Buckling down

With some industries already in an economic downturn, cutting tool distributors and manufacturers use cost-cutting measures to keep their bottom lines healthy -- Industrial Distribution, 5/1/2001

Other articles from this Cutting Tools Report:

Profile: Factory Supplies of Rockford, Ill.

Tool technology: Distributors make up for reduced vendors' application support

View point: Empower your salespeople


By Bridget McCrea
Contributing Editor

Watch those nickels
Communication is key
Seen it all before

Curtis French is not a happy businessman these days.

As CEO of Best Engineering Co., Inc., in New Berlin, Wis., he’s watched as his cutting tool distributorship’s margins were chipped away, noticed his manufacturing customers ordering less and less, and even put a for sale sign up on his door: $10 million, cheap.

Cutting tools make up over half of Best Engineering’s business, and that makes French pretty nervous these days. But it’s not a new problem: French says the slowdown actually started during the second quarter of 1999, and has only gotten worse.

“1998 was the end of the boom for industrial distributors,” says French. “That was the best year we ever had in the history of our company, then the bottom fell out in 1999.” The early signs were smaller orders and customers who waited to use up inventory on hand before ordering more. Prior to that, French says, the philosophies were “order, order, order” and “make sure we have the tooling.”

Compounding the problem is the fact that new customers these days are typically much smaller than they used to be, which turns into more paperwork and smaller dollar volume orders.

So other than slapping a for sale sign on his business, what’s a guy like French to do to keep his head above water? It’s a question that many cutting tool distributors and manufacturers — both of whom are highly dependent on the small to midsized manufacturing customer — are asking themselves right now.

French says he’s cut staff from 20 to 17, including one non-performing sales rep. Next up, he says, will be a scaling back of hours and possibly more staff cutbacks, depending on how the economy shapes up during the second half of 2001.

Watch those nickels

French isn’t alone in his plight. Even though most of our interviewees for this story agreed that the economic problems are isolated to certain geographic areas (the Midwest, for example) and industries (the automotive industry has been hit particularly hard), cautious distributors and manufacturers are still tightening their belts, just in case.

“[Distributors are] trying to return dead stock that’s not moving, and replace it with more moving stock.”
— Vinny Matteis, Amval Associates

At KPT-Kaiser Precision Tooling in Oak Grove, Ill., Chris Kaiser, VP and COO says his company has cut back its sales and marketing budget, but is quick to point out that important elements such as advertising have not been affected. Expenses for travel have been scaled back, he says, and sales reps are being prompted to “spend a little more time in a particular territory” to make those expenses worthwhile.

Vinny Matteis, president of Amval Associates in Lyndonville, Vt., a manufacturer’s rep for various cutting tool manufacturers, says he’s seen a few distributors doing stock returns to offset new orders. “They’re trying to return dead stock that’s not moving, and replace it with more moving stock,” says Matteis. As for whether or not the manufacturers are alarmed by such moves, Matteis says “not really, as long as it’s not really obsolete inventory.”

Communication is key

At North American Tool Corp., in South Beloit, Ill., Bernie Bowersock, VP of sales, says the company is now using more manufacturer’s reps than outside sales reps. Five of his reps work directly for the company, while 22 of them are manufacturer’s reps.

Distributors are also opening the lines of communication with their customers. At Factory Supplies Co., CEO Tom Peterson says keeping a sharp eye on accounts receivables is an important strategy during slower economic times. His company caters primarily to manufacturing customers, many of whom are involved in the automotive industry — a sector that’s been hit hard by layoffs and cutbacks.

“When a customer’s business is not very healthy, they’ll try to use you as a bank,” Peterson explains. “To avoid getting into that position, we’ve really tried to keep an eye on the accounts receivables.” Typically, he says, terms are net 30 days but right now, customers are asking for longer terms.

Seen it all before

Mary Catherine Motchar, president of Arbor Industrial Supplies in Greensburg, Pa., has seen worse downturns than this. Back in the early to mid-’80s, the industrial landscape in Western Pennsylvania was dramatically altered when the large steel mills scaled back or shut down completely. Facing a sharp decline in the number of large accounts in need of their products and services, Arbor Industrial turned its focus to the small to mid-sized accounts.

Still, Motchar’s company isn’t taking any chances. She says all outside sales reps now make it a point to ask customers just how much backlog of work they have. A small to mid-sized firm, she says, should have at least six to nine months of backlog (during the boom times, that could reach as high as 12 months or more). “If it goes much under that, we get concerned,” she says. “But we haven’t seen that happen yet.”