Clips/ Cover Story

Production Tool Supply is balancing the equation for many independent distributors

THE SEVEN FULL-TIME EMPLOYEES in the graphics department of Production Tool Supply are kept busy updating the extensive catalog produced for PTS customers and the company's e-business Web site, along with many direct mail programs throughout the year.

The catalog serves the customers of Production Tool Supply's nine branches, offering a wide variety of products and product lines. But PTS is also a master distributor whose customer base includes almost 7,000 independent distributors across the U.S., Canada and Mexico. For their use, PTS produces nearly 500,000 custom catalogs per year from its suburban-Detroit headquarters.

The graphics department plays an important role for PTS, says David Francis, director of sales and marketing. More than 1,000 distributors purchase custom imprinted catalogs to distribute to their own customers.

"Using the distributor's own logo, a variety of cover designs, colors and custom inserts, each catalog maintains the distributor's unique identity," says Francis. "With no reference to PTS, the catalog becomes a powerful selling tool for the distributor."

Founded in 1951 by chairman Dan Kahn, PTS has continually expanded its offerings. The catalogs are just one element of a total program aimed at leveling the playing field for the small distributor. Other elements include providing affordable marketing materials and distributor discounts, the America's Tool Crib[TM] marketing alliance, and its e-business enabled Web site, ptsxpress. In addition, PTS is preparing to release webxpress[TM], a customized version of its online services that individual distributors can offer to their own customers.

"One of Detroit's best-kept secrets has been supporting local distributors for 50 years," says company president Mark Kahn, son of founder Dan Kahn. "We're there so they don't need to stock the inventory they can't sell, maintain warehouses they don't need, or purchase technology they can't afford."

No matter what options the distributor decides on, the master distributor program works like this: Customers order from their local distributor and the order is shipped from PTS in anonymous packaging bearing only the distributor's name and the customer's purchase order number. The order usually arrives the next day and, for the end-user customer, it's just part of the service from their local distributor, says Francis.

"It is a totally transparent process for the local distributor" says Francis. "We understand that the relationship distributors have with their customers is key, so we try to preserve and enhance that relationship."

You've got mail

A key part of the PTS offering is its direct marketing program. PTS produces over a million pieces of direct mail each year for its distributor network.

"Through regular flyers and vendor-specific mailing programs, we provide a year-round marketing program," notes Francis.

Francis says the catalogs and marketing materials are inexpensive and represent a considerable amount of market research. PTS also has a product management department that is continually evaluating products and designing new marketing campaigns.

President David Thompson of Van Wert, Ohio-based Kennedy Mfg. can attest to those marketing efforts. He says PTS has been cooperative about marketing its product line, which includes a wide range of tool boxes.

"We have a very open, honest relationship," says Thompson. "They share with us what works and what doesn't. They are always open to trying our ideas."

Thompson says PTS provides a valuable service for vendors.

"It allows us to reach smaller customers who are, for the most part, served by small distributors," says Thompson. "These smaller distributors cannot easily purchase the minimum order limits, but it is a sector that we want to reach."

Francis points out that PTS doesn't have these minimums. PTS will even open cases to ship just what a distributor needs to fill an order.

Our other warehouse

"We are in our niche, so PTS has become like another warehouse for us," says Pat Butler, president of Butler Bros. Industrial Supply in Lewiston, Me. "It is shipped as quickly as if we sent it ourselves."

Butler says customers want a single source and PTS allows a much broader selection without increasing inventory. He says Butler Bros. carries many of the items in the PTS catalog, but it's often more convenient for PTS to ship them along with additional items as a single order. The difference in margin is compensated by the cost savings and convenience of shipping only one package, says Butler.

Butler Bros. is not alone in turning to a master distributor. According to INDUSTRIAL DISTRIBUTION'S 55th Annual Survey of Distributor Operations, nearly 20 percent of the distributors who responded to the survey are now buying products from a master distributor.

To make things easier PTS has a call center staffed by 35 customer service representatives, including various product experts who can answer technical questions, says Francis.

"We are selling service and that is a large part of our value," says Francis. "There isn't any product we sell that isn't sold somewhere else."

The call center handles more than 3,000 calls per day. In addition, there is a distributor communication center to handle issues directly related to the master distributor program.

"We are seeing a benefit from our e-business initiatives in the form of reduced call volume," says Francis. "There are 2,500 registered users of our Web site, ptsxpress. With our fully transactional site, many customers prefer to place orders and can get real-time price and availability information online."

The online catalog has the same layout as the 1,700-page printed catalog in the form of Adobe Acrobat files.

