Lehman Pipe & Plumbing Supply is a throwback to the days of 99% fill rates and handshake business deals.

Dennis Lehman, president (left), and his father, Julian Lehman, enjoy a fun partnership.

Dennis Lehman gave me a peek at his company's most recent financial statement, and it caused some eyebrows to collide with a rapidly receding hairline. How can a company operate today in such an old-fashioned manner and still report gross margins exceeding the industry's norm? Yet, that's the way their numbers crunched. Not only for that month, but for the entire year. Not only for that year, but year after year.

By old-fashioned, I mean Miami's Lehman Pipe & Plumbing Supply is a single location, family-owned wholesaler still believing in the quaint notion that inventory is the name of its game. No dielectric union, no specification valve, none of what company president Dennis Lehman refers to as "the crazy stuff," is too obscure to stock in depth. They fill some 75,000 sq. ft. of inside warehouse space and a giant yard with PVF materials of every size, shape and composition imaginable for their South Florida commercial building marketplace, along with a sizable export business. In today's era of central distribution, who can fathom an independent local supply house stocking 170 different sizes of copper reducing tees? How can a $20 million company invest $3.5 million of it stocking the shelves?

By the way, it leads to a fill rate exceeding 99.5%. "Back orders cost a fortune," says Lehman. "Not only do you lose the sale, the customer has gone somewhere else and possibly built a new relationship, which will cost you more sales down the road."

The statement should be amended to read "quality sales." Lehman doesn't want everyone to buy from them. They've been known to tell potential customers as nicely as possible that perhaps another supplier in town is better suited for their needs. For one thing, they sell strictly to the wholesale plumbing/pipefitting trade. No builders and certainly no homeowners. Again, old-fashioned. Even with contractors, they decline to build volume at the expense of dated receivables. "Our philosophy is if you can't discount, we're probably not the type of company for you. If I have to stop my day to get on the phone and collect money, I'm no longer a businessman, but a collection agency," explains Lehman.

Here's a story I would have thought to be a fairy tale had I not spied it on the Lehman P & L: bad debts in 1998 - $0. No, that's not a typo. The following year they had to write off a whopping $42. Dun & Bradstreet continuously singles out the company for having one of the highest ratings ever for early payment. Imagine that, a PVF wholesaler whose customers all pay their bills, almost always on time. How old-fashioned can you get?

Company founder Julian Lehman, 82, still works in the office, checking incoming and outgoing orders.

Relationships count

Here's how old-fashioned - Dennis' father, company founder Julian Lehman, 82, still arrives in the office every day at 5:15 a.m. to open up and spends the rest of the day checking incoming and outgoing orders. Not a single payable or receivable passes through the facility without either the father or son seeing what's going on. They are as involved in the business as a mother is involved in childbirth.

In deference to Father Time, Julian has cut back a little on the hours he used to put in. These days he generally leaves around 6:00 or 6:15 at night. Son Dennis usually arrives around 6:30 a.m. and stays till 7:00 to 7:30 p.m. "It's been a fun partnership," Dennis says about working with his father. "He loves the business, and loves for me to take the credit for its success."

Business to the Lehmans is all about relationships. With each other, with their 45 or so employees, many of whom have been with them for decades, with their customers and, significantly, with their vendors.

One looks around the Lehman warehouse and could easily mistake it for one of their vendor's facilities. Shelves and shelves of boxes bear the same brand names - Anvil, Cerro, Victaulic, Charlotte, Sawhill, Colonial, Elkhart, Brass Craft, etc. "We don't date, we get married!" Dennis exclaims. "We buy 90% of our inventory from single vendors, with a little business thrown to others just to have an account open in case something goes wrong with an existing supplier. If somebody is working with us service-wise and to keep us competitive, we don't jump."

Something else that's old-fashioned about them - virtually everything they stock is American-made. Oh, they'll supply something foreign if a customer is fixated on nothing but the absolute rock-bottom price, but otherwise, "I'd rather buy USA products and employ an American if I have that ability," says Dennis.

Lehman sells strictly to the wholesale plumbing/pipefitting trade - not to builders or homeowners.

Operating efficiently

Every wholesaler would like to be picky about his customers and suppliers, but life in the real business world has too many obstacles in the way. Most wholesalers need to shop prices incessantly in order to pass savings along to the ever so miserly marketplace; most wholesalers need to get turns galore to make their bottom lines turn black. How does Lehman Pipe & Plumbing Supply manage to record tidy profits with such self-imposed limits?

Part of the answer has already been given. No bad debts. Cash flowing like an open spigot. In turn, they don't have to worry about paying off loans and finance charges. When the Lehmans need to buy something for the business, even a delivery truck or some other expensive piece of equipment, they pay cash for it.

