INCREDIBLE SALES GROWTH, BUT…
During 2017, North Shore Steel experienced incredible sales growth: 67.7% up over 2016. But they were not as profitable as their management team had hoped. The problem was that North Shore was spending more than their peers. They discovered this using CoMetrics benchmarks. The benchmarks showed them where they were overspending and by how much.
For example, North Shore uncovered a large gap in Occupancy Expense as a % of Net Sales versus their peers. They responded by adjusting their real estate strategy. By 2019, they were on-pace to save over a half a million dollars, per year.
NORTH SHORE STEEL
North Shore Steel is a steel service center based in Houston, Texas. What is a steel service center? Steel service centers buy steel from mills, warehouse the steel, and then cut or reshape it so it can be used as in input into a variety of industries. Industries that rely on North Shore include oil and gas, military, manufacturing, and large industrial operations.
“We help people build cool stuff.”
North Shore Steel is a member of the North American Steel Alliance (NASA) purchasing cooperative. NASA members benchmark their performance each quarter on the CoMetrics platform.
“Our management team uses CoMetrics quarterly to track results against goals, vet strategic priorities, and identify new operational opportunities. Some of the comparisons have been surprising for us. A reality check in some ways and validation in other ways. We’ve learned a lot about our business, and we will definitely continue to use this tool moving forward.”
North Shore was ranked the sixth worst NASA member (based on their CoScore) in 2017. Despite strong sales growth, the company was not returning the desired profit and needed to cut costs.
CoMetrics benchmarks helped identify potential areas of cost reduction by comparing North Shore’s spending versus its peers. Overall, North Shore was spending 23.2% of Net Sales on Operating Expenses in 2017 as compared to the median of 21.5% for all NASA members. Said another way, more than half of NASA members were spending less than North Shore on Operating Expenses as a percentage of Net Sales.
With over 30 expense line-items across five major categories, North Shore management went to work drilling down into the benchmarks on the CoMetrics platform to identify the operating expense variance. Where was North Shore spending more than their peers?
The biggest difference between North Shore and the benchmarks was Occupancy Expense. North Shore was spending 56% more than the median benchmark for things like rent, utilities, and building repairs.
DATA DRIVING DECISIONS
North Shore had a real estate strategy that was not aligned with its business strategy. Ownership was buying and holding real estate, but the business had more branches than it needed; the large footprint led to inefficiencies. The benchmarks helped quantify the cost of that strategy.
After ownership reviewed the CoMetrics benchmarks, the strategy was a no-brainer: consolidate North Shore’s real estate footprint.
IMPACT: $500K+ PER YEAR
As of 2019, North Shore’s occupancy expenses were down over $500k.