In search of greener pastures

An Activant Customer News Article

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A bright future

John Day Co. services accounts like Campbell's Soup, pump and valve manufacturer Vickers, Inc., and Valmont Industries, Inc., a manufacturer of street light poles and irrigation equipment. It has 120 employees at five branch locations, and services 13 states through an outside sales staff of 17. John Day Co. also opened a safety division in 1997. Like most distributors, integrated supply is becoming more important, accounting for 30 percent of sales in the industrial division.

At one point, the future was questionable at best. John Fonda recalls the day when there were eight houses in the Midwest similar to John Day Co. that split their time between the agriculture and industrial business. Slowly, they started to go out of business as implement dealers became fewer and fewer in the Midwest, and as the farming base shrank. At the same time, John Day Co. watched as pressures on margins continued. Today, John Day is one of the last remaining dual houses.

"I'm not sure if they went into bankruptcy or if there was no one interested in taking over the businesses, but we were a family business and we wanted to stay in business and make a go of it," says John Fonda. "I credit my father (Jere) that he could see the industry was changing and that we would have to put people and technology in place for us to be successful through the 90s. He did a very good job of that and our new management team is responsible for taking us into 2000 and beyond."

From cows to computers

Of all of the opportunistic ideas at John Day Co., perhaps technology has been the most important. Without it, the firm wouldn't be able to service the fast-growing industrial sector as effectively. In fact, John Day's commitment to technology was documented in the recent satellite broadcast produced by the National Assn. Of Wholesaler-Distributors, which profiled the company in its presentation entitled "Succeeding with Technology; Turning Data into Dollars."

As recently as the late 1980s, John Day Co. was still involved in the laborious task of manual invoicing. Around that time, the company became involved with software provider Prophet 21, something Fonda called "an awakening, especially when we realized the amount of data that we could collect about ourselves in a very short period of time."

That was the beginning of a big push into technology, which not only helped the firm better serve its customers, but become efficient enough in-house to rebound against nose-diving margins, a problem faced not only by John Day Co. but by the entire industry. It just so happens that John Day Co. figured out a way to deal with the problem.

Around the same time that many of its competitors were going out of business, management at John Day Co. was guilty itself of conducting business in archaic fashion. For example, it often took several weeks to run reports. By the time some reports were finished, it was either too late to make a strategic decision, or a selling opportunity had already passed.

"It became more evident to us in the last couple years as our profit margins deteriorated somewhat that we'd need to do everything we could to service the customer better and become more efficient," says Kurtenbach. "We always realized technology would be important, not only in reducing our operating costs but to stay ahead of the competition."

Almost two years ago, John Day Co. made a concerted effort to utilize data mining, or use company information more smartly. The firm implemented use of an executive decision management system, which allows the company to see where it is today in comparison to its goals. Not only that, the system's software lets the company look at its top salespeople and track gross margins and customer fill rates on a monthly and year-to-date basis, and whether business is growing or in decline.

"Almost everyone in the company has been impacted by the system," says Kurtenbach, "but the people using it extensively are in the sales department, which needs to track data quickly. With integrated supply, we need to view what the customer is doing more rapidly and respond to that and react. We are in the position today where we can guarantee the customer that we have product [they need] on our shelf."

Company chairman Jere Fonda relates partnering with customers to a marriage. "First we were engaged, then married, and now we're involved in a true partnership," he says. "Customers rely on us for many of their supplies without having any inventories."

That requires a good deal of trust in the distributor, but the technology John Day Co. embraced allows for that kind of relationship. Nowhere has that proven more true than at Vickers, Inc., the largest pump manufacturer in North America and John Day's largest customer, where business grew 33 percent last year. Ron King, senior manufacturing engineer at Vickers, recently initiated an OEM supply contract with the company and just added 600 new items to the list of products John Day supplies.

"We're their biggest customer, and they are very aggressive," says King. "They've been great for us in terms of service and delivery. They stock product in their warehouse for us, so we have backup all the time. We get documentation on where they saved us money. They've saved us a ton of money by consolidating freight alone."

Rick Robinson, director of purchasing at Valmont Industries, says that John Day's dedication to technology is paying off at his company. "We are an old-line kind of shop, and the technology at John Day is superior to what we have," he says. "We have EDI for our customers, but not for our suppliers, and with [the links] John Day brings, we'll be able to work into their hookups. The technology they have will be brought over to our site in the near future. Otherwise, it would be very hard for us to get."

