For OEMs, Value-Added Services Still Rule

June 30, 2015
Suppliers cite slowly growing demand for online ordering capabilities, but point to staples such as personalized service, fabrication capabilities, and fast delivery when it comes to serving manufacturing customers.

At the midway point of 2015, supply chain companies were enjoying steady business in a number of industries and with various product lines. In most cases, distributors in particular have been savvy enough to stay with what had been working. But a few had their eyes on implementing some changes—subtle more than significant.

Among the topics of discussion these days is online ordering. Some customers want it while others still prefer some form of personal contact, even if that means an e-mail or phone call. Overall, companies have different experiences and perspectives on online ordering. For certain types of products—yes, it works. But otherwise, it seems to be a work in progress.

Paul Mudge, Mudge Fasteners, says demand for online ordering is growing slowly among OEMs.  

Mudge Fasteners is a Corona, California-based distributor of fasteners, fastener tools, and adhesives.

“If we have specific catalog items that somebody can order, they are comfortable [ordering online],” explained Paul Mudge, president. “If they know what they want, it is pretty easy. But if there is any question about what is really available and what would do the job, there is still a ways to go to get that type of online ordering.”

For those who want it, though, Mudge Fasteners plans to offer regular customers 24-hour online ordering in the near future.

“Our next step, actually, is to have our existing customers be able to order online 24 hours a day, based off of what they have ordered in the past,” said Mudge. “So we can tie in their part numbers and our part numbers. In that case, it will be pretty easy for customers to order online without having to place a phone call.”

Jeff Mattson, chief marketing officer at ISC Companies, says value-added services, especially fabrication, have helped build business with new and existing OEM customers.  

Jeff Mattson, chief marketing officer at ISC Companies, sees the Internet as being helpful for product research and price quotes, but not yet for ordering directly from ISC. Based in Minneapolis, ISC Companies is divided into three divisions: sensors and controls; machining and fabrication; bearings and power transmission.  

“There is some of it going on and I do know a number of competitors that have pretty robust websites and product available out there,” Mattson explained. “But it still seems to me that [sales are done by] e-mail or phone—more e-mails now than phone.”

Extending online ordering to longtime customers, as Mudge Fasteners is doing, may continue to grow. Along with customer convenience, in some cases there is also a matter of cost reduction, as Mudge points out.

“We are doing it to kind of reduce our costs a little bit,” Mudge explained. “Everybody is price-sensitive and that is one way to keep our costs down and still be price competitive in the market. So that is a little bit driven by the customers, but also a little bit driven by our own vision.”

Strong Customer Relationships

Although the radar is always on for potential markets, most distributors have continued to do well by maintaining strong relationships with longtime customers and emphasizing the various value-added services they can provide.

At ISC, Mattson says the company has stayed in what he calls “basically manufacturing. We have picked up some MRO business in a number of factories that we maybe did not have before. That is through our outside sales guys just knocking on some new doors.”

ISC’s value-added services, specifically its fabrication work, has also led to new customers or additional business with longtime customers.

“We also come across a number of new customers, where they had thought about doing something with us on the [power transmission] side,” Mattson said. “But then they find out that we have a machine shop or a fab shop and all of a sudden the light bulb goes on. So rather than work with four or five [other] vendors … We could make it a lot easier for their purchasing department, working with one supplier.”

One of ISC’s longtime customers is Tundra Companies of White Bear Lake, Minnesota, just north of St. Paul. Tundra is a materials company, specializing in composite metals and takes advantage of ISC’s fabrication expertise.

“We use them for a variety of different things. We’ve given them a concept of a design that we would like, and they will come up with ideas and design it for us. We will approve it and they will fabricate it. There is a lot of capability there,” explained Scott Bohnen, a Tundra engineer. “It is a two-way street. A lot of what we get done is because of their willingness to help.”

Tundra works in diverse industries such as automotive, ballistics, and fishing equipment.

“[ISC has] a rep that comes out here at least once a week just to check in and see what we’re doing and what they could do to help,” said Bohnen. “Their electrical engineer will come here when requested to go through a panel [for example]. They build electrical panels for us too. We give them the basic blueprint and the concept and they will take the rest and run with it.”

There is a great deal of mutual trust between both companies, Bohnen explained.

“Over time, we have developed a nice rapport where they kind of understand where we are going,” he said. “We can start the work on a project and then turn it over [to ISC]. