and other metal components for the
automotive and electronics industries."
Fred Long: We can do some of that, Dan, if we are working in the nonautomotive area. It's awfully hard if an automotive company is part of the equation. Somebody related their experiences about switching from 980 to 950 earlier. It takes a long time just to get an engineer to make a move, even to save money.
So, if you're dealing with other than automotive markets and you have some customers with good, logical engineering people that can move rapidly, those things can happen. But in our automotive business, they talk about partnerships between stampers and the automotive people and coming in with value engineering ideas. But after you do come up with innovative ideas, you just can't get them through the system in a timely fashion.
Richard Skidmore: One of the cost areas that we haven't touched on yet, but all of us need to pay a little more attention to is packaging. We really work with our customers asking them, for instance, "Do you really want this on a wooden skid? Can you use a slit coil rack that's returnable? Do you want paper? If so, it's one more thing you're going to have to dispose of."
As an example, our financial officer was telling me that our cost of wood for skidding increased more than $100,000 last year over the year before. Not only does that add to our costs greatly but it's going to add to the customers' costs because they're going to have to get rid of the skids. I wonder if all of us are looking closely at what we can do to reduce our costs in that area.
David Lerman: Lower cost can happen just by increasing the size of the package. It may require some up-front investment in material handling capability, but I have to believe that if you can handle bigger packages whether it's a bigger OD on slit coil or larger packaging in any direction, that has to be a way to lower costs.
Frank Nagy: With our just-in-time system, we are going in the opposite direction, because of the time and cost associated with rebanding and reskidding. We're asking our suppliers to give us smaller coils, not larger. We're trying to get closer to what the actual run size will be so we don't have any downtime for rebanding and so forth.
Edward C. Farrer, CPM, manager of purchases, Olson International
Ltd. Chicago, IL: "In addition to Chicago, we have plants in Lombard, IL, and in
Mexico. We run all types of metals from 0.004 in. to 0.250 in. thick and serve the
automotive, appliance and electronics industries."
Ed Farrer: That's been our focus too. I'll call it exactness. More and more, we're trying to specify minimum and maximum coil sizes that more closely relate to our lot size and doesn't leave us with the predicament of being short for an order or having to carry surplus inventory.
One of the things I've been talking about for a long time is that when you buy steel, the steel industry has developed around selling pounds and tons. But, what people on this side of the room are interested in is minimum gage and linear feet. Someday I hope that I can come to you service center guys and say I want to buy 2500 ft. of material -- because that is going to equal the yield I need to ship to my customer.
Frank Nagy: What would that do to the service centers?
Jim Magnetta: Small runs like that could be very expensive for us because it would require a lot of small packages. I think it would drive our cost up. Some stampers are asking for smaller deliveries, more often on our resale program. We have a concern with it.
Frank Nagy: It is important that we don't do something on our end that just increases system costs. It is a cost that someone has to pay for.
Richard Skidmore: It gets back to communication. If something is going to cost us more, it is going to cost you just as much more. With the right information, you can evaluate whether restocking is more or less expensive.
Frank Nagy: We need to get to where Ed is talking about. But, we have to figure out a cost-effective way to do it. That's the kind of thinking that will make us competitive.
David Lerman: I agree with you, and we all need to be working on that. Those are good ideas but it's going to take some time to develop a system to execute them.
We have a particularly interesting job we do for a rail car manufacturer. We slit and then level product using 3/4 in. material. The length we are leveling out to is something like 648 in. Typically, we get four pieces out of a 1000 piw coil. If that coil is just a little short, or too long, or we miss part of a multiple, we end up with a really lousy yield.
So, we started talking to one of the mills about controlling the length of their slabs so we can try to get to that exact length within a coil. And frankly, it was a bit mind boggling to even think in those terms. But, I think you are right. Why can't we start talking that way? Why can't we start thinking that way? There certainly will be some increased costs until we figure out how to do it correctly.
But, in the long term, that's the way to be most efficient with the metal.