Fonda and Kurtenbach both admit that the data mining system gives them a huge edge on the competition. They can tell quickly, for example, which customers are profitable and which are not, and how adding a new line will affect margins. Once customer information is gathered, John Day Co. uses it to further penetrate the customer, which complements the philosophy that it's better to sell more to existing customers than trying to find new ones.

"We run reports that tell us everything our customers buy from us and give us clues to other areas within their company that we can attack and hopefully attain more business," says Steve Regan, John Day Co.'s industrial sales manager. "The information we get from the computer and how it benefits the salesmen in getting new business is just amazing."

Data mining also helps when it comes to integrated supply. Kurtenbach recalls that management expressed concern when the firm signed a new integrated supply contract recently. "We had a chairman of the board who saw the margins on an integrated supply deal and said, `We can't be making money; you can't do business this way.' We took the data, turned it around and said, `Yes, we can, because there are economies of scale here.' Integrated supply is the fastest growing segment of our business today, and we could not be able to do it without the technology we have. You need to measure how that business is affecting you."

"I'd say three years ago it may have been about five percent," says Fonda. "It's gone from a very insignificant volume to being one-third of sales on the industrial side. The reality is that each program you put together is completely unique. To pick up one large account might take six months.

"We're still planning a lot of time marketing to our traditional customer base. Integrated supply is not for every customer, but they can still benefit from it. So we're spending a lot of time to make sure our traditional base receives better service today than they used to. We've always had excellent relationships with our suppliers and customers, and now we're doing more partnering with those customers. Tomorrow, we're going to have fewer, but better customers."

What is data mining?

Data mining, also known as data warehousing, allows distributors to retrieve, correlate and summarize data on demand by extracting information from multiple databases and formulating reports and graphs. This data is retrieved from what is often called a data warehouse, which contains basic business system data but will allow the importing of other databases outside of the turnkey business system used by the John Day Co.

In the case of the John Day Co., the basic system data includes sales, purchasing, inventory, general ledger, payables, receivables data, etc. Data mining gives the firm the ability to access various fields and formulate its own reporting and graphs, virtually on demand.

"Our business system has hundreds of standard reports from the various areas listed above. However, most areas like inventory and payables are not easily combined into one report, and are even more difficult to join with outside data," says Nancy Kurtenbach, vice president at John Day Co. "A good example of a data mining application is a "Sales by SIC by Product Group Comparative Report" requested by the sales department. We recently purchased marketing information that reveals potential sales by SIC code by product group in an effort to focus our sales staff on the product groups in particular accounts they may not currently target. Combining the marketing data with each salesperson's actual sales data allowed us to flag specific customers and product groups that our sales staff should focus on."

Another application is collecting ABC costing data, or retrieving data drivers such as number of shipments and combining with freight expenses in the general ledger to quickly retrieve freight costs per shipment. Without data mining tools, this data was manually retrieved from various sources, rekeyed into spreadsheet applications, re-totaled or summarized. These requests can be extremely laborious and time consuming. Many times data can take so long to compile that reaction time and the value of the information is lost.

Data mining: what's the payback?

When it comes to the future of distribution, one thing is clear: the winners in the game will be those investing in technology. That was made eminently clear by the panelists on the recent national satellite broadcast, "Succeeding with Technology; Turning Data into Dollars," produced by the National Assn. of Wholesaler-Distributors.

Roger Harvey, president of Value Associates Ltd. in Columbus, Ohio, told the national audience that more and more distributors today are faced with gross margin pressures. "Where does that leave the potential for profitability? In the operating expense section, which is part of the income statement that distributors have very little information about. The solution today that we didn't have five years ago lies in technology."

That's why John Day Co. has turned to data mining to learn more not only about their in-house financials, but about the needs of its customers. So far, the company has made great use of the information it is gleaning from its sales staff and accounting departments. But what is the financial reward?

Nancy Kurtenbach, vice president at John Day Co., says the initial costs for software and hardware to implement the system were minimal. The bigger expenses are the soft costs for labor and training.

"Sometimes it's a little painful to go through change and implement new things," she says. "The cost of the product itself has been minimal. The true costs have been in training employees and educating the users. The dollar costs haven't been a lot, but the time and training is a substantial number."

Has it been worth it?

"The return is even harder to quantify," she says. "But what's the value of proactive service to the customer" What's the dollar value of having data quickly? What's the value of your time-saving features? Even though we haven't been able to quantify it, we're comfortable that the return is substantial to our company.