Reduce costs, maximize growth

At this year’s Scrap Expo, which was Sept. 16-17 in Louisville, Kentucky, the metals recycling industry came to life through an interactive outdoor exhibit showcasing the power of scrap processing and material handling equipment, an indoor exhibit area featuring an array of cutting-edge equipment and services tailored to the industry and live demonstrations and education sessions designed for attendees to grow their industry expertise.

In a session titled Maximize Growth, Control Costs and Capitalize on Opportunities, Brett Ekart, CEO of United Metals Recycling, Boise, Idaho; Blake Dorsett, president of ShearWorx, Birmingham, Alabama; Brian Ferguson, chief financial officer of United Metals Recycling; and Aldo Jordan, president of The Metals Agency, San Francisco, shared best practices for understanding costs, options available to reduce and control them and how to identify areas for improved profitability.

Recycling Today spoke with Ekart ahead of the session about how scrap recycling companies can grow amid challenging markets, how third-party and fractional (part-time or outsourced professional) services can help and what he hoped attendees would take away from the session.

Recycling Today (RT): What is the current state of the scrap recycling industry, and how can companies grow in this challenging market?

Brett Ekart (BE): It’s currently a challenging market for everyone and everyone is fighting the same fight, but it all really comes down to who can get their house in order the fastest.

When the market is down, it really gives you the chance to get your house in order by looking closely at your overall business and costs. I like to say the biggest steps in growth often take place during the most challenging times because you’re making plans for when the tides turn. You’re already determining what it takes to be successful, and you’re automatically in a strong position to capitalize by preparing in advance instead of waiting for when the market is up and nearly everyone’s business is growing.

Everyone gets a bit nervous to make moves when the market is down, but that’s the time to make a deal on a piece of equipment or another scrapyard. You need to be a confident risk-taker and understand what may not look like growth today could lead to exceptional growth in the future.

RT: When creating a growth strategy, what should business owners and operators pay close attention to and why?

BE: First, you have to identify your strong point and your niche. For example, if you’re great at logistics, focus on that and become the best scrap logistics business. Then, you can build from there by exploring what other business areas have some customer crossover and where you could begin adding additional services or locations. This allows you to diversify your business and build on the strategic advantage you may already have.

RT: What about third-party options or fractional services? What can those consist of and how can they benefit businesses looking to take their operations to the next level?

BE: A lot of folks in the scrap industry come from multigenerational businesses where if we can’t do something ourselves, we don’t want to do it, or if we can’t pay cash for a piece of equipment, we don’t want it. But really, we should be looking at all the ways we can get something done, which can include third-party or fractional services.

What a third party allows you to do is be big for a small period of time. So, you don’t necessarily incur the cost of buying a $1 million shear and having an operator run it; you can just access a $1 million shear for six months to tackle a big job, for example. It allows you to compete with a bigger company with more equipment, facilities and manpower without breaking the bank because you know what your fixed cost is going to be.

Ultimately, sourcing third parties allows you flexibility—to be big when you need to be and to shrink back down when you’re running your normal operations. If you’re operating in a challenging market—like the one today—where everyone is trying to cut costs and stay lean, you’re able to lean down much quicker than someone who bought a piece of equipment and only got six months to a year of use out of it on a five- or 10-year deal due to smaller volumes.

Additionally, third parties can be helpful on the [administrative] side of your business where you may not need a full-time employee. It allows you to grow in bite-sized pieces without necessarily having to take the whole bite.

When it comes to fractional services, you can have a fractional chief financial officer or chief marketing officer, for example. There are a lot of options out there.

Some companies, especially smaller businesses, are also turning to artificial intelligence to help them in areas like marketing and accounting. This allows them to better compete with midsized businesses, and I think there’s a real upside for small businesses to utilize those tools.

RT: How can scrap recycling companies evaluate which parts of their operations are the most profitable and which may be draining resources?

BE: This is where having a strong back-end office support staff can make a difference. If you can’t afford a full-time chief financial officer, there are so many fractional options available to get the help you need to understand the financials of your business. A simple cash flow analysis is a great place to start, as well as understanding what your actual costs are for processing certain grades of material.

Our company also likes to keep a close eye on SGA [selling, general and administrative] costs as it relates to our overall revenue. This allows us to see the impact our office and administration costs are having on our overall business as well as give us a metric to measure as sales fluctuate through the various cycles our industry has.

Effectively managing your SGA during the good years and not letting it rise just because the business is flush with cash will allow you to maintain a leaner business when the cycle turns the other direction. This will also help ensure you don’t have any business operation disruptions due to layoffs and having others pick up the admin slack.

RT: In a competitive market or when in growth mode, how important is it for scrap recycling companies to invest in technology, and where should they start?

BE: I believe technology can be a double-edged sword. You can spend a lot of time and money trying to improve a process only to find out the juice just isn’t worth the squeeze (cost versus value). That’s why I would ensure that enough research goes into implementation costs, timelines and actual hard costs rather than just pie-in-the-sky savings.

That said, in a mature industry like the scrap industry where many people still do things the “old school” way, there are plenty of opportunities to update and invite some basic technology to the party, which can have a dramatic effect on a business and its bottom line. Processing equipment has come a long way, as have metal identification tools like analyzer guns. There’s a lot of technology out there; it’s just a matter of doing your homework and knowing what you’re getting into. 

RT: How can culture impact a company’s ability to adapt and grow in today’s scrap recycling market?

BE: You can buy all the fancy equipment you want and have the best location in the city, but if nobody wants to work there, you will be overpaying people to just show up and they won’t care about that fancy equipment. Your customers will go down the street for less money, so you will be forced to pay premium pricing for scrap because the last thing they want to do is come visit your facility where nobody cares, especially about them, the customer.

That’s just one example. You grow because you can recruit good people and keep them. You grow because the more good people you have, the more they care about the business and customers. The better the customers are treated, the more they talk about how great a business is.

The least expensive thing you can do is create a good culture, but it’s the hardest thing to do because it actually requires you to genuinely care about your team and their needs over your own. Culture is everything, whether you’re trying to grow or just hang on to what you have. Either way, without the good people having a strong culture provides, you’re a failing business—you just might not know it yet.

RT: How can companies prepare their staff for growing pains and opportunities?

BE: Plan ahead and communicate your vision of where you’re trying to go for the day, the week, the month, the year and even the decade. Most people want to know they have an opportunity to grow within their role or the company. It’s your responsibility to communicate what that growth can look like if both sides hold up their end of the deal. This allows staff to dream alongside you and begin working on the skillsets required for them to take the next step.

When it comes to growth, communication is everything. Share your plan, share your dream and let your team members know where you see them in it. 

RT: What do you hope attendees take away from this session and Scrap Expo?

BE: Scrap Expo speaks to the small and medium-sized processors and recycling companies that are trying to figure out the business and carve their way into the industry. They are going through what I went through, and they are coming from where I came from. I am excited to tell my story and share my insights to help others on their own journey.

The author is an event and content producer for the Recycling Today Media Group and can be reached at mszczepanski@gie.net.