This article originally appeared on Business Focus Magazine.
Kloeckner Metals is a steel service centre, providing supply chain solutions to industry segments and consumer bases that consume steel and other metals. We learn how a leading steel service centre is navigating a volatile market and a changing world.
“We sit between the metal producer and the ultimate end-user of the product and provide various supply chain value-added services,” explains John Ganem, Kloeckner Metals’ CEO. “We’re stocking and we’re providing processing, including complex processing such as fabrication, logistics, warehousing, and just-in-time delivery.”
As well as providing these services themselves, Kloeckner Metals manages a network of supply chain partners, who the company can turn to if it does not have the internal capabilities its clients are looking for.
“We’re one of the largest steel service centres in North America,” Ganem tells us.
The metal supplier boasts a national footprint of 43 locations, primarily in the US with one location in Mexico, where it is planning to expand in early 2022. It is an extremely broad market, with many different segments each with its own needs, but Kloeckner has equipped itself to handle the more complex end of the market.
“This business ranges from straight distribution to very complex multi-step processing, managing multiple outside partners to get to an end product to the customer,” Ganem says. “That’s where we are focusing our business model, at the higher end of the value chain.”
Riding a Volatile Market
While Kloeckner Metals has crafted itself a very well-defined market niche, the market has always been a challenging one.
“Due to a relatively low barrier to entry, we operate in a highly fragmented industry segment. Every day we are competing with thousands of other businesses. Each of our facilities operates in a unique and highly competitive local environment,” Ganem admits. “Overall, we have less than 10% market share as one of the largest companies in that market. The basic products we supply have been commoditized and the nature of steel pricing is highly volatile. For the last few years, there has been a lot of excess capacity globally. The fact is we operate in a market that can move up and down very quickly. The real challenge for us is developing a business model that creates a level of differentiation that will allow us to deliver acceptable financial results regardless of market volatility.”
This is something that Kloeckner Metals is working on every day, but Ganem is the first to tell you that there is no magic bullet.
“There is no single solution,” says Ganem. “Everyone wants to come up with the big idea where we do this and solve all these problems and never deal with market volatility again, but we don’t have that solution.”
What is really needed is a combination of different solutions.
“What we do have is a multi-faceted strategy, called ‘Leveraging Strengths’, which in simple terms is focused on pulling a number of different key levers,” Ganem says. “From our viewpoint it’s a matter of maximizing capacity utilization, leveraging digitalization and innovation to ensure we have the lowest possible cost structure, optimizing both our internal assets and external partner networks, and always looking for further differentiation by maintaining a very diverse mix of value-added products and services.”
While Kloeckner offers a wide range of services and products, they are not all equal.
“They range from highly competitive commodities to high-margin, complex supply chain solutions. So, we are trying to focus on improving the mix day after day,” Ganem tells us. “We want to sell more of what provides higher value to our customers.”
Climbing to those richer pastures is a challenge for a business as large as Kloeckner, however.
“Significant investment is necessary to move up the value chain,” Ganem says. “You can’t have a material impact overnight. It is a long game to play. You have to be strategic and, most importantly, customer-centric in your approach.”
Ganem’s approach is to fill Kloeckner’s existing capacity while creating a mix of products and services that are more value-oriented. One area that needs particularly careful management is Kloeckner Metals’ inventory, due to the price volatility involved.
“We have to carry a lot of inventory, and that can earn you significant gains or losses depending on which way the market goes,” Ganem reflects. “We are improving demand forecasting by harnessing advanced data analytics. We feel an artificial intelligence-based demand planning approach optimizes the inventory management process, supporting sales growth, improving the return on capital, & mitigating market price risk.
Building Tomorrow’s Leaders
To manage this, Kloeckner Metals needs to have a stable of talented professionals. Finding those people is a completely different challenge.
“This is one of the biggest challenges we’re faced with. The fact of the matter is we have to be focused on creating a company that provides a strong value proposition not only for our customers but also for our employees,” Ganem says. “We are building the leaders of the future. We have put an emphasis on developing a robust people management strategy with the specific goal of attracting the type of talent that will be needed to run the more digitally orientated business we’re trying to create.”
This search for talent goes everywhere from summer internships to management training programs. Kloeckner has also created a global digital innovation hub called kloeckner.i. with highly collaborative organizations located in both Europe and the US. These organizations are true business transformation units bringing together a team of experts to focus on digital innovation and creating zero-touch, process automation throughout the entire organization. This is how Kloeckner plans to create commercial, operational, and supply chain excellence.
At the same time that Kloeckner is preparing the company for the next digital revolution, it is also readying itself for a green transformation.
“Globally we’ve embraced sustainability and our responsibility as an organization is to make the environment a top priority,” Ganem says. “We’ve signed up for the Business Ambition for 1.5°C-initiative. Sustainability isn’t a box-ticking exercise. It’s something we want to do. There are opportunities for us as an organization to become a leader and make it part of who we are. I think this is a very important topic.”
All this feeds into Kloeckner’s long term strategy.
“We’re going to create a model where we achieve cost leadership through digital innovation,” Ganem tells us. “But by also combining the impacts of differentiation through enhancing our product offering, we finally give the business the ability to navigate the price volatility problem that will probably never go away.”
These are lofty goals, but if Kloeckner can pull them off, the potential rewards are great.
“If we can do all of that then I believe it leads to an opportunity to begin growing the business and driving consolidation in the industry,” Ganem says. “If we can perfect the business model we envision, the opportunities become endless.”
This article originally appeared on Business Focus Magazine.