United we stand

Two hose and accessories distributors form a consortium with other distributors to supply a steel company's MRO needs.

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When Rodney Yarger heard that one of his largest customers — a steel manufacturer — planned to open a new facility in southern Indiana, he immediately knew it could represent additional business. His company, Sterling Rubber and Plastics in Dayton, Ohio, already sold a variety of hose and accessories products to the steel maker.

A few obstacles stood in Yarger’s way, however. Sterling’s warehouse was more than four hours away from the location of the new flat-rolled steel finishing facility. Plus, a group of distributors had already begun talks with the steel maker about putting together a consortium to supply most of its MRO needs.

Yarger learned that the consortium hadn’t yet selected a company to handle the hoses, belts, packings, seals and other products that his company handles. He thought about approaching the consortium and asking them to choose between his company and the other hose and accessories distributors they were considering.

“I’ve always had the mentality that bulls make money, bears make money, but hogs get slaughtered,” he says. In other words, he decided, this was no time to be greedy.

Instead, Yarger first approached one of his main competitors, F.B. Wright in Cincinnati.

He suggested to F.B. Wright president Art Colburn that Sterling could supply all of the hose products and F.B. Wright could handle the belting, gaskets, packing and plastics products. Colburn agreed, and the other companies allowed them into the consortium.

Colburn calls the relationship “arm’s length cooperation.”  Even though Sterling and F.B. Wright still compete at other accounts, for this customer, they’re on the same team. The contract with the steel maker clearly spells out which products each vendor handles.

“The customer liked the idea of having specialists in each area rather than having an integrated supply-type setup,” Colburn says.

Yarger and Colburn were happy to be part of the group, and eager to begin servicing the contract when the plant opened. But as the plant’s grand opening neared, some of the original companies in the consortium started talking about backing out of the deal. They were growing weary of working through the maze of legal, environmental and other issues standing in the way.  So, they asked Yarger if he would consider taking over the project.

Backing out of the deal at the 11th hour could seriously jeopardize Sterling’s existing business with the customer.

“I don’t know about you guys, but I’m not prepared to do that,” Yarger told the group. Recognizing that his options were limited — and because he had experience structuring property management deals for Chicago-based LaSalle Partners — he agreed to take over the project.

Even though it took more than a year to finalize the deal, it turned out to be one of the best business decisions Yarger ever made. Today, he heads up the new service company, United Industrial Suppliers (UIS), which functions as a central stores operation in a warehouse at the steel plant. In addition, Sterling Rubber receives a steady stream of business supplying hose products to the facility.

“I enjoy putting deals together,” says Yarger. “It appealed to what I do best and enjoy the most.”

The dream becomes reality
Holding together a consortium of nine companies — ranging from small specialty distributors to multi-branch national chains, each with its own corporate culture, egos and idiosyncrasies — proved difficult. Balancing the various opinions of the companies involved, all while making sure the customer stayed happy, was no easy task.

The consortium had to decide how to share limited warehouse space (it leased space for more than a year from a nearby 4-H Club until its onsite 50,000-square-foot warehouse was completed). The group members had to agree on a plan to share warehouse staff, office space and procedures as mundane as how to fill out packing slips and pick tickets.

The group eventually decided to establish United Industrial Suppliers as a limited liability corporation co-owned by Yarger and Colburn. UIS is a service company responsible for order fulfillment and managing the warehouse. Its five-person staff manages the steel company’s MRO materials, plus provides tools and supplies used by support vendors, such as a utility group, maintenance contractors and others. They also keep bin-stocking areas within the plant supplied with small-dollar, high-turnover items.

The warehouse belongs to United Industrial Properties L.L.C., owned by entities respectively owned by Yarger, Colburn, Paul Ziegler of Ziegler Bolt & Nut (another consortium member), and Al Decatur, UIS general manager. The steel company leases more than half of the building to store OEM spares.

Learning to cooperate
When any of the nine participating consortium members receives an order, it’s entered into the database. UIS picks the order, makes the delivery and invoices the appropriate vendor for its services. Each consortium member separately handles billing to the customer.

The steel maker requires each consortium member to have an onsite representative, provide 24/7 availability of critical spare parts (some with a 30-minute delivery guarantee) and offer technical support.

UIS employees are cross-trained and familiar with inventory from all nine vendors. For example, they’ve been trained by Aeroquip to put together hose assemblies and carry chauffeur licenses in order to deliver compressed gas cylinders.

The vendors have learned to be flexible. 

“Everyone here has probably taken an order for just about every other vendor,” says Decatur. “Just yesterday one of the bearing salesman sold some hose fittings for Sterling.”

Decatur developed a centralized database for vendors to enter orders, searchable by part number, stocking number, description and manufacturer name. Before the database was operational, UIS employees had to manually match delivery tickets, purchase orders and vendor numbers from the nine participating vendors. It sometimes required Sherlock Holmes-like detective skills.

A computerized activity log also simplified cost allocation between the consortium members. At the end of the month, UIS bills each member for its share of the labor costs, warehouse space and direct costs such as delivery charges, phone, fax and data lines.

Future plans call for bar coding inventory and establishing a system for the steel maker’s personnel to access the database themselves.

Stumbling blocks
That’s not to say there haven’t been stumbling blocks along the way. The group had to settle disputes over how to share warehouse staff, whose order entry system to follow, and how to split the cost of shelf space.

“You’re dealing with nine different company lawyers, plus the lawyers from the customer,” says Colburn. “It was a drawn-out process that took some time and effort to pull together.”

Some of the original vendors left the consortium and had to be replaced.

“The hardest part was getting everyone to buy into the same vision,” says Decatur.

Despite their differences, the group could never lose site of the customer’s requirements. Yarger says the consortium members realize that because they’re onsite, the customer expects a higher level of commitment from them than from a typical supplier.

It’s been helpful that Decatur, who used to be a maintenance manager for the steel mill, understands the steel industry.

“I understand their lingo and their time constraint pressures,” he says. “It gives me credibility with them and helps me explain to our people why the customer sometimes comes across as extremely demanding. In order to work in the steel industry you have to be hard to bruise and fast to heal.”

In the end, the steel maker has been pleased. UIS suggested to the steel company that it consider a similar arrangement at its other facilities, and the group is also in talks with other customers about duplicating the effort for them. With the steel maker’s blessing, UIS currently sells to other companies in the area from stock held in the warehouse.

This article originally appeared in the May/June 2002 issue of Progressive Distributor. Copyright 2002.

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