Jeff Winkel, a distribution industry veteran with more than 40 years of experience, is determined to not sit still and watch e-commerce companies like Amazon Supply and Alibaba take market share.
So Winkel, the owner of the Steel Toe Group, an engineered products distributor of pumps, seals, and electric motors, along with his partner Karel Minneboo, has started a separate online company called OnHandSupply.com (OHS) that will add technical expertise to commodity products. The arrival of the company is certain to raise some eyebrows in the industrial distribution business because OHS will be selling direct to end users.
“We like to think of ourselves as a national vending machine for ANSI pumps,” Winkel said. “We’re providing a route to market that didn’t exist before.”
The online company will be selling ANSI pump replacement parts and related products as well as mechanical seals, packing, couplings, and coupling guards. It will be expanding its product offerings in 2015.
OHS describes itself as having a vertically-integrated factory, meaning that all processes, including engineering, machining, testing, and service/ repair, pattern shop, foundry are done in-house. The products are delivered from five regional warehouses (not owned by OHS) to customers within 1-2 business days ground or even faster if an emergency situation occurs.
“What we have done is create a continuing manufacturing system that is long on inventory so that a customer don’t have to be,” he says.
OHS was founded on a program that Winkel calls CURVES: Industrial products (commodities) that require value-added services.
He offers the following example: an impeller is considered a commodity product, but it might need to be trimmed and have balanced-services that OHS can provide. “Can you see Amazon Supply doing anything like this?” he asks.
Winkel points to several different ways that OHS differentiates itself in the marketplace. As one example, he notes that prospective customers can see prices, quantities, and locations online 24/7, 365 days a year without PINs or passwords. “Real people will be available to take your telephone calls. We call this blend of technology and people a “people net” business,” he says.
In addition, instead of tags or labels on each part, every part has its size and material etched and/or cast in it. Every part is shipped in a double-wall corrugated cardboard box foamed in-place. The outer box has labels on all four sides so that a customer can put it on the shelf and easily identify the part. Labels have bar codes and QR codes in anticipation of customers going to automated receiving. The QR codes will eventually contain the metallurgical breakdown of the part inside. The company also offers a two-year full credit return policy.
“We did all these things because of customer feedback,” Winkel notes. For most of the past three years, he visited plants around the country asking executives to identify what they liked or disliked about the ordering process and how it can be improved.
“The list of dislikes was much longer than the likes,” Winkel adds.
Customers said they didn’t like the fact that distributors couldn’t give them a price right away and exchanges of telephone calls had to be made, slowing down the process. Nor could they be told exactly when deliveries would be made.
That won’t be the case at OHS, says Winkel. OHS customers will soon have the ability-through the use of a webcam to actually see their products being produced and customers will have a specific delivery date.
“We’re not trying to compete with e-commerce companies like Amazon on what they do best,” he says. “We’re focusing on all the things we can do.”
Winkel says he understands if some distributors are upset that he is selling to the end user. “Our intention was never to set up a distribution network,” he says, noting that distributors can order from the new company whether it’s only once a year or on a regular basis.
OHS, he explains, sells to end users as well as resellers because multi-plant customers want to buy from one entity nationwide and get delivery fast enough so they can lower their spare parts inventory. In addition, end users are deliberately bypassing distributors and master distributors to get better prices, especially on commodities or anything then can commoditize.
“This is driven by their marching orders that have changed from holding increases down to no more than two percent a year to lowering their costs two percent a year — or else.”
Another reason OHS sells to end users is the changed landscape of competition.
“AmazonSupply.com has no high-end retail stores, skilled technical salespeople, service centers with skilled labor, geographical restrictions, or market segment restrictions. They’re the emerging competition of today,” he says. “Why replicate the hub-and –spoke model of the 1950s that is now starting to see a shakeout similar to what happened to the hardware, video, and book selling segments? Today’s industrial distributor needs to look at the best in business not the best in ‘their’ business. Reformation will delay the inevitable, only transformation will help a distributor navigate these stormy waters.”
Winkel, who was a driving force behind the founding of the International Sealing Distribution Association, adds he is still is an industrial distributor and understands a distributor’s sensibilities. “That’s why we offer a private label program so someone reselling our products doesn’t compete with the same brand,” he says.
He points out that distributors must either become a high-tech firm that provides engineering products and services-like Steel Toe, or to a business model that has uniqueness, enabling it to compete on the Internet.
“Distributors have responded differently to our model. Some just can’t get around the fact that OnHandSupply.com will sell to anyone who pays us. If you offer open e-commerce, you can’t really control to who you sell to,” he says.
In a follow up e-mail with ID, Winkel offers a warning to distributors the need for change. “We are aware of the potential disruptive ripples or even tsunamis an AmazonSupply.com or OnHandSupply.com can cause,” he says. “We chose to deal with change head-on and hope to succeed. Changing course for an industrial distributor is as difficult a job as turning a super-tanker. But to avoid their own Exxon Valdez, they must.”