The Anti-dot.com
As
a start-up company in the old-economy aluminum
industry, Service
Center
Metals hopes to
build its competitive advantage through quality,
service and lean operations.
When
Scott Kelley sealed the funding for his Richmond
start-up
company, Service Center Metals (SCM), he celebrated
the next day by driving up to
Washington,
D.C.,
to take in a Bruce Springsteen concert. Not long
after, as coincidence would have it, co-founder Chip
Dollins scrounged a ticket from an old frat brother
to see “the Boss” play in
Las
Vegas.
Kelley confesses to being a serious Springsteen
junky. “I’ve seen him 40 times – at least.”
Another
of Kelley’s icons is Mark Borchardt, who made a
documentary, American Movie, about his two-year effort to produce a low-budget
horror flick. An autographed poster of the cult
serves as an office totem for Kelley, who took
almost as long to get his company off the ground.
Says the clean-cut Kelley of the scraggly haired,
independent filmmaker: “He’s been an inspiration
to me.”
Upstart
Service
Center
Metals
is busting into an old, worn-out industry –
aluminum – dominated by aging giants like Alcoa
and Kaiser, and beset by low-cost competition from
Russia
and
China.
But Kelley, 42, and Dollins, 41, believe they can
prosper as a small, nimble firm in an arena where
the massive, integrated manufacturers stumbled.
Bringing different values and fresh perspectives –
you didn’t see many pictures of either Borchardt
or the Boss in the old Reynolds Metals headquarters
-- these young executives may provide a model for
the revitalization of Virginia’s
hard-hit manufacturing sector.
As
Dollins says enthusiastically, SCM has been given a
chance to build a manufacturing operation “with a
clean slate.” The company gets to install
state-of-the-art equipment designed for a lean,
flexible manufacturing process. It gets to start
fresh in labor relations, cross-training employees
to work multiple jobs and compensating them for
performance. The company, unencumbered by legacy
quality controls, gets to build ISO standards into
the manufacturing process from the beginning.
Focusing on core strengths – metal fabrication and
customer service – it gets to out-source
tangential tasks such as logistics and distribution
to those who do them better.
None
of these concepts are particularly radical. But they
had difficulty penetrating sprawling, hierarchically
organized aluminum giants like Reynolds in
Richmond,
and the Pittsburgh-based Alcoa, which took it over.
Unions, corporate politics, antiquated equipment,
legacy management systems and a conservative
corporate culture all made it difficult to implement
change. The beauty of American capitalism – and
the hope for a rebirth in
Virginia
manufacturing
– is its ability to spawn new enterprises like SCM
with total freedom to put the new
thinking into practice.
While
Kelley and Dollins bill SCM as a new-style company,
they haven’t gotten caught up with “new
economy” jargon. Unlike ephemeral Internet start
ups, they will make a tangible product: aluminum
rods and bars. They’ll sell their products for a
profit. And they will have real customers, many of
whom they have lined up before the plant
construction is complete. Says Dollins: “We’re
the anti-dot.com.”
The
aluminum industry is highly competitive worldwide.
Since the fall of the Soviet
Union
and
the collapse of military demand for aluminum,
Russian industry has glutted world markets with the
metal. Aluminum is a major industry in
Latin America, and China
has
become a significant player in global markets as
well. The primary advantage of foreign firms is cost
– they can produce aluminum ingot and primary
aluminum products cheaper than plants in the United
States
can.
Kelley
is targeting a slice of the aluminum market –
distributor service centers -- accounting for nearly
17 percent of pounds shipped. Distributors serve as
middlemen between the companies which refine the
bauxite ore and cast it into ingots, and the
manufacturers who transform the metal into auto
parts, electrical switches and window frames. Due to
short lead times and the high cost of shipping
extruded bars and rods, this segment has proven
difficult for foreigners to penetrate. Imports
account for only one percent of the U.S. market.
