Industrial Distribution, May/June 2015 by Design2Pro

Defining Distribution for more than 100 Years May/June 2015

Respected by Leading Distributors for More Than 100 Years

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A Group Effort United Distribution Groupâ&#x20AC;&#x2122;s customer service, expertise, and acquisition strategy have made it a powerhouse â&#x20AC;&#x201C; page 14 Our 68th Annual Survey Of Distributor Operations pg. 20

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May/June

[CONTENTS 2015] Volume 104, No. 3

F E AT U R E S

The 68th Annual Survey of Distributor Operations:

anu f ac turer’s View 18 M Put a dollar sign next to your service value. Close r L ook 19 ANon-residential construction market continues to shine.

eg al Wat c h 36 LThird-party harassment and employee investigations.

Demographics......................21 Challenges, Trends & Economy ..........................23

ictly For Sales 42 SThetrperfect combination of selling skills.

D E PA R T M E N T S

The Balance Sheet ..............26

6 Editorial

Best Practices .......................28

7 ID Online

Tech Usage & Investments ......................30 Value of the Distributor .....32 Employment ........................34

8 Around & About 10 News

P R O F I L E

12 Market Pulse 38 Product Focus

14 United Distribution Group

40 New Products

INDUSTRIAL DISTRIBUTION® (ID) Vol. 104 No. 3 (ISSN #0019-8153), (GST Reg. #844559765) is a registered trademark of and published 6 times a year (bi-monthly) by Advantage Business Media, 100 Enterprise Drive, Suite 600, Box 912, Rockaway, NJ 07866-0912. All rights reserved under the U.S.A., International, and Pan-American Copyright Conventions. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, mechanical, photocopying, electronic recording or otherwise, without the prior written permission of the publisher. Opinions expressed in articles are those of the authors and do not necessarily reflect those of Advantage Business Media. Standard Class postage paid at Rockaway, NJ 07866 and at additional mailing offices. POSTMASTER: Send return address changes to INDUSTRIAL DISTRIBUTION, P.O. Box 3574, Northbrook, IL 60065. Publication Mail Agreement No. 41336030. Return undeliverable Canadian addresses to: IMEX/Pitney Bowes, P.O. Box 1632, Windsor Ontario N9A 7C9. Subscription Inquiries/Change of Address: contact: Omeda Customer Service, P.O. Box 3574, Northbrook, IL 60065-3574, 847-559-7560, Fax: 847-291-4816, email: abid@omeda. com. Change of address notices should include old as well as new address. If possible attach address label from recent issue. Allow 8 to 10 weeks for address change to become effective. Subscriptions are free to qualified individuals. Subscription rates per year are $54 for U.S.A., $62 for Canada, $80 for Mexico & foreign air delivery, single copy $10 for U.S.A., $15 for other locations, prepaid in U.S.A. funds drawn on a U.S.A. branch bank. Notice to Subscribers: We permit reputable companies to send announcements of their products or services to our subscribers. Requests for this privilege are examined with great care to be sure they will be of interest to our readers. If you prefer not to receive such mailings, and want your name in our files only for receiving the magazine, please write us, enclosing your current address mailing label. Please address your request to Customer Service, P.O. Box 3574, Northbrook, IL 60065-3574. Printed in USA: Advantage Business Media does not assume and hereby disclaims any liability to any person for any loss or damage caused by errors or omissions in the material contained herein, regardless of whether such errors result from negligence, accident or any other cause whatsoever. The editors make every reasonable effort to verify the information published, but Advantage Business Media assumes no responsibility for the validity of any manufacturers' claims or statements in items reported. Copyright ©2015 Advantage Business Media. All rights reserved.

[Advertiser Information] Bay Fastening Systems . . . . . . . . Coxreels . . . . . . . . . . . . . . . CRC Industries Inc . . . . . . . . . . DDI Systems . . . . . . . . . . . . . Duracell. . . . . . . . . . . . . . . . Kuriyama of America Inc . . . . . . . Larson Electronics LLC . . . . . . . . Lubriplate Lubricants . . . . . . . . . Martin Sprocket & Gear . . . . . . . Ponaflex America . . . . . . . . . . . QA1 Precision Products, Inc . . . . . Schrader International . . . . . . . . Spectronics Corporation . . . . . . . Texcel. . . . . . . . . . . . . . . . . TranSolutions, Inc . . . . . . . . . . ULINE. . . . . . . . . . . . . . . . . Walter Meier - Jet/Wilton/Powermatic Walter Surface Technologies . . . . .

. . . . . . . . . . . . . . . . . .

This index is provided as an additional service. The publisher does not assume any liability for errors or omissions.

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11 37 13 23 .5 35 43 .3 25 10 41 15 17 .8 40 15 .2 44

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ANNA WELLS

[EDITORIAL] An Experience Brings the Industry to Life

ach year, our May/June issue puts the industrial distribution industry under a microscope and examines the results of our annual comprehensive report, the Survey of Distributor Operations. In its 68th year, this report reviews everything from distributor profits, revenues, business strategies, investments, and consolidation, and more – thanks to our loyal readers, we always find a nice pool of survey respondents to help direct our efforts. While I’d certainly encourage you to read through the report in its entirety – kicking off on page 20 – I’d also recommend you make a quick pit stop along the way and read this issue’s Distributor Profile on UDG. United Distribution Group is well known in the industry (and lands at #24 on our Big 50 List) and we had the opportunity to send Jack Keough out on the beat, to interview UDG’s executives, leaders in its subsidiaries, and top customers. While I think there is a lot that can be gleaned from the Survey of Distributor Operations, UDG’s story can also be considered a case study on industry success. The discussion between Jack and these industry leaders focused on things like strategic acquisitions, customer service, national accounts, and product depth – areas we review yearly in our survey. But placed in the context of a successful business like UDG, these elements come to life – rather than a pool of stats, we’re looking at the practical application of distribution best practices, and

a candid look at how it all works together. Each year, I attend about a half dozen association meetings, and my favorite part is getting a chance to discuss the marketplace with industrial distributors – face to face. It’s these kinds of discussions that provide the most insight, no matter how much market research there is out there. But for most of you, you probably don’t get a look inside other facilities and businesses. An industry that was once much more intimate has now expanded, and – with it – guards come up. So don’t miss your chance to learn from other, successful businesses when they’re willing to open their doors. That said, Industrial Distribution is constantly on the lookout for successful companies to profile within the magazine – and you don’t have to be a Big 50 company to get our attention. In fact, we’d love to hear from those of you who think you have something to share with your peers in the industry. Email me with the subject line “Distributor Profile” and let me know why you think we should visit your distribution company and put your organization on the cover of the magazine. Because stats are one thing, but putting a face and name to these best practices can really provide the kind of leadership and insight that this industry needs on a consistent basis. So don’t be shy.

Anna Wells, Executive Editor Anna.Wells@advantagemedia.com

199 East Badger Road, Suite 101, Madison, WI 53713 • 973-920-7000 www.inddist.com General Manager Tom Lynch tom.lynch@advantagemedia.com 973-920-7782 Editorial Director Jeff Reinke • jeff.reinke@advantagemedia.com Executive Editor Anna Wells • anna.wells@advantagemedia.com Associate Editor Mike Hockett mike.hockett@advantagemedia.com Contributing Editor Jack Keough John.keough@comcast.net

BUSINESS STAFFREGIONAL SALES DIRECTORS FRA,MA,MD,ME,NH,NJ,NS,NY,RI,VT Chuck Marin • 973-920-7174 chuck.marin@advantagemedia.com IN,KW,MO,OH,ON,PA,QC,TN,WV Joe Asplund • 973-920-7775 joe.asplund@advantagemedia.com BC,IL,KY,NE,WA Jon Jezo • 973-920-7703 jonathan.jezo@advantagemedia.com AL,DE,FL,GA,NC,SC,VA Larry Maher • 973-920-7686 larry.maher@advantagemedia.com AB,AR,AZ,CA,ID,LA,MS,MT,NM,NV,OK,OR,TX,UT,WY Vahe Akay • 973-920-7684 vahe.akay@advantagemedia.com CHE,MI,MN,ND,SD,UK Danielle Oleston • 973-920-7776 danielle.oleston@advantagemedia.com CEO Jim Lonergan COO/CFO Terry Freeburg Chief Content Officer Beth Campbell List Rentals Infogroup Targeting Solutions Senior Account Manager, Bart Piccirillo, 402-836-6283; bart.piccirillo@infogroup.com Senior Account Manager, Michael Costantino 402-863-6266; michael.costantino@infogroup.com For Reprints Contact 717-505-9701 x2332 The YGS Group: Reprint Division 3650 West Market Street York, PA 17404 ABMreprints@theygsgroup.com Subscriptions / Change of Address Phone: (847) 559-7560 Fax: (847) 291-4816 abimp@omeda.com

INDUSTRIAL DISTRIBUTION / May/June 2015

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Industrial Distribution Online [Product Focus ] TOP TWEETS via @Indistwebsite @Infor: Industrial #distributors should look to grow through oil & gas market. #Infor’s @lisacrussel via @InDistwebsite ow.ly/KvG3P

Top News Headlines –

@InDistwebsite: Should all distributors be using social media? ow.ly/KPsKr

Motion Industries’ Q4 Profits Soar

@InDistwebsite: How a small industrial distributor stays independent for 106 years – and counting: ow.ly/KHrKF

Blogs Kaman Industrial Eyes Continued Growth After Solid 2014 ID contributing editor Jack Keough looks at Kaman’s big acquisition of B.W. Rogers last year, and its plans for further expansion throughout 2015. http://www.inddist.com/blogs/2015/03/kamanindustrial-eyes-continued-growth-after-solid-2014

The Latest on Amazon’s New & Planned U.S. Distribution Centers With Amazon.com ever-growing its distribution network, ID’s Mike Hockett provides a roundup of the news from the last few months regarding the company’s newest fulfillment centers and where you can expect ones in the near future. http://www.inddist.com/blogs/2015/03/latest-amazonsnew-planned-us-distribution-centers

Article Takeaways from Grainger Show 2015 More than 17,000 people attended the 11th annual Grainger show in Orlando, where the company covered a number topics including social media, safety, e-commerce, and its future. http://www.inddist.com/articles/2015/03/takeawaysgrainger-show-2015 www.inddist.com

Grainger Introduces Choice Badger For Exclusive Products

Interline Brands Merges 5 Brands To Launch SupplyWorks Affiliated Distributors Announces Power Transmission Division Obama Administration May Double Salary Threshold For Overtime Exemption Fastenal Awarded National TCPN Contract Report: Builders FirstSource In Talks To Buy ProBuild Lewis-Goetz Acquires Action Industrial Group

Webinars: Transitioning Your Distribution Business to an Online World In our ongoing educational webinar series, ID hosted a panel of experts who discussed technology utilization, how e-commerce has changed training and function of customer service and salespeople, and the top considerations that should go into developing e-commerce functionality. Included were insights from Tara Meyer of PwC, Brooks Vigen of DIGI-Key, along with host and ID contributing editor Jack Keough. View it on demand: http://ow.ly/LguTn

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[ AROUND and ABOUT] Edited by Mike Hockett, mike.hockett@advantagemedia.com

Big 50 Companies Named ‘Most Admired’ by Fortune In late February, Fortune Magazine unveiled its 2015 “World’s Most Admired Companies,” a reputation-based ranking of companies around the globe. The diversified wholesaler category included six companies, three of which are on Industrial Distribution’s 2014 Big 50 List. The diversified wholesaler category companies are, in alphabetical order: • Airgas (No. 8 on Big 50) • Genuine Parts Company* • Graybar • Grainger (No. 3 on Big 50) • Rexel • Wolseley (No. 1 on Big 50) *Motion Industries (No. 9 on Big 50) is GPC’s industrial business. The industrial machinery category companies are, in alphabetical order: • ABB • Alstom

INDUSTRIAL DISTRIBUTION / May/June 2015

• Dover • Illinois Tool Works • Ingersoll Rand • Parker Hannifin The electronics and office equipment wholesaler category companies are, in alphabetical order: • Ingram Micro • Arrow Electronics • Avnet • Tech Data The overall annual list features a top 50 list. This year’s was topped in order by Apple, Google, Berkshire Hathaway, and Amazon.com. Companies that weren’t included in the overall top 50 did not have a ranking assigned to them. The list’s methodology uses nine key attributes of reputation: Innovation, People management, Use of corporate assets, Social responsibility, Quality of management, Financial soundness, Long-term investment value, Quality of products/ services, and Global competitiveness.

