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
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
As part of the plan,
Castlewhich operates 30 branches in North America, Europe
and Asiawill 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.
Castles 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 dont 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, Castles
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 Castles 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
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).