Growing into the role

Though businesses need to grow and expand, it must be at the right pace

By Richard Trombly, Contributing Editor -- Industrial Distribution, 2/1/2003

When INDUSTRIAL DISTRIBUTION visited Acme Construction Supply Co., Inc. in August 2002, the discussion focused on the company's efforts to increase efficiency through its centralized corporate model. Acme was looking to cut costs through economies of scale in purchasing and by increasing efficiency through a centralized billing and accounts receivable department.

Part of this larger, more corporate model was reflected in the company's expansion into Denver, Colo., and Salt Lake City, Utah, during the late 1990s, giving it a total of six locations. Acme was investing considerable marketing energy to bolster its Salt Lake City branch.

The centralized strategy was part of Acme's overall effort to grow and expand into these new markets. The mid-sized distributor was taking on a corporate management structure more common to its larger competitors than to local or regional players.

Acme vice president of the Northwest Region Jordan Bader points out that advances in information technology systems have made powerful corporate systems available and scalable for small- to mid-market distributors like Acme. It naturally follows that a company would try to reap all of the value from such information resources and try to cut expenses and increase efficiency throughout the organization.

"Even though we are making dynamic changes to address the declining economy, we need to still do more to increase our efficiency," says Jordan. "As we grow, we must continually examine ourselves and reinvent ourselves so we don't become a big dinosaur like some of our larger competitors."

The company's Prophet 21 system offers to improve customer service and maximize return on investment through features including order and inventory management, purchasing, pricing and promotion, supply chain optimization, financial management, customer relationship management, business reporting and analysis, e-business, and warehouse automation. Acme also adopted Pathguide Technologies, Inc.'s Latitude WMS radio frequency system to increase warehouse efficiency.

These centralized efficiencies of scale weren't, however, making it to the bottom line. Instead, the company experienced problems with dead inventory on the purchasing side and a high number of days sales outstanding on the A/R side, says Rocky Mountain Region vice president Jason Bader. The company decided it was time to make some tough choices.

Despite an intense marketing effort to reach the Salt Lake City construction market, including "out-of-the-box" ideas like open house exhibitions and radio promotions on site, the company realized that it wasn't finding the success it had hoped for.

"The construction supply market there is declining and the predicted post-Olympics boom never materialized," says Jason. "We were a smaller player in the region of strong competition. We decided to face facts and stop losing money."

"It turned out to be a difficult road and it burned us," says Jason.

Acme recently closed its Salt Lake City location. Jason says he's redoubling his efforts to keep the Denver location profitable and growing on track. But that isn't the only change the company made.

The e-commerce business models developed in the late 1990s offer companies a way to cut costs through high-tech, low-touch methods of delivering products. Reducing the costs associated with the human element and increasing IT efficiency and automation has become an essential part of delivering commodities at the lowest cost.

The Baders realized that by pursuing these corporate efficiencies and rapid growth, they were weakening the relationships that are the very foundation of small distributors. It was the low-tech, high-touch philosophy of distribution that fostered the development of these relationships in the first place.

"Sometimes more efficient is less effective. A central model works on paper," says Jason. "But there's a disconnect in the real world. We made some decisions which made sense from the corporate side, but were out of touch on the street level."

The actual gains in efficiency of the central model were lost through diminished communication and perspective. There was little connection between central purchasing and the customers' actual needs in Acme's varied regions, which introduced inventory inefficiencies. The lack of personal relationship between the A/R department and customers also led to greater costs through inefficiency.

"We returned greater authority to regional managers," says Jason. "Often local people are able to see the bigger picture."

When management isn't on-site, it is hard for them to understand unique needs of the region. A regional manager can capture the local flavor as well as work to form a tighter, more effective sales team.

Local purchasing agents are more in touch with the requirements of their own regions, so Acme returned that to the branches. Bader says he thinks a local A/R department will be more effective as well.

Local A/R personnel have the opportunity to meet face-to-face with customers, build relationships and, therefore, have stronger leverage when it comes time to ask for payments, says Bader.

"Local knowledge can also give a basis for extending credit to gain profitable sales," says Jason.

President Dick Bader is Jordan and Jason's father. He acquired Acme in 1971. Though distribution has been his passion, and he has been in the business for more than 40 years, he is loosening the reins and giving his children a chance to grow into the role as he prepares for their succession.

"You have to do a job for several years before you master it," says Jordan. "That is part of succession. It requires an open dialogue and we all have to see each other's point of view, which isn't always easy."

Jason and Jordan Bader both started working at Acme when they were in their teens. They have a history of dividing responsibilities and approaching the business from different perspectives.

Jason stayed with the company straight out of school and has filled many roles, including human resources, IT and operations and logistics management. Jordan went to college and obtained an MBA.

Both brothers have taken advantage of educational and networking opportunities offered through the Specialty Tools and Fasteners Distributors Assn. and the Evergreen Marketing Group. They have been active in both of these organizations.

"By sharing experience and knowledge with other distributors, we can raise the standards and improve our industry, to everyone's benefit," says Jordan.

Jason says such forums are essential to promote the free flow of ideas. His level of interest and involvement led to his election as STAFDA president at the association's convention in November 2002.

Acme's growing pains and some internal problems didn't affect the high level of service the distributor's customers have come to expect. Stirrett & Johnsen in Seattle, Wash., can attest to that.

"Acme is the only distributor I like to use," says Gerald Carollo. "They carry a great supply of the tools, nuts and hangar brackets we use as well as a lot of other miscellaneous construction items. More than that though, it's the people and the excellent service."

Carollo is lead foreman for Stirrett & Johnsen, a mechanical contractor firm. He says whenever he has a new job, Acme gets together all the supplies he needs and gets them to the work site.

"That means a lot when you're working on a fast track project," says Carollo. "A recent project was the construction of a dry powder mill in Idaho. Even outside Acme's normal territory, we were able to rely on their service."

Having a long-term relationship with Acme is important to his business, says Jeff Harrod, the purchasing manager for Electrical Construction Co. in Portland, Ore.

"Acme offers a good price, though it is often not the lowest," says Harrod. "That is made up for by the fact that we work in many places and couldn't keep developing new distributor relationships in each location — let alone expect a decent price."

He says he can rely on Acme to always get what the electrical contractor needs. That can be important to distant job sites like a recent contract in California — quite a distance from the nearest Acme location, according to Harrod.

"Their Night Owl and Tool Runner services are a godsend," he says.

With Night Owl service, Acme delivers supplies overnight so that the job site can begin work first thing in the morning.

Tool Runner service utilizes the same delivery structure to pick up tools for repair and deliver rental or repaired tools right from the job site.

While Acme learned that in some areas of the business it is best to retain small business style, it also learned how to market like the big competitors. That is something the distributor won't be changing.

The company puts out regular flyers as well as targeted marketing campaigns. Neil Schilling says Acme provides aggressive and proactive marketing resources for its vendors.

Schilling is the area manager of the Pacific Northwest Region for DeWalt Industrial Tool Co.

"Unlike many distributors that look for what vendors can offer, Acme looks to partner with its vendors," says Schilling. "They utilize our resources and they invest in their own company to grow the business."