“Just in Time” Is Still King
One large Midwest distributor describes value as “identifying where the pain is” for dealers, and relieving it, which in his company’s case means managing the transport of literally thousands of molding profiles that are sourced mostly from third-world countries. So even as they expand their services, distributors acknowledge that they win or lose business based on their speed and efficiency.
Portland, Ore.?based lumber wholesaler Forest City Trading Group, whose 10 offices and 280 traders serve 4,000 customers in all 50 states, must stay nimble because it’s competing with wood-products manufacturers that ship directly to dealers and contractors. Low overhead and rapid response are essential. Craig Johnston, Forest City’s CEO, says his company is constantly working on improving its transportation and systems, which, to use one example, manifest themselves in Forest City’s ability to ship a carload of lumber to one of its distribution points and unload that car onto four delivery trucks within 24 hours.
“We’re the ‘have it there the next day’ kind of guys,” says Mark Kasper, president of Green Bay, Wis.?based distributor Amerhart, which gets three-fifths of its sales from wood-fiber products like OSB, I-joists, and dimensional lumber. Kasper says 95% of what his company’s five DCs ship is delivered within 24 hours of an order being placed.
Recently, Portland, Maine?based hardlines distributor Emery-Waterhouse hired Darrin Weigle from Johnson & Johnson as its vice president of supply chain management. “His role is to synchronize and take costs out of the channel,” says Emery president Steve Frawley, who talks about achieving “process excellence” in fill rates and on-time delivery that Emery can show dealers. Huttig had the same idea when it embarked on a campaign to bump up fill rates at its 42 DCs to 98% (it’s at 94%, Huttig says), on-time delivery to 96% (it’s at 92%), and order compliance to 96% (also at 92%).
Product Remix
Huttig, which reported a net loss of $7.7 million last year, wants to interact more with dealers electronically to help lower transactional costs that equal $300 for each purchase order it processes. Huttig isn’t the only distributor that sees the Internet as a cost-saving avenue. Emery-Waterhouse this year is investing “heavily,” says Frawley, in facilitating B2B transactions. He says his company’s annual online trade show, which it started two years ago, is a hit with dealers. PPW is moving toward allowing dealers to order online and check the status of inventory it carries. Macadam adds that BlueLinx has a team “that does nothing but EDI with dealers and suppliers.”
Distributors must find ways to keep costs down because they operate on razor-thin margins, says Vrabely, and feel shifts in the market more sharply than their customers because of their inventory exposure. Last year, slumping lumber prices and home sales caused Forest City’s revenue to fall by more than 25%, to $2.8 billion. Those same forces conspired to erode BlueLinx’s net income by 65%, to $15.8 million. The dilemma distributors face is deciding how they can take costs out of their operations without jeopardizing their dealer relationships.
Distributors aren’t backing off from their primary role as dependable inventory repositories for dealers. Officials from both Amerhart and NPG make a point that one of their companies’ competitive strengths is that they aren’t afraid to take an inventory position when an opportunity presents itself. But, notes Kasper, “we must constantly monitor our products so we’re carrying what’s important to our customers.”
Some, like Amerhart and BlueLinx, are shifting inventories toward non-commodity products that promise higher returns on investment. And distributors in general seem to be gravitating toward specialization. Orgill now stocks about 70% of the equipment that dealers typically offer in their rental centers. Its Lock Services division provides to contractors master-keying and job-lot shipments of a wide range of locksets, including those that dealers might not even stock, says Ron Beal, Orgill’s president. Ken Post, Orgill’s vice president of merchandising, adds that his company has gotten into more construction-related items, like safety products and compressors. And through international sourcing, Orgill imports an array of construction-grade fasteners in bigger packages for builders.
Last year, Emery hired Tim Mathis, formerly with Gillette, as its vice president of marketing, with an eye toward “getting more in tune with the end user,” says Frawley. Emery has started conducting “category solutions” focus groups with contractors and finish carpenters to find out what they want. In the first one, which focused on power tools, Emery discovered that pros don’t like statement stuffers. Power tools and builders hardware are two categories that Frawley believes Emery can bring long-term value to customers.
