How does a distributor become one of the largest in North America? In one case, it's built slowly and methodically, with an eye on its history as a specialist.

When Ohio Ball Bearing Co., the entity that would become Applied Industrial Technologies , began business in 1923, its core products were bearings. Over the next 70 years, Ohio Ball Bearing opened branches and became Bearings, Inc. in 1953 and, finally, Applied, in 1997.

Along the way, the company acquired Dixie Bearings, Inc., and King Bearing, Inc., and several others.

Is there a trend here? As they purchase companies and open warehouses, Applied never loses sight of its core product expertise – bearings – says chairman and CEO Dave Pugh. The growth of the company follows a logical progression, offering products from bearings to other power transmission components to the lubricants and cleaners they require.

In the course of buying companies and expanding lines, several factors come into play as to whether or not the company takes on a new line. Suppliers create new products and ask Applied to distribute them. Acquired companies have expertise in a line that, while not in the core bearing genre, is valuable to keep for the customer's sake. Bearings continue to be 30 to 33 percent of the company's sales, however.

All that is not to say that Applied is proceeding without an eye toward the latest business and industrial technologies, and other opportunities. To the contrary, Pugh notes increased capital spending in internal and Internet computer systems, and engineered-sales training. While his staff expands its horizons and looks for opportunities throughout North America, it remains dedicated to power transmission systems and the maintenance of those systems.

"Our name represents the amount of value-added expertise in all its forms that we have learned over time, along with our portfolio of bearing products," Pugh says.

The company, set up based on the principles of sound service and value that come from long-term relationships with customers, added speed and flexibility to its many intangible assets along the way, Pugh says. However, the core competency that drives the business is never something to set aside or neglect while new ventures are attempted. Those ventures are intended to fall within the scope of competency. Otherwise, start a new business, Pugh says.

In economic times like those of the last three years, Pugh notes that both customers and suppliers have difficulties. A large customer may close or move, but one advantage Applied has is its focus on excellent service and its strong balance sheet. When management saw the end of "irrational dot-com exuberance" in 2000, Pugh and his team directed the company to reduce mistakes and tighten the purse strings.

Still, new technologies combining electronics and power transmission mean the company must keep up, investing in training and inventory to supply the new products. There is no one-size-fits-all description of the products distributors should stock and sell. Location and vendor status has a lot to do with the sale of lines of goods.

"You can find yourself expanding beyond your core competency, and your value to the supply chain begins to diminish," Pugh says.

Rick Shaw, vice president of communications, says Applied has over 2 million SKUs in its standard catalog.

"It's a very refined process, deciding what line to take on as an authorized distributor. We have to weigh the advantages to us as well as to the vendor," Shaw says.

Pugh agrees. He describes the decision as brand-equity versus the value of the service Applied provides.

"We would really like it to be the latter," says Pugh.

Every distribution company has a problem when manufacturers – who are also customers – leave the country or consolidate within these borders, Pugh says. The MRO bearings market is shrinking for those reasons, and because bearing products are lasting longer than ever before. Customers want value from any source the distributor can find and, increasingly, that is not in a better product, per se.

"Machinery maintenance is better when done on a scheduled basis, and a lot of that is being accomplished. The products we represent are continually of better quality," he says. "Market dynamics mean that customers want to get purchasing leverage by going to national contracts and only a handful of players can handle that."

However, industrial distribution is a market that is as fragmented as any he can think of, says Pugh. He believes there is room to gain market share, and that is where product expertise comes into play. Documented Value Added®, Applied's program to prove the value of scheduled maintenance programs and other services, is one of the most important initiatives that a distributor can employ today, he adds.

The challenge is to combine new systems and technologies to save the customer time and money, while remaining true to the bearing sales base on which they have built the business. In some cases, Applied is unable to put DVA into a guaranteed contract because the customer is not capable of implementing the best plan of action as recommended by the distributor, Pugh explains. It might be a matter of time or finances, or other problems that slow implementation.

In any case, he is convinced that Applied's course – slowly developed, with customer relationships paramount – will produce the uptime improvements the customer demands. He does not see significant value in integrated supply for several reasons, such as lowered expertise and decreased efficiency, and does not expect to be heavily into that end of the business.

Being a large distributor offers several benefits in the marketplace, Pugh says. Applied can continue to invest in leading-edge technologies; it can participate consistently in national contracts; it can purchase in depth and stock a wide range of product lines; and it can attract top talent.

In the coming decade, Pugh expects Applied to stay the course – full steam ahead, but slowly – and expand significantly in the North American market.

"Acquisitions are definitely in the picture and we have the strongest balance sheet we've ever had," he says.