The Barons Of Block Busting

Breaking engine blocks for a living is hard, dirty work. It takes a lot of energy to break them and a commitment to environmental compliance so that all the fluids are contained and recaptured. It is a wonder that Annaco, Akron, Ohio, chooses to remain involved in this line of business. But breaking engine blocks is like buttering bread to the company as it employs its own proprietary processing system that is capable of  processing 10,000  tons to 15,000 tons of blocks per month. The operation comprises about half of Annaco’s business.

In addition to its block breaking business, Annaco has grown into a solid scrap metal company with a well-organized 18-acre indoor/outdoor site; a feeder yard nearby called Harry’s Metals that serves residential and small business customers; and an on-the-road service called Mobile Annaco, that makes scrap metal pickups throughout the greater Akron area.

The 66-year-old company also operates a heavy-duty shear for ferrous scrap and has an indoor nonferrous processing facility with a high-speed briquetter. The yard is connected to a rail line and material can be directly loaded to gondola cars on the track.

On the surface, Annaco may look like any one of a hundred different yards across the country, but a closer look finds a company rooted in employee-centered programs, customer satisfaction and financial conservatism. The employee care is still there, and product quality and customer satisfaction is constantly being examined, but changes in the market may force Annaco to break out of its financial safe haven – to look beyond engine blocks and explore other niches and markets.

PEOPLE FIRST

Many company presidents and CEOs today will say that their employees are their most important asset and that their customers are their number one priority. Some even go as far as to call workers “associates” and clients “partners.” Often this business rhetoric is a facade to make management feel good and to project a view of a company in harmony with itself and the market it serves. But there are examples of companies that truly walk the talk, and Annaco is one such business.

“The company is just the shell, it’s really nothing more than the sum of its employees,” says Morris Berzon, the soft-spoken president of Annaco. Berzon places his 90 employees at the top of his list of priorities. The company has many employee programs, but the one that Berzon is especially proud of is the company’s visiting nurse program. “The wellness program really relates to what is necessary and right,” he says. “It’s important that our employees are properly looked after, and that they are educated on health and wellness – it permeates everything.”

According to Bill Lowery, executive vice president of Annaco and also the president of Institute of Scrap Recycling Industries’ Northern Ohio Chapter, the nurse comes in one morning a week to examine employees and answer questions. “She is someone that the employees can go to if they have a soreness or a cold, and she is often the only medical person they may see,” he says. “Sometimes she will get feedback from employees – maybe finding out that some of them are lifting too much, and she will recommend those people for light duty, for example. That is important feedback for us because it reduces undue risk to the employee’s health and well being, and in the long run it reduces our insurance claims and helps keep down our workers compensation costs. It also has been a preventative measure. We have found people with high blood pressure, and other medical problems that really needed medical attention right away – things that could have developed into more serious problems later on.”

Another program that the company offers is profit sharing, and it has been the impetus to get the employees feeling that they are a critical part of the company. “Our people know up front what their profit sharing percentage is going to be and every month we update the entire company about where we stand financially,” says Lowery. “We disclose our financial performance and employees can also see how their bonuses are doing. This gives them an opportunity to do something about it.

“We really work together,” continues Lowery. “There are many reasons why we make or lose money, and we want our people to understand that. Just because a department happens to be making a lot of money this year, doesn’t necessarily mean that the performance of a department that is currently struggling is any different. A lot of our business depends on what the market conditions are, what spreads we are able to get, and how we have postured the company in terms of products and niches. Each department head has a report that summarizes a list of objectives and goals. We review progress to date and compare it to last year. It’s basically a look at productivity.”

Other worker benefits include an employee assistance program, attendance award program, college scholarship program, uniform program, retirement plan, eyeglass plan, comprehensive health care and a company picnic, holiday dinner and awards for continued safety on the job. In addition, a company newsletter is mailed directly to each employee’s home.

“All the programs are designed to build up our employees so that they feel they are a part of the company,” says Berzon. “We are a very open company. We share a lot with our employees about the company – they know where we stand, and where they stand.”

“I found that very few scrap yards have a human resources department,” says Bob Toth, human resources manager for Annaco. “When you think about it, a scrap processing yard is just a factory without a roof. We feel that our employees deserve our full attention.”

Annaco workers also belong to the Amalgamated Clothing and Textile Workers union, and company management likes having unionized employees. “We live in harmony with  the union,” says Lowery. “I would much rather deal with the union than with someone’s attorney. The union can be very helpful, and they can also prevent a problem. No matter how employee-centered you are, situations will arise that may put management and labor on different sides. The union gives the employees a venue to voice their concerns, and the union representatives will come back to us and present those concerns. Overall, we have had a good relationship with the union, and we have always been able to work out any differences.”

