Making Value Count
Armed with a new management team, 43-Year-Old Apache Hose & Belting is climbing its way back to the top with a newfound focus on value-added selling
By Victoria Fraza Kickham, Managing Editor -- Industrial Distribution, 1/1/2006
Say the name Apache Hose & Belting in most industry circles and you'll be met with knowing looks. As one of the largest independent rubber hose, conveyor belt, and accessories businesses in the country, Apache has a longstanding reputation as a solid company with its roots firmly planted in the Midwest.
But even the strongest organizations can lose their way in tough times.
That's exactly what happened to Apache Hose & Belting as the year 2000 approached. A top-heavy management structure and lack of communication throughout the organization met with a slowing economy, and the result was poor performance. The company wasn't growing; management had lost its focus; and the bottom line was eroding.
Apache's board of directors knew it was time for a change, so it began the search for a new leader in 2001. The company's previous president, Bill Nissen, had retired, and the firm was being run by an interim leader. The board found the person they were looking for in Steve Crain, whose more than 20 years of industry experience and straight-shooting leadership style seemed the perfect fit for the job. Crain took the helm at Cedar Rapids, Iowa—based Apache in January 2002, and there's been no looking back since.
"We went from, literally, survival mode to where we are today in four years," says Tom Pientok, executive vice president and chief operating officer, who's been with Apache since 1998. "While I can't articulate to you how dramatic a change that is—suffice it to say it's huge."
Apache's sales hovered between $45 million and $52 million annually from 1996 to 2001, according to INDUSTRIAL DISTRIBUTION'S Top 100 distributors list, which ranked the largest distributors in the country during that time. In 2002, Apache fell off ID's radar screen, declining to share information for the report.
By comparison, Apache's sales today are $60 million and climbing, and the company's growth since 2002 has exceeded industry averages, according to Crain, who left his position as chief operating officer at Precision Industries, another top MRO distributor, to take the Apache post. More importantly, the company is in much better shape overall, hitting sales and profit targets regularly, and operating under a communication-centered philosophy. Longtime employees credit Crain and his management team for the turnaround, echoing Pientok's sentiments about the dramatic shift that has taken place since January 2002.
Armed with renewed energy and focus, Apache Hose & Belting is beginning 2006 with a new approach to marketing, a commitment to value-added selling, and a plan to continue growing organically while also looking for acquisition opportunities.
"Apache 10 years ago, 12 years ago, had always been successful. But we got a little complacent, and the expectations weren't being set. It was time for a change," says Kyle Gingrich, vice president of Apache's industrial division and a 17-year veteran of the company. "[The management change] injected a new sense of urgency, which was needed because at that point, we were in a survival mode. It's been a great shot of enthusiasm into the organization."
A change in focusThe vast majority of employees that were with Apache prior to Crain's arrival are still there today, and serve as a reminder of the strong company that entrepreneur Bob South developed in the 1960s and '70s. When South sold the company to the employees in the mid 1980s, Apache Hose & Belting had established itself as a premiere specialty distributor of hose, conveyor belting and related items to customers throughout the Midwest. The company was known for its customized services, and still is today. Hose and belting fabrication, testing, maintenance and repair are among Apache's staple services.
As Crain saw it, the company had a strong core of people, products and services, but was lacking leadership. The challenge was to open the lines of communication within the company and put a fresh face on the service offerings that had made Apache what it was. Point the company in the right direction, give the employees the authority to do their jobs, and the rest would follow.
"The ability to make a decision around here was almost impossible," Crain says, explaining that there was little communication between departments, or to the rest of the employee population—despite Apache's Employee Stock Ownership Plan (ESOP) status, which usually indicates an open-book atmosphere. Crain says he spent much of the first few months of his tenure "blowing up silos."
"I came in with something of a passionate philosophy of accountability. We put the burden of responsibility on the employees—we call it 'the burden of performance,'" he says.
Lori Miller, manager of marketing services for Apache, puts it another way: Prior to the management change, employees were in the dark about the company's mission, vision and plan for the future. With Crain's arrival, the lights were turned back on.
"Historically, there would be some strategizing and planning, but the plan would stay with upper management and not be communicated throughout the organization," Miller says. "Now, we have a usable plan that is communicated to every individual that works here at Apache.
"To actually understand where you belong in the plan, and how you can impact that plan—it's great to get it down to all levels of the corporation," she says.
Much of the bureaucracy has been eliminated, the lines of communication have been opened, and a streamlined organization has emerged. There are half as many senior-level managers at Apache today as there were in 2002, for instance, and employees are kept informed of the company's sales status, cash position and profitability regularly.
In that vein, Crain implemented monthly all-employee meetings to keep workers informed. Called "Coffee with Crain," the 15-minute meetings are held in the Cedar Rapids warehouse, and employees can ask him anything they want about the business (except personnel issues). There's just one catch: They must be prepared for Crain's honest, open and direct answers.
"Employees love it," says Pientok, who remembers a time when employees weren't kept in the loop. "And it's an example of the way the communication inside the company has changed."
Most importantly to Crain, responsibility for the company's success has been put back where it belongs: in the hands of Apache's employee-owners.
"Three years ago, what was driving the change was survival," Crain says. "Today, the drive to sustain the revenue and market share gains we've achieved [is due to] the employees' desire to continue the legacy of the company...That desire has always been there; they were just looking for a reason to get excited about going to work again."