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[ AROUND and ABOUT] NEWS At the start of April, Grainger released the Grainger Choice Badge, which enables customers to quickly identify the right exclusive branded products to fit their needs. The company offers nearly 215,000 products featuring the Grainger Choice Badge in more than 32 categories … Graybar named David Meyer vice president and chief information officer, effective March 30 … Airgas announced plans to build a $64 million air separation unit in Tuscaloosa, AL. Airgas also made two recent management announcements with Pamela J. Claypool as president of the company’s North Division, and Matthew B. Whitton as president of the Northern California and Nevada region ... Apex Power Tools (Sparks, ND) has opened a new service and aftermarket center for all U.S. maintenance and repair operations in Louisville, KY … In mid-March, Fastenal announced a partnership with The Cooperative Purchasing Network to provide MRO supplies to government entities nationwide … SupplyCore has been awarded separate five-year, $90 million and $225 million contracts to deliver MRO supplies to U.S. military and civilian government agencies … Sonepar USA recently named Sean Leahy as the company’s new president of key accounts, and Mark Lindner as vice president of e-commerce and digital marketing … Falcon Fastening Solutions has appointed Craig Jones as account manager for its Louisville, KY office … Summit Electric Supply has named Paul Jeffries as its President and Chief Operating Officer … Motion Industries’ Bill Stevens officially retired as Chairman of the company on March 1, upon which company president and COO Tim Breen took over the role … Family-owned PEER Chain Co. (Waukegan, IL), an industrial chain provider, recently announced the return of Arthur Merwitz as Power Transmission Product Manager, effective April 7 … WinWholesale has opened WinSupply locations in Miami and Wise County, TX to serve surrounding counties with an inventory of plumbing products, supplies, and services.

MERGERS & ACQUISITIONS On April 9, Lewis-Goetz announced the acquisition of Action Industrial Group, a South Carolina-based fabricator and distributor specializing in fasteners, gaskets, hose products and industrial construction supplies … Arrow Electronics acquired immixGroup, a value-added distributor/reseller of IT solutions, headquartered in McLean, VA … Genuine Parts Company subsidiary EIS Inc. has acquired Seattle-based Connect-Air International, a North American specialty distributor of low-voltage wire and cable used in critical building applications with seven sales offices and www.inddist.com

warehouses in the U.S. … Ryan Herco Flow Solutions recently announced the purchase of Tualatin, OR-based Engineered Machinery Inc. … Atmospheric gases and welding supply distributor nexAir announced it has acquired M&A Welding Supply Co., which has four Georgia locations, and acquired Alabama’s Welders Supply & Equipment … Fluid power and automation products distributor Triad Technologies has acquired Mega Fluidline Products (Akron, OH) to further expand its product offering in key Ohio Markets … Building materials provider ABC Supply (Beloit, WI) announced two acquisitions in late March, adding Worcestor, MA-based Rome Building Products and Minneapolis-based Western Roofing Supply … Private Equity Firm Platinum Equity has agreed to buy PrimeSource Building Products, the largest distributor of screws and nails in the U.S. Terms were not given … DGI Supply has agreed to acquire Monroe, NC’s East Metro Supply, a specialty tool and full-line distributor … On April 13, Builders FirstSource announced it had purchased Fergus Falls, MN-based homebuilding supplier ProBuild for an estimated $1.63 billion … RBC Bearings has acquired the Sargent Aerospace & Defense business of Dover Corporation for $500 million … Wolseley’s U.S. plumbing subsidiary Ferguson made two March acquisitions, with California-based Neptune Meter distributor Equarius, and Massachusetts’s Redlon & Johnson … Graybar has acquired Duluth, GAbased Advantage Industrial Automation … GHX Industrial, an United Distribution Group company, announced in early March the acquisition of Tennessee-based Fugitt Rubber and Supply Co. … Atlas Copco has acquired Germany’s Kalibriercentrum Bayern, which specializes in calibration services near Munich … Utica, NY’s Northern Safety Co. has completed the acquisition of Southland Industrial Supply Inc.

AWARDS The National Association of Electrical Distributors announced in late March that Graybar Chairman, President and CEO Kathy Mazzarella is the 2015 Women in Industry Trailblazer Award recipient … South Birmingham, AL-based Mayer Electric Supply once again received recognition as a Top Georgia Workplace by the Atlanta Journal-Constitution. Each of Mayer’s 12 Georgia branches were recognized … Grainger Mexico honored Walter Surface Technologies with its “Best Supplier with the Greatest Commitment” award during a gala held March 4 in Monterrey, Nuevo Leon … Albany, NY-based Noble Gas Solutions was named among the “Top 100 Small Businesses In America” by the U.S. Chamber of Commerce … Sawmill manufacturer Wood-Mizer gave its annual CREST Award to five suppliers for their level of support, including Grainger, Industrial Hydraulics, Scott Industrial Systems, F&M Mafco, and Cargo Services Inc. May/June 2015 / INDUSTRIAL DISTRIBUTION

[ NEWS] Affiliated Distributors Announces Bearings & Power Transmission Charter Members Affiliated Distributors (AD) recently announced the first wave of charter members in its newly formed Bearings & Power Transmission Division. The annual sales of AD’s 27 Charter PT Members exceeds $2.4 Billion through 378 branch locations. The 27 charter PT members are: • APEX Industrial Automation LLC (Downers Grove, IL) • B & D Industrial (Macon, GA) • Baldwin Supply Company (Minneapolis, MN) • Bearings & Drives Unlimited dba BDU Inc. (Souderton, PA) • Bearing Chain & Supply, Inc. (Farmers Branch, TX) • Bearing Headquarters Company (Broadview, IL) • Bearing Service, Inc. (Livonia, MI) • Bearing Specialty Company, Inc. (Canton, MA) • CBT Company, Inc. (Cincinnati, OH) • Eastern Industrial Automation (Waltham, MA) • Electric Motor Sales & Supply Co., Inc. (Chattanooga, TN)

• Erie Bearings Co. (Erie, PA) • French Gerleman (St. Louis, MO) • Gordon Industrial Supply Co. (Fresno, CA) • HCI Supply (Jackson, TN) • IBT Industrial Solutions (Merriam, KS) • Kirby Risk Mechanical Solutions & Service (Lafayette, IN) • Kurz Industrial Solutions (Neenah, WI) • Lane Conveyors & Drives, Inc. (Brewer, ME) • M.B. McKee Co., Inc. (Lubbock, TX) • Malloy (Sioux Falls, SD) • Power & Rubber Supply, Inc. (Tuscaloosa, AL) • Purvis Industries, Ltd. (Dallas, TX) • State Electric Supply (Huntington, WV) • Tri-State Bearing (Evansville, IN) • Troy Industrial Solutions (Watervliet, NY) • Van Meter, Inc. (Cedar Rapids, IA).

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[ NEWS] NBMDA’s Sales Trends Research Shows Increased Growth Confidence In 2015 The Q1 2015 NBMDA Quarterly Sales Trends Report, a benchmarking and forecasting tool, surveyed both distributor and manufacturer members of the North American Building Material Distribution Association to provide data and insights into near term and regional demand trends, sales forecasts, and other issues and challenges facing distributors in the industry. Overall, NBMDA members saw strong sales growth in late 2014 with both distributors and manufacturers posting 7 percent growth in Q4. December was the strongest month of Q4 for NBMDA members, and respondents are gaining increased confidence in 2015 with more than 80 percent of members more positive about growth prospects versus the same time last year. Distributor-specific insights from the report showed that initial 2015 growth forecasts are up 9 percent, which is 3 points higher than forecasts put in place 90-120 days ago. In February, more than 20 percent of distributors had increased Q1 2015 sales growth targets slightly. The “WE increase was driven by improving economic outlooks, higher customer confidence, and favorable weather comparisons versus the prior year.

The funds go toward driving talented workers to the key positions of sales and customer service in industrial distribution. As of March 1, ID Big 50 companies BDI, Motion Industries, and Kaman Industrial Technologies have each made contributions of at least $2,500. Additionally, BDI Americas, Motion Industries and Motion Canada, and Veyance Technologies have contributed between $10,000 and $14,999. Harold C. Schott Foundation has contributed $15,000+.

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Industrial Careers Pathway Fund Drive On Pace To Surpass 2014’s In October of 2014, the Power Transmission Distributors Association (PTDA) kicked off the Vanguard Campaign, a 2015 fund drive through its educational division, The Industrial Careers Pathway. As of March 1, the drive had already raised nearly $188,000 through contributions from various industrial distributors, including several companies on Industrial Distribution’s 2014 Big 50 List. The 2014 campaign raised $310,000, and 2015’s is on pace to far surpass that mark. As of mid-April, 87 organizations and individuals have made pledges to the fund drive, including industrial distributors large and small, and the manufacturers they support.

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May/June 2015 / INDUSTRIAL DISTRIBUTION

MARKETPULSE

BY JON MINNICK

Bradley J. Holcomb, Chair of

ISM: Manufacturing Slows In March

corresponds to a 3 percent increase in real gross domestic product (GDP) on an annualized basis. In addition, if the PMI for March (51.5 percent) is annualized, it corresponds to a 2.6 percent increase in real GDP annually.” “The March ISM report reflects a number of depressing factors — weather, trade, and commodity deflation — yet reports that manufacturing is still growing at a weak rate,” noted Daniel J. Meckstroth, chief economist for the MAPI Foundation, the research affiliate of the Manufacturers Alliance for Productivity and Innovation. Manufacturing production posted moderate growth in the fourth quarter of 2014 (3.6 percent growth in manufacturing industrial production) but industrial production in first quarter of 2015 will have no growth. A PMI in excess of 43.1 percent, over a period of time, generally indicates an expansion of the overall economy.

conomic activity in the manufacturing sector expanded in March for the 27th consecutive month, and the overall economy grew for the 70th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business. Manufacturing expanded in March as the PMI registered 51.5 percent, a decrease of 1.4 percentage points when compared to February’s reading of 52.9 percent, indicating growth in manufacturing for the 27th consecutive month. A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting. Bradley J. Holcomb, CPSM, CPSD, chair of the ISM Business Survey Committee states, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through March (52.6 percent)

ISM Mfg ROB Therefore, the March PMI indicates growth for the 70th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 27th consecutive month.

Orders, Production and Inventory “The New Orders index is off in March,” explains Holcomb. “Nine industries reported growth in new orders while eight reported a decrease, so it’s almost split evenly. That kind of speaks for itself.” ISM’s New Orders Index registered 51.8 percent in March, a decrease of 0.7 percentage point when compared to the February reading of 52.5 percent, indicating growth in new orders for the 28th consecutive month. A New Orders Index above 52.1 percent, over time, is generally consistent with an increase in the Census Bureau’s series on manufacturing orders (in constant 2000 dollars).

