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A culture of caring

Aug 03, 2017 | 08:00 PM | Grace Asenov

Taking care of the soul as well as the stock is a family tradition at Rochester, N.Y. based Klein Steel, where a caring-centric approach to customers and employees alike helped deliver a $40-million gain in new business last year alone.

Mindful meditation practices and industrial art might not be what you’d expect to find at a metals service center in Upstate New York—or anywhere else for that matter—but at Klein Steel Service Inc., taking care of the soul as well as the stock is key to the company’s success.

Joe Klein, who is at the helm of the 46-year-old family business, believes in treating his customers and employees with respect and compassion.

“We take care of the smallest customers, and they will always be treated with friendliness,” Klein Steel’s president and chief executive officer told AMM in a recent interview.

Caring about the “little guy” is a company tradition, one that stretches back to the roots of Klein Steel. The Rochester-based company was founded as a junkyard called Klein Metal Company in 1946 by Joe Klein’s father and grandfather, Arnold and Jacob Klein.

More than 20 years later, in 1969, Klein hit a railroad bridge when driving a delivery truck, but could not find anyone in town to supply him with the part needed to repair the truck.

“There were five service centers in Rochester at the time, and my uncle called all five looking for the part,” Joe Klein said. “Not only didn’t they have it, they said they didn’t want to deal with a little scrapyard.”

The incident struck a nerve, and by 1971, Jacob and Arnold had purchased and converted an old warehouse adjacent to their junkyard into a steel distribution facility.

Joe Klein joined the family business ona full-time basis after graduating from Syracuse University in 1972. And he came prepared, having spent his childhood at the junkyard and working there during summers throughout high school as a metal sorter and later as a salesman.

“My first (full-time) job was running our saw,” Klein said, calling the assignment his “favorite job ever.” We had five little garages and one little saw,” he recalled.

In the decades that followed, the operation expanded into five facilities located across New York State, adding more equipment and capabilities. Indeed, in 1986, the same year it severed formal ties with the scrapyard, Klein Steel purchased its first processing equipment, adding burning and sawing capabilities. Later, it also installed laser and waterjet cutting, and eventually machining capabilities.

Klein Steel moved to its current 142,000-square-foot headquarters location in 2004. An industry consultant had analyzed their previous building for production efficiencies in 2000 and concluded that Klein should “buy a shotgun and shoot the building,” Joe Klein recalled.

“We used the recession of 2001-2002 to build the current facility and invest in a lot of equipment,” he said. “If we can, we prefer to invest when times are really bad,” he said, citing the adage “buy when there’s blood in the streets.”

In total, the company has invested about $8.5-million on the headquarters facility, including costs associated with commissioning the Threshold industrial art sculpture that stands at the front of the property, Klein’s Steel’s top executive calculates. Klein Steel received some grants to build the facility, he noted.

“If we had built it two years later, it would have cost us $12- to $13-million, and we wouldn’t have gotten the grants,” he added.

Despite the steady growth, Klein remains as meticulous as ever when it comes to weighing new investments to serve the company’s 2,500-plus active customers.

“I’ll buy as much equipment as I can, but it’s all data-driven,” he emphasized. About a decade ago, Klein confessed to falling “in love” with a tube laser. “This was lust,” he quipped in hindsight.

Before purchasing the equipment, he sent Klein’s salespeople out to ask customers if they would buy products made from the tube laser. The scouts discovered, however, that the customers who would consider buying those products were either unreliable accounts (they didn’t pay their bills quickly), too diversified in terms of their supplier base to warrant such a costly investment, or would probably take some years to switch to the more advanced products due to concerns tied to their own manufacturing processes. “So we didn’t buy the tube laser,” Klein said. “The fact that I’m in love with some pieces of equipment and not others doesn’t matter.

“We make data-driven decisions by looking at the data and maximizing our returns,” he emphasized. “We look at what our customers are doing—even if they don’t know what they’ll need—and we try to determine that for them.”

Promoting conscience capitalism

Joe Klein doesn’t focus solely on treating his customers well, he also strives to treat his 220 employees like family. Klein returned to Klein Steel this past January after spending 11 years working to improve urban education in his hometown
of Rochester, N.Y.

“I’m so delighted to be back in the metals business,” he said. “My 11 years in urban education really added to my skill set. I now
feel I can take Klein Steel to the next level.”

The experience shows, particularly in Klein Steel’s employee retention rate. Unlike many other businesses in the metals industry, the company doesn’t struggle to find and retain workers to the degree others do.

“A couple of years ago, we were voted the best manufacturer to work for in New York State,” he said. “We’ve been more successful than most in manufacturing at bringing in good young people who we can train to operate the machines.

“It’s not the region; it’s our culture,” Klein insists. “And our ability to get the word out about our culture. Our culture allows us to recruit.”

