Solid as Rock

By Kimberly Griffiths, Associate Editor -- Industrial Distribution, 5/1/2004 6:00:00 AM

Elco Tool is a distributorship that prides itself on the tools it sells its customers. Selling a tool that performs well is the goal at Elco, because customers who are satisfied with their purchase are more likely to return to their distributor…and buy more tools.

"We sell anything that cuts metal—but what separates us from our competitors is that we work with our customers to find their 'lowest cost per machined surface,'" says Dick Pfister, director of Elco Tool, Inc., a metal cutting tool distributorship located in Ft. Wayne, Ind. "The tool they buy from us may be a more expensive tool when they buy it initially, but it's less expensive in the long run. It's all about the math. A better-made tool will deliver more value in a longer life for the customer."

Says Sharon McLaughlin, president of Elco Tool and Pfister's sister, "There are a million people making quarter-inch drills. We're more than that," she explains, citing another of Elco's services: working with their customers' engineering departments to design tools specific for a job.

"Through the years, we have done a number of design processes that are still in use today," she says.

Explains Pfister, "Half of our business is in being specialists. And we want it that way. That service takes you out of the price game, where it's everyone's standard tool compared to a standard tool to another standard tool."

Elco's other products include coolants used in the manufacturing process, and the company also welds band saw blades.

Long-term customers can attest to Elco's expertise in the marketplace.

Charleston Metal Products is a contract manufacturer of precision machine products headquartered in Waterloo, Ind. Having been in business "since the beginning of time," says purchasing manager Chris Rowe, the company still works with some older, distinctive equipment.

"Finding replacement parts for these older and unique machines is more than difficult," she says. "That's why we appreciate Elco Tool. They always go the extra mile for us, and find those parts when we need them."

Rowe goes on to praise Elco's reliable service, ability to provide those hard-to-find parts and how the company meets Charleston's needs by stocking the right products.

"We rely on them heavily," says Rowe, "and they have been dependable throughout our history of working together. We will continue to do business with them in the future."

All about automotive

About 90 percent of Elco Tool's customers are in the automotive industry. While the company also services a small medical, aerospace and electronic market, Elco serves primarily the Tier 1 suppliers for automotive manufacturers. Job shops that run parts for fittings manufacturers are a good portion of their market presence as well.

"We serve mainly the Tier 1," says Pfister, "but as I say that, we do receive orders from GM. But there's not much we do directly with them."

As to the state of the automotive industry, from Elco's point of view, it is now in the midst of a ramp up.

"We track our operations daily, so the industry started taking a turn downward on Apr. 10, 2000," says McLaughlin. "That is the day we took a marked notice of it. It leveled off in Aug. 2001, and stayed there until October of last year. It's been increasing since then."

McLaughlin can't point to a single reason why their business has been increasing since that month, but also mentions that no overall economic condition has changed as dramatically as their business has boomed.

Pfister goes on to explain the downward turn—starting with Chairman of the Federal Reserve Board, Alan Greenspan, and his lowering interest rates in 1999 to slow the economy down.

"He slowed it down alright," says Pfister. "During the summer of '99, the price of fuel skyrocketed—and that killed the truck market. Right behind that, the car market died, and the effects of that hit us in April 2000. It started to dip, and then kept dipping, dipping and dipping. We wondered how deep the bottom would be, but it finally did level off.

"The business being cyclical, we are now caught in the ramp up. It's starting to rock again, which is a good sign," he says. "I just hope it's not a blip on the screen."

While in the midst of the "dipping," Pfister and McLaughlin considered what many distributors in similar situations considered: expanding their product offerings to bring in more sales. But realizing that they would be late to that arena, and then would be caught in the price fight they so often stay out of, Pfister and McLaughlin decided to stick with their existing products, but dig deeper.

