Growth from within

Todd Tool profits by expanding business with existing customers

By Susan L Srikonda -- Industrial Distribution, 8/1/1998

Dodging acquisition offers and circumventing the competition, Todd Tool & Abrasive Systems is running with a game plan that scores big with customers. The key to the success of this small distributor is twofold: the company players work hard to further penetrate existing regional accounts and to provide customers with the kind of service that industry giants can't provide. The strategy has brought results: Todd Tool doubled its sales from $2.5 million to $5.2 million in just two years.

Todd Tool, located in Danvers, Mass., implemented its current strategy back in 1995 after taking stock of both the market and its internal strengths.

"In 1995, we were a niche player focusing primarily on microabrasives that didn't focus enough on the local market," says Michael Todd Smith, president. "What we decided was that for us to grow and be stable in the long run, we needed to expand our business in the local market. We realized that there was a whole lot of business in the local area and that expanding that business would eliminate the valleys we were experiencing with our niche market."

Today, 75 percent of Todd Tool's business is split evenly between selling traditional abrasives and cutting tools throughout New England. The other 25 percent of the business consists of selling microabrasives to customers in the fiberoptic industry nationwide.

"We went to our local customer base and took inventory of the business we were getting. Since then we've added a lot of lines to our inventory," Smith says.

In addition to adding inventory, Todd Tool has expanded the services it offers. The company offers extensive on-site vendor-managed inventory and tool crib management programs, as well as 24-hour emergency service and just-in-time delivery. The emphasis on service has not gone unnoticed -- the $2.7 million dollar jump in sales from 1995 to 1997 was largely a result of increasing business with existing customers. The combination of all these efforts helped Todd Tool earn a spot in Industrial Distribution's annual list of 50 Outstanding Small Distributors.

At the time the new growth strategy was being hammered out, Todd Tool was owned by Smith's father, Ronald Smith, and his uncle, Gary Smith. Michael Smith was acting as general manager -- he took over as president of the company in October of 1997.

Smith began his career as an accountant at Price Waterhouse in Washington, D.C. "I got an unbelievable amount of exposure there in terms of learning the operations of other businesses," he says. "But I haven't really looked back since. I love it here."

Smith's transition into distribution was anything but gradual. Four months after he started working at Todd Tool, the company's general manager quit. "My father took me into his office and said 'It's time for you to jump in the pool and find out if you can swim,'" Smith recalls. Apparently Smith is an excellent swimmer -- he is expecting another 20 percent increase in sales for 1998.

The company has fielded acquisition inquiries, but is not looking to sell. "We're doing good work here," Smith says, "but it's a nice pat on the back when someone expresses interest in your company. It's nice to know that your competitors are noticing what you're doing."

Most of Todd Tool's customers are small-run parts manufacturers that supply General Electric and the semi-conductor industry. Many of these local machine shops were long-time abrasives customers before Todd Tool began adding cutting tools to its line. Xaloy, a Newburyport, Mass., manufacturer of feed screws for plastic machinery, and Ronco Machine Corp., a Danvers, Mass., manufacturer of screw machine products, are two such customers.

"We've done business with Todd Tool for at least the 15 years I've been here," says Jane Shaw, a purchasing agent for Xaloy. "They are our number one source for abrasives and cutting tools. As a supplier, I can't say enough for them. They're customer-oriented and they continually go out of their way to get us what we need. We'd have to stop production on the screw if we didn't have the right cutting tools. They keep us in production with their fast response."

Victor Popovitch, manager at Ronco Machine, shares a similar viewpoint. "They do a nice job managing our stock," Popovitch says. "The salesman who comes in basically manages all my tooling. He doesn't even need to ask me what I need; he just brings it in so I always have stock on hand. That makes it easier for us because we don't have to bother with it. Also, I've cut my overnight delivery charges by probably 80 percent by using Todd Tool -- a lot of the things I buy are specialty items, but they stock them right on the shelf for me."

Maintaining sufficient inventory to meet customers' minute-by-minute demands for tools is a cornerstone of Todd Tool's business.

"Because we cater to small job-shops, our customers' main demands are for us to have the products in inventory that they need," Smith says. "We're proud of the fact that our inventory is broader than it is deep. My inventory is here to keep the job-shop's machines running. I don't need to have six months of his product in stock; I only need three or four days' worth. We get more credibility by having something funky that works than by having a million of some common item."

Establishing on-site inventory management programs is one of the primary ways Todd Tool increased its business with existing customers. Smith believes that such individualized partnerships will be a stronghold in the future for small distributors like Todd Tool.

