November/December 1995
This Arkansas-based recycler is only modest in size, but it has pursued the kind of innovative management practices associated with larger companies, giving it the means to achieve its ends of superior customer service, top-quality products, and efficient operations.
By Kent Kiser
Kent Kiser is an associate editor of Scrap Processing and Recycling
By the numbers, Hummelstein Iron & Metal Inc. (Jonesboro, Ark.) is a small scrap recycling company.
For instance, it currently has around 45 employees and has never had more than 55. In terms of physical size, the firm’s scrap processing and steel service center operations have long fit easily on a 5-acre parcel. Further, its annual processing tonnage is only tens of thousands, and its revenues are less than $10 million a year.
But Hummelstein is decidedly not small in its management approach. It is a company that thinks big, always striving to put the best business practices to work in its operations. And the results have been impressive. In the past 5 years, Hummelstein has tripled its processing volume and at least doubled its revenues with fewer employees than in the past.
Inspired by this recent growth and driven by its “empowered” employees, the company is now venturing headlong into o the nonmetallic scrap niche, while also considering adding new facilities. A corporate name Change is even in the works. To be sure, Hummelstein is one small company that has big ideas and big changes afoot.
From Furs to Ferrous…and More
Hummelstein Iron & Metal is one of the five oldest businesses in Jonesboro, according to Sam Hummelstein, president and treasurer, who ads, “We’ve been around a long, long time.”
Indeed. It was 1907 when Austrian immigrant Jacob Hummelstein, Sam’s great grandfather, founded the firm, then known as Jonesboro Hide & Fur. From a small plant inJonesboro, Jacob would light out in his horse and wagon in search of not only hides and furs, but also ginseng root, beeswax, rags, pecans, scrap metal, and more. “You name it, and he bought it and traded it,” Sam says.
After a few years in business, Jacob moved the firm’s operations from its original location—which is not a parking lot for the Jonesboro civic auditorium—to its current 5-acre home at the end of Flint Street . And there were more changes when Abe Hummelstein, Sam’s grandfather, succeeded Jacob at the helm in the 1930s, including the firm’s 1943 expansion into steel. Lee Hummelstein, Sam’s father and the firm’s current chairman, assumed the reins following World War II and also did his part to help continue to grow and evolve the company.
Big Changes came in the late 1960s and early 1970s when manufacturing began to rise in the Jonesboro area, creating “a greater need for a scrap processor that could handle industrial types of metal scrap,” explains Sam, who officially joined the firm in 1970. This trend prompted the company to examine its operations, which still included hides, furs, and the like. "We made the decision that it was time to decide what our knitting was and then stick to it," Sam says. "We decided our knitting was the scrap metal recycling and steel service center businesses, so we phased out the other materials."
With hides and furs gone, the company needed a new name and, in 1974, rechristened itself Hummelstein Iron & Metal. That was also the year of another important milestone in the firm's history—when Marilyn Hummelstein, then Sam's newlywed wife, came aboard, filling a purchasing and sales job in the new steel business. "Sam had lost a steel salesman, and I was going to come in until someone was hired," she recalls. “I wound up staying in that position until 1984." And she's still with the business of course, now serving as vice president, though, with her educational background, she comments, “I should be teaching history.
Throughout the 1970s and 1980s, the company expanded its scrap metal and new steel operations under Lee’s hard-working direction. By the late 1980s, however, the firm had grown to the point where the Hummelsteins could no longer manage everything themselves. “In the past, Mr. Lee always did everything himself,” observes Lester Davidson, controller. “He made the sales, he drove the truck, he went out to make sure the tires were fixed. And that’s OK, except that limits your growth because there’s only so much one person can do.” Or as Sam puts it, “An autocratic form of management just wouldn’t work anymore.”
Clearly, a change was necessary.
Power to the People
For Hummelstein, that change came in the form of employee empowerment, which entails eliminating top-down management, delegating responsibility, and giving employees broader freedom to do their jobs as well as a legitimate say in the decision-making process. “Our employees make decisions every day that previously only top management would have made.” Sam says, arguing that many decisions are better made by those who are the most familiar with the firm’s operations and customers. For example, Sam offers, “The employee running our shear/baler was part of the decision-making process to buy that machine.” After all, he emphasizes, “Who better knows what new baler we need better than the person who’s running the old one?”
