Fencing is often taken for granted, yet wherever you are, you are probably only a few yards from fencing of some kind. It is used for protection, security or simply to divide or mark a territory. Merchants Metals specializes in fencing and is the provider of choice for thousands of professional fence contractors, architects and quality building material retailers. We spoke with an enthusiastic Chief Executive Officer Andrea Hogan about her company, this industry and its prospects for the future.
The roots of Merchants goes way back to the 1940s in Houston, Texas with the Nagel Coat Hanger Company. In addition to wire hangers, the company began weaving chain-link fencing. As the fence market grew, a separate division called Gibraltar Fence was created in 1953 to handle the demand. In 1969 it was acquired by trucking firm Merchants Inc.
“The thing that I find really interesting and stunning is how the brand has really held its own as a brand that represents quality and knowledgeable people through all the various ownerships and economic cycles,” says Andrea.
Merchants is one of the top fencing system manufacturers in North America. This is driven by its national footprint with five manufacturing plants and roughly forty service centers. Being in many markets is a crucial strategy because fence is a bulky, unwieldy product to move, and it is expensive to ship. Local presence is important to serving a market.
Initially, it was hard for Andrea to find the time to do an interview as it has been a very busy fencing season. The end market is on an upswing; the housing and construction markets have become increasingly productive again. Backlogs are growing and customers are busy.
“We had a fairly decent 2015 in relative terms, but our main concentration, which has been paying dividends, is in being a better supply partner to our best customers. We have conducted hundreds of interviews with our top customers. We feel that we have a fantastic handle on what they need in a supplier,” explains Andrea.
The supply chain in this industry is adequate, but could be better. Merchants, therefore, is principally focused on creating the right inventory to service its best customers, reducing lead times, and high levels of transaction accuracy. This kind of planning is necessary to maximize potential.
A very large portion of what Merchants manufactures and sells is chain link fence. As it is made out of steel rods and tubing, what is transpiring in the commodities markets is very important to this business. Over the past year, trade cases have come up against what some deem as unfair trade practices from steel manufacturers in other countries.
“Some cheaper sources of supply overseas have dried up, but we are very supportive of our domestic steel markets and watch them carefully. A great deal of our raw materials costs to make chain link fences is in steel and zinc, so we watch those markets very closely,” explains Andrea.
Merchants attempts to react appropriately to what happens in the markets. Andrea remarks that as an observer, if she sees that manufacturers and fabricators of these products are not playing by the rules, a strategy has to be developed to deal with it. That strategy is informed by regulations, tariffs and other actions taken by the industry and the government to balance the field.
“Domestic producers and our government will continue to try and make the playing field level, and all we can do as a purchaser of these products is to keep abreast of the situation,” says Andrea.
Merchants has plenty of manufacturing capacity and potential for growth. Currently, as Andrea explains, Merchants is capturing only a fraction of the amount of business that is available in each of the markets to which it caters. The largest fence installing contractors typically buy from a multitude of suppliers. Part of the reason for this is that the supply chain is not very dependable presently.
Merchants believes the company will flourish by improving what it does. It uses performance metrics in terms of on-time delivery, invoice accuracy and ensuring that products arrive in good condition. “Transit damage is a big deal in this industry. We have done a lot to reduce transit damage that happens to products. I believe emphatically that we can win market share and do so without adding a lot of cost. This certainly can be seen through our volume of work in 2016.”
Growth is desirable, however finding the people to help with expansion is a challenge. This is not necessarily an industry that is attracting lots of people as it does not have the same cool factor as technology or gaming. Andrea believes that it is a fantastic industry to be in, filled with hardworking people of character and integrity. She has yet to meet anyone, whether it be suppliers, customers or competitors that she did not genuinely like.
“The challenge is going to be to get out to the college campuses and begin a very robust recruiting, hiring and retention program. We’ve just expanded our [human resources] department and intend to compete for folks that have chosen supply chain and distribution or materials management sequences as their course of study.”
There are other markets into which Merchants can expand through either natural growth or acquisition, and it is looking into that vigorously. Merchants does not have much of a presence in the Northeast markets although it possesses a service centre outside of Boston and one near Philadelphia. However, the region is a huge fence market that cannot be served adequately by only two service centers.
The company also does not yet have centers outside of the continental United States, and it would not be out of the question to venture into the Canadian market. Aside from geographical growth, Merchants is also considering expanding into governmental and institutional work, but residential and commercial work is the primary focus at present.
The ultimate challenge in this business is the economy. In the great recession of 2009, Merchants lost fifty percent of its top line. This was true across the entire industry. In an uncertain political environment, if the capital funds freeze up again, the economy could take a significant downturn. Merchants has a doomsday plan to cope with any future economic downturns. Although Andrea cannot divulge particular methodologies, she does say that one of the keys is in knowing where to cut costs and also to know what to consolidate.
“If the credit markets dry up, that impacts the housing market. You have to take cost out of the business. There are no two ways about it. At the same time, we are going to continue to target the best customers in our markets. We will put them in a position to win what business is there,” says Andrea.
Andrea is a customer-centric person who believes that all decisions should be made from the customer inward. “If you want to know how to expand your business relationship with a customer, the first thing you should do is go ask them. It is abundantly clear to me what our customers expect and what they need. We are building systems and processes that can deliver that reliability, better than how we have delivered in the past. We will get rewarded for that because we are going to put our customers in a position to grow their businesses profitably,” explains Andrea.
Merchants has some formidable competitors. but the company is not necessarily focused on how it performs relative to the competition because it has no tangible way to understand what the other company’s fill rate (the fraction of customer demand that is met through immediate stock availability, without back orders or lost sales) is. Instead, Merchants measures itself against its own performance.
“If my fill rate to my top customers is seventy-five percent, that we fill the whole order, accurately, the first time, and I can get that well above 90 percent for core items, I bet our customer will reward us for doing that. They need a supply chain they can rely on. Our customers tell us there is no competitor in the field today that can consistently approach a fill rate above 90 percent.”
Andrea believes that fencing is a fantastically intriguing business that nobody thinks about. People have to be convinced to learn the business, and in turn, she hopes to bring innovation in. There is not a lot of innovation in the industry, nor is there an abundance of research and development going on, but Merchants is working on some new and exciting things. One potential innovation would decrease the cost of transportation. Fence can also be made more aesthetically pleasing.
“There is a lot to this industry. It’s fun, and it’s interesting, and I think people who see the opportunity instead of the limitations have a chance to do very well in this business. There is a lot more to this industry than we have seen thus far.”
Looking to the future, under Andrea’s guidance, Merchants will be looking more at the protection aspects of this business. She thinks that will continue to be a big issue, with stronger, heavy-duty fencing surrounding schools and police stations. Fencing will play a much bigger role in areas that are affected by flooding and natural disasters. And who knows, perhaps fencing will also be at the forefront of protection initiatives when it comes to the inevitable zombie apocalypse. Food for thought…