Industrial Rubber & Mechanics is faced with more than your typical small business concerns. Headquartered just outside San Juan, Puerto Rico, this $7 million distributorship counts a shifting economic climate, high freight costs and an increasingly competitive marketplace among its top challenges.

"Business has been tough here," says company president Thomas Von Hillebrandt, pointing to recent tax law changes that make it less beneficial for U.S.-based manufacturers to operate on the island. The result is a shift away from manufacturing, which is causing distributors like Inrumec to look for new markets both at home and abroad. In the last nine months, for example, chip maker Intel and food producer Star-Kist closed their Puerto Rico plants, impacting the economy across the island.

At the same time, Puerto Rico is the largest economy in the Caribbean, as well as the prime staging area for selling to industry throughout the Caribbean Islands — factors that make Puerto Rico an attractive spot for distributors looking to expand into the region.

After 14 years with Inrumec, Thomas Von Hillebrandt is undaunted by such challenges. First of all, high freight costs have always been an issue because the company is located in a fairly remote spot — on an island 1,000 miles south of Miami, Fla. And competition will always be a factor. Dealing with such challenges has become second nature to this small firm. As for the changing economic base, Inrumec is doing everything it can to evolve and adapt. The company's prime strategies are increasing its product and service offering and expanding into new territory — Central America.

Thomas' brother, Karl Von Hillebrandt, is vice president of sales and heads up the company's international efforts. Karl joined the company six years ago after receiving his degree in international business. Since then he's spent much of his time traveling to Central America, where the company has built new business relationships with the corrugated box manufacturing industry. Today, Inrumec's international business makes up 10 percent of overall sales, but Karl and Thomas hope to increase that to between 30 and 40 percent.

"Puerto Rico is a small island," explains Karl. "Territory-wise, international is the way to go."

Sources outside the company say that if anyone can make that international goal a success, it's the Von Hillebrandts.

"If they do as well as they've done in Puerto Rico, I wouldn't stand in their way," says Bill Eaton, vice president of sales and marketing for manufacturer Parker Hannifin. Eaton has worked with Inrumec for 15 years. He adds: "They're an aggressive, well organized, and well-managed company."

Inrumec was founded by Thomas and Karl's father, Fred Von Hillebrandt, in 1963. A native of Germany, Fred worked for German manufacturer Continental Rubber for many years. It was a career that took him all around the world, and in the early 60s he traveled to Puerto Rico, where the economy was shifting from an agricultural to an industrial base. When he learned of an opportunity to start a distributorship on the island, Fred Von Hillebrandt embraced it and moved his young family to the Caribbean. At that point, they'd already been living in the States for about 10 years. Fred retired just five years ago, leaving management of the company to his two sons.

The business was founded as a hose and accessories distributorship, but Fred was careful to leave room for growth, adding "& Mechanics" to the company name. In the '80s, Inrumec expanded into materials handling, which has become the main product group purchased by its Central American customers. Today there is a 60/40 split between the hose & accessories and materials handling divisions. Customers throughout the Caribbean include those in the pharmaceutical, food and beverage, injection molding, construction and aggregate industries.

Inrumec serves those customers from three locations: Bayamón, its headquarters on the north side of the island; Ponce on the south; and Mayagüez in the west. The Ponce office is run by regional manager Manuel Bou, while the Mayagüez branch is run by Thomas and Karl's brother-in-law, regional manager Gerardo Andrade. Thomas anticipates opening one or two more branches in the next couple of years as part of a strategy to be close to the customer. Although Puerto Rico is a small territory, it's a place where customers want easy access to purchases — especially last-minute ones.

Thomas explains that walk-in traffic is a huge part of his business, noting that all three Inrumec locations are "Parker-Stores" — a hardware-store concept developed by Parker Hannifin and aimed at hose and fluid power customers. Even at the Bayamón headquarters you must enter the building through the retail-like storefront, which is typically busy by 8:00 a.m.

