Maximizing service, minimizing risk

Manufacturer develops supply chain strategy

TPJ - THE TUBE & PIPE JOURNAL® MARCH 2014

March 14, 2014

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O’Neal Steel, founded in 1921 in Birmingham, Ala., originally was a fabrication shop, and the founder later added metal distribution to the company’s repertoire. Over the decades the business model changed, fabrication disappearing altogether at one point. Eventually the company resurrected its fabrication arm, but one thing has been a constant: The company’s small-town, close-knit, neighborly culture.

Stories of service centers adapting to changing market needs by providing value-added services are nothing new. Buying metal in large quantities, selling that inventory in small quantities, and making a little money from each sale was a viable business model for decades, but as competition eroded the margins, most service centers purchased a machine or four to add value to the inventory. This doesn’t really change the nature of the company. Such a business is still a service center.

O’Neal Steel’s history went in the opposite direction. Founded as Southern Steel Works in Birmingham, Ala., the company was a fabrication shop when Kirkman O’Neal opened for business in 1921. His intention was to serve the many local manufacturers and building contractors. As years passed, the company grew robust enough to survive the economic nosedive of the early 1930s and it managed to struggle through the lean years of the Great Depression. The U.S. was in the midst of a long, slow recovery, 1935, when O’Neal realized that he had overlooked a related business activity. Birmingham lacked a service center. The many small manufacturers and fabricators—those too small to order directly from the mills—had no local source.

Putting large quantities of metals into inventory was the first of many steps that turned the fabricator into a strategic partner for its OEM customers.

Just six years later the U.S. was pulled into World War II. Equipped with a large metals inventory and more than two decades of fabrication experience, Southern Steel Works was well-positioned to contribute to the war effort. The company won defense contracts to fabricate ship superstructures and manufacture munitions. The quality of its work and the timeliness of deliveries earned the company an Army/Navy E for Excellence Award.

When the war ended and the government contracts dried up, O’Neal Steel, as the company then was called, became a fabrication shop and steel distributor once again. Over the next few decades it opened new facilities and acquired other service centers. It put the bulk of its efforts into understanding and mastering the distribution side of the business, which emphasizes speed and price.

The company expanded its footprint in a variety of ways, adding to the grades and products it carried, expanding into new geographic areas, and increasing the variety of fabrication services it offered. Today, O’Neal Industries, which still has its headquarters in Birmingham, is the parent company for O’Neal Steel and numerous affiliates. It has two divisions, Industrial Metals and High-performance Metals, comprising more than 90 specialized facilities across the world; is recognized as the largest family-owned service center in the United States; and has launched a manufacturing division to support complex value-added processing.

Splitting and Growing

As O’Neal Steel expanded, the company realized it was using two fundamentally different business models. The service center side of the business was based on the transactional business model, which emphasizes competitive pricing and fast deliveries. The manufacturing side of the business, using the value-added business model, relied on fabricating expertise and the planning that makes the work flow through the plant efficiently. A service center needs a lot of space; a robust material handling system; and the ability to process, pick, pack, and ship orders as quickly as possible. A manufacturer needs substantial investment in equipment and the necessary expertise to maximize its investment. A service center struggles to justify large capital equipment purchases; a manufacturer can’t support a vast inventory.

O’Neal Steel’s executive team took stock of the situation and realized that in order to provide the level of service its OEM customers required, grow with them, and maintain profit expectations, it would need a new strategy. Certainly the business was successful because it had two complementary and overlapping business models, but it realized that a single entity would likely struggle to manage its customer’s requirements as the company continued to grow.

In 2012 company management took a step forward by dividing O’Neal Steel Inc. into two entities. The service center side, pursuing the transactional business model, would continue to operate as O’Neal Steel Inc. The fabricating side, pursuing the value-added business model, would operate as a newly created division, O’Neal Manufacturing Services (OMS). This involved a review of each customer to determine if it was largely transactional or had steady demand for value-added products. The result was assigning each one to O’Neal Steel or OMS, and some to both, without any service disruption.

