Turtle & Hughes, Inc., might not stock kitchen sinks yet among the 65,000 SKUs in its Bridgewater, N.J., "industrial mall." But you can bet that if a customer needed a steady supply of sinks, the $150 million, 320-plus-employee company would have sinks piled high along with job-site electrical equipment, factory automation systems, shop supplies, utility products, adhesives, abrasives, safety products, power tools and thousands of other MRO products.
The 75-year-old Linden, N.J.-based distributor uses this "everything including the kitchen sink" approach toward integrated supply to compete against large hybrid distributors like W.W. Grainger, Inc., Lincolnshire, Ill., and Fairmont Supply Co., Washington, Pa., as well as buying/marketing groups and other industry consortia.
Unlike many other integrated suppliers, Turtle & Hughes flies solo in managing over 30 mostly regional integrated supply contracts.
"They are the items they need to stock to keep in business," says Alan Schlecter, president of the company's Schlecter Industrial division. "We've found there's a tremendous common denominator among electrical and industrial products. We're able to provide those products in a seamless fashion, with the same delivery and the same people. Because we have industrial and electrical supplies under one roof, we can provide, on our own, 80% of all maintenance repair and operations (MRO) products on a single tier to a customer.
"Many integrated supply arrangements are done with a number of distributors joined together by a common software package. Somebody buys something from someone else, puts a markup on it and then supplies it to the customer. This doesn't bring down cost, it adds it."
Schlecter credits Frank Millard, executive vice president, with seeing the benefits of blending together electrical and industrial products. "Frank is not going to tell you this, but he is a visionary. He recognized years ago that to put the industrialand electrical together really is the way to provide the most product to the customer at the most competitive means possible."
Millard and his wife Suzanne, the company's president and chief executive officer, banked on the company's long history of serving industrial customers to develop their approach on integrated supply (See "Integrated Supply," EW, June, 1994, page 42). The company has merged with or bought several industrial supply houses to bring industrial products into the New York metropolitan area and in the Houston, Texas, market, where it has two branches to service the petrochemical business.
In 1993, Turtle & Hughes merged with Silliter/Klebes Industrial Supply, Inc., New Britain, Conn., a company with deep roots in southern New England's industrial supply market. Two years later the Millards followed that merger with the purchase of Schlecter Industrial Supply, Plainfield, N.J., picking up a supplier that had been calling on many of the same Fortune 500 companies, but with trucks loaded with different MRO products.
Last year, Schlecter Industrial Supply moved into the same building with a full-blown electrical supply branch. Just across the parking lot is Industrial Rubber, Co. an independent company that shares some of the company's warehouse and uses its material handling equipment. Many of Turtle & Hughes' customers buy MRO-oriented rubber products from Industrial Rubber. With three types of supply houses in one place-and more room to spare-the Millards and Schlecter envision an industrial mall where industrial customers can pick up the majority of their MRO supplies in one spot.
At the time of the Silliter/Klebes merger, the Millards issued a statement to the electrical and industrial supply industries that clearly articulated their vision of integrated supply: "Whether we call it JIT, single-sourcing, partnering or anything else, the point is that the MRO customer wants to cut the time and cost of purchasing supplies, just as both manufacturers and distributors need to cut their burdensome transaction costs. Single-sourcing and integrated supply represent an effective and cost-effective solution to these problems for all concerned."
Alan Schlecter brings a similar philosophy on integrated supply to the party. Before forming the Schlecter Industrial Supply joint venture with Turtle & Hughes, his 66-year-old company was one of the more recognized general-line industrial distributors in New Jersey. As a mid-sized company, he knew it would be tough to compete in integrated supply on his own, and he considered joining the Industrial Supply Division of Affiliated Distributors, the Wayne, Pa.-based buying/marketing group, to go after integrated supply deals with distributors from different product disciplines. But after talking with the Millards, Schlecter decided to work out a joint venture with Turtle & Hughes. He was impressed with what they had already done in Connecticut with Silliter-Klebes, and thought a similar arrangement would work in his market.
