Promise in the Baltic Rim
Finnish distributor sets its sights on growing business in northeastern Europe
By John Paul Quinn -- Industrial Distribution, 5/1/1999
Just as the economically battered countries of the Pacific Rim represented a strong growth opportunity for outside investors, developers, and exporting companies in the aftermath of World War II, the post Cold War era has ushered in similar potential on the Baltic Rim of northeastern Europe.Prior to the period of Soviet domination, the area represented an historic trading bloc since the early Middle Ages, including both Finland and Sweden, as well as northwestern Russia, Poland, Latvia, Lithuania, and Estonia.
One company that has moved aggressively into this marketplace is also among the fastest growing diversified wholesaling organizations in northern Europe. Called Onninen Oy, it is headquartered in Vantaa, close to the Finnish capital of Helsinki.
The firm has annual sales of 2.9 billion Finnish marks, or $580 million (up 13 percent from the previous year), 1,300 employees, and 70 locations in Finland and in the five Baltic Rim countries mentioned above.
"You must understand that in the Baltic Rim marketplace, most of these national economies and industrial companies are just beginning to recover in this post-Communist era," says Onninen president Timo Peltola. "Comparatively speaking, Poland is in the best shape at this stage. They have quite healthy local manufacturing companies in many industries throughout the country. If this trend continues throughout the region, without succumbing to disturbances, we will continue to identify and develop new opportunities. Of course, the present economic difficulties within Russia are highly problematic, but we intend to pursue our strategies for expansion."
Onninen's foreign sales volume increased 50 percent over the past year. And in a European marketplace where the chief wholesaling powerhouses in virtually all industries are multinational conglomerates, 85-year-old Onninen has the distinction of still being an independent, family-owned distributorship. Onninen's SKUs total more than 28,000 items, and the company has its ISO 9002 certification.
Onninen's customer mix includes industrial firms, contractors, multinational construction companies, public utilities, and government entities. The company divides its business by three product markets (heating, plumbing, and air-conditioning, industrial, and electrical) and by two geographic territories (Sweden and all other non-Finnish operations). Heating, plumbing and air conditioning accounts for 51 percent of sales, electrical is 19 percent, and industrial is 11 percent. Swedish revenues top out at 12 percent, and other international sales account for seven percent of sales. Onninen's electrical sector has a 20 percent share of the Finnish market and realized 16 percent growth last year.
Virtual deliveries
All of the company's business sectors make joint use of logistical information and internal operational technology systems, and employ similar marketing and sales strategies. Its central warehouse in Hyvinkaa, just north of Helsinki, is supported by four logistics centers throughout Finland. The firm's guaranteed 24-hour delivery radius serves a population of 60 million and includes not only Finland, but major foreign metropolitan centers such as Moscow and Warsaw, and all of Sweden, Latvia, Lithuania, and Estonia.
Onninen has a special task force of sales engineers who analyze and specify solutions to individual problems in the field. Each situation is carefully researched to ensure that engineering specifications and financial objectives are reconciled to the specific customer's satisfaction.
Materials and engineering support have been supplied throughout the Baltic region for housing and hotel construction, public buildings, and industrial investment projects. Industrial firms served by Onninen include companies in the paper, forestry, automotive, metalworking, electrical/electronic, safety glass, chemical, and other process industries. Primary customers include United Paper Mills, Volvo, Nokia, and Siemens.
Typical products supplied to these customers include wire and cable, lighting equipment, electrical motors and drives, valves and fittings, pumps, customized pipes, steel and aluminum products, and mounting accessories. Domestic clients in Finland are provided with various kinds of logistical support including 24-hour service.
"Presently, in most of the Baltic Rim area there is not yet that kind of requirement," says Jyrki Uurtio, director of the electrical wholesale sector, "but it will evolve within the next few years. At this stage there is not yet a need."
