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Supply Chain Management of Horsehead Industries, Inc.

Supply Chain Management of Horsehead Industries, Inc.

Discuss Supply Chain Management of Horsehead Industries, Inc. within the Elements Of Logistics forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; Horsehead Industries, Inc. is one of the largest privately held companies in the United States. Based in New York City, ...

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Supply Chain Management of Horsehead Industries, Inc.
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Netra Shetty
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netrashetty
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Supply Chain Management of Horsehead Industries, Inc. - January 10th, 2011

Horsehead Industries, Inc. is one of the largest privately held companies in the United States. Based in New York City, it operates through four subsidiaries. Zinc Corporation of America sells the company's zinc products and is the direct link to Horsehead's most significant ancestor, the New Jersey Zinc Company, which established the zinc industry in the United States and operated independently for more than 100 years. ZCA Mines provides the Zinc Corporation with much of its raw materials from a mine operation in Balmat, New York. Further zinc is produced through the recovery and recycling efforts of Horsehead Resource Development Corporation, out of which developed Sterling Resources, the fourth Horsehead subsidiary, which is dedicated to providing environmental management and remedial services. Horsehead is run by chairman and CEO William Flaherty, a former Gulf + Western executive who led a management group that bought certain New Jersey Zinc assets from the conglomerate in 1981.

Early Origins of Horsehead Industries

Horsehead's name and horse head logo is its most tangible link to the New Jersey Zinc Company. The horse head was actually an allusion to the state of New Jersey. In 1786, the Colony of New Jersey minted its first penny with a horse head and plow, both of which would become part of the Great Seal of the State of New Jersey. In 1848, the company first used the horse head crest, casting it in the doors of an experimental furnace located near the present-day site of Newark's Pennsylvania Railroad Station. By 1855, New Jersey Zinc was using the horse head as a trade mark, which appeared on labels or was imprinted in metal products. It would become a recognized symbol around the world.

The basis of New Jersey Zinc's business was a zinc-iron-manganese ore body formed by geological processes that took place over one billion years ago in the northwestern corner of the state. The area is unique, containing over 150 minerals, of which 25 are found nowhere else in the world. Moreover, the ore body became commercially viable through an accident of nature. Erosion exposed the deposits in the pre-Cambrian period, which were then covered by Paleozoic sediment and later eroded by glacial activity. The result was that deposits were readily visible to European settlers. By 1640, not long after the establishment of the Nieuw Amsterdam settlement, the natural outcrops had been discovered and were being explored. The Franklin mine, according to the Franklin Mineral Museum, passed through a number of owners, including King Charles II of England and William Penn and a group of investors. In 1760, the Earl of Stirling made failed attempts to extract zinc from the ore body, although he did produce iron, which would become a mainstay of the local economy late into the 1800s.

A number of parties worked the Franklin-Sterling deposits from 1765 to 1848, but no one was able to successfully separate the zinc. In 1848 the Sussex Zinc & Copper Mining & Manufacturing Company was formed. Four years later it developed the first commercially viable way to smelt the ore to produce zinc oxide. Also in that year, Sussex Zinc changed its name to the New Jersey Zinc Company. It began selling zinc oxide to the paint industry as a non-toxic substitute for lead, leading to the rise of ready-mixed paints. Zinc oxide also became an important compound in the rubber industry, not only serving as a reinforcing agent but as a way to cut the curing time of rubber. With the birth of the automobile and the need for tires and the increased need for other rubber goods, zinc oxide would take on an even greater significance. Starting in 1870, zinc oxide would also play an important role in the cosmetics industry.

New Jersey Zinc also attempted to recover metallic zinc from the Franklin-Sterling deposits, but it wasn't until 1865 that the company was able to produce commercial slab zinc. Some ten years earlier, because of these efforts, the company had been able to create a second product, spiegeleisen (German for "mirror iron"), an iron-manganese alloy used in the manufacture of manganese steel. The company was not alone, however, in working the Franklin-Sterling outcrop, and conflicting deeds of ownership caused considerable legal wrangling. Finally in 1897, New Jersey Zinc was able to consolidate the area's mining and smelting operations and begin to build a world-class business.

