Driven to Improvement
Spurred on by purchasing changes at the Big Three, J.H. Bennett and Co. has become a leader in commodity management
By Victoria Fraza -- Industrial Distribution, 2/1/1998
In 1992, J.H. Bennett and Co. of Novi, Mich. lost a bid to become a commodity distributor for the Chrysler Jefferson North plant in Detroit. The contract would have meant a major boost in sales and an entree' into a business trend sure to gain steam in the competitive auto market. But for J.H. Bennett, it was not to be.That year, Chrysler had decided to use the Jefferson North plant (which makes the Jeep Cherokee) as a Beta site for a new procurement program -- its Commodity Distributor program. The plan's aim was to reduce the number of vendors Chrysler dealt with by categorizing MRO products used in each plant and then assigning one distributor to supply and manage all the products in a particular category. As a longtime supplier to the Jefferson North plant, J.H. Bennett was invited to bid on the commodity management contract for fluid power products.
There were many reasons J.H. Bennett didn't get the contract -- and those reasons had nothing to do with the quality of its products or technical services. Rather, Chrysler couldn't award the contract to Bennett because Bennett didn't have the proper systems in place to be a commodity manager. Logistics and administrative systems were weak, for example. J.H. Bennett executive vice president Ray Blashill adds that in 1992, his company had a "JIC'' inventory system -- "Just in Case" they needed it. He also says it took the company four days to process an order. In retrospect, Blashill says he's not surprised his company wasn't awarded the contract.
But J.H. Bennett has learned from its mistakes. Losing the contract was a revelation for Blashill and his entire company. Shortly after talking with the folks at Chrysler, J.H. Bennett and Co. embarked on a corporate soul-searching mission, which included evaluating all the company's systems and procedures. The result was, essentially, a new company --one that, by 1994, not only had the ability to do what it couldn't do two years earlier, but was prepared to become a leader in the commodity management field.
Humble beginnings
J.H. Bennett was formed in 1958 as a subsidiary of Racine Hydraulics of Michigan. By 1978, the fluid power distributorship was independent, adopting an Employee Stock Ownership Plan form of management. Blashill joined the firm the following year. The company has since grown into a complete industrial controls supplier, offering not only fluid power components, but welding controls, and lubrication and material dispensing components and systems.
Located just outside Detroit, J.H. Bennett's customer base is primarily made up of the automobile industry and related markets. Distributors that sell to the those industries have been sharply affected by the changes the Big Three have made in their purchasing departments over the last 10 years -- J.H. Bennett's loss of the Jefferson North contract is proof of that. (The company wasn't completely cut off from the plant, however. Like many other suppliers J.H. Bennett was relegated to a tier-two role, providing products to the plant through the commodity distributor.) Ford and GM, like Chrysler, launched similar initiatives aimed at reducing the number of vendors they dealt with. Blashill explains that his company needed to adapt to those changes in order to survive.
"When we first started we were out for business survival, but it's really given us a whole new set of services to offer,'' says Blashill, who sees commodity management programs making up 50 percent of his business in the not-too-distant future. Last year, J.H. Bennett's commodity management group was responsible for $8 million of the company's $28 million in sales.
Those figures are remarkable considering J.H. Bennett had reached a $12 to $14 million plateau by the late 1980s. Since that fateful incident in 1992, the company has seen double-digit growth every year. The turnaround went like this: After being rejected by Chrysler, J.H. Bennett embarked on a two-year company-wide analysis. A new computer system was installed, jobs were redefined and positions were added to accommodate the changes. Eventually all the systems were in place to allow J.H. Bennett to become a commodity manager. And when operations improved, operating costs de-creased, creating a more efficient system. J.H. Bennett won its first commodity distributor deal with Chrysler in 1994 -- at the Dodge City plant in Warren, Mich. -- and hasn't stopped since, with 11 such contracts under its belt with both Chrysler and GM. The company expects to initiate its first commodity management deal with Ford this month. In addition, J.H. Bennett has also become an integrator for General Motors NAO, serving as the procurement arm for 127 GM plants across the country.