For a number of customers, Onninen offers what it calls "full responsibility delivery" which means the customer is assured delivery of critical components, spare parts, and commodities. Plans call for Onninen to be given access to customers' long-range process planning so that the company can make automatic JIT-type deliveries without the customer having to place an order.
Readying for integrated supply
Onninen gets high marks from its major industrial customers with regard to both quality of lines and integrity of deliveries.
"We need a lot of different kinds of products and we want to single-source them as much as possible," says Tero Melasalmi, purchasing manager of Carrus Co., a subsidiary of Volvo which manufactures buses at three plants in Finland.
The partnering of Carrus and Onninen goes back more than 20 years and involves the purchasing of electrical, industrial and HEPAC products including copper tubing, wire and cable, fluorescent lighting, sockets and plugs.
"Our strength in the market is tailor-made buses and coaches," Melasalmi says, "so we must be able to move fast when an order arrives. We have been consistently impressed by the accuracy and timeliness of Onninen's deliveries. With one of our plants in Vantaa, if we need something very urgently we can obtain it within half an hour. Onninen knows our production requirements very well due to our long relationship, and if their extensive product assortment does not include something we need, they procure it for us quickly."
In addition, Onninen has assisted Carrus in standardization of parts for use in their bus and coach production worldwide, contributing to lower procurement costs and increased production efficiencies.
Another long-time industrial customer is Pilkington Lahden Lasitehdas Oy, the Finnish subsidiary of a leading safety glass manufacturer with operations in 22 countries. The company's products are used in the automotive, aerospace, shipbuilding, construction, and electronics industries.
"Centralization of procurement and standardization of product are two of our major objectives," says Jukka Ailama, an engineer in the company'sfactory services branch, responsible for maintenance planning and oversight of materials inventory.
Typically, the company purchases a wide spectrum of electrical, industrial, and HEPAC products from Onninen including tubes, valves, couplers, and assembly equipment.
"Working with Onninen as a sole supplier saves us time," Ailama says, "and their salespeople know our production needs and we speak the same technical language. Not only is their product assortment very wide, it also consists of high quality items. Their service is superior and it is quick. If we order before 2 p.m., we have what we need the following morning.
"We put out bids for major suppliers every year, and Onninen has been historically the best in terms of quality, pricing, and delivery. And they will probably become more important to us because we are in the process of diminishing our inventory of parts and materials and relying on the wholesaler to assist us with this."
A good part of the company's success, according to Uurtio, is attributable to its dedication to finding better ways to serve its various customers. For example, the company has a chain of 34 "Pikaonninen" self-service, retail-style pick-up stores primarily for contractors to obtain off-the-shelf commodities. Product selections at the stores have been standardized on the basis of intensive point-of-sale analyses.
And while integrated supply is the rage in the States, the concept is starting to find a home in Europe, too.
"At the present time, the major industrial companies in Finland have made strategic plans to transfer virtually all inventory responsibilities to suppliers such as ourselves," explains Uurtio. "We have had ongoing discussions with many of these companies to make this happen. When they inform us that they have an immediate need, we can guarantee one-hour delivery, or within six hours, or on the standard 24-hour schedule, depending on their requirements. For emergency needs we ship directly to their facilities, whereas in the six- to 24-hour timeframe we can use our nearest store and reship from there."
Looking beyond simply delivering conventional product, Onninen has invested significantly over the past few years in the energy and environmental areas, targeting both domestic and foreign markets. For example, the company has studied the findings of international studies of air quality issues and has factored this information into the determination of types of air-conditioning equipment it markets.
And in order to bolster its position in the cyclically shifting domestic industrial market, one of the company's recent acquisitions was of a major supplier of cast iron and specialty steel products for use in the historically stable machine fabrication industry.
As to goals and objectives, company president Peltola makes his point without qualification: "Onninen's aim is to be the leading wholesaler in the Baltic Rim marketplace. So far, the rapid and sustainable growth of the businesses we have acquired within this region encourages us to expend additional efforts to achieve our ultimate goal, which is to be a national force in every individual Baltic Rim country."
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