Thomas Pipe: Driving down costs while stepping up service
Fast forward to today. Ships hauling pipe pull up mid-river at the Port of New Orleans and offload onto a barge, which floats its way to a pipe yard in Port Allen on the Intracoastal Waterway touching Baton Rouge. Thomas Pipe opened the $6.5 million, 60-acre facility last year, and fitted it with some of the fanciest pipe material handling equipment to be found on the planet. Results have been dramatic.
Offloading and shipping by truck from the Port of New Orleans used to cost Thomas Pipe an average of $147,000. By barge it's about $38,000. Since the company opened its Port Allen facility, handling cost has dropped from $13.04 per ton to $2.89 per ton.
"We're looking to get costs out of the business in every way we can," says Jay Roccaforte, president and CEO of Edgen Corp., parent company of Thomas Pipe and six other operating divisions. "I'm sure most people in distribution will tell you margins aren't going up, so you have to find other ways to make money. You've got to buy it better or handle it better than the next guy. We've looked at that not only in our yard operations but also back-office operations."
Edgen's Baton Rouge headquarters handles administrative functions for all seven operating companies. Roccaforte tells a tale of efficiency in which three people in the billing department handle some 74,000 invoices a year; three people working credit take care of all credit issues for the company; two full-time and one part-time staffers handle all accounts payable.
Thanks to all of these efficiencies, since 1999, sales per employee have increased 68%.
Technology supremeThe Port Allen pipe yard may be the most advanced facility to be found anywhere within the PVF industry. It stores around 55,000 tons of carbon steel pipe from both foreign and domestic vendors, specializing in large O.D. and heavy-wall double submerged arc weld, seamless, electric resistance weld and X-grade line pipe. Sizes range from 2-in. to 60-in., with the larger heavy-wall pipe stored underneath an overhead bridge crane with a 100-foot span running about a quarter-mile lengthwise through the yard.
The behemoth crane cost about $1.5 million to construct. It is fitted with a special hook that picks up pipe from underneath, as opposed to grabbing the lips at each end, which sometimes damages the pipe ends. The innovative hook slides inside the pipe so that pressure is more evenly distributed.
Thomas receives pipe via barge, rail and truck. Upon receipt, each piece of pipe is bar-coded with critical information including size, origin, grade, heat number and exact length, with the bar codes put on at each end. Bar code scans get transmitted by radio frequency. The wireless signal goes into a computer inside the warehouse, where the data automatically updates inventory and downloads sales information.
Even before the material arrives, the wholesaler knows when it is due to arrive and where it will go. The yard is divided into four main sections, and the rows between stored pipe are labeled with "street" names, i.e., Pipeline Rd., D-SAW Rd., Thomas Blvd., Carbon Rd., etc.
"Our material handling costs are very low, and that has to do with how quickly we can get it in and on the ground in the right place," says Bob Abbott, vice president/operations and the man in charge of the Port Allen facility. "It also has to do with being able to pick it quickly because we know exactly where it is, and our accuracy is pushing 100% because when the pipe is supposed to be at a particular location, it is."
Antennae for the radio signals sit atop lighting fixtures throughout the yard. Every forklift has a scanner so drivers can send and receive from the forklift to the warehouse computer. According to Roccaforte, upgrades planned for next year will place computers directly inside the forklifts. This will enable Thomas' sales reps to download orders directly to the forklift, instead of generating a piece of paper the way it's done now.
It struck this reporter as astounding that the huge Port Allen site makes do with merely 22 employees, encompassing both yard workers and office staff. The company also has storage facilities in St. Louis and Houston, but about 90% of Thomas Pipe stock sales emanate out of Baton Rouge. Other Edgen units also incorporate some of the communications and handling technologies used by Thomas Pipe, but the Port Allen site is the most advanced in putting it all together.
Customer careCost cutting is not an end unto itself. The company culture at Thomas Pipe comes across as friendly and relaxed, more befitting a sales organization than one obsessed with bean counting. Roccaforte says that "going one-on-one with customers is what excites me."
Which is to say that the purpose of all that cost-cutting technology is to better serve customers. At Port Allen, it enables Thomas Pipe to process customer orders in a fraction of the time it used to take. The facility averages 50 to 60 inbound and outbound trucks per day, and the company tries to coordinate them with scheduled appointments in something resembling a just-in-time delivery system. Abbott comments, "Our goal is to get them in and out of here within one hour, and we've pretty much been able to accomplish that."
