Progressive Distributor - The great equalizer

The great equalizer

How technology helps small and mid-sized distributors compete

by Richard Vurva

Most MRO distributors lack the deep pockets of companies like W.W. Grainger, which has poured millions of dollars into electronic commerce and other technologies. That doesnt mean smaller distributors cant utilize technology to compete on a local scale against national competitors. In fact, some distributors have learned they dont have to break the bank to buy technology solutions.

Im convinced that some people look for complicated solutions to simple problems, says Jack Meizlish, president of Buckeye Industrial Supply, a cutting tools specialist in Columbus, Ohio. For the last three years, his company has successfully utilized a simple and inexpensive inventory replenishment system that works like a credit card reader to trigger orders at customer locations.

Buckeye previously used handheld bar-code scanners at customer locations requiring an automatic replenishment system. After reaching a predetermined minimum amount of end mills, customers would scan a card, hook the scanner to a dial-up modem and send an EDI message to Buckeye that triggered a reorder.

The system worked fairly well, except when someone had trouble connecting to the modem. Or, when someone accidentally hit the delete key and destroyed a days worth of data. Or, when someone entered the wrong number on the keypad or dropped the handheld device and it was goodbye data.

The dawn of a new day
Buckeye now uses the Dawn system, developed by the Hettenhouse Group of Hartland, Mich., at a half-dozen customer sites. When its time to send an order, a customer simply swipes a plastic card assigned to a specific product through a credit card reader. Once a day, Hettenhouse retrieves the data and submits an EDI document to Buckeye.

Each credit card reader costs $1,250 and comes with up to 500 cards. Buckeye pays a fee of 35 cents per scan.

Meizlish was so impressed by how well the device worked that he invested in the Hettenhouse Group. He and his partners now own a portion of the company.

Jim Hettenhouse says some customers use the reader with more than one supplier.

The customer remains in total control, he says. Once its set up in my database, each card is assigned to a specific distributor. I cant send an order to a different supplier until the customer says.

Meizlish says the system works best for customers who have gone through vendor downsizing, but who dont want to establish a full integrated supply program. In many cases, they want a seamless system that automatically triggers orders, but they dont require reams of data about which employee placed an order, when the order was placed, which department to bill it to and so on.

Hettenhouse says the reader has built-in flexibility to provide more detailed data if the customer desires.

Leveraging technology
The Dawn reader is one of several new technologies employed by Sheats Supply Services of Indianapolis. Jeff Sheats says his company has increased its business by 40 percent in locations where they have installed the reader.

We have been able to provide materials to those customers that we didnt traditionally supply, he says. When it comes time to reorder, we give them an easy mechanism to do so.

Sheats says the technology has reduced paperwork, improved the lead time on products shipped to the client to 24 hours, improved order accuracy and eliminated expediting. Orders are submitted in a seamless EDI packet to Sheats, approved by an inside manager and released to the warehouse for immediate shipment.

We realized, as a specialty MRO distributor, the product we sell costs less than the process, Sheats says. We needed to leverage technology to help us compete.

Sheats also recently installed a new NT server and Pentium Three workstations for each employee; utilizes e-mail to communicate daily with customers; submits quotes in Excel spreadsheets via e-mail; and switched to digital phone technology that instantly pages salespeople with messages from clients. The company also developed a Web site with ordering capability for select customers. Hes working on a second-generation Web site that will provide full e-commerce capabilities on all 84,000 items in its catalog by 2001.

Even though were only in the category of $2 million to $5 million in annual sales, weve invested in technology wisely, he says. We have eliminated a lot of human intervention and paperwork. Without these technologies, wed be struggling.

Vending machine
Steve Pixley, president of Machine Tools Supply of Costa Mesa, Calif., was looking for a way to help customers control their cutting tool inventory, without going to the expense of putting a person on-site to run the customers tool crib.

So he developed a dispensing system based on a vending machine concept. When end-users need a drill or tap, for example, they punch in a personal identification number, select the tool they want and it drops into a tray in the bottom of the vending machine.

Each night, the vending machine calls in and tells us what it needs, Pixley says. We send out a truck and fill the machine.

The software can compare tool usage on a particular job to the last time the job was run, project stockouts and provide an audit trail.

Pixley developed the vending machines and the software to combat inroads being made on the West Coast by integrated supply competitors such as Kennametals Full Service Supply and ISAs In-Plant Store.

We tried to go head-to-head with some of these people and found its very expensive to put someone in the crib, he says. Its difficult to have tight inventory control. By developing the vending machines, I eliminated those problems and was able to give the same value to my customers.

After achieving positive results among his customers, Pixley realized the machine could offer similar potential to other distributors. So he established a separate company called Autocrib and began marketing the product.

Distributors pay about $16,000 for a single machine and approximately $6,800 for additional units. Pixley says the cost is justified because most distributors who buy the Autocrib use it to convince a customer to shift their business from a competing distributor.

Distributors are going in to a customer who is doing, say, $10,000 worth of cutting tool business a month and offering to use the vending machine to hold consigned inventory for the customer, Pixley says.

Distributors using Autocrib include E.F. Bailey of Seattle and Pioneer Tool of Springfield, Mass.

The system is another example that when distributors choose their technology tools wisely, they can compete against the big integrators and e-commerce companies, without spending hundreds of thousands of dollars.