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Technology centers

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Twenty-first-century technologies are transforming the service center sector, creating synergies and enhancing productivity not thought possible as little as 15 years ago.

Along the way, service center operators are having to re-educate themselves on how they see their business, and how automation, robotics and software can propel the sector into a far more competitive—yet profitable—future.

“Technology gives you the potential to be faster than the next company,” M. Robert Weidner, president and chief executive officer of the Metals Service Center Institute (MSCI), said. “It helps you make business decisions very quickly, right a wrong or take advantage of opportunistic situations because it gives you insight into what is going to happen.”

Using technology to boost productivity and profitability is gaining increased attention as the nation’s steel industry faces its most severe economic crisis since the Great Recession. A floundering economy in the European Union, a pullback of growth in China and East Asia, the strongest U.S. dollar in more than a generation and shrinking oil country tubular goods (OCTG) markets amid plunging oil prices have created a perfect storm. And steel producers and service centers are under assault from imports of every variety and shape of steel.

Technology can help soften some of the competitive pressures that metal service centers are facing. It also has the potential to be a game-changer in a working capital business, Weidner noted. Dealing with asset management components such as cycletime reduction, processing vast amounts of data quickly, putting the data into meaningful and relevant terms, and responding quickly can have a huge impact. “If you look at MSCI’s Metals Activity Report data, the total inventories turn in a sector around four times per year,” he said. “If a company is able to turn four, five or six times a year and is not locked into an inventory base, it can be faster to respond.”

More fabricating is being done by service centers, along with more first-stage manufacturing and some kit assembly, as customers demand more from their supply chain base. The definition of a service center in the future will be a combination of innovation, automation and thoughtful leadership.

However, adopting new technology isn’t cheap. But return on investment can make new technology far less of a financial burden than the initial off-the-shelf price that technology might indicate. Return on investment is difficult to measure in the aggregate for the service center industry because of the diversity of ownership structure, according to Weidner. All of the traditional methodologies that calculate a publicly traded company’s cost of capital are determined by capital market forces. However, the cost of capital is defined differently for each family run, privately held company.

“There isn’t one specific number that the industry is using in evaluating capital projects,” Weidner said. “Technology is an investment for businesses that are looking for competitive advantage through cycletime reduction that is different for each company. Technology in general is a powerful tool for companies to improve their bottom line.”

The return on technology investment also isn’t necessarily calculated in black-andwhite terms, he said. “Another important element for technology to work is that there has to be a culture change. Hardware and software by themselves will not necessarily guarantee acceptable return on investment. However, when coupled with a culture that embraces the newfound power of change, technology is a good investment.”

Hamilton, Ontario-based CareGo had a relatively traditional start in the steel industry. Founded in 1999 by a commercial manager at Dofasco Ltd.—one of Canada’s major steelmakers—CareGo began life as a warehouse distribution facility at a time when steel mills often used outside storage contractors to hold inventory. The operating model was simple: Steel would come into the warehouse by truck or train, and steel would leave the warehouse by truck or train.

The very basic model stretched back for at least a century, but CareGo founder Demetrius Tsafaridis wondered if the process could be improved. He suspected that costs could be stripped from the business, and a more-productive warehouse operator would be more competitive and more profitable.

Tsafaridis saw that costs could be saved by erecting buildings from the ground up to handle steel. He began looking for a warehouse management system that would be specifically designed to handle steel, and began experimenting with ways to aggregate different grades of steel with similar dimensions and properties to make the best use of the space available in the warehouse.

Ten years ago, Dofasco asked Tsafaridis to assist it with handling coils of automo-tive exposed steel coming into Hamilton through the Great Lakes-St. Lawrence Seaway system. CareGo designed an 80,000-square-foot building at Hamilton Harbour that could handle a throughput of 20,000 tons of coil per month. The two bays were equipped with automated cranes that allowed the entire facility to be run by one operator per shift.

And then the Great Recession hit. Steel mills in 2008 and 2009 changed the century-old model. They were no longer making and storing inventory. There were longer lead times and just-in-time delivery. “That forced us to examine our business,” CareGo vice president of sales and marketing Walter Krancevic said. Five years ago, CareGo began marketing its tools as well as its warehousing services to steel mills and metal service centers globally.

“We sold CareGo software to Dofasco,” Krancevic said. “We were a warehouse logistics company with sophisticated tools in our arsenal. Now, we’re a software company that specializes in space optimization and modeling.”

CareGo in recent years has expanded from coil to pipe and tube manufacturers and service centers. Because of its shape, handling pipe has always been very laborintensive. However, sophisticated modeling algorithms in the CareGo software allowed one Toronto pipe mill to eliminate the need for slings, which helped cut the mill’s warehouse labor force by 40 percent. The software also created a 40-percent net gain in space in the mill’s finished goods warehouse.

