When Stewart Hall mentions changing cultures, the Hughes Supply president and new SWA president has a lot to talk about.
Last October, Hughes Supply reorganized itself into five strategic units, each led by a group president. In the coming year, Hughes will triple its presence on the Internet through three nonconflicting Web sites. And the Southern Wholesalers Association likely will be in for an adjustment too, feeling the impact of the American Supply Association's restructuring efforts.
These changes will have profound effects on how Hughes Supply, other distributors and trade associations do business. Yet, Hall says that they also present opportunities for improvement. Take the Internet, for example.
"The Internet can make wholesalers stronger; I don't see it eliminating distributors," Hall says. "Virtual companies need a logistics piece. The Internet extends a distributor's reach and offers significant opportunities for improving internal processes."
Hall at Hughes
Between the time Hall graduated from The Citadel in 1964 and started at Hughes in 1973, he was an Air Force officer, a home builder and an accountant for the Container Corp. of America. When Container Corp. offered him the opportunity to transfer to Chicago, the native Floridian moved instead to Orlando and Hughes Supply.Hall was not exactly a stranger to Hughes Supply. His father, Al Hall Sr., had been an outside electrical salesman for the company for 35 years, and the younger Hall grew up as a friend of now Chairman David Hughes.
"When I started with Hughes Supply, it was a $90 million company with 15 to 18 branches," Hall recalls. Today the company's sales are $3 billion with 482 branches.
Beginning in the accounting department, Hall moved up the ranks on the operations side of the business with stops in purchasing, logistics, credit, human resources and information technology. He was promoted to executive vice president in 1988. In 1994, he became president and chief operating officer.
Among his accomplishments as president, Hall is proud that the company has achieved the seemingly contradictory goals of both unifying and diversifying itself. The first part meant uniting the company's growing number of acquisitions and subsidiaries under the same Hughes Supply banner and corporate mission of being "the quality distributor with superior service." The second objective was to extend the Hughes name into new states, product categories and customer groups.
"In about eight years, we went from being in eight states to being in 32 states, Puerto Rico and Mexico, and we grew from five product categories to 10," Hall says. "We moved the focus of the company from being largely residential new construction to a balance of residential, commercial, industrial and infrastructure."
Hall is perhaps most proud, however, of the management team that Hughes Supply has assembled during his tenure. The leadership ability of its top executives has enabled the company to continue to grow and diversify, he says.
Last fall, Hughes Supply restructured its executive team along with the company. Hughes now comprises five strategic units, each led by a group president. The units, which range in size from $350 million to $1.1 billion, are: plumbing/HVAC (Jim Holland, president); water and sewer, fire protection and concrete (Gradie Winstead, president); electrical and electrical utility (Skip Hughes, president); industrial PVF (Mike Stanwood, president); and building materials, pool and spa and apartment supplies (Bob Machaby, president).
The company had four primary reasons for the reorganization: intensify the company's focus on customer needs; increase Hughes' significance with its manufacturing partners; streamline its decision-making processes; and use its corporate support staff more effectively.
"I feel this will be a huge improvement to allow our leaders to focus on what they know best," Hall says. "It will help us get back to being more entrepreneurial and reaching the bigger objectives of the company."
E-commerce initiatives
Financially, the company is on target, Hall says, having completed a seventh straight year of record sales and earnings. Hughes Supply continues to be disappointed, however, with its stock's performance."Distribution is not in favor with Wall Street right now, and e-commerce is," Hall notes. "I think that's going to be a passing infatuation. We're a market segment with the potential of doing e-commerce business, so I see a correction coming."
Although e-commerce may be a passing infatuation on Wall Street, it will have long-term effects on distributors, he says. The company's research indicates that business-to-business e-commerce sales will reach $1.3 trillion by 2003. By that time, 15% of Hughes Supply's business could be derived from e-commerce, he adds.
"We see business-to-business e-commerce as another avenue of significant growth for our company," Hall says. "This is going to be very different from the latest management fad such as MBO or ISO 9001. This will cause a whole change in our culture. My grandchildren will be Internet experts."