Another reason is their narrow focus, strictly commercial PVF. South Florida has virtually no industry, although Lehman is heavily involved with a large number of school projects, wastewater treatment plants, constant airport and seaport expansions and prisons. On the international level, they furnish overseas mining and oil-refining plants.

Lehman does not carry plumbing fixtures and trim. It goes against the modern grain of full-service wholesaling, but they couldn't be who they are if they spread their inventory dollars too thin. Lehman's competitive edge is having anything a customer needs in the local PVF realm, right now. (Some of their inventory is unconventional, like a big stock of garden hoses. "Contractors are always looking for hoses," Dennis explains, "for temporary water on jobsites.")

Another success secret is an obsession with operating efficiency. Their two-story facility cannot accommodate conveyors and other modern material handling systems, but they compensate with a meticulously organized warehouse. Color-coded storage bins, with surplus on top for easiest picking, minimize motion and mistakes. Fastest movers occupy the middle bins, where pickers don't have to stoop, while lesser-used items get stored on top or bottom. A platform lift is strategically situated to retrieve materials from the second floor. Black pipe gets stored outdoors in a clever shed with removable roof to protect it from Miami's humid climate while still allowing a forklift to access the pipe. A computer keeps track of where everything is and directs pickers so they don't have to retrace steps.

Curiously, that computer doesn't count the inventory. Almost all other aspects of company operations are automated, but not a running tally of stock on hand. Dennis doesn't rule it out for the future, but for now implementing such a system seems more trouble than it's worth. "Most wholesalers today are into inventory control and turns. We're into having inventory. A computer often says to keep 40 in stock because you sold 40. But if you had 80 in stock, you might have sold 80. So if a bin is half full, we fill it."

One of the more interesting aspects of Lehman's operations is an honor system that discourages customers from checking deliveries. Lehman drivers are instructed not to linger while customers verify and count the materials delivered to them. Instead, Lehman will honor without question any claim of shortage or wrong material, and will get the correct merchandise to the customer by later the same day or early the next morning.

"It would cost us more to check than it does to re-supply," explains Dennis. "If we allow the customer to hold up our driver while he breaks open boxes and counts what's inside, it can delay the driver's next run by 20 minutes. But our trucks have to roll. If we promise a contractor we'll be on his jobsite by 7:15 a.m., we'll be there, and we expect him to be there, because we can't stay. Besides, it's pointless to hold up the driver, because even if there is a mistake, there's nothing the driver can do about it."

According to him, re-supply is close to nonexistent. Every order gets checked by warehouse workers against the delivery ticket before it's put on a truck. Tables are set up in the warehouse expressly for this purpose. "About 99 out of 100 times when someone does call us to report something missing, they call back soon afterward to tell us they found it," says Lehman.

Staying competitive

I don't want to get too carried away with this old-fashioned theme. The Lehmans do understand the need to change with the times. Their business has evolved over time. And they know that even being the place for a contractor to go when he absolutely, positively has to have it today, isn't enough to assure customer loyalty in today's marketplace.

"Realistically, I think today prices fall to what the lowest guy in the market is willing to sell at," says Dennis. "Will our customers pay a few pennies more? Yes. Will they pay 5% more? In an emergency, yes. Will they pay 10% more? No. I don't think a wholesaler can make money anymore by selling. I think you make money in buying."

Here is where their loyalty to certain manufacturers pays off. "I think most manufacturers are cognizant of the fact that it's important to be courted by the independents, because they don't want to be owned by the chains," says Dennis. "Our favored vendors work hard to keep us competitive."

Another factor is membership in the Embassy buying group, which Dennis calls "the most important business decision we ever made."

"Embassy has afforded us the opportunity to be part of a multi-billion business structure and yet still be a $20 million company," says Dennis. "It's not only a matter of buying at a good price. Embassy's members include some of the most interesting, brightest guys I've met in our industry."

As time passes and competition heats up, the Lehmans have looked more and more to export business to stay healthy. They have supplied projects in five Central American countries, four in South America and in the Bahamas and Caribbean, working both through local companies and American firms. Ideally located for supplying south of the border, Lehman Pipe & Plumbing Supply has been doing it for almost two decades and has seen that business grow to the point where it now accounts for 35-40% of sales.

"The export market is evolving and we have grown with it," says Dennis. "As here, we have to be competitive, but most important is to have all the orders shipped correctly and in a timely manner. Shipping gets billed by cubes, so if a trailer is half-empty, the customer is still paying full freight. It's incredibly expensive to correct a mistake when exporting."