Fred Long: The mills certainly have measuring equipment and they can attempt to give you lineal feet. But, those of us who have been exposed to TMW out of the mills, probably have come to the conclusion that they use a formula rather than actually using measurement equipment. The mills have a long way to go before they get to where we want to go but that doesn't mean we shouldn't strive to get there. We all have to insist on better performance. That will help everyone get there.
David Lerman: As the mills get more involved in computer process control and computer process production control, they may reach a point where they can control a specific slab length, which in turn would translate into a specific coil length rather than 100 tons of material with variation in coil size. Then maybe, we can move in that direction.
Q: Plating, coating and painting after forming generally have become less cost-effective with tighter EPA regulations. What are some of the better long-term alternatives?
Dan Zecca: We've seen a big transition. Many companies that were buying cold rolled and hot rolled steel and were sending it out for plating now have switched to galvanized material -- especially for functional parts. We do a lot of work with microwave manufacturers, at least indirectly. For years many parts were chrome plated -- the bottoms and so forth. Now those parts are made out of galvanized zero spangle.
Daniel A. Zecca, vice president marketing, New Process Steel
Corp., Worth, IL: "We specialized in galvanized and prepainted steel, as well as
cold-rolled and hot-rolled material. Our headquarters are located in Houston, TX, We also
have plants in Chicago, IL, and Birmingham, AL."
Many of those companies are Japanese in origin and they expect the galvanized to look like a beautiful, consistent, chrome-plated product, but it's not going to happen. There are several mills that have made a lot of inroads and we are seeing changes everyday where because of the EPA it is just getting more expensive to send out for post plating.
Prepainted too is growing. Metal buildings is a very strong market for us and we expect it to continue. Another factor is that wood is extremely expensive. Since steel is environmentally friendly, we are going to see tremendous growth in the stud market, particularly in residential housing. When that market takes off, it could be massive. It could be as big as appliance or, who knows, automotive some day. Wood prices are going to be high for a long time and people are looking for alternatives. This will be one of the growth areas for steel.
Frank Nagy, president, Grand Haven Stamped Products Company,
Grand Haven, MI: "Our primary products, which use a fair amount of stampings, are
floor-mounted shifting mechanisms for automatic and manual transmissions. We also make
accelerator, clutch and brake pedals. The part of our business that is pure contract
stampings is down to about eight percent. Our steel needs are primarily in hot rolled,
from 0.2 mm on some jobs up to 10 mm on brake pedals."
Fred Long: There certainly is a mass effort toward going to pre-coated materials. I do not necessarily know if that is EPA driven or cost driven. I have a hunch that our customers are more cost driven, looking for cost efficiency, than being specifically concerned with EPA directives. I still see an awful lot of painted materials out there -- especially automotive-painted parts. Most of the people who have to perform the service can live with the EPA requirements.
Ed Farrer: They are somewhat quality driven in addition to being cost driven. Consider someone who is producing a large computer case with a lot of holes and a lot of forming. If they have to send that part out for painting, we all know that metal finishing is not an exact science. Many times the consistency of the finish with a precoated material is superior to the inconsistencies you'll see in post coating.
Q: Is NAFTA having a major effect on metalformers and service center suppliers?
Dave Roland: It certainly has had an impact on some service centers, depending upon the markets that they are in and where their customers are located. We've seen an increase in U.S. service centers looking for business in Mexico. A portion of that is due to the fact that some of their customers have gone south of the border. Because of the partnering relationships we have talked about, they have been asked by their partners to open up facilities in that part of the Americas in order to continue to be their supplier of choice. So from a service center perspective, I see some new opportunities being created.
Ed Farrer: Mexico represents a huge market with millions of hard working people who desire a middle-class lifestyle. There are many benefits in Mexico but there are some hazards. I just can't see Canadian and American businesses ignoring that market. Right now, if you were to travel in border towns, it's a who's who of Fortune 500 companies. Everybody is down there already. I just see it moving further south into the interior. They're going to need metal benders and steel slitters and plastic molders and people to support that growth. Anybody who thinks it's not going to happen is just not realistic. The growth in per capita spending will come and it's just an arm's reach away.
