APR Supply Co. President Scott Weaverknows how it feels to sink, and even more how to swim. (Biking would be a better metaphor, since the former collegiate lacrosse player peddles some 150 miles a week as a regular exercise regimen, but it just doesn’t work in this context.)
His sinking experience occurred early in his business career when he entered a family company that traced its heritage all the way back to 1922. Originally called Lebanon Supply, the company had morphed intoAPR Supply Co.via an acquisition and was owned by Weaver’s father-in-law, industry icon Randy Tice. After graduating with a finance degree from Bucknell University and an MBA from Cornell, Weaver spent time as a commercial loan officer before joining the family business with a unique arrangement. APR opened a new branch in Lancaster, PA, their fifth at the time, and incorporated it separately with Weaver as 50% owner. Tice’s proposition was that if Weaver could make a go of it, after five years he could buy out his father-in-law to become 100% owner.
“But if it failed,” Weaver related, “he told me he would shake my hand and wish me good luck with the rest of my life. Randy didn’t want me hanging around if I didn’t work hard and make a success of myself.”
Weaver’s background was filled with business knowledge, but that sinking feeling set in once he realized that the world of a smallish family business didn’t operate the same way as a Fortune 500 company. He recalls writing a letter of resignation on three separate occasions, although delivering them only to his desk drawer.
He credits theAmerican Supply Associationwith drawing him out of that funk. More on this later. For now let’s swim/bike ahead 21 years to a company that now stands out as a beacon of independent plumbing/heating distribution. Today’s APR Supply Co., headed by Scott Weaver, operates 24 locations in the eastern half of Pennsylvania and has an impressive track record of steady growth both internally and via acquisitions.
Finance degree and MBA aside, Weaver’s forte is business culture more than numbers crunching. He quotes Good to Great author Jim Collins in saying, “I’ll take a good culture over good strategy.”
Culture at APR is something Weaver has spent a lot of time developing and refining. To cite one aspect: “We are changing our sales force to become more consultants than transaction or sales driven,” he explained. “Technology is changing the sales side (10-11% of the company’s sales come over the Internet). It’s a matter of finding out what the customer needs and servicing those needs.”
Weaver devours business books, and another favorite is Patrick Lencioni’sFive Dysfunctions of a Team. The company employs an open book management system in which employees are regularly kept abreast of company performance and incentivized by performance goals shared by all.
“We were very near industry averages in profitability before we opened our books to employees,” he told me. “Since we started including everyone in decisions, we have always been above average. There’s an absolute correlation between adopting the open book philosophy and improving our profitability.”
Here’s how our conversation went concerning his goals for ASA.
Supply House Times: What's your vision for ASA?Scott Weaver:I’ve thought a lot about that, and look at my job as creating an agenda based not on my needs but on the needs of the organization. I have a process I want to go through in the first 90 days of talking to the stakeholders of ASA, starting by asking good questions and listening to what they think ASA ought to be doing that’s different.
We just passed through a period of transition. Because of the economy the last few years have been spent getting ASA fiscally fit with the right-sized staff, the right people in the right place, the right educational initiatives and preparing for future success. We got out of a rather oppressive lease and an oppressive contract with a convention in Hawaii at relatively little expense. We’ve done all that, and now we are poised to do some things that we have not been able to do during the last few years.
We have gone from being adversarial with the buying groups to working together. Ten years ago the paradigm was we were in competition with one another. Today we’re much more in alignment with what ASA can do well and what the buying groups do well. ASA is about relationships and networking, while the buying groups have their transactional place.
Also, ASA has a platform for advocacy that we can extend to other industry parties as a natural extension of what we have done in past.
A priority of mine is to reconnect with the regionals. I think while we have good relationships overall, the opportunity exists to increase communication. On the education side, we can better coordinate with the regional associations to eliminate duplication.
One more exciting program in the beginning stages is for ASA to move from benchmarking to forecasting. ASA happens to be a prime source of industry data, and we are working to use that data for the benefit of the entire industry. We also want to bring together information from buying groups and other industry parties with access to pertinent data, and include them in both compilation and distribution of the forecasting service.
My goal is to make a difference. I want to make something better than before I came.
Q: Vendors have played an increasing role in ASA during recent times. Is ASA becoming more of a supply chain organization, or do you view it as still mainly an association for distributors?Weaver:When I look at who the stakeholders are in ASA and call them members, I mean the vendors as well as wholesalers. I look at both groups as key to our success, and I view them equally, not as one being more important than the other.
Any time we can have an administrative platform covering more and more members, and any time a manufacturer can cover all of his potential customers, membership wins. So I would be an advocate for consolidation of associations.
Q: Do you see ASA merging with one or more other associations in the foreseeable future?Weaver:It will absolutely happen in my lifetime, although which year I’m not sure about. I think it’s a natural consequence of greater market share and less ownership due to consolidation. We have a model in the old NHRAW and ARI merging to become HARDI. That’s proven to be a very successful platform.
Q: Do you think the more active role of vendors in ASA has led to improved relations between distributors and vendors?Weaver:I have a bit of unique view of that. Around five years ago we at APR said it’s time to change and treat our vendors exactly the same way we treat our customers. We decided to apply our five core values – customer, excellence, integrity, respect and results - to be present in every conversation with our vendors. At first we feared that might mean we get a worse price. What we found is it means we get a better end result, which may or may not have to do with price.
