When it comes to buying MRO supplies, Adam Smith loves competition. Smith is the chief procurement officer for the city of Atlanta and he buys everything from nuts and bolts to pipe, valves and fittings to keep the city's transportation systems, public safety agencies and various infrastructure projects up and running. He says he's seen more distributors vying for the city's business in recent years and that he welcomes the new faces.

What's more, as a growing city with five million people traveling in and out every day, Atlanta offers a steady base of work for distributors of all sizes, he says.

“There's so much business here,” says Smith, pointing to city-owned Hartsfield-Jackson Airport, currently undergoing expansion projects that could reach an estimated $9 billion. Atlanta also has a major water infrastructure project underway that is expected to last for the next 10 years.

“We promote competition here,” adds Smith. “I have an open-door policy, so come talk to me; I will make time for you. I want people to feel comfortable about doing business with the city of Atlanta.”

Government procurement officers around the country echo those sentiments and distributors are taking note. As the residential housing market continues to slow in many parts of the country and distributors' traditional base of manufacturing customers shrinks, government accounts are becoming an increasingly attractive target for new and expanded business opportunities.

To see that government is big business, look no further than INDUSTRIAL DISTRIBUTION's 2007 Big 50 distributors list. No. 4-ranked W.W. Grainger did 18 percent of its U.S. branch-based business with government accounts in 2006, for example. That represents Grainger's third-highest customer segment, behind commercial business (19 percent) and heavy manufacturing (20 percent).

And Applied Industrial Technologies, ranked 9th with $1.9 billion in sales last year, has stepped up its government sales efforts recently. The company embarked on a five-year plan to grow government sales in 2006 and saw an 80 percent increase in that business in fiscal 2007, followed by another double-digit increase in the first quarter of fiscal 2008, ended Sept. 30, 2007.

Graybar is another large company that's made strides selling to government accounts. The company has been selling to government since it was founded in 1925, but landed a large contract in 2007 that could pay big for years to come. In December, the company was awarded a three-year U.S. Communities Program contract that could result in sales of more than $100 million this year. The program provides cooperative purchasing agreements for U.S. Communities-registered agencies nationwide—state, county and local governments; public and private schools; and non-profit groups, for example—and Graybar is its exclusive distributor of electrical products.

The contract began January 1 and came on the heels of a five-year federal General Services Administration (GSA) contract Graybar was awarded in November. Under that agreement, government buyers in the Department of Defense and the FBI, among others, can purchase electrical, lighting, power management, safety, plumbing and other products from Graybar.

Graybar's vice president of corporate accounts John Mansfield explains that Graybar has held “significant” government contracts for years, but that the government market is a strategic growth initiative today. Consequently, Graybar has invested “significant resources” to better serve government customers, he adds, pointing to a special training program for Graybar employees who work with government agencies. The training program includes an in-house curriculum that is complemented by third-party training programs and consultants, “to make sure our government sales team has the training they need to succeed,” Mansfield says.

Graybar does not report sales by customer segment, so it's difficult to say how much of the company's business is tied to government. However, in addition to its GSA and U.S. Communities business, Graybar works with military accounts as a prime vendor to the Defense Logistics Agency, which supplies just about every consumable item used by America's military services around the world. Prime vendors are established by region, and Graybar serves Defense Department customers in Alaska and Hawaii, as well as the Southwest, Northeast, South Central and Southeast regions of the country.

Supplycore Inc. is also a prime vendor to the DLA, serving the North Central and Southeastern regions of the United States as well as Japan and the CENTCOM region (central command), which includes Kuwait and more than 20 countries in the Middle East and Northern Africa, including Egypt, Jordan, Saudi Arabia and Iraq. Like Graybar, Supplycore has done business with government accounts since its inception (in 1987), but has grown the business over the years.

Today, nearly all of Supplycore's business is to the government, primarily the military. Headquartered in Rockford, Ill., the company has 120 employees, many of whom are in the Middle East as part of its sister company, Supplycore Middle East. Supplycore's prime vendor contracts mean that it supplies thousands of MRO supplies to military installations in its designated regions.

Supplycore president Peter Provenzano says he's seen more competition for prime vendor contracts in recent years, though he says becoming a prime vendor is no easy task. Contracts often run for five to 10 years, and in addition to product quality, price and availability, a distributor's history, longevity and past performance are key criteria for obtaining them.