"Adding the 'rope, soap and dope'—paper towels, gloves, ear plugs, etc.—product lines wouldn't be more than a commodity situation," says McLaughlin. "Then we looked at taking our current product line of metal cutting tools and going deeper into that. We have metal cutting saw blades and decided wood cutting saw blades would be a natural selection. We have had success in that market."

They also looked at what else their customers used in their processes, and supplemented their own offerings that didn't go deep enough or have a broad enough range.

"When things slow down, you've got to hammer it," says Pfister. "That's what it is all about. Things get tight? You've got to work."

Challenges met and defeated

As with other distributors, Elco has been hit by integrated supply. But the company has been able to craft ways to work with those integrated suppliers by partnering with both their manufacturers and the integrators.

"We've been able to maintain a presence with our customers, and serve our vendors by making sure their products are still sold, and serve the integrator to make sure they are profitable as well," says McLaughlin. "There have been some situations where we've been able to work with all three, and some where we haven't.

"In most cases, we've worked for years with the customer's people in manufacturing and engineering, and have established our presence. If the customer has put the integrator into that position, we still sell to the company through the integrator."

Most integrators that McLaughlin and Pfister have worked with are not allowed to change customers' processes. They must have a given brand and a given designation of tool, so that is what they have to buy. In that, the customer directs the integrator.

The company's willingness to work with suppliers to sell their products in even the most challenging situations has endeared Elco to its vendor partners.

"Elco Tool is one of only 26 Alliance distributors in North America," says Russell Flood, director of sales in the components, cutting tools division of Kyocera Industrial Ceramics, a manufacturer of high technology products located in Vancouver, Wash. "We enjoy an open, honest relationship, on both sides, with Elco. It's a good partnership for both organizations. They get the job done."

As to the future of the industry, Pfister and McLaughlin also have been hard hit by manufacturing going overseas.

"There are not huge manufacturing complexes to take over where the people that left held property," says McLaughlin. "However, the people that have remained have increased their schedules—going from an eight-hour, five-day work week to second and sometimes third shifts over seven days."

Elco lost its share of customers to Mexico years ago, but now sees those suppliers in Mexico concerned about their customers moving on to China, says Pfister.

Adds McLaughlin, "Our dilemma is not losing customers to competitors, but losing them to China. They won't come back."

Solid customers, solid distributors

In December 1955, McLaughlin and Pfister's father, Elmer Pfister, started Elco Tool as a cutting tools distributorship. Elmer passed away in 1981 leaving the company in his brother John's hands. A health issue sent John into semi-retirement in April 1997, and Dick Pfister and McLaughlin stepped up to the plate.

"I started working here in '67," says Pfister. "I started at the bottom rung, in shipping and receiving, just like my daughter is now."

McLaughlin carried lighter responsibilities in the company while younger, but left Ft. Wayne for college and family, only returning in 1997 after John's semi-retirement.

"Through the years, we have been so grateful for our employees," says McLaughlin. "Gert Dowling (office manager) and Dean Leitz (salesman) do an awesome job in our Mishawaka [Ind.] branch. General manager Rod Heiser, sales manager Tom McLaughlin and valued salesman Mark Croy have doubled their efforts to ensure we remain a force in our market. They are complemented by our inside team of Max Beyler (accountant), Larry Till (inside sales), Sam Loomis (inside sales) and Emily Pfister (shipping, receiving). These people are our greatest asset, and we treasure their integrity and loyalty."

Says Pfister, "Aside from moving to a couple different locations throughout our history, we haven't changed much from Elmer's distributorship. We try to get the best tool for the customer's job. We do our best to upgrade customers to using better tools; that is our responsibility to them."

Pfister explains that keeping Elco's customers on the front edge of what they are doing makes the customers more competitive in their marketplace. That benefit makes the customers more solid, which in turn makes Elco, as a distributorship, more solid.

"That's a really humble goal," says Pfister. "There's not a lot of 'downtown' stuff involved, and it's better for everybody involved in the relationship. It's a win-win-win-win situation."