SMU Community Chat: Steel Warehouse to Stay the Course in '22

For a service center, the most volatile – and the most valuable – asset is its inventory. “While it makes sense to invest in equipment, bricks and mortar, software, etc., the greatest opportunity for gain or loss is in inventory management,” Lerman said. Steel Warehouse normally inventories about 400,000 tons of steel. “That’s either way too much or not enough, depending on the market. We question that constantly. We work with our customers on just-in-time delivery to make sure we always have material to ship.”

How do you manage inventory when prices are so high and the market is so volatile? Current conditions call for greater flexibility and cooperation. “Overall, we have done well by virtue of constant communication with our customers,” Lerman said.

Much of the service center’s business is with contract customers “who get it,” he said. In October 2020, hot rolled steel cost around $680 per ton; the current price is around $1,900. Steel Warehouse’s investment in inventory is nearly three times higher for the same amount of steel. “I think the biggest concern we have right now is managing customer demand – the increases and the decreases. You can’t do that by yourself – you need a customer who is willing to look at our money as their money. That is a cultural shift.”

Steel prices are expected to moderate in 2022 – whether sharply or gradually remains to be seen. “Man makes plans. God laughs,” Lerman joked. Steel Warehouse will use steel futures and any other tools at its disposal to manage the downturn. And Lerman anticipates a challenge. “In a rising market there is no such thing as a bad buy, and in a falling market there is no such thing as a good buy,” he said.

Steel Warehouse’s success sets it apart from most other service centers, and so does its family ownership. There aren’t many billion-dollar enterprises that make the transition from the second to the third generation. Mike Lerman is one of 10 siblings – many of whom have contributed their talents, and those of their offspring, to the family business. The executive team includes brother Dave Lerman, who is the company chairman, and brother Ted, who is the CEO. The Lerman family has managed to persevere while avoiding the petty jealousies and infighting that doom so many family firms. How? “I think it starts with leadership. It ends with leadership too. We are blessed to have a large family. The whole family understands that we have a legacy. We didn’t start it – it was a gift – and we are stewards as much as owners. It has been a great ride. God willing it will continue that way.”

SMU’s next Community Chat will feature Mike Del Giudice, a principal with the Crowe consulting group, who will share his expertise in cybersecurity. The free webinar begins at 11 a.m. ET on Wednesday, Nov. 3. Click here for more information and to register.

By Tim Triplett, Tim@SteelMarketUpdate.com