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Globalization among challenges for distributors

Keywords: Tags  Michael Hoffman, Klockner USA Holding, supply chain, Macsteel Group, MSCI, Metals Service Center Institute, Corinna Petry

CHICAGO — Michael Hoffman, outgoing vice chairman of Klockner USA Holding Inc., recalled the best and worst of times in managing an enterprise in North America.

He believes globalization and shorter economic cycles will test the region’s competitiveness even more in the years to come.

Hoffman, who is retiring from the U.S. scene but will remain with South Africa-based Macsteel Group, spoke of his career highlights during a recent interview with AMM.

The roughest times for Macsteel, "undoubtedly, were the early years. I became involved in managing the U.S. businesses in 1991. We were relatively inexperienced and were not well known. We had difficulty with suppliers, with banking lines, making ourselves known to customers—and this was exacerbated by an aggressive acquisition policy," Hoffman recalled.

Macsteel also struggled to turn around the finances of some of its American acquisitions. But time and attention paid off "and all stakeholders were eventually satisfied," he said. Today’s distribution landscape "bears very little real resemblance to the industry I came into 30 years ago."

The main trend has been "a huge migration from wholesaling into quasi-manufacturing." By investing "huge amounts" in technology, equipment and operational skills, service centers took over processes that used to be performed both by metal producers and metal-consuming customers, according to Hoffman. They developed metallurgical, engineering and technological skills required "to provide value-added service at low cost." That forever changed the identity of service centers from a "middle man" that merely broke down mill coils and marked them up.

Relationships evolved, too. "Service centers stepped into a role previously occupied by producers and owed it to them to do it properly in a responsible and efficient way," he said.

Service centers’ sophistication blossomed and they are now more integrated within the supply chain, Hoffman said, noting that "both producers and service centers make better money under this system."

On the sell side, the relationship with customers is "more respectful, more understanding and has an enduring aspect as (both sides) are more appreciative of common goals."

Over the next decade, the industry will continue to evolve. The future will be marked by extensive globalization by way of acquisition and ownership, the lightning-fast exchange of information and the influence of cycles.

"Globalization makes cycles shorter, which cause service centers to use less inventory to achieve the same objectives. We cannot rely on a traditional payback period and so we can no longer be exposed (to risk) for a long time," Hoffman said.

Finding efficiencies will continue to drive productivity, competition and profitability, he added.

"It was very nice to be (Metal Center News’) Service Center Executive of the Year (in 2011) and a great honor to serve as chairman of (the Metals Service Center Institute)," he said. "It was great to see Macsteel Service Centers USA Inc. reach the position it had among its peer group prior to being acquired, and another highlight to see the Klockner takeover proceed so well, in an amicable and mutually beneficial way."

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