Business today means competition from all sides. Information overload. Increasing pressure on margins. Technology investments. Too many short-term fixes. Too few long-term answers.

These economic concerns and others are now being debated in the wake of the horrific tragedy that beset our nation on the morning of Tues., Sept. 11, 2001. We recognize that many things are needed to boost both our personal and economic confidence following the terrorist attacks in New York City, Washington, D.C. and southwestern Pennsylvania.

Clearly, our government and those entrusted to lead us are forging ahead with plans for a much-needed economic recovery. The Federal Reserve is creating a lot of liquidity which means significant fiscal stimulus over the next several months in both tax cuts and additional spending. In time, these initiatives will be embraced by our financial markets.

Further, the Bush administration’s actions against terrorism both at home and abroad should result in increased consumer spending; a renewed desire to resume airline travel (with heightened security measures); a deeper appreciation for family and leisure activities; and some assurance that our country will eventually heal.

No quick fixes

How does all this impact the North American steel service center community? Suffice it to say, there are no quick fixes for us or our mill industry partners, as was reported during the Steel Service Center Institute’s (SSCI) Forecast 2002 Confer-ence, which came to an abrupt halt on the morning of Sept. 11., in Rosemont, Ill. While we recognize that these are difficult times for our industry, as smart business people and responsible citizens we exude the inner confidence and perseverance to weather these perilous times.

To keep pace with the affects of globalization, e-commerce, consolidation, pricing, quality standards and other critical business trends, SSCI has implemented a comprehensive strategic plan to chart the industry’s future.

Our fast-track trend to globalize (reduced tariffs, free markets and open borders) along with a massive wave of high technology has created tools of efficiency that were unimaginable in a controlled market climate and a prewired world.

During the 1990s, the service center industry encountered unprecedented success as the North American economy grew impressively. The industry also experienced an equal amount of change with the advent of electronic commerce, the rapid consolidation of both distributors and producers, and the ongoing debate over foreign trade and dumping.

Record shipping rates

In recent years, steel shipping records were established and just as quickly broken. Despite selling huge volumes of steel, profitability remained a concern for most steel executives as downstream manufacturers looked to reduce expenses by keeping material costs down.

At the same time, depressed economies in many foreign countries led to a surge of imported steel, often dumped at depressed prices, which prompted a rush of trade cases designed to stem the tide. The Bush administration will ultimately make the final decision on whether to embrace import restrictions, which could would be in the form of higher tariffs, limits on the volume of imports, or both. This would bring much needed relief to both large steel producers and smaller, more efficient “mini mills” that use steel scrap as their raw material, as well as all segments of the distribution chain.

Besides U.S. restrictions on steel imports, many other business and manufacturing challenges exist for service centers. One such “hot button” concern is the implementation of new technologies which grow in importance as new ways to market steel and reduce transaction costs via the Internet are identified by SSCI members.

Pushing new strategies

As part of our New Economy, service centers must continue to introduce new business strategies in anticipation of sharper worldwide competition and soft profit margins. Analysts acknowledge that manufacturing is among the first parts of the economy to see the impact of changes in interest rates and other factors that slow or recharge growth.

At our recent Forecast Conference, the focus was to provide both SSCI members and other business leaders with market-specific assessments in the areas of steel supply and demand as well as the overall direction of the North American economy during 2002. Much has obviously changed since we heard from leading analysts at the conference.

It’s also safe to say that many ongoing business developments in the steel industry have sparked a chain reaction which The Trends Research Institute, Rhinebeck, N.Y., now describes as the Five-O Formula:

• Overproduction. There exists a fundamental imbalance between the products and services available worldwide and the potential to consume them. Last year, steel production and imports were both too high at a time when the economy was cooling. A recent SSCI Business Conditions Report showed 24 percent of respondents with current inventory levels 6- to 10-percent lower than last fall.

• Overcapacity. A global glut of advanced production facilities and excess service capabilities have assured the imbalance will likely remain. As 2001 began, market conditions softened and our members experienced a pronounced slump in orders, shipments, revenues and profits. However, ours is a varied market that includes the global appliance industry, wth conditions differing significantly depending on the product mix of individual service centers. Today, we collectively distribute better than one-half of all major carbon and stainless products consumed in the U.S. Our annual shipments run in excess of 40 million tons and on any given day we hold 8 to 9 million tons of inventory.

