On-site success

Strategic Distribution and Martin Supply share the secrets of creating a successful on-site store program

By -- Industrial Distribution, 12/1/2000

Keeping track of "nuts and bolts" has become a cliché-used by people who have no idea what maintenance, repair and operating supplies are-to mean 'managing the smaller details of a project or operation.' In a manufacturing facility, literally keeping track of the nuts and bolts (as well as a wide range of other supplies) with any degree of accuracy and cost-awareness is a large undertaking that increasing numbers of manufacturers are outsourcing to their suppliers.

Distribution firms like Martin Supply Company Inc. and dedicated integrated suppliers like Strategic Distribution, Inc. are satisfying customers through well-established programs designed to fill the end user's desire for a better, more cost effective way of managing production supply products.

Both MSCO's Martin Plant Services division and SDI's subsidiary, Industrial Systems Associates, Inc. create one-of-a-kind programs designed to manage, procure and distribute indirect materials at a cost savings for their customers.

Industrial Distribution spoke with MSCO and SDI-and one of each of their customers-to discover just what it is that contributes to the success of their on-site store operations.

Moving distribution on site

Establishing an on-site store operation at a customer's facility creates significant changes both for the distributor/integrator and the client/customer. It's a little like moving in with relatives: the relationships have more time to develop and yet every action is under closer scrutiny, and change is inevitable.

Martin Supply Co., Inc.

When MSCO's Martin Plant Services established an on-site store operation at the Caterpillar facility in Booneville, Miss., Caterpillar's primary interest was to focus its employees' efforts on the facility's core purpose: remanufacturing components for diesel engines. Caterpillar wanted to relieve employees of dealing with routine supplies and maintenance tasks, so those services were contracted out, according to Roger Russell, Caterpillar's facility engineer.

Today, MPS manages a tool crib stocked with supplies owned by both MPS and Caterpillar. The five MPS employees who work full-time in the crib issue supplies to Caterpillar employees, track inventory, handle non-stock supply requests, and provide usage reports to Caterpillar, among other services.

MPS's site manager, Jim Lewis, says the relationship between MPS employees and Caterpillar employees is close.

"We don't feel like we're outsiders here," Lewis says. "We all work as a team here, we all feel like we're part of the family."

Having MPS employees working full-time on-site at the customer's facility managing all of a customer's indirect materials is what differentiates an MPS operation from a supply contract that would be managed from MSCO's more traditional Martin Industrial division, says Doug Ruggles, vice president of MSCO. The company's Plant Services division has been in operation since 1989.

MPS is a traditional distribution firm that has expanded its services to include on-site managed inventory in order to meet the changing needs of its clients. MPS offers a range of services that include point-of-use programs, vendor management, inventory management, consigned inventory, free-issue management, spare part management programs, cost savings, usage documentation, implementation and tracking, electronic data interchange, and more.

MSCO's foray into on-site supply operations began in the late 1980s with the simple goal of helping one customer-a General Motors plant that is now a Delphi Harrison plant and still a client-manage the indirect material in their storeroom.

"After we implemented that program," Ruggles says, "we decided it was something we could sell to other customers. And after we got a couple more contracts, we saw that it was a different culture than traditional industrial distribution sales and management, and because of that we began differentiating our marketing to customers. We saw the market segregating itself between customers that wanted this type of service and those who didn't, so we created the separate division."

Strategic Distribution, Inc.

As an integrated supplier, Strategic Distribution generates 100 percent of its revenue from its In-Plant Storeroperations. Its sole business is to deliver on-site MRO supply management services through its In-Plant Store program. Rather than maintaining warehouses, SDI has product shipped from the manufacturer or master distributor directly to its clients' production facilities.

SDI's In-Plant Store subsidiary, ISA, was founded in 1971 and moved into on-site management of indirect materials in 1980. Today the company operates more than 180 In-Plant Stores in the U.S. and Mexico. One thousand of SDI's 1,200 employees work on site in customer facilities, according to Herb Butler, SDI's vice president of implementation.

Just one of those facilities is the Mitsubishi-Caterpillar plant in Houston, Tex., which manufactures lift trucks. Four SDI employees work in this location which, as one of the company's 44 new stores opened last year, has been fully operational since January.

Prior to the implementation of this new SDI site, Mitsubishi-Caterpillar handled all the buying of production supply items internally and operated its own tool crib, which is now handled by SDI employees. SDI takes ownership of the production supply materials and invoices Mitsubishi-Caterpillar for the materials after they are issued.

Steve Barricklow, Mitsubishi-Caterpillar's manager, manufacturing administration and facilities, says the plant's decision to contract with SDI began by evaluating the costs of handling production supply materials internally.

"We figured that we could reduce manpower internally, but we also thought that we could end up saving money long term because of [SDI's] purchasing power," Barricklow says. "We also figured we'd reduce our inventory exposure and obviously that would cut some costs. This frees up our manpower to do other things."

