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Increasingly we are seeing distributors being pinched between spiraling shipping costs and rising customer expectations. Orders are getting smaller and customers are demanding faster and faster delivery methods, all without expecting to pay anything extra to cover the additional costs of the shipping. I thought it might be interesting to reach out to a market-leading regional distributor and discuss what they are doing to figure out this last mile transportation problem.
I interviewed Rory Mueller, Logistics Manager at Werner Electric Supply to see how they took this increasingly complex problem and turned it into a market advantage and a key differentiator for doing business with them.
Werner Electric Supply is headquartered in Appleton, Wisconsin with one regional distribution center (DC) and 13 branches located in Wisconsin, upper Michigan and North Dakota. Their trucks deliver over 1,000 stops a day and currently are running about 40 courier vehicles for local deliveries. They supply electrical parts to the local industrial and contractor marketplace and describe themselves on their home page as “Werner Electric delivers on solution, supply and support to be our customer’s competitive advantage…“.
For me this statement describes their focus perfectly. Werner places the statement “our customer’s competitive advantage…” as the very first thing on their home page — not selling the cheapest or best electrical supplies, but providing their customers with a competitive advantage! Let’s look how they do just that.
Werner is operating in a very hostile marketplace. They are under extreme pressure from online vendors like Amazon Business and many others, because customers can easily shop around online and find goods cheaper. Competitors are also springing up all over, since starting up a specialized distribution company is easier today than ever before using online services. Customers are expecting more and more out of their vendors and they now know they have many choices.
When I interviewed Rory, I asked him how Werner decided to react to this business challenge. His reply was very simple and very profound, “We went and talked to our customers.” In effect, they went looking across their customer base for problems that were pervasive and that had significant impact on their customers’s day-to-day business.
Rory explained that Werner discovered that, for contractors and other electrical goods customers, carrying inventory is a real cost and a real pain — they always have loads of stuff in their trucks but it’s never the right stuff. Having to predict several days in advance what they need for each one of their active jobs is difficult and complicated. When their job priorities change, having the materials they need to be able to react is almost impossible, and customer delays generally ensue.
When I walked through these points with Rory they all sounded so familiar — inventory carrying costs, accurate forecasts, dealing with rapid changes in schedules — common problems to us supply chain guys, but just on a micro rather than a macro scale.
Werner implemented a very aggressive logistics program:
The effect of this, as Rory described it, is that now their customers, mainly contractors and industrial electricians, don’t need to carry inventory! They just call Werner every day and tell them what they need tomorrow, and the goods are at their job site before they get to work! If they get halfway through the day and are short of something, they call back and usually get it the same day!
The result of all this innovation is that their customers are incredibly loyal. Not only have they adapted their business model to not carry inventory, they now expect the level of service that Werner offers! In other words, “Don’t try to sell to me unless you can match this level of service, because I will never go back to having to forecast and order my parts days in advance!”
It’s important that I point out that this logistics program is not the only innovative thing Werner did. They continue to innovate in many other areas such as custom wire cutting, providing contractors with pre-cut-to-plan lengths of heavy wire, and are pushing more and more services personalized to their customers’ needs, all with the goal “to be our customer’s competitive advantage…”
Werner Electric Supply has now become the dominant electrical parts distributor in their marketplace, and they continue to grow. They are a private company, so company financial figures are not public, but their beautiful new distribution center is evidence enough that they are doing very well.
Analysts are saying that this change in the marketplace is permanent; customers will continue to demand and pay for smaller orders, delivered faster, and in a way that is personalized to their needs, but they will not pay for the increased cost of shipping. Top performers like Werner Electric Supply are becoming dominant in their marketplaces by listening to their customers and innovating, using logistics and other personalized value to provide a level of customer service that is impossible to compete with unless you are specialized, local and have a focus on service.
What do you think about the approach Werner took? How is your organization adapting to the new business model and today’s last mile transportation challenge? Is there an opportunity to innovate in your marketplace like Werner did?