United they stand

IDI, a Canadian alliance of over 70 independent distributors, is poised to capture the whole of the Canadian market-from Victoria, British Columbia to St. John's, Newfoundland

By -- Industrial Distribution, 6/1/2000

IDI Independent Distributors Inc. claims to have the broadest coverage in Canada of any industrial distributorship-Canadian or American. With over 70 member companies, IDI has 140 branches that stretch from Victoria, British Columbia all the way to St. John's, Newfoundland. But the industrial landscape is changing. This 19-year-old alliance can see the writing on the wall, with national competition from both Canadian and American firms gathering steam. Like any good competitor, though, IDI is committed to changing with the times.

Once a pure buying group, IDI has become a more well-rounded alliance in recent years, with an executive director, home office, central warehouse, national accounts program, and member benefits that stretch far beyond manufacturers' rebates. Still, while IDI looks very much like a large corporation on the outside, inside it is a network of 70 independent distributors, all committed to serving their local marketplaces.

In essence, IDI is trying to combine the best of both worlds-the small, entrepreneurial spirit that industrial distribution was founded on with the buying power and reach of a national company, so prized by many in today's business world. The challenge is to maintain that balancing act in a market just beginning to feel the effects of mega-distributors and business trends like integrated supply.

New challenges

When you think of some of the biggest Canadian distributorships, names like Westburne, Inc., The BC Bearing Group, and Acklands-Grainger (the Canadian wing of American-owned W.W. Grainger) come to mind. American firms like Applied Industrial Technologies and Motion Industries are also working hard to capture the Canadian market. IDI members compete with all of those companies, as the group is divided into two key areas: power transmission and bearings on one side, general industrial supplies on the other. (The group plans to add a third division concentrating on fluid power.) Mega-companies like Grainger, Applied and Motion are a fairly new phenomenon in Canada, says Don Knowles, IDI's executive director, making them even more formidable competition.

"We haven't had the Motions here, the AIT's, the Graingers," says Knowles, explaining that the large, national distributors of the United States are bigger than any competition Canadian independents have at home. "A Motion [Industries] in a market like Canada is quite different than a Motion in the states."

Knowles-whose background is in PT distribution-was hired as a consultant in 1983 to help IDI write its bylaws, incorporate the group and develop a long-range plan. He came on board as full-time executive director in 1991. The competitive threats he talks about did not creep up on IDI unexpected. On the contrary, they are some of the very reasons IDI was formed in the first place. The group started out as most buying groups do-a number of small companies pooled their purchasing power to get better pricing, allowing them more leverage in the marketplace to compete against the bigger players. The difference in 1981, when IDI was formed, was that the "bigger players" weren't as big as they are today.

But many Canadian independents saw the changes coming. Craig Simpson, president of S.B. Simpson Group, a general line distributor with eight locations throughout Southern Ontario, joined IDI in 1987. He did so because he anticipated the pressures in the American market making their way North. He worried specifically about consolidation and the customer's desire to deal with a distributor that could serve them at multiple locations. Thirteen years later, those pressures have arrived.

"Business appears to be going that way," says Simpson. "Bigger is better ... As more products become more commodity-oriented, that's the way it seems to go."

That's why IDI is evolving from a buying group to more of a marketing group. Today, IDI is trying to act more like a unified company-getting its name out to suppliers and customers as an entity with national reach, competitive buying power, and the local presence to offer ongoing and effective service. The addition of a central warehouse in 1997 boosted buying power-giving members access to $2 to $3 million in inventory-and the launch of a national accounts program this year aims to increase sales and give IDI a higher industry profile than it already has. It's programs like these, say Knowles and others, that give IDI members the strength to compete in the changing Canadian market.

Membership has its privileges

Knowles touts the "hard benefits" of being an IDI member. After all, it's his job to negotiate deals and programs with manufacturer partners, giving IDI members benefits that go directly to the bottom line-cash terms, advertising allowances, competitive pricing, and perhaps most important, rebates.

"I hardly ever talk about the soft benefits," says Knowles, who boasts that IDI does between $400 and $500 million a year, Canadian. "I want to measure us, at the IDI office, on the financial return we bring to the membership."

And those returns are plentiful, according to members. Dave Crosbie, president of Murray Industrial in St. John's, Newfoundland, says the rebates he gets more than pay for his company's annual membership dues. Jay Shore, president of CBS Equipment Ltd. in London, Ontario, agrees and points to other financial benefits-like group rates on health care, courier services, office supplies, and credit card programs. While the savings there aren't as great as on the rebate and buying side, Knowles estimates the overhead programs save members about a half-million dollars a year, collectively.