This kind of participation in making decisions gives employees a sense of what Sam calls “emotional ownership”—in a piece of equipment, an operation, or the company as a whole. As explanation, he says, “Our baler operator feels that the new baler is partly his because he was part of the decision-making process. That’s powerful stuff.”
As part of the forms empowerment strategy, employees are kept informed about all aspects of the company, especially its financial status. This open-book approach is quite a departure from the way the business used to be run. “When I started five years ago, nobody knew about the company’s finances except the Hummelsteins,” Lester observes, “Now we let our employees know what’s going on. We let them see how their efforts affect the bottom line. We let them see the financial statements and explain what they mean.”
Another way the company keeps the communication lines open is through its “Hummelstein Happenings” in-house newsletter, a monthly smorgasbord that discusses important business topics such as safety, recognizes employee milestones like birthdays and service anniversaries, and outlines financial information such as retirement fund and profit-sharing values. The newsletter—which is mailed to employees’ homes so their families can also be connected—is an important tool in keeping employees informed as well as in building morale and a sense of unity, Sam says.
While the Hummelsteins swear by employee empowerment and open management today, they admit that the transition wasn’t easy. “The hardest thing for an owner-operator to realize is that you don’t know everything—that you’re not the smartest thing on two wheels, and you’d better surround yourself with people who have skills and talents you don’t have,” Sam explains, adding, “It’s scary to let go of the control.” Then again, he offers “It was probably scary for Christopher Columbus to get in a boat and sail off the edge of the earth—but look what he found.”
By taking this risk, Hummelstein has found many rewards in the way of improved productivity and efficiency, as well as a more dedicated workforce. “If it’s their idea or decision, they’ll work harder to make sure it works,” Lester asserts.
For employees, the rewards of empowerment have been increased job satisfaction, potentially higher financial rewards, and the chance –perhaps for the first time—to put their ideas into practice. “Yes, they’re going to make mistakes, but everybody does,” Sam says. “If you create an environment where it’s OK to make mistakes as long as you learn from them, then that’s more important than having a lot of policies to abide by. We’ve proved beyond a shadow of a doubt that empowerment reaps rewards for the employees and the company.”
Taking Advantage of Technology
Employee empowerment isn't the only example of how Hummelstein thinks big, of course. The company is also a big believer in taking advantage of the best business technology available, which is obvious from the moment you call the firm. Rather than getting a receptionist, you enter a totally automated phone system in which Sam's upbeat voice greets you with, “Thank you for calling Hummelstein.” He then rattles off your dialing options, enabling you to be connected to the firm's scrap recycling division, new steel division, accounting and administration, or staff directory. If you want to leave a message, the system's voicemail not only records your message but also signals the employee's pager that a message is waiting. “That allows us to respond to our customers faster even when we're out of the office,” Sam notes.
Hummelstein is also fully computerized, from scale operations to payables and receivables to administration. The company's system also features internal and external e-mail, which facilitates communication among its separate buildings, as well as with outside contacts. In addition, the firm’s computers are hooked into CompuServe, enabling users to communicate with the industry contacts as well as surf the Internet.
Pretty fancy stuff for a small company, but it makes sense when you talk to Sam, who admits he’s a “Techno-nerd” with a fascination for computer technology. (“I’m married to a computer freak,” Marilyn confirms.) Like a kid with a new toy, Sam has to see how new technology can be used to help his business. And beyond that, he asserts that one common aspect of the best companies in the scrap business is that they take advantage of technology. "I woke up one day and thought: If large recycling companies have an advantage over little companies in terms of economy of scale, maybe the best way a small company can compete is to exploit available technology as much aspossible."
The shift from manual management to computerized management was a challenge, but it's been worth it in terms of improved efficiency, organization, communication, andservice. Even Lee—who calls himself a “computer blockhead”—praises the benefits of the system. “What I like about the computer is that I can go to our office people and they can pull up anything I ask them to,” he asserts. “Now that is a nice feature.”
