Wholesaling can be a mysterious business to outsiders. Success, we're told by all the industry's gurus, requires the right numbers in arcane business measurements like GMROI or T & E. Yet, when you look at the forest instead of the trees, many success stories can be attributed to a few simple core principles that, if followed religiously, will end up generating the right numbers.

Todd Pipe & Supply's core principles are:

  • Take care of customers.
  • Take care of employees.

Of course, those are supposed to be core principles for every PHCP wholesaler. But Todd manages to implement them better than just about anyone else we've observed in the industry. As this coverage progresses we'll explain in detail how they do it. When done reading about it, I don't think many of you will disagree with our selection of Todd Pipe and Supply as Wholesaler of the Year.

A major reason has to do with "street wisdom." Take a glance at the "Key Management" box on the adjacent page. With just a few exceptions, the people in charge of this company have tenure measured in decades. Even more pertinent, almost all of them worked their way up through the ranks. The vast majority of people in that "Key Management" box started out as warehouse workers, counterpeople, truck drivers or plumbers. These are streetwise wholesalers who know the business from the inside out.

They look it and act it. The dress code at Todd Pipe & Supply is one of blue jeans and T-shirts, pierced ears and tattoos. Not just out by the warehouse and docks, but in executive offices! "We look like our customers," said McMillen.

Those customers are contractors, period. Todd is a throwback to the era of trade sales only, no ifs or buts. Large signs saying so prominently adorn will-call counters in all of their facilities. They operate a showroom, a rather nice one in fact, but it's on the second floor of their Hawthorne warehouse building, inaccessible to the public and unstaffed. It's solely for the use of contractors and any customers they may choose to bring or send there.

With $200 million in sales for their recently concluded fiscal year, Todd is probably the largest wholesaler in the country still abiding by trade sales only. That alone might be reason enough to consider them as Wholesaler of the Year. But there's a lot more to this company.

Success By The Numbers

Don't be fooled by their blue collar demeanor. Todd's P & L statements would spread joy in the most starched collar business environment. Although he doesn't care to share it all with the world at-large, McMillen gave me a peek at some of their key performance indicators, and I can report that Todd's profit levels are considerably above industry norms, as are their inventory turns and many key ratios.

More than any wholesaler in my experience, they also are meticulous in tracking numbers pertaining to customer service. Company-wide, Todd achieves order fill rates above 97% year after year. More than 96% of deliveries are on time (defined as within a four-hour range). They also track order and delivery mistakes, which are negligible. This is something of a pet peeve of McMillen, who used to be a plumbing contractor and knows how annoying it is to receive the wrong merchandise.

"We have a strong commitment to tracking what we're doing," said Jim Anderson, Todd's vice president of purchasing and a 25-year company veteran. "What we do is pretty simple, but effective."

"Our number one priority is maintaining the Todd reputation for service and dependability," said President Steve Owen. "This gets accomplished through continuous monitoring of our service and insuring that customer service is the foremost thought in every employee's mind.

"We analyze numbers relentlessly," he continues. "We don't look at them so much for statistical goals, but for comparison to other months, other branches, other departments and so on, and what any change means in terms of service. We analyze the numbers to see if we are hitting our philosophical goals."

They pay especially close attention to employee productivity, in particular gross profit generated per salesman, counterman, driver and employees in total. How do they relate this to their "philosophical goals"?

Explains Owen: "Typically we might look at a branch with a high gross profit per counterman ratio. On the surface, you might think we should see what this branch is doing so well and copy it to the other branches. However, when we analyze this number from a service perspective, quite often we find that the branch is in need of an additional counterperson. Service is the bottom line, not achieving the maximum ratio."

Chairman McMillen is renowned for pouncing on each quarterly P & L statement as soon as it comes out of the computer. Then he does something eccentric. He personally - by hand - translates those numbers into managers' reports, often staying up through the night to finish. The job could be automated without much trouble. McMillen, however, feels that writing numbers out by hand helps him to remember key data in a way he wouldn't with his eyes glazing over computer printouts.

Nobody's perfect, of course. At least one statistic of note finds Todd lagging behind most PHCP wholesalers - accounts receivable days. Delayed payment is one of the tradeoffs that must be endured when you cast your lot with contractors that do a lot of construction work. "We use credit as a sales tool," said McMillen. "On many jobs we get paid when the contractor gets paid. We'd rather not wait, but it's part of the service we offer. The important thing is, our write-offs are very low." They also have a top-notch record of paying vendors on time.