A Corporation’s Size, a Proprietorship’s Culture

Splitting the company into two entities was a strategic move and a big change, preparing it to move forward in a new direction. However, the company isn’t guided solely by recent business decisions such as this one; its history and its culture play a big role in how the company goes about its business. Despite the size and scope of the company, it has managed to retain the culture of a family-owned business. The chief reason is that it is a family-owned business. Now in its third generation of family ownership, the company is guided by the founder’s grandson, Craft O’Neal.

“We put a strong emphasis on taking care of our employees,” said Gerald Brockman, OMS’s vice president of sales and marketing. The company relies on a collaborative work atmosphere; a variety of cross-functional teams; and nearly continuous communication among the various locations to discuss opportunities and strategies, exchange tips and best practices, and pass along tribal knowledge, Brockman said.

Close cooperation and two-way communication are more than helpful; they are necessary throughout the company. Recent OEM reshoring opportunities might not have been captured if the individual locations didn’t operate like a single entity. Full knowledge of the equipment and capabilities at each location are critical to maximizing the services the company has to offer.

Like a big family, the company relies on each member to pull his weight; opportunities are coupled to accountability, Brockman said. By making its expectations clear, the executive team strives to create an environment in which every employee can learn and grow. By taking responsibility for decisions and actions, each employee takes ownership of their career progress.

“We don’t have a formal training structure, but we do provide the tools to learn and progress,” Brockman said. “We balance promoting from within and hiring people with fresh ideas” he added.

According to Jim McGill, marketing and customer development leader, the small-company culture is one of its most important assets. Furthermore, the company prides itself on having a strong leadership team, one with a good blend of business education, industry knowledge, and thorough understanding of their customers’ needs and motivations, McGill said.

Maintaining this culture by integrating companies that share their values is the foundation of the company’s strategy.

An Ad Hoc Growth Strategy

While the company doesn’t have a formal, structured expansion policy, the 2012 purchase of Iowa Laser Technology, Cedar Falls, Iowa, illustrates how the executive team considers potential acquisitions.

  • Capabilities. OMS has an assortment of machines for fabricating steel plate: press brakes, bevelers, plasma cutting machines, and laser cutting machines. It does machining with large- and small-format machining centers as well as lathes. It also uses welding to make subassemblies and provides blasting, priming, and powder coating to make ready-to-install assemblies. While the bulk of its work is in plate, it also does quite a bit of work with tube and pipe, using processes such as sawing and laser cutting.
  • Iowa Laser Technology was a natural fit. Its decades of laser cutting experience augment OMS’s laser processing knowledge base and round out its tube and pipe processing capability.

  • Geography. OMS already had a strong presence in the eastern half of the U.S. Most facilities are east of the Mississippi River, with a few to the west. Adding Iowa Laser Technology helped to solidify OMS’s presence in the Midwest.
  • Stability. OMS doesn’t look for distressed companies to turn around; it’s interested in profitable companies. The executive team felt that Iowa Laser Technology was a well-run company with a strong leadership team, a solid market share, and a strong financial position.
  • Culture. Despite its size and location—OMS has more than 1,000 employees in 11 facilities, mostly in large metropolitan areas—it retains the informal, family-oriented sensibility of a mom-and-pop shop steeped in the Southern values of 1920s Birmingham. The company found that it had a lot in common with Iowa Laser Technology, a fabricating shop in a Midwestern town with a population of 40,000. It wasn’t quite family-owned, but it may as well have been. The owners were a tight-knit trio who opened the shop decades ago, and the executives worked as closely as blood relatives.

“There were extensive conversations about our intentions with the company,” Brockman said. “We were very pleased with the extent of questions about how we treated our employees and our customers, and how we planned to treat theirs. It was clear that the relationships they had built were extremely important to them. The cultural fit was phenomenal.”