• Open Markets. The industry is challenged as an integral part of the supply chain to increase its overall value proposition, maintain cost containment and have enough funding available at the end of the business year to invest in better technologies. Of all American steel groups, service centers are closest to market conditions. We have to be; that is the essence of our business.

• Overpopulation. A population of 6-billion-plus, in which half the workers make $2 per day, allows companies to dip into a global labor pool of inexpensive help on a frequent basis.

• Online. The Internet has facilitated the creation of purchasing alliances that gives business and industry the ability to secure the best deals on manufacturing and raw materials procurement. On the heels of online activities and other purchasing directives, we are carefully examining the e-commerce side of technology for service centers and recommending a specific role for SSCI.

Looking ahead, our industry and member companies will continue to be challenged as part of the supply chain to increase its overall value proposition, maintain cost containment and have sufficient funding on hand at the end of the business year to invest in even better plant and equipment technologies. Any place a supply chain exists, e-commerce can help.

Financial market bulls are hoping the manufacturing sector is now recharging for a stronger 2002, with assistance from the Federal Reserve’s series of interest rate adjustments. However, economic reports aren’t likely to provide much inspiration, so the slump will likely continue into the new year. And, that’s exactly where SSCI becomes part of the business scenario.

We believe our strategic plan addresses the challenges posed by the Five-O Formula. This initiative received unanimous approval by SSCI’s board of directors earlier this year. Without the leadership of dedicated members–through our five Critical Options Groups (COGs) as well as our Renewal Task Force (RTF)–it would have been impossible for SSCI to undertake the enormous challenge of reinventing itself to enhance the ongoing role of service centers, especially as our economy teeters near the brink of recession.

COGs/RTFs vital to success

The groups established by our COGs and the RTF include: products and services; structure and membership; technology applications; finances and governance. An associate members COG has also been established and recently began addressing its charge: working with SSCI to grow the market and strengthen the service center channel. This summer, we hired a chief technology officer, Chris Marti, whose responsibility is to assist our members understanding of e-commerce and how it can be used effectively.

E-commerce doesn’t alter the fact that people determine what good business practices are, while integrating the critical elements of speed and change. A similar program is underway with our activity-based costing model and vendor partner, Wayne, Pa.-based Acorn Systems. Moving forward, it’s conceivable that we could recommend other models (for service centers) whether it’s an ERP system; software for vendor-managed inventory software, or customer relationship management programs.

In another technology-related move, Debbie Grale was named SSCI’s director of research and information technology, and will focus her efforts on moving the implementation of our strategic plan forward as it relates to the Institute’s critical research and information products and services. This includes managing the reporting process and matching the value and responsiveness of these products to SSCI members’ needs.

Dealing with cost pressures

There is no question that steel purchasers have cost pressures to deal with just as SSCI members and the mills do. However, service centers are making greater concessions in terms of their margins to reach a preferred vendor status, and are expected to provide more services for less profit.

What we try to do for large OEM customers—including those in the appliance industry—is to displace them of the inventory burden. This frees up much-needed space and relieves the OEM of the financial uncertainty during these highly volatile times. The OEM does not want any more steel on hand than is needed, and is not interested in becoming a commodities broker.

Like all well-managed businesses, service centers must perform efficiently and generate an ROI that is consistent with the expectations of those vested in their collective business future. Whether it’s getting paid to deliver the right product Just-in-Time or providing customers with a high level of sophistication in metal processing and preparation, our members have worked diligently in developing value-added services that ensure customer satisfaction and on-time deliveries.

These business concepts are now being promoted on a daily basis by SSCI member companies, particularly as new customer relationships are being forged. It is also an integral part of an emerging New Economy that stresses the need for precise material that brings form, condition and volume into the manufacturing mix with surface critical products.

Service centers made a significant capital investment in processing equipment during the past decade to better serve customers, including those in the appliance sector. Some estimates place this expenditure at nearly $6 billion in an effort to achieve optimum form and condition. For appliance manufacturers, this means receiving panel flat material cut perfectly square, with conditioned edges, bundled and packaged in a way that ensures timely delivery and production scheduling.

The steel service center industry is quite proud of its track record of successful partnerships with appliance customers and is looking forward to building on these relationships during the months ahead and in anticipation of an ongoing economic recovery in 2002.