Provenzano says he's seen more competition in the government's GSA Schedule business, in which commercial companies (including distributors like Graybar, Suppylcore and others) become approved suppliers to the federal government. Having a GSA Schedule doesn't guarantee business, but it puts distributors on an approved list of sources from which government buyers can choose.

Provenzano agrees with Mansfield that selling to government requires a strong commitment by distributors—in terms of preparation, employee training and even finance. For example, he says it would be hard for distributors breaking into this market to match Supplycore's IT infrastructure, which has been built around government requirements and with an eye to serving that market better.

“The big difference [in selling to the government] is in all of the processes associated with information flow, material flow and financial flow,” Provenzano says. “The efforts in how you structure your ordering and billing processes, the integration with government systems, the forms you have to use—that's what's remarkably different.

“If you look at our technology investment and our customization that's been done over the years—it's all been done to cater to the [Defense Department]. That's a hurdle that companies breaking into this business have. And it's a significant effort to do it well.”

And there are other hurdles specific to military business—dealing with border closings, military convoys and the sheer danger involved in supplying products in a war zone. Provenzano has 30 to 40 employees in the Middle East and has not lost any to date, though he's had some employees taken hostage (they were released) and one driver shot (he recovered).

“We have to go where the troops go,” he says. “We found that if we weren't in Iraq, we'd be a much smaller company. It was critical that we had an opportunity to support the theater of operations, in terms of preserving our business.”

Distributors must work to maintain that business as well. Despite the increase in military spending since 2002, Provenzano says his business isn't as strong as it was two years ago. He explains that much of the military budget is spent overseas, where foreign corporations get a large piece of the business. He also points to the government's budget process as creating natural spikes in the business cycle.

“[Government business] may be recession-proof, but it's not circumstance-proof,” he says. “We're doing OK, but our revenue has been a lot more volatile since the war began.”

So why are more distributors trying to build business with the government? Most likely as a way to compensate for losses or slowdowns in other business segments, Provenzano says.

That's exactly what happened at Tipco Technologies, a distributor of hose and accessories in the Mid-Atlantic. Based outside Baltimore, with six locations in Maryland and Virginia, Tipco has doubled its business in the last five years since making a concentrated effort to sell to local, state and federal government agencies and government contractors. Tipco president Rob Lyons says his company did virtually no business with the U.S. government seven years ago, and today that segment represents 30 percent of Tipco's sales. Seven of Tipco's top 10 customers are either government agencies or contractors to those agencies.

Its largest customer assembles products used by the Marines in Iraq and recently renewed Tipco's contract until 2010.

“The reason we [we got into this market] was because manufacturing was leaving the Mid-Atlantic,” Lyons says matter-of-factly. “We saw that business leaving our area, so we moved into government, biotech and petroleum haulers—things that will be here for a long time.”

Tipco also saw that the federal government's military base realignment several years ago was going to favor the Mid-Atlantic, which made the decision even easier. But the business didn't come overnight. Tipco had to align itself with new manufacturers, learn the ins and outs of dealing with the government and train employees on selling to the new market—and all of that took time.

Lyons and his sister, Terri David, bought Tipco Technologies from their parents in 1992 and spent the first few years evaluating the market and building relationships with new suppliers.

Among the differences in their business today, Lyons says selling to government accounts is a much longer sales process—especially on the federal side.

“It's not a business for order takers,” says Lyons, whose company does significant work with the Defense Department and its subcontractors. “It's a business that requires an awful lot of patience. It could take a year or two to develop in some cases. You have to have a sales force that's willing to put in the effort for quite some time before it channels into orders.”

Tipco's government sales efforts are threefold: The company has a contract sales rep who calls on the military directly; a semi-retired sales rep who calls solely on municipal accounts; and all of its sales reps are trained to call on other government accounts in their respective territories. Despite competitive pressures, margin pressures and economic changes, Tipco has grown sales every year since re-inventing its business. The company saw 10 percent sales growth last year, Lyons says.

“We've continued on a growth path unlike a lot of [distributors in other parts of the country],” Lyons adds. “We still haven't had a year where we've gone backwards. …Based on what's happened, whether it be competitive issues, margin pressures, integrated supply pressures or flight of business pressures, we've been able to stay ahead of that curve.”

Lyons credits his company's “skate to where the puck is going to be” philosophy for the good results. Tipco uses a three-year strategic plan to attack the market and Lyons says government business will remain a priority for years to come.

“We're glad we made the change,” he says. “We're a young, progressive organization that takes a great deal of pride in trying to see what's happening in our region and what's going to happen in the next three years. These markets are going to be around for the forseeable future for us.”