Courting Customers

While some fabricators bring in more customers by relying on a particular set of skills or certifications, such as ASME boiler code or Nadcap certification, OMS looks at it from a different angle. It looks for good cultural crossover with its customers, just as it does with the companies it acquires. It would much rather develop a solid, amiable business relationship built on a foundation of mutual trust and respect, and let the manufacturing opportunities unfold slowly, than jump into a lucrative arrangement with a high-pressure, demanding client. In other words, the relationship with the customer is more important than the parts OMS makes for the customer.

“For example, we may have customers who build skid steers, but this doesn’t mean we’d go looking for other customers who build skid steers,” Brockman said. “We look for a good customer fit.”

After OMS establishes itself as a trusted supplier to a like-minded customer, it leverages its relationship and expertise to take on a bigger role with its new customer. The company sees itself as much more than a supplier of fabricated components; it sees itself as an integral part of its customers’ supply chains, and as much as is practical, it positions itself to be the entire supply chain. The customer’s partnership with OMS allows for a directed or managed material supply line, so it’s a logical goal.

Long supply chains, especially those that run through countries that are still in a state of technological development, are favored by some OEMs for their low labor rates. The flood in Thailand that soaked much of the country from July 2011 until January 2012 laid bare the vulnerability of that strategy when several international automobile and electronic goods manufacturers had to deal with severe parts shortages.

“The cost of maintaining a long supply chain can be significant,” McGill said. “Besides that, in many cases we can do things better right here in the U.S. than overseas suppliers can.”

Having a large number of locations across the U.S. keeps the company’s internal supply chains short, which is enhanced by the company’s loose, flexible organization. For example, if a customer is interested in risk mitigation, a part approved for production in one facility can be approved for production quickly and easily in another location.

Much of the equipment is redundant, which helps in three ways. First, one location can serve as a backup to another. This means the company can deal effectively with a surge in orders, a machine taken out of service for maintenance or repair, or an entire facility losing power after a severe storm. Second, it can share best practices across all of the locations, thereby continuously improving its operations. Third, the multitude of locations helps it maintain customer connections as situations change. For example, when a Pennsylvania-based customer moved to southeastern Texas, OMS didn’t miss a beat, serving the customer from Houston rather than its Ambridge, Pa., facility. When another decided to reduce its main suppliers to locations no more than 150 miles from its production facilities, OMS was able to keep the customer, manufacturing the parts closer to the destination and thereby providing faster deliveries than before.

However, the company isn’t hung up on having 100 percent redundancy. It relies on flexibility, giving each location the latitude to invest in unique equipment as customers’ needs change and as new opportunities develop. All the while, OMS recognizes that each new capital investment is only as valuable as the customer relationship that prompted it. According to Brockman, the company doesn’t invest in equipment, it invests in its customers.

Despite the lack of a rigid corporate structure, OMS does everything it can to maintain process consistency from one location to another. This is a big part of the company’s identity. When an OEM works with OMS, the customer can expect a similar level of quality in all the components it receives from OMS, even if the parts come from several OMS locations.

Two Better than One

OMS isn’t content merely to manufacture parts; it’s well aware that the competition in this industry is severe. Instead, it often develops a temporary technical team—a team that always includes the account manager—to take full stock of the print, consider what the part is intended to do, and evaluate how it can be manufactured in the most efficient way possible. The staff doesn’t go so far as to redesign parts, but based on their understanding of the part’s function, they offer the customer options that can reduce the part’s cost, such as moving a hole, eliminating a chamfer, or laser cutting instead of machining. This review process, called value-added/value engineering (VA/VE), is intended to optimize everything the company has to offer.

Although it is often said that a whole is greater than the sum of its parts, in this case separating O’Neal Steel into two entities was necessary. The separation freed each half of the company from the growing constraints of running a single business with two distinct business models. It also allowed the two companies to focus on their respective areas of expertise, yet continue to enjoy the affiliation of the other company.

In Brockman’s view, the company is as robust as ever, and with more than 90 years under its belt, it is looking forward to completing its first century in business in a strong position, ready for the next 100 years.



FMA Communications Inc.

Eric Lundin

Editor
FMA Communications Inc.
833 Featherstone Road
Rockford, IL 61107
Phone: 815-227-8262

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