On being independent

For all their dedication to the business, the Lehmans do express a certain weariness with the ways of the modern world. A conversation with Dennis reveals a man buffeted between the thrill of competing as an independent in a chain-dominated industry and the agony of doing battle in a price-obsessed marketplace.

"The chains, of course, have some formidable competitive edges over independents," says Dennis."They have access to a tremendous amount of inventory, and can offer depth in financing. Also, it's hard to compete with them for the bright kids coming out of school. However, I don't think these advantages are as deep as some people think.

"The good independent wholesalers will survive, because they can give a better service level than the chains and act faster. With a good independent, you're part of the family. If you're working for a chain, you're a number, maybe a high number, but still a number. Lots of times the chains will transfer salesmen and managers, but contractors like to talk to familiar faces. I think that's why most contractors would prefer to do business with an independent supply house, as long as they can get the goods when they need them at a competitive price.

"When a chain buys a supply house, usually they keep the owner aboard as the branch manager, but an owner thinks a little differently than a branch manager. This is my business. I have nowhere else to go. That's my entrepreneurial edge," says Dennis.

"No matter how much you satisfy a customer, it doesn't mean too much today," says Julian, to whom a handshake agreement is more powerful than any legal language. "Everybody is strictly concerned about price. People will send out quotes to six different supply houses. The trust isn't there.

"Still, I enjoy what I'm doing. It's not drudgery. I like being with people and talking to them all day long. That's what keeps me going."

Betty Lehman, Julian's wife, has been an important part of the company since its inception. She handles all the financial matters, insurance policies and the company's profit-sharing program.

Sidebar: Why We Chose Lehman

The Supply House Times "Wholesaler of the Year" has always been a subjective designation. We view it a lot like baseball's Most Valuable Player award. The MVP isn't always the guy with the most impressive statistics. Leadership, hustle and other intangibles come into play in defining the player that any team can least do without. MVP voters sometimes factor in lifetime achievements in selecting a player who has performed well for many years but not been honored before.

In that vein, we decided to select as this year's Wholesaler of the Year one that may cause some head scratching. They are not a national or even a regional powerhouse. Most of you probably have never heard of them. Yet, Miami's Lehman Pipe & Plumbing Supply Co. epitomizes in many ways what a wholesaler should be, and has been excelling in that role for a long time. Moreover, they give lie to the widespread supposition that the independent supply house is on the verge of extinction.

Statistically, Lehman does not rank anywhere near the leaders in the PHCP industry's version of home runs and RBIs. They are a smallish company doing some $20 million in volume from a single location in a warehouse district near the Miami airport. We doubt, though, that many wholesalers can match their batting average when it comes to profitability and customer service.

This is the second time Lehman has been featured in this magazine's pages. The first was way back in April 1984. It's revealing to compare the thrust of that old article, penned by our legendary founder Charlie Horton, and the one you'll read here. Charlie's angle was captured by the following lead-in subtitle: "A classic independent wholesaler confronts one of our industry's classic problems. Having now reached the limits of their small wholesaler format, they must change to a more formalized structure - and they hate it!"

That story summary was vintage Horton. Nobody could cut to the quick better than he could. The article went on to detail a wholesaler keeping up with the times while adhering to the business values of the heyday of PHCP wholesaling during the 1950s and '60s. The emphasis was on working hard, being clever, building relationships and operating efficiently. None of that has changed.

In my article, I used the term "old-fashioned" to describe Lehman Pipe & Plumbing Supply. It pertains to those fundamental values that remain the same as when Charlie Horton visited them 17 years ago. Lehman is still the quintessential independent wholesaler succeeding due to longstanding relationships with both vendors and customers. They still rely upon clever operational efficiencies to compete with the big boys, and a massive inventory within a specialized field as their competitive edge. Their core beliefs still center around paying bills on time and being paid just as quickly. They still think of business as fun.

Don't read too much into that term "old-fashioned," however. They wouldn't be around, much less still prospering, were they incapable of changing with the times.

"Everything Charlie Horton predicted in that article about our need to change with the times came true," Dennis Lehman told me. That includes the tag line - "and they hate it!" Like many of us, the Lehmans look back with nostalgia to a simpler era when success in PHCP wholesaling was virtually assured through handshake agreements, customer loyalty and family dedication. Charlie saw that era start to fade in the 1980s, and today's wholesalers are immensely more challenged. Julian and Dennis Lehman concede that business isn't quite as much fun as it used to be, although they still don't consider it drudgery.

"Hate it" or not, the Lehman family has done what's necessary to adapt to the profound changes in their business environment. As a result, they continue not only to survive, but to prosper. They have melded old values with modern business exigencies better than any company we've come across. That's why they are worthy to be named Wholesaler of the Year - of this or any other year. Visit their Web site at www.lehmanpipe.com.