Effecting changeEmployees are given something to sink their teeth into each year when the company's strategic plan is reviewed and updated. To Miller's point, all departments are expected to internalize that plan—to understand it, incorporate it into their mission, and then execute it. For 2006, Miller's marketing department is working on a strategy to strengthen Apache's value-added approach to business. In keeping with sales and operations planning, each of her marketers is aligning with a product group, or channel, to develop focused marketing strategies in each segment. The goal is to expand each channel of Apache's business—industrial hose, conveyor belting, retail, etc.—by searching for new products and services and scouting out new customer opportunities. It's a more focused approach than has been used in the past.
"We're getting more and more involved with trade shows, for instance, and more actively involved working with sales management and in the field to understand the customer," she says. "Strategic planning has proven very successful for us, and will continue to guide us."
The firm's 100 percent employee-owned status helps as well, giving each shareholder a personal incentive to see the plan succeed.
The new marketing strategy is central to Apache's growth plan and representative of the change that's occurring at the company. Apache goes to market as a complete provider of products and services, with the emphasis on the value the company brings to the table. And while much of that "value-added" has always existed, it hasn't always been communicated to the customer. Going forward, being known for that value is what will make Apache a survivor, Crain says.
"If we don't have the ability to bring value-added services and products to the marketplace, we'll go away, plain and simple," Crain explains. "We're spending more of our time aligning ourselves with customers who find value in the custom [products and services] we offer."
Selling valueThe concept of selling value is not new at Apache, but the effort to communicate it to customers and suppliers is. Apache was always about value, Crain says, but the company was not so good at selling it—or doing it profitably. Until now, that is. Apache's long history of providing hose and conveyor belt services has translated into a wealth of experience from which to draw. The trick over the last few years has been developing that ability into a profitable business by convincing customers that they need to pay for it.
"We're careful about the jobs we take and the places we go," Crain says, noting that, years ago, much of the company's field work was done with little thought to the bottom line.
"As an industry, we've given away services for years. All of us have been guilty of that," he adds, noting that Apache has found a special niche designing, installing and servicing conveyor belts. "We've found, through our ability to market these services, that few people give this particular service away, so we haven't had trouble selling it."
From there, the company has developed its hose testing service, in which Apache service reps will test hose for various applications in the field. Using portable hose testing equipment, field reps test the products at the customer's site and make recommendations for replacement or system improvement. This may sound like a typical plant survey program, but Apache has evolved well beyond that point. Reps survey customer plants on a range of issues and make product and system improvement recommendations—for a fee. If the customer wants the information, he has to pay for it.
"Most of the customer base still expects that to be delivered for free," Crain says. "How do you overcome that? Well, in some cases, we don't. If the customer demands the information for free, we tell them to get it from someone else for free. In some cases, we've had them call back after they've had products continually fail in the field.
"It's very difficult to overcome, but it's a discipline we have to instill."
He adds that there is a fine line involved: You don't want to irritate the customer beyond the point that they won't call you back for anything. The bottom line is that the fee-for-service model in distribution is still evolving. And one way to make it work is to stick to your "sweet spot," as Crain calls it, which means doing what you do best and not extending yourself beyond your capabilities.
"Value-added selling is enormous... and it's more to overcome than most things we'll attempt to tackle over the next few years—because the customer is still interested in price," Crain explains. "Finding a way to overcome the price issue will always be there—and service is a way to do that. You've got to find a way to deliver what they need, that they can place a value on."
An example of how Apache has tackled this issue is its retail division, which sells rubber products to big box retailers nationwide. Apache's Universal Pressure Washer brand includes products like wands, nozzles, hose, valves and adaptors for pressure washing equipment in the consumer industry.
"That's a long way from the typical industrial customer, but we've found that there's a customer element that places a tremendous value on our ability to bring that to them," Crain says. "That's a picture of our diversity, and it's only a piece of our business. But the gross margins are good because the customer recognizes the value that we bring."
To grow profitablyCrain says profitable growth will be the guiding principle for Apache going forward. The firm will continue to grow organically, developing its hose, belt and retail niches, but will keep its eyes open to acquisition opportunities. The goal is to become a $100 million company in the not-too-distant future.
Apache's management team says the company is more than up to that challenge.
"I see great things for Apache," says Miller. "For the last three or four years, sales and profits have done nothing but increase, through marketing and sales efforts and keeping our operating costs in line...We will continue to grow and expand our reach."
"The outlook is bright," adds Gingrich. "Our expectations are that we will continue to grow at a high level—either organically or through acquisition. And we are seeking those opportunities."
That enthusiasm is tempered with a bit of caution, however. Apache employees tend to stick around, so the vast majority of them remember the tough times of a few years ago. And they don't want a repeat performance.
"Complacency is the biggest challenge," says Pientok. "When you've seen success, you can start loosening the belt a little bit...We try to stay focused, and we need to be prepared for the [economic] downturn. If we start to stray a little bit or get arrogant—we try to remind ourselves that the downturn is coming."
Crain agrees.
"The emotional response to back-to-back years of success is to not remain as diligent," he says. "There's a euphoria that goes along with success. So, we spend a lot of time trying to keep everyone on a rational plane."
To that end, Crain says he'll continue to spend time talking to employees about business conditions—letting them know the challenges that exist and the changes taking place in the industry. And while there's much in the way of challenge and change these days, the overriding principle at Apache is to keep it simple.
"I brought a very simple philosophy—manage the details of the business, service the customers and good things will happen," says Crain. "Distribution, while complicated, is an incredibly simple business."
Good things have happened at Apache Hose & Belting in the last four years. And they hope to keep it that way.
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