Mining for Profits
Mining & Construction Suppliers has mastered the art of riding out copper mining production cycles
By Susan L. P. Srikonda -- Industrial Distribution, 8/1/1999
Copper, in its raw state, is the color of cash: a green swathe winding through a mountain of rubble, waiting to be extracted, crushed, concentrated, smelted and refined.Mining and Construction Suppliers, Inc., a division of Associated Suppliers, Inc. (an Industrial Distribution Group company), in Tucson, Ariz., is dedicated to helping the 10 copper mines it supplies transform copper ore into copper products.
That's no easy task: copper mines are demanding customers characterized by production fluctuations and personnel changes that require close attention from their distributors.
The relationship between a distributor like MACS-IDG and its mining customers is symbiotic. It's to MACS-IDG's advantage to pay close attention to the needs of its mining customers because the fluctuations in the demand for copper have a direct impact on the customers' needs for industrial supplies. And it's in the copper mines' interest to develop strong relationships with suppliers like Mining and Construction Suppliers because their response time and services offered affect production and, ultimately, profit potential.
Moving target
Nothing in the copper mining industry stands still: not the people, not the equipment, not production and certainly not the price of copper. For the industrial distributor, it's a challenge to match that pace.
"Copper is a commodity product, so mines go through boom cycles and they become very efficient in producing refined copper," says Michael White, MACS-IDG's general manager. "And then, in an overburdened market, commodity futures go down. You get shuttered properties and they lay off people and we try to streamline our process to bare bones minimum and then wait for the circus to come back."
Average copper prices for the first half of this year sank to a 12-year low of approximately 65 cents a pound, compared to $1.22 a pound in June of 1997, according to a recent Wall Street Journal report.
Output that has risen faster than demand, which has been depressed by the weak Asian economy, has borne the brunt of the blame for the market's slump. The oversupply of copper has been attributed to production-capacity increases in the early 1990s, when Asian economies were growing rapidly and appeared to represent huge potential demand.
Inside the Cyprus Climax Metals Co.'s Sierrita mine on the outskirts of Tucson, buyer Bernice Villa notes that such fluctuations in the price of copper have a direct effect on her buying decisions.
"With the price of copper right now, we're trying to keep our costs down," Villa says. "We're always trying to save money, but even more so when the price of copper is down. We look at what we're buying and try to save money everywhere we can. Approval for orders becomes more stringent."
Villa says she values MACS-IDG's efforts to work with the mine to devise ways of saving money, such as helping the mine liquidate discontinued or obsolete stock, and making product recommendations. MACS-IDG's biggest competition for the Sierrita mine's business is the corporate contract the mining company holds with W.W. Grainger. But even with that contract, Villa says the service MACS-IDG provides is invaluable.
"It's important because MACS is right here and if there's a problem, they can come here fast," Villa says. "And MACS is pretty competitive on their pricing. For us to say that if Grainger doesn't do what we need them to do then our second source is MACS, that's pretty good."
Both White and Gene Romero, MACS-IDG's sales manager, are realistic about the competition presented by Grainger and they know what their edge is.
"What happens is, we're here every week. We make sure we pay the attention to [Cyprus] that they need," says Romero. "Because when they shut down and they have a problem and Grainger's not there to solve it, we will be. We try to do whatever it takes to help each other out and try to conduct business."
White says that in addition to a local presence, MACS-IDG offers its mining customers applications assistance that is best provided by a smaller distributor. MACS-IDG also operates a repair service that offers mining customers maintenance for pneumatic tools and other equipment.
"The mining environment is harsh with dirty air and they burn equipment out quickly," White says, "so we do a volume of business in repairs. Two days in a mine and a brand new tool looks like something they've had for 10 years."
Satisfying vendors
In order to serve the mining industry well, MACS-IDG needs to work well with both ends of the supply chain. Paying close attention to the needs of manufacturers and developing relationships with them is just as important as focusing on the end user.
"An industrial supply company doesn't say 'we don't do that,' " White says. "If a customer calls and has a need, if the mines call and they have a need, if the manufacturers call and they have a need ... if we're able to fulfill those needs, then we've done our job."
Manufacturers like Green Bull Inc. and Chicago Pneumatic look to MACS-IDG to position their products well and move them into the hands of miners, who have a reputation for being brand-loyal.
