Customer or Competitor

By Mel Duvall  |  Posted 2002-06-17 Email Print this article Print
 
 
 
 
 
 
 

The biggest American steelmaker would have the world—and the Bush administration, which is trying to save the company with fresh tariffs on products of foreign rivals—believe it is one of the most efficient producers around. Is it?

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Customer or Competitor?

The group that met in early 2000 narrowed in on the service center arena as the best opportunity to boost sales.

No single company dominated the service center business. Three of the biggest players in the market include Ryerson Tull, which had 2001 revenue of $2.2 billion, Reliance Steel & Aluminum, which had revenue last year of $1.6 billion, and Metals USA, which reported 2001 sales of $1.5 billion.

Few, if any, service centers were technology experts. U.S. Steel also knew, Shanahan says, "that the service center market was not a ferociously competitive, intense business."

That smelled like opportunity. Service centers of all stripes in the steel business pulled in revenue of between $30 billion and $40 billion each year.

But U.S. Steel does 15% of its business through service centers and was afraid it might alienate its 120 allies that served smaller customers.

So, Straightline was set up as if it were an independent company. Straightline was free to establish its own offices outside of U.S. Steel and, within those offices, it could largely set its strategy and operations as it saw fit. This even included the recruiting of other steelmakers to supply material to Straightline customers. Straightline currently markets steel from U.S. Steel, Steel Dynamics and other manufacturers.

Straightline offices are located about a half-mile from U.S. Steel's headquarters. But the distance between the two organizations in terms of business culture and psychology is extreme. Long halls and big executive offices fill the block-long glass and steel fortress complex of U.S. Steel, the tallest tower on the Pittsburgh skyline. Straightline's office-less headquarters, on the other hand, are tucked inside a three-story alabaster building nestled among scores of other nondescript buildings.

In fact, there are only two private offices at Straightline, one for the chief executive officer, Dryburgh, an accountant turned steel and construction executive, and the other for the human resources manager. The walls are devoid of art, photographs and awards or achievements. "It sends a signal," Dryburgh says. "We want to be a low-cost provider."

Outside Dryburgh's office, nestled among the cubicles, are gathering spots—couches, chairs and coffee tables—around which staffers talk, make plans, and solve problems. There's plenty of open space, a kitchen and even a foosball table for the employees when they take a break. It's almost as if Straightline aspires to be a 1990s dot-com market maker.

And, in fact, some have made that comparison. "I think what U.S. Steel is doing with Straightline is innovative," says John Davis, vice president of purchasing, information technology and engineering at National Steel, the nation's No. 3 steelmaker. "But I'm not sure what returns on investment they're going to get. We can look at all the failed dot-coms and each one had a vision similar to Straightline."

But Straightline says it has no illusions. "We're not a dot-com," Dryburgh says. "We look at ourselves as a distribution business."

That's clear to U.S. Steel's distributors. Many centers are irate that U.S. Steel is now competing against them.

"It's left a bad taste in our mouth," says John Applegate, a product manager at Viking Materials, a service center in Minneapolis that has been a U.S. Steel distributor.

Bill O'Neal, CEO of O'Neal Steel, a Birmingham, Ala., service center, is a major customer of U.S. Steel and an outspoken critic of the Straightline launch. He thinks it's going to be difficult for U.S. Steel to be both a competitor and a supplier to the service center industry.

But U.S. Steel says it has not lost any customers. And Applegate says there



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Contributing Editor
Mel Duvall is a veteran business and technology journalist, having written for a variety of daily newspapers and magazines for 17 years. Most recently he was the Business Commerce Editor for Interactive Week, and previously served as a senior business writer for The Financial Post.

 
 
 
 
 
 

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