Randy Horvat founded Cleveland Metal Exchange (CME) in 1994 to broker secondary stainless-steel materials to manufacturers in sectors where small defects didn’t matter. Today, CME’s offerings are far greater – a small but dynamic and effective player amongst industry big boys.
Growth came quickly for CME. A year after its founding it had grown from a one-man team to a team of a few but mighty effective personnel. Randy Horvat has continued adding to his sales and administration team, as required, as its client list grows. Its revenue, just $3 million in its first year, is $80 million today.
To sustain the growth, CME underwent several changes. A turning point for the company was the addition of Jeff Haas, Rick Matousek, and Tom Consolo in 1997, all of whom have played an instrumental role in the company’s success and are part of the team to this day.
“That was the first addition to the sales groups and that’s when business started to take off, with the four of us in our own offices buying and selling stainless steel secondary material. We were selling sheet material and cut-to-size blanks for customers who needed specific sizes,” says Randy Horvat, partner.
From 1997 onward, CME changed its approach and the company started buying steel more aggressively, and building up stocks to offer a standing inventory to customers. Size and revenue grew and the company added yet more employees, equipment, and a warehouse to expand its capabilities and support its new direction.
With expanded capabilities and a greater breadth of offerings, the company prospered and in 2009 the partners reorganized it as a joint venture. Horvat and CME entered partnership, bringing Jeff Haas onboard as a partner and teaming up with an investor from Canada, Global Stainless Steel, which has a presence in the steel trading market.
“At that time the focus changed from secondary stainless steel to prime stainless steel,” says Horvat of the product evolution to a metal offering that had no defects. “As we reinvented ourselves in the new economic world, we also changed our business philosophy and our business model.”
Drawing on the expertise of its partner, Global Stainless Steel, CME put what they learned into practice, “utilizing supply and sources from all over the world,” says Jeff Haas, “which really opened our eyes to going further and deeper and longer than most of our competitors will to get products from other countries.”
Leveraging size when you’re smaller
By utilizing its partner’s strength, which was supplementing domestic supply with finished-to-size goods from overseas, CME was able to compete, nimbly and effectively, with its competitors, billion-dollar companies. The blend of domestic and international supply gave it a unique edge in the market considering its size.
Horvat summarizes: “To compete with these giants and stay a step ahead, we have to create margin for ourselves and value for our customer and to do that we need to help our customers manufacture a product.”
When the tariffs on steel and aluminum were announced in March 2018, according to Haas “it caused a lot of chaos with our contract accounts because many were being supplied with stainless steel from overseas.”
While the stainless-steel market was in a state of uncertainty, aluminum ushered in a new value proposition for CME. The tariffs, paired with anti-dumping legislation, created what Haas refers to as, “an inferno in the aluminum world.”
Leveraging the same approach used for stainless steel, Horvat, Haas, and their team got to work to supply customers directly with stainless steel and aluminum. CME built – and is still building – an ever-growing global network that supplements its domestic partners by delivering materials and value to customers throughout North America and beyond.
The team at CME dedicated a year to identifying a direct aluminum source to restore supplies, quickly and efficiently; adding value for customers as the importer of record. While the initial fluster in the aluminum market has calmed, the market still offers great potential through the relationships the company formed both domestically and abroad.
Global positioning via Ohio
The important outcome is that although CME bases itself in Cleveland, Ohio, it is now globally positioned. Connected to the market via the United States’ port system, it ships to its customers’ nearest port, where materials will be docked, unloaded and transported to customer facilities.
“What we have done is strategic partnerships with multiple warehouse and processing companies across the U.S. from Baltimore, Chicago, California, and Texas,” says Horvat of CME’s four logistical points in the network that support its national and international footprint. “We view them as an extension of our culture, and values have to align, or it wouldn’t work.”
As an asset-light entity, CME can be extremely nimble on a global scale, adapting to change and sometimes volatile market conditions as needed, which is why it moved away from establishing its own equipment and warehousing operations in each of these cities.
Further to the value it brings in terms of material and service, CME has created a custom program for its customers upon which it continues to build and improve, which adds another dimension of value to the equation for its customers.
Portal for customers
“We work with customers on customized programs, being able to create value for us because it’s a guaranteed sale. Because it’s a guaranteed sale, there are certain things we are willing to give up on our end, like holding the material over a longer period of time, giving them generous terms and conditions, giving them a lower price,” says Haas.
In addition, new systems are evolving with the development of a customer portal where contract customers will place orders through the website, based on predetermined pricing and minimum weights per shipment, and the material will be on hand, ready to be distributed.
The order will be generated and communicated to the freight department, which will have the order shipped within twenty-four to forty-eight hours, streamlining the customer experience and making the overall system more efficient. The customer portal should be in place by mid-2020.
At CME you get the best of an old-school approach to doing business combined with a modernized, updated approach to operations and logistics – a careful balance that has been established over time. Customers can expect someone to answer the call when the phone rings – the result of a tradition of responsive service plus decades of industry experience and technical support.
Both Haas and Horvat acknowledge that there have been good years, great years and even bad years, but through continuous evolution and a focus on improvement and value creation, CME has found a way to help drive profitability for its customers, and therefore, itself.
CME will continue to leverage its partnership with Global Stainless Steel in Canada (which is moving into a new facility that will further support its evolution) both in terms of size, reach and capacity, and building relationships with others to enhance its growth strategy.
“There’s going to be some capacity to evolve this concept of doing some toll manufacturing for people and being able to bring it back into the country, not as material, but as a finished part. By the same token, the other side of that is that we’re still actively looking for the right opportunity, domestically, to purchase in the manufacturing world,” said Haas.
The goal is to take revenue from under $80 million at present to the $150- to $200-million range, which the company will achieve through diversification. There’s the potential for an entry into the galvanized steel market, as well as expansion of the sales of bar products (both flat and round), as well as pipe and tubing. This is in addition to the already strong flat-roll segment of its business.
CME has plans to continue to grow its capacities, and its team – drawing on its existing strengths of sourcing product globally to keep costs down – looks forward to partnering with manufacturers across North America to drive value creation. Haas observes, “We can’t control pricing. What we can control is how we buy it, how we stock it, and how we go to market with it.”
CME will continue to work towards acquiring certifications that will expand its reputation and its footprint in manufacturing, helping it gain greater access to highly regulated markets like automotive.
In the future, CME looks to enlarging its reputation as a sustainable, diversified company with outstanding distribution and production capabilities, and an unmatched portfolio of product offerings.
Longevity and legacy
In fact, with longevity in mind, the leadership team at CME is devoted to more than simply building the company’s capacity and revenue. The goal – an entirely laudable one – is to build a legacy that their families can continue to advance and benefit from for years to come.
“The more we diversify, the brighter the future will look, because it will create longevity for this company. The one thing we want to do is create something for our families down the road,” says Horvat.
It will be interesting to watch this legacy in the making, so keep an eye on this company – there should be good times coming.