SupplyCore's Defense Dept. contracts mean getting materials anywhere from Kentucky to Iraq

SupplyCore sells to the Defense Department and gets materials to locations ranging from an Army base in Kentucky or a warehouse in Kuwait

By Joe Nowlan, Associate Editor -- Industrial Distribution, 4/1/2007

For most distributors the day-to-day, week-to-week demand of getting product to customers is challenging and, in its own way, daunting.

Making sure the latest items from a Whirlpool or a Stanley get delivered to Warehouse A or Customer B at the assigned time of delivery is what makes or breaks a business.

But what if Customer B has a location in, say, Iraq?

That's among the challenges faced by Rockford, Ill.-based SupplyCore Inc. and its president & CEO Peter Provenzano. SupplyCore is an MRO and integrated logistics provider to the United States Department of Defense.

The majority of its shipments go to domestic locations like Florida, North Carolina and South Carolina, but SupplyCore also ships to military installations in Japan and Singapore.

The company also has a contract to ship to the CENTCOM region (central command), which includes Kuwait as well as more than 20 countries in the Middle East and Northern Africa, including Egypt, Jordan, Saudi Arabia and Iraq.

This means, of course, that SupplyCore is getting materials to regions far more daunting than an army barracks in Georgia.

“It's been challenging doing business there to say the least; it's been a learning experience,” Provenzano says of the Middle East.

For one thing, the potential for theft or loss of product is greater and more frequent in Iraq.

“We can't insure the product. Since 2003, we've had a seven-figure amount of product that's been lost or stolen, damaged or burned. It's a tough business over there. There's a risk of loss of materials and, of course, potential human loss, too,” he says.

SupplyCore employs locals and Iraqi nationals.

“Our employees are all local nationals, particularly in Iraq,” he says. “We have a policy of employing, at least historically, Iraqis in Iraq. One reason is for safety. But we've had situations where our Iraqi drivers have come in harm's way.”

While there has been no loss of life to date as far as SupplyCore workers go, some drivers and warehouse employees have had some close calls.

“We had a warehouse manager and three warehouse technicians who were operating a Baghdad warehouse get kidnapped and taken hostage. We had a driver get shot, another hit by shrapnel. Fortunately they all survived. We've had no fatalities. We've been fortunate that way,” Provenzano says.

At first, SupplyCore was hiring security for its drivers. More recently, drivers have been traveling in military convoys when delivering to area bases, Provenzano explains.

Most employees have been hired through SupplyCore Middle East, Provenzano explains, a joint venture with a regionally-based Middle Eastern organization near Iraq.

SupplyCore was founded by Provenzano's father, Albert, in 1987 as a supplier of mechanical components to the aerospace and defense industries. His mother, Theresa, was essentially the second employee to join the then-new company, Provenzano adds.

Provenzano worked at SupplyCore on his summer vacations from high school and college before joining the company full time in the mid-1990s. He graduated from the University of Arizona and worked in “a few entrepreneurial-related ventures,” he explains, before returning to SupplyCore in 1997. Today, he is a co-owner along with his brother, Matthew.

While SupplyCore also did some commercial business at that time, selling to the military was a main focus from the outset, Provenzano says. Business was depot-based in those days, as opposed to shipping directly to military bases and installations.

“Typically we weren't shipping direct to customers. The government took on the inventory and it went from the warehouses to the military bases, the point of need,” he explains.

The company's focus on selling to the defense department and military intensified during the mid-'90s, he adds.

“[That's when] we switched from the military-specific engineered items to include MRO items and some facilities-maintenance and construction materials,” Provenzano says. “Today it's the MRO universe but it's for the military customers.”

SupplyCore sells more than 350,000 products from companies including Whirlpool, 3M, GE and DeWalt. Its catalog has 17 master categories, including material handling equipment, building materials, HVAC materials, electrical items, carpeting, sheet rock, dry wall and some abrasives-related material, Provenzano says.

The company is a member of the TruServ cooperative distribution network, which gives it access to 11 distribution centers across the country.

“It runs the gamut. We buy from roughly 5,000 different suppliers,” Provenzano says.

Other distributors have attempted to concentrate on selling to municipalities or the federal government, but doing so has been difficult for many. Getting paid on time has also been a problem. Sometimes governments will have to wait for tax dollars to come in and expenditures to be approved. But on-time payments have not been a problem for SupplyCore, Provenzano says.

“That's largely a misperception, at least as far as the federal government not paying well. They try hard to be a timely payer for services and product they've received,” he explains.

Provenzano agrees that there are issues connected with selling to the government—more, and different, regulations, for example— but those issues are not part of the payment process itself.

“Those [issues] are more on the ordering side,” he says. “But it also depends on the kind of contract you have. Some contracts take 30 days, others are 'fast pay.' Typically, it doesn't take a long time to get paid by them these days. They are good customers.”

While every customer has unique demands and services, Provenzano sees more similarities than differences between selling to the military and defense department, and selling to more typical, commercial customers.

For example, both SupplyCore and the defense department base many of their business approaches on various commercial best practices, Provenzano explains.

“They try hard to model it on what private industries have done to optimize. It's a total cost-reduction program, rather than just focusing on price. They'll learn from what private industry is doing,” he says.

Among the best practices referred to by Provenzano is the Defense Department's Defense Logistics Agency.

“The DLA is a multi-billion dollar agency inside the Defense Dept.,” he explains. “It's a joint services agency, meaning from the command level on down [they employ] civilians but also representatives from all branches of the service.”

DLA is responsible for in excess of $25 billion dollars of procurement, Provenzano estimates.