"It doesn't have all of the flashy features of some Web sites," he says. "But people are familiar with our catalog, it is simple, it is real-time and our customers seem to like it. What it does have is all of the power of our back-end software and e-business tools."

One distributor that makes use of the e-business site is The Angle Co., Elmwood Park, Ill.

"By being online with PTS, we are able to directly access their inventory and pricing data and give information to our customers right away," says president Donn Cropper. "It allows us to reduce costs and inventory and gives small distributors a means to compete against the large national distributors."

Cropper says ptsxpress allows the company to research online, access PTS after hours, and provide a full line of general items rather than trying to survive as a niche player.

"PTS is ahead of the curve," says Cropper. "Not all of their customers are ready for buying online, but PTS is breaking ground. It's clear their Web site was designed for function rather than fashion. I like that."

The next step is webexpress [TM], a program that would allow customers to access PTS directly with full e-business capabilities. The program, which was launched in July, allows end user customers to log onto their local distributor's Web site and seamlessly connect to all of the features of ptsxpress, with no reference to PTS. Orders are drop shipped directly to the end user with only their distributor's name on the shipping documents.

With webxpress [TM], small distributors can access e-business tools without the large investment in technology, allowing them to present a fully transactional real-time Web site to their customers.

PTS added another program recently, aimed at local distributors interested in joining an alliance or buying group. Called America's Tool Crib [TM], the alliance offers increased marketing and branding of the independent business as well as enhanced discounts and services.

Leading edge

With all of these programs and services, PTS continues to grow. To provide better service to that expanding customer base, the company recently completed a $5 million technology upgrade. Kahn says it is part of assisting partner distributors' backend processes and providing savings.

Part of the upgrade involved adopting an enterprise resource planning system. This allows for the back-end to be linked to the e-business platform for real-time inventory and order tracking, along with many of the other features and online services offered by the Internet. Some of the advantages are "softcost" savings in reduced paperwork and reduced demand on the customer support center, admits Kahn.

"The investment is also paying off in direct savings," says Kahn. "With better inventory control and forecasting, PTS is entering an average 600 fewer purchase orders per month. That could translate into as much as $500,000 in cost savings each year."

Another large savings has been achieved through warehouse improvements, says Kahn. He says PTS's "Central Distribution Center" is now operating as a state-of-the-art warehouse powered by warehouse management software and improved methods of warehousing and order handling.

"We have reduced warehouse staff requirements from 185 to 125 employees," says Kahn.

With all of the stock properly bar coded, it is easier to track from receiving to shipping, says warehouse manager Cliff Kiehler. The data is also useful to determine active locations, the ones most frequently and readily accessed, he says.

"Maintaining accurate inventory data used to be labor intensive, but it is now automated," says Kiehler. "We also used to have over 500 stock replenishments per day, or about 10 percent of the orders, but now we do less than 40."

Kiehler says PTS used the data from the new system to determine the stock in active locations -- of which there are 90,000.

"The next step was to place the reserve locations nearer the active bins," says Kiehler. "Now any one of our staff members can fill any order quickly and easily."

Kiehler admits that prior to the warehouse upgrade, it was sometimes necessary to assign extra workers just to assure the proper filling of orders.

"Now, all of the orders are handled nearly error free by the standard process," he says. "Essentially, all of our customers are getting special treatment."

TeCo Mfg. of Union, Ohio, is in the unique position of being both a vendor and a customer. As a result, the company has seen the benefits of the new system from both sides.

"As a vendor, their new warehouse and ERP [system] has improved order forecasting and planning. With better logistics, there have been fewer requests for rush orders," says president Bob Madewell. "As a customer, we know they can supply us with what we need accurately and on time."

Madewell says PTS's business model has been beneficial to TeCo by representing the company to so many distributors.

Kahn says PTS has developed that business model by recognizing the importance of local distributors and supporting their efforts with large inventories, broad product lines, logistics and customized marketing and e-business services.

"By providing local distributors with these enhanced capabilities," he says, "PTS is able to expand its sales opportunities and form meaningful alliances to increase their market penetration."

Invoking the slogan of its distributor catalog program, he adds: "PTS depends upon distributors for its future growth and considers these regional suppliers their Partners for Success."

COMPANY SNAPSHOT

PRODUCTION TOOL SUPPLY

President: Mark Kahn
Headquarters: Warren, Mich.
Founded: 1951
2000 Sales: $229 million
Employees: 540
Branches: 9 (Michigan and Northern Ohio)
Primary Products: cutting tools, abrasives, precision tools, machinery, and general MRO supplies.
Territory: North America
Web Site: www.ptsxpress.com

COPYRIGHT 2001 Cahners Business Information in association with The Gale Group and LookSmart.