A Leading Scrap Source

The operations and personnel of the companies have been integrated fully into OmniSource Corp. and operate under the names: OmniSource Indiana Group, OmniSource Northern Ohio Group, OmniSource Mid-Ohio Group, OmniSource Non-Ferrous Operating Group, and OmniSource Non-Ferrous Specialty Group.

"Each location or group of locations has an operations manager who works closely with the managers in other operating regions," says John Marynowski, president of the Indiana Ferrous Group. "We try to standardize our equipment and procedures so we can move equipment and people between locations and not miss a beat," he adds.

Cooperation between groups is a key to making sure things get done profitably, says Marynowski. "We will take material to the location that logistically makes the most sense, even if it is purchased by someone from a different office. We've taken down those walls of one division versus another."

"Our strategy has been to continue growing in a very, very careful manner," says Leonard. "Throughout the consolidation process, that's been our style. We've been very careful about acquisitions and we integrate newly purchased companies very quickly," he remarks. He contrasts the strategy with other consolidation efforts by "some other companies who acquired too quickly and leveraged their companies too thin."

"Part of our core strategy has been to continuously grow our metal unit volume within a broad regional area," notes Danny. "For many years, our approach had been to do this in a concentric fashion relating to Fort Wayne and Toledo, so that we could leverage our management, human resources, and key support services like transportation to integrate those acquisitions quickly."

"During the consolidation period," Danny continues, "we had been approached by most of the public consolidators to become part of their roll-ups or consolidations. Though some of those deals would have yielded good value to the shareholders, we didn't think at the time that any of the situations was right for the long-term good of the company or our employees."

Wider Opportunities

In addition to growing through acquisition, OmniSource has also grown by forging partnerships with generators and consumers and by maximizing productivity at its processing facilities.

The term "adversarial relationship" turns up far too often when the scrap industry is analyzed, particularly when examining scrap processor and steel mill relations.

OmniSource has seemingly turned the adversarial relationship model on its head, working closely and openly with mills, and in one case becoming an equity partner of a steel mini-mill company.

As with any large scrap company, OmniSource buys scrap from an array of sources. "A great percentage of our business is from industrial generators," notes Danny. "But we are active in the wholesale markets with dealers and demolition contractors for the supply of obsolete scrap, especially for the shredding operations," he remarks. "We have a fairly extensive network of retail collection facilities, including community recycling efforts taking in aluminum cans and other grades of ferrous and nonferrous scrap."

Within that supply range have been some innovative arrangements with automakers and their suppliers to process and market prompt factory scrap generated at major stamping facilities. The OmniSource scrap management approach has placed equipment and staff at Chrysler and Ford auto facilities in Ohio, Michigan and Illinois, providing a service to the automakers and a reliable supply of scrap to OmniSource.

"It is a combination of a consulting practice with operations, marketing and capital investment potential-depending on the particular needs of the client," says Danny.

OmniSource pioneered the concept of scrap management as a strategic partnership with Chrysler Corp. in the early 90s. Long-term arrangements have streamlined Chrysler's scrap activities, creating real value in the form of lower costs and increased revenues. Chrysler has recognized OmniSource as a "Platinum Pentastar/Commodity Award" winner for seven consecutive years, making OmniSource the only scrap processor in the world to achieve this distinction, according to Eisbart.

Danny Rifkin adds that the arrangements take place "typically on an open book basis, where the customer is fully aware of all of OmniSource's costs, returns and fees. Therefore, the kind of adversarial relationship or negotiation of month-to-month pricing is eliminated," says Danny. "We are the representative of the customer in the scrap market, in addition to consulting on freight and other matters."

On the mill side, OmniSource has also taken giant steps to reduce any adversarial aspects of the supplier-manufacturer relationship. "Steel Dynamics Inc. (SDI) is an excellent example of an agency relationship, where we procure all the scrap that SDI needs to melt, and arrange transportation and administer scrap supply activities."

OmniSource's incentive to perform for SDI, based in nearby Butler, Ind., is clear: OmniSource is a significant holder of SDI stock, so when SDI prospers, so does OmniSource.

OmniSource has also entered into a close relationship with AmeriSteel Corp., Tampa, Fla. "Through our contract with AmeriSteel, we have installed a shredder on site at their Jacksonville mill, and we are responsible for buying, processing, and delivering processed scrap as feedstock to the mill."

On the nonferrous side, Rick and Marty Rifkin note that OmniSource has entered into contracts with utility and telephone companies to manage scrap by aggregating it, processing it and marketing it. "Those business arrangements have helped us expand our wire chopping operations substantially in the last 10 years," says Rick.

"We take that obsolete wire and cable from throughout the U.S., bring it into Fort Wayne, grind it up and separate the copper and aluminum and sell it to consumers," adds Marty. "Some of the plastics are also recycled on a limited basis," he notes.

OmniSource acquired its wire chopping operations from Toledo-based Kripke-Tuschman in 1979. Marty lived in Toledo and oversaw the wire chopping operations there in the late 1980s, before the equipment was upgraded and moved to Fort Wayne in 1990.

The company's willingness to act as an agent for mills and foundries has enabled it to expand its operations both as a scrap processor and beyond. Brokerage offices in its traditional Midwest market as well as in Atlanta and in Burlington, Ontario, Canada, arrange yard sales, domestic scrap, and the importing and exporting of many different materials. "OmniSource is more involved with importing rather than exporting through our ferrous brokerage group," says Danny. "We're importing and distributing pig iron throughout the eastern half of the U.S., and sometimes bringing in shipments of scrap. We're also buying nonferrous scrap, particularly aluminum, from eastern Europe."

Future Choices

OmniSource's executives offer several ideas on where the company will go next as it seeks to remain a competitive force in the scrap industry.

One noticeable change for the company-seen with the AmeriSteel Jacksonville arrangement and the Atlanta brokerage office-is a willingness to expand beyond its regional scope. "Expansion and growth that takes place in cooperation with our customers is leading us to other geographic regions that will allow us to either make acquisitions in new areas or to open up greenfield facilities to support the growth of our customers," says Danny.

Danny says the company is continuing to look at the Southern U.S. for opportunities, as well as to Latin American markets. "Mexico is a growing market. Really, what may ultimately lead us to Mexico is the base of industrial customers who are building plants and locating in Mexico," he remarks.

No matter what geographic form it takes, growth is a necessity, according to Leonard Rifkin. "There is no question that to retain our position, OmniSource has to continue growing. Standing still won't do it. We're in the process of sifting through acquisition opportunities, and we'll grow in that way and expand beyond where we are today."

Wherever the company goes, it will continue to focus on forging partnerships with both generators and consumers, and will also pay close attention to core operations.

"There's always been a bias here toward investing in processing technology," says Danny. "Although R&D may not be a formal department, the company invests a great deal of time and money in R&D and new processing techniques or new approaches to marketing. This can often result in either a unique process that gives us an edge or in an ability to increase the volume we process."

With sound financial management and a willingness to innovate, OmniSource should continue to grow well beyond its origins of one truck and a capital base of $7,500. RT

The author is editor of Recycling Today.