MANUFACTURING AT A GLANCE: March 2015 Index

PMI New Orders Production Employment Supplier Deliveries Inventories Customers’ Inventories Prices Backlog of Orders Exports Imports

Series Index Dec

Series Index Nov

Percentage Point Change

51.5 51.8 53.8 50.0 50.5

52.9 52.5 53.7 51.4 54.3

-1.4 -0.7 +0.1 -1.4 -3.8

Growing Growing Growing Unchanged Slowing

Slower Slower Faster From Growing Slower

27 28 31 1 22

51.5 45.5

52.5 46.5

-1.0 -1.0

Growing Too Low

Slower Faster

3 4

39.0 49.5 47.5 52.5

35.0 51.5 48.5 54.0

+4.0 -2.0 -1.0 -1.5

Decreasing Contracting Contracting Growing

Slower From Growing Faster Slower

5 1 3 26

Growing Growing

Slower Slower

70 27

OVERALL ECONOMY Manufacturing Sector

INDUSTRIAL DISTRIBUTION / May/June 2015

Direction

Rate of Change

Trend* (Months)

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[ MARKETPULSE] ISM’s Production Index registered 53.8 percent in March, which is an increase of 0.1 percentage point when compared to the 53.7 percent reported in February, indicating growth in production for the 31st consecutive month. An index above 51.1 percent, over time, is generally consistent with an increase in the Federal Reserve Board’s Industrial Production figures. ISM’s Backlog of Orders Index registered 49.5 percent in March, which is 2 percentage points lower than the 51.5 percent reported in February, indicating contraction in order backlogs following one month of expansion in order backlogs. Of the 84 percent of respondents who reported their backlog of orders, 18 percent reported greater backlogs, 19 percent reported smaller backlogs, and 63 percent reported no change from February. The Inventories Index registered 51.5 percent in March, which is 1 percentage point lower than the 52.5 percent registered in February, indicating raw materials inventories are growing for the third consecutive month. An Inventories Index greater than 42.9 percent, over time, is generally consistent with expansion in the Bureau of Economic Analysis (BEA) figures on overall manufacturing inventories (in chained 2000 dollars).

Employment ISM’s Employment Index registered 50 percent in March, which indicates that there was no change in manufacturing employment relative to February, and follows 21 consecutive months of growth in employment. An Employment Index above 50.6 percent, over time, is generally consistent with an increase in the an increase in the BLS data. For more information on the Institute for Supply Management, visit www.ism.ws.

Exports, Imports and Prices ISM’s New Export Orders Index registered 47.5 percent in March, which is 1 percentage point lower than the 48.5 percent reported in February. March’s reading reflects the third consecutive month of contraction in the level of exports, following 25 consecutive months of growth in new export orders. ISM’s Imports Index registered 52.5 percent in March, which is 1.5 percentage points lower than the 54 percent reported in February. This month’s reading represents 26 consecutive months of growth in imports. The ISM Prices Index registered 39 percent in March, an increase of 4 percentage points when compared to February’s 35 percent, indicating a decrease in raw materials prices for the fifth consecutive month. In March, 10 percent of respondents reported paying higher prices, 32 percent reported paying lower prices, and 58 percent of supply executives reported paying the same prices as in February.

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May/June 2015 / INDUSTRIAL DISTRIBUTION

DISTRIBUTOR PROFILE

United Distribution Group’s United Central Industrial Supply Company location in Chapmanville, WV

A Group Effort United Distribution Group proves the importance of customer service. BY JACK KEOUGH

y combining technical expertise, an expanded offering of products, and an emphasis on acquiring well-managed companies, the United Distribution Group (UDG) has grown to become a powerhouse distributor serving the oil, gas, mining, and a variety of diversified industries. But the main reason for UDG’s success is its focus on customer service. “Our job is serving our customers and knowing what’s important to them,” says Darrell Cole, president and CEO of UDG. “We’re extremely focused on our customers and differentiate ourselves with the services we provide and the way we conduct day-to-day business.” And that focus has paid off handsomely for the Bristol, TNbased company and its subsidiarDarrell Cole, ies, as it has grown to 85 locations UDG President and CEO throughout the U.S. and Canada. The company, which sells everything from hose, pipe, valves, fittings, safety, and other MRO products, has seen its employee headcount soar to more than 900 up from about 700 in 2012.

INDUSTRIAL DISTRIBUTION / May/June 2015

With financial backing from American Securities Capital, UDG has acquired a number of well-known distributors serving a variety of industries. It has also opened new locations in order to better meet the needs of customers that have expanded their business operations. Its GHX Industrial subsidiary made three acquisitions in 2014, most recently acquiring Fugitt Rubber & Supply Co., a TN-based distributor of fluid sealing and fluid transfer products. FR&S has two branches, a 25,000-square-foot facility in Memphis, TN, and an 18,000-square-foot facility in Jackson, TN. Meanwhile, its subsidiary, McCarty Equipment Company, opened three new locations and enlarged a fourth last year, in addition to making one acquisition. Cole says his company’s strategy is simple: “We go where customers lead us.” And that often happens because the company has a very active and growing national accounts business. “National accounts are very important to us,” Cole says. But regardless of where the customer is, the focus throughout UDG and its subsidiaries is to be committed to making sure that the customer gets the right products at the right time. And customers are pleased with the results. For example, United Central Industrial Supply, a subsidiary of UDG, has a number of long-time customers like www.inddist.com

“Most distributors rely on the manufacturer to provide the technical expertise that a customer needs. United Central has that knowledge available through their product management team and salespeople.” Wayne Elkins, vice president of material management of Patriot Coal, a major U.S. coal producer. “One of the unique things about United Central is that I can call the branch manager, the salesperson, or even the president of the company and I can get information from them immediately,” says Elkins, who has been a customer of the company for more than 20 years. “Most distributors rely on the manufacturer to provide the technical expertise that a customer needs. United Central has that knowledge available through their product management team and salespeople,” he says. In addition, he says that UC went beyond expectations in working with them on a past project. At one location, Patriot Coal wanted UC to become the sole supplier of products. That meant UC had to set up a system to supply all those needed products as well as establishing an onsite vendor managed inventory presence at the facility. “UC had it in full operation within 30 days,” Elkins says. “We sometimes put pressure on them to react quickly in tough situations and they always come through.” He adds that UC is a unique company in that it offers not only technical expertise in a number of product areas, but also a “broad spectrum” of MRO supplies. That technical knowledge has led to UC opening three repair service centers that provide value added services such as authorized product repair. And UDG does, indeed, carry a wide inventory. Through its subsidiaries, UDG carries more than 170,000 line items and represents some 2,100 manufacturers. www.inddist.com

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DISTRIBUTOR PROFILE

UDG’s GXH Industrial location in West Houston, TX

UDG’s Founding UDG was formed in 2012 when United Central Industrial Supply (UC), the largest supplier of products to the mining industry in North America, merged with GHX Industrial. As a result, UDG now consists of UC, GHX, National Mine Service – a Canadian-based company offering technical and field support services for the mining industry; Gooding Rubber – a broad line distributor of rubber products; and McCarty Equipment Co. – a Texasbased distributor of hose, fittings, valves and other related equipment. In seeking potential acquisitions, UDG looks for companies that are familiar with the oil, gas, mining, or energy related markets and have a strong, reputable management team. Identifying these potential acquisitions is the job of Dan Ahuero, vice president of mergers and acquisitions. Ahuero is a well-known and respected distribution executive in the hose and rubber industry. He is a founder and former executive chairman of GHX and also is a former president of NAHAD-The Association for Hose & Accessories Distribution. Another UDG employee, Jim Reilly, is currently the association’s first vice president and incoming president. “We’re fortunate to have Dan on board. He knows these companies and the industry so well. That has helped us a great deal,” Cole says. Unlike some acquirers in the distribution sector, UDG usually keeps the management and staff of the acquired company on board so the transition is seamless and UDG benefits from the experience and knowledge of those retained employees. Cole is especially enthusiastic about GHX’s acquisition in January of Houston, TX-based Hose & Fittings, Inc., a value-added fabricating distributor and key supplier to oilfield companies and OEMs with worldwide offshore and subsea operations. Their primary market is the oil and gas sector. Cole says this specialized company will allow it to expand similar operations to other locations around the country in addition to the Gulf area, which it presently 16

INDUSTRIAL DISTRIBUTION / May/June 2015

serves. “They (Hose and Fittings) have a great team,” Cole says. “We’ve kept everyone on board. This will allow us to continue that business into other offshore locations far beyond the Gulf area.” The hose and fittings that HFI sells can be used in harsh environments such as in salt water, he points out. While UDG, which primarily services the mining, oil, gas and other energy markets has seen sharp growth in the past few years, it faces a challenge because of a drop off in oil and gas prices, with some companies reducing the number of rigs in operation. Cole says that 2015 might prove to be below 2014, but still is optimistic. “The upstream market might be impacted, but the downstream market (refineries) will be operating all day every day,” he says. He is also quick to point out that UDG and its subsidiaries provide product to a number of other sectors including petrochemical, OEM, agriculture, pulp and paper, and chemical. Strategic acquisitions have allowed UDG and its businesses to go into new markets and penetrate further into existing ones.

Flawless Execution Richard Harrison, president of GHX, says the company has an excellent program in place to make sure the acquisitions are executed as flawlessly as possible. “We have an integrated model that takes anywhere from 12 to 18 months to complete,” Harrison says, also noting that the systems integration process usually takes about 90 days. But equally important, he says, is the culture integration. “We note what had made them successful in the marketplace and want them to Richard Harrison, be as proud and enthusiastic about GHX President the future as GHX is.” www.inddist.com

Finding and retaining technical talent is a problem faced by UDG, just as it is at many distribution companies. Henry Looney, president of UC, says his group actively recruits from some of the top universities but also has an excellent reputation for keeping and developing employees. Many of the employees in GHX and UC have been with the companies Henry Looney, United for years. Central President Looney also mentions the success of UDG University. Under this program, UDG asks managers to recommend employees who have been identified as having potential for advancement. The program fosters the personal and professional development of employees and provides a way for that development to be structured and evaluated.

frequent basis to share information, target accounts, and work on ways to grow both their businesses through a mutually collaborative effort. “These are very open and frank discussions,” he says. That is part of GHX’s philosophy of positioning itself as the “expert fit” and “trusted partner” in the industry. While UDG has achieved much success since its founding, Cole emphasizes that the team doesn’t take that for granted. “We know we are graded every day by our customers,” he says. “We like to say we supply the right products at the right place with the right support. It’s something we take very seriously.”

