America's Successful STEEL Industry

...I couldn't help somebody in a different job, and he couldn't help me...

...But there's a significant flaw in this argument—a lot of the competition is already inside the gate...

...You don't have to be an economist to know that the big steel companies are in trouble...

...But technology isn't the whole story...

...We didn't want people who had learned bad work habits," one executive told me...

...Production capacity has shrunk by about ten million metric tons per year— roughly 8 percent—and from 1979 to 1982, the number of steelworkers with jobs plummeted from 453,000 to 247,000-45 percent...

...Because ingots usually have defective surfaces that have to be ground down or burned off, they are reheated and rolled one more time into their final shape...

...Homemade construction Another key to Chaparral's high morale is that no employee has ever been laid off...

...After all, it's the foremen who work with the crews...

...Their main suspect for the steel industry killer...

...It's ironic that this success story is attributable in no small part to big steel's smug attitude during its heyday...

...Innovations for the mill came from the managers, who told the engineers the specifications they believed necessary for efficient production...

...Mountains of scrap In 1960, the minis were to big steel what competitors were to Ma Bell—inconsequential and on the fringe...

...The trim mini-mill bureaucracy, with its salary levels sharply below those of big steel, may not appeal to the execs—any more than the bluecollar wages and high productivity standards appeal to the Steelworkers...

...Workers aren't just encouraged to to try out their ideas for improving productivity...

...The profit-sharing is distributed on a sliding scale that comes out to between 9 and 20 percent of wages...

...The amount of steel produced through continuous casting in the United States since 1971 has increased less than 20 percent—and is disproportionately concentrated in the minimills— while the Japanese have increased the use of continuous casting by nearly 60 percent...

...Every Chaparral person I talked with had that same sense of collective pride...

...In Japan, it's 850...

...At Chaparral, the average employee churns out 1,300 tons a year—and that is expected to increase...

...At Chaparral, promotions are based on merit...

...Executives may make the recommendations to foremen for potential employees, but it's the foremen who make the final hiring decisions...

...But to avoid the searching eyes of the trust busters, U.S...

...The result was a mill made of German and Japanese technology, with a few parts that were pure Chaparral...

...That was because of the union...

...One was the increasing demands of the United Steelworkers...

...Gobbling refrigerators Midlothian is not the first place you'd think to look for a successful steel mill...

...instead there's a sense of shared commitment, sacrifice, and pride...

...Steel was a classic oligopoly, with the United States Steel Corporation, the unchallenged industry leader, determining the price structure of the entire industry...

...Unfortunately the shortage never happened, so when Chaparral first began churning out steel, a glut of reinforcing bar put the company in the same boat as big steel—the supply exceeded the demand...

...Everyone is on a first-name basis...

...These "mini-mills" now have 20 percent of the domestic steel market and match the share taken by foreign competitors...

...If somebody's got a suggestion, they either do it or tell us what they need to do it...

...I want this to be the top steel mill in the world...

...But the same article noted that, thanks in large part to the efforts of big steel over the last couple of generations, there are 2.3 billion tons of steel sitting out there—more than ten tons for every man, woman, and child in America— and all of that is potential scrap for the minimills...

...Another reason is that everyone from the president on down has a share in 6 percent of the company's pre-tax profits...

...A worker bragged to me about a letter that the company president wrote complimenting him for breaking a shipping record...

...To compete, this argument concludes, we need import quotas on foreign steel...

...By comparison, U.S...

...minimills are not just smaller versions of the bigger, "integrated" mills that convert pig iron into steel...

...The result is a working environment that is largely free of hierarchy...

...I love it ?' How has Chaparral sparked that kind of competitive spirit in its people, to the point that the plant runs at 89.1 percent capacity, compared to 60 percent for much of the steel industry...

...A ranch and farming community 25 miles outside of Dallas with a population of 3,000 before the mill was built, the town was best known for its rolling hills, similar to those of its Scottish namesake...

...In 1977 the United Steelworkers led a union drive that was soundly rejected: with 98 percent of the workers voting, 73 percent cast their ballots against unionizing the plant...

...Don't call us steelworkers," one Chaparral veteran says, "we're Chaparral people"—a statement that would mark one as a hopeless patsy to management in many of the steel plants up north...

...But to a surprising extent the success of mini-mills in general, and Chaparral in particular, rests on elementary principles of management that are accessible to big steel—principles that American industry has neglected for too long...

...There were only 10 to 12 minis taking up about 2 percent of the steel market...

...From 1969 to 1981 labor costs rose an average of 11.6 percent a year, helping to price the big companies out of many of the markets that the minis were all too eager to snatch up...

...Since 1977 they have closed or idled some 20 plants or parts of plants...

