“The concept of consistent, incremental improvement applies to just about everything we do,” said Ron Beal, the CEO of Memphis, Tenn.-based distributor Orgill.
In that sentence, Beal captured the essence of the distributor’s spirit of improvement. There’s no single hero, no silver bullet and no rainmaker. Instead, Beal describes an environment of measuring, benchmarking and improving. And the results were impressive in 2010, a difficult year for home products. Orgill posted 2010 sales of $1.179 billion, up 9.3% over $1.079 billion in the prior year.
The question is, “How?” Part of the answer involves a combination of strategy and statistics. “We measure every phase of our operations, and one of the key benchmarks is our performance compared with the preceding period,” Beal said. Then he pointed to three examples of metrics that — if acted upon properly — can pave the way to significant company-wide improvement.
• Distribution Center expense as a percentage of sales
“During the period of 2000 through 2010, we averaged an annual improvement of 2.8% per year. In any given year, this was good, but not headline news. However, the cumulative impact of this steady, annual improvement resulted in a cumulative improvement of 27%. This means that the cost of operating our distribution centers as a percent of sales in 2010 was only 73% of the 2000 amount — a huge productivity gain.”
• Sales per delivery
“Another important productivity measure is Sales per Stop, or the amount of sales generated for each delivery made on our trucks. Since 2000, we’ve averaged growing this amount by slightly more than 4% each year. Pretty good, but the cumulative impact of this consistent improvement means that we are delivering 58% more product each time we make a delivery stop in 2010 than in 2000. Again a tremendously significant productivity gain.”
• Sales per man-hour
“This means the sales dollars generated for each labor hour in our distribution centers. Since 2000, we averaged a 4.4% annual improvement — not too shabby. But when the cumulative improvement is computed, it means that our distribution centers are producing 60% more sales per man-hour in 2010 than in 2000. A significant improvement, especially considering this was a period in which our average selling price on merchandise sold actually dropped.”
Orgill operates distribution centers in Sikeston, Mo.; Inwood, W.Va.; Tifton, Ga.; Hurricane, Utah; and Kilgore, Texas.
“The cumulative gains in each of these areas is significant in and of itself; however, when combined they can make huge differences,” Beal said. “We believe that by benchmarking against ourselves, we will steadily improve and continue to keep our customers competitive in a brutal retail environment.”
Incremental improvements also can take place on the merchandising side of the aisle. Steve East, the distributor’s VP advertising, pointed to the example of paint. Adding SKUs, gaining experience, and then — an important step — emphasizing the breadth and depth of the assortment, are keys to improving in the area, he told Home Channel News.
“We’re going after the niche business in specialty paint,” he said. “Paint and sundries are one of the biggest departments we have, and we can supply just about anything to anybody.”
The distributor’s focus on incremental improvements across the board doesn’t mean it sacrifices ambitious moves for new business. Consider the case of Canada. Late last year, the company cemented a partnership with Castle Building Centres, the Canadian co-op buying group with 275 ship-to locations. The move, about three years in the making, makes Orgill a bona fide Canadian distributor, serving the market from its Utah and West Virginia distribution centers.
“This is still a high-priority item for us, and we are making a maximum effort to have a complete selection of fully compliant products for our Canadian customers,” Beal said.
Ken Jenkins, president of Castle, described the Orgill partnership as strong and growing. Castle members are seeing 10% to 35% cost improvement on some Orgill-supplied categories, he said. Orgill’s efficiency and buying power are one part of the equation. Exchange rates are another — the Canadian currency strengthened relative to the U.S. dollar has made the cost equation for Canadian customers more attractive.
“We started the process about three years ago, believing that the Canadian market needed a different approach,” he said. Jenkins added that he expects Orgill to be a dominant distributor north of the border over the next 18 months.
Beal takes a day-to-day view of the matter. “Every day is a learning opportunity, and we’re spending a lot of time making sure we have the right products to meet local codes, etc.,” he said. “There are always regional and local brand preferences, but we haven’t had any real surprises, at least so far.”