Port Allen also includes a first-step processing facility for cutting, shotblasting, priming, beveling, mitering and grooving. These value-added customer services represent one of the few opportunities in today's market to increase margins. "Up until now, most companies have done it in-house," says Roccaforte. "We tell them we can do it less expensively, and are asking our customers to advise us about more areas of first-step processing where we can be of help."
Integrated supply managementEdgen is in the process of installing an Oracle database to pave the way for integrated supply partnerships that are already underway with selected clients, and which Roccaforte calls "the future of our business." When fully implemented, the system will enable customers to tie their computer systems with Thomas Pipe and other Edgen divisions to view inventory, pricing, mill test reports, invoices, account history and shipping manifests online. They also will be able to get quotes on materials, fill out credit applications, place orders and inquire about the status of an order.
"E-commerce has not fulfilled its original promise, but I think it will be back another way," says Roccaforte. "Instead of going through a browser, I think e-commerce will involve tying our company's computer into the customer's computer, allowing us to do business 24 hours, seven days a week."
Not only will customers be tied into the system, Roccaforte envisions vendors being able to download invoices directly to Edgen's computer and do some vendor-managed inventory control.
In its five-year business history, Edgen has grown mainly through acquisitions and Roccaforte sees that continuing. "We are looking to grow our business through acquisitions that bring in complementary products or geographical areas we are not now in." Thomas Pipe, for example, owns an additional 40 acres of undeveloped land at Port Allen and entertains an interest in expanding into carbon steel fittings, flanges and valves.
Other expansions and startups may also be in the cards. In all cases, though, Roccaforte intends to retain the company's focus on distribution business, and on the company mantra of "getting more efficient."
SIDEBAR: At a glance: Edgen and its operating divisions
- Edgen Corp. The parent holding company was established in 1996 through the acquisition of Thomas Pipe & Steel. Known as TPS Holdings Inc. until the first of this year, Edgen expects to generate revenues in 2001 of between $230-250 million from a variety of distribution and master distribution operations focused on carbon steel pipe, specialty PVF and structural steel products. It has 22 locations in 12 states and Puerto Rico, with a significant and growing export business totaling some $20 million this year.
President and CEO Jay Roccaforte has been around the steel business his entire career, beginning in 1964. He started his own company, Southern Metals Corp., in 1972, as a specialty metals distributor for the petrochemical industry. He sold it to Ryerson-Tull in 1989, retired for a couple of years, then bought a structural steel and door manufacturing company that he sold in 1996 to take over as president and CEO of TPS Holdings, now Edgen Corp. Roccaforte is part owner of the business along with two other managing partners and Harvest Partners, an investment group in New York.
- Thomas Pipe - Founded in 1983, the company was the first one purchased, in 1996, by the distribution group now known as Edgen. Thomas Pipe is one of Edgen's largest operating divisions, generating around $70 million in sales.
Edgen's flagship company stocks more than 55,000 tons of carbon steel pipe in more than 5,000 sizes and grades with facilities in Port Allen, La., Houston and St. Louis. Customers come from power generation, oil and gas transmission, offshore construction, oil and gas services, petrochemical, chemical, fabrication and construction industries, as well as outdoor advertising fabrication.
- Thomas Steel - Originally united with Thomas Pipe, the company split into its own division last Jan. 1. It specializes in structural steel distribution.
- Radnor Alloys - Headquartered in Houston, with stocking locations in six cities coast-to-coast, Radnor is a major distributor of chrome-moly, seamless stainless, low-temp and nickel alloy PVF. It was founded in 1986 and purchased by Edgen in early 1999.
- Resource Pipe Co. - Founded in 1996, Denver-based Resource Pipe Co. was purchased by Edgen last year. It is a master distributor of prime carbon steel pipe in a variety of sizes and grades. Stocking facilities also exist in Houston and Odessa, Texas, and in Oklahoma City.
- Pro Metals - Founded in 1996, the Houston-based company is a master distributor of nickel alloy piping products, including seamless and welded pipe, buttweld and pressure fittings, and flanges in a range of sizes and schedules.
- Bartow Steel - Headquartered in Lakeland, Fla., with facilities in Atlanta, Charlotte, S.C., and Puerto Rico, Bartow Steel is one of the nation's leading distributors of abrasive resistance pipe, most commonly used in the mining industry, along with carbon steel pipe, flanges and fittings. It was founded in 1975 and purchased by Edgen in 1998.
- Bartow Steel International - Established in 1996 as a trading company specializing in a variety of steel products, including pipe, tubing, flanges and fittings.