For its part, SupplyCore likes to structure its transactions by keeping things “very fluid,” as Provenzano describes it.

“We don't want to have product sit around. We want to get it to the customer on a timely basis. It's more of a just-in-time environment,” he says.

United States Army Chief Jeffery Hylmon of the Ft. Campbell Army Base, Ft. Campbell, Ky., orders materials through SupplyCore.

“We get great service from them. The big things here are tool boxes, Snap-on tool boxes. And we buy cabinets from them, too. In fact, we just procured about $100,000 in cabinets from them,” says Hylmon.

Ft. Campbell has a 54,000 sq. ft. warehouse. Hylmon estimates he'll spend about $1 million a year with SupplyCore. He appreciates the quality of the products they stock, he explains.

“'Normal' Army has to take what the Army gives them,” he laughs. “But we've learned over the years that we spend more time and money replacing Army tools than we do if we buy the good stuff right up front. In the long run, it pays for itself. And SupplyCore gives me that service, that one-stop shopping.”

Hylmon says most of the tools used at Ft. Campbell are on repairs of aircraft as well as on jeeps and Humvees— a military term for “High Mobility Multipurpose Wheeled Vehicle.”

There are various bureaucracies and levels of red tape in dealing with the military and Defense Department, Provenzano says, but he adds that “you'll have those in any business organization.”

He and SupplyCore have to be mindful of various rules and regulations unique to government and military operations. And many of these rules are written, and can be changed, by Congress.

“There are political challenges in working with the government,” he says, “but not necessarily elective politics. There are various requirements and regulations you have to stay on top of. You need to be sure you have the business processes in place that are structured in consideration of those regulations.”

“From an integrated supply perspective, for example,” Provenzano continues, “there are price-reasonableness clauses in the federal acquisition regulations. So we need to maintain multiple-price quotes for products and keep them current. In the integrated supply world, you might not be going out and getting two or three prices for widget X. In our case, though, we have to give multiple prices.”

Audits need to be performed more frequently, as well. SupplyCore also has to keep an up-to-the-minute database to show the multiple prices.

“We provide all of our data on a regular basis; what we bought something for and what we sold it for,” he explains. “The government has the right to look at everything. It's an open book and we provide that to them on a monthly basis.”

By contrast, he adds, in a commercial environment most companies wouldn't provide as much information that often.

SupplyCore deals directly with the military bases as their customers today, Provenzano explains. That represented a subtle but significant redesign of the company's business plan in the mid-'90s.

“The business grew very rapidly after that. We had 12 employees at that point and today we have about 90,” Provenzano says.

The rapid growth has continued in recent years as well. In 2000, when Inc. magazine named them to the Inc. 500, the magazine's list of the 500 fastest growing companies in America, SupplyCore's annual revenue was $19 million.

In 2004, when the magazine put SupplyCore in its “Inc. 500 Hall of Fame” in recognition of having made the list for five consecutive years, annual revenues were $102 million.

SupplyCore's revenues hit $166 million in 2005, and for 2006, revenues were approximately $150 million.

“We look at revenue-per-associate and try to have that number be north of a million dollars and that's where we are today,” Provenzano says.

Recently, SupplyCore has added to its responsibilities in Iraq after being awarded a new contract to manage an interceptor body armor warehouse in Kuwait.

Before going on leave, troops coming out of Iraq have to turn in their body armor. SupplyCore stores it while they're gone. Provenzano estimates that some 40,000-60,000 troops come through the company's warehouse facilities on a monthly basis,

“There's a lot of issuing and receiving, tagging and holding the armor while these troops are on leave,” he explains. “When they return, we give it back to them. It was the type of thing the government had been doing itself but they wanted to privatize it.”

SupplyCore doesn't deal in weaponry for the Middle East operations. As in the United States, the materials they provide are facility maintenance, construction and base operations materials, Provenzano says.

But there are a few products that SupplyCore obtains for the CENTCOM region that they don't have much demand for in the United States. For example, the Iraq region will make use of Polaris Ranger ATVs—All Terrain Vehicles.

And as part of the rebuilding effort there, SupplyCore has been providing concrete-related equipment, such as concrete barriers and related materials used in the building of camps.

Provenzano understands why some might ask if the war in Iraq has been, well, profitable for his company. Although SupplyCore doesn't deal in weaponry, the company still ships a large amount of MRO supplies to the war zone.

“It's a fair question,” he says.

Provenzano says his profits have not soared, despite the Iraq war's enormous budget. Defense Department money that would normally have been spent on domestic military operations and bases (the meat and potatoes of SupplyCore's business) tends to get cut back in order to fund the overseas operations, he adds.

“They re-appropriate dollars that would have gone to existing bases here in the states or in Japan,” he maintains. “So with our business on the military bases, the things that historically would have been [funded] without this war, now get deferred to fund what is going on in the Middle East. … So there's a bit of taking from one pot to another.”

For his part, however, Chief Hylmon says he has yet to see a major cutback in his budget, but adds “we do have to use it wisely.”

He and the Ft. Campbell base have modified the way they've been conducting their business and spending, he explains, calling it a “transformation— the way we do business and the way this unit is set up. Getting lean and getting the right people and right equipment. The Army's been changing the way it's been doing business. It's putting the personnel in the right place. We spend wisely. We'll pay a little more upfront [for product] but save money over the long term. It lasts longer.”

Provenzano has been to the Middle East, Kuwait, Dubai and other military bases in that area. But he hasn't been to Iraq yet.

“Our job is to support the U.S. military and the troops at home as well as abroad, in war and peace,” he explains. “So we go wherever they go. In our case, we're proud to be there supporting the troops. That's our job.”