And the firm plans to continue to explore new technology as it comes out. “I want us to use every available bit of technology that there is to be the best that we possibly can, and I want us to continue to update ourselves,” Marilyn says.
The Customer Service Pyramid
You’d think that Sam, as president, would view himself as sitting at the top of the Hummelstein hierarchy. Not so. In fact, he sees himself “at the very bottom.”
How can this be?
Simple. His view of the firm’s organizational structure is an inverted pyramid, with customers at the top, employees who "touch" the customers immediately below them, and everyone else ranked by their closeness to the customers. And though Sam certainly interacts with the firm's customers, he's not as close to them as other Hummelstein employees; hence, he sits at the bottom—and rightfully so, he asserts. "That inverted pyramid is an important mental picture to have because it reminds you who's on top. The most important player is our customer."
It's easy to see where Sam gets the customers-first idea. Just talk to Lee. In discussing the businesses he's helped build, almost the first words out of his mouth are, “Over the years, the thing that has made us successful is that we were able to listen to listen to our customers and give them what they wanted in the way of both service and equipment.”
In essence, Sam says, the company’s customer service philosophy is captured in the golden rile of doing unto others as you would have them do unto you. “That’s the most powerful business law that exists,” he says. “If every business ran its operations by that rule, they’d all be successful because empathy with your customer is by far the most important service.”
In practice, one requirement of good service is ensuring timely pickups for industrial suppliers, which the firm does by employing two full-time drivers, as well as two alternate drivers who operate other machinery when not needed on the road. “Our goal is to pick everyone up the day they call,” says Jim Elswick, operations manager.
For over-the-scale suppliers, service means getting them in and out quickly, as well as giving them accurate weight tickets and paying them fairly and promptly, Lee says.
On another level, service involves listening to suppliers’ and customers’ needs. “We simply try to design our service around the customer, not the other way around,” Sam explains. “There’s no such thing as one-size-fits-all service. You have to put the customer’s shoes on, walk around their plant, and let them describe their needs. Then it’s our job to fill those needs.”
Customer service also requires communication, or as Marilyn puts it, keeping “a dialogue, a two-way street going all the time with all of our customers. If they’ve got a problem, we’ve got a problem. We want to know about it.”
Thanks to this kind of philosophy, Sam says, “We’ve enjoyed a high degree of customer loyalty over the years.” Even some of those customers that defected to other recyclers in times past have returned to Hummelstein for its service, he adds.
Employee Intangibles
As you might expect, a company that empowers its employees probably has pretty happy employees. Lester, speaking for many, gives credence to this idea when he says, “I wouldn’t want to work anywhere else.”
But what else is it that makes employees dedicated Hummelsteiners?
For one thing, Jim asserts, “We pay a lot more than the average scrap yard,” noting that employees not only earn a competitive base wage but can also receive a weekly production bonus and profit-sharing.
Beyond compensation, Hummelstein also offers innovative and extensive benefits to its employees, such as a self-insured health plan that is more flexible than an outside policy. For example, employees who stay will pay a lower deductible from year to year, and all employees have their medical insurance premiums taken out of their gross income, which reduces their taxable income. Other benefits of working for Hummelstein include a tuition reimbursement program, a retirement plan, holiday parties, and—last but certainly not least—access to tickets to Arkansas State University football games.
But money and benefits aren’t ultimately what makes for dedicated, fulfilled, long-term employees. As Marilyn observes, “Our pay scale is fine for where we live, but I don’t believe you can pay anyone enough to stay if they don’t like their job. All of our people are good and could easily work someplace else, so it’s something intangible that makes them stay.” Trying to put her finger on this intangible, Marilyn says it has a lot to do with “The concern that management has for the employees, but more than that, the concern that our employees have for management. We have a family atmosphere.”
Just as the Hummelsteins feel an obligation to do right by their employees, they also feel an equal responsibility to give back to the Jonesboro community that has sustained them since 1907. Sam points proudly to the “ego wall” on the office he shares with Marilyn, which bears close to two dozen plaques recognizing the company’s support of and involvement inn the local United Way , Foundation of Arts, Rotary Club, Chamber of Commerce, and other organizations.