"We attempt to be near the customer, to make it easier for him to do business," says Thomas. "If it's here and easy to get, they will pay for it. [Customers] want things fast — that's just the way people are here."

Inrumec is taking advantage of that characteristic by stepping up its service. In the past few years, the company has added products and services to attract new customers and build business with old ones. For example, the company recently added an aluminum extrusion and accessories line that allows it to build enclosures for machinery and equipment. The products are designed mainly for plant safety and can be sold to virtually all of Inrumec's customers. The company also has an automation engineer on staff to design conveyor and fluid power systems. Those capabilities are in addition to its traditional value-added services, such as fabricating hose assemblies.

Inrumec's goal is to become a complete technical resource for customers. The company has six outside salespeople, including specialists who focus on particular end-markets — like wholesale, aggregate and manufacturing. Four full-time employees make up the technical services staff and are charged with addressing customers' application needs.

If the company can't solve a specific problem, it subcontracts with a second party that can provide the service. Electric motor repair is one area in which the firm has recently done that. While outsourcing in that regard isn't the Von Hillebrandts' favorite way of providing service, they do it until they are able to bring the service in-house.

Adding such capabilities is an ongoing activity.

"We're never finished," says Thomas, pointing to the main warehouse in Bayamón, which will undergo a facelift in the next few months to add more space for hose assembly fabrication and light manufacturing. "We have to be very customer-driven in this market."

Of course, a big part of meeting customers' needs is having the part they want when they want it. It sounds like a simple concept, but ask any distributor and he'll tell you otherwise. It's an even more difficult task for Inrumec since the majority of its suppliers are based on the U.S. mainland, which means it takes longer and costs more to ship orders. Inrumec must carefully balance its inventory so that it has enough product on hand to accommodate any need. That means ordering smart to keep freight costs in line and pricing competitive.

The company works with a 10-day to two-week lead time and most often receives orders by ship. If Inrumec has to get something on short notice, the order must be sent by air, which is more expensive. In addition, individual, smaller shipments are more costly than large ones, so the firm tries to buy as much as possible from one source. The Von Hillebrandts, along with VP of operations Peter Plewnia, say the balancing act has gotten much easier since automating inventory management with the company's software system.

"They could almost be a prototype for what the distributor of the future would look like," says Eaton, pointing to the inventory and management skills Inrumec has developed by working in such a remote location. "They're a thousand miles south of Miami ... so inventory is important, and how you manage your company is important down there."

Inrumec recently took another step to ensure that customers get what they need when they need it: An expeditor was hired to coordinate and follow up on all orders. The expeditor makes sure the supplier acknowledges receipt of the order, checks the order's status and makes sure it was received by the customer. The new position costs the company, of course — in the form of an additional salary and benefits — but Thomas says it's well worth the expense because good service helps get, keep and build business.

Indeed, for the Von Hillebrandts, it all boils down to keeping your word and delivering on your promises.

"To build upon your reputation," he explains, "you say you're going to do something, then you do it ... the customer will remember."

The company strives to apply that attitude internally, as well. At the half-point of each fiscal year, managers open the books to employees, letting them know how the company has performed to date and what they need to do to finish out the year on a positive note. They identify which product groups are up and which are down and what they all need to do as a team to address the situation.

"We can't run the business alone," Thomas explains.

It's a sentiment Thomas and Karl say was instilled in them by their father. Put quite simply, they say relationships are important — whether they are with your suppliers, your customers or your employees.

"Although our company [has] 40 employees, they are really 40 families," says Karl. "We work to make sure all our families grow."

The Von Hillebrandts say they'll maintain that ideal as they expand their business at home, in Central America and beyond.

Industrial Rubber & Mechanics

President: Thomas Von Hillebrandt

Headquarters: Bayamón, Puerto Rico

Founded: 1963

FY 2001 Sales: $7 million

Employees: 38

Branches: 2

Primary Products: Hose & Accessories and Materials Handling products

Territory: The Caribbean and Central America

Web Site: www.Inrumec.com