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opposed to a customer-vendor relationship.” The company is proud of its relationship with its many manufacturers. Flexitallic, a manufacturer of gaskets based in Houston, TX, for example, has been a supplier to GHX for more than 20 years. “We have a true distributor partnership relationship as opposed to a customer-vendor relationship,” says Scott Long, director of sales and engineering in the U.S. and South America for Flexitallic. That relationship has led to a strong team effort on joint sales as well as working together on new accounts. In some cases in which GHX has been awarded a contract, they recommend Flexitallic as a supplier while Flexitallic has done the same for GHX, allowing both companies to grow its share of business. Garth Miller, Vice President of Customer Operations for Industrial Scientific, a manufacturer of portable gas monitoring equipment, has been supplying UC and GHX with products for many years. “We have a very strong relationship with them,” Miller says, noting that executives from the two companies meet on a

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Manufacturer’s View Put a Dollar Sign Next to Your Service Value BY BILL MOORE, SKF USA VP, SPECIAL PROJECTS

oday’s distributor market for rotating equipment components is rife with spreadsheet bid and buy practices, calls to do more with less, and strident demands for ever-lower pricing. The result: reduced distributor margins, deflated customer loyalty, and the devaluation of many critical services. But within this landscape, industrial distributors have a largely unused tactical weapon with which to fight back. It is called the dollar sign. Put one next to the total value of your service offering, and earn recognition as a trusted business partner rather than just another source of supply. Here’s how:

Fully Understand Your Value Stream Typically, distributors are adept at valuing the factors they personally control, like their people, delivery practices, and direct business services. More difficult is putting together a value proposition that encompasses the resources of supplier partners and the synergy that arises with help from this extended team. Consider a distributor’s supplier partner of rotating equipment technology, for example. Premium suppliers will offer a host of engineering, administrative and business services at little or no cost to their authorized distributor partners. These services can directly translate to major cost savings for a distributor’s end user customer. When a distributor brings its premium supplier’s engineering resources to bear on a customer’s troublesome equipment performance, your service can be calculated into a cash value. A supplier’s root cause analysis of recurring premature bearing failure in a motor or pump is a case in point. By analyzing the bearing’s marks, wear patterns, heat discolorations, and other tell-tale indicators under laboratory conditions, rotating equipment technology experts can often determine the root cause of failure. The cause might be as simple as a soft foot under the machine or as subtle as a slightly misaligned shaft. If the condition is left untended, the premature bearing failure is virtually certain to recur, costing the customer lost productivity, unplanned maintenance, and downtime. Estimates for machine downtime can reach $20,000+ per hour. Multiply the number of hours it takes for repair by the number of times the bearing failure would have recurred over, let’s say, a year, and you will have a powerful cash value to 18

INDUSTRIAL DISTRIBUTION / May/June 2015

show your client during the next contract negotiation.

Understand Customers’ Challenges Understanding customers’ costs and needs can provide insights on how your products and services impact their bottom line. Map out where your products and services are used by targeted customers, then assign values to what that equipment does for them. For example, what is the production cost impact for a particular piece of equipment?

Valuate Your Services Mapping helps pinpoint areas where your value far exceeds the price you charge for rotating equipment components. Here are some ways that distributors can put a cash value on inventory services, products, and talents: • Review your client’s inventory usage, help them to optimize it, and calculate the resulting reduction savings. • Compare your on-staff talent and knowledge, along with your supplier partners’ expert technical assistance, to the relative cost of hiring outside consultants or suppliers, including their time and travel.

Sales Training Training sales personnel to apply cash values to your offering can present a challenge since it is far more than simply cost plus mark up. Ideally, your sales team should know how to identify equipment operating costs and go beyond superficial equipment relationships, such as costs to operate and maintain. Call into play supplier partner benefits, such as collaborative sales planning, joint calls, and, of course, those critical engineering services. Break out specific inventory that is supporting a given customer and define how that inventory was used (Examples: breakdown support, fast response and shortened lead times). Train your team to negotiate the value provided as part of their quotation process. Finally, take full advantage of your supplier partners’ capabilities to improve your value. Armed with documented savings attributable to you and your supplier partners’ combined services package, you can trump many of today’s “out-for-bid” component buying practices and avoid being victimized by aggressive buyers. Too often, distributors know this, but fail to invest the time to calculate these critical metrics. Bill Moore is Sr. Vice President, Special Projects for SKF USA Inc. He can be reached at william.c.moore@skf.com. www.inddist.com

A Closer Look with

[JACK KEOUGH] Non-Residential Construction Stays Hot

ne of the bright economic spots for many distributors in 2014 was the strength in the non-residential construction market — and many economists are predicting the same for this year. As just one example, a recent economic report from Wells Fargo Securities Economics Group showed private warehouse spending for last year jumped a whopping 48.6 percent and is expected to rise again in 2015. E-commerce was cited as just one reason for the accelerated growth in warehouse spending. A company like Amazon is changing almost every aspect of the supply chain as it expands its reach to a growing share of the population by placing fulfillment centers close to the consumer, the report says, noting that Amazon has about 75 fulfillment centers in the U.S. and another 15 underway. Wells Fargo also estimates that there will be growth in institutional and commercial building; those markets have been slower than others, like manufacturing building, in 2014. The company predicts structure investment spending to increase five percent this year and eight percent in 2016. “Underpinning this forecast is continued improvement in commercial and industrial outlays, but we also expect institutional building to post a positive reading this year,” the report said. “Commercial construction is expected to continue its solid momentum with office, warehouse, and hotel posting another round of double-digit gains in 2015.” And the year is starting off fairly well. Non-residential construction starts, a good leading indicator for outlays, spiked more than 40 percent in February following a weak reading in January. For starts, manufacturing building soared during the month, partially due to a large project in Texas. Activity in this part of the country continues to “hum” along, the report said. Institutional starts also jumped in February, rising 20 percent, with educational and healthcare facilities seeing the largest gains. For some distributors, like HD Supply, the non-residential market makes up a significant amount of sales. “We took a cautiously optimistic view on non-residential in early 2014 and we saw measured strength built throughout the year,” said Joe DeAngelo, chairman and CEO of HD Supply in a conference call with analysts following the company’s fourth quarter and year-end earnings report. “The majority of (HD Supply’s) construction and industrial’s priority 15 districts are now performing well www.inddist.com

across the country. We believe that non-residential, which represents about 23 percent of HD Supply’s fiscal year ’14 sales, should continue to be a solid market in 2015.” HD Supply is also optimistic about residential construction. “Residential is showing characteristics of a moderated but prolonged recovery. The spring selling season is a key data point for residential, especially given the weather difficulties of the past few months,” he said. The company had 60 of its branches partially or totally closed because of the severe weather and snow storms that covered much of the country. Some economists predict strong pent-up demand for projects later this year because of ones that were stalled in January due to the terrible weather. HD Supply is looking for that rebound as it continues building on its excellent Q4 2014. HD Supply’s revenue for its construction and industrial business was $337 million, a 14 percent gain. For fiscal year 2014, revenue for construction and industrial was $1.5 billion, up 15 percent. Growth initiatives contributed $21 million and $107 million for the fourth quarter and full year, respectively. One of the reasons for the increase in sales was strong walk-in traffic at 25 of its branches, accounting for about 50 percent of total branch sales. “What we do is we position those locations to be very successful and take the heavy stuff out of our yards and get it to the job site,” DeAngelo said. “But most importantly, it’s also on the way to the job site so that the crews can come in. If you think about it, the pick-up truck for the contractor is the on-site vending machine. “Our job is to keep that vending machine full, so as we’ve refreshed all of our stores, we’ve created that retail insert that has all of the product that are consumables onsite. Our job is to make sure that not only we deliver with excellence, but we attract people to come in and be able to fill their on-site vending machine.” For 2015, HD Supply is forecasting residential construction to increase mid to high single digits, non-residential construction to increase mid-single digits, power and water infrastructure to be flat to up low single digits, and the MRO market to remain stable, increasing one to two percent. These specific end market estimates imply an approximately three to four percent 2015 market growth for HD Supply.

Jack Keough is contributing editor of Industrial Distribution. He can be reached at john.keough@comcast.net. May/June 2015 / INDUSTRIAL DISTRIBUTION

INTRODUCTION

DISTRIBUTORS: Choose Your Path e’re excited to provide the readers of Industrial Distribution with the results of our 68th annual Survey of Distributor Operations. The objectives of this report, as always, have been to understand the most critical issues affecting distributors, and to provide data to help drive their educated business decisions. Through these findings, we’ll discuss new and ongoing industry trends, and what trends have fizzled. In this segment, we focus specifically on:

• Tech Usage & Investments, which covers areas like e-commerce and other big-impact technology solutions for now and the future. • Value of the Distributor, which addresses the reasons our survey respondents believe customers do business with them, and which service offerings play a significant role in the industry. • Employment, which identifies hiring and layoff trends, recruitment, and compensation.

• Demographics, which establishes a profile of survey respondents based on company size, years in business, sales volume, and product line. • Challenges, Trends & Economy, which outlines the initiatives distributors are undertaking to address key business and market concerns. This also covers mergers and acquisitions, and how distributors view the impact of the economy. • The Balance Sheet, which offers insights into revenues and profitability. This addresses areas of investment, concern, and other analysis of factors impacting revenue. • Best Practices, which sheds light on distributor relationships with suppliers and customers, as well as their global business plans and what challenges are involved.

Methodology The results of this study are based on an email survey sent to Industrial Distribution subscribers. Recipients of the survey were offered an incentive to complete the questionnaire. Industrial Distribution’s subscriber base is comprised of 30,000 readers, the majority of whom identify as executive, upper management, sales, or sales management. Results are based on a pool of respondents within this subscriber base. Because Industrial Distribution transitioned to a new publisher in 2010, no survey was conducted that year. Therefore, results which track comparisons over the past decade will reflect a gap between 2009 and 2011. Comments on this year’s results? Email ID’s executive editor, Anna Wells, at Anna.Wells@advantagemedia.com.

INDUSTRIAL DISTRIBUTION / May/June 2015

www.inddist.com

DEMOGRAPHICS BY ANNA WELLS

his year, our pool of respondents for the Survey of Distributor Operations is again heavily represented by suppliers to the industrial MRO sector. In fact, 83 percent say they reach manufacturing/processing customers. The second largest end market is, once again, the construction industry – which this year was nearly tied with the OEM market, up four percentage points over last year. While the results of this question on end markets are usually consistent, it’s probably because ‘consistent’ is the name of the game. A whopping 47 percent of companies responding say they’ve been in business for 50 years or more (Figure 1). Another third have existed between a quarter and a half a century, and only five percent for fewer than ten years. Despite the record merger & acquisition activity that’s taken place in the last several years, the 50+ year-old set has dipped only incrementally since 2011, where it registered at 50 percent (and 49 percent a year later). Other consistent demographic characteristics: • Most of our respondents are still headquartered in the Midwest (37 percent) with another 21 percent in the Northeast. This has remained relatively stable. • A variety of revenue segments are represented. As is typical, the most common segments are at the high end of $500 million or more (27 percent of respondents) and the low end at $10 million or less (27 percent). Since the higher revenue-yielding companies have more employees, it’s likely that the 27

percent in the $500M+ category actually represents fewer companies, since some survey respondents likely work for the same business. Overall, 53 percent fall within the $50 million or less category, which is a fairly consistent representation of the survey audience versus years past. Where we have seen a marked change – notably over the last 10 years – is in the number of industrial distributors who are family owned. In 2005, 78 percent reported they worked for a family-owned company; 58 percent say the same today. The impact of the recession suggests a significant point where some family-owned businesses likely began exiting the market, a phenomenon that snowballed as acquisition activity increased dramatically afterwards. In 2009, for example, 69 percent were still family-owned, a number which dipped to 60 percent in 2011 and has declined incrementally further since. It’s no surprise, based on the aforementioned market segments, that our survey respondents most commonly carry MRO supplies, a product category represented by nearly half (Figure 2, page 22). Other top categories tend to fall within this broader MRO category and include things like safety products (48 percent) hand tools (47 percent), power tools (43 percent), and adhesives & sealants and lubricants (42 percent each). In general, the trend towards product line expansion – versus specialization – has been steady, as many distributors add to their breadth in order to create a one-stop-shopping experience. When we asked our respondents to identify whether the number of product lines they carried had expanded, contracted, or stayed the same as last year, 66

How long has your distributorship been in business?

Figure 1

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May/June 2015 / INDUSTRIAL DISTRIBUTION

DEMOGRAPHICS percent said theyâ&#x20AC;&#x2122;d expanded. In fact, only two percent contracted, leaving around one-third who kept a fairly consistent number of lines. These numbers are nearly

identical to last yearâ&#x20AC;&#x2122;s results, which may suggest that certain businesses are consistently looking to grow from a product variety standpoint.

