In a few months, electrical and telecommunications distributor Graybar will likely close the books on another good year. Following last year's stellar performance—the company more than tripled profits in 2006 and grew sales to more than $5 billion—the St. Louis-based firm remained focused on organic growth and capitalized on its three-year-old ERP system to increase productivity. Mid-year results showed a 5.1 percent rise in sales over the same period in 2006 and a 37.4 percent increase in net income.

Graybar's chairman, president and CEO Robert A. Reynolds, Jr. credits the company's efforts to work more efficiently for the strong results, pointing to technology in particular.

“Our employee-owners continue to find more ways to use our Enterprise Resource Planning system to deliver more advantages to our customers,” Reynolds said in an August statement announcing the mid-year results.

Employee productivity at Graybar has grown 20 percent since implementing the ERP system, a factor that is helping Graybar weather the ups and downs of the electrical and telecommunications markets. In a recent interview with Industrial Distribution, Reynolds commented on the strength of the distribution market in 2006 and the softening that occurred around the second quarter of this year. Reynolds says he expects the second half of 2007 to be better than the first and for the year to turn out “better than average” for the industry and for Graybar.

Reynolds also spoke to ID about some of the greatest challenges facing the distribution industry, of which manpower is his chief concern. Graybar commits hundreds of thousands of hours a year to employee development and is trying to raise awareness of distribution to students and teachers across the country.

“There are few [colleges and universities] that teach distribution. And that's one of the things we're trying to address as a company,” Reynolds says. “We're trying to educate people on the value of distribution—by reaching out to schools, [going to] job fairs, doing internships and writing articles on what distribution is all about and what Graybar is all about.”

Graybar is one of the nation's largest employee-owned firms, with nearly 8,400 employees in more than 250 North American locations. Reynolds has been with the company for 35 years, serving as president and CEO since 2000 and fulfilling the additional duties of chairman since 2001. ID spoke to him in July. Here are some excerpts from that conversation:

Industrial Distribution: Graybar had a terrific 2006, achieving nearly 17 percent sales growth and reaching more than $5 billion in sales. How is 2007 shaping up? Do you expect similar results this year?

Bob Reynolds: I probably expect similar results in profitability, but the revenue growth won't be the same. … 2006 was an exceptional year in distribution. This year started off exceptionally well, but really took a dip about the second quarter. We anticipate the back half will probably be a little stronger than the first half, but not anywhere near what we saw [last] year. Overall, I think it will be a better-than-average year for distribution—and for Graybar.

ID: What are some of the most difficult challenges your company faces in today's marketplace?

Reynolds: We went through some challenging years [not too long ago], so I think we've got a lot of our challenges behind us. Looking forward, the number one challenge is going to be manpower; it's going to be people. One of the challenging things for Graybar, and for distribution, is getting people interested in distribution. I was chairman of NAW (the National Assn. of Wholesaler-Distributors) last year, and this is exactly what I talked about … the importance of people to the industry. People are our number one asset, and it's one we've got to be very careful with.

The other challenge we have in distribution is that people don't understand distribution. … There are few [colleges and universities] that teach distribution. And that's one of the things we're trying to address as a company. We're trying to educate people on the value of distribution—by reaching out to schools, [going to] job fairs, doing internships and writing articles on what distribution is all about and what Graybar is all about.

Certainly, another challenge is the ups and downs of the market. We saw a couple of tough years, then some robust years. … [Distribution] doesn't necessarily move with the economy; it trails the economy, so you get some false dips and starts. The electrical and [data/comm] markets, especially, have experienced the wide fluctuations in commodity pricing. … That commodity pricing has really thrown a monkey wrench into the business. That's the reason for some of the high growth companies experienced last year. And it gives you a false sense of security.

Those are the major things we face as an industry.

ID: You mentioned that manpower will be the industry's greatest problem going forward. What is Graybar doing to keep the talent it already has on staff?

Reynolds: Graybar is a company that promotes from within, so we try to get people at a young age and we try to train and develop them. … It's not so much that people don't want to go to work for Graybar, they don't know Graybar. [Distribution] is not what they teach in school. This is not a problem we're going to solve in a year or five years … it's been an issue as long as I've been with the company.

There are a lot of things we can do [to keep people]. Most people stay with companies because they like the people they work with and the people they work for. So we try to develop our managers so they know how to properly manage and motivate people. The second thing people want is a company that will invest in them for the future. … We did [more than 260,000] hours of training last year, and that training takes all forms. … The third thing is a good benefits program.

ID: Many distributors we talk to refer to distribution as a “well-kept secret.” Do you agree? What do you think the industry can do to better promote itself to the general population?

Reynolds: I do agree. One thing I've done is really challenge NAW to step up and promote the value of distribution. We're trying to work with them on some projects. They recognize the people shortage as well, and that is part of their role as the association for wholesale distribution. It's their future as well.

Also, [The National Assn. of Electrical Distributors] has a very aggressive program to make people understand what distribution is all about and what electrical distribution is all about. … They're really going to take it to the high school level. We've been working with them and are tied in with them as well.

ID: Private labeling is another big issue in distribution. Your company recently spoke out against this practice. Why? What are the dangers of private labeling in your opinion?

Reynolds: The reason we spoke out against it is that our vision statement says that we are about our shareholders, employees, customers, suppliers and our community.

To our suppliers we say we want to partner with them to take their products and services to customers. Well, if we go out and private label and import around them, that flies in the face of what we've said.

Also, there is a very thin margin in distribution and there's a lot of risk in importing product. We see a lot of risk and a lot of cost. It's one of these risk-reward things, and we don't think you're going to get the reward for the risk you put in. Some of our products are fairly high tech and there's a lot of liability. We might feel differently if we were in a different industry, but we just think there's too much risk for the reward.

And we believe in supporting our manufacturers. That's how we went into business back in the 1800s, and we still believe in that philosophy. We're not going to give that up for a few pennies.

ID: Consolidation in the distribution marketplace continues at a fast clip. Graybar, however, has stuck to its organic growth strategy to build business. Why? What's your opinion of the consolidating marketplace?

Reynolds: Well, I think it depends on what side of the fence you're sitting on. If you're the owner of a wholesale-distribution company and you don't have a succession plan in place, it's a good exit strategy. We did some acquisitions in the mid to late '90s but never saw the success. It's expensive to buy and difficult to integrate. We just found that organic growth was probably our more profitable growth.

Also, we have a distinct advantage in that we're not publicly traded. … [Those] companies need to worry about growth. We don't have the same need to go out and do that.

That doesn't mean that if a niche player comes along we wouldn't go out and acquire them—we're just not going to do it for the sake of growth. We just haven't found that need.

ID: What's your take on the recent HD Supply sale? How big a force is HD Supply in the electrical market?

Reynolds: Well, you know, I don't really like to comment on my competitors. I think they have a strategy and we're waiting to see how that strategy pans out. … I'm not close enough to them to really comment. But good competition is always healthy.

ID: Finally, what is your view of the role of the smaller regional distributor?

Reynolds: I think the smaller regional distributor is a very valuable distributor in the marketplace. Our toughest competition is the local distributor. They're entrenched in the marketplace, they're entrenched in the community and they do a good job. And there's definitely a role for them in the future. They're really what the business is all about. That's the core—especially in electrical distribution, because there are so many out there.