Revered Leadership

Company patriarch Karl McMillen is one of our industry's most interesting executives. (See sidebar on page 48 about his philanthropic activities.) Unorthodox though his company may be in certain ways, McMillen's business acumen is as sharp as any wholesaler's in the PHCP industry. In his 34 years with Todd, he has built a regional empire based on those aforementioned core principles, coupled with an intuitive business sense of what's hot and what's not.

McMillen worked his way through the University of Southern California as a plumber, and upon graduating in 1954 with an accounting degree started a plumbing business. As a contractor, he rode the wave of Southern California's housing boom in the late 1950s and early '60s, growing his company to sales of $5 million with 200 employees by 1965.

When he noticed housing starts slowing down, he sold the plumbing company, and then spent several years growing his proceeds in commercial real estate ventures at a time when that market was sizzling in the L.A. area.

Then, in 1968, a former employee of his plumbing firm, Ralph Todd, convinced him to buy in as an equal partner in Todd's two-year-old supply house. Todd and McMillen remained partners in Todd Pipe & Supply until 1979, when the namesake decided to move away from the area. They split the business amicably and McMillen has been sole owner of the company ever since.

It's revealing that he's never seen fit to change the name, even though it's been decades since the founder had anything to do with the company. This unassuming nature on the part of the chairman shapes the corporate culture at Todd Pipe & Supply. A more unpretentious owner would be hard to find. Entitled to a lavish executive suite, McMillen doesn't even have his own office, instead sharing modest quarters with Ruben Trinidad, Hawthorne's branch manager. Any one of Todd's 450 employees feels comfortable ringing the chairman's extension at any time for any reason. They all have his home phone number, too.

And they absolutely revere their boss. In covering this story, I got to visit six of the Todd facilities and engaged dozens of Todd's people in extended conversation without McMillen present. Most of them volunteered comments about McMillen personally and how much they enjoyed working for his company. "The difference was like night and day," said Garden Grove branch manager Tom Morrow, who came to Todd from another wholesaler two years ago. "I couldn't believe how much the people in this company support one another."

"Karl has built a large company and made a lot of money, but he's still excited about the business and goes out of his way to solicit our opinions," said Dan Patrick, Todd's vice president/sales. "He is a genuinely nice person."

"Karl is more than an owner to us," said Ken Bennet, Todd's corporate warehouse manager. "He's the kind of guy who would still be your friend if you didn't work for him."

They typically mention Steve Owen in the same breath and in similarly reverent terms. Steve came to work for Todd in 1975, three days after arriving in California from his native Pennsylvania. A college dropout (Miami of Ohio), he started out working an order desk and as the years went by progressed through roles that included sales, sales management, branch manager and director of purchasing. Owen was named vice president of the company in 1991 and president/CEO in 2000. He clearly functions as McMillen's right arm.

"This is one of the few places where I could comfortably work," said Owen, referring to his ultra-casual attire that includes 11 rings piercing his left ear. (The cover photo depicts McMillen and Owen in shirt-sleeves because Owen doesn't own a suit or sport jacket.)

Don't judge the man by his cover, though. Owen understands the business and knows how to motivate people. Can anyone come up with a better definition of leadership?

"One of Steve's best qualities is he understands people have both strengths and weaknesses," Dan Patrick observed. "He plays on peoples' strengths, and doesn't beat them up on their weaknesses. For instance, if there's a good salesman who's not very good with paperwork, he won't hammer on the guy to do his paperwork. Instead, he'll figure out a way to keep the guy selling and some other way to get the paperwork done."

Employees On A Pedestal

The longevity of so many Todd employees says more than words about the esprit of this company. High employee morale certainly isn't unheard of in the PHCP wholesaling industry, but usually you see it in small companies where bonding takes place up close and personal and where bureaucracy has no chance to take root. Todd has grown into a sprawling regional chain where it is increasingly difficult to maintain teamwork. Yet, that's exactly what McMillen and Owen work hard to maintain.

