Business Tech

Salvaging Scrap

The scrap metal business is all about turning trash into treasure. When manufacturers assemble their products, they’re often left with an abundance of extra metal scraps. Scrap companies keep this commodity from going to waste; they buy those bits and pieces from manufacturers and sell them to steel mills to be melted down and re-fabricated.

“We provide the opportunity for manufacturers to get revenue,” said Harold Goldfine, a consultant and minority owner at Alliance Steel Service. “In some cases it's their biggest revenue, because they work so hard in selling their product that they don't always make a good margin.” Scrap recycling allows manufacturers to make money on what would otherwise be another expense, and it also reduces waste by allowing steel mills to remake scraps into fresh metal.

Rapid price fluctuations are one of the biggest challenges in the scrap metal business. “Markets fluctuate; they're cyclical,” Goldfine explained. “Let's say that markets changed $5 a ton. It wouldn't be a big effect if you had a little extra inventory at the end of the month, even on the down side. But if scrap markets changed $40, $50 or $60 dollars a ton, and you had ten thousand tons sitting on the ground, you're starting out with a $600,000 change in inventory value at the beginning of the month. And if it's a negative change, it's hard to make $600,000 in a month.”

Alliance Steel found a way to beat the price change issue by pioneering its own “just-in-time” inventory system. Instead of buying scrap and then looking for a buyer while the metal sits on their lot, Alliance Steel sells the scrap as soon as it comes in—or even before it comes in. “I would pre-sell, at the beginning of the month, everything that I thought would come in,” Goldfine said. “In the worst case scenario, more would come in and we'd have a little extra, or less would come in and we would have the opportunity to sell the difference next month to balance it out. No one ever did that prior to us.”

Goldfine's other building block to success is superb customer service. “My work is really at the beginning of the month, when those dealers that we buy scrap from need to know where the markets are. I make them feel like someone is still paying attention to them. That's what I want to pass on when I retire—that they don't get ignored,” he said. “We have to aggressively compete with other people to give them the best service, the best price, the best equipment to handle their scrap, the most reliable relationships. Things like that keep an account.”

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