In mid-1997, Atlas Steel Products Co. president and CEO Lawrence Burr had a problem. His Chicago processing and warehousing facility’s second five-year lease would soon expire, and because the plant was underutilized, it didn’t pay to renew the lease.
But the decision was about more than simply trimming costs. The company-which processes aluminized steel-had spent 12 years establishing its Chicago market and wanted to keep a presence there. “It was part of that year’s strategic agenda to resolve the issue,” recalls Burr. “But we didn’t want to abandon Chicago, because it’s an important region for the steel industry.”
So Burr explored other options, including building a new facility. Each option had its own problem, and all were nixed. Then Burr called an old friend, Gary Hamity, to discuss his dilemma. Hamity, owner of Mapes and Sprowl-a Chicago steel company with which Burr had done business for years-had his own problems, stemming from oversupply in the steel industry.
It was a timely call, says Burr. “Coincidentally, they (Mapes) were looking to enter into an alliance. We’d known each other a long time and trusted each other implicitly. It was a good match.”
In November 1997, the two steel companies formed a strategic alliance which allowed Atlas to phase out of Chicago Heights (and consolidate operations at its Twinsburg site) and use Mapes & Sprowl’s Chicago facility to depot steel for local customers. In return, Mapes & Sprowl depots its steel at Atlas’ Twinsburg facility.
The arrangement was so beneficial that in August 1998, Burr initiated another alliance, this time with Sumitomo Corp. of America, a New York-based steel distributor. Sumitomo and Atlas had also worked together, and the ensuing agreement was similar to the Mapes deal-Atlas would depot its steel at Sumitomo’s four Midwest service centers-Detroit, Columbus, Cincinnati and Nashville-and Sumitomo would use Atlas’ facilities to depot steel for its regional customers.
For manufacturers who need to slash costs and keep their competitive advantage, a strategic alliance may be an effective solution. Here’s how Atlas’ two alliances allow the company to save money while maximizing facility use and increasing its customer base.
Trimming overhead
By shutting the Chicago Heights facility, Atlas removed that building’s lease and its associated expenses from the company’s budget. And while all 13 Chicago employees were offered positions in Twinsburg, only one accepted the move. That further cut costs. Burr then sold one of the two steel slitting machines based in Chicago and moved the other to Twinsburg, which increased Atlas’ processing capacity.
“That pulled an enormous cost of that second facility out of our business,” says Burr. “And with changes we’d made in our workforce here, we were able to do more with the existing workforce (in Twinsburg).”
Steel previously cut in Chicago was now slit in Twinsburg, then shipped to Mapes’ Chicago operations for regional distribution.
Better use of space
Because Atlas no longer needed to store steel for its Chicago, Detroit, Columbus, Cincinnati or Tennessee customers in Twinsburg, it freed up space in the company’s existing 65,000-square-foot plant.
Before the alliances, the Twinsburg facility was filled to capacity, and Burr was considering expansion. Now, however, even with Sumitomo’s and Mapes’ products stored in Atlas’ facility, expansion plans have been put off.
“We’ll grow intelligently now instead of for the sake of growing,” says Burr. “I believe in smart growth.”
And when it does become necessary, Atlas won’t need to move. The facility sits on 15 acres, where Burr says it will be possible to expand to 200,000 square feet.
Access to new markets
Neither Sumitomo nor Mapes competes directly with Atlas-their steel products are drastically different from those produced by Atlas. Sumitomo deals in hot-rolled and cold-rolled steel while Mapes specializes in enameling and silicon steels. That, says Burr, creates the opportunity to tap into the others’ existing customer bases. “We currently share two customers (with Mapes),” he says. “This gives us the opportunity to pursue customers who use both products.”
That works both ways. As Atlas reaches Sumitomo customers who need aluminized and heat-reflective steel, Sumitomo is able to market its products to Atlas’ customers.
It’s an arrangement that’s especially convenient considering where the companies are located. “Because of the geographical spread, we broaden their market as they broaden ours,” explains Burr. “We’re all able to serve our customers more efficiently.”
All of this has given Atlas a suitable alternative to consolidation. Burr admits that in recent years, his company has been pursued by large consolidators looking to expand their product lines and gobble up Atlas’ customer base. Now the alliances have helped Burr create a one-stop shop for steel products.
Innovation, though, isn’t a new concept for Burr. He’s bucked conventional wisdom regularly since he bought Atlas in 1983. Back then, the company was a $3 million aluminized steel supplier, with barely a dozen employees. But the tough-nosed former journalist envisioned ways to make it grow. He instituted a team approach to the company and empowered his employees with major decision-making abilities covering how the operations were run. “They had wisdom,” Burr says. “They knew there were ways to do it better.” That type of approach was basically unheard of in the 1980s.
Now, 15 years after he began streamlining his company’s processes and utilizing his employees’ skills and talents, Atlas is one of the leading providers of aluminized steel in the nation. It has 64 associates and revenue in excess of $50 million. Burr says these alliances provide an opportunity to quadruple those figures in the next few years.
Joint development of new products
As one of the benefits of the agreements, Atlas will place equipment in both Mapes’ and Sumitomo’s facilities. That enables the companies to process small batches of Atlas’ products for just-in-time delivery.
Atlas, maintains Burr, is just taking advantage of its niche market strength and parlaying what it can do for both Sumitomo and Mapes. “It’s a more effective use of resources,” he says.
By understanding each company’s processes, it’s possible to develop new products from which everyone benefits. But it’s not something any company can do. “As long as you can do it with people you trust, you can maximize your opportunities,” he says.
Burr says he expects to duplicate the model created by these two alliances and forge new alliances. And he’s considering turning the tables on those pesky consolidators he’s worked so hard to avoid. “We’re also looking at acquisition strategies.”
