IS meets IT

Precision Industries discovers that expertise in information systems technology is as important as distribution management know-how.

by Richard Vurva

Call it a marriage of equals. It’s the point where a company’s long-lived competency in traditional business practices begins to blend with newer expertise in systems technology. Eventually, the two become so intertwined that it’s difficult to imagine one surviving without the other.

Technology has become an integral part of the offering provided by Precision Industries, an industrial distributor based in Omaha, Neb. So much so, in fact, there’s hardly any aspect of the company that hasn’t been enhanced by technology.

This marriage of distribution and information technology (IT) has enabled the company to grow from a bearings and power transmission house with a single site in 1945 to a company specializing in eight product categories with $190 million in sales and nearly 100 stocking locations across the U.S. About half of its sales come from integrated supply contracts, and 30 to 40 percent of the branch-based revenue comes from custom solutions, which is how Precision describes systems contract business.

IT plays a major role in the integrated supply (IS) and the branch divisions. That’s particularly true with national account customers.

“Software has played a big part of the decision-making process among customers that have selected us for multi-plant, multi-year, multimillion-dollar contracts,” says Dennis Circo, chairman and chief executive officer.

Here are just some of the ways Precision utilizes technology to create custom solutions for customers.

Bar coding. Customers, such as a major food processor, have reduced millions of dollars worth of MRO inventory from their storeroom shelves thanks in part to Precision’s Smart Storeroom inventory management solution. Utilizing bar code technology, Precision tracks re-order points, min./max. levels and usage history at 25 of the food processing company’s plants around the country. When an SKU hits a reorder point, it automatically triggers an order at the nearest Precision branch, which delivers the part the next day.

Logistics and freight rating. Another example of blending the old with the new is a logistics and freight rating system that automatically selects the lowest-cost carrier to get an order to the customer on time. Here’s how the system works: A customer service representative (CSR) enters the date when the customer wants to receive an order, the customer’s location and the location where the shipment will originate. The system analyzes a database of 800,000 zip codes and negotiated rates and tells the CSR the best way to get the order to the customer.

“The biggest challenge of showing a cost savings with freight is getting a good baseline. Many customers don’t capture the cost of freight when they receive a product,” says Chris Circo, executive vice president and chief operating officer of the integrated supply division. “So, we’ve developed a number of standard operating procedures to capture and develop an appropriate freight baseline.”

Maintenance management. In 1999, Precision acquired an equity stake in Chase Software Systems Inc., a California company that specializes in computerized maintenance management systems (CMMS). The alliance enables customers to realize the benefits of marrying a user-friendly asset management software tool with Precision’s distribution and inventory management capabilities. It means customers can turn to one place to manage all aspects of their plant maintenance, from tracking work orders, implementing preventive maintenance, reliability-centered maintenance and total productive maintenance practices, to purchasing MRO parts and managing inventory.

Warranty tracking. Suppose a production line goes down unexpectedly because of an electric motor or pump failure. The maintenance crew’s first priority is to get the line up and running. What happens to the faulty part? Frequently, it gets trashed or dumped in the maintenance department and forgotten. Precision developed a warranty tracking module that can be used in conjunction with the Chase CMMS software or as a stand-alone package. Critical spare parts covered under warranty are bar-coded and scanned into the system. If the part fails, maintenance workers scan the bar code before tossing it aside. If the part failed before the warranty expired, Precision can go to the manufacturer to recover the warranty cost. Sometimes, savings are tremendous. Over a 13-month period at one customer’s plant, the program saved $76,000.

Audit verification. Audit Pay is a digital scanning and three-way-match accounts payable system that guarantees the accuracy of invoices and reduces paper flow. When supplier invoices arrive, they’re immediately scanned into the system. Invoices that match the purchase order get paid automatically. An audit verification team member gets involved only when there’s a discrepancy. The system greatly reduced filing and paper storage requirements, plus online lookup capabilities eliminate the time needed to search for paperwork.

Key performance indicators. If distributors don’t measure their performance, customers will judge them on fiction, not fact.

“You must have a system that allows you to measure your performance and report your performance based on facts,” says Chris Circo.

It starts by first getting the customer to agree on a baseline on which performance will be measured. Unit price, fill rates and on-time delivery are common customer concerns. Then, you develop reports on those key performance indicators (KPIs) important to each customer and communicate results on a regular basis. Sometimes it’s necessary to measure different KPIs for the same customer at different locations based on each plant’s needs.

“Integrated supply is all about process,” says Chris Circo. “What’s the process to manage the business? What’s the process to develop the scope? What’s the process to deliver parts? What’s the process to deliver savings? We have developed standard operating procedures for just about every process that you can think of.”

E-procurement. Customers have the option of accessing a custom Web catalog (www.pibuy.com); Precision’s Enterprise software system; or its newest offering, Neterprise, a business-to-business e-commerce solution. Neterprise is similar to an application service provider (ASP) application, where a third party hosts and manages an application that’s accessible over the Internet.

With Neterprise, customers also benefit from a system that interfaces direct with their own enterprise systems, plus connects seamlessly to Precision’s order entry system. Regardless of which electronic ordering option they choose, when customers enter an order, it’s automatically sent to Precision and integrated into the customer’s purchasing system for approvals and processing. There’s no need for double entry.

“One of our strengths is our ability to be flexible,” says Dennis Circo. “We can design a plan around what the individual customer wants. We don’t have one deal that fits all.”

Virtual private network. Every branch is connected via Precision’s dedicated fiber-optic lines. Using a four-digit extension, employees can reach another Precision associate anywhere in the country without placing a long-distance phone call. The network has helped reduce phone bills by 50 percent. It also enables all outside salespeople, national account managers and the corporate executive team to hold weekly teleconferences.

“We spent a half-million dollars on a digital bridge, which is a digital communications device that has an attenuator that modulates everyone’s voice to the same level,” says Dennis Circo. “So, we can have a nationwide sales meeting where everyone participates from their own office. Think about how powerful it is to have 100 people all around the country thinking about the same account and communicating about what we’re trying to do.”

Custom solutions. Often, customers don’t know what they want. They just know they can do a better job of managing their indirect materials and are looking for help in doing so.

Some customers simply want a reliable source for MRO supplies. Others want to manage their own indirect materials inventory, but want someone to automatically replenish their tool cribs when supplies get low. A third type of customer wants an outside partner to put dedicated people on their plant floor in a fully integrated supply chain relationship.

Keith Davis, senior vice president of the branch division distribution network, who oversees Precision’s national network of branches, said the company can handle a variety of customer types.

“Our services have evolved to include all aspects within the indirect supply chain, and we help our customers dramatically reduce their operating costs. One of Precision’s competitive advantages is our wide product breadth, offering customers the ability to leverage their indirect spend and rationalize the supplier base.”

Adds Dave Strovers, vice president of marketing for Precision’s specialty groups: “Our direct manufacturer relationships allow us to offer technical expertise on all the products that we market. This means consistent and competitive pricing and technical support from manufacturers to complement our in-house specialty groups.”

In other words, it’s a marriage between the old and the new. It’s a blending of traditional distribution with systems expertise.

This article originally appeared in the Sept./Oct. 2001 issue of Progressive Distributor magazine.

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