Service centers: Friend or foe to the metal fabricating industry?

Were these pieces fabricated at an independent metal fabricating company or at a facility owned by a service center? You don't really know nowadays. InWay/iStock/Getty Images Plus

What was once an infrequent event in the metal fabricating industry is now a regularly occurring one. Service centers are expanding their metal processing activities by investing in metal fabricating companies.

In early January, Olympic Steel Inc., Cleveland, announced its acquisition of venting and filtration product manufacturer Metal-Fab Inc., Wichita, Kan. The deal included two warehousing and fabrication facilities. The acquisition was Olympic Steel’s sixth acquisition in the past five years.

At the beginning of November, Chicago-based Ryerson Corp. acquired Excelsior Inc., a Fresno, Calif.-based metal fabricator and machine shop. It was the company’s second acquisition of a metal fabricating company in 2022, purchasing Apogee Steel Fabrication Inc. in March.

Lapham-Hickey Steel, a fourth-generation, family-owned service center headquartered in Bedford Park, Ill., acquired SMC Metal Fabricators, Oshkosh, Wis. The metal fabricating company’s 115,000-sq.-ft. facility was located next door to two existing Lapham-Hickey facilities in Oshkosh.

That’s just a sampling of deals that have taken place over the past several years, and it doesn’t take into account some companies that have been growing their metal fabricating services with internal investments, such as O’Neal Manufacturing Service’s announcement this past summer that it planned to open a 130,000-sq.-ft. facility in Fayette, Ala. It’s a trend that you cannot ignore.

But it’s not a recent one. Service centers jumped into the fabricating space almost 20 years ago with the offer of laser cutting blanks to customer-specific sizes. They didn’t want to compete with their metal fabricating customers; they just wanted to offer basic cutting services, leaving the complex work to the fab shops.

Of course, times change, and so do business opportunities. As the metal fabricating industry in the U.S. has expanded over the years, more investors—both individuals and groups—have looked to grab a piece of the growing pie.

The Olympic Steel acquisition is a great example of this type of opportunity. Metal-Fab was a 60-year-old company that had built a business in fabricating venting and filtration products that was growing aggressively. The company also happened to be a large consumer of carbon-coated and stainless steel, two important Olympic market segments. Richard T. Marabito, Olympic Steel’s CEO, called the deal part of its strategy to “diversify and grow in higher-return products and services that are expected to reduce earnings volatility and increase sales and profit returns.”

Meanwhile, other companies with service center roots are just taking advantage of larger manufacturing OEMs looking for partners to share in the risk-and-reward reality of metal fabricating. OEMs like it because they don’t feel pressured to invest in the latest and greatest fabricating machinery and retain manufacturing talent, instead leaning on suppliers. Metal fabricating companies large enough to take on the financial commitment to process these large orders and deal with administrative headaches, such as regular meetings and extensive quality assurance activities, like the overall monetary size of these deals. These metal fabricating companies will tell you that they aren’t interested in the low-volume work that most job shops specialize in.

Some job shops don’t believe that talk, however. They see it not only as an encroachment on their own business, but that of competitors’ as well, particularly the smaller guys.

“We’re clamping down on some service centers. We have our top 10, and we’re clamping down on them. They’re not going to be a seven-figure vendor, and then we walk in their shop and see them competing against us,” a metal fabricator told me recently.

He added that even if these metal fabricators with service center origins claim to be chasing only high-volume work from very large customers, that they inevitably will encounter downtime and look for any work to throw on their machines. At that point, a small 20- to 40-person shop will be hard-pressed to compete against such a giant.

The main defense for small to medium-sized shops has and will continue to be their ability to be responsive and flexible when it comes to customer demands. Large companies often can’t duplicate that.

Smaller organizations don’t have as many management layers, often with the leaders only a few feet away from the folks actually fabricating the parts. The metal fabricating experts are available to speak directly to customers, and when they win the respect of those paying the bills, the fabricators become much closer with the engineers and purchasing personnel, making them an integral part of their customers’ supply chains.

But nothing is forever, and international sourcing will usurp the current trend of reshoring once the accountants signal to their chief executives and Wall Street overlords that it makes sense again. Will that moment in manufacturing time pit these service center-related fabricators against the metal fabricating base?

No one is really thinking that far ahead. The hope is that there is enough metal fabricating work around to keep people busy for the long-term.

Let’s hope they’re right.