Our vendor relations are so much more rich, robust, collaborative and communicative that they were five to 10 years ago.
Q: You mentioned advocacy as one of ASA's most important roles. What are the top legislative priorities facing ASA members right now?Weaver:I’d like to respond to that from a different direction first. A year ago when Democrats controlled both the House and Senate, we had no ability to move any conservative legislation forward in any way. Republicans would listen to everything we had to say, but in the end would tell us, “We can’t do a thing about it.” The Tea Party stopped all that. When we went to Capitol Hill last spring talking to both Republicans and Democrats alike, it seemed like everybody understood things had gone too far to the left.
One legislative issue that will always make the top 10 is death taxes. We’re now operating on a compromise extension where the can got kicked down the road two years, but when that period ends we will need a permanent change in the estate tax law.
Another thing is, I think the country is ready for a simplification of the tax code with flattened brackets, less administrative burden and doing away with some of the complexities. I think both sides are ready for it right now.
Q: Who will run your company while you're running around on ASA business?Weaver:I have spent the last five years figuring out how to have everyone else do my job and make me redundant! That has allowed me to stop working in the business, and spend about 90% of my time on three major goals: first is to grow the business through new products and acquisitions; second is to manage our culture, and I’ve been working really hard on that; third is to make sure our senior team has all the resources they need to run the business on a daily basis. I only spend about 10% of my time today on internal operations issues.
Q: Do you see consolidation continuing?Weaver:I think that has more to do with the business cycle of individual businesses than the business cycle of the economy. When do people want to retire, and do they have another generation of owners or management to take over? If so, then there’s a natural succession. If not, then the company is getting ready to sell.
Q: Will we see another situation where some distributors are cashing out at 12 times EBITDA or more as in the past?Weaver:That would depend on the future of financial markets. If financial markets view a public company as worth 20 times earnings and you can buy a family-owned business for less than 20 times earnings, you create value on paper simply by acquiring the family-owned business. To me, that’s a bubble situation, and it could happen again if the public markets line up the same ways such as in 2005-2007.
Q: Where do you see ASA in five years?Weaver:Consolidation continues to happen, so as a natural consequence of members getting bought, we will continue to have a shrinking base of membership. In my 21 years with ASA, we have shrunk a little each year, except for the last year when we recruited enough new members to stay about the same size. In five years, I think we will be the same size or slightly smaller, but our voice will be louder and we’ll be more important to the success of the industry and to our members.
Q: Give us your elevator talk to a non-ASA member telling them why they should join.Weaver:I tell the story of when I came into the industry 21 years ago. I understood business, but I didn’t understand family business. There were times when I got stuck not understanding the difference, and that was a time when belonging to the Young Executives of ASA probably saved me from leaving this industry. I remember times when I would talk about my issues with the son or daughter of another owner who would laugh at me, saying: “Why do you think that problem is so unusual? You should hear my story!”
I learned that my problems weren’t about APR, but about my maturity, and I was able to work through it all via the Young Executives group. So ASA has a permanent place in my heart for saving me for this industry.
The other thing I would say is, don’t underestimate your friends, and when you come to the ASA convention, you’ll learn just as much in the hallways as in the classrooms.
APR's “Food Court” BranchesAmong the most interesting aspects of APR Supply’s operations is a series of branches – eight to date – operated in conjunction with an electrical distributor, (Schaedler Yesco/SYD) and/or an industrial PVF distributor (Industrial Piping Systems/IPS). The model is based on all those food courts you see operating in malls, airports and rest stops, in which several franchises operate as distinct restaurants but share a common seating area and other overhead.
Similarly, APR and its distribution partners share a common facility and all three partners use the Eclipse computer system platform, so cross training is easy. Each firm employs its own counter staff, but in a pinch they wait on one another’s customers and take one another’s phone calls. While it’s too much to expect them to learn three complete different inventories, they are cross-trained in the top 100 skus of each company so they can pitch in and service one another’s customers in at least a rudimentary way when necessary. Bar code technology enables them to produce orders via scanning whether or not they know the products.
The concept is so obvious it’s a wonder more distributors haven’t bought into it. Yet Scott Weaver’s research uncovered only one other distributor that had tried it and that venture failed. APR is in its fourth year operating joint venture branches, which he said are doing better than the norm.
“Speed to market and speed to profitability are the big difference,” said Weaver. “Throughout my career new branches could be expected to become profitable in the fifth year on average, maybe two or three years when opening a distribution center and centralizing a lot of operations. With the joint venture model, operating costs are much smaller and technology becomes much less expensive, so typically we achieve profitability within three to six months or at least cover incremental costs. That makes it very low risk.”
So why don’t more distributors do it?
“You need the right partners,” Weaver replied. “There’s trust we’ve built over many years of knowing our partners. We have the same value systems and same frame of reference with customer service as our focus. A customer might have to wait for a product specialist to resolve a difficult issue, but we collaborate to provide them reasonable service for the most part.”
Do you ever run into conflicts selling similar inventory items? I asked.
“Absolutely we do have conflicts,” he said, “but it’s so unimportant relative to the advantages, we have told our people that if there’s any question at all, to give that sale to our business partner. What’s more important is our relationships are strong and we have the ability to work together.”
APR’s initial round of joint venture branches were geared toward reducing the cost of opening in new markets. Recently APR and SYD decided to combine operations in an existing market, Scranton, by moving into a larger facility together.