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A.M. Castle slates plan to cut costs in new year

Keywords: Tags  A.M. Castle & Co., metals distribution, restructuring, facility consolidation, headcount reduction, profit improvement, Scott Dolan, commercial organizational structure


CHICAGO — Metals distributor A.M. Castle & Co. plans to restructure operations, including closing facilities and reducing head count, in order to improve profits by the end of the year, president and chief executive officer Scott Dolan told AMM.

The restructuring actions, which are expected to generate $20 million of operating profit improvement in calendar year 2013 before charges, aim to simplify how Castle does business, streamline inventory, reduce waste and improve on-time performance, "which we expect will help us increase revenue while reducing costs," he told AMM.

As part of the plan, Castle—which operates 30 branches in North America, Europe and Asia—will close service centers in Kent, Wash.; Gardena, Calif.; Orange, Conn.; Kansas City, Mo.; and Letchworth, England, but will maintain local sales offices to service customers of those branches, Dolan said.

The Oak Brook, Ill.-based distributor will also restructure its sales, operations, procurement and other support functions divisions, which today operate as independent commercial units. The company will now have three vertical sales teams providing expertise to the aerospace, oil and gas and industrial sectors, with a yet-unnamed chief commercial officer supervising the teams.

Between branch closures and corporate reorganization, Castle will cut its work force by about 10 percent, Castle said.

Castle’s newly centralized procurement group will use more analytics up front based on program lead times and turns, Dolan said, noting that the goal is to still supply all products but with less material in stock and in a much more coordinated way.

"We are continually looking at the footprint of where we have material across our network. Some branches carry supply that don’t turn as often as they need to," he said.

The distributor will also implement a continuous performance improvement program focused on direct and indirect sourcing, transportation, strategic pricing initiatives, back-office functions and optimizing inventory investment. Another key effort will be to reduce days sales of inventories (DSI) to less than 150 by the end of 2013 and to 120 by the end of 2014, it said.

The total pre-tax charge associated with these actions is estimated at $10 million to be incurred in 2013, leading to an expected net operating profit improvement of $10 million this year. Eventually, Castle’s actions are expected to result in $33 million of annualized ongoing operating profit improvement, the company said.

"The board made a decision in early fall that it was best for shareholders to really do the (restructuring) work internally, creating the most value," Dolan told AMM.

One of the few publicly traded service center operators, Castle has recently faced criticism from activist shareholders ( amm.com, Nov. 14), and it successfully resisted a takeover by Chicago-based Ryerson Inc. last year ( amm.com, Nov. 1).

Dolan said he has met with customers, employees, shareholders and individual managers to devise the restructuring plan. According to Dolan, customers are satisfied with Castle’s performance but its costs are higher than those of its peers, prompting the plan. "We have improved inventory availability and on-time deliveries but we did so with too high of a cost structure and not with an optimized inventory level," he said.

Dolan joined the company in October after working as a turnaround expert in the airline industry ( amm.com, Oct. 16). He replaced Michael H. Goldberg, who resigned as president, chief executive officer and director at the end of May ( amm.com, May 11).


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