I've been fortunate to visit a number of plants around the border areas both in Matamoros and the Jaurez area. I've visited many O.E.M. facilities, and we have this mental image of a cheap shop laborer, but most of these facilities have state-of-the-art equipment -- some the finest technology around. And they are investing in these people and as these people continue to learn and become more educated, they are going to grow and prosper.
I see the trend moving further and further south. We have been on the border since 1989 and that plant is a state-of-the-art facility -- it may be our best-run facility -- all Mexican nationals. Our turnover rate is less than one percent. We have some tremendous individuals managing that facility. I would suspect in the next few years we will be doing something further in the interior. The car companies are all down there. Steel people are going down there too, so somebody is consuming metal. It's been very much a positive for Olson. We are there in a big way and we are there to stay. You are paying less for labor down there, but these people really work hard and provide a quality product. Some of these people are so good, you wish you had them in your plant up North.
Q: Is there anything anyone wants to say by way of a wrap-up of the discussion?
Fred Long: We have touched on a lot of good ideas today. I think partnering is a real key issue. I think more than ever before it's becoming important for us to form this partnership and work closely together. Then, hopefully we can all get through the problems we face in the years ahead. We may loose a few along the way, but I think those that don't see this possibly could be lost a lot quicker.
Richard Skidmore: It seems to me that some of the outsourcing we see from the end users today results from a conscious effort by O.E.M.s to get out of the metalforming business. And, in some cases, this is an excellent decision because some of them don't know very much about the business. This should be good for the metalforming industry as a whole.
Fred Long: We see the same thing in the automotive industry. The problem is the unions won't allow them to do it. So many of the big three know darn well that they can't produce parts as inexpensively as they can farm them out, but they are locked into union contracts. Many of us have witnessed changes in the outsourcing programs only to find that unions created big problems internally and the automobile companies brought it all back in house. I am not saying anything against the unions, they have their place too. But, I think they are curtailing some of the progress being made in the automotive industry as far as off-loading.
Ed Farrer: Outsourcing is a tremendous opportunity for our industry. It presents real value to big companies whose focus is not primarily in metalworking. They can contact us, and for no cost we'll completely reevaluate their tools, determine what will be required to adapt them to our equipment and provide a price to run the parts.
We'll provide a layout and evaluate the quality of the part and the condition of the tool. And, we will get it done in 30 to 40 days. When many companies who are not focused on metalforming try to get through an in-house program like that, it costs thousands and takes forever.
Dan Zecca: We still see a tremendous lack of being able to determine the real cost of manufacturing a part, especially at a stamping location where the buyer is trying to buy strictly on price instead of value. Often they'll find that throughout their operation they will incur 10, 15 or 20 percent scrap and downtime. You have to look at the costs going out the door. I know that everybody here is smart enough to do that, but, again, there are a lot of fledgling buyers out there that only think about price.
Is there a way that you can manage your business, a costing system that allows you to measure the intangibles through the operation to find out what the real cost is?
Frank Nagy: It's not only the fledgling buyer. There also are experienced buyers that have the very same problem. It's somewhat of a dilemma.
Many times we are faced with increasing costs but our customers will not go along with price increases. We fight that battle all the time with the automobile industry. It usually means that we are going to take a hit in margin unless we can find a way to provide material at less cost. So we're giving our buyer a double standard. We are telling him to reduce cost, but at the same time get us the best quality. It is a very difficult situation for the buyer.
David Roland: I think we will see the steel service center industry continue to evolve. Those companies that address their customers' needs will continue to do well. The one thing that we have mentioned time and time again in our discussions today is the importance of communications -- the two-way flow of information -- between supplier and customer. That's really what the steel service center people are committed to. They believe it is an essential part of their future, not only to prosper but to survive.