A Principled Approach

Jay and Neal Brenner of Cycle System are constantly on the go. From ensuring their company is in compliance with an ever-growing list of environmental regulations and up to date on a multitude of legal issues to keeping track of the fluctuating markets for the recyclables they handle, the brothers have their work cut out for them. However, it is a challenge the two relish.

Keeping Cycle Systems on the right path is no easy task. The challenge requires that the company not only stick to what it has done so successfully in the past but also expand into ancillary businesses, which can provide a source of scrap metal for the company as well.

“We have to be innovative,” say Neal and Jay, president and CEO, respectively, of Cycle Systems.

The company, headquartered in Roanoke, Va., operates two main yards and seven feeder yards. One of Cycle Systems’ key assets is an auto shredder, which has been in operation for slightly more than seven years.
 

Scrap Metal and Beyond
Cycle Systems has established several new divisions, which, the two executives say, complement the company’s core scrap metals business.

One such division that has helped to keep Cycle Systems’ auto shredder supplied with auto hulks is a joint venture auto parts operation. The company also has recently launched the Vehicle Recycling Assistance Program (VRAP), which assists customers looking to scrap a vehicle in getting proper documentation and/or titles for their vehicles through the Department of Motor Vehicles (DMV), the company says. Through this service, Cycle Systems runs an automobile’s VIN (vehicle identification number) through DMV records to obtain clearance to purchase the vehicle.

Cycle Systems also operates a demolition division that is a source of additional recyclables to process and market.

The company’s renewal group consists of a trio of businesses: American Railroad Equipment LLC, a cyclical business that, for decades, has targeted the dismantling of railroad equipment; ARE Energy, which focuses on the assembly and packaging of transportable power plants using recycled, remanufactured and used parts; and its CSI Surplus, which resells excess inventory in liquidation sales and works with Cycle Systems’ demolition division to strip out breakers, bearings and other industrial equipment of value before demolition begins.

While Cycle Systems has diversified its operations with these ancillary businesses, its core business remains processing scrap metals. Its auto shredder in Lynchburg, Va., is the focal point of the these operations. Jay says the company’s 98-by-104 shredder includes a “pretty sophisticated” downstream system and is powered by a General Electric locomotive engine rather than operating off the electrical grid, like so many other auto shredders.

Neal says using a locomotive engine as a power source gives the company flexibility. The shredder is able to run on biodiesel fuel, more conventional diesel fuel or even natural gas. “The advantage is that we are not forced to run on the grid. We don’t have to shut down [the shredder] due to peak energy usage. We also don’t get stuck with high energy costs. We can run the shredder when we want to.”

Jay says the next step is to see if the motor will run on synthetic gas. To accomplish this, Cycle Systems is testing various fuels on a duplicate engine that mirrors the one used to run its auto shredder.
 

Customer Oriented
Cycle Systems’ roots extend back to 1916, when Joseph Brenner immigrated to the United States from Latvia. Brenner brought his brothers Jacob, Morris and Frank into his scrap and iron-peddling business in Hagerstown, Md.

Jacob, who went on to found Cycle Systems, migrated south, ending up in Virginia’s Roanoke Valley area. Udell Brenner succeeded Jacob, followed by Bruce and Terry Brenner. With Jay and Neal, the company is now under the leadership of the fourth generation of the Brenner family.

Neal and Jay say being a Brenner does not guarantee a position with Cycle Systems. In fact, Neal says, his father made it known to him that before he could come to work for Cycle Systems he had to work somewhere else. For Neal, that meant selling computers and computer systems.

When Neal finally approached his father about joining the company, he says, “I had to interview with many managers. It wasn’t because I was a family member that I was hired.”

Neal has worked in various positions for the company. “I ran an operation and then another. I came back to Roanoke and moved up that way. I ran our IT department, went on to become vice president and finally president,” he says.

Both Neal and Jay say that in many ways Cycle Systems is a traditional scrap recycling facility, with operations that target ferrous and nonferrous metals. The company also handles nonmetallics and even solid waste for some clients.

Despite its growth, Cycle Systems has made sure customer service remains front and center.

Because Cycle Systems is located in an area with significant competition from large and small recyclers alike, providing quality service allows the company to remain focused on its profitability, the Brenners say.