New Jersey Zinc Expands in a New Century

Under the leadership of its president, Stephen S. Palmer, New Jersey Zinc began a program of rapid expansion. Looking for a place to build larger, modern manufacturing facilities, the company selected a site in Pennsylvania that was close to both anthracite fields and the New Jersey mines. It was also situated along the Lehigh River and featured good rail connections. The resulting plant and company town would become Palmerton, Pennsylvania. In 1899, the new plant would begin to ship its first product, zinc oxide. In 1904, Palmerton would begin producing spiegeleisen, taking advantage of the residuum from the zinc oxide furnaces. Because of rising demand for zinc oxide, the company built a second plant in 1912. The engineering department, which had been located at the company's New York headquarters, also moved to Palmerton in 1912, permitting New Jersey Zinc to steadily build more facilities, including a major research laboratory and a rolling mill that allowed the company in 1917 to enter the zinc rolling business.

In the meantime, New Jersey Zinc expanded its operations well beyond the Franklin-Sterling area. In 1901 a mine in Austinville, Virginia, was acquired to produce high grade zinc. Two years later the company acquired another mine in Hanover, New Mexico. To take advantage of the zinc available from the production of lead concentrates at Leadville, Colorado, in 1902 New Jersey Zinc built a plant at Canon City, Colorado. Magnetic separation was used to work zinc-iron middlings, then in 1920 a zinc oxide plant was added to the facility. Because of rising demand for zinc products in the Midwest, New Jersey Zinc opened a plant in Depue, Illinois in 1905.

After 100 years of operation, New Jersey Zinc was producing chemicals in addition to its zinc products. It was a well respected corporation, known for its sound management and consistent earnings. In the 1950s the company would begin a transition to a new era. The Franklin mine closed in 1954. The Sterling mine would close in 1958, then reopen in 1961 and continue in operation until 1986 before closing completely. In 1961 Bush Terminal Co., which operated warehouse, piers, and railroad facilities in Brooklyn, New York, bought a major stake in the company. Four years later Bush Terminal would sell its shares, and New Jersey would lose its independence, becoming part of Gulf + Western Industries.

Although the assets of Gulf + Western were swallowed by Viacom in a 1993 mega-merger, it was the acquisition of New Jersey Zinc in 1965 that was the first step in making Gulf + Western a conglomerate that would accumulate a number of marquee businesses, including Paramount Pictures, the Simon & Schuster publishing house, Madison Square Garden, and the New York Knicks and New York Rangers sports franchises. Gulf + Western was created by Charles George Bluhdorn who emigrated to the United States from Austria in 1942. He created an auto parts business that in 1958 he renamed Gulf + Western. By 1965 he wanted to diversify and was looking to acquire a company with large enough cash reserves to fuel his plans for expansion. One of Gulf + Western's new board members, Harold U. Zerbe, recommended New Jersey Zinc, on whose board he also sat. Not only did the company have available cash, management and ownership were at odds over what to do with it. The managers wanted to grow the business, while the dominant shareholders wanted to expand the company's investment portfolio. In the fall of 1965, Gulf + Western purchased approximately 55 percent of New Jersey Zinc's common shares at $40 a share. The major sellers in the transaction were Bush Terminal Co., Hamilton Watch Co. (a 51 percent-owned Bush Terminal subsidiary), Jacob L. Hain (chairman of Bush Terminal), as well as some of Hain's associates. Some months later Gulf + Western bought Paramount Pictures and began to move away from the manufacturing sector.