"Morale is very important to me," said McMillen. "A happy employee leads to a happy customer." He outlined some of the company policies that keep employees happy:

  • Promotion from within. Todd has had to relent on this in recent years during a growth spurt. "While it has always been our policy to promote from within, we have grown big enough that a lot of very talented people want to work for us," said McMillen. "Because we open all our new branches from scratch, we don't get saddled with an entire organization like companies who grow through acquisition do. When we move into an area, quite often some of the best talent in the market will approach us, allowing us to combine great outside talent with our own homegrown employees."
  • Training and education at all levels. Corporate IT manager Joe Beckworth was particularly effusive in describing an array of IT programs he and others on his staff have attended at UCLA and elsewhere to familiarize themselves with state-of-the-art business technology. "Steve (Owen) has been incredibly unselfish with training allowances," said Beckworth. "It's a great team to be a part of, and I don't know anyone else that would do what they do." The company offers an educational assistance program to all full-time employees to take courses related to job performance and professional development. They also send people to special classes periodically. For instance, in 2000, they enrolled five counter personnel in 20-week courses in Residential Plumbing at El Camino College, in order for them to gain a better understanding of customer needs.
  • Job satisfaction. "We strive to make sure all employees know how important their job is," said McMillen. "For instance, helpful and courteous drivers are a must, because they have more customer contact than any other Todd employee. "People also must be respected for the job they do. Almost everyone in management has worked at the counter or driven a truck, so they appreciate the people who do these jobs," McMillen added.

  • A fun place to work. Todd's casual atmosphere stems from this imperative.

  • Generous bonus program. Todd's bonus plan is company-wide, based on total corporate profits. Every employee gets a piece of the action, no matter how low or high his or her job status. Also, while branch and other profit center managers are held accountable for their unit's performance, Todd doesn't pit them against one another for rewards and recognition. This eliminates infighting. Managers are expected to cooperate with one another for sales leads, inventory transfers and so on. It would defeat this purpose if incentives were skewed toward win-lose competition.

    The Extras

    Todd's benefits package seems as comprehensive as any in the industry with regard to the standard health and retirement offerings. They also throw in some extras you don't find at too many companies. One is an Employee Assistance Program (EAP) offering a wide range of services pertaining to family care, legal, financial, health, career and education assistance.

    Another unusual benefit is on-site fitness rooms at most of Todd's facilities, with men's and women's shower rooms and no charge to Todd employees. Besides their obvious boon to employee health, the workout rooms help build team spirit, according to Steve Owen. "We enjoy working out together. It's a social activity as well as something we do to keep in shape."

    Here's an example of the kind of team spirit that exists at Todd: Bud Wright, manager of the West L.A. branch, recently had to take some time off to undergo chemotherapy treatment. As most people know, chemotherapy results in hair loss. Upon returning to work, Bud found a half dozen of his employees had shaved their heads in symbolic solidarity with their boss.

    And then there's a benefit that is somewhat dazzling in its extravagance.

    Todd worked out a deal with Gateway computers in which Todd employees can purchase Gateway computers for home use, with Todd picking up the first $500 of expense and Gateway offering technical assistance in configuring them. Around a third of the company's employees took advantage of the program.

    The IT department designed and built computer training facilities in El Monte, San Diego and Las Vegas. These training rooms have been a big help in developing employees' basic business and computer skills. They also proved invaluable in training employees to implement the Eclipse distribution management system, which Todd took on earlier this year.

    IT Build-up

    The company's computer purchase program isn't entirely altruistic. Todd has grown tenfold in revenues since 1985. That kind of growth is bound to present some challenges to a company with a mom-and-pop shop culture. "We want to keep the small company atmosphere, but we also realize we have to get more professional to survive," said Owen.

    Reliance on computer technology is one element of that increased professionalism. A company intranet offers an extensive array of corporate communications and personal resources for employees. Among other neat features, they can tap into an employee resource center to access educational tapes and videos, find PPO providers online, or check into a variety of other services. HR forms and management reports are accessible electronically. Computer literacy is increasingly essential to function as a Todd employee, no matter what the job.

    Last July, Todd switched data management from an antiquated SHIMS system to Eclipse, which they like very much but are still working to fully integrate. Getting all employees computer literate is part of their IT game plan at the micro level. In macro terms, the company is doing whatever it takes to upgrade to state-of-the-art sophistication in IT business systems. As Dan Patrick quipped, "We're like an old car with a fast motor."

    They recently entered into a co-location arrangement with SBC Pacific Bell to safeguard against the region's ever-present threat of earthquake disruption. The system is built to withstand an 8.0 temblor and backs up all servers to assure that if one branch gets knocked out of service, the others will function normally. All company servers can be monitored from the IT office at Hawthorne.

    Todd also is looking to e-business as a pathway to the future. A prototype system set up by Mark Grantham, the company's director of e-business development and assistant operations manager, is now being tested by a few select accounts. The system will enable customers to order anything and everything online, as well as check on billing and delivery status. Pricing information will be available to customers 24 hours a day. Additionally, after the first of the year, the company will be offering Web design services for its customers.

