It looked to be another great year for Republic Steel.
Coming off its 2005 acquisition by Industrias CH, S.A de C.V. (ICH) — a fast-growing steel producer and processor based in Mexico City — the company had cleared up all its previous debt, the steel industry was flush with opportunity, and as the new
was laser-focused on building a strong team and investing in best-in-class facilities to position the 125-year-old steelmaker for growth.
And that, of course, is when everything went south.
“After October 2008, the whole world changed for the industry,” says Vigil, who joined the Canton, Ohio-based steel company in 2005. “The recession threw us a curveball that we were not planning. I don’t think we were looking ahead. We had really relied on intelligence based just on market view.”
As the largest maker and supplier of special bar quality (SBQ) steel in North America, Republic produces steel for applications such as automotive and energy. It has been developing its steelmaking practices for more than a century. But even a company with annual sales of more than $1 billion wasn’t immune to the shock of the 2008 financial downturn.
Declining demand and struggling customers, who were urgently looking for ways to cut costs and scale back, hit the company hard. Almost overnight, Republic Steel saw its volume of business nosedive.
Streamline your structure
Not yet knowing the full scope of the downturn, Vigil knew that Republic Steel — like its customers — needed to cut costs to minimize the financial fallout. So the first step was to look for ways the company could streamline plant operations.
“At that point, the volume with the plants that we had had a lot of fixed costs,” Vigil says. “We were forced to shrink our footprint to be able to manage our costs and have a profitable business.”
Increasing efficiency without sacrificing quality can be tricky. You need to examine the profitability of every segment of operations thoroughly. First, identify the areas that have the most efficient costs, and second, identify where costs overlap. This process allows you to consolidate the most efficient operations and shut down equipment and functions that no longer make sense.
By making these changes, Republic Steel was able to shrink its footprint to that of a much smaller company in a short time period.
“That was a very different situation for us from 2005, but it was also a very good experience for us to try to model our business for the future,” Vigil says. “It allowed us to look at things in more detail and understand our business and our cost and the opportunities that we had to be more efficient.”
Taking cost out of operations not only allowed the company to produce SBQ steel more efficiently, but it also freed up resources, which Vigil reallocated to enhance the company’s quality, delivery and range of products in its SBQ steel business to provide more value to customers.
“We have to be right there with them making a product that suits their needs,” Vigil says. “Our No. 1 qualification or differentiation in the market is our ability to work with technicians of our customers to develop the products that fit their needs and then produce them consistently with a low cost and high quality and delivering them on time.”
When you’re not making a commodity, you need to be more focused on quality and continuously improving your products to stay competitive, Vigil says. The key to staying relevant was investing in the company’s strengths, such as its years of experience in the steel industry. The fact that the company’s Canton plant was the first-ever producer of SBQ steel provides it with a strong competitive advantage.
“Our brand has good recognition, and we continue to build on that by making our customers really comfortable in the long run that they have a true partner with Republic Steel, a company that knows what it wants and that can adapt to the changing market as needed,” Vigil says.
“With more than 125 years of know-how, you get a very good result. You can continuously provide the same quality that your customers are used to with more efficiency. It allows you first to be more competitive in the marketplace and maintain and improve your quality in the product.”
Since 2005, Republic Steel has reinvested close to $130 million in new equipment and new processes into its core Northeast Ohio facilities, which include plants in Canton, Lorain and Massillon, Ohio. In 2012, the company also announced that it would invest more than $87 million in a new electric arc furnace and equipment at the company’s Lorain, Ohio, steelmaking facility — a move that is adding approximately 450 employees.
The company chose the Lorain plant for the investment because of its close proximity to the existing customer base and to other Republic Steel facilities. Having a smaller physical footprint allows you to allocate resources to growing areas more easily to develop strong teams, while delivering a consistent experience for customers.
“We see a strengthening automotive industry as well as a lot of growth in the energy sector side through the gas horizontal drilling process,” Vigil says. “We see ourselves in a very good position to serve those markets in the long term.
“It gives us an opportunity to serve our customers with more product and a very solid footprint in the long run. Our customers have a supplier that has no debt and that is investing in its business. So we feel that our customers see us as a long-term partner, and they can stick with us for years to come.”
Look to your core
When your company is facing market volatility, past plans and strategies may get tossed out the window rather quickly. To ensure that Republic Steel didn’t lose sight of its identity in the chaos, Vigil used the company’s core values to guide the strategy — specifically two values passed down from its parent company, ICH.
The first was carrying a debt-free balance sheet.
“When we acquired the company in 2005, we inherited some debt from the previous administration,” Vigil says. “We worked very hard to pay it off with our own resources and some support from the parent company.”
Even when the company was losing volume during the recession, Vigil wasn’t willing to take on debt in favor of gaining more financial flexibility. In fact, he says borrowing money often results in the opposite outcome for companies by stifling their spending. Carrying zero debt allows you to make decisions without dealing with banks or lenders.
“Some companies have different opinions about debt, and in certain cases, it allows companies to be flexible and grow faster when an opportunity comes, but we still have that flexibility because having no debt makes us attractive to banks,” Vigil says.
“The recession has been the best proof of the strategy. We tested it through this downturn, and we were able to manage through the recession a lot better than some other companies who have big debt or a lot of interest to pay.”
As a result, the company has been debt-free since March 2006, operating as a true cash-flow company.
“It makes us a stronger company, and it allows us to keep reinvesting even in the downturn because the money that we generate is really for us and not to cover any debt obligations that we have,” Vigil says.
The second core value that helped guide the company through the recession was having a diversified mix of sales. Carrying a wide range of products makes the company a one-stop shop for many customers. So even in the downturn, Vigil continued to make investments to expand Republic Steel’s capabilities in emerging markets, such as natural gas and energy.
“The volatility in our customers’ industries continues to be something that we’re monitoring very closely,” Vigil says. “The economic situation worldwide, starting with Europe being so volatile, continues to have a big effect on our customers’ ability to project their levels of operations.
“Having a more diversified mix of sales allows us to not have all of our eggs in one basket and participate in different industries, and we’re able to better ride the cycles. We, as a company, believe that if we stick with those two values — remaining debt-free and continuing to have a diverse mix of sales — we can deal with the volatility in different markets.
“We’ve prepared our company to be better geared to react now than we were in 2008. Through these changing circumstances, we’ve created a more flexible company with the investments that we’re making, allowing us to grow our strength faster.” ●
How to reach: Republic Steel, (800) 232-7157 or www.republicsteel.com
Takeaways
1. Find ways to cut cost by shrinking your footprint.
2. Allocate resources to growth areas.
3. Guide your strategies with core values.
The Vigil file
Jaime Vigil
President and CEO
Republic Steel
Born: Mexico City
Education: Universidad Anahuac in Mexico City
What is one part of your daily routine that you wouldn’t change?
I like running every morning before going to work; it really makes a difference helping me start every day with great energy and a clear head ready for business.
Best piece of business advice:
I’ve benefited a lot from the experience that my team brings to my decision-making process. That saying that more heads are better than one — that does apply in practice. It’s particularly important in soft science to surround yourself with good members willing to openly give their take on problems so that together you come up with the best solutions.
What do you do for fun?
There is no better way for me to spend my time when I’m not at work than with my wife and kids. From training for a marathon with my wife, to being attacked with toy swords by my three and four year old boys … it’s the best time of my day!