But the soft benefits are important too, says Shore, who is IDI's current president. While being a member of an all-Canadian, member-owned firm can be good for business, so can the benefits of rubbing elbows with business-owners and decision-makers from across the country on a regular basis. IDI has three major meetings a year-one in Montreal, one in Toronto and one that rotates throughout the country-and the relationships formed at those meetings last long after members have returned home, Shore says.

"I can call someone in Toronto and ask him any question under the sun," explains Shore. "I literally have 70 other consultants I can call at any time. Often when you're a distributor, you're on your own, so the networking is key."

Indeed, the point of being an IDI member is so that you're not entirely on your own. IDI works as other alliances do-all members make a personal investment in the corporation, paying annual dues to keep it running. The group is managed by a board of directors, consisting of member volunteers, along with Knowles and his four middle managers.

IDI is always recruiting new members to increase buying power and geographic coverage. To become a member, a distributorship must be Canadian, do over $1 million in sales per year (Canadian), and have been in business at least three years. The rules for staying a member are strict. All IDI members submit year-end financial reports to an outside auditor who then evaluates the member's status. If the member fails the audit, he has the opportunity to show how he is rectifying the situation. If the problem persists, the auditor will recommend to IDI's board that the member be dropped. The board of directors then votes on the recommendation.

Both Shore and Knowles say members have been dropped from IDI in the past. The reason IDI is so strict, they add, is because the poor performance of one member affects the strength of the entire group.

"It's one of the basic operating principles of IDI," says Shore. "We're going to be strong financially. That lets suppliers and customers know that they are dealing with a financially secure group."

Peter Clark, American Tool Co.'s director of sales for Canada, appreciates IDI's strict membership rules. Their work, he says, helps keep him wise to the good and bad distributors in the market.

"They've got integrity," says Clark, who notes that American Tool has been working with IDI since 1993. "And they keep an eye on their members ... That helps suppliers [like us]. IDI keeps us informed."

The road ahead

The benefits of IDI membership are what give the group its strength-and what will help drive future growth. Two of the biggest challenges facing IDI members today are national accounts and integrated supply. It's not uncommon for an independent to lose business to firms-often American firms-that can provide national account coverage. As Shore explains it, there are many American-owned companies with branches in Canada that-in an effort to cut costs and streamline operations-decide to deal only with a certain distributor at all company locations. Most often, Shore adds, the decision is made simply as a cost-cutting measure, not because the customer is unhappy with the service they're getting at their Canadian locations.

To combat that situation on a national scale, IDI began its national accounts program this year. The idea is to target customers with multiple locations across Canada, pitching IDI as the single source of service and supply. Earlier this year, IDI was awaiting the results of a bid on one such contract and was in the process of developing other leads.

On an international level, the challenge will be a bit tougher. Shore and others don't rule out the possibility of IDI merging with an American buying group sometime in the future to serve customers with multiple plants in Canada and the United States. IDI already has an informal relationship with Indianapolis, Ind.-based Independent Distributors Cooperative-USA, an American alliance serving the bearing/PT industry.

Many members hope the national accounts program will unify IDI in important ways-chief among them by letting customers and suppliers know that the group is a force to be reckoned with on a national scale. With 140 locations across Canada, IDI is in the best position to serve those multi-branch customers, say members like Crosbie of Murray Industrial. But the group needs to concentrate on branding its name and image, Crosbie adds. IDI is not well-known at the end-user level-a longtime intention that now seems like a double-edged sword in many ways.

"We want the [customer] to know that he's dealing with locals, here on the scene, making decisions," says Crosbie. "But we also want them to know we're not just a little company in St. John's that can't service them when they move to Nova Scotia."

For IDI to carry out its goals, it can no longer be invisible. And that makes the group's balancing act even more of a challenge: it's got to look like a giant, but act, in many cases, like a local. Knowles, Shore and others believe it can be done-that's why the group is concentrating on national accounts and working to develop an online ordering system that will further unify the group.

It's also why, in individual meetings with customers, people like David Crosbie always point to the governing principle behind IDI.

"The thing that sets us apart, that is fundamental to IDI, and that we can't ever give up, is that we are a group of independent business people," says Crosbie. "We're owner-operators. We're not part of a conglomerate. The people who sit around the table all work in the business-and that makes a big difference at the end of the day."