A League of their Own
Ohio Transmission & Pump Co. stands by its strength as a large, independent regional distributor
By Susan L. P. Srikonda -- Industrial Distribution, 10/1/1999
THE OWNERS OF OHIO TRANSMISSION & PUMP CO. -- all 230 of them -- have good reason to take pride in their company. As one of the country's holdout regional independent distributors in the motion control sector, the company is poised for continued growth both internally and through acquisition.In fact, the employee-owned company's recent acquisitions of Prime Pump Co. in the fall of 1998 and the assets of the industrial compressor division of Great Lakes Power Products in July should raise annual revenues from $58.9 million in 1998 to $65 million in 1999. OTP occupied the 79th spot in this year's Top 100, published in the June issue of Industrial Distribution. In addition to motion control products, the company sells pumps and air compressors.
There are several reasons that contribute to OTP's ability to sidestep the industry trend toward consolidation, among them: an emphasis on technology and service, a commitment to succeed in each of four business units, and a stalwart determination to stand its ground and remain independent.
Raising the ante
The message in OTP's mission statement is clear: "Our mission is to dominate every market in which we choose to do business." Strong words for an increasingly endangered species: the large, regional independent distributor. OTP's geographic coverage spans four states including Ohio, Indiana, Kentucky and West Virginia.
The irony is that the more OTP manages to live up to its own mission statement, the more attractive the company becomes to potential acquirers. But OTP's leaders say that, at least for now, the company is only interested in furthering its own growth.
"Our independence is important to this company, in spite of the fact that consolidation is the order of the day and is happening all around us," says chairman David Derrow, who bought the company in 1963 with then-partner Phil Carstens. "One of the reasons why we're still independent and want to remain independent is that our businesses of selling and servicing both pumps and air compressors are primarily independent-type businesses. There's been very little consolidation in those areas, although more than 50 percent of the business is in power transmission and the consolidation has been rather dramatic there."
During the course of its history, OTP has experienced steady internal growth and made key acquisitions that have systematically spread the company's geographic coverage, and president and CEO Philip Derrow intends to keep the company moving along that path. Derrow assumed his current role in May 1998.
"There are a number of targets and a number of opportunities for either acquisition or [to open new branches] where we simply think we can do a better job and where the manufacturer will support us," Derrow says.
Spokesmen from two of OTP's primary suppliers, Atlas Copco and Boston Gear, say the continuing presence of independent regional distributors like OTP is important to their future sales initiatives.
"Independent distribution will always be in our plans," says David Prator, business manager for Atlas Copco. "As a manufacturer, we can't approach the market without having that localized attention to the market. The independent distributor can bring that local focus to us.... The cost of sales is such that it's practically impossible for us to approach the market in any other way."
OTP's subsidiary, Air Technologies, Inc., has provided Atlas Copco with large geographic coverage, Prator says, as well as "serious management at the local level that helps to identify local programs focusing on entrants to the market and that type of activity. And they've allowed the local management in their individual branches to perform activities that help the branch be successful."
Specialized knowledge
In a climate where national and local competitors surround OTP and customers increase their demands daily, the company began a restructuring effort initiated by Philip Derrow as he assumed the presidency. With the restructuring, the company divided its functional efforts and personnel into four specialized market units -- motion control, industrial pumps, industrial air compressors, and service -- as a way of increasing the value the firm adds.
The roots of this restructuring effort began in 1982 when Derrow began working in the company's service department. In 1991, he recognized that the company was losing some compressor marketshare to compressor specialists and initiated the company's move to form its first specialized division, Air Technologies, in 1992.
"We were losing jobs because our salespeople had to know compressors, pumps, sprockets and chains, motors and all the other motion control devices," Derrow says. "And there's no one who is that good, who can focus on that many things."
Referring back to OTP's goal to be the best in every market it services, Derrow says that in today's market, such specialization is critical to providing customers with the most product-knowledgeable staff possible.
"Our pump people -- inside sales, outside sales and management -- are only pump people. And our motion control people are only motion control people," Derrow explains. The result, he says, is that customers benefit by doing business with individuals who are experts in specific areas.
For customers like Bill Black, machine analyst for AK Steel in Middletown, Ohio, that expertise is important. OTP is the designated supplier for couplings for this coated and hot rolled steel mill and has been doing business with the mill for nearly 30 years.
"There's a million different kinds of couplings, so a person selling couplings has to know what they're talking about," Black says. "And I expect my pump man to know what I'm talking about. If you're going to buy a pump, it has to give you back what you want ... so they have to know enough to sell you the right pump."