...But since then the mills have exploded onto the scene, with more than 50 producing approximately 14 million metric tons of steel per year...

...The term "mini-mill" is a bit of a misnomer...

...There is no executive parking...

...The molten steel is then poured immediately through casting molds, cooled and hardened by water, in a process known as "continuous casting...

...Fortunately, Chaparral was a mini-mill...

...Like all cast steel, ingots have to be rolled like dough into proper shape...

...they subsidize their steel industries and throw up tariffs to keep out American products...

...Granted, mini-mills like Chaparral owe much of their success to their ability to ride piggyback on their big, inflexible competitors by working from scrap steel (more on this later...

...They're in what we call the junk end of the business," one executive told Fortune back in 1978, "and they can have it...

...The chief of the janitorial crew dictates his letters to the president's secretary...

...Kurt Eichenwald is a writer living in New York...

...I want to be the best roller out there," Neil Parker told me...

...So, thinking there was an impending reinforcing bar shortage, TXI decided to set up its own steel mill...

...And the prospect of abandoning their adversarial positions for some form of cooperation seems equally distasteful to both...

...The result: enormous flexibility...

...When Chaparral was designing the medium section mill that it built in 1982, it pulled mill managers off the floor and asked them what they thought they needed...

...Try working...

...We don't have a suggestion box around here," Beach said...

...In fact, it's hard to find anybody at Chaparral who has anything good to say about labor unions—that is, until you walk over to the management offices...

...After all, it was in the concrete business, and every concrete building needs steel reinforcement...

...Steel made certain that its prices wouldn't put other, less efficient companies out of the market...

...In December 1981, thanks to soaring production, managers figured that there were about 40 more employees than they needed to fill the orders at hand...

...In effect, this kept the entire steel industry only as competitive as its least efficient producer...

...But in 1973, when Texas Industries (TXI), a cement company, and Co-Steel of Canada, were looking for a place to build a steel mill as a joint venture, Midlothian seemed perfect...

...After the steel is cast, it can be rolled immediately into the final product...

...Similarly, when out-of-state customers have a complaint, production employees with hands-on familiarity with the product are flown out with the sales people to look into the problem and see what can be done to correct it...

...now it has eight...

...And I'm sure every other roller feels the same way...

...While the heads of big steel have been in Washington seeking protection, a hightech, non-union sector of the steel industry right here in the United States has been quietly snatching up their markets...

...Instead of making steel from scratch, they gobble up scrap steel like junked cars and refrigerators and convert them into usable steel products...

...If you treat your employees like a number," he said, "then you deserve a union...

...So the industry protected its noncompetitive members through a price structure that enabled these companies to stay in the black...

...The trust pays off: absenteeism at Chaparral is about 2 percent compared to an industry average of roughly 6 percent...

...In an integrated plant, a combination of iron ore and scrap is mixed in a furnace...

...Training classes and foreman/worker meetings take place in the corporate boardroom...

...Steel's South Works plant in Chicago, told me, "At the other mill I was stuck in a craft line...

...But instead of laying people off, Chaparral put them to work...

...Protected from the free market to which they professed their devotion, the big companies set their prices as though it were manifest destiny that American steel would always be number one...

...But the complaint doesn't have quite the hard edge you'd find elsewhere...

...Everybody gets free coffee in the morning...

...But the advantages of continuous casting did not become obvious until the last decade, with the result that the newer mini-mills were able to take advantage of the new technology, while big steel, which cut back on capital investment in the seventies, did not...

...One reason is the absence of the sort of stifling seniority rules, common at other big steel mills, that guarantee a promotion to the person who's been around the longest, regardless of whether somebody else with less seniority can do the job better...

...None of this is good news to the shell-shocked steel executives demanding government bailouts or to their counterparts at the Steelworkers union...

...But with mini-mills like Chaparral popping up, it's clear that there is a healthy steel industry in this country...

...We had to diversify, and fast," Chaparral's vice president, Dennis Beach, told me...

...How have the minis managed to succeed in an industry littered with failure and bankruptcy...

...After six hours, you have molten steel...

...Decision-making is pushed all the way down to the shop floor—and with only four layers of management, that's not all that far...

...The second factor was the technological advances that were propelling foreign companies into a competitive position with big steel...

...A further factor is the cooperative style of management so evident at Chaparral and other mini-mills...

...Chaparral produced nearly one million tons of steel this year...

...You see signs of this spirit as you walk through the plant...

...The minis' boom during the 1970s was fueled by two factors...

...In 1978 dollars, the estimates range from $154 to $320 per metric ton of annual capacity for a minimill as compared to the $956 to $1,500 for an integrated plant...

...Among the workers I spoke with, there was unanimous agreement that keeping the union out was a key factor in the plant's productivity...

