Michigan distributor's revenues soar with air power

Northern Industrial Supply uses air power as one of its key weapons in winning the sales battle

By Jack Keough, Editor -- Industrial Distribution, 10/1/2005

Jeff Pickelman, the president/CEO of Northern Industrial Supply, might not consider himself to be a gambler, but there's little doubt he is one.

How else can you describe a guy who revamps his company by changing its direction and product mix to reflect a changing industrial marketplace? Or 'fires' a major, high-volume OEM customer (albeit over time) because that customer is slow-paying and has become a low-margin business?

But his decision to focus on selling, servicing, renting and repairing air compressors has been his best gamble to date. Seven years ago, NIS had $300,000 in revenue from the air compressor side of the business. In 2004, that surged to $2.5 million, and this year it could reach more than $3 million.

'I guess you can say we've been pretty fortunate,' Pickelman says.

Jeff Pickelman is unusual as a company leader in that he didn't rise through the ranks with marketing and sales positions, or even with the help of a background in the distribution business. He had a secure job as a business agent for the United Auto Workers when he took a chance to work for Northern Industrial as chief financial officer in 1986.

Northern Industrial Supply was established in 1934 when it was spun off from an auto parts distribution business in Saginaw, Mich. At that time, the company specialized in products and services for manufacturers of machine tools, assembly operations and various processing equipment. The company was then owned by the Anderson family.

Three years after becoming CFO, Pickelman was named general manager, and in 1993, he became NIS president. During that time, 86 percent of the company's business was in the power transmission sector, mostly on the OEM side. The company also served as a commodity storeroom manager supplying PT products, except for bearings, for a major automotive customer.

'We were just tied up too much into one major customer,' Pickelman says. 'They basically were deciding our profit levels and when they would pay. We wanted to offer something more to our other customers. We also were too OEM focused. The customer was slow paying and, frankly, the margins weren't great, but they did give us a huge volume of our company's business.'

Over the next few years, Pickelman gradually reduced the volume of business with the automotive supplier.

Pickelman studied all his customers and noticed there was one common denominator: they all used industrial air compressors in their facilities.

But he also knew he didn't have the expertise—or the staff—to expand into air compressor sales and rentals. That's when a fortunate trip to his front counter paid off in big dividends: he started talking to a customer, Jeff Ostermann, who had come to NIS to buy some air compressor parts for his company, Ingersoll Rand.

'We hit it off right away,' Pickelman says.

Within a short time, Ostermann was brought on board to revitalize the air portion of the business. Today, Ostermann is vice president/general manager of the industrial air products division of NIS.

At that time, the technical service staff for air compressors consisted of Ostermann and another employee who also worked part-time in the warehouse. That has since changed.

'Today, we have six certified technical experts throughout the state, plus Jeff,' says Pickelman. 'We rent, sell and service air compressors for some of the largest companies in the region.'

The company promotes the fact that it is the only full-service industrial air compressor distributor north of Detroit or Grand Rapids, Mich. It is the only full-time air service firm in the area that has an in-house repair capability, Pickelman says.

Its rental business is booming as well.

'Companies can't afford to be without air power. We take the old compressors back here to fix, and bring them a new one. More than half the time they keep the new one and use the old repaired one as a backup,' he adds.

Sales have skyrocketed. Eight years ago, the air compressor business had only $300,000 in revenue. This year, sales should exceed $3 million.

A new sales manager, Rick Creegan, who has 25 years' experience in the air compressor business, was brought on board two months ago and is expected to drive the business even further.

'We've come a long way, but we're going to go a lot further,' Pickelman says.

It was a risk in itself when Pickelman bought NIS in 2001 from the Anderson family.

'The business climate in Michigan was horrible,' Pickelman explains. 'I bought it 100 percent because of our 20 employees and their knowledge. I knew what they could do.'

Eighteen of those employees are still with the company. Today, the company has 22 full-time and seven part-time employees—all of whom are dedicated to NIS, Pickelman says.

In 2003, for example, the employees came to Pickelman and offered to renovate the entire warehouse/office area if Pickelman bought the materials.

'It was amazing what they did,' Pickelman adds. 'Our building was totally antiquated. They cleaned all the walls, re-organized the inventory, and threw out all the old space heaters and lights. They installed a halogen lighting system and a radiant heating system, retiled all the floors, and painted the entire building. They did it nights and weekends.'

The workers also helped use different colored tiles to display the company's logo on the warehouse floor.

But times were still tough, financially. 'I was very open with them,' Pickelman says. 'I brought all our employees together and told them we were losing money. I showed them exactly where we stood financially.'

He had a couple of options: Lay off some employees, or establish a program in which the company had to hit specific sales targets every week or employees would face a reduction in hours, but still have jobs. He chose the latter approach. From March through September, the employees suffered a 12 percent pay cut. Overall, payroll costs dropped 7 percent in 2003.

But in October of that year, there was a glimmer of light as sales increased. In 2004, Pickelman introduced a gross profit incentive program that resulted in more money for employees. In fact, the average pay increase for NIS employees was up 16 percent in 2004, easily making up the losses suffered in 2003.