"As the catalog houses and the big chain stores have gotten bigger," Smith says, "we've seen that there is a bigger need for people like us. The mid-size distributors can't specialize like we do, and they can't generalize like the big guys do."

That ability to specialize is precisely why manufacturers like Carboloy sell through small distributors. "I think Todd Tool will have a future role (in the industry) because they're technical and a lot of big distributors are not technical," says Michael Madden, technical specialist for Carboloy. "Customers are looking for distributors who are technically proficient and have the expertise about how to apply a product. Small distributors are also willing to spend time with the customer. A big distributor might not have the time to spend with our end-user."

This kind of value-added service offers Todd Tool customers the opportunity to cut operating costs even if Todd is unable to compete on price item-for-item with catalog houses. For example, on-site managed stockroom programs can prevent the loss of capital that occurs when a customer's employee wastes 20 minutes of paid time searching for a tool.

"We may sell that tool for 25 cents more than a catalog house," Smith says, "but what is more expensive: paying 25 more cents for a tool or paying that employee by the hour to look for a tool? They may have to pay a little bit more, but they never pay for a tool before they need it."

Todd's goal is to establish committed partnerships with customers who will give Todd Tool a larger portion of their business than a big shop might.

"What we're really looking for is a commitment to a partnership. You don't have to be big to partner with us," Smith says.

Lemco-Miller Corp., Danvers, Mass., is one such partner. Todd Tool manages the stockroom for Lemco-Miller and staffs it with a full-time Todd employee. Lemco-Miller manufactures components for the biomedical, semi-conductor, electronics, aerospace, and industrial markets.

"When we first started out, Todd got a percentage of our business," says Glen Currie, manager of business development for Lemco-Miller. "Now, rather than being one of three or four suppliers, because of this arrangement Todd has all of our business. Our commitment to them is that as long as they continue to treat us fairly, we'll continue to use the products they represent. They've got 100 percent of our business is what it boils down to."

The on-site tool crib that Todd Tool maintains for Lemco-Miller helps the company maintain its workflow and meet production dates.

"Having a Todd employee in the tool crib allows us to have direct access to their warehouse and what they have in stock," Currie says. "The knowledge of what is readily available has eliminated the lag time of going through a purchasing agent here or waiting for an overnight delivery service. It puts us in a position that allows our shop to react better to special tooling requirements because they can get the right tool to us in the right amount of time. We almost never have any downtime waiting for a tool."

In the relationships Todd Tool creates with customers like Xaloy, Ronco Machine, and Lemco-Miller, as well as relationships with vendors like Carboloy and 3M, the key to success is establishing a foundation built on trust. Smith sees building that foundation as one of his company's greatest responsibilities and as a necessary tenet for good business.

"Part of our mission statement is to deliver on the promises we make," Smith says. "Customers like to deal with people who are able to come through with what they say they'll do. If I don't deliver on my promises, then I'm just another guy who speaks with a forked tongue. If I live by my word, then hopefully that will carry over into other aspects of my business."

Todd Tool customers have come to expect the company to both deliver on its promises and to provide quality, technically proficient service.

"I've known the Smith family for many years and our business with them has always been strong," says Pierce Ellis, an independent manufacturer's representative for Chick Workholding, MA Ford, and Niagara Cutter. "They're a fast-growing small distributor. They follow up immediately on everything that we ask them to do and any leads we send them. Their people are also technically strong. Right now, with all the changes in our industry and all the integration and consolidation going on, there's always going to be a need for technically proficient distributors who can go in and offer hands-on knowledge of the material to customers."

In addition to focusing their efforts on fortifying relationships with current customers, Todd Tool is preparing itself for the future. One way of doing that is by going through the ISO 9000 certification process, which should be completed by September.

"As our customers become more and more ISO focused," Smith says, "having certification will help us show them that we are focused on quality. It will also help us to do business out of this region. If we're trying to do business with a company in Texas, for example, this will help us prove that we're not a rinky-dink operation."

"There are still customers we would like to penetrate better in our regional area, so we're looking for growth from our current customers and from trying to move into what is, geographically, uncharted territory for us," Smith says. "Our goals are to continue to grow, to add salespeople as we expand our territories. I want it to be controlled growth, where we have our finger on what we're doing and we have a plan."

If you're taking notes, the game plan is the key for this small distributor: Todd Tool knows its strengths and where its growth potential lies with new and existing customers. And with that in mind, Todd Tool just keeps running.

COMPANY SNAPSHOT

Todd Tool

Headquarters: Danvers, Mass.

Founded: 1972

Locations: 1

1997 sales: $5.2 million

Primary products: cutting tools and abrasives