“Organized chaos” is how the owner describes this huge 61-year-old agency.

President and CEO David A. Cunningham

A common lament among independent reps in our industry is that growth has forced them to spend most of their time on business administration rather than the sales function that is their real expertise. Rep agencies must grow, however, in order to provide the array of support services demanded by vendors nowadays. Our Rep of the Year for 2008 is thoroughly focused on managing this dichotomy.

We’re not sure if Dallas-based Hugh M. Cunningham Inc. (HMC) is the largest rep agency in our industry, but they surely rank in the top tier. Consider some of the pertinent numbers:

  • HMC employs 110 people, including a field sales staff of 30.

  • They generate sales revenue of around $250 million a year.

  • They represent at last count 55 lines in portions of territories that include not only humongous Texas but also all or part of the four states that border it: Oklahoma, New Mexico, Arkansas, Louisiana, plus Colorado (HVAC only). Those lines span plumbing, HVAC, fire protection, turf, waterworks and municipal markets.

  • 20,000 electronically logged incoming calls a month are handled by HMC’s 21 customer service reps.

  • The company’s 75,000-sq.-ft. distribution center is filled to overcapacity handling not only HMC’s lines but as a regional shipping facility for other rep agencies that handle Charlotte Pipe & Foundry, Elkhart and Little Giant in different territories than HMC.

    “We’re more interested in being the best than the biggest,” declared David Cunningham, CEO and owner of the 61-year-old agency founded by and named after his father. “We’re big for a rep firm in our industry, but what we really are is a bunch of boutique companies utilizing the same infrastructure. At our core, we are a sales and marketing company, and our structure is designed to get away from everything that doesn’t pertain to that function. It’s a business model that’s worked well for us.”

  • Flow Control Group V.P. Brad Feldman

    “Organized chaos”

    HMC’s business model looks convoluted at a glance. The business is organized into six different sales and marketing groups spanning market sectors or, in the case of the Oklahoma and Sandia Groups, geographic territories. The distribution center operates as another distinct group, and is about to break away as a separate business. (See sidebar on page 40.) David Cunningham chuckled in using the phrase “organized chaos” to describe HMC’s complex administrative structure. But a lot of thought went into it, and upon closer inspection its logic clarifies.

    Plumbing & Mechanical (PM), Fire & Water (FW), Flow Control (FC) and HVAC are groups organized around those respective market sectors. The PM Group concerns itself with residential and commercial plumbing; FW with fire protection, turf, water well and irrigation products; FC encompasses municipal and OEM lines; while HVAC is self-explanatory and spans both residential and commercial. The Oklahoma Group works in a territory not voluminous enough to segment those markets, so it is responsible for the entire range of PM, FW, FC and HVAC sales in that territory. Same goes for the Sandia Group, which is responsible for sales in New Mexico and Colorado. Coming soon will be a Louisiana organization. Within the sales and marketing groups various individuals are charged with overseeing distinct functions such as special projects and quotations.

    Some product lines carried by HMC may be specific to one of the groups, especially their HVAC lines, while others may span several or even all of the groups. Seven teams of customer service reps (CSRs) specialize in various of the product lines, and support all of the sales and marketing groups. Their jobs resemble the “inside sales” role that is more common industry terminology, though most inside salespeople in the industry more accurately would be described as CSRs.

    Fire & Water Group V.P. Donald Moon

    Project Sales is a separate 12-person team working only on all commercial specifications and quotations efforts in the Plumbing, HVAC, Fire, Waterworks and Municipal markets.

    Overseeing all administrative and support functions is Dan Townsend, CPMR, an 18-year company veteran who serves as the company’s vice president of operations. HMC has invested more than $2.5 million and thousands of man-hours in infrastructure systems during the last four years, yet Cunningham said “my involvement was probably no more than two to three hours of my time. Decisions were made around me by professional dedicated people, and that’s the way it should be.

    “I realized that as the company was growing, more and more of the sales business was getting dragged down by operations,” he elaborated. “My strength is sales and marketing, and I needed to get away from the operations side. Dan and his exemplary team have facilitated my ability to attack and be visionary. He’s the one that makes my wild ideas work!”

    Cunningham and Townsend sit on HMC’s four-person advisory board of directors; the other two seats are occupied by outsiders. The board meets at least once a quarter for an overview of company operations. “The outside board has worked out very well for us,” said the CEO.

    Conversation with David Cunningham is liberally sprinkled with tributes to his staff of people at all levels. HMC is one of the few rep agencies that employs a director of sales & marketing, Ted Parker. He oversees an array of promotional activities that include golf outings, fishing tourneys, counter days and other events that fall under what Parker calls “relationship development.”

