Progressive Distributor - Reinvent or die

Reinvent or die

How one family business changed its focus to respond to market forces

by Rich Vurva

What does a local, family-owned distributor do when its only customer base leaves the area?

Reinvent itself or die.

D&D Tool & Supply evolved from a $3 million distributor serving the San Diego wood industry, to a $38 million distributor that serves a broad base of manufacturers in Southern California and Baja California, Mexico.

The company started doing business in 1947 as a sharpening facility for construction companies during the post-war boom. Dollie Dutro, ex-wing walker and stunt pilot, founded the business when she recognized that construction companies required a reliable grind shop.

In the 1950s, D&D expanded into selling power tools to cabinet and furniture manufacturers around San Diego. During the 1960s, the second generation of Dutro family members took over management responsibilities, and by the 1970s, the third generation started joining the company.

Throughout those early decades, D&D earned a reputation for expertise in woodworking applications. By the time the third generation of family members assumed leadership in the late 1980s and early 1990s, D&D was caught in the midst of a national recession. The company had weathered many recessions in the past by cutting expenses, reducing workweeks and waiting out each economic downturn. At the time, three Dutro brothers who had grown up in the business managed the company. They were excellent engineers and purchasing agents, but had no formal business training. When they saw the decline in sales, but no decline in expenses, they knew they had a problem but didn’t know how to fix it.

So they turned to their sister for advice.

Georgia Dutro, a certified public accountant with a master’s in business administration, had worked in commercial real estate development for many years, and was adept at market research.

She agreed to conduct a research project for the family business. After completing the study, she believed this recession would be different for California. Wood-related businesses were not just downsizing, many were leaving the state forever. High labor and electrical costs, coupled with EPA and OSHA regulations, forced the wood industry to move from California into Mexico and the southern U.S. This was not just another recession; it represented a major change in focus for manufacturing in Southern California. The change might take years to play out totally, but Dutro felt D&D couldn’t wait years to respond. The company needed to reinvent itself.

A plan develops
At the time, D&D’s sales were just under $3 million annually. Georgia Dutro felt the first step in reinventing the company was to analyze other markets, get creative, and make a plan.

The entire manufacturing market in the U.S. was shrinking, but what would be left in Southern California? Likely survivors included aerospace, ship manufacturing and other metal fabrication companies, along with the military, which required a variety of MRO supplies. Wood manufacturing continued moving into northern Baja California, Mexico.

Dutro advised her brothers to expand in two ways: geographically into all of Southern California and Mexico, and then to diversify into other types of manufacturing markets. This required D&D to open operations in the border areas of Mexico to serve the wood industries, and to diversify into the machine shop and metal fabrication markets, which meant learning new markets, vendors and applications.

She believed the best way to accomplish both goals was to begin acquiring competitors in order to gain market share and experienced employees. In 1990, the Dutro brothers asked their sister to become company president and implement the plan.

“Changing a company that had been doing business the same way for over 40 years is much like changing the direction of a stampeding elephant herd. While getting their attention, you have to be sure you are not trampled,” she says.

Avoiding the herd
The newly appointed president avoided getting trampled by encouraging employee participation and involvement. D&D assembled a team of experienced employees and asked them to write down the names of their competitors. The group ranked each company with a point system that considered 1) length of time in business, 2) high ethical standards, 3) trained employees, 4) manufacturer’s lines, and similar attributes. Competitors that ranked the highest became merger targets. Over the next few years, many competitors in the wood industry joined the D&D family through mergers or acquisitions, enabling D&D to build market share in Mexico and in areas north of San Diego.

“Melding company cultures, and making sure old and new employees see the benefits of growth is the hardest part of any merger,” Dutro says. “By specifically targeting merger candidates, we felt we already shared many of the same cultural values, making a merger much easier.”

The company followed the same tactic in the aerospace and metal fabrication markets. D&D instituted aggressive training schedules so old and new employees could share their knowledge. As the company grew from one branch to six, employees learned to follow written procedures so all branches conducted business processes the same way. Centralized accounting and purchasing helped to make sure the company benefited from the knowledge of all employees, and that the company ran smoothly.

“One of the interesting things is that people who joined the company through mergers or acquisitions have stayed on, which isn’t the typical scenario in an acquisition,” says sales manager Pat Dennis, who joined D&D when her company was acquired.

D&D is now a leader in aerospace manufacturing tools, abrasives, adhesives, MRO and safety products. It operates a complete vendor managed inventory program and runs tool cribs for customers. The company strives to develop customer-centric solutions.

“A lot of companies talk about being able to provide value-added to customers. At D&D, we’re truly striving to bring value-added to customers. We’re not trying to sell products, we’re trying to sell process changes to customers. If that customer grows its profits, then we can expand and grow with them,” says Neil Tyner, vice president of sales and marketing.

Hanita Cutting Tools, part of the Kennametal family, is a key vendor for customers in the aerospace and machining industries. Jonathan Saada, Western regional manager for Hanita, works closely with D&D Tool to train employees and customers.

“D&D has done a great job in hiring and training the best people for their inside and outside sales team. D&D’s motto is ‘Call the Experts’ – and they back that up with training. In five years, they have become one of the top Hanita distributors in the nation,” he says.

Experts in several product categories — including air tools, safety, abrasives, woodworking, metal cutting, plastic cutting and more — are available to help salespeople develop application-specific customer solutions.

“We try to help customers come up with new solutions to improve their processes,” says Dennis. “We do a thorough analysis of their real needs and give them a solution, helping make them more competitive in their markets.”

Looking forward
The D&D management team schedules an annual weekend-long meeting (which it calls an “advance” rather than a retreat) to review markets, competitors and customers, and to refine plans and targets. Since the reinvention that began in 1990, the company has experienced dramatic change. The wood business, which once represented 100 percent of D&D’s sales, is now less than 20 percent. The company has grown from less than $3 million in annual sales to more than $38 million and now employs more than 150 people. The management team includes a group of diverse individuals from many backgrounds.

“We have a corporate culture that goes all the way down from Georgia to the person taking the orders in the warehouse. Our goal every day is striving to service that customer to the best of our ability,” says Bob Brooks, vice president of operations.

Gary Moon was the owner of one of the companies that merged with D&D in 2004. So-Cal Tools was a niche cutting tools distributor being squeezed by national competition with broader product lines. He says the merger with D&D offered So-Cal Tools more lines, technology and a well-trained staff to perform back-office tasks.

“A complete supply chain management system, aided by the latest technologies, combined with our staff of engineering experts and a full line of the best products gives us a unique position in the marketplace,” says Moon, now vice president of D&D. “Our mission is to make our customers more profitable by helping them engineer their processes, providing the right tools and equipment for the job, and then making sure items are in the customer’s hands at the right time. I could not have done this on my own. I did not have the money or the knowledge. D&D has allowed me to expand my offerings to my customers, and I am valued for my expertise in the aerospace cutting tool industry. It’s a great partnership.”

For other distributors facing major marketplace changes, the lesson D&D learned is simple. Don’t be afraid to take a hard look at the problems you face. Do your research, make a creative plan and then implement the plan.