The strong employee/management relationship and the attention to human resources also has had a bearing on safety at the company. And that is another area that Annaco has excelled. The company has  not had a lost-time injury for more than six months as of press time, and, before that, operated four years without a loss-time injury.

QUALITY PRODUCT

Annaco believes that by taking care of its employees first, it can then concentrate on producing a quality product and providing a better level of customer satisfaction. “We want to create new standards in scrap metal processing,” says Berzon, “and we do that by first having quality employees and taking care of those employees. We must always keep thinking about quality, because that is what the customer wants. I say, ‘Look at what your customers’ needs are and try and tailor your production to what your customer wants, not necessarily what is easy for you to make.’ Hopefully we can do that efficiently and in an environmentally-correct way so that it will fit into our budget with some money left over for profits.

“We are looking into the needs of our customers and are looking at custom designing products that give us more control of a niche market,” continues Berzon. “We can’t get away from price selling because we are in a commodity industry, but we first try to make it a quality product so that it is very acceptable by our customers, then try to recover a price that will generate a profit for us. But we must keep it competitive with other items. No matter how good your quality is, it is only going to be worth so much more or maybe just give you the edge at the same price.”

An example of Annaco’s quality commitment revolves around its engine block processing business. The company produces several grades of castings for its customers and will custom blend grades and control chemistries. The same holds true or the various grades of steel the company produces. “We do the chemical controlling here,” says Berzon. “Normally, we do our testing and try to produce products that are the answer to a certain problem for the customer. The customer needs a product that is going to come out of the furnace with a certain chemistry and if they can put a product in at the beginning that it is going to guarantee a final outcome, then our product becomes a more valuable commodity.”

Annaco is also working on products that can help mill and foundry customers “run” or melt faster. That includes offering material with proper sizing and thickness. “Right now there is a very large demand in the aluminum business for products that can be shredded,” says Berzon. “The customer actually wants to shred his own product for his own feed and control quality as well as productivity. The state-of-the-art process that we have had during the last 15 years has been high-speed briquetting, but that is not the product in demand today for sheet grades of aluminum – which is one of the largest grades of nonferrous that we handle. Briquetting makes shredding very difficult, so the newer, more acceptable type of product is the lose-tie bale produced on high-speed balers or the two-ram baler.”

Annaco will change its briquetting to baling, and when the new equipment is installed next year, the company will add an additional 10,000 square feet of space on to its existing nonferrous processing building. The company will also install automated sorting equipment, aluminum can receiving, weighing and a direct-feed processor.

“With aluminum there is a lower spread that you work with, and in order to be competitive you have to be very efficient in the way you handle and process it,” says Berzon.

COLLECTION END

Annaco also pays close attention to service on the collection end. Examples of Annaco’s commitment to service include its feeder yard, Harry’s Metals, and its on-the-road service, Mobile Annaco.

“We set up Harry’s because we feel that you have to be very service oriented towards the small customer,” says Lowery. “In today’s society, you have to be able to handle the customer in a friendly and efficient manner, and we are doing that with Harry’s. We found that over a period of time we were servicing the small customer more and more. So, I guess you can compare our operation to that of a bank, where we have a main branch and a smaller branch in Harry’s, even though it is just down the street. Because, many times the main branch does not do that well with the drive-up customer.”

“Harry’s is basically a weigh-and-pay retail feeder yard,” says Berzon. “It’s more of a public type of a place.” The company routinely runs promotions to bring in customers at the yard, and recently had a hotdog and hat day for customers. “It’s important for us to be able to pull out the small quantities from the (scrap metal) stream with promotions, because small quantities make big quantities,” says Berzon. “A little yard like Harry’s can handle more than 500 tons of ferrous grade and 100 tons of nonferrous grades per month. It’s a nice operation.”

Concerning overall awareness among the general public about recycling metal items, Lowery says that people are much more aware today than they used to be. “There are two main reasons that I can see for this,” he says. “One, the heightened recycling atmosphere in this country; and two, the markets themselves. When the material starts becoming more and more valuable, the word gets out.

“When you are dealing with aluminum cans, for example, that you are paying 50 cents a pound for, you are going to get a lot more material than when you were only offering 20 cents a pound,” continues Lowery. “And you are not only going to get it from the public, but also from the peddler, because when the markets are good, he is seeking out more metal, too. Today, there is just more opportunity in the recycling business.