"The copper industry is one of the oldest industries around. These men have a tremendous amount of pride in their history," says John J. Wagget, district manager for Green Bull. "They become very oriented toward doing one thing and it's difficult sometimes to get them to change and move forward and improve their equipment. MACS has done an excellent job at moving new products in."
Through MACS-IDG, Green Bull sells climbing products -- primarily ladders -- to the mines.
"In the mining industry, they use a lot of twin-steps or double entry ladders. They are usually made of fiberglass because fiberglass is a non-conductant and you can use it in an energized area," Wagget says. "In a mine, there's all sorts of equipment around, whether it be generators or wires or lights. You're also not looking at real high ceilings in the mine shaft so they use a lot of step ladders rather than extension ladders."
Chicago Pneumatic sells a variety of products to the mines through MACS-IDG: impact wrenches for use in the maintenance, assembly and disassembly of mining equipment including crushers and ball mills; grinders in the welding area; weld-flux scalers that are used to remove sludge; paving breakers; and chipping hammers.
"I think the most challenging thing in an account like a mine is that there are so many decision makers," says Brian Black, area manager for Chicago Pneumatic. "And what has happened in the mining industry means that they've had to have several layoffs and reorganizations. One of the challenges is to keep track of who all the decision makers are."
Chicago Pneumatic looks to distributors like MACS-IDG to establish a good relationship with a strong customer base and get to know both the end-user customers and the decision-makers in those accounts.
"If they have a relationship with the customer, it makes our job a lot easier," Black says. "Then we just go into the decision maker and do our thing demonstrating the tools, answering questions."
Balancing hills and valleys
With copper production so susceptible to fluctuation, MACS-IDG's leaders are careful to balance the business their mining customers bring with other industries including construction and industrial manufacturing.
The company's most recent coup has been securing three major integrated supply contracts to serve Ford Motor Co. operations in Hermosilla, Mexico -- more than 200 miles south of Tucson -- where they make Mercury Lynx and Ford Escorts. Those contracts account for much of the $5 million growth MACS-IDG anticipates this year.
As a branch of Associated Suppliers, the company counts itself as one of the nine founding members of Industrial Distribution Group, and White credits that fact with helping MACS-IDG win the Ford contracts.
"Becoming part of what is soon to be a billion dollar corporation gives you a lot of resources to show. We would not have been able to secure these contracts if it had not been for the IDG package that we were able to bring to the table," White says.
With the Ford contracts, MACS-IDG is greatly expanding the business it is doing across the border, which brings with it a unique set of challenges. The company has built a facility in Hermosilla and has both transferred Tucson employees and hired Mexican legal and accounting advisors and staff to get the branch up and running.
Despite the legal, logistical and cultural challenges inherent to doing business in Mexico, White and Romero feel they have the right staff to meet the demands of the contract and they are looking to that branch for significant growth.
"It's very difficult to do business in Mexico. It's a lot different than just putting up a new store," Romero says. "You have to be very careful how you hire people. You have to be very accurate with all your accounting for the Mexican government. You have to follow their regulations and you go by their rules, their laws. There's a lot of potential, but you have to be aggressive, alert and willing to do whatever it takes."
White notes that the number of American manufacturing companies with a presence in Mexico has grown during the last decade, and so have the number of distribution opportunities across the border.
"They're producing world-class products [in Mexico]," White says. "You go into these plants and see that they're producing a sizeable chunk of profit for their U.S. ownership. The world goes there: Honda, Nissan, Volkswagen, New Holland, Timber, Freightliner, Chrysler, everyone. So while manufacturing is going this way, the distribution base has pretty much stayed here. We think that we can do the right things and take MACS-IDG and move forward with them."
And as for the competition MACS-IDG faces from Grainger and others? Romero says: "The contract we just landed with Ford goes to show us that there is a light at the end of the tunnel, and if we conduct our business the right way then we will be successful."
COMPANY SNAPSHOT
Mining & Construction Suppliers, Inc.
-- a division of Associated Suppliers, Inc., an IDG company
Headquarters: Tucson, Ariz.
Principals: Michael White, General Manager
Founded: 1977
1998 sales: $4.75 million
Expected 1999 sales: $10 million
Employees: 32
Branches: San Manuel, Ariz.; Hermosilla, Mexico
Product categories: General line including: material handling and safety equipment, abrasives, power tools, cutting tools, and rope, chain, slings, rigging and accessories
Web site: www.macs-idg.com
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