"We had always been involved with Fortune 500 companies, specifically pharmaceuticals and refineries and all types of manufacturing facilities. When Turtle & Hughes found out that a lot of my personal emphasis and philosophy in business was integrated supply, they felt it would be very good to pool the resources of Turtle & Hughes with our expertise, and also with the melding of Silliter and Lindquist Industrial.
"With the addition of Schlecter Industrial to the Silliter and Lindquist division, which formed the industrial division of Turtle & Hughes headed by Jay Drummond, we've made a major entrance into the integrated supply market," says Schlecter. "Jay Drummond is one of the foremost experts on integrated supply in the country."
Making the concept a reality did not come without certain challenges, says Millard. For instance, while the Silliter operation was a well-known entity in New England's industrial supply market, on the electrical side it was a new player. And at the Bridgewater facility, as they blended together the two companies, he says some key differences in their operations became apparent. And with its heavy focus on automation products, the Miller-Knapp division of Turtle & Hughes that moved to the Bridgewater facility didn't do a lot of counter business, while pickup business at the counter was the lifeblood of Schlecter Industrial. It also took warehouse workers a while to familiarize themselves with the huge assortment of electrical and industrial products.
Overcoming these challenges is paying off, Millard says. Turtle & Hughes' approach minimizes the "confusion of the consortia" because it offers customers a simple integrated supply package that eliminates hard and soft costs.
"We add velocity to the product delivery that's associated with servicing an account," he says. "That's a major function of integrated supply. Not only are you supposed to reduce the number of vendors, handling of products, and cut down their inventory, but also offer them much better service than they've ever gotten before. Distributors can handle product better and more efficiently at a lower cost than a manufacturer because it's our core competency. Their core competency is manufacturing, not inventorying goods."
Key to Turtle & Hughes' approach in integrated supply is offering a customer a customized program, he says. "Because we have the expertise in so many product lines-mostly electrical and industrial-we can put together a program that suits their needs. We don't put together a canned program. Typically, some of the large companies have a very inflexible program. We customize an integrated supply proposal for our customers. The processes in different types of manufacturing facilities are quite different."
The first step for Turtle & Hughes in developing a proposal is studying the needs of the customer, which requires an "action group" spending several weeks on site with a customer, talking with their personnel and analyzing their supply, ordering, accounting and logistical processes. This action group then develops a report that's used in a proposal. What's different in a Turtle & Hughes integrated supply proposal is that it includes not just the management team's thoughts on what the customer needs, but input from the customer and vendors.
Only after collecting all of this input does the company develop its cost-saving strategy for the customer. While none of the company's integrated supply proposals are alike, some of the most common elements include reducing the number of vendors with whom the customer does business; reducing paper flow by taking over or refining the customer's receiving, purchasing and materials handling operations; and customizing a software package to manage the entire process.
The company has also helped customers cut down the physical size of their stock room, so that they can use the space for additional manufacturing facilities. Another popular feature is a custom spreadsheet that provides a monthly billing statement with job numbers, cost centers and employee numbers. "When we set up our software, it is totally automated," says Schlecter. "Any type of reporting capabilities they require we supply to them." This spreadsheet can also help customers with their budgeting because it red-flags items with inventory levels close to being either exceeded or approached.
"We can reduce 90% of their paper flow from the operation. Instead of us both doing receiving, one of us does receiving. Instead of them handling the goods, we handle them. We typically cut the inventory that the customer has to stock by at least 45%. That's the first year. That reduces the assets that are required, and typically the customer pays 7% on those assets, so right there we're saving them money."
Turtle & Hughes also analyzes the products the company uses and stocks, offers substitutions upon their approval, and helps them eliminate dead stock by either buying the material back or returning the products to manufacturers.
The core of any Turtle & Hughes integrated supply proposal is the software it develops for customers to track inventory movement, check on order status and monitor other transaction-related information. A five-person MIS department develops custom software for each integrated supply package, in contrast to many other integrated supply proposals, say Schlecter and Norman Blumenthal, vice-president.
"We don't have any prefab software," says Blumenthal, a 21-year company veteran. "We have an MIS department that designs a program based on the customer's needs. I don't even think we could figure out how many dollars we spend. A full-blown program could cost tens of thousands of dollars just to get to the table on one of these proposals."
Blumenthal says aside from the major investment in software development and staffing to service these contracts, much of the success or failure of a proposal comes down to one often-overlooked skill: listening.