    People First

    Another area Todd had to shore up amid the onslaught of rapid growth was its human resources management. Despite employment in the hundreds, until a couple of years ago, Todd did not even have an HR department. Like many small companies, they tended to handle employment issues as needs arose by applying common sense and paternalism. Steve Owen himself oversaw the HR function, but as the years went by and the company got bigger, he found more and more of his time taken up by routine employee relations tasks and paperwork. The stakes are also getting higher.

    "California has some of the toughest labor and workers comp laws in the country, and the job just wasn't getting done appropriately," Owen confessed. "I ended up spending way too much time on the function, and in California there are too many things you can do wrong that could end up costing you a lot of money."

    (As just one example, all businesses in California are gearing up with trepidation for the state's landmark twist on the federal Family & Medical Leave Act, which soon will require California employers not only to allow employees to take leaves of absence to tend to family emergencies, but to pay them while they're gone.)

    So a little over a year ago Todd hired a consultant to organize an HR department, headed by 17-year company veteran Brad Burnell. The process is still underway with the consultant, Maddy Mestman, continuing to work out of the Hawthorne office more often than not. However, they are taking care to do things right. "The hard part about HR is adjusting to the company culture," noted Owen. "You have to obey the law, but without losing the company flavor."

    "The people at Todd Pipe are our only sustainable competitive advantage," said Karl McMillen. "Our customers know this and we prove it daily.

    "That's why we have spent quite a lot of money establishing a first-rate human resources department. Because people are our greatest asset, we must invest in programs that find, manage and reward top quality people."

    Sidebar: Todd Pipe & Supply In Profile

    Annual Sales: $200 million
    Employees: 458
    Year Founded: 1966. Under present ownership since 1968.
    Facilities (Year Opened):
    • 1. Hawthorne headquarters, originally established 1966, current facility opened 1995 (4th HQ location), 76,000 sq. ft. building on 3.48 acres.
    • 2. Garden Grove (1983), 73,000 sq. ft, 2.99 acres.
    • 3. Sepulveda/Sylmar. Sepulveda opened 1986, replaced in 2002 by Sylmar, 75,000 sq. ft., 2.64 acres.
    • 4. El Monte (1990). Also houses Todd's Commercial-Industrial Division. 78,600 sq. ft., 2.94 acres.
    • 5. San Diego (1994), 62,000 sq. ft, 2.32 acres.
    • 6. West Los Angeles (1995), 15,000 sq. ft., .83 acre.
    • 7. Las Vegas (1996), 55,000 sq. ft., 2.98 acres.
    • 8. Riverside (1999), 82,000 sq. ft., 3.47 acres.
    • 9. Escondido facility purchase (due for completion in November 2002) 65,000 sq. ft, 3.74 acres.

    Web address: www.toddpipe.com.
    Todd Pipe & Supply Key Management
    Name Position Years With Company
    Karl McMillen Owner/Chairman 34
    Steve Owen President 27
    Dan Patrick Vice president/sales 15
    Jim Anderson Vice president/purchasing 25
    Ken Bennet Corporate warehouse manager 16
    Mike Barr Corporate credit manager 18
    Ron Earnest Chief financial officer 16
    Brad Burnell Director of human resources 17
    Joe Beckworth Corporate IT manager 11
    Aaron Olsen Eclipse operations 7
    Joan Wahlers Corporate office manager 5
    Mark Grantham Director of e-business development 2

    Branch Managers Location Years With Company
    Ruben Trinidad Hawthorne 20
    Tom Morrow Garden Grove 2
    Eddie Werner Sylmar 18
    Jim Benudiz El Monte 14
    Don McDonald San Diego 27
    Bud Wright West L.A. 11
    Dave Bounds Riverside 10
    Allen Adams Las Vegas 3