SCM
plans to purchase aluminum in cast aluminum logs and
extrude it, initially, into 350 or more standard
shapes for further processing by a distributor or
the final manufacturer. Product integrity is
crucial. The extrusions must adhere to
specifications related to chemistry, tensile
properties and surface quality. Customers, who set
up their machine tools to work within a narrow range
of tolerances, place a premium on consistency.
Quality is a mantra at SCM.
So
is flexibility. The company is building a production
line designed for short runs and rapid re-tooling
– as many as 15 different products per shift –
so it can respond quickly to orders. By
cross-training employees to work at each production
station, SCM will have far more flexibility to move
people where they’re needed to eliminate
bottlenecks. The big companies debated endlessly how
much initiative to allow their employees, Kelley
says. At SCM, the issue is settled. “Empowerment
won’t be an option -- work like you’re empowered
or you’ll be replaced!”
Dollins,
former director of quality at the former Reynolds
Metals, wants to build a team-oriented culture
geared to achieving specific goals for productivity,
quality, safety and shipping performance. Borrowing
a common practice among steel mini-mills, the
company plans eventually to make bonuses a
significant part of the compensation package.
Instead
of grafting state-of-the-art quality controls onto
an antiquated management structure, Dollins will
build procedures to be ISO certifiable from the
beginning. Likewise, he plans to employ six-sigma
methodology, a disciplined, statistics-based
approach to problem solving. “It won’t be the
management flavor of the day,” he says. “We’ll
build that into our production process from Day
One.”
The
layout of SCM’s aluminum micro-mill is designed to
tear down barriers. The open-office environment will
offer no special perks for the bosses. “One size
cubicle fits all,” says Kelley. “There won’t
be any debate over the size of the office.” The goal: no
egos, no turf, no kingdoms, no politics. The
unremitting focus of the back office will be
providing fast and responsive service. “You’re
on the phone [with the customers] all day long.”
Such
goals should be relatively easy to achieve in the
start-up phase when
the company starts production with a single
production line and 50 employees. But Kelley
vows not to expand the plant beyond two
production lines. If the company grows beyond that,
it will build a new facility at a different
location. Size and hierarchy are the enemies.
Aluminum
distributors excel at logistics and inventory
management, so SCM will let them handle that end of
the business. The company’s mid-Atlantic location
southeast of
Richmond,
with easy access to three interstate highways, makes
it superbly positioned to supply its customers.
The
company has begun construction of its manufacturing
plant, located in the SouthPoint
Industrial
Park
in
Prince
George
County;
hiring should begin in May 2003. SCM expects to
avail itself of the outstanding pool of industry talent in the Richmond
area left by the closing of the Reynolds Metals
headquarters.
Virginia's
economic development community was indispensable in
putting the $13 million financing together, Kelley
says. Private funding came from Envest in Hampton
Roads, but a $1 million loan from the state’s
revolving loan fund was a critical piece of the
financing; without that subordinated debt, the
company might never have swung a $2.4 million bank
loan. The company also plans to take advantage of
the state’s workforce training program.
The
SCM experiment bears watching. As factory production
increasingly moves offshore, it’s getting more and
more difficult to recruit new manufacturing
investment. Companies that do come here are branch-plant
operations with a dubious long-term commitment to
the Commonwealth.
If Virginians want a viable manufacturing sector, we
need to figure out
how to grow and build our own.
At
SCM, the crucial ingredient is human capital. What
makes the company special is neither proprietary
technology nor access to huge piles of investment
capital. It's the entrepreneurial zeal and industry
experience of the senior management team. What will
make the company successful, if it does succeed, is
the application of widely known but
hard-to-implement management strategies and the
recruitment of a highly skilled, super-productive
workforce. Instead of
steering scarce state resources into
site-location incentives to recruit outsiders, Virginia’s
policy makers should focus on the development of
human capital and the dissemination of state-of-the-art
manufacturing methods that
make Virginia enterprises more competitive.
--
October
21, 2002
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