Which products do you most commonly carry?

Figure 2

INDUSTRIAL DISTRIBUTION / May/June 2015

www.inddist.com

CHALLENGES, TRENDS & THE ECONOMY BY ANNA WELLS

Compared to last year, how do

hen it comes to industrial distriyou see mergers and acquisitions bution, day-to-day challenges abound. While many of these affecting other distributors? issues are here to stay, as the landscape for distributors shifts, so do their primary concerns. This year, the number one concern was once again price competition, which nearly 54 percent of respondents identified (Figure 2, page 24). Other top concerns include economic conditions (48 percent), distributor competition (37 percent), and finding more qualified people (31 percent). Last year, economic conditions also ranked second, but it has dipped a few points from the 52 percent of respondents who identified this last year. This category peaked as an industry concern during 2009 where it was ranked “primary” by 70 percent of respondents. The lowest level of economic concern in the recent past was in 2006, when only a quarter of respondents expressed concern. Figure 1 We’ve again seen incremental increases in the level of concern distributors have over e-commerce. In the early 2000s, those identifying this area were in the low single digits, but started to rise in 2009, when ten percent said the same. This year, 20 percent identified e-commerce as a top concern, up from 17 percent last year. “Finding more qualified people” is also up a few points over last year, a category that’s been trending upward since hitting a low point (15 percent) during 2009’s peak unemployment. Write-in concerns included things like port strikes, government regulations, and ERP Software for Distribution Excellence “multiple distribution channels for the same products.” When it comes to managing their businesses against these issues, most distributors in our survey plan to counteract these challenges with growth strategies like growing sales among exiting cusInform ERP Software delivers more advantages to industrial tomers (77 percent), adding to their customer base (64 percent), and taking market share from specific distributors and stocking manufacturer reps than ever before. competitors (33 percent). These growth strategies Complexity Simplified - Eliminate duplication & increase profits have held fairly steady over the past year. Growth via “internet sales” has continued to appeal to distribuIndustry Specific Features - Designed for distributors like you tors, reaching 25 percent (from 24 percent last year, Raising the Bar - Mobile access and online sales tools and 18 percent in 2013). Areas that are low on the Find Out More - Download a free brochure at ddisys.com growth strategy list include: • Attending more conventions/trade shows. • Advertising. • Charging fees for services. • Diversifying into non-distribution businesses.

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CHALLENGES, TRENDS & THE ECONOMY

Which would you identify as your current primary concerns? 2005 2006 2007 2008

2009

2011

2012

2013 2014

2015

Economic conditions this year

31%

26%

41%

51%

70%

58%

59%

67%

52%

48%

Customers going out of business

30%

27%

19%

31%

67%

19%

13%

16%

14%

11%

Price competition

44%

42%

43%

42%

47%

44%

45%

53%

54%

Increased operating costs

33%

36%

29%

27%

37%

34%

26%

32%

26%

Manufacturers selling direct

26%

27%

22%

21%

25%

26%

25%

28%

26%

Distributor competition

33%

27%

34%

30%

21%

33%

29%

35%

33%

37%

Keeping qualified employees

21%

27%

18%

17%

16%

15%

24%

25%

Manufacturers selling to other non-authorized integrated suppliers

24%

10%

13%

17%

15%

13%

14%

16%

Manufacturers moving offshore

13%

25%

10%

16%

17%

11%

10%

Finding more qualified people

22%

35%

26%

18%

15%

24%

26%

27%

28%

31%

Manufacturer consolidation

11%

Mergers & acquistions

11%

10%

12%

10%

E-commerce

10%

13%

14%

17%

20%

Mail order houses

Mass merchants

Distribution termination

Environmental concerns

Other

Figure 2

INDUSTRIAL DISTRIBUTION / May/June 2015

www.inddist.com

CHALLENGES, TRENDS & THE ECONOMY Likewise, only six percent say they plan to invest more in catalogs as a primary growth Are you actively looking to strategy. purchase another distributor? Besides these internal strategies, mergers and acquisitions continue to dominate the discussion. For some, targeted acquisitions serve as a springboard into new geographies or industries, or add bulk to inventory or expertise. And yet for others, the record M&A levels simply create stiffer competition, as some of the larger distributors continue to grow. In the last twelve months, 9 percent of our survey respondents say their companies were either merged or acquired. Another 17 percent say they were approached, but a merger/acquisition did not go through. As shown in Figure 1 (page 23), most distributors we surveyed feel that either the same number or more will consolidate throughout the course of the next year, with only 14 percent predicting M&A activity scaling back. It’s likely the majority are on target. Earlier this year, Will Burnett of private equity Figure 3 firm ORG (Owner Resource Group) wrote a column for Industrial Distribution where he outlined the drivers behind this consistent consolidation activity. “First, companies have been pretty prudent since the Great Recession and are Offers you the sitting on strong balance sheets for the most part,” explained Burnett. “In addition, the debt markets are about as generous as I’ve ever seen them, with banks providing good companies incredibly favorable rates and terms. And private investment firms have plenty STOCK T& MTO POWER TRANSMISION of capital which they are hoping to deploy in this Sprockets sector. This all means that good companies looking Gears • Sheaves to make acquisitions have plenty of access to capital. Couplings • Bushings Synchronous Sprockets The other part of the equation – the need for capaciTiming Pulleys ty – is nearly as robust.” PARTS & SYSTEMS FOR Likewise, Jack Keough reported in July that the MATERIAL HANDLING world economy is seeing an increase in the number Bucket Elevators of transactions across many business segments and Screw Conveyors Shaftless Screws that experts expect the pace of the industry consolDrag Conveyors idation to pick up. It’s possible that independents HEAVY DUTY with a lack of capital, growth strategy, or a succesCONVEYOR PULLEYS sion plan might find themselves more amenable to Drum • Wing Quarry Duty the possibility of a buy-out, while other businesses Standard Duty simply wish to strike while the (valuation) iron is hot. Engineering Class For whatever reason, 22 percent say they would be INDUSTRIAL agreeable to the right buy-out offer. HAND TOOLS As for those looking to add depth to their own Contractor Tools Hydraulic Tools businesses, 35 percent say they are actively looking Mechanic Tools Body & Fender Tools to acquire another distributor (Figure 3). This is up five points in four years, as consolidation continues to ramp up as a business strategy in industrial distribution. www.inddist.com

THE BALANCE SHEET BY ANNA WELLS

hough the economy has been relatively stable in manufacturing and steadily improving in construction, does it necessarily translate to higher sales for industrial distributors? For seven out of ten of our survey respondents, the answer is yes (Figure 1). Of the remaining, most consider their sales stable, with only 10 percent of this total group suffering from decreases in sales. This highlights an improvement over last year, when 13 percent said sales had decreased. In fact, 2013 was also several points lower, as 17 percent said they’d experienced declining sales. As for profits, that can be another story. In a low margin industry, government regulations, employment issues, price increases and just about everything else under the sun can impact the distributor’s bottom line. This year, 61 percent (Figure 2) say their profits increased over the year prior — a significant increase from last year’s results, where 51 percent said the same. Those whose profits decreased are also represented by a slightly smaller chunk – 14 percent, versus 17 percent in 2014’s results – but it seems most of the newly increasing sales came from the group who last year had identified their profits as relatively similar to the year prior. The relative success around sales and profits has inspired confidence in most of our survey respondents, as 77 percent say they believe their sales will increase in the coming year. Seven percent say sales will likely decrease, while the remaining chunk anticipate steadiness. Despite the overall positive trend we’ve seen with distributors in this year’s survey, there is a larger group facing sales declines than we saw last year (4 percent). Kiplinger’s reported a weak first quarter as businesses responded to

Compared to last year, how have your sales fared?

Figure 1

Compared to last year, how have your profits fared?

Figure 2

INDUSTRIAL DISTRIBUTION / May/June 2015

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THE BALANCE SHEET another harsh winter, as well as weak exports. That said, the remainer of 2015 is expected to face growth of 3 percent. The outfit also predicts that Fed interest rate hikes will hit in September, but will most likely be modest. This suggests the remainder of 2015 could offer some great prospects for steady revenues and growth opportunities. So, if 77 percent plan to grow their revenues, how do they plan to do it? For most, the primary growth tactic will center on sales and marketing (Figure 3). This area

Low on the list of priorities is doing business overseas, something only one in ten said they considered very important for growth and business development.

development. These goals are fairly well in line with what was reported in the past two years, though global expansion has dropped two points from the 12 percent who reported this was a growth strategy in 2014 and 2013. Finally, we asked our audience to best describe their timelines for receivables, and: • 4 percent said <15 days. • 17 percent said 16-30 days. • 40 percent said 31-40 days. • 30 percent said 41-50 days. • 8 percent said 61-90 days. • 1 percent said 90 days or more. The most notable shift from last year shows that a few points from the 30 days or less category – along with a few points from the 41-50 days category – seem to have settled in the 31-40 days designation. This was the most popular timeline for receivables identified last year, but it applied to 34 percent of respondents.

was pinpointed by 56 percent of respondents, who were permitted to “check all that apply.” Other key areas include improving or redesigning the company website (48 percent); selling more via the web (47 percent); and adding product lines (46 percent). Low on the list of priorities is doing business overseas, something only one in ten said they considered very important for growth and business

Which tactic would you consider very important for growth and business development?

Figure 3

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May/June 2015 / INDUSTRIAL DISTRIBUTION

BEST PRACTICES BY MIKE HOCKETT

has increased by 2 points over last year, and those who say it has gotten worse has increased a point as well. Those who believe support has stayed the same is a group around 3 percentage points smaller. Like in years past, distributors indicated that manufacturers again increased prices in the last year, with 88 percent saying yes. Interesting to note is a decreasing percentage there, however. In 2011 and 2012, 97 percent said manufacturers increased prices, 91 said yes in 2013, and it’s dipped to 89 and now 88 percent in 2014 and 2015. Though prices keep going up, distributors say that a strong portion of manufacturers have worked with them to offset business costs (Figure 3, page 29). This year more than 44 percent of distributors said manufacturers have helped with new product introductions, up 4 points from last year. Better than 35 percent said manufacturers have helped with co-op advertising/marketing, a 1.7 point increase. Also showing increases were manufacturers helping with technical assistance (+1.6 points), reduced shipping (+2.1 points), and extending terms (+1 point). In 2013 we started asking respondents if their business installed or maintained vending machines at customer locations. While less than one third – 30 percent – once again said yes, that is up from 25 percent last year and

s e-commerce continues to re-shape the industrial distribution marketplace, supplier best practices have tended to stay the same. But many independents are several generations old or more, so it takes a long time for their general principles to shift. Even so, our survey shows a trend developing when asked to rank the most important factor when evaluating suppliers (Figure 2, page 29). To no surprise, quality took the top spot again, and by a hefty margin. What’s interesting, however, is that the percentage of those that ranked quality at the top has gone from holding steady at 88-89 percent from 2009-2012, to 85 percent in 2013-14 and down to 84.8 percent this year. Respondents could choose up to three criteria items. Granted, in the big picture that is still only a 3-4 point drop, and quality was still nearly 12 points above the No. 2 item – on-time delivery (63 percent) – but it is the consistency that is notable. This is now three straight years of decline. Distributors once again said that carrying the best products is key to success. But is having the best product becoming less of a priority? Only time will tell. As previously stated, on-time delivery came in second at 63 percent, just ahead of service/support’s 62.6 percent. That is about a 3 point dip from last year for on-time delivery, while service/support increased 8.5 points. Service/ How has your relationship with your support climbed steadily from 2009-2013 besuppliers changed in the past year? fore a drop-off a year ago, but charts again now as a close No. 3 factor. On-time delivery had a steady decline from 76 percent in 2009 to 63 percent in 2013, but has leveled off these past two years at 66 and 63. Price, in fourth place, snapped a steady decline from 67 percent in 2009 to 50.6 percent last year, charting at 57 percent this time around. In fifth place, reputation of a supplier stayed essentially the same, with a 2 point increase. The state of this relationship between distributors and suppliers is always important to keep an eye on, and as it has in recent years, respondents indicated that relationship remains mostly unchanged (Figure 1). More than one half of respondents said their supplier relationship has stayed the same, just over a third said it’s gotten better, while 11 percent say it’s gotten worse. Those are each within a few points of last year, with 3 points more saying their relationship has gotten better in the last year than 2013. Going hand-in-hand with that, those who Figure 1 believe their level of support has improved

INDUSTRIAL DISTRIBUTION / May/June 2015

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BEST PRACTICES 22 percent in 2013. Of those that said no, 85 percent said they donâ&#x20AC;&#x2122;t intend on purchasing vending machines, an identical figure from last year. The overall vending numbers show a growing trend for vending in industrial distribution, which correlates to its success in the marketplace. Distributors are following the lead of Fastenal, which increased its number of FAST Solutions machines nearly 15 percent, to 46,855 nationwide in 2014.