'They deserved it. They worked hard. I knew we'd rebound,' Pickelman says, adding that few employees leave NIS. The average tenure is 17.5 years.

All outside and inside sales representatives at NIS are factory trained in many of its product groups. The company stresses that it sends personnel to training schools and requires them to attend in-house training on a monthly basis. Ostermann points out that all of the company's sales reps and service technicians have computers that contain customer databases and schedules.

And, Ostermann points out, company technicians troubleshoot and diagnose customers' air compressor problems without leaving their laptops. NIS takes readings every three seconds from a remote location to provide customers with a picture of their compressor's air operations.

The company also has the equipment and personnel to perform anything from a small piping change to a complete system replacement or new installation. It also provides infrared thermography to its customers for predictive maintenance.

'This has been terrific for us and our customers,' Pickelman says. Using this technology allows the customer to schedule downtime for parts and repairs.'

'Their technical expertise is incredible,' says Paul Clark, a district sales manager with Emerson Power Transmission. 'I'd say they're among the best distributors we have. They've steadily increased the orders they place with us via the Internet. In fact, I'd say 80 percent of their orders are done through our e-commerce system. They're able to log into our e-commerce system, check pricing, order status and inventory.

'Plus, they're just super people to work with,' Clark says. 'I think very highly of them.'

Although NIS specializes in sales, service, rentals, and trade-ins of air compressors, it offers a wide product mix. The company supplies power transmission components and power and cutting tools to the OEM and MRO markets. Those power transmission components include sprockets, gear reducers, belts, chain and bearings.

The third segment of the product mix is the commercial/industrial sales division. The division includes more than 500,000 items, such as tools, welding, safety, paint, janitorial, materials handling and a wide variety of other products.

'We don't want to give a reason to a customer to go anywhere else for what they need,' says Pickelman.

The shift in product mix has been remarkable. Nine years ago, more than 85 percent of the company's sales were in PT, particularly on the OEM side. Today, that figure is a little more than 50 percent.

Pickelman says he's fortunate to have Bob Feldotte on board as vice president/general manager of the power transmission and industrial supply division. Feldotte, who started out as a truck driver for NIS, is a veteran of the industry and has been at NIS 'for more years than I can remember.'

Feldotte grew his division 19 percent last year and has consistently signed up new accounts. Two years ago, for example, NIS was awarded a substantial MRO contract from Dow Chemical to supply hundreds of products for the chemical giant.

Feldotte and Ostermann work closely together. They share information about customers, and each group has benefited as a result. Feldotte and Osterman each have P&L responsibility for their respective groups. But it wasn't always that way.

A year ago, Pickelman hired a consultant to examine all aspects of his company's operations. The consultant talked to everyone in the company.

'I told them to let the chips fall where they may,' he said. 'I didn't want them to come back and tell me 'everything's wonderful,' but instead wanted them to give me specific ways to improve our operations.'

They did—and Pickelman was surprised to learn that he was one of the problems.

'They basically told me I was micromanaging everything. They felt I should be giving more responsibility to Jeff [Oster-mann] and Bob [Feldotte],' he explains. 'They suggested our company could be operated in a much smoother manner.'

Pickelman took the constructive criticism to heart. Ten months ago, he reorganized the company and gave Ostermann and Feldotte responsibility for day-to-day decisions in running their individual operations. Lines of communication have been opened, and the company's Prophet 21 computer system allows customer and pricing information to be shared by everyone in the company.

One of the company's important valued-added services is to conduct air audits for its customers. Over several days, the company's technicians examine the customer's air compressors and facilities to determine what it's costing them to operate based on a series of critical data, and show them how to reduce their costs. Technicians take digital photos to identify problem areas.

'We get data back and then do a power point presentation to the customer, walking them through the extensive audit procedure and what we found that should be corrected,' says Ostermann. 'The customer can then do the maintenance work themselves or hire NIS.'

'It's a win-win situation for the customer,' adds Pickelman. For example, if an audit were to cost $5,000, the company guarantees to find double the amount of that cost in annual savings or the audit is free.

In addition, the company conducts ultra-sonic leak detection. Ostermann says such a leak can cost a customer more than $6,000 in electricity.

Pickelman emphasizes that he wants his company to become the air utility supplier for its customers. His latest venture is something he calls 'airtility.' In this new venue, NIS will be acting as a utility, similar to an electric or gas company, but in this case, will be supplying all air equipment to the customer. NIS will install all new air equipment and machinery at a customer's location, maintain that equipment, and repair it when necessary.

'We'll monitor the equipment by computer at our location, and when something is not operating correctly we'll repair it. We'll know something is wrong even before the customer,' says Ostermann.

The customer pays a fixed monthly fee and signs a five- to eight-year contract for the service.

'This would be a great benefit for our customers,' explains Pickelman. 'Repairs can be expensive, but by contracting with us, there would be no fluctuation of increased capital expenditure. They'd know up front what they'd be paying. And there would be no downtime in production.'

The company is negotiating its first contract for such a service.

Comments on this article? E-mail Jack Keough at jkeough@reedbusiness.com.