    Safety Training Taken Seriously

    California has some of the nation's toughest workers' compensation laws. Feeling that an ounce of prevention is worth a pound of premium increases, Todd Pipe & Supply oversees a wide range of safety training, some mandated by law, some not. These include:
    • Forklift training. Laws require it and Todd does both initial and refresher courses.
    • Fire/safety inspections.
    • Back belts. Back belts are supplied to warehouse employees. Training is done to show them the proper ways of using them when handling material.
    • Fire extinguishers. Todd has gone to a local fire department for training on the proper ways to use fire extinguishers, with the information passed on to employees via verbal instruction and video. Soon they will be doing hands-on training via controlled fires so employees will know how to use extinguishers and what it feels like.
    • Material Safety Data Sheets. MSDS are kept at all locations and training done verbally and via handouts. Employees learn how to look up any chemicals they handle.
    • Emergency action plan. This program lets employees know who first aid responders are at every branch, where to go in case of an emergency, how to exit the building, etc.
    • Defensive driver training. Not a little thing given California's notorious roadways.
    • DMV pull notice program. The state's Department of Motor Vehicles gives the company information about all of its drivers and tells whether they are driving without valid medical cards or licenses.
    • CPR training. Done by the American Red Cross, Todd has trained and certified persons in all branches and working all shifts.
    • Ergonomics. Instructs employees in exercises and prevention techniques for repetitive stress injuries.
    • Accident reporting. This program assures that each location provides the correct information to the correct people if an accident occurs.
    • Safety award program. Employees get a gift certificate for every 90 calendar days without a lost-time accident.
    • Product training. Helps employees learn about hazards associated with various products.
    • OSHA laws. Keeps abreast of current laws and updates.

    Todd Encircles Metro L.A. & Then Some: One of three company trucks that shuttle inventory between facilities on a daily basis.

    Todd Pipe & Supply operates out of seven full-service facilities in Southern California and another in Las Vegas. A ninth supply house in Escondido, Calif., near San Diego, was on the verge of being purchased as we went to press.

    Headquarters is in Hawthorne, an industrial town only minutes away from the Los Angeles Airport. Like all Todd facilities, it has convenient freeway access. Although the largest facility and somewhat of an operational hub, Hawthorne is not a true central distribution warehouse feeding other company branches. All of Todd's facilities are sizable supply houses in their own right, and they draw from one another's inventory as needed.

    This gets done via a daily three-truck shuttle system that connects all the locations. One shuttle leaves Hawthorne at 6 a.m. to beat L.A.'s murderous morning traffic, heading south to Garden Grove, then back north to El Monte, followed by a journey to Sylmar at the northern tip of the San Fernando Valley. The shuttle truck then heads back to Hawthorne for another run around the L.A. metropolitan "loop."

    Another shuttle passes through Garden Grove on its way to Riverside, then departs to Las Vegas at 11 p.m. The third shuttle awaits incoming deliveries to Hawthorne, then heads at mid-day to San Diego, again timing its run to avoid the worst of traffic.

    These locations did not come about by accident. Todd's facilities pretty much form a box around the greater Los Angeles area - which has been measured as the world's eighth largest economy, (the State of California ranks fifth). Las Vegas and San Diego represent new markets, and the addition of Riverside in 1999 and now Escondido represent fill-ins to better service areas at market outskirts.

    In 2001 Todd established a Commercial-Industrial Division, including a pipe fabrication shop, at its El Monte facility. They also have a special commercial quote department located in the Riverside branch whose sole function is to prepare job quotes on commercial plumbing jobs for all of Todd's customers company-wide.

    Karl McMillen, Philanthropist

    The main story tells of an unusually generous company in its treatment of employees. That's only half the story. Chairman Karl McMillen also is an extraordinary philanthropist who has donated eye-opening sums to a variety of favored endeavors.

    One is an endowed chair at the University of Southern California, his alma mater. Moreover, Todd Pipe & Supply is a major contributor to the McLaren Children's Center in Southern California. This first came about, I was told by one of Todd's managers, when a child of a Todd employee required assistance at McLaren. But his most stunning gift is to be formally announced just about the time we go to press.

    McMillen has personally donated $5.3 million to develop the Thelma McMillen Center at Torrance Memorial Medical Center. Named after McMillen's late wife, the Thelma McMillen Center will house a comprehensive outpatient program to treat chemical dependency. The gift is the largest private donation in the history of the nonprofit facility and one of the largest ever made to a community hospital.

    "My wife and I lost a son to drugs and I've struggled with alcohol," said McMillen. "This issue hits so close to home for me, I felt compelled to make a difference and do something about it to help our community."

    A Cool Thing To Do

    Virtually every supply house offers free coffee to patrons at their sales counters, and so does Todd Pipe & Supply. But most of their branches do something else that's even more attractive to many customers.

    They have ice machines set up in the counter area. This is especially welcome in desert areas such as Riverside and Las Vegas, where summer temperatures routinely reach triple digits and many plumbers drive around with ice chests filled with bottled water or soft drinks.