Gulf + Western Sell New Jersey Zinc Assets in 1981

Although the New Jersey Zinc acquisition served a purpose for Gulf + Western at the time, market conditions eventually made it a disappointment for the rising conglomerate. New Jersey Zinc was now saddled with outdated facilities that were expensive to operate, and the industry in general suffered from excess capacity, as well as rising labor costs and expensive new pollution control regulations. Moreover, U.S. producers found it increasingly difficult to compete against government subsidized European zinc. New Jersey Zinc closed many of its long-time plants in the 1970s and drastically cut its work force. In 1978 Gulf + Western consolidated a number of assets into a Natural Resources Unit centered around New Jersey Zinc. The unit's chief operating officer, William E. Flaherty, was charged with selling the business. He lobbied management to allow him to cherry pick some of the New Jersey Zinc assets, including the Palmerton facility and Sterling Mine, but more important to his strategy was the company's valuable zinc-based patents and other technologies. By 1981 his efforts paid off. As the head of a group of investors, Flaherty raised approximately $60 million to buy the assets that would form the basis for Horsehead Industries as a holding company.

As the CEO and chairman of Horsehead, Flaherty was quick to make changes with the remnants of New Jersey Zinc. He slashed the workforce significantly and closed 80 of the mines, opting instead to buy cheap zinc from Zaire and Mexico. He also trimmed the product line. Even as the industry continued to suffer, New Jersey Zinc was able to realize a profit by 1983 and, two years ahead of schedule, repay $15 million borrowed from Gulf + Western in the buyout. Flaherty also looked for similar businesses to acquire and turn around. Horsehead's second major acquisition came in 1985 when the company acquired Great Lakes Carbon Corporation, a maker of carbon and graphite products founded in 1919. Like New Jersey Zinc, Great Lakes was established in its market but had become a high-cost producer. As he had done before, Flaherty restructured the operation, soon making it one of the lowest-cost producers in its sector.

Horsehead created a new business in 1986, Horsehead Resource Development Co. (HRD) when it combined waste recovery technology and assets of New Jersey Zinc and Great Lakes Carbon to become involved in the environmental cleanup business that resulted from the government Superfund legislation of the 1980s. With an emphasis on the recovery of zinc and other metals from electric arc furnace dust, HRD would become a major recycler of hazardous industrial waste, as well as expanding to provide other environmental services.

Also in 1986, Horsehead formed Pony Industries to acquire eight businesses from the Atlantic Richfield Company, including building products, specialty-chemical, and high-technology materials operations. Each business was set up as a stand-alone division, but Horsehead soon realized that in order to thrive they each needed to be combined with larger operations. Beginning in 1988 Horsehead began to divest itself of its individual divisions, a process that was completed in 1990 and resulted in what management described as an extremely attractive return on its investment.

In 1987, Horsehead would acquire the zinc business of the Fluor Corp., which had been part of the St. Joe Minerals Corp, acquired by Fluor in 1981. Looking to focus its natural resources holdings in coal and lead, Fluor sold the St. Joe business to Horsehead for approximately $62 million. Horsehead subsequently combined the assets with New Jersey Zinc to form the Zinc Corporation of America (ZCA), becoming the country's largest producer of zinc, as well as the world leader in the production of zinc from recycled sources and value-added zinc products. It also established itself as a major global provider of zinc for use in the increasingly important alkaline battery industry. In addition, Horsehead created ZCA Mines, Inc., to operate the Balmat, New York, mine it acquired in the St. Joe transaction.

Horsehead combined the graphite electrode business of Great Lakes with the Sigri Gmbh unit of Germany's SGL Carbon AG in 1992, forming SGL Carbon AG. The business then made an initial public offering of stock in 1995 and Horsehead was able to sell off its interest. The remaining Great Lakes' assets were also subsequently divested. Horsehead created yet another business in 1998 when it formed Sterling Resources, Inc. to further the company's interest in environmental work. Sterling focused on environmental business management and consulting services for the industrial sector. It assisted companies in remediation programs, engineering and project management, and regulatory compliance.

In some twenty years Flaherty grew Horsehead into a company with annual revenues estimated to be $815 million, large enough to be listed by Forbes magazine as number 310 on its list of the top 500 private companies. Horsehead boasted a solid record of acquiring, turning around businesses, and divesting them at a profit. The company appeared well suited to continue that successful formula for some time to come.

Principal Subsidiaries: Zinc Corporation of America; Horsehead Resources Development Co.; ZCA Mines; Sterling Resources

Principal Competitors: Mitsui Mining & Smelting; Noranda; Teck
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