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September 1, 2014

Measuring Up

Why service centers are moving beyond familiar operational metrics

The adage “What gets measured, gets done” has long been true in the metals industry. But the changing dynamics of the industry—the demand for more customized services, increasingly sophisticated technology, and recruiting and hiring challenges—are revealing inadequacies in some standard metrics and creating the need for new indices and methodologies.

In response, more alert industry players are adding new metrics to their traditional numerical evaluation kits. These new measurements assess company operations more thoroughly and enhance productivity, sales, market share and profitability, while increasing customer satisfaction and factory floor efficiency. 

“Some of the new metrics we use help us know exactly where our pricing and profitability are before we take an order—and afterward, we use these measures to do an analysis,” says Bill Hutton, vice president of marketing and national accounts in the United States for Samuel, Son & Co., a leading service center based in Mississauga, Ontario. “We believe these new metrics are allowing for future growth through both existing accounts and potential accounts.”

So what is Samuel, Son & Co. now measuring that it didn’t before? “It’d be cutting my own throat to tell you,” Hutton says.

Other industry innovators, however, are more forthcoming when they talk about changes they are making or need to make. After all, most service centers are already using a range of precise but traditional operational metrics considered vital for running a business. In addition, obtaining and retaining various International Organization for Standardization certifications also requires companies to measure and report on factors that they might not otherwise monitor as closely.

 

Beyond Standard KPIs

The industry’s standard key performance indicators (KPIs) usually include on-time delivery rates, inventory levels, gross margins in percent and by ton, profitability by account, scrap and wastage, credit and return trends. Operating costs, cost of capital, yield, quality control and employee safety are generally on the list as well.

Such time-proven metrics are by no means comprehensive, however, and increasingly companies are looking to upgrade them.

Heidtman Steel Products, for instance, a Toledo, Ohio-based metals service center with operations throughout the Midwest, is scrutinizing throughput and downtime more closely because those metrics can be crucial determinants of overall efficiency. “On throughput, we recognize that it’s one thing to cut a master coil and figure the costs from that, but now we’re homing in on cost per ton and cost per hour, especially when you’re talking about jobs with narrower slits and re-slits,” says Mike Kruse, vice president of marketing for Heidtman.

“We’re also looking more in-depth at downtime,” Kruse says. “Why are we experiencing it? Because whoever was supposed to be feeding the master coil to that line didn’t have the material staged fast enough? Because of maintenance? Because of lack of work?”

Heidtman is also examining utility costs more closely because running power-thirsty operations like galvanizing lines can be expensive; the same goes for costs of “consumables” such as banding and blade grease. And Heidtman executives now scrutinize raw material prices more thoroughly. 

“We know at some point in time, whatever is happening with raw material costs is going to work its way down or up to us depending on which way the price is going, so we’re watching what is happening in different markets—such as heavy truck versus automotive versus agriculture—and how it is impacted by different market factors,” Kruse says.

 

A Quantifiable Strategy 

Some industry leaders, such as Olympic Steel in Cleveland, are including improved metrics as a major component of a broad operational overhaul to make the company more competitive. Olympic is about a year into what Matt Dennis, director of investor relations, calls “an aggressive operational-excellence program.” “If we want to have sustainable improvement,” he says, “we need to make sure what we’re doing is measurable.”

John Howard, Olympic’s director of operational excellence, is in charge of instilling the new approach company-wide. He says the foundation of the overhaul enables the three most important “voices” for the company—the employee, the customer and the business—to be “heard” more clearly.

 

Discerning the true “voice” of the Olympic employee, for example, has expanded beyond measuring safety performance. It now also includes measuring improvements in ergonomics and sustainability. In its drive to listen to customers and grow their orders, Olympic is establishing new benchmarks that go beyond traditional metrics such as order fulfillment, schedule compliance and on-time delivery.

 “We are competing to be as efficient with capital and inventory as we can. We have become just-in-time enablers for our customers. And as we get more intimate with them, they want us to do more pre-assembly and pre-projecting as we go downstream. And that requires new metrics,” Dennis says.

As for the voice of the business, Howard says that a crucial part of the new philosophy is to go beyond traditional metrics such as financial capacity, operating capacity and cost of repairs. “We are beginning to quantify overall equipment effectiveness,” he explains. “What’s the availability, performance and yield of our equipment? Is it available to run when scheduled, to our requirements and our business plan? When it does, are we running it to the right efficiencies? And what are the quality yields?” 