Our best practices portion finished with asking about global business intentions. This year, 50 percent of respondents said they were already doing business outside the U.S., down 5 points from last year. That figure was 52 percent in 2013, so the minor fluctuation doesnâ&#x20AC;&#x2122;t raise an eyebrow. Forty percent this year said they have no plans to expand globally, only a 1 point increase from 2014. This shows that while distributors are growing their business beyond the U.S., it is not at a rapid rate.

Which of the following do you consider to be the most important criteria when evaluating suppliers?

Figure 2

Which of the following have your suppliers offered as ways to help reduce costs?

Figure 3

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May/June 2015 / INDUSTRIAL DISTRIBUTION

TECH USAGE & INVESTMENTS BY ANNA WELLS

ERP (enterprise resource planning) have also been identified as being high impact. Perhaps part of this shift is simply the way internet usage – especially in purchasing – has continued to become more and more embedded in our personal lives and business processes. Distribution company buyers themselves use the internet for purchasing – 87 percent, in fact. And while the use case becomes more evident, so does distributors’ optimism as to how their online sales will fare. Seventy-five percent say that internet sales will increase next year, and fewer than one percent say they will decrease (Figure 3, page 31). In alignment with this optimism, we’re seeing distributors utilizing their websites more effectively. For example, we asked our audience what they primarily used their websites for, and the responses show an uptick of a few percentage points in almost all areas. Specifically: • 48 percent say they use their websites to house technical/product information. • 40 percent to generate orders. • 36 percent for e-commerce. • 35 percent each to find new customers and to generate leads. When it comes to site upkeep, the industry could be

he results of our tech section survey questions seem to grow more salient over time, as the obvious impacts of the digital age become more evident to industrial distributors. And while some pioneers are already on the cutting edge, we oftentimes see a group who is relatively varied in their progress. Of course, the biggest discussion points center on e-commerce – the focus on which seems to be accelerating. Last year, we asked survey takers whether e-commerce was a priority, and 62 percent said yes. This year, that number has jumped to 69 percent who feel the same. Aligning with this, 65 percent say they are currently generating web-based revenues, leaving a full third who are outside of the online game (Figure 2, page 31). While many companies in this sector have their sights set on e-commerce as a priority, most do not seem to do a significant amount of business here. For three quarters of respondents, the amount of online sales falls within one to ten percent of their overall revenue (Figure 1). Only 11 percent do more than 20 percent of their business online. But just as this online marketplace continues to ramp up, the more online-as-a-percentage-of-sales we’ll likely see. Just last year, those who said their web sales were 20 percent or more of business was just 7.6 percent, How much of highlighting a healthy jump this generated? year. It’s no surprise then that distributors see “web ordering” as a top digital business tool, along with wireless internet and CRM (customer relationship management) technology. While these may be considered the basics of doing business, about one-third also use technology like ERP systems, demand forecasting, and WMS (warehouse management systems). For those looking to improve their tech capabilities in order to streamline business processes, the top areas for investment in the next two years are web ordering, CRM, WMS, demand forecasting, and SFA (sales force automation). The technologies that distributors consider to be ‘high impact’ in terms of business results tend to fall along the same lines – with web ordering and CRM at the top. Other Figure 1 software solutions like WMS and

INDUSTRIAL DISTRIBUTION / May/June 2015

your overall sales are web

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TECH USAGE & INVESTMENTS Are you currently generating web-based revenues?

described as active, with a segment of companies who simply don’t prioritize this part of the business. For example: • 46 percent have re-designed their websites within the last year, and 38 percent within the last several years. Sixteen percent say they “can’t recall how long it’s been.”

Seventy-five percent say that internet sales will increase next year, and fewer than one percent say they will decrease.

Figure 2

In the upcoming year, where do you expect your internet sales to be compared to now?

• The most popular frequency for updating content on their websites was weekly, which 31 percent say they do. Twenty-five percent update monthly, and another 25 percent update content every few months. • Nearly one-third of respondents have a mobile app for their websites. Recently, Forbes has reported that the B2B e-commerce market is projected to be worth $6.7 trillion by 2020 – and the the frontrunners in this segment is Alibaba. In fact, says Forbes, this growth trend will make the B2B e-commerce market two times bigger than the B2C market ($3.2 trillion) within that timeframe. With this accelerating pace, along with additional competition in outfits like AmazonSupply, it’s likely we’ll continue to see an uptick in focus around e-commerce from the industrial space.

Figure 3

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May/June 2015 / INDUSTRIAL DISTRIBUTION

VALUE OF THE DISTRIBUTOR BY MIKE HOCKETT

customer needs,” “Expanded solution for multi-location companies,” “One-stop industrial shop,” and “Service/ training after the sale.” The amount of respondents who said they are not providing unbundled services (services for a fee outside of a purchasing contract) dipped 1 point yearly to 42 percent, a figure that has hovered in the low 40s in recent years. This tells us distributors are still reluctant to charge separately for services, and rather include those services, and their added cost, in the total cost of a product. Asked to choose which services (all that apply) distributors charge a fee for, this year’s results (Figure 2, page 33) closely resembled the last few. Shipping services again were far and away at the top at 68.5 percent. It’s held near 70 percent for three years now, although down from 2012’s mark of 78 percent. The next-closest services were Set-up/Installation (26.5 percent) and Fabrication/Kitting (25 percent), as those three have remained in that order for the last three years. Design/Engineering Consulting (24 percent) showed a 7 point bump from a year ago, Employee Training (19 percent) was unchanged, while Tech/Product Support (18 percent) was up 6 points. Write-ins in this category included: • Vending • Safety Seminars • Predictive Maintenance • Service Plans • Engineering Services One write-in also noted offering free shipping was dependent on order quantity, while another mentioned that

ith merger & acquisition activity in the industrial distribution marketplace at an all-time high and no end in sight, value-added services have become a key component for independent distributors to hold their own. It’s now at the point where calling many independents “industrial distributors” doesn’t do their business justice as many of them devote equal effort to being a service provider. Be it tool repair, product training, or safety seminars, value-added services often are distributors’ bread-and-butter. Still, distributors at large do most of their business as a product supplier, and that was reflected as respondents – able to choose all that apply – said “Product Availability” was tied with “Relationships” as the primary reason customers do business with them (Figure 1). Both factors received identical votes at 81 percent. For product availability, it was a 9 point jump from last year and identical to the figure it had in 2013. Relationships has shown a considerable decline from 91 percent in 2013 and 84.5 percent last year. “Technical Support” was this year’s No. 3 reason at 69 percent, down 2 points from last year, while “Delivery Time” was fourth at 66 percent, up 4 points from a year ago. “Price” remains a relatively low priority for doing business, as only 49 percent marked it as a primary reason. That’s up a bit from 43 and 44 percent in 2013 and 2014. Even so, Price as only the fifth reason reflects the overall push for value-added services. After that, “24/7 Support” was sixth at 36 percent, followed by “Vendor Managed Inventory” and “Engineering Capabilities” Of the following, which do you feel tied for seventh out of nine factors at 34 reasons your customers do business percent. 24/7 Support showed a 6 point increase over last year, while Vendor Managed Inventory was up 10 points. Engineering Capabilities had only a 2 point increase. The considerable increase in VMI correlates to the vending increase in our survey’s Best Practices section. Write-in responses to the “Other” reason for doing business varied. They included responses such as, “Meeting Figure 1

INDUSTRIAL DISTRIBUTION / May/June 2015

are the primary with you?

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VALUE OF THE DISTRIBUTOR not all fees are charged to all customers, or all the time. This year, 13 percent of respondents said they derive no revenue from value-added services. That figure was at 34 percent as recently as 2009 and dropped to 14 percent in 2011 coming out of the recession, and it has leveled off since. It dropped another 2 points since last year. Distributors that had 1-10 percent revenue from value-added services has declined steadily since 2012 (56 percent), charting this year at 49 percent, while the other ranges (11-20, 21-30, 31-50, 51+) were virtually identical. Overall, the numbers show another marginal increase in distributors adding

Of the following services, for which do you charge a fee?

Figure 2

What is your level of involvement in co-op groups/buying groups?

Figure 3

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value-added services as a revenue stream after previously not partaking. Even though respondents showed a low priority (34) percent on VMI as a reason customers do business with them, the percent that said they are involved in VMI programs had another increase this year. Charting at only 46 percent in 2013, it jumped to 51 percent last year and is now at 54 percent. This shows that while distributors aren’t yet investing heavily in VMI, the amount that offer it continues to grow. Lastly, we continue to keep track of distributors’ involvement in coop groups/buying groups (Figure 3). The figure has held steady for 5 years now, as 36 percent of this year’s survey respondents said they are either a member of a buying group (22 percent), member of a co-op (5), or both (10). Those individual numbers didn’t fluctuate much, with the largest difference being a 2.4 point increase in buying group members.

May/June 2015 / INDUSTRIAL DISTRIBUTION

EMPLOYMENT For the small portion of respondents who had to reduce staff in the past year, it was mostly either in Warehousing (32 percent) or Clerical (31 percent). The drop in Warehousing isn’t surprising given the continuing rise of automation. Nearly identical to last year, 97 percent of respondents said they value hiring technical trained employees for open positions, with 61 percent in the “High Value” portion (+2 points from last year).

