PITTSBURGH – It's been said that one of the biggest challenges facing distributors of all sizes is competition from new, non-traditional sources of supply. Enter MRO Direct, the latest of those forces to hit the industrial supply arena.

From the outside, MRO Direct looks a lot like an integrated supplier: its goal is to reduce the cost of procuring MRO products for Fortune 500 customers by serving as the plant's purchasing arm for MRO goods. The big difference is that MRO Direct holds no inventory and puts no personnel in place at the customer's facility.

Neither is this a dotcom venture, though the company's business model is "Internet-centric," says president and CEO Don Belt, a former TruServ executive. Products are available through customized electronic catalogs, and the company will operate on the Prophet 21 distribution software system. The company's business model and systems capabilities will translate into hard-cost and process-cost savings for customers, Belt said in a November interview. He added that MRO Direct can bring an average 10 percent in hard-cost savings to typical Fortune 500 plants.

MRO Direct negotiates commodity contracts with customers, handles ordering, billing and customer service, and then works through a network of distributor groups, master distributors and manufacturers who've agreed to ship products direct to the end user.

"This is a low-cost, high-volume outsourcing business," says Belt, who's assembled an 18-member team of associates with experience working for the likes of TruServ, MRO Software and Ferguson Enterprises. "It's a new business model that takes large lumps of cost out of the supply chain."

Distribution partners include TruServ Corp., United Stationers Supply Co., Airgas Direct Industrial, SecureRite, Production Tool Supply, and Lagasse Inc.

In early November, MRO Direct had no major contracts but was negotiating with a few target customers, Belt said. The purchase of a traditional distributor in Cleveland was keeping the company busy serving select customers, such as GE Lighting and TRW.

Belt anticipates doing about $1.5 million in business per plant, once MRO Direct's contracts are in place. Within the next year, he expects to have a minimum of 20 plants contracted in the United States and five in Canada, totaling about $30 million in sales. By 2007, he expects the company to bring in $240 million in sales.

Belt admits MRO Direct's model bypasses traditional distributors – at least those servicing the large, Fortune 500 accounts. He cites a declining need for local product availability and a rising demand for cost-reductions as key drivers of this new business model.

"Our objective is to reduce the cost of MRO products in manufacturing plants," Belt said. "That's our mission – through hard-cost savings and process-cost savings."