American Metal Market; AMM Features - September 15, 2006

Three years, three guys and a game plan for dazzling growth

In just three years, Service Center Metals LLC (SCM) has grown from an upstart aluminum extruder with one press and a handful of employees to an established niche player with two presses-and a third planned-and around 100 workers.

The rise of the Prince George, Va.,-based company has been impressive enough to earn SCM recognition as the 10th fastest-growing company in the United States byEntrepreneur Magazine and PricewaterhouseCoopers, New York.

The company was founded by three long-time aluminum industry managers who went 17 months without receiving a paycheck as they sought financing to build a new plant.

R. Scott Kelley, SCM's president and chief executive officer, first met R. Randolph Weis, vice president of sales and marketing, and Lloyd S. (Chip) Dollins, vice president of operations, while working for Reynolds Metals Co., now part of Alcoa Inc. During the intervening years, between them the three men worked for most major U.S. aluminum companies, including Pittsburgh-based Alcoa; Kaiser Aluminum Corp., Foothills Ranch, Calif.; and the defunct Alumax Inc.

It was Kelley's idea to take advantage of all the consolidation in the industry to establish an extruder dedicated solely to serving the service center sector. Through a combination of private equity funding, bank loans, assistance from the developer of an industrial park, money from the state and other sources, the three were finally able to start their first 3,100­tonne press in 2003. Growth since then has been rapid.

'We shipped 32 million pounds last year and have nearly sold out this year," Kelly said. 'We've been basically sold out since we began operating 24 hours a day, six or seven days a week."

With the benefit of a full year's output from the new 5,500-tonne press-which came online in April-production in 2007 should be more than double this year's anticipated output and more than triple last year's number, and revenue is expected to be in excess of $150 million.

Kelley and his partners credit the success to the company's singular focus on serving service centers. "We sell 100 percent to our service center partners," Weis said. "It's a relatively short list, but it's the who's who of service centers."

The products produced by SCM go to a wide range of markets, including the machinery and equipment, transportation, truck trailer, automotive and consumer durables sectors.

"That's one of the key things we've formulated our strategy around. When you target service centers you get to tap into all those end-use markets and you're not so susceptible to the cyclical nature of aerospace, truck trailer or automotive if you were serving only those markets," Weis said, noting that SCM serves customers nationwide, including on the West Coast, although most business is in the Midwest or Northeast.

SCM has largely steered clear of the custom extrusion business and deals very little with the construction market.

In addition to the wide range of markets it serves, the three executives believe there are several forces propelling SCM's rapid growth so far.

While the trio raised the money to launch SCM at a difficult time (2001-02) in terms of capital markets, Kelsey said the company has benefited from opening its doors at a time of growth in the extrusion business.

But the success hasn't been due just to strong markets and good timing, Kelley said. The strategy of complete focus on service centers also has been key. "All of our competitors service distributors and OEM (original equipment manufacturer) markets. The service centers have embraced the idea of us focusing all our attention on them," Kelley said, adding that the idea of going after the distribution business came after many years in sales and marketing, largely to the distribution market. "(The distribution market) has some unique features to it from a service and product standpoint and it seemed like an obvious opportunity."

New products such as "lightning rod" and "manifold thunder bar" are important parts of the success, as well as a strong commitment to service and the relatively low cost of the company's products.

And there is one more crucial factor: "We don't compete against our customers. There's no gray area-we're 100­percent dedicated to their channeling," Dollins said. "They are very open with us in terms of business that's out there without the concern that we'll go after the business ourselves."

The company attracts lots of interest from end-users, but SCM has been resolute in its strategy and passes those leads on to its service center network, Kelley said.

SCM operates with very low inventory-about 12 days of finished goods and work in process-and has designed its process around small batch orders. "We designed the plant from scratch, with a clean slate, and we designed it around our product flow. We built a lean manufacturing environment," Dollins said. "Die changes are not a dirty word around here. We go through quite a few a day. We designed the plant and the process for small batches."

Because SCM's equipment is new and the process is efficient, the company has been less impacted by the rise in costs, such as natural gas, than some other manufacturers. The surging price of billet has impacted SCM, as it has all extruders that source billet, but not in a major way. Like all extruders, the company sells its products on a metal-plus basis, so it isn't exposed to the Midwest premium, only to the billet upcharge, which is now around 10 cents a pound. 'We're able to pass it on for the most part," Kelley said.

SCM clearly expects its business to continue to grow and is planning to add a third press next year, although Kelley declined to say what size or type it would be. An extra press could mean adding even more people, but SCM's executives appear committed to retaining the small-business feel even as it grows.

The three men place a big emphasis on the importance of the employees on the factory floor, where a team environment is key. SCM has adopted a model similar to that employed by Nucor Corp., Charlotte, N.C., utilizing a non-unionized, flexible work force that is heavily incentivized, Kelley said.

"We pay a base wage and then every producer gets a daily bonus, based first and foremost on safety, as well as productivity and quality. They earn it daily and collect it weekly," Dollins said.

The three executives-it's not clear whether they also are the owners as Kelley refused to give details, except to say that the company is in private hands-also appear to have a sense of fun, which is probably easier when business is growing so rapidly.

For instance, the two presses now in the 150,000-square-foot facility don't have the typical names like No. 1 and No. 2. Instead they're named after music icons. The first is called Elvis. "He broke the mold and got things started," Weis said. And the second, which is larger, is called The Boss, in honor of Bruce Springsteen, of whom Kelley is a huge fan.