"To be a good integrated supplier you have to be a good listener," he says. "Not every customer has the same needs and desires. Guys go in and do their presentation and say, 'We can do this,' or 'We can do that.' But they don't listen."
Some companies may assume they can win an integrated supply contract by presenting a lowball price and worrying about servicing the contract after it's awarded. That approach doesn't work, says Blumenthal. For instance, he recently worked on an integrated supply deal where the customer graded the proposals with a unique scoring system. A distributor or consortium could score a maximum of 70 points, depending on the value-added services the proposal offers. Whichever companies scored highest on value-added services then submitted prices, but pricing was only worth 30 points.
"You didn't even get to bid your price in the first phase," says Blumenthal. "They graded you from 0-70. Then they took the people they considered in the acceptable range, and let them bid the price. They added together the two scores, and the guy with the highest score was who they felt was giving them the best offer. You may have been fourth in pricing and still end up with the proposal. Price is important, but we have to have these other things. We have to cut back their soft costs."
Many of the salespeople and customer-support personnel that work with the integrated supply contracts are cross-trained so that they are familiar with both electrical and industrial products. "They can work with wiring devices, fasteners, conduit, hand tools, brooms, janitorial stuff, pipe, valves and fittings," explains Schlecter.
However, depending on the size of the contract, Turtle & Hughes will assign a team of employees that's responsible for servicing the contract. In some cases, Turtle & Hughes employees work full-time in customers' facilities, monitoring inventory levels and managing purchasing of products covered under an agreement.
"All the on-site individuals have a uniform they wear that says 'Turtle & Hughes Integrated Supply Specialist' so the customer knows what their task is to perform, Schlecter says. These people are also trained on-site with all the safety procedures specific to the customer's operation. They become almost a member of their family. There must be continuity between what the customer wants, what our inside sales team provides and what our on-site people deliver. Because that one team is servicing one specific style of business, we can minimize errors."
The customer's stock levels are predetermined, and when they get to certain points, the computer system kicks out a report on when to replenish inventory. In this arrangement, the company communicates with customers via EDI or e-mail on the Internet.
In the near future, customers will have other purchasing options. At press time, the company was upgrading its Web site at www.turtle.com so that by mid-year customers can browse an online catalog and place orders.
The one thing Schlecter and Blumenthal say Turtle & Hughes has learned about integrated supply is the importance of finding out what the customer's needs are and then building a proposal from there, Blumenthal says.
"Customer requirements change daily and every customer is different. Even their different locations vary. Some want stuff on consignment, some don't some want inventory. Some want JIT. Some customers want a delivery every day, and some customers want it once a week. They say, 'I don't want my people receiving everyday. There is no right way to do integrated supply. The right way is doing it the way the customer wants it done. You can have all the software and have a nice glossy brochure, but if you can't stage material and get the plant what it needs, the rest of it falls apart."
Turtle & Hughes wants to build on its regional experience with integrated supply and develop more of a national presence. Some integrated supply experts already recognize the company as one of the biggest players in this business, but the Millards, Alan Schlecter and Jay Drummond plan to grow even larger. Says Schlecter, "The sky is the limit at this point."
Top executives: Suzanne Millard, president; Frank Millard, executive vice president; Jay Drummond, president, Turtle & Hughes Industrial division; Alan Schlecter, president, Schlecter Industrial Division; Norman Blumenthal, vice president.
Locations: Linden, N.J. (headquarters); Hamden, Conn.; Bridgewater, N.J.; West Nyack, N.Y.; Houston, Texas; Texas City, Texas.
1997 sales: Approximately $150 million. The company ranks #33 on EW's 250 Biggest listing.
Customer mix: 28% industrial MRO supplies; 10% industrial construction; 11% export: 25% commercial and industrial contractors; 20% utilities.
Company mission statement: "Turtle & Hughes will strive to provide the highest level of quality service and products to achieve total customer satisfaction. Our success will be achieved by the following guidelines: consistently meeting or exceeding the requirements of our coworkers, customers and suppliers; doing it right the first time; continuous improvement by being the best at everything we do. We pledge to be, as we always have been, "First in the long run."