Hughes Supply is positioning itself to take full advantage of e-commerce, he notes. The company has a three-pronged approach, which will gain momentum throughout the coming year. E-commerce on its Web site, www.hughessupply.com, was in testing in February. The e-commerce function should be available soon, although it will not be offered immediately on all product categories.
Its second initiative, supplyforce.com, focuses on integrated supply solutions and national account programs. The site is operated by Affiliated Distributors, of which Hughes is a member. It is also expected to be online in the first quarter.
In addition, Hughes Supply is a major financial investor in bestroute.com, which is a Web site where buyers can locate hard-to-find, slow-moving products. The site is starting with electrical items, and it will add plumbing and HVAC products later this year. Hughes' relationship with bestroute.com is strictly financial; the wholesaler does not fill best-route.com's orders, Hall notes. The e-commerce company will have its own warehouse in Louisville, Ky.
In fact, one reason that Hall is so certain about the future of distribution is that other virtual companies such as Amazon.com are adding brick-and-mortar warehouses to their electronic operations, just as distributors with warehouses are starting to grapple with e-commerce technology.
"While all that is happening," he adds, "there should be some nice opportunities for partnering between virtual companies and distributors going on as well."
Wholesalers of all sizes will have to make a substantial investment in e-commerce technology and knowledge, Hall says. He believes that the money would be well spent because not only does the Internet extend a company's geographic reach, but it also brings internal benefits.
"We see significant opportunities for improving labor-intensive processes," Hall says. "Placing orders, for example, is very labor intensive. The Internet brings discipline to that process. It can lower costs and improve productivity."
Smaller companies looking for e-commerce solutions, however, may not wish to make the required investment. The Internet may speed up some wholesalers' decisions to sell to a consolidator such as Hughes, Hall says, but that probably won't happen right away. Although Hughes completed the purchase Feb. 1 of Seattle-based Western Utilities Supply Co., which has seven branches, Hall expects the pace of acquisitions to slow this year.
"We want to focus on e-commerce issues and the basics of distribution," Hall says. "We will continue to look for opportunities for acquisitions as we look internally."
ASA's White Paper
Hughes Supply, of course, is not the only organization that will be looking inwardly in the coming year. The American Supply Association is in the process of restructuring itself for reasons it explained in its 1998 White Paper. How ASA reorganizes will have an impact on the Southern Wholesalers Association, one of the larger and more influential regionals in ASA's confederation. Part of ASA's plan is to consolidate regionals and exert more control over them."I have given an enormous deal of support for the White Paper because it is best for our industry," Hall says. "My caution would be that we use great care in not trying to do too much too soon."
As ASA is structured now with 13 regionals that are corporations independent from the national organization, it is difficult for ASA to accomplish anything effectively on a national scale, Hall says. The current configuration is an impediment to effective industry leadership, and distribution frequently is not a factor when important government decisions affecting the industry are made.
Hall believes that if someone were to build ASA from the ground up, it would not resemble what it looks like today. He has suggested that ASA perform an exercise that has worked for his company in the past. Hall has looked at Hughes Supply as a "faceless" organization to see how it could be organized most effectively.
"You make the organization faceless, or you never get past the personalities," Hall says. "You have to get by the personalities to put the structure in place."
A stronger ASA would mean a trade group that could provide leadership for the industry, he says. He is confident that ASA will reach its objective.
"We may hit some potholes, but ASA's efforts have come a long way," Hall says. "There's been a tremendous leadership effort by (former ASA Chairman) Ed Felten to get us to this point. My hope for ASA is that its initiatives are embraced by all the regionals and that there's a successful execution of the reorganization."
Allowing that everyone might have to give up a little for the good of the whole, Hall says that SWA and other regionals would be stronger in the long run as a result of a more powerful ASA. SWA's strengths have included its training and education programs, which have been well attended over the years, even by industry people outside the region, he says.
"SWA has had very effective leadership from (Executive Vice President) Frank Rizzo and from its distributor participants," Hall says. "SWA will continue to thrive."
Hall's hopes for the ASA reorganization sound similar to how he feels about the attitude of his management team at Hughes Supply.
"I work with a group of people who make going to work seem more like fun than work to be there," Hall says. "We're not without our challenges and our differences of opinion. But everybody works with a higher cause in mind. We always keep a greater purpose in focus."