Though J.H. Bennett is reaping the rewards of its improvements now, Blashill describes the two-year building process as "hell.'' He explains that for those two years, everyone at J.H. Bennett did their regular jobs by day and then at 5 p.m. put on their improvement hats, working to find better, more efficient ways to run the company. For three to four hours each night, employees reversed, modified and tweaked all company processes. A parallel move towards quality certification occurred during that time, and culminated in J.H. Bennett's ISO 9002 certification in January, 1996.
"We did things as simple as improve paper flow within the company," explains Blashill. "We went from taking four days to process an order to 24 hours.''
Other improvements included an increased on-time delivery rate -- to 98 percent -- and a reduced inventory -- by $800,000.
How commodity management works
A key part of J.H. Bennett's turnaround was the development of a commodity management department. Dave Gawthrop was hired in 1995 to run the division and has since turned it into a marketing tool by actively pursing non-automotive commodity management customers. Gawthrop has six commodity managers -- employees who do not sell, but manage the inventory and handle any problems or emergencies that arise at their respective accounts.
Bill Stacy, area manager at the Chrysler Sterling Stamping plant in Sterling Heights, Mich., can attest to the value of the commodity management program. Stacy has worked with J.H. Bennett for the last 10 years and has been a commodity management customer for the last three. Part of the reason J.H. Bennett won the commodity distributor contract with the plant was because of its stellar relationship with Stacy.
"Anything you want, basically, J.H. Bennett goes out of the way to do their job," says Stacy. "They take care of you first, and worry about the money later. That kind of thing impressed me.''
Competitive pricing clinched the deal, and today J.H. Bennett provides the Sterling Stamping plant with all its adhesives, sealer applications, air valves, cylinders and a range of other fluid power products. The commodity manager for that account takes care of the ordering, inventory and replenishing of those products, and is in contact with Stacy on almost a daily basis. Stacy also has contact with an outside sales rep, who works on special projects and long-lead items.
In the process of supplying the plant, J.H. Bennett often has to provide products from manufacturers they don't represent. (Though customers must go through the commodity distributor for all products, they are not restricted to buying only the products that distributor carries.) This is one of the toughest problems associated with commodity management because relationships with longtime suppliers can become strained. Before becoming a commodity distributor, J.H. Bennett had contracts with only 44 manufacturers. Since 1992, that number has skyrocketed to 700.
Ray Goscenski, chief operating officer for Master Pneumatic, a fluid power equipment manufacturer in Sterling Heights, Mich., has worked with J.H. Bennett for more than 10 years. Goscenski says he understands that J.H. Bennett must buy from his competitors. He adds that, overall, J.H. Bennett's commodity management program has enhanced his relationship with the firm.
"If anything, [the commodity management program] kind of drew us together," says Goscenski, adding that about 30 percent of Master Pneumatic's business is with the automotive industry. "We're trying to find out what the auto companies want and how we can provide it.
"We understand [J.H. Bennett] has to buy competitive products. We have distributors that carry competitive products. Years ago, manufacturers wouldn't do business that way. But that's all changing now.''
Goscenski adds that he hasn't experienced any negative effects from the new system, so far. What's more, he says commodity management puts more pressure on distributors, reasoning that if a manufacturer has a good product, it's going to be sold. Distributors, on the other hand, have to decide what role to play in commodity management --either as a manager, like J.H. Bennett, or as a tier-two supplier, which essentially puts them one step removed from their customers.
No one knows that better than Mike Hamzey, president of fluid power distributor R.M. Wright in Farmington Hills, Mich. Though Hamzey has known J.H. Bennett as a competitor for many years, he has been working with the company for the last year-and-a-half as a tier-two distributor. And though he is concerned about being one step removed from his customers, Hamzey says his new relationship with J.H. Bennett is working out well.
"We would prefer to go direct to the customers, but since the Big Three have established this program, if we wish to sell our products to them, then that's the channel of distribution they've chosen," Hamzey reasons. "It's a dramatic departure from the way business has been conducted over the years...But the relationship has worked, really, in an outstanding way. We're working together for the common benefit.''
Hamzey adds that his company keeps in contact with commodity management customers by providing technical service for the products they supply through J.H. Bennett -- at no cost to the tier-one distributor.
Though a tricky situation all around, the most important part of commodity management seems to be trust -- which originates with the commodity distributor.
"They have a tremendous amount of integrity and honesty in their company," Goscenski says of J.H. Bennett. "They are so good at being honest and truthful that you can depend upon what they're saying. That's from the top down."
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