“The biggest trick is (determining) how much leash, and then when things aren’t going well, how much do you pull it back in,” he says. “And when things really aren’t going well, when do you pull the leash all the way back in, and then terminate the manager.”
He says it’s hard to decide which are the best managers in advance. He’s made some great calls and some bad calls, but he looks for leadership skills and how the employees respond.
“When you’re walking through a plant with them, and people are acknowledging them, they see them, they look up to them and they want to go to the wall for them, you can notice that,” Bouchard says.
Deploy assets efficiently
In addition to adding revenue from other business sectors, you want to manage through a difficult market swing by controlling costs.
Bouchard says he cut $7 million in expenses last year.
“We know we’ve got very good managers, and we can manage the business,” he says. “But we always are looking at the risk of the day-to-day big items, which for us is inventory, facilities and people would be third. Really the big numbers are in inventory and facilities — we try to eliminate that risk as much as we can.”
The Esmark management team looked at the risk and reward at each steel facility and moved assets around so low-cost facilities get the best equipment.
For example, they took apart a cut-to-length line from a higher-cost facility and moved it to Cleveland. They reassembled it and did the concrete work, so that piece of equipment covers more fixed overhead expenses of the facility.
By deploying assets correctly, Esmark is better able to withstand the low steel prices and avoid significant losses in some facilities.
Bouchard also repurposed Esmark’s Yorkville, Ohio, steel facility into real estate and terminal services for natural gas.
Asset deployment usually takes about six months to plan and six months to a year to implement, so it requires some foresight.
“We just try to rationalize and make strategic moves,” he says. “Luckily, those moves were made 18 to 24 months ago, before the steel prices really were under major pressure. Those seem to be the right moves and we are ahead of the curve.”
Manage the inventory
Now that assets are correctly positioned, Bouchard says they can focus on inventory management.
In order to avoid significant risk, Esmark manages its inventories very tight to the order book. All operations are closely tracked, so managers can use their experience to make the right decisions.
For example, Bouchard says in the fourth quarter a lot of imports were available, which threw up red flags.
“We took a very light position on imports in the fourth quarter,” he says. “That ended up panning out since steel prices collapsed and domestic prices have dropped to the import levels.
“So people who brought imports in in the fourth quarter have very large inventories and (have) tried to manage through a difficult time. We’re not in that position, our inventories are in pretty good shape.”
By keeping a close eye on equipment and inventory, Bouchard says they’ve been able to stay neutral on employment, overall. Some jobs have been dropped in the Chicago facilities, but more people were added to the Pennsylvania facilities.
Focused on the right opportunities
Cost containment is an ongoing challenge at Esmark, but Bouchard is always looking for opportunities to diversify with good investments. That’s one of his focuses for the future.
He targets a 36-month ROI and follows thorough due diligence. The working capital is key and can be a deal killer.
