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Uncommon loyalty

In a highly competitive market, Iowa Machinery & Supply discovers that loyalty to suppliers results in loyal customers

by Rich Vurva

Most distributors believe that more is better. According to our recent annual reader survey, 58 percent of Progressive Distributor readers said they plan to add product lines in the next 12 months, and more than one-third said they plan to increase brands per line. The strategy is to make sure they have the right product on their shelves so they can offer alternatives if a customer prefers Brand A over Brand B.

Iowa Machinery & Supply is bucking that trend. In effect, this Midwestern distributor has chosen to put all of its eggs in fewer baskets. If a customer needs a saw blade, Iowa Machinery can offer a Lenox solution or nothing. Looking for carbide indexable cutting tools? Iscar. Need abrasives? Norton. Hydraulic workholding products? Enerpac.

"When our people walk into a sawing application, we have one solution, and that's Lenox. If they want any other brand blade, we tell them, 'I'm sorry, we don't believe that's the best choice, so we don't have a product to sell you,'" says Jeff Kranzler, industrial division manager. "We're not one of those distributors with multiple carbide lines, hydraulic lines and saw blade lines."

Iowa Machinery believes that exhibiting loyalty to suppliers does more than just earn stronger support from those major vendors. It also translates into more loyal customers. Focusing their efforts on a handful of key suppliers enables sales and application specialists to spend more time helping customers improve their manufacturing or machining processes and less time shopping.

"We focus predominantly on trying to provide value to our customers. We've aligned our company with a select group of what we believe to be world-class manufacturers. When you add our skilled sales and applications people to that mix, you can go to a customer and really focus on lowering the cost of their manufacturing," says Kranzler.

Because manufacturers are continually introducing new products and technological innovations, it can be difficult for distributors to keep up to date on changes and improvements, Kranzler adds. "We believe we can represent them more effectively if we limit the number of key suppliers we do business with," he says.

For the strategy to work, it's imperative to be aligned with best-in-class suppliers, says company president Darrell Randall. When you combine services such as a full-service hydraulic repair center, in-house saw blade welding center and tool repair, Randall believes Iowa Machinery is positioned to help customers remain competitive in their businesses.

"We're not just peddling products. We're out there solving problems. It's all part of the total package. We've got to be smart enough to make sure we're working for customers who understand that we can help them make their end product better, cheaper, faster. It's not about the low price," he says.

Sales force segmentation
Another key component to the company's strategy is proper alignment of its sales force. Its six sales and applications specialists are assigned to customers based on expertise rather than geography. Those with more experience and knowledge in indexable carbide products call on machining centers; sales and application specialists with expertise in saw blades call primarily on steel service centers and other facilities that cut steel.

"Our sales and applications people literally may pass each other on the interstate going to different customers that aren't necessarily closest to their home base, but they're assigned because this is a large abrasives customer, or a large sawing customer or a large machining customer," says Kranzler. "We align the correct salesperson with the customer, which is not the least expensive way to go to market with the high cost of gasoline today. But in the end it goes back to providing the value to the customer."

With about $10 million in annual sales, the company primarily serves small- to mid-sized manufacturers, assembly operations and machine shops in Iowa and western Illinois. Sales are concentrated among six product segments: abrasives, non-indexable cutting tools, indexable carbide cutting tools, hydraulic workholding equipment, saw blades and metrology.

Finding a niche
Iowa Machinery was founded in 1903 in downtown Des Moines, providing industrial supplies to area mills, mines, machine shops, brickyards and steam plants. It became a Hyster forklift dealer in 1952, and merged with MH Equipment, a material handling dealer headquartered in Peoria, Ill., in 2001. Today, with an additional facility in the Quad Cities, Iowa Machinery operates as a stand-alone division of MH Equipment.

In the past, salespeople sold industrial supplies and material handling equipment. After the merger, however, the company restructured its sales force.

"Salespeople had to make a decision," recalls Kranzler. "Do I sell material handling products or industrial products? It would be very difficult today for one individual to become knowledgeable on the latest material handling products and the latest industrial products. So now we have distinct people calling on customers."

The transition wasn't easy.
"When you change what people sell and you change their commission, getting salespeople in the right groups of customers so they can earn their living with a new portfolio of products to sell in a down market, that was challenging," says Randall. "But it was a good challenge because we're much more focused today. We don't even think of our guys in the field as salespeople. We think of them as application specialists."

Solutions selling
A recent solution recommended to a steel fabrication shop demonstrates the company's solution-centered approach. Jerry DeBoef, a sales and application specialist for 17 years, learned that the customer wanted to purchase a new drill to provide a finish bore on an axle plate being machined for an agricultural equipment maker. DeBoef asked a few follow-up questions about the machining process and ultimately recommended a solution that eliminated the need to buy the new drill. Instead, he had Iowa Machinery's tool repair shop modify a standard 1 1/4-inch indexable drill to complete the cut in one pass instead of two. The solution reduced cycle time from 200 minutes to 100 minutes.

"They probably make about 100 of these parts at a time," DeBoef says. "At most shops, machine time costs about $60 per hour, so this saved them about $100 per job, but it also saved them the cost of a new drill, which would have cost about $1,200."

Tool management
Although Iowa Machinery is considered the preferred supplier for about 18 companies - and has taken on crib management responsibilities for those customers - it has chosen not to bid on major integrated supply accounts.

"We're not going to try to take on a $20 million-a-year MRO spend. It would destroy our service levels to our other customers and it's not worth it for a small- to medium-sized company like us," Randall says.

The company recently installed an automated tool vending system for a customer with 25 CNC machining centers. The system eliminated the open bin approach used previously, which resulted in machine operators hoarding inserts and other tools at their work stations. Since installing Iscar's Matrix automated tool-dispensing system, inventory decreased as operators burned off supplies hidden in tool boxes.

"Once they knew it was in the machine and they could count on it being there, they began to trust the system and didn't hoard inventory," says DeBoef. "Now, they're grabbing one insert or one box of inserts instead of stocking up on just-in-case inventory."

The Matrix software automatically triggers reorders when inventory reaches a predetermined min./max. level, and DeBoef stocks the machine weekly. Like most companies today, employees at the machining shop wear several hats. Since the CNC programmer was also responsible for placing orders and generating quotes for new jobs, the Matrix system freed up his time. He can now focus on programming and quoting jobs instead of writing purchase orders.

Initially, the new system resulted in a reduction in orders because the customer now has a more accurate understanding of its real tool usage. But Iowa Machinery now has a bigger share of that company's total tooling spend than in the past. Randall believes the company has been successful for more than 100 years because of an insistence on doing what's right for the customer.

"We learned a long time ago that we're not going to be the lowest price provider. As the market has evolved, there are some very big players in the market and they can buy it cheaper and move it cheaper. We can't be successful at that. We have to align ourselves with customers that understand the value we bring," he says.

This article originally appeared in the November/December 2008 issue of Progressive Distributor. Copyright 2008.

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