Neal estimates 40 to 50 percent of Cycle Systems’ business comes from peddler trade, with the remainder split between commercial and industrial accounts. Relying so heavily on retail is a challenge, Jay and Neal say. “What we see with retail customers is that is they are very price conscious rather than being loyal to a particular business,” Jay adds.

Despite the peddlers’ mindset, Cycle Systems understands the importance of maintaining a good rapport with customers. To ensure customer satisfaction, the company created a call center. “We take care of our customers and want to answer all their questions,” Neal says. “It is hard for the scale operators and cashers to pay attention to who is coming to the window.” The call center helps the company offer a level of customer service that it otherwise may not be able to provide.

Cycle Systems also competes with some of the largest scrap recyclers in the world for available tonnage. The company has focused on developing and growing its business in small to mid-sized cities rather than on establishing operations in larger cities.
 

Continuous Challenges
Despite targeting smaller cities, the company is not immune to the changing dynamics affecting the industry. “There used to be an advantage in that there was a high barrier to entry,” Neal says of the scrap industry. “It was hard to get into the business. However, we have definitely seen changes to that, with more competitors opening up.”

These new competitors aren’t just the large, multinational operations that have been snapping up assets, but also the “mom and pops” who are seeing opportunities in scrap metal, Neal says.

While the Brenners say Cycle Systems invests significant capital to ensure it meets all its regulatory requirements, many of these smaller companies may avoid undertaking these costs, leaving companies such as Cycle Systems at a disadvantage. “We want to do the right things, while many of these ‘mom and pop’ places choose not to live with the regulations,” Neal says.

Part of the problem is inadequate enforcement, Jay says.

Neal and Jay say scrap metal theft and the possibility of more legislation affecting scrap recyclers is an ongoing problem. “There are days we sit here and ask if we need a compliance officer just to make sure we remain legal,” Neal says.

Changing state and local regulations for buying scrap metals may mean Cycle Systems has to change its procedures to stay in compliance, he adds.

Jay says Virginia legislators are considering implementing tag-and-hold requirements for scrap yards. “When you talk about that you need to address the honesty of the customer. The material you receive often changes in its form. How do you determine that? Are you looking for trends in customers? Police are often at our site looking for stolen material. Tag and hold will not help.”

Neal says often legislators treat scrap yard just like pawnshops. However, when dealing with 250 customers in a day, it can be impossible to keep incoming materials separate, he adds.
 

Domestic Destinations
In addition to these various compliance issues, Cycle Systems needs to contend with the bread and butter of its business: buying and selling metals. The company has been successful by sticking with its domestic customers. Jay says practically 100 percent of the ferrous scrap Cycle Systems handles is shipped to domestic buyers. “We rarely ship ferrous material overseas,” he adds.

Jay says Cycle Systems is fortunate to have a number of consumers operating in proximity to its facilities.

Neal adds, “Even though the majority of what we sell is domestic, we need to understand the whole global strategy and how that affects us. Also, as different companies get involved in the scrap industry and larger multinationals look to acquire their needed ferrous and nonferrous volumes, we will be challenged to stay competitive.”

The volatile nature of the global scrap industry has affected the way Cycle Systems operates as well. “You have to learn to manage your business when you handle those large swings,” Neal says. “We make sure to handle that by turning inventory. Don’t expose yourself to the risk if you don’t need to,” he advises.

Neal says Cycle Systems tries to operate according to the view of COO Gene Suslowicz. The company buys material today, ships it to a processing yard tomorrow, processes the material on the third day and ships the material the following day. While this is its goal, the company can’t always accomplish it, he admits.

While the company has benefitted from organic growth and acquisitions, there is no easy path. For those who say acquisitions are a quick way to expand, Jay says the infrastructure needs to be there for it to be successful. “A company has to put in the right equipment, and then you have to integrate it into your business,” he says. “To compete, we are always looking for getting the best productivity with the least cost.”

When it comes down to it, the approach Cycle Systems takes to business is basic. According to Jay, integrity and honesty are foremost. “We put that above everything,” he says. “We treat employees with respect. And we make business decisions after a lot of analysis and understanding.”

The author is senior and Internet editor of Recycling Today and can be contacted at dsandoval@gie.net.