...For technical reasons, the minis at present are unable to make sheet steel, which keeps them out of a substantial portion of the market right now...

...Rather they are recycling plants...

...To find out, I paid a visit to one—the Chaparral Steel Company in Midlothian, Texas...

...Once the brew is cooked, it's generally poured out in the form of ingots...

...If you listen to the industry lobbyists who troop down to Washington each year to demand government relief, you probably think that foreign competitors are to blame for big steel's troubles...

...In 1982, the year U. S. Steel's losses totaled more than $2.5 billion, Chaparral turned a profit of $11 million...

...In the administrative offices hangs a picture of about 40 workers sitting on a new furnace, with the inscription, "Chaparral Steel Company, World Record, October, 1982-67,888 tons cast...

...Indeed, the fact that there hasn't been a pay raise at the plant for the past two years has led to some carping among workers at Chaparral...

...Since continuous casting does not preclude the use of iron ore, it is at least theoretically as accessible to the integrated steel mills as it is to mini-mills...

...It's especially delicious to consider that every foreign automobile that rolls off the docks is another potential morsel for the electric furnaces...

...The particular niche that the mini-mills found—conversion of scrap steel into new steel products—brought scorn from big steel...

...Free coffee Superior technology is one reason the minimills maintain such an impressive level of productivity...

...In a mini-mill, by contrast, there's no iron ore—just scrap—and the electric furnace in which it's cooked can produce molten steel in a little less than two hours...

...The Japanese and Koreans aren't fair traders, the lobbyists argue...

...Forward agrees...

...Gordon Forward, the company president and a refugee from big steel bureaucracy, had always found it "amazing" that at most companies "management could have free coffee and there was some second-class citizen who couldn't, or there was some second-class citizen who had to park outside the gate or punch a time clock because we didn't trust them...

...Despite slumping demand, they increased an average of 5.8 percent annually throughout the decade, compared to 2 percent for wholesale products, according to the Bureau of Labor Statistics...

...If they treat their employees like units, then of course they'll band together in a union...

...Chaparral polled its employees concerning their experience in construction...

...it's considered part of their job...

...The profit-sharing plans, employee stock opportunities, scholarship programs for the workers' children, and the like are akin to the cooperative practices used so successfully in Japan...

...Steel until recently had 11 such layers...

...Here we do what we have to to get the job done...

...Faith in the workers' competence is absolute...

...The outside contractor was sent home and Chaparral's own crew of steelworkers was put to work with hammers and saws to complete the new plant...

...The result: workers are motivated to make a better effort, rather than just put in their time...

...Management...

...This allows the mini-mills to eliminate several steps in the steelmaking process...

...The commitment certainly doesn't come from the pay scale...

...In fact, one of the most successful minimill companies, Nucor Corporation of North Carolina, embraces the principle of lifetime employment...

...When they return, they use what they've learned to help make changes that will keep the problem from recurring...

...There are no time clocks...

...The executive offices are located in the plant's locker room building...

...For one thing, it was near large power supplies, highways, and railroads...

...Most people in the area had never worked at a steel mill, and that suited management just fine...

...I think the attitude taken by other companies is unnecessarily adversarial," Beach told me...

...Joe Barcevac, a former worker at U.S...

...The average age of the machinery at an integrated mill is 22 years as compared to 9.4 years at a minimill...

...Small wonder efforts to unionize the mill failed...

...In addition to giving workers a share in the outcome, Chaparral gives them a major share in the decisions...

...Michael Oliver, a pulpit operator, told me, "It's just like being on a football team...

...The average production for a steelworker in the United States is 350 tons a year...

...TXI's move to start up its own steel company seemed like good business sense...

...But at least one mini-mill companyNucor—has already begun to explore this area...

...Work crews compete to be the most productive...

...By adopting these new technologies, mini-mills significantly lowered their capital costs in relation to big steel's...

...Throughout the 1950s, steel prices were grossly distorted...

...The choice was sealed when Gerald Heffernan, Co-Steel chairman, saw the Chamber of Commerce bulletin board, which proclaimed, "Need money...

...That skips the ingot phase and, consequently, the need for two rollings...

...At about $15 an hour, workers make less than they might in union steel mills or other industries...

...As any smart capitalist should have known, that price umbrella made the appearance of more efficient, more productive mills almost inevitable...

...It is now estimated that the minis may capture as much as 40 percent of the American steel market by the year 2000...

...In 1980 the Office of Technology Assessment showed how big those differences in costs could be...

...The company was just completing construction of its medium section mill through a contractor...

...The "us" versus "them" mentality that drove big steel into a deadlock between management and labor is largely absent at Chaparral...

...But if they treat the union like an adversary, they're guaranteed a stalemate...