The company began rolling out the new strategy in late 2013 and it has already “gained a good foothold in the organization,” Howard says. So far, about half of the company’s 11 facilities and one of its three divisions are at what he calls a “functional” stage in the program. “By the end of this year,” he promised, the new foundation for operational excellence “will be in place across all of our facilities.”

 

Gauging Satisfaction, in Real Time

Olympic is not the only one listening to customers more effectively. Measuring customer satisfaction has become more important across the industry. Each year, for instance, Heidtman sends a survey to its top 100 customers asking for an evaluation of the company’s performance in a number of areas, including quality, on-time delivery, adequacy of its technology services and performance versus competitors. Customers representing about 80% of its tonnage typically respond.

A.M. Castle & Co. also conducts an annual customer survey with a management tool called Net Promoter used by many companies to gauge the loyalty of a firm’s customer relationships. It asks, for example, “How likely is it that you would recommend [our company] to a friend or colleague?” and lets customers respond on a zero-to-10-point rating scale.

“It’s a relatively manual process to gather the survey data that you need … and it takes a lot of effort on the part of the marketing department,” says Scott Stephens, chief financial officer and vice president of finance of the Oak Brook, Illinois-based company. “But it’s been a helpful concept for us to get to the bottom of whether we’re satisfying customers.”

Castle also is turning customer satisfaction into a dynamic, real-time variable that is measured and determined with the completion of every order to help the company continually improve its performance. “It gets you closer to the customer,” Stephens says. “The idea is that you improve the customer experience and increase your share of wallet whenever you improve it. We look for, ‘Why is it that we’re missing orders either on product X or customer Y?,’ for instance. ‘Why is it that we don’t have material availability at the desired levels?’ We’re still early in the evolution of this metric.”

 

Better Metrics, Happier Workers

It seems the metals industry is just beginning to explore metrics that focus on employee performance. There are, for instance, a range of measurements and methodologies available to help improve job satisfaction, make workers happier and more likely to stay, and simultaneously help improve measurements of customer satisfaction and retention.

A study of its customers last year by Lenox, a leading supplier of band-saw blades to service centers, working with the marketing consultancy Annuitas, underscored the potential for improving operating results as job satisfaction also improves. Sixty-four percent of those surveyed, for instance, said their on-time job completion rates were increasing as their metal-cutting operator turnover declined. In addition, more than half of those who reported reduced levels of operator turnover also said their revenue per operator had increased.

It is hardly a blinding insight that more satisfied employees do better work. But the survey results help solidify the notion that there is a payoff from moving beyond the idea that “improved technology is the only way to increase productivity,” says Adam Needles, chief strategy officer of Annuitas.

Companies typically look at safety metrics and take extensive measurements at the machine level, like assessing the cost per cut. “But what we don’t see is qualitative people management, and the metrics to match that,” Needles says. “They’ve got station metrics and machine metrics, but no real metrics to look at the effects of team management, lean culture and agile workforces.”

Savvy metals service centers should be coming up with measures of “how workers are actually working within their spaces, because they’re the intermediaries between the production steps,” Needles explains. This could include metrics to gauge overall shop-floor efficiency or measuring steps in between cutting operations. Getting a better handle on the time and ergonomics involved, he says, could help service centers organize workflow to be more efficient, making workers happier and more productive, and ultimately increasing customer satisfaction. 

 

Using Metrics to Drive Innovation

Another way of looking at metrics is to use numbers as objectives for particular divisions, projects or jobs, and to encourage both supervisory and shop floor personnel to innovate against those objectives. Steel Warehouse Co. does this, establishing numerical benchmarks for return on investment, market share and other expected results of particular initiatives.

“So a guy on the shop floor can say, ‘Do I have ideas that are going to help us achieve better on-time-delivery performance so we can meet that numerical goal?’” says Bill Lerman, vice president of operations for the South Bend, Indiana-based, family-owned company. “And then we can measure the performance improvements from that idea to see whether it’s helping us meet the metric that we established. We try to tie strategies, goals, objectives and metrics together.” 


Dale Buss is a veteran business journalist who has covered manufacturing and the auto industry for a variety of publications including Forbes, Chief Executive and the Wall Street Journal. He lives in Michigan.