Through its In-Plant Store program, SDI procures and manages all categories of MRO and OEM material that its clients assign to the program, enabling them to focus their capital and management resources on their core business operations. Some of the services offered by the program include: data management through a proprietary ERP business system, In-SiteT; vendor consolidation; elimination of up to 100 percent of active inventory investment; price audit and control through improved reporting; transaction elimination; technical support to increase productivity; reduction in freight costs and more.

Creating a successful on-site store

Creating a successful on-site store doesn't happen overnight. Even in a well-designed and smoothly implemented program, the first few months are likely to turn up problems like short stock supplies and the need for inventory adjustments. What follows are seven key elements that the experienced distribution professionals ID consulted, and their customers, say are necessary to keep this unique relationship working well.

- The client must understand the value of the on-site store program.

It's important for integrated suppliers to qualify potential customers before establishing an on-site store program, Butler says.

"The thing we have to do is make sure that the client really understands and appreciates the concept of supply chain management," Butler says. "Having the client understand what they're buying is important because it's not just cheaper parts. It's a total cost solution to their indirect materials."

- Flexibility is essential.

Roger Russell is the facility engineer for the Caterpillar plant in Booneville. It's his responsibility to be the liaison between Caterpillar and Martin Supply's MPS, intervening when material issues arise.

Russell says it's important for MPS to be flexible enough to resolve such issues or order any supplies necessary to run the plant.

Kevin Freyou, territory operations manager and former site manager for SDI, knows first-hand that such flexibility is essential for the distributor/integrator.

"We want to be as flexible as we can be to provide the services our client is looking for," says Freyou, which may mean modifying the originally designed In-Plant Store program and adjusting day-to-day operations to meet changing client needs.

Customers also need to be flexible, Barricklow says, in terms of being open to suggested changes in both products and operations.

- The inventory must be consistently well managed.

It sounds basic, but an on-site store relationship won't last long if the distributor doesn't consistently perform well.

"You have to deliver what you tell your customer you're going to deliver," Ruggles says. "You have to maintain, over time, a control and discipline for the MRO process. It's easy to clean up an operation-a lot of storerooms that we take over are not in good shape. But it's difficult to maintain that over time. What we provide the customer is discipline and control, year after year, so they're able to continue to manage that part of their business."

- Both parties must maintain a high level of effective communication.

Freyou says communication is the number one ingredient to managing a successful on-site store operation.

"I like to see our managers and buyers participate in staff and planning meetings where the customers' supervisors and managers get together. Then we're there if there's a problem with the In-Plant Store, or to answer questions about specific orders. Getting in front of the client in these planning meetings is key," Freyou says.

In addition, both companies say it's important for the customer to designate one person to help implement the program and to be the liaison between the two companies. SDI calls this position the "site coordinator."

"Once the store opens, the site coordinator's role continues to be the interface point, to report on the program and to coordinate further projects," Butler says. "It's a very key position to make sure the program works."

At the Caterpillar plant in Booneville, Lewis refers to Russell-who fills that liaison role-as his "right-hand man."

Russell says his role simplifies the relationship and prevents the confusion that could arise if the MPS employees had "too many bosses."

- The distributor or integrated supplier must regularly provide the customer with valuable data based on key performance indicators.

The need for a distributor or integrator to save its customer money and provide value year after year is a given. Demonstrating that savings and value is crucial to the success of any on-site store operation.

During the implementation phase, SDI and its clients establish "key performance indicators." SDI then benchmarks these indicators, which serve as the metrics necessary to track the in-plant store's progress.

"The only way we have to prove our cost savings and to rationalize our existence in the customer's facility is through our KPIs," Freyou says. "They also provide an opportunity for us to see how we're doing as an integrator and make adjustments to our day-to-day operations."

As the customer, Russell says that receiving reports from MPS-such as weekly usage reports showing each item charged to a specific department-is a valuable service in and of itself. Such MPS reports allow Caterpillar to better understand and manage their inventory usage, and to identify problems related to products that either don't perform well or are improperly applied.

- Efficient use of technology tools is required.

In order to provide customers with valuable data, distributors and integrators need to use effective technology tools.

SDI, for example, uses its proprietary ERP system to track all inventory management in the storeroom, as well as to handle purchase order creation and material requisitioning and issues. The same system also provides SDI clients with a range of reporting options that measure the results of their In-Plant Store programs.

- The relationship requires the interaction and cooperation of all three players in the supply chain: the client, the distributor or integrator, and suppliers.

Finally, it's important for both the distributor/integrator and the customer to recognize that they aren't alone in this agreement, and to seek the cooperation and buy-in of the third member of the supply chain: the supplier.

"All three players in the supply chain need to interact to make a successful program," Butler says. "We look for suppliers who can be supportive of changing methods in the marketplace, can provide technical support, and that can give us competitive pricing that's consistent with our long-term growth. That's one of the big advantages to our clients-being able to leverage our supply base."