SAF Metal Fabrication uses vertical integration as a competitive edge
September 2, 2011
This Atlanta area company is an extruded metal distributor, architectural metal fabricator, and metal finisher all rolled into one. Such vertical integration gives the company a leg up over the competition.
Penn McClatchey pointed to a chart on his office wall.
“Here” wasn’t necessarily the best place to be. The vice president of marketing at SAF Metal Fabrication was referring to the latest F.W. Dodge report, a forecast for commercial real estate, and it’s predicting hard times for the rest of 2010.
Managers at the architectural fabricator know they have serious market challenges ahead. But they feel the company has a lot going for it, including a kind of vertical integration rare in the business. The fabrication operation is just one division of a larger organization. SAF is an extruded metal distributor, architectural metal fabricator, and metal finisher (including toll finisher), all rolled into one—a combination so unusual that McClatchey couldn’t think of any direct competitor in the region, at least one so vertically integrated.
Before 2003 SAF, or Southern Aluminum Finishing Co., had already dabbled in metal fabrication, operating out of the basement of its distribution facility near downtown Atlanta. A former toll finishing customer, a metal fabricator in Villa Rica, Ga., a half hour west of Atlanta, fell on hard times and closed its doors. Six months later, SAF acquired the property and moved its then fledgling metal fabrication business to the Villa Rica facility in 2003. During the ensuing years SAF’s architectural metal fabrication operation boomed with commercial real estate. What started as the loss of a customer ended up as a principal vehicle for company growth.
The shop doesn’t tackle highly specialized jobs, like extravagant facades of landmark buildings. Instead, it focuses on column covers, gutters, fascias, and other common elements of hospitals, schools, and commercial buildings. “We really are a comprehensive service center to the commercial construction industry,” McClatchey said. “I wish we were in a better market right now, but that’s who we are.”
Vertical integration does add some layers of complexity. For instance, does the metal fabrication operation compete with the fabrication customers of SAF’s distribution business? According to McClatchey, SAF doesn’t compete directly, because it has unique capabilities. The kind of architectural jobs the shop tackles differ from the kinds other fab shops get, simply because the company offers so many services.
SAF’s overall strategy is to be a one-stop shop for architectural metals. This gives the company a greater level of coordination and control, and also means that SAF personnel can tackle problems holistically. Everyone who touches a metal component—the engineer, distributor, anodizer, fabricator, welder, and finisher—works for the same organization.
One look at the shop floor reveals how comprehensive SAF’s services are. Metal comes to the 100,000-square-foot Villa Rica facility from the company’s Atlanta anodizing and distributing plant. Material in the fabrication shop flows counterclockwise, through shearing, punching, bending, welding, chrome pretreating if necessary (to make aluminum paintable), powder coating, assembly, and then packaging.
The company has made some significant shop floor improvements, particularly for worker safety. Managers converted an old dry paint booth to a ventilated area dedicated to welding stainless, reducing worker exposure to hexavalent chromium fumes. In the powder coat area, the company cut out a portion of the exterior wall so that it could place the oven doors inside, but put the bulk of the oven outside. This keeps the shop floor cool during the Southeast’s hot summers.
It’s an environment designed for quick response. SAF’s distributorship can process and deliver aluminum extrusions within three days. Turnaround on the fabrication side might not be so dramatic; services like engineering do take time. But, McClatchey said, lead-times still can be within days or a few weeks.
It’s this coordination that may help SAF through tough times ahead. “Our sales department is open to inquiries from other industries,” McClatchey said, but he added that the company will remain focused on commercial real estate, despite the market’s battered state. “Being vertically integrated, we’re a lower-cost producer, and we can compete in a market that’s declined by 50 percent and still make a profit. We’re not making as much profit as we were, but we’re still profitable.”
SAF felt almost immediate impact from the financial crisis. Only days after the Lehman Brothers crash in 2008, order cancellations and postponements came flowing in, and in 2009 the company was forced to downsize. The metal fabrication plant had 140 people two years ago; now that number is down to 65. SAF managers said they hadn’t seen anything like the current market since 1992, when the commercial real estate sector fell almost into a depression.
According to McClatchey, the fall in demand may be an overreaction more to do with financing issues and less about what people really need in terms of commercial buildings. “There’s a lot of pent-up demand,” he said. “People have stopped building disproportionately to what the real economy is doing.”
He cited the December 2009 Dodge report stating that, in nominal terms, commercial construction hit its lowest level since 1980. “In 1980 the population in the U.S. was 225 million. Today it’s 300 million, so you’re looking at a population growth of more than 20 percent. So in real terms, the commercial construction market is the worst it has ever been. That doesn’t jibe with where we think it ought to be.
“Yes, this is the worst economy since the Great Depression. But if it is really as bad as the people who are financing buildings think it is, why don’t we have soup lines?”
SAF managers have no illusions. It may well be a long slog before commercial real estate rebounds, probably several years. But when the rebound comes, they said SAF will be ready to respond as it always has—very quickly.