In Derrow's estimation, it's difficult for one company -- much less one person -- to be an expert in different market segments, but the specialization structure provides his employees the opportunity to concentrate on their given market segment and, thus, increase their level of expertise.
"What I believe customers have been saying is 'I don't want to spend time with salespeople that are on a milk run. ... I want to spend time with someone who's going to help me do my business,'" Derrow says. "And with us specializing in these different businesses, our people are experts. ... Customers want to see people that can help them, so we need to make sure that our people can help them."
Taking service seriously
Ask customers what they value most about OTP, and they're likely to come back with "service" as an answer. Designating service a business unit in and of itself is just one indication of the importance OTP places on adding value to customers through its service capabilities.
YUSA, a Japanese-owned extruded and molded rubber products manufacturer that supplies the Honda plant in Marysville, Ohio, buys products from OTP in large part because of the distributor's reliable service.
"A major factor is [OTP's] reliability for their service and engineering," says Dennis Lovitt, YUSA's facilities coordinator for its Washington Court House, Ohio, plant. "Their customer service is better than par. And they're responsive and willing to help us out when we do have a problem. The customer service is key."
Lovitt recalls one particular instance when the plant lost a key air compressor that shut down production. Facing limited availability of the particular type of air compressor, OTP sent an employee out-of-state at night to get a rental compressor, which it delivered by the start of the next production day, he said.
Derrow considers service such a key element to the future success of OTP, that he makes a concerted effort to impress the department's importance upon the rest of the company.
"Organizationally, our service people are equal to our salespeople," Derrow says. "Historically, and in most companies, service people are looked down on because they get dirty. They turn wrenches. But here they earn similar incomes, our service people and inside sales people in particular. They have a similar skill level. In my view, they are just as important to our organization as our salespeople are. One brings in new business, the other makes sure that the business we worked so hard to get stays. And one can't survive without the other."
Erik Kelley, Air Technologies' central region sales manager, notes that the company's emphasis on service is also a great selling point.
"We have, by far, the largest service organization [in the area]," Kelley says. "We have more than 40 technicians now and each one's got their own vehicle, their own pager and as much as $10,000 in parts on their truck at any one time."
Innovative technology
OTP has taken customer service one step beyond simply driving from plant to plant providing on-site solutions and into the world of technology. As a result of the brainstorm of one of OTP's service technicians, the company has developed proprietary software called ManagAir™.
The ManagAir hardware and software system centrally monitors and controls an air compressor continuously, remotely, without having to send a technician. Customers can take advantage of a service offering called MonitAir™ whereby their compressors are connected via phone lines to OTP's main computers and technicians provide 24-hour monitoring and monthly performance reports.
"In many cases, we can solve problems via control inputs and the service technicians who are on call can often fix a problem without ever having to go see the customer," Derrow says. "So what the customers gets is the service their equipment needs, neither more nor less, in the time that it needs it."
In addition, the company recently opened its fourth DirectAir™ location, which supplies large volumes of compressed air to customers' plants in a fashion similar to that of a utility like gas or electricity. Using a computerized survey system and its own on-site or off-site equipment, the company supplies customers with compressed air year-round.
Among OTP's more mainstream developments in technology are its recent upgrade of EDI technologies and a $2.5 million investment in a new hardware and software system, as well as a comprehensive voice and data communications system that will connect each OTP branch.
All for one
Behind all of OTP's efforts and capabilities is the knowledge that this is an employee owned company where shares of stock are distributed to employees on the basis of the corporation's profitability. In 1975, David Derrow and his partner, Phil Carstens, established one of the first Employee Stock Option Plans in Ohio as a retirement vehicle for their employees. Employees currently own slightly more than 50 percent of the stock.
Derrow notes that through the years, the company has consistently seen a difference in the age level of employees who show an interest in the ESOP, with employees over the age of 40 showing the most interest. But, he says, generally the program has been advantageous for the company in terms of discouraging turnover and creating a pool of conscientious employees.
OTP's customers and suppliers say they benefit indirectly from the company's ESOP program.
"I've talked to the techs when they're here and they're all proud of that," Lovitt says. "They've got some pride in their company because they are part owners. I think it has a strong influence on their attitude and their willingness to do their part. It might be the way to go in the future if you want people to be dedicated."
COMPANY SNAPSHOT
Ohio Transmission & Pump Co.
Principals: David D. Derrow, chairman
Philip Derrow, president and CEO
1998 sales: $58.9 million
1999 expected sales: $65 million
Branches: 14
Employees: 230
Territory: Ohio, Indiana, Kentucky, West Virginia
Product categories: Pumps & air compressors, mechanical power transmission, electrical/electronics, spray finishing, pneumatics/fluid power
Web site: www.otpnet.com
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