“This technology is extremely disruptive. Customers have to rethink how they’re doing business,” Krancevic said, explaining that “a disruptive technology is one that displaces an established technology and shakes up the industry. The implementation can be awful, but the result can be great. It’s changing how your people are working, and it requires managerial courage to do that.”

Service centers that re-evaluate the way they do business often decide to implement the CareGo software package. CareGo early on made a major sale to the Port of Liverpool in northern England that allowed the Merseyside harbor facility to better utilize an 80,000-square-foot warehouse facility, postponing the need for expensive expansion. CareGo in late 2014 signed a major U.S. service center for its software services.

Metal service centers warehouse and distribute product, but often process steel and other metals for end-use customers. Technology continues to offer major improvements in the field of metals processing. Robotics, software, lasers and computer numeric controlled (CNC) milling allow service centers to tailor steel and other metals to an end-use consumer’s exact specifications in a minimum number of steps. Companies such as Chicago-based FastCam Inc. offer service center customers software and cutting solutions for steel plate, sheet, bar, tube and pipe.

Ann Arbor, Mich.-based Enmark Systems Inc. provides steel service centers with enterprise resource planning software that can perform a wide variety of tasks. The company’s flagship product, Eniteo, launched in 2004, utilizes advanced technology, including barcode scanning, shop floor touch-screens and Microsoft Cloud services. The company services more than 300 companies and 3,000 users in North America.

Perhaps no segment of the metals service center industry has experienced more technological change in the 21st Century than metals testing. Waltham, Mass.-based Thermo Fisher Scientific Inc. provides its service center customers with sophisticated handheld alloy analyzers. And Plain City, Ohio-based Advanced Gauging Technologies LLC has helped pioneer the transition of measuring the thickness of coil, sheet or strip metal from isotope gauges to laser gauges, eliminating the use of radioactive material and giving operators a measure of precision that is hard to surpass.

The secret to technology implementation is integration, according to Abhishek “Abhi” Sharma, marketing director for integrated cutting systems at Hanover, N.H.-based Hypertherm Inc. The company makes systems, controllers and software to assist service center customers with all of their cutting needs.

“The customer wants a bundled package,” he said. “They want to be able to use the software and the CNC in a seamless manner because that provides a very productive output. You get a lot more productivity in a lot less time.”

Five years ago, Hypertherm introduced its True Hole technology to help steel service centers cut bolt holes in mild steel in one operation. The technology, which combines software with CNC controllers and cutting torches, eliminates two problems that plague service center operators: hole taper and dengue in the hole. The software instructions for the True Hole technology cover several pages of printed code and include process gas selection, gas flow rates, amperage, pierce methods, lead-in/lead-out techniques and cut speeds. “That hole has to be bolt ready when you cut it,” Sharma said. “In one step, you can cut a hole that is perfect for that bolt. With True Hole, you get rid of one whole step.”

Hypertherm also introduced True Bevel technology to take the guesswork out of plasma bevel cutting. Cutting bevels in steel has been one of the least-productive tasks in a service center, usually involving a back-and-forth consultation between the CNC operator and the software engineer. A change order could require hours of trial-and-error cutting, eating into man-hour inputs and overall
productivity.

However, many steel service center operators were skeptical when Hypertherm said recently that its True Bevel technology could eliminate the costly setup involved in cutting complicated bevels. Steel service centers have been around for ages, Sharma said. “It’s all about cutting steel, sawing steel. They’ve been doing it for umpteen years. In many ways they have not thought about new ways of doing things, so it’s an educational process.”

But with unprecedented competitive pressures on the bottom line, most service centers are buying into technology that can help them turn metals into money. “They start turning that steel faster and they know that faster is better. It makes them more productive. They can take on more jobs, and they can do each job faster. It’s like an ‘aha’ moment. If you can automate, you can reduce overhead,” Sharma said.

In a recent presentation to Toronto steel buyers, Tsafaridis said that a service center can use CareGo software and algorithms to pull as many as 20 to 25 people out of a typical shipping area—equating to $1.2 million to $1.3 million in wages. He told the steel buyers that they should view technology as a way to unlock and recover potential savings, and make themselves more efficient in the process.

Weidner said that he thinks MSCI members will adapt to new technologies, and survive and thrive in the years ahead. “The service center industry has been around over a century because of its entrepreneurial spirit,” he said. “It has evolved from initially breaking bundle quantities of metal to sophisticated processing and providing enhanced inventory management services. I believe we are at a tipping point now. The service centers that are most successful are continuing to enhance both products and their services wrapped around those products.”

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