BY MIKE HOCKETT

ews about the decreasing rate of national unemployment is encouraging, though in the manufacturing sector, it’s been offset by a skilled labor shortage that many think will continue to grow over the next few years. At least in industrial distribution, the labor numbers are promising (Figure 3, page 35). As they did the last three years, more than 50 percent of respondents – 52.9 percent In terms of your ability to qualify and recruit, to be exact this year – said they have where would you place your business on the added staff in the last 12 months. following scale? That’s even a bit higher than last survey’s 52.1 percent, and a stark contrast from our 2009 survey when 68 percent said they had to reduce staff and 18 percent foresaw a need to do so in the coming year. With the recession now six years in the past, distribution employment has increased ever since. The number who had to reduce staff in the last 12 months was the same as last year’s 14 percent, while the amount who anticipate reducing staff gained 1 point. That coincides with the number who anticipate the need to add staffing dipping 2 points. To no surprise, staff additions Figure 1 (Figure 2) were heavily in sales (65 percent), a figure that has steadily decreased from 73 percent in 2011. In fact, 51 percent of respondents said If you have added staff, to which job they now have more sales reps than categories were the additions made? they did last year. That’s a 10 point gain from last year’s survey. Only 10 percent this year said they have fewer sales reps, while 39 percent said they have the same — down 9 points from a year ago. This shows distributors have put a definite priority on beefing up their sales teams. Warehousing staff additions were second at 40 percent, down 4 points from a year ago. The next top additions were to Customer Support (32 percent) and Operations (29 percent). Operations saw a 6 point jump from last year. Administration additions (19 percent) saw a 5 point jump, while Clerical additions (9 percent) remained the same. The overall close similarities show year-to-year confidence in economic stability. Figure 2

INDUSTRIAL DISTRIBUTION / May/June 2015

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EMPLOYMENT Another positive employment sign is a 5 point gain from last year How is your in the number of respondents who said they are able to find suitable job applications for their company. This goes back to the skilled labor gap, which certainly is affecting industrial distribution, but at least the numbers are going in the right direction. Asked to rate their ability to qualify and recruit (Figure 1, page 34), respondents showed they’ve gained self-confidence. Sixty nine percent of respondents rated themselves “Good” or better, with 24 percent rating themselves “Very Good.” Last year, 61 percent rated themselves good or better, with only 15 percent at very good. Once employees are in place, Figure 3 getting them to stay long-term is key. The manufacturing industry is known for this, especially industrial distribution. This is often done through a variety of incentives. Our survey shows better than 75 percent of respondents offer performance-based pay incentives as a way to retain staff, up 6 points from last year. In second place, Training also showed a healthy 8 point yearly rise up to 55 percent of respondents, while Improved Benefits was close behind at 54.5 percent and a 2 point gain. Tuition Reimbursement was the fourth-most popular incentive once again, but showed a 4 point increase up to 28 percent. Nearly half of write-in responses mentioned an employee stock ownership plan (ESOP), while there was one mention of holiday bonuses, and even one distributor said they offer breakfast burritos every two weeks. Overall, distributors showed a solid increase in their incentives participation. As far as benefits specifically, 93.5 percent of respondents said they offer health insurance (+5 points from last year), while 79 percent said they offer 401K/Pension (+2 points) and 63 point offer Bonus/Compensation plans (+1 point) to round out the top three. Other benefits making the biggest gains from last year were Sales Performance Reviews (52 percent, +8.5), Training Programs (43 percent, +6), and Employee Recognition Programs (34 percent, +5). Only 13 percent of respondents indicated having to reduce employees’ overall benefits packages over the last year, just a .5 point yearly increase.

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Legal Watch Third-Party Harassment And Employee Investigations BY FRED MENDELSOHN, PARTNER AT BURKE, WARREN, MACKAY & SERRITELLA, P.C. IN CHICAGO

s a distributor, this example is not hard to imagine: at a manufacturer/distributor off-site social event, one of the manufacturer officers becomes inebriated, and makes sordid sexual advances toward one of your female employees. The employee attempts to brush it off, but after the dust settles, she is visibly disturbed and you, as a manager, principal and/or officer, learn not only of the incident but also, that physical contact was made with your employee. Worse, however, is that the manufacturer’s employee is scheduled for a site tour in two weeks, and, absent changes, will interact with the aggrieved employee. What as an employer do you do? Is this a crime? Do you have, to report the matter, to the police? Is this scenario any different if the matter had taken place on your premises and involved a co-worker or managerial employee and the female employee? In short, the answers to the questions posed are relatively straight forward. Under most state law, employers may be liable for the actionable

INDUSTRIAL DISTRIBUTION / May/June 2015

third-party harassment of its employees where it ratifies or condones the conduct by failing to investigate and remedy it after learning of it. Further, while an employer generally has no duty to protect an employee from the criminal conduct of a third-person, an employer has a duty to use ordinary care to provide its employees with a reasonably safe workplace and may be liable when it fails to warn its employee of an unreasonable risk of harm involved in the employment. In the example above, the distributor would only have exposure for the third-party assault and/or battery if it knew of the manufacturer employee’s propensity to engage in the conduct at hand, and failed to take steps to protect its employees. Likewise, the distributor would not likely have any obligation to report the incident to the authorities, but counseling the employee on her right to do so (and documenting that counseling in a private memorandum) would likely be wise (even if not a legal obligation). Finally, the distributor should, legally, investigate the incident, and ensure that the employee is protected on a going-forward basis. While the investigation could be slightly different – witnesses might exist (e.g., from the manufacturer or even restaurant staff) who can’t effectively be interviewed – the obligation remains the same. How the incident is handled between executives of the manufacturer and distributor is a different issue, but one that will be driven, in part, by the ultimate decisions. For example, after investigation, the distributor might well conclude that it needs to notify at least the manufacturer employee involved, and advise him that while it was totally taken by surprise by the conduct in question, it not only can’t happen again, but protocols need to be implemented for situations where he www.inddist.com

[Legal Watch] and the female distributor employee might have to interact in the future (e.g., the upcoming site visit). Regardless of whether the complaint comes from internal conduct and/or external third-party conduct, there are key points for any investigation of this nature (not necessarily limited to claims or incidents of sexual harassment but any improper conduct) that distributors, as employers, should always keep in mind: • Interview the complaining employee or other key witnesses. Obtain all pertinent details, including the identity of other (potential) witnesses, and what other documents or information would be corroborative (or not) of the underlying incident. • Advise complaining employees that any information will be, to the extent possible, maintained as confidential, but all persons in any investigation, including the complaining person, must understand that there are no guarantees of confidentiality. • Once the complaining employee and/or other key witness have been interviewed, he or she should “sign-off” on a detailed account of the facts as provided, preferably in a statement prepared by the employee or at least reviewed by her (or him), with each page initialed and the last page signed. • Review other corroborating information or documents. Any witnesses should be advised not to have contact (or if they are going to have contact, to avoid discussing the matter) with any employee accused or suspected of misconduct or with others who might have witnessed the incident. Witnesses should also be advised that there will be no retaliation of any nature for cooperating and/or reporting workplace problems in good faith, including those that take place out of the technical work space. • Interview the accused employee suspected of misconduct. To the extent a third-party employee, efforts should be made, once all other avenues of investigation are complete, to not only “paper” the distributors’ position (e.g., we had no idea Jim was capable of doing such a thing, but here is what we have determined happened...). • Analyze and investigate the matter to conclusion and determine the proper remedy. Resolve if possible any loose ends and document if that is not possible and why. • As with all employment actions (adverse or otherwise), document, document, document – and that goes for the investigation as well. Remember that such documents are discoverable in litigation, so care should be taken in preparing these documents. www.inddist.com

• Ensure that the victim and/or complainant is fully apprised as to what action is being taken to prevent future occurrences, make sure that he or she is advised to immediately report any future occurrences, and agree upon at least two neutrals to whom the complainant should report any further incidents. • Ensure that the investigation remains as confidential as possible, with only those who need to know apprised of the situation, and that each person involved is advised that no retaliation will take place. For distributors who would like more information concerning workplace investigations, including workplace misconduct and/or third-party claims of sexual or other harassment, feel free to contact me at 312-840-7004 and/ or fmendelsohn@burkelaw.com.

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VACUUM OPERATIONS

Product Focus BY MIKE HOCKETT

Cutting Tools: It’s All About Carbide A

s is the case with more and more industrial products, ‘value-added’ is the constant buzz phrase. End users want to know what value they are getting out of a product besides just its intended purpose. Cutting tools are at the forefront of this. In a market that has a seemingly infinite selection of brands for saws, saw blades, taps, drills, and end mills, successful brands make their product stand out. Phased out are the days of pure price gouging. Now, it’s all about quality. If your cutting tool does the job better and lasts longer than the competition, the end user sees that and will pay a bit more for value. “The race to the bottom has found a winner, and it’s nobody,” says Emuge Corporation (West Boylston, MA) President Bob Hellinger. “We’ve always gone to market with a value-added proposition of price and performance. It’s not the price of our tool, it’s ‘how many parts do you produce?’ or ‘how does it cut cycle time?’” “Before, everything was about price,” adds Rick Knutson, National Sales Manager at Imperial Blades in Sun Prairie, WI. “If someone could do a cheaper blade, that was your guy. That was the company you worked with. What I’ve seen now is customers not just looking at the initial price, but at the value.” Imperial Blades has been in business for six years, beginning about the time the U.S. began pulling out of the recession. Knutson said the economic downturn helped escalate a shift in thinking to “this is cheaper, but I’m going through 10 times as much product.” In today’s market, value and quality win in the end. Hellinger says that with distributors being consistently asked to show a product’s value, manufacturers are helping meet that need.

INDUSTRIAL DISTRIBUTION / May/June 2015

“Distributors are asking, ‘how can your tooling provide cost-savings?’ Manufacturers are going towards that philosophy,” he says. “There’s only so much you can do with the cost of the tool, but you can always improve its performance.”

Carbide Leading the value push in cutting tools are developments in carbide. At any industrial products trade show, you’ll more than likely see cutting tool manufacturers showing off their latest carbide-equipped blades, taps, and mills. Carbide is nothing new to cutting tools – it’s been used for years to increase the hardness of material – but its application method continues to evolve. At the Specialty Tools & Fasteners Distributors Association (STAFDA) annual convention last November in Charlotte, NC, Industrial Distribution attended a presentation held by manufacturer Diablo/Freud, where the company used live demonstrations to show off its new Carbide Tipped Metal Cutting Reciprocating Blade. The long life of the blade was made possible by Diablo’s formulated carbide teeth, attached with an enhanced bonding process for extreme impact resistance. The latest trend is in using carbide powder, a process in which it is smashed together into an ultra-dense form, able to be shaped as needed. Normally, carbide is glued on, adhering a layer to an existing blade. “They had (carbide) on the tips of circular saw blades for a long time, but now the saw blades themselves are being made out of carbide,” Knutson says. “The coatings for cutting tools is the area making the biggest difference now, allowing carbide tools to run at higher operating parameters than what was possible just 10 years ago,” Hellinger says. www.inddist.com

[Product Focus] Hellinger says micro-layer coatings are becoming more widespread. With the layers becoming smaller and smaller, they are able to react in a more positive way to higher temperatures and are more abrasion resistant. The end goal of infusing more carbide into cutting tools is the same as it’s always been with tool hardening over the years: reduce friction. Any time the friction can be lowered on a blade or drill, it can spin faster at a lower temperature, making it last longer, and making it more valuable overall.

Value-Added Opportunities A popular value-added offering in the cutting tools industry is in tool repair and reconditioning. Being able to re-sharpen a tool multiple times and extend its life increases its value exponentially instead of buying a new tool every time it dulls. Hellinger said a growing trend is for manufacturers to offer this service in-house. “Why offer reconditioning services? A high-performance carbide drill could cost between $50-250, and you don’t want to throw it away after one use. The user will want to recondition the tool if possible,” Hellinger says. “If they regrind the tool themselves, they might not get near the same performance as new. If they send the tool to a local regrind house, they may not be able to mimic the geometry correctly and the tool performance will suffer. Manufacturers are starting to offer their own reconditioning service so the end user can get a factory-certified regrind.” Distributors are in on the action as well. In the regrind room at independent distributor John Day Company (Omaha, NE), a carbide steel gear cutting hob – costing $2,500-4,000 brand new – can be sharpened 16-20 times for $250-300 each time. Such a service can be extremely valuable. As far as other value-added opportunities for distributors, Knutson says end user education is the most prominent, as misuse and uneducated customers are always a problem. “A lot of people in the industry are not very aware. The consumer market is really dumbing down people,” he says. “You really have to make it super simple for them to pick and choose the right product. I call it pointand-grunt: ‘There’s my tool. There’s my blade.’ Maybe it’s a color chart, a picture, something a third grader could look at and know what it does. Maybe point-of-purchase materials. It’s a little degrading, but if you’re not making it dumbed down, people look away. “Most people in the oscillating tool industry, 90 percent, don’t know how to use the tool. Unbelievable.” Knutson doesn’t hold himself above the consumer. He recalled how when he first got in the business, he would www.inddist.com

“just buy something that had the most teeth,” because he was admittedly uneducated about the decision-making process. Distributors and end users need to consider teeth patterns and what the material is made of if they want to get the most out of their dollar.

