ASA/Supply House Times distributor roundtable 2019: Part 1
Part 1 of this exclusive annual roundtable interview tackles technology challenges, consolidation and more.
Want to get an excellent sense of where the PHCP-PVF distribution industry is right now and where it’s headed?
The ninth annual American Supply Association/Supply House Times distributor roundtable interview that was conducted, during NETWORK 2018 at the Fairmont Scottsdale Princess in Scottsdale, Arizona, provides just that and then some.
In Part 1 of a two-part series (Part 2 appears in the February issue), a blue-chip panel of ASA member distributors discuss hot-button industry topics such as emerging technology, consolidation and the labor shortage.
This year’s panel includes:
Howard Rose, co-chairman, The Portland Group, Billerica, Massachusetts;
Tracy Bates, vice president, Ideal Supply Co., Jersey City, New Jersey;
Kyle Stratiner, executive vice president of engineered products, Puget Sound Pipe & Supply, Kent, Washington; and
Rob Powers, director of marketing, PVF, Chicago Tube & Iron, Romeoville, Illinois.
The hour-long interview started with panelists being asked where the industry is at and if it is headed in the right direction. This conversation quickly turned to the topic of technology and its importance for distributors in this day and age.
“We’re probably behind where you see other industries and not moving at the same pace, but the industry is starting to embrace technology,” Powers says.
Stratiner notes Puget is located in the tech-heavy Seattle corridor. “It’s all tech here and you get the feeling of how far the industry is behind tech-wise,” he says. “The bigger guys all are embracing e-commerce and everybody sees that. It’s a jump we all know we have to make very soon. It’s a question of when.”
Powers chimes in: “It’s a significant financial burden on companies and you have to measure that return on investment,” he says.
The Portland Group’s Rose says his company, which is over the nine-figure mark in annual sales, traditionally has employed three people in its IT department. “That number in the IT department is small,” he says. “We need to go in a more accelerated direction. But if you look at these titles now, the VP of IT is becoming more prominent. It is about investing in e-commerce and software, but it’s also a big investment in salary. I do concur that we as an industry need to adapt technology quicker. We don’t move fast enough, but that’s easier said than done.”
Bates notes her company, which is an industrial PVF distributor in the metro New York City area, sees e-commerce as a growth opportunity, but is not currently impacted because of its location. “We deliver into New York City at specific times,” she says. “Last-minute location change requests are not unusual. We utilize UPS, but in limited circumstances. Margins do keep shrinking because it’s so competitive, but we’ve improved our service level. We’re still serviced-based. If the larger companies want to outbid us, they can, but that’s a short-sighted strategy.”
Powers adds Chicago Tube & Iron is in a similar position due to its industrial PVF product offering. “E-commerce is on our radar,” he says. “We out-service companies and try to de-commoditize and add steps and add value to the process to fight against that. If we were in a pure commodity play we would be moving to e-commerce and embracing technology much quicker than we are now.”
Stratiner sees e-commerce adaptation as a way to further strengthen channel relationships. “How do you compete against the big guys?” he asks. “They essentially sell surplus over six months and for us it might be eight years before it is surplus. Service is huge for all of us. We see e-commerce as more for helping our current customers instead of focusing on the onsie-twosie-type of new guys online. You want your mechanicals at the jobsite to hop on their phones and order it instead of having to drive to our place and pick it up.”
What are some critical issues facing your company today?
Rose went right to the neon-lighted industry-wide labor problem. “In the New England and Boston market it’s labor,” he says. “The unemployment rate is so low. To be candid, especially in our warehouse, if a young man or woman comes through the door we aren’t too picky about hiring them. And at one point we were drug-testing everybody who came in. We’ve found with the legalization of certain controlled substances we were turning people away who were not addicted but might use these substances recreationally. Now, we only drug test labor-sensitive positions such as forklift and truck drivers. “
Stratiner notes Puget is competing directly with Amazon in his area for warehouse and transportation jobs. “Amazon has anywhere from about 45,000 to 60,000 employees in Seattle depending on the time of year. It’s crazy,” he says. “They are starting them at 3-4 dollars more than we do. Younger kids aren’t looking at things such as benefits and work life. All they see is that bottom-line number. It’s hurting our job force. A half block away from one of our branches they are advertising what they are paying to go work at their DC.”
Powers says Chicago Tube & Iron is working through a workforce age gap (the company has a robust succession plan in place to identify the company’s next leaders), but notes an even bigger concern is transportation.
“It’s been a nightmare for us in general this year,” he says. “It’s hard to find qualified drivers. People don’t want to haul steel. It’s not desirable to do a full truckload of pipe when the driver can do an LTL load that’s unloaded on a forklift as opposed to getting out and unstrapping and un-tarping multiple times at multiple stops. Department of Transportation regulations also have changed the freight market for us. We have trouble with the spot market. In Houston and Chicago rates have gone up 50% to 100%. In Chicago, there is 1 driver for every 100 loads in the area. It’s hard when rates are going up 100% and the DOT is now using electronic logs that can’t be fudged by drivers. “
Where is your company at in terms of succession planning?
As mentioned earlier Chicago Tube & Iron has its high-potential employee program in place. “We realized the average of age of employment in our company was 57 years old,” Powers says. “That became our executives’ priority to put a succession plan in place. It’s very keen on mentorship from the executive, to mid-level manager to entry-levels. It drives others to get involved and get the buy-in needed to create the future we envision for the company.”
Bates explains Ideal has implemented structure in the form of written job descriptions and procedures, as well as cross-training. The benefit has been improved culture and working in a more collaborative manner, she adds. “Succession is now built into our strategic plan for growth,” Bates says. “The hardest part was getting the union buy-in, but they are working with us as we move forward.”
What are your thoughts on the accelerated consolidation we have seen over the last year in the industry?
Bates says the larger national companies, which in recent times have been doing the majority of acquisitions in the industry, concern her. “They drive down the price, plus they can hold that price for a very long time, at times over a year, even with the current pricing environment,” she says.
Rose circles back to the service part of the equation. “We believe we out-service the larger companies,” he says. “You certainly have to be cognizant of them, but I do not lose sleep. We are pretty liberal in giving our outside and inside people the ability to go toe-to-toe if necessary. We also have accessibility and consistency with guys working here 20 or 30 years. We had a situation here in Massachusetts where there were gas explosions all over the place. We opened up on Saturday and Sunday to gain that business because our customers demanded it. They called our director of sales on a Sunday and he came to our main building with his wife and loaded product up to deliver to the jobsite. That type of service is consistent in a privately held business.”
Powers sees consolidation as an opportunity. “We empower our employees to make the right decisions,” he says. “We look at it as a growth opportunity. The larger national companies have to keep acquiring companies to show growth. We are a regional company that can expand and that goes right to the bottom line. We are in the inventory business. If these larger companies continue to grow that much, I think vendors will value the independents that much more. I’m not sure they want 80% of their business going to one conglomerate.”
How are customer demands affecting the way you do business?
“I don’t want to sound like a dinosaur again, but when the advent of the fax machine came, customers started sending that $500 stock order to four or five distributors and the next thing you know they are beating each other up on price,” Rose says. “Then it was on the Nextel phone. Technology has given the customer leverage they never had. Customers’ demands on our people have raised everybody’s blood pressure.”
Stratiner adds: “Customers do expect answers right away. The other problem is they look at Amazon and wonder why we can’t get them their order that fast. We can, but it won’t be on our truck and it will cost more. You train your salespeople to try and not say no, but there are very high expectations out there.”
Next time, the panel talks about the current economy and how it relates to the industry, more e-commerce discussion and the continued importance of ASA to the industry.