by Rich Vurva

Mike Baker knows how to spot a price buyer. It’s as if they’re stuck in a time warp, wearing paisley shirts and bell-bottom pants. The president of Quality Mill Supply says that while price buyers are still prevalent among customers today, they’re a dying breed. They’re being replaced by more savvy procurement professionals.

“There are still a large number of customers that are buying like they did in the ’60s. They’re focused on price,” says Baker. “Where we’ve seen growth is with customers that are focused on total cost reduction.”

Quality Mill Supply is a general-line industrial distributor with $36 million in annual sales, focused primarily on cutting tools and abrasives. It serves a diverse customer base including automakers and suppliers to the auto industry, aerospace and medical manufacturers, and general fabrication shops.

Headquartered in Franklin, Ind., a short drive south of Indianapolis on I-65, the company maintains branches in Bloomington, Fort Wayne and Muncie, Ind. About 40 percent of Quality Mill’s business comes from integrated supply or commodity management accounts, a segment that should grow as more manufacturing customers understand how total cost reduction reaps bigger savings than product price.

The change in philosophy occurred soon after Baker attended a meeting put together a few years ago by the State of Indiana and Purdue University’s Center for Advanced Manufacturing. The Advancing Manufacturing Summit, which held its seventh annual meeting in early May, brings together representatives from industry, academia and the government to discuss innovative and creative ways for manufacturers to survive in today’s dynamic, global manufacturing environment.

One of the speakers at the event stressed that price-focused customers aren’t likely to survive long term. Instead of spending time and energy serving that type of customer, it makes better business sense to build relationships with companies that are determined to survive over the long haul by reducing their total cost structure.

“If we do not help our customers take cost out of their processes, they’re not going to be competitive in the global marketplace, so they won’t stay here in Indiana,” says Baker. “If we don’t help customers become more competitive and lower their real costs — not just the price of a drill bit — we’ll have fewer customers to serve.”

Changing stripes
Baker and his team took the message to heart. Over the past several years, they have positioned themselves as solution providers for major customers, documenting several million dollars worth of cost savings in 2007. Most major customers have a specific annual cost savings goal.

“Our company has long ties to Indiana, where we were founded by my father in 1944,” says chairman Alan Gilbert. “We want to keep jobs in Indiana. So, our approach is to say to customers, ‘How can we help make your job easier?’ We want to help them become more profitable so they can keep manufacturing jobs in Indiana.”

It wasn’t easy to convince all of the salespeople to make the transition, according to vice president of sales David Salathe. They were happy to lower the cost of a drill bit by a few cents if it meant the customer would keep sending purchase orders. The management team understood, however, that buyers will always find some other supplier willing to sell at a smaller margin. Customers who put out requests for bids every year aren’t the kind of company to bank on in the future.

Over time, partly because their compensation plan required them to turn in documented savings, salespeople began to warm up to the new sales approach.

“We’ve had a transformation here as well. We’ve come from the price-based, old style of selling to a commodity management approach. It has helped us transform the mentality of our sales force,” says Salathe.

The comp plan has since been changed so salespeople are no longer required to turn in documentation, but they continue to do so anyway because they see how it has benefited their relationships with customers.

The new approach
Research shows that tooling costs in a typical automotive plant generally total only about 3 to 5 percent of the manufacturer’s overall costs. Helping them save a few dollars on inserts or end mills won’t have a major impact on their bottom line. But introducing new cutting tool technologies or processes can generate major productivity improvements by reducing machining time, eliminating scrap or making other changes to enhance output.

“We have some customers with high-production plants that are running millions of parts. They’ve got their processes dialed in pretty tight. Yet we continue to find opportunities even with those customers by bringing in new technology,” says Baker.

The total cost approach has a stronger foothold at major manufacturing facilities, but Quality Mill salespeople have begun to introduce the concept to smaller customers as well.

“Even though they don’t have an integrated supply or commodity management program, they see the value of consolidating their supply base,” says Salathe. Instead of following the traditional bid/buy approach, they’re treating suppliers like partners and increasing the amount of business they do with those suppliers.

“That gives us a chance to spend more time investigating ways for them to reduce cost,” Baker says.

Some salespeople balked at the idea of talking to small machine shops about cost reduction programs, assuming the savings wouldn’t warrant the effort. They discovered, however, that small operations often make the same mistakes as large manufacturers. For instance, they may use up to 20 different brands of indexable carbide. Helping them consolidate to a handful of primary brands may result in a 30 percent or more reduction in the number of inserts they buy.

The company works closely with premier supplier partners such as Sandvik, 3M, Loctite and Precision Twist Drill to document cost savings.

“We set specific targets with our salespeople and the manufacturer reps. They’re being judged on how many documented savings they provide,” says Baker.

Salespeople understand their job is to recommend the best tool and the best process, even if that means replacing a tool they sold to the customer. The new approach has resulted in customers asking Quality Mill to expand the types of products it supplies.

Reengineering processes
The total cost approach frequently involves helping a customer reengineer a machining process. In one case, a machine shop that used two machines to manufacture a part was contemplating purchasing an additional machining center. Quality Mill reviewed the customer’s process, introduced new indexable tooling and drilling techniques, and adjusted feeds and speeds. The changes allowed the company to boost production without buying a new machining center.

“When you do those things and save the customer $250,000, he’s not going to beat you up over the price of an insert,” says Baker.

In another case, Salathe says process improvements introduced to an outdoor equipment manufacturer enabled that company to return a production process to its Indiana plant that had been outsourced to China.

“They realized that the process they were outsourcing could be handled more efficiently in house. I’m seeing that happen more and more,” says Salathe.

The company recently expanded its service offering by hiring a measurement solutions specialist who designs custom solutions for companies facing quality control issues.

When brought in to an account, Mark Bessler will spend time with quality engineers or quality managers to learn as much as he can about the measuring problem and offer a solution. He recently helped an aerospace manufacturer that was having difficulty measuring a turbine engine part with a very thin wall that tended to distort under the gaging force of standard measuring devices.

“We came up with a custom fixture where the operator slides the part into the fixture and it then rests in a neutral position,” he says. “We use a spring assembly technology that allows us to control how much force we’re applying to the part when we’re measuring it.”

Compared to traditional cutting tool distributors, who might sell standard gages and micrometers, Bessler applies more complex technologies such as electronic gages, air gages, laser technologies or touch probes to help customers solve their unique measurement problems. When required, he’ll run repeatability and reproducibility (R&R) studies to make sure the equipment he recommends functions in the customer’s application.

Baker says distributors have an opportunity to become a valuable resource for manufacturers that have reduced their engineering staff.

“They don’t have the time to learn about the new grades of carbide, the new drills and coatings, or the measuring technologies. They rely on us to bring that technology to them,” he says.

He also believes it’s important for distributors to have in-house expertise so they don’t rely totally on product suppliers for technical support.

“Too many distributors rely on their manufacturer reps to provide the cost savings and the technical expertise, and they’re vulnerable as a result,” he says.

Like other Midwestern states, Indiana suffers job losses when corporations move manufacturing and assembly operations out of the country. As long as local companies like Quality Mill Supply keep coming up with ideas to generate productivity gains for customers, Gilbert believes his home state can continue to support a strong manufacturing base.

Says Gilbert: “For us, it’s a matter of survival.”

This article originally appeared in the May/June 2008 issue of Progressive Distributor. Copyright 2008.

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