What’s Next? Hellinger and Knutson both say that a trend that is likely to carry on through 2015 in cutting tools is brand consolidation — distributors and hardware stores are looking to carry fewer brands of the same tool, instead of having as many known brands as they can. The more brands a store carries, the harder it is to display them properly. “People are backing up the truck and going, ‘how come I have this junkyard of a spot in my store that has eight different brands?’” Knutson says. “The industry in general is coming to the table and looking at all the lines in a streamlined approach: ‘What do I really need? Do I really need 10 oscillating brands, when I can have just one that will cover everything?’”

Market Consumption Update The latest figures from the U.S. Cutting Tool Institute showed that February U.S. cutting tool consumption totaled $179.3 million, down 2.3 percent from January’s total, but up 1.6 percent year-over-year from February 2014. Association For Manufacturing Technology analysis said that the decrease mirrored the same pattern as U.S. manufacturing of durable goods, and that January and February surpassing last year’s totals are positive conditions, considering the first quarter faced adversity of harsh weather conditions and a strong dollar in a weakening global economy. May/June 2015 / INDUSTRIAL DISTRIBUTION

[ NEW PRODUCTS] Diamond Dek Anti-Fatigue Mat The Diamond Dek Anti-Fatigue mats from Ace Floor Mat (Miami, FL) are designed for industrial environments, with technology that has an anti-skid surface, making them safe in all the industrial setups. They come in two thicknesses and the cushion and height can be chosen based on the personal preferences. The mats’ features and benefits include: • A 9/16” chemical resistant material. • Closed cell sponge base, which provides support to legs and back, reducing fatigue. • Availability without safety border. • A durable vinyl surface resistant to most chemical spills. • Beveled edges and yellow borders for added safety. • Soft and resilient rebound properties. • Grease and oil resistance to help prevent slips >> www.acefloormats.com; 855-864-6281>>

Topped Parts Pouch

Heavy Duty Dual Flashlight Helmet Strap Bayco Products (Wylie, TX) recently announced its newest helmet accessory that makes mounting up to two 1.25” diameter flashlights on a helmet simple. The NS-HSR1, better known as the Nightstick Flashlight Rubber Strap, allows the safety-conscious worker the ability to direct their once handheld flashlights on virtually any Fire Helmet or Hard Hat in a forward facing direction while leaving both of their hands free for other tasks. The new NS-HSR1 is an eye-shaped silicone rubber thick-walled strap that fits around the dome of almost any adult hard hat or helmet (24”-34” circumference); each of 2 side extensions offer a pair of horizontal holes through which a flashlight (or similar shape up to 1.25” diameter) can be positioned. The strap is waterproof and chemical-resistant while meeting NFPA-1971-8.6 (2013 requirements). A plus for any environment is the NS-HSR1’s rating for temperatures of over 500 degrees Fahrenheit. >> www.baycoproducts.com; 800-233-2155>>

Ergodyne (St. Paul, MN) recently announced the launch of their newest Arsenal Tool Storage creation: the Arsenal Topped Parts Pouch in canvas (5528) and tarpaulin (5538). Featuring a hands-free, self-closing Trap Door top, the 5528 and 5538 stores small parts, hardware, and tools inside — preventing these items from plummeting at heights when tipped over, while also providing easy and efficient retrieval. >> www.ergodyne.com; 800-255-8238>>

Expanded Cordless Tools Line HOW MANY freight claims do you file per month?

If it’s more than 10, MyEZClaim Freight Claim Software can reduce your ﬁling costs: Mine claim data to identify problem carriers or products Lower administrative costs by reducing ﬁling time to just 15 minutes per claim Avoid costly missed deadlines with automated system alerts Cloud-based software as a Service (SaaS)

TranSolutions

Chicago Pneumatic’s innovative new high power cordless tools deliver the power and performance of an air tool while providing the mobility of a battery tool. The new impact wrenches, impact driver, and drill drivers offer superior power and battery performance for increased productivity, durability, ease of use, and mobility. The powerful and efficient CP8848 ½” impact wrench, the flagship product of the series, is the perfect companion for those working in the industrial MRO sectors. Completing CP’s new cordless line are the compact CP8828 3/8” impact wrench, the lightweight CP8818 1/4” impact driver, the strong and versatile CP8548 1/2” hammer drill, and the ultra-compact CP8528 3/8” drill driver. >> www.cp.com; 800-624-4735>>

Visit www.TranSolutionsInc.com, call 480.473.2453 or email sales@myezclaim.com to learn more.

INDUSTRIAL DISTRIBUTION / May/June 2015

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[ NEW PRODUCTS] Expanded Saber Stripping Tool Line Greenlee Textron (Rockford, IL) has released the GTSD-1930 Drill Mounted Saber Tool, the newest addition to Greenlee’s Saber stripping tool line. The GTS-1930 and new GTSD-1930 Saber stripping tools are safe and quick alternatives to blades when stripping cable. The Saber line is developed and designed to offer users a wide variety of features to ensure they complete their work quickly, safely, and with precision. The GTS-1930’s laser-etched depth stop and GTSD-1930’s self-contained depth gauge allow precise stripping of wire without the danger of exposed blades. The spring loaded retention pin allows the user to simply pull the pin and insert specific bushing sizes. This retention pin allows users to quickly change bushings, which means no additional tools are needed. Cable specific sized bushings are offered both individually and as kits to ensure the precise removal of the cable jacket. >> www.greenlee.com; 800-435-0786>>

Grooved Couplings Grooved Couplings by Kuriyama (Schaumburg, IL) are used in conjunction with grooved end pipe or hose connections. The orange colored, ductile iron couplings are supplied with plated nuts and bolts with all sizes. The quick release version provides faster connecting and disconnecting of hoses or pipes and is supplied with a steel safety clip to prevent accidental opening. >> www.kuriyama.com; 847-755-0360>>

Heavy Duty Storage Straps Wrap-It (Woodbury, MN) HD Storage Straps from Wrap-It are an easy and professional storage solution. Simply wrap and store extension cords, rope, jumper cables, cords on power tools and appliances, ski rope, cords and hoses on garage vacuums, garden hoses, Christmas lights, garland, hanging ladders, bikes, PVC pipe, and so much more. Features of Wrap-It Heavy Duty Storage Straps include: • A virtually indestructible 900 denier ballistic nylon construction. • A heavy duty hook and loop closure for maximum holding power. • A tab at the end to make it easy to open. • A metal grommet for easy hanging. >> www.wrapitstorage.com; 612-567-2020>>

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AR/FR Protective Clothing Magid (Chicago, IL) introduces three new products that provide Arc-Rated and FlameResistant protection. The Magid AR Defense relaxed-fit base layer shirts and balaclava address a need for arc-rated protection following revised National Fire Protection Association standards for workplace safety. Currently, the Magid AR Defense clothing assortment includes: • 4.5 oz. jersey knit shirt (item# ARS450) with an ATPV/ arc-rating of 4.9 cal/cm2. • 6.5 oz. interlock knit shirt (item# ARS650) with an ATPV/arc-rating of 8.2 cal/cm2. • 6.5 oz. interlock knit balaclava (item# ARH650) with an ATPV/arc-rating of 8.2 cal/cm2. >> www.magidglove.com; 800-867-1083>>

Strictly for Sales BY TOM REILLY

The Perfect Combination of Selling Skills “Me and Jenny goes together like peas and carrots.” — Forrest Gump n sales, probing and listening are peas and carrots. These twin skill sets are the perfect diet for salespeople who want to excel in this profession. Our best practices study of top salespeople (those in the top 10 percent in their companies) found that probing and listening played a major role in their success. The good news is that these are skill sets, which means they can be taught and learned. Probe your way to sales success. Successful salespeople invest 38 percent of their time during a sales call probing for customer needs. These same salespeople do not make product or service recommendations until 54 percent of the time on the call has elapsed. This means more than half of the call is spent studying customer needs. Contrast this with the ‘show-up and throw-up’ method of selling where the salesperson opens the call with a product pitch and presses for a close: The first is about the customer; the second is about the salesperson. Salespeople ask questions to discover customer needs; understand the buyer’s definition of value; build relationships; demonstrate a genuine concern for the buyer; and help buyers discover what they do not know. These tips will help you ask better questions. When your probing objective is to discover needs, use open-ended questions. These begin with why, how, what, and tell me about… You want the other person to speak freely. Open-ended questions relax the buyer, as they create the context of an interview versus an interrogation. Closed-ended questions begin with which, when, who, and where. They limit the range of responses. Too many closed-ended questions sound like an interrogation. These examples demonstrate open-ended questions: • Please tell me about your business. • What are your greatest challenges? • What do you look for in a solution? Probe for pain. Pain motivates. People change when they are miserable enough in their current situation. Buying is change. Dig for areas that cause the buyer to feel uncomfortable and dissatisfied with the status quo. Oftentimes, buyers defend against pain because it hurts to discuss it. Who wants to admit to making a bad previous buying decision? • Please tell me about your current solution. • What experiences have you had with this?

INDUSTRIAL DISTRIBUTION / May/June 2015

• What feedback do you hear when using this? Probe for hope. If you dig for pain, you must follow up with a seed of hope with your next questions. Dig for ways the buyer would like to improve his or her situation. Provide an opportunity for the buyer to dream positively. The implication is that your solution can deliver on this hope. • If you could change or improve one thing about your current solution to better satisfy your needs, how would you improve it? • What would it mean if we could do this for you? Asking questions demands another skill – listening. It is not enough to know the customer’s needs; you must understand these needs. This comes only from deep and patient listening. Deep and patient listening is immersing yourself fully into what the other person is saying. “When we want to understand something, we cannot just stand outside and observe it. We have to enter deeply into it and be one with it in order to really understand. If we want to understand a person, we have to feel his feelings, suffer his sufferings, and enjoy his joy.” (Thich Nhat Hanh, Peace Is Every Step) These ideas will help you to become a better listener: Open your ears, eyes, mind, and heart. Hear, see, know, and feel what the buyer is saying. Full-sensory listening requires you to put the focus on the other person. Practice patience. Listen as the other person unravels their problems for you. Unraveling is a process, not just reciting a shopping list. What’s the hurry – another call to make? Deep, patient listening encourages dialogue and openness. There is no need to finish a thought for the other person unless they are struggling. Be cautious that you do not become a competitive listener. This is an occupational hazard of sales. Competitive listeners listen for advantage. When they hear an opening, they strike quickly. Listen on two levels – organizational and personal. Even the most technical sale includes personal issues for the buyer. Customers prefer to buy what they need from salespeople who understand what they want. What represents a personal win for the buyer? Ironically, research has shown that listeners versus talkers are rated by peers as more influential. You can listen your way to success – one question at a time. Tom Reilly is literally the guy who wrote the book on Value-Added Selling (McGraw-Hill, 2010). You may visit Tom online at www.TomReillyTraining.com. www.inddist.com