David Oliver and his colleagues didn't know what they would get when they began looking for integrated suppliers to support the American Airlines facility at Dallas/Fort Worth Airport back in early 1995. They knew they wanted to streamline the procurement of MRO supplies at the facility and, in the process, gain more control over the facility's budget and operations. Just how to do all that was somewhat of a mystery.

Oliver is the supervisor of facility maintenance for American Airlines' operations in Dallas/Forth Worth, overseeing activities at American's headquarters complex and at its airport facility. Eight years ago, when American began talks with six or so integrated suppliers, Oliver was the planner for the facility maintenance group at the airport facility and therefore an integral part of the project from start to finish.

American ultimately decided to go with W.W. Grainger, the country's largest industrial distributor, which had formed an integrated supply division in the mid-1990s. Surprisingly, aggressive cost-savings claims and service promises were not what sealed the deal. It was something much simpler than that.

"Of all the people that came to us, Grainger was the only one that said, 'we don't know what it will take to get you where you need to go, but we know how to figure it out,'" Oliver remembers. There were no pie-in-the-sky promises; no lofty goals or ambitions. "They understood that there was a difference in every customer and they brought that thinking to this integrated supply project."

Despite its reputation as an order-taking, catalog house, Grainger takes a customized approach to much of its business, the firm's managers argue. This is especially true of integrated supply, says Michael Kight, vice president of Grainger Integrated Supply Operation, the company's integrated supply division. The very fact that Grainger Integrated Supply grew out of the customer's need is a case in point. As customers were looking to become more efficient by reducing the number of distributors they dealt with and outsourcing the management of their MRO products, Grainger was a natural supplier to look to, Kight says.

"Our whole story is to save customers time and money," he explains, pointing to Grainger's core competency: managing the flow of products from manufacturer to end user. "[Integrated supply] allows us to extend that knowledge right into the guts of the customer's business."

The Grainger/American Airlines contract began in January 1996 and covered all janitorial and MRO products and services for American's airport facility. Two years into that contract, the program was extended to American's headquarters complex, encompassing the same products and services. Oliver says the scope of the contract has changed little over the years.

The Grainger/American partnership has been good for Grainger, as well. The seven-plus years of experience in Dallas has helped the distributor refine its integrated supply operation, build a better business and bring a success story to the table when approaching new integrated supply clients. Today, Grainger runs integrated supply programs at more than 40 customer facilities nationwide. In addition to American Airlines, the customer list includes firms like Goodrich Corp. and Smurfit-Stone Container Corp. Of Grainger's overall $4.6 billion in sales in 2002, the integrated supply division brought in $226 million.

When Grainger Integrated Supply was formed in the mid-1990s, Grainger drew on its experience with national contract accounts. These were customers for whom Grainger supplied a wide range of products to multiple locations nationwide. Many of those customers were looking to add even more products and services to the mix. Today, a Grainger Integrated Supply contract can encompass everything from standard janitorial supplies and MRO items to more non-traditional things, such as office supplies and landscaping services. One customer, Universal Studios theme park, asked Grainger to find "fog fluid" used to create the smoke and fog that appears in some of the park's rides. It took some doing, says Kight, but Grainger eventually found and delivered the product.

Grainger also works with other distributors to meet customers' needs – especially when it comes to supplying specialized items such as power transmission products. For example, Motion Industries, the nation's largest bearings and PT distributor, is one of Grainger Integrated Supply's partners.

To be an integrated supply customer, a facility must purchase at least $2 million worth of supplies and services per year. As technology grows, that threshold lowers, Kight says. In addition to the financial requirements, customers must have an open mind and be willing to partner with Grainger to make the program work. From the outset, Kight says Grainger works closely with finance, purchasing and shop floor employees to make sure the distributor is meeting the client's objectives.

The program works like this: An initial meeting is held to identify product usage and spending levels. From there, Grainger evaluates those levels and looks for ways to reduce costs with new programs. A plan is then presented to the customer. Once the plan is agreed upon, Grainger gets down to work. Progress is measured quarterly with a report given to the customer in a face-to-face meeting; annual reports are given, as well. American's Oliver can attest to the value of the reports and says Grainger attends as many of his staff meetings as possible in Dallas to stay up-to-date on the facility's needs.