“When you love in and benefit from operating in a community, that’s not free, and the payment is what I call social rent,” Sam says. “Social rent is giving not just your money but your time, energy and talents to repay the community for what it’s given you.” One activity he points to with particular pride is the annual Day of Caring, a United Way project in which Hummelstein employees help fix up the local food bank. “Service is part of our mission,” he says.
Sam, Marilyn, and Lee also extend their sense of obligation to the scrap industry as a whole, which explains their dedicated participation over the years on committees, chapters, and boards of ISRI and its predecessor organizations. “You owe it to the industry,” Sam says. “There’s a certain amount of debt to be paid.”
A Bigger, Better Future
One of the biggest challenges of running a business with empowered employees, Sam notes, is keeping them interested and providing new opportunities for them to grow.
But a new opportunity is exactly what Hummelstein is now pursuing by opening up a new nonferrous and nonmetallic scrap operation three blocks from its headquarters. In addition to moving its nonferrous and UBC buyback operations from the main plant to the spacious new facility, the new operation will process glass and paper—and eventually plastics—from post-consumer and industrial sources.
The firm is making this move for three reasons, with the first being to give its employees a worthy challenge and a chance to help the community grow. As Sam remarks, “While I may be satisfied with my position and where the company is, I’ve got to think about my employees.”
The company also feels an obligation to the community to accept more post-consumer recycables and help develop markets for them. “It’s a service that’s badly needed in this community,” Marilyn says. “The community wants to recycle additional products.
Finally, and less altruistically, the firm is expanding to protect its market position. “You can’t just sit back and do nothing,” Lester says. “You have to change with the markets. If we don’t get into paper, somebody else will. Then they may decide to get into metals, and the next thing you know we’ll have somebody tying to take our markets from us.”
This foray into nonmetallics has prompted the Hummelsteins to consider changing the company’s name to something “that would broaden the scope of the company and give us some flexibility to do all these other things within that context,” Sam explains. One front-runner in the name game is Hummelstein Industries, which would serve as a holding company for the firm’s two operating divisions—Hummelstein Recycling, which would encompass all scrap recycling activities, and Hummelstein Steel, which would cover the new steel business.
Whether it takes on a new moniker or not, the company continues to keep its eyes open for other opportunities, namely the chance to buy or establish other scrap facilities. “We’re not aggressively looking, but we’d like to have some satellite scrap plants in the future,” Lester says. Such expansion is attractive, he explains, because “there could be some efficiencies and cost-savings if we had some outlying operations. We could spread out overhead over more tons and get maximum use out of our equipment.”
Other changes that could be on the Hummelstein’s horizon pertain to the company’s succession plan, which is of critical importance since there is no fifth generation of Hummelsteins in line to take over the business. As a result, Sam says, the company is considering implementing an ESOP—an employee stock ownership, and that’s a powerful motivator,” Sam states. Marilyn concurs, adding, “I can’t see anything but benefit in that.
And in the meantime, Sam says the company’s goal will be to continuously improve. When you ask him what, in particular, he wants to improve, he answers simply, “Everything.” Far from being facetious, he asserts, “I want our yard to be cleaner. I want out customers to be happier. I want our trucks to get better gas mileage. I want all our people to go to classes and get more education,” and adding with a smile, “I want my hair to grow back.”
In this regard, the company is certainly putting its money where its mouth is by continuously investing in its operations. “We’ve never been in a position where we took big salaries,” Lee says. “We’ve always put most of our earnings back into the business.”
Last year, in fact, was the firm’s biggest in terms of new capital investment, thanks to the addition of a new ferrous/baler and a new scale equipped with radiation detectors. “We’ve got to remember that reinvesting back into the business is the most important long-term thing we can do,” Sam asserts.
Such investments will help Hummelstein on its way toward its goal of continuous improvement, which Sam defines as “not a thousand percent improvement in one thing, but a 1 percent improvement in a thousand things. That’s harder, but that’s how you make your company better.”
This Arkansas-based recycler is only modest in size, but it has pursued the kind of innovative management practices associated with larger companies, giving it the means to achieve its ends of superior customer service, top-quality products, and efficient operations.