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Mr Fix -It

Where do you go to buy bear repel-lent for your workers on the Alaskan pipeline? A poultry fan for your …

Where do you go to buy bear repel-lent for your workers on the Alaskan pipeline? A poultry fan for your chicken farm in Iowa? A compressor for your Florida manufacturing operation? W.W. Grainger, of course. This little known company, in business for 71 years, has 15,000 employees, 1.5 million active customers, 550 branches, and can source up to 5 million items.

The company’s 1997 sales were more than $4 billion, a 16.9 percent increase over 1996. For the 26th consecutive year, it increased return to shareholders by 8.2 percent to $1.06 per share. Such obvious success begs the question: Why haven’t you heard of this company? Because you wouldn’t approach W.W. Grainger until you had a problem. “We help people figure out what they should do when they don’t know what they should do,” said chairman and chief executive Richard L. Keyser.

“We don’t supply the items that go into the automobile, but the things that surround it. The simple tools, the light bulbs, the flashlight batteries, things that are typically necessary but not central to the product,” he says. “Until recently, most of these items were an afterthought. Ninety percent of our clients write this stuff off. They lose track of it and the 80/20 rule applies. It’s 20 percent of what they buy in dollars, but 80 percent of the effort involves identifying what product is needed to solve the problem and figuring out where to get it.”

The company’s clients range from small part-time lighting contractors to large multinational corporations like American Airlines and General Motors. Regardless of size, all clients have one thing in common they want their order now and they want it right. “We have a very large inventory,” said Keyser. “Things that are typically needed urgently are in all our 550 branch locations for immediate availability. Anything beyond 24-to-48 hours is out of the spectrum of the customer’s mind. If you don’t have these things, you’ve lost the sale.”

The company has “will-call” branches at several locations, including Denver airport and Manhattan, where customers place their order and get it later that day. This stimulates sales, Keyser says, because many customers feel more comfortable with a “local presence.” “Our stockless branches get three or four drops a day, and customers line-up; they know when the drops are coming in.”

Keyser says the Internet is a huge growth area for the company; it saves both the company and its customers money. “We are investing heavily in the Internet. We don’t know how fast it’s going to happen, how fast it will be adopted, or what the adoption curve will look like but we know it’s important to be early. There have been predictions that business-to-business electronic commerce will be $300 billion by 2001. Others say that’s ridiculously small.”

While less than 1 percent of Grainger’s sales currently come from the Internet, on-line sales are growing at an rapid rate, and, Keyser adds, the average transaction on the Internet is almost twice the size of the average transaction in the physical world. “We don’t have any hard research to tell us why, but we have some hypotheses. One is that it’s a lot easier to find something on the Internet than in the physical catalog.”

Grainger will beta test its new e-commerce initiative, which Keyser calls an Internet department store, this fall, offering a variety of products from complementary companies. “The difference between a department store and a mall is important,” he says. “In a mall, all the stores are separate and have a different look and feel. A department store has one place to order and one transaction.”

Integrated supply is another large business area for Grainger. This is for customers who want to outsource the materials’ management process and concentrate on their core business objectives. Services include business process reengineering, inventory and supply chain management, tool crib management, and information management.

Grainger’s consulting group will benchmark a company’s costs, guarantee savings and establish a gain sharing formula for savings beyond that. “We help them reach this goal by doing a number of things they used to do themselves better,” says Keyser. “We identify product, manage their storeroom better, and provide a higher service.”

Because it’s an outsourcing business, Grainger gets paid a service fee plus a gain sharing formula based on the total cost savings. “We don’t mark up the cost of the product from the alliance partners. We don’t get in the way of their business relationship. We facilitate it.”

For the company’s larger customers, Grainger will often place people on site, says Keyser. “We may run their warehouses. At American Airlines in the Dallas/Fort Worth hub, we have maybe a dozen people on site. They wear our uniform but are very well integrated into the operation.”

This integrated involvement often results in significant savings. “A typical manufacturing company could have enough hidden costs to add another 1 percent of sales to their bottom line,” says Keyser.

While Grainger’s international operations are important, less than 10 percent of revenues currently come from overseas. And while Keyser expects sales to grow, they won’t grow dramatically. The company’s big thrust is increasing its share of fragmented domestic market. “Nobody competes directly with us in all areas,” said Keyser. “This gives us a lot of room for growth.”


PROFILE

RICHARD KEYSER

Chairman and Chief Executive

W. W. GRAINGER

Age: 56

Birthplace: Harrisburg, PA.

Family: Wife Mary Ellen; children Jeffery, 32, Jennifer, 27.

Education: B.S., Nuclear Science, U.S Naval Academy; M.B.A., Harvard Business School

Collects: Portrait miniatures from the mid-1700s to mid-1800s. Owns about 25. Hobbies: Racket ball and golf. Handicap about 18.

Last book read: Big Deal, Bruce Waster-stein.

First job: Golf caddy, aged 12. Earned $1 for nine holes.

Best decision: Selecting the right spouse and remaining married for 34 years.

Drives: Silver Mercedes E430 (they are a customer).

Management style: Hands on.

About mark young