    V.P. of Distribution Dan Banaszek

    HMC also employs a full-time manager for information systems, Debra Dingess, who has been instrumental in keeping pace with the technology curve. A big part of that $2.5 million infrastructure investment went for Infor’s “TakeStock” distribution software system, a paperless warehouse management system, a new Inter-Tel phone system, and a CMR software system. Dingess spearheads EDI transactions with many vendors and wants to spread electronic purchasing to distribution customer transactions as well. Account managers are equipped with wi-fi enabled laptops, synchronized PDAs, and people in remote offices regularly meet with associates at Dallas headquarters via in-house videoconferencing.

    HMC also employs a full-time financial and human resources manager, Gary Chinn, whose job entails generating different P&L statements for each group and sorting out commissions from the agency’s dizzying array of lines and territories. They also have a director of training, Hal Haas, whose programs get repeated on the company’s Web site for anyone unable to attend.

    V.P. of Operations Dan Townsend

    Customer service’s 21 associates (Cunningham does not like the term employees) are managed by Lori Zimmer, who constantly eyes monitors set up throughout the CSR showing color-coded displays of CSRs available, tied up on the phone, and the number of people in the call queue. She tracks a number of metrics pertaining to call volume, phone time and on-hold time, constantly looking for improvements.

    Cunningham’s respect for his people is amply reciprocated. Senior vice president Grady McFarland, a former rep who joined HMC in 1986 and works as project sales manager for the PM Group, is looked up to as an elder statesman within the company. “David has redefined the role of the rep, which is always a work in progress,” McFarland told me. “David has trust in his people and has given us the technology needed. I’m very happy to be nearing the end of my career with David and the young guys I’ve had the opportunity to work with.”

    Another associate, regional contractor specialist Sean Weaks, echoed that sentiment with a succinct: “David is a great leader.”

    Director of Sales & Marketing Ted Parker

    It's all about selling

    Big rep agencies are a double-edged sword from a vendor’s perspective. On the one hand they have obvious advantages in their ability to offer support services, and an extended product package like HMC’s can symbiotically shore up lines that may lack presence in a certain niche. Yet it’s also natural for a prospective vendor to wonder if his line will get the attention it deserves.

    Cunningham and his team are acutely aware of such concerns and it is the reason they formed market groups and CSR teams to split up the 55 lines into manageable segments. Testifying to their success is a track record of longevity with premium lines. Charlotte Pipe dates all the way back to 1969 with HMC. Watts, J. R. Smith, Elkhart and A.O. Smith have been represented by HMC since the 1980s. Many others go back almost as far.

    “These are not just manufacturers to us,” said Cunningham. “It’s all about strong relationships with the people who own and/or work within those companies. They are incredible organizations, many run by families, and the same goes for our relationships with the distributors in our market. It doesn’t matter how sophisticated your business structure is, people relationships matter, and this applies to any business.”

    About 98% of HMC’s sales go through the distributor channel, but overall their account managers spend the majority of their face-to-face time with various third parties that influence sales - specifiers, contractors, inspectors, architects, maintenance people, etc.

    HVAC Group Manager Tim Truitt

    “Twenty years ago we spent most of our time calling on independent distributors,” said Cunningham. “You’d look them in the eye and make a deal. Now sales influence is everywhere and you can’t ignore any of them. It gets complicated, but complication creates opportunity. It enables independent reps to add value by doing things most vendors are not equipped to do on their own.

    “Our main strength is having 30 account managers calling on all of these influences face-to-face, day after day,” he continued. “We do not want our account managers executing the orders, putting up stock or answering the phone, and we don’t even pull them in for annual inventory. We want our account managers in front of the customer, and we give them a great deal of authority to work in the best interests of our customers and vendors.”

    I asked Cunningham what impact consolidation has had on his business, and he replied: “Like the impact of the sun on the earth! But you can penetrate even companies the size of Morrison, Ferguson, Coburn and Hajoca, et cetera, if you work hard at it. No matter what’s in their branch or DC or buying group, the distributor wants to support local sales - and the more sophisticated and engineered the product, the more the decision gets made at the local level.”

    Rising fuel prices make the face-to-face contact treasured by HMC increasingly expensive. Many distributors and reps are trying to pull away from field sales and put more customer contact responsibility with the inside sales staff. Cunningham wants no part of that trend; even though he pegs the cost of an outside sales call at between $400-500 and rising.

    “We’re a sales and marketing company, not a telemarketing firm. Fuel costs do impact our cost of doing business, but it’s like when our phone rates went up, we couldn’t stop using the phone. Face-to-face is our core, so we’ll deal with it,” said Cunningham.