“I would say that most people who generate a significant amount of material are aware of the strong markets for metals – plumbers, electricians, etc. – they know the worth of the material,” continues Lowery. “Also, people will tend to clean up and turn in material when the prices are good. With farmers, it is the same – to go around their acreage and scrap out metal, they have to get a fair amount of money for it. If they spend three days collecting material on the farm, then come in here and get $20 for it, it is not worth their effort. So, that stuff will just sit there on the farm or be landfilled.”

Another way the company reaches out and services its front-end customers is through its on-the-road service called Mobile Annaco. The service consists of trucks that travel to various locations throughout Northern Ohio  to collect aluminum cans.

Tied into the service is an arrangement with the local fire departments and other businesses that collect for the Aluminum Cans For Burned Children Fund. Proceeds for that fund go to Akron Children’s Hospital.

DOWN AT THE YARD

In addition to Harry’s Metal and Mobile Annaco, the company’s main yard handles and processes ferrous, nonferrous and engine blocks. The engine block breaking business is a niche in which Annaco has made a name for itself. It is the company’s largest operation and the equipment it uses is proprietary. All around the processing area is concrete pavement with an underlayment of sand, clay and a plastic liner to contain runoff from the blocks. The runoff is collected, separated, and the oil is used to power the processing plant, so it is basically self-sustaining.

Since the 1970s, Annaco has more than tripled its processing capacity of engine blocks, and currently processes about 10,000 tons to 15,000 tons per month. It has plans to take that figure even higher.

There are only a handful of yards in the United States that process engine blocks, which is good for Annaco. But recent competition from markets overseas and heavy-duty shredding operations here in the U. S., are challenging the company.

“We have to be more competitive than ever before,” says Berzon. “We are having to pay more for our engine blocks to give the incentive to those who ship automobile hulks to make sure that they are taking the engine blocks out of the hulks and shipping them to us and not to the shredder. So the difficulty arises in ensuring that there is a price differential that is great enough to give those operators incentive and make a profit, too.”

Other competition comes from processors overseas. “The export market is very strong right now, especially to countries such as South Korea,” says Berzon.

Because of the competition, Annaco has had to go further out to acquire the engine blocks it needs.  The company currently covers a radius of about 1,500 miles to get engine blocks.

Annaco retrieves 15 different products from its engine block processing operation. The company gets about five different steel items, four different cast iron items, three aluminum items and the rest are zinc and mixed metal products. Most of the products go to foundries, some to steel mills and some are nonferrous grades that go to smelting operations. Some of the product coming off is even being shipped to China.

“There are certain products that come off an engine block that are difficult to clean by machine and have to be cleaned manually,” says Berzon. “It’s a very labor-intensive procedure and operations in countries such as China that have a lower labor rate can afford to clean those products. It’s not the most ideal situation because of the shipping costs involved, but right now it is the best one for us.”

Beyond engine block breaking, the company has a steel and ferrous processing division which includes shearing, torching and sorting various items for steel mills and foundries. “We do not do any processing beyond that,” says Berzon. “We do not chose to get into the heavy-duty shredding business because it is a very competitive business in Northern Ohio with a lot of shredding capacity already in place.

“It is also very capital- intensive to begin shredding operations,” continues Berzon. “So, at present, we have not gone into that side of the business, but we may in the future.”

Berzon says that his company is in a “mature market area,” but he likes what he sees in new minimills coming on line both in Ohio and in nearby states that will keep ferrous markets strong.

“Overall, this is not an area that is just developing,” he says. “That’s why you have to develop your niches and your expertise in those niches. It makes you a better company because it hones you and prepares you for when the market is in a downturn.

“If you are in a area that is really growing,” continues Berzon, “then you are going to make money no matter what you do. Growth can hide a lot of sins. The problem is when the growth stops, and the company was depending on that growth to finance improvements. All of a sudden that growth is not there.”

To date, Annaco has been a financially conservative company, bankrolling expansions from within. However, Berzon realizes that the company may not be able to continue to do this.

“We want and need to grow and expand, but it has to be in a controlled fashion,” says Berzon. “We are very conservative financially, but very strong financially. We basically do most of our expansions through internally-generated funds; however, this may not always be possible.

“Will we stay conservative?” continues Berzon. “ It depends on the business climate and our own situation. I have a lot of young fellows over here that are eager to grow, so we may do some outside financing – as long as it is sound.”

The author is managing editor of Recycling Today.