Grainger's integrated supply service is a fee-based program, so customers pay only for what they use. In some cases, an agreement may include only the supply and inventory management of a range of products. In other cases, it may include the handling of maintenance contracts or landscaping services. And it can go even further than that. Inventory management could mean that Grainger simply stocks and re-stocks products on the plant floor. In other cases, a Grainger representative may be on site at the plant, disbursing products to employees.

"Our whole pitch is to help the customer come up with the best solution for them," says Kight.

The scenario is not without complications, however. Like other integrated suppliers, Grainger has run into its share of roadblocks. The biggest challenge, says Kight, is a cultural one. The advantages of integrated supply are often seen first in the front office, not on the shop floor.

"We're fixing something that in the user's eyes may not be broken," Kight says, explaining that the shop floor employees — who will be most affected by changes in inventory management, disbursement of tools and product specifications — often don't have a problem with the existing day-to-day operations of the plant. The finance and purchasing departments, on the other hand, are experiencing serious cost problems that need to be addressed.

"The most important way to overcome these issues is to have management support from the customer," Kight says. "This can help reinforce the new program to employees at all levels."

Oliver agrees.

"The best thing about integrated supply is that it allows for better overall operation and budgetary control," he says. "What's bad about it — well, from a business management perspective, I cannot give you anything that's bad about it. But the guys on the shop floor might have a different perspective."

But even those problems ease over time. In the first year of the Grainger contract, the airport facility's on-hand inventory quantities were "significantly reduced," Oliver says, and have since reached a steady level. Prior to Grainger's arrival, Oliver says meetings with the facility's workers were largely comprised of complaints about not having the tools they needed, when they needed them.

"Those complaints have gone away," Oliver says.

A big question often asked about integrated supply is how do you continue the savings? After three years — the typical length of a contract — how do you keep reducing the customer's costs?

"Our experience has been, the more we learn about the customer, the more chance we have to apply new things – new services, technology," Kight says, adding that doing so can help continue to save costs and improve a facility's operations.

Still, the drastic improvements seen at the outset of a program ease over time.

"There comes a point where you hit a steady state," says Oliver. "You have to satisfy yourself and upper management that, 'hey, it can't get any better than this. It costs what it costs to run this place.'

"We're able to have an executive summary that pretty much lets upper management understand, building by building, what it costs to maintain what we do. Then, we're able to show them historical prices on parts related to the system. With that information, if we see a swing in pricing, we are able to explain it."

That's where documentation comes in. Both Oliver and Kight stress that documenting the cost savings and operations improvements achieved over time is vital to a program's success.

Another often-asked question is about profitability. Are integrated suppliers really making any money? Kight says yes. Grainger Integrated Supply is a profitable division today, though it took some time to get there. Initially, Grainger invested heavily in the division, knowing it would take time to get a return on that investment. Changes were made along the way to help meet that goal. For instance, the division once had its own sales force; today, responsibility for Grainger Integrated Supply accounts is spread out among the regular sales force.

For Kight, growing pains like that were a matter of figuring out just what integrated supply meant for Grainger.

"We had to get real clear on what integrated supply is," says Kight. "When we do something, we want to do it right."

A big part of that was determining that even Grainger can't be all things to all people. Kight says the division has had to set guidelines and be clear about what it can and can't do for customers.

"You have to understand that there will be some instances where you can't do things for the customer," says Kight. "It's important to be able to accept and understand that."

After over eight years in the business, the system seems to be working for Grainger. The Grainger Integrated Supply division grew by 40 percent between 1998 and 2000, according to Kight. He attributes much of that growth to the expansion of integrated supply contracts to additional facilities with existing customers, as was the case with American Airlines. Since 2000, the division has grown 25 percent per year, with the same growth predicted for this year. Kight attributes much of the current growth to the economy. As manufacturers continue to feel the crunch of tough times, he says, they are looking harder than ever for distributors who can reduce their costs.

Grainger Integrated Supply operates only in the United States, but Kight doesn't rule out the chance to export the service to Canada, Mexico and beyond.

"There's nothing about the integrated supply model that isn't exportable," says Kight. "We're trying to do it well here first."