To further enrich that culture, Klein Steel has launched a cultural initiative promoting mindfulness. The action will help ensure employees’ well-being and safety, and improve the company’s productivity and competitive advantage, Klein commented.

“We’ve hired someone and we’re going to be bringing in mindful meditation,” he said. “It will keep our employees happy and productive, and help them concentrate better and safer.”

Klein Steel also has a culture club, which aims to encourage teamwork, fairness and accountability and ultimately “drive fear out of the organization,” Klein said, adding that those principles were instilled in him by his father and grandfather.

“We have values in action,” Klein said. “If we catch people doing something right, they get an award, and everyone who gets an award goes to a jar and picks at random and gets $500 or $1,000.”

Accountability works both ways, however, and if people don’t perform, they will be fired. “It’s not only for your sake or the company’s sake; people know they’re failing so you’re just destroying them,” he explained.

Klein holds himself and the company’s management to high standards too. “If we had a bad recession and we have to tighten our belt, the higher up you are in the ranks, the more you will sacrifice,” he said. “It will start with me and go down to management, then junior management and so on.

“We view management not as the exulted few, but as people who can remove roadblocks and take care of our employees,” Klein added. “People say that, but we live it.”

Plans for the future

Klein Steel hopes to expand its product portfolio and geographic reach in coming years. Carbon steel products currently account
for about 75 percent of Klein’s revenue, while stainless steel and aluminum products represent some 20 percent and five percent,

“My dream is 50-percent stainless,” Klein said. “I would love to see 50-50 carbon and stainless someday.”

The company distributed an average of 391,000 pounds of metal per day in 2016, with a peak of 450,000 pounds in a single
day for the main plant, according to its president and chief executive officer. Those figures do not include shipping volumes from
its new 40,000-square-foot hub facility in Rochester, which opened in 2016 adjacent to the company’s headquarters facility.

Klein Steel also hopes to grow its value-add business, which generates roughly 10-percent higher margins vs. commodity sales, according to Klein.

“Once you get into multi-stage processing, where you’re doing two or three processes on a piece of metal, the margin is substantially
higher,” he noted. “(However,) it adds to your cost structure; you need the capital investment and the training.”

Still, if he could, Klein said, he would shift his business towards 100-percent value-addprocessing. A more realistic goal, Klein acknowledged, is probably closer to 70 percent, vs. the current level of roughly 50 percent.

“If I could figure out a way to do only value- add processing, I would do that,” Klein said. “The roadblock is being in western and central New York; we don’t have enough business to do all value-add.

“I would like to see us become almost first-stage parts producers,” he added, noting, however, that the company must carefully avoid competing with its own customers in pursuing such a scenario.

The manufacturing base in New York is not growing, likely because the state is “not business friendly,” Klein stated flatly. “You have to be good to be here,” he added, pointing to New York’s heavy regulations and taxes on small businesses.

That’s one major reason why, going forward, Klein Steel will pursue growth by expanding its geographic reach, its’ top executive
said. The company currently serves primarily the Upstate New York and northern Pennsylvania regions, with some additional
business in Massachusetts, southern Ontario and Ohio.

“There are three areas that we are going to grow in,” Klein said, declining to disclose the locations. The company intends to serve those areas from its current facilities in New York, he noted.

Klein Steel will continue to focus on diversification. The company’s three major end markets currently include the energy, equipment
manufacturing, and construction industries.

“In western and central New York, you have to be really diversified,” Klein said.

“We need diversity for safety’s sake.” Still, demand has been fairly strong so far this year, and seems to be growing stronger, Klein noted. The company saw a $40-million gain in new business in 2016 alone, and anticipates a 10- to 15-percent annual growth rate going forward, he said. Performance on that level counts as one reason why Klein Steel earned AMM’s 2017 Steel Excellence Award for Service Center of the Year (see page 24).

“We experienced consecutive, year-on-year growth during a significant industry downturn, invested in the business despite economic pressures and industry uncertainty and launched the first fully digital, intelligent steel service center,” Klein answered when asked why he thought Klein Steel was singled out for the AMM award.

“It helps that prices are up quite a bit from a couple of years ago,” he added. Looking toward the future, Klein expects that the next major trend for steel service centers will center on technology, such as the automation of purchase ordering.

“We have to take the costs out of the manufacturing chain,” he said. “In the future, I hope that customers are typing in their orders, which will automatically be sent through the credit department and received right on the shop floor, bar-coded and
the funds transferred.”

Until then, Klein Steel will stay focused on growth by maintaining its unique company culture in terms of both human talent and technology.

“I’m so happy to be back at Klein Steel,” the company’s president and chief executive officer beamed. “I love coming to work every day.”