    Distribution Group V.P. Dan Banaszek devised this gravity-fed stock rotation system for dated products. Stock gets put in the back, then slides down tilted rollers and gets pulled from the front.

    Industry citizens

    A theme that resounded throughout my conversations with Cunningham and dozens of other HMC associates was respect for the companies and industry served, even competitors. Cunningham spoke of being interviewed by vendors of certain lines and declining them simply because he felt they already were well represented in his territory and doubted HMC could improve upon the performance. “Our strength is our honor,” he said. “We don’t make promises we can’t deliver on.”

    The company offers training via its Web site, and makes no attempt to block the transmission. They don’t care if other reps pick up on it, feeling a rising tide of knowledge benefits the entire industry.

    HMC is a staunch supporter of MANA and AIM/R. Cunningham credits those organizations with contributing to the management expertise that enables HMC to grow and prosper. Each group is headed by a vice president or group manager whose credentials are required to include either an MBA or the CPMR offered by MANA. It is a tribute to that program’s excellence that Cunningham equates it with an MBA.

    The company currently has four CPMRs on staff, two more with an MBA, with four more enrolled in the business management program run by the Manufacturers Agents National Association (MANA). Cunningham said he intends to have some of his people continuously enrolled in CPMR training.

    Despite impresive operational metrics, the HMC Distribution Center is filled to the brim and operating at 135% of capacity.

    Time To Get Out Of The Warehouse Business

    The warehouse and distribution operation run by HMC’s Distribution Group is a marvel of efficiency that would be the envy of many rep firms. Stocking 37 lines, more than half on a buy/sell basis, the 75,000-sq.-ft. facility contains at any given time some $10-12 million worth of inventory and functions as a regional distribution facility for other agencies representing the same lines in different territories.

    Its Radio Beacon warehouse management system uses radio frequency handheld scanners and bar codes to achieve on-time delivery rates of 96%+ with order fulfillment accuracy upwards of 98%. Product turns over as much as 20 times per year. It takes 32 people in two shifts from 7:30 a.m. till 11:00 p.m. to run the place, which is oh-so-capably managed by Vice President of Distribution Dan Banaszek.

    Prior to joining HMC, Banaszek spent 23 years with Toys R Us and managed a 500,000-sq.-ft. DC for the toy giant. Cunningham hired him in 2000 to consolidate three warehouse facilities in Dallas, Houston and San Antonio into the single location at Dallas headquarters operated today. Banaszek knows his stuff and has been implementing new technology and efficiencies ever since. “Dan Banaszek has transformed our warehouse into something close to state-of-the-art. This has enabled our technology investment to get paid back in less than 20 months,” bragged Cunningham.

    Senior V.P. Grady McFarland is a former rep who joined HMC in 1986 and led them into the commercial plumbing marketplace.

    Company History Highlights

    Hugh M. Cunningham was one of the true pioneers of this industry’s manufacturers rep business. When he started the company in 1947, most salesmen were factory employees. After graduating with a business degree from the University of Texas, he recognized the logistical challenge faced by manufacturers in reaching customers in the far-flung reaches of our country, and figured he could fill the gap by representing various companies.

    Incredibly, he sold in a territory that stretched from the Rio Grande to the Canadian border. This was in an era without cell phones, Internet or so many of the other telecommunications that have made the world small. Along the way he built a company that would come to be known not only as a source of products, but also information, service and support. He is credited with building the first rep warehouse in the Southwest, and pioneering the now common practice of “pull through” calling on third-party building influences such as architects and engineers.

    Most of all, his legacy shines in company values handed down to son and current CEO David Cunningham. “He had an instinct for what was fair, made sense and would endure.”

    As time passed, the company retreated from parts of its vast territory and by 1986 was focused solely on residential plumbing. A housing recession gripped Texas at the time, and the company expanded into the commercial plumbing arena by hiring Grady McFarland, formerly of the McFarland, Riordan and Laden agency.

    In 1991, they expanded their sales effort into the municipal waterworks market, hiring former Ferguson executive Brad Feldman to lead that effort. In 2000 they hired David Riley to lead them into the FW marketplace, and in 2004 diversified once more into HVAC. In 2005 the agency reentered the Oklahoma marketplace, 20 years after pulling out of that state.

    From 2003 until the present the company has been busy implementing technological upgrades to enable it to keep track of its far-flung business and serve customers and vendors. Cunningham takes pride in the fact that these changes have taken place seamlessly. “It was a big headache for Dan Townsend and his operations team, but it never impacted our sales and marketing effort, so our vendors and customers never felt a thing,” he said.