Taking a disciplined approach

When the price contraction in scrap metal markets that began in 2014 intensified significantly in February 2015, the principals at Rocky Mountain Recycling Inc. (RMR), Commerce City, Colorado, knew it was time to take action.

Brian Henesey, RMR’s vice president and general manager, says, “I can’t recall a contraction as severe in my 30 years in the industry.”

The company responded by trimming its staff through attrition and by restructuring RMR to respond to the changing market, he says. The process took discipline and a commitment to honest communication with employees.

Control the controllable

As the market contracted, RMR focused on the factors that it could control, Henesey says, such as operating costs, the quality of the products it sold to its consuming customers and the class of service it provided to its generating customers.

“We reassessed everything we were doing, from commercial to operational to administrative,” he says, referring to his business partners, President Larry Odle and Executive Manager Andrew DeBaise.

Henesey says the market resembled that of 2005, so the co-owners pulled RMR’s profit and loss statements from 10 years prior to use as a barometer. “I think we needed to reduce operational costs by 20 to 25 percent while also reassessing margins on each and every account,” Henesey says of the company’s attempt to adjust to the market realities.

The good news was that RMR’s operation was not overly inefficient, he adds. However, that also meant the business partners had some difficult decisions to make to reach their goal of reducing operating costs.

During this readjustment period, Henesey says, RMR maintained open communication with its employees. “We kept all of our labor force in the loop,” he says. “We had a full staff meeting and detailed where we were and where we needed to be.”

RMR thinned its labor force, largely through attrition, by nearly 15 employees, Henesey says, communicating these changes clearly to its remaining staff.

“People may not always like the message or the answers you have for them but will respect that you’re being straight with them,” he says. “With such a significant market contraction, you have to keep your head up and be transparent and blunt, but you need to lead.”

Everyone who remained with the company was directly affected by the market contraction through the company’s production bonus program: As production rates decreased and outbound shipments declined, employee bonuses shrunk. Additionally, operating hours were reduced, affecting hourly employees’ pay.

While 2015 presented challenges for all scrap metal processors, Henesey says the fourth quarter was especially difficult because of low selling prices and complications resulting from winter weather in the Rocky Mountain region. However, he adds, market conditions recently have been returning to more “manageable” levels.

Processing capabilities

RMR processes roughly 100,000 tons of scrap metal annually, including ferrous and nonferrous material. “We emphasize ferrous and nonferrous equally,” Henesey says. “We don’t treat nonferrous as a byproduct.”

The company’s ferrous operations are outdoors on roughly 15 acres, 80 percent of which are hard surfaced. Processing equipment includes a Vezzani guillotine shear that is fed with a linear rather than with an alluvial conveyor. Henesey says the company focuses on cut grades and heavy melting scrap.

While he says RMR could have installed an auto shredder in the early 2000s, the company’s co-owners decided against it. Henesey thinks that was the right move. “The Colorado Front Range is saturated with shredding capacity,” he says, adding that this is an issue for the wider U.S., too.

The abundance of auto shredders means shredder operators tend to dictate pricing, even for cut grades, Henesey says.

Auto shredder operators also are consuming a growing volume of available scrap, he adds. “More and more of the iron scrap generated is going to a shredder.”

The company’s fully paved nonferrous yard sits on 7.5 acres across the street from its ferrous yard. Operations include baling and wire stripping, as well as sorting of brass and high-temp alloys.

RMR serves industrial, commercial and retail customers and provides scrap management services to the demolition sector. Henesey say the company’s business is not overly dependent on any one of these sectors, which helps to provide stability.

Incoming material from all of these sectors increased in the second quarter of 2016, he says. “The second quarter is when we do begin to pick up historically.”

Despite this uptick, Henesey says, pragmatism remains a necessity among scrap processors and at RMR specifically. “We can’t bet on the future, but we can run our business in the here and now,” he says.

While Henesey advocates for rationality as RMR and other scrap companies respond to the changing market, he also realizes that difficult times—as with the good times of the early 2000s—won’t last forever. “You can’t let difficult times cloud your future.”

Company priorities

Henesey says he’s particularly proud of the values that are at RMR’s core. The company’s motto, “Recycling with integrity since 1936,” summarizes one of those values.

Kenny Gahagan founded Rocky Mountain Recycling in 1936 as Gahagan Iron & Metal. His children, Debbie, David and Dennis, inherited the company following their father’s death. In the late 1980s, the Gahagan’s were interested in selling the company but were being very careful in their vetting process, Henesey says, as they wanted to ensure their father’s good name and integrity were maintained.

Odle, who worked at stainless steel, high-temperature alloys and titanium recycler Keywell at the time, learned of their interest in selling from a colleague and approached the family. The sale closed in September 1997. Henesey joined the company in April of 1998, buying into the company shortly thereafter.

“Discipline is the key to business.”

While Odle renamed the company to Rocky Mountain Recycling, he shares and has continued the Gahagans’ focus on integrity, helping ensure the loyalty of the company’s employees and suppliers, Henesey says, which are the foundation of RMR’s business.

RMR also strives for continual improvement in its operations, he says, and in realizing operational efficiencies that help to reduce costs. “I’m a big believer in standards and lean thinking,” he says. In fact, Henesey says, he’d like to get the company certified to the Recycling Industry Operating Standard (RIOS), an integrated quality, environmental, health and safety management standard developed by the Institute of Scrap Recycling Industries (ISRI), Washington.

“Discipline is the key to business,” he says, and a program like RIOS would require discipline to execute and maintain.

Speaking of discipline, Henesey stops our interview to investigate what he thinks to be an unsafe situation in the yard—a worker who was not using a harness. Thankfully, it was a false alarm, but it shows RMR’s commitment to the safety of its workers.

RMR’s website, www.rmrscrap.com/environmentcommunity, in- cludes a safety pledge in which the company promises to integrate safety, health, environmental and community considerations into all aspects of its business; to provide a safe and healthy work environment for employees, contractors and visitors; and to conduct business in a manner that protects the environment, conserves resources and reduces waste.

Having survived the worst market contraction in recent memory thanks in part to discipline and RMR’s other values, Henesey says he, Odle and DeBaise are looking for new opportunities to grow and strengthen RMR. However, he adds, “We’re a conservative company. It is not our intention to grow for growth’s sake. We are a value-based company.”

The author is managing editor of Recycling Today and can be contacted at dtoto@gie.net.