Since 1927, MST Seamless Tube & Pipe, a subsidiary of Optima Specialty Steel, has operated continuously (aside from one 11-month period in the early 2000s) from its headquarters in South Lyon, Mich. MST’s modern manufacturing facility provides cold-drawn carbon, alloy and high-chrome mechanical and pressure tubing and piping for many industries spanning the energy markets to farm and agricultural.
Today, that South Lyon facility spans 360,000 sq. ft. and employs around 240 individuals (many belonging to the local United Steel Workers Union). Supply House Times recently visited company headquarters in Michigan and chatted with MST Vice President Ted Fairley and Marketing Manager Michael Perlman on a number of topics including its recent major expansion, how it differentiates itself in a competitive marketplace and its relationship with the distribution industry.
Supply House Times: What did the recent company expansion project entail?
TF: We just completed a five-year, $45 million capital expansion program that involved a lot of de-bottlenecking of operations. We added a pickle house, a new roller-heat furnace and made upgrades to our hot mill. We also added a $4 million quench and temper line where before we used to outsource to a heat-treatment firm. The biggest part of the expansion was our pilger mill that was delivered in October 2014 and was operational in February 2015. The pilger mill expanded our capacity by about 15-20% depending on the mix of products. It also helped to control and reduce costs somewhat on some of our smaller products. It’s made us more cost-efficient to go after a few new markets. The pilger mill was about $19 million and is the crown jewel of the expansion. We have enough downstream capacity everywhere now where we can produce 50,000 tons a year. Our previous record is just shy of 40,000 tons. We’re working on some new products and markets, and waiting on the energy market to recover somewhat to allow us to start pushing that 50,000 mark.
Supply House Times: What separates MST from the pack?
TF: Fifty-thousand tons might seem like a lot, but in the global scheme it’s not really that much. Our niche is service, quality and on-time delivery. As trite as that sounds, it’s what we sell. We have a lot of domestic and global competitors, but we stand out because of our quality, service and on-time delivery.
MP: We like to say we have large-mill capacity and small-mill flexibility. Sometimes a customer might need three or four of something and will buy 16 to 18 of it. We are always happy to do those smaller-sized orders.
TF: A lot of our business is the smaller order. We have a saying: Every foot counts. If you get smaller orders from customer A, B and C, all of a sudden all these feet add up, and we have a nice little business here.
Supply House Times: What markets are you traditionally strongest in?
TF: Our single biggest market is energy with oil and gas. When they are drilling and extracting oil and natural gas, that definitely is good for us. Right now that market certainly has slowed down, but we are seeing it come back. In good years, energy could be as much as 40% of the business. Our next biggest industry is power generation, mostly utilities that burn coal or natural gas to make electricity. That’s shrunk somewhat because of the move away from coal. Coal creates ash when you burn it, and the coal can erode tubes from the outside and the inside — so the change from a coal-based electric grid to a natural gas-based electric bid has shrunk the pie somewhat.
Our next biggest market is carbon pipe and alloy pipe. Traditionally, we were in that market as a role player, but six or seven years ago we went after it to grow our presence. I would say our fourth biggest market is a tie between transportation, construction and heavy equipment, and farm and agriculture.
Supply House Times: How important is diversification when talking about your customer base?
TF: Our No. 1 customer year after year brings less than 10% of our volume. Our No. 10 guy is at 2%. The top 10 customers in the company represent 34-35% of our volume. So we have a very diverse customer base. We don’t have the one 800-pound gorilla. I used to work for a guy who would say the ideal situation is having 50 customers all buying 2%. Year-to-date we have 140 guys who have bought at least a truck load. We are not overly dependent on one customer.
Supply House Times: How did the company weather the recent economic downturn and the even more recent energy sector oil-and-gas situation?
TF: We had to make hard decisions here. Two years ago we reduced our workforce and those are the toughest things to have to do because you have to tell hard-working people we don’t have work for you. I will give our staff a lot of credit. We’ve done a really good job controlling variable and consumable costs. And our salesforce has done a very good job selling at the best price we can to maintain margins the best we can. I can’t tell you margins haven’t taken a hit, but the margins, given the market conditions and volumes, have done well. I’ve been in the game 40 years and the oil-and-gas situation is as bad or worse as I’ve seen. Given that, our sales have been strong given the recent volume.
Supply House Times: How important is MST’s relationship with the distribution channel?
TF: Our pipe is sold exclusively through distribution and we do sell a lot of our mechanical tube direct to end users. The distribution channel is very important for our pipe products as well as our mechanical tubing, which is sold about 15-20% through distribution. Where we have to be cautious is selling direct to someone who you didn’t realize you already sell to through a distributor. We check our order databases and our previous inquiry databases to make sure that doesn’t happen. At the same time, it’s not uncommon to get the same inquiry from three, four, five and six guys competing for the same job. It’s a fine line. The service center could get upset if their customer got it direct. I can’t direct the supply chain. I also have competition. They probably aren’t only inquiring to me. And if I refuse to quote him to protect the service center and that guy buys from another mill, we both lose. If someone is willing to buy the quantity and pay the price and wants to buy mill direct because the service center is not providing enough value, that’s not our decision to make. But, you have to have strong relationships with distributors, otherwise you can’t walk that line and you are going to fall off the beam. You must have that trust.
Supply House Times: How does quality control factor into the success of the business?
TF: As I said earlier, we differentiate ourselves through quality, service and delivery. We use returns and allowances as a measurement, and we’re at about 99.7% right now. Everybody would like to be at 100%. Quality is extremely important and is right up there with reliability and short lead times. We have lead times of three or four weeks and with heat treatment it’s four or five weeks. Compare that to some of our competitors in the industry that are at 6-8 weeks. Even when we get busy and other mills are booking out 20 to 30 weeks, we’ll be at 6-8 weeks. We manage the flow in. We will manage that queue and won’t let it get any bigger than we can handle. We have those long-term strategic relationships that enable us to manage order intakes to make sure our customers always are protected and receive the highest quality of service possible.
This article was originally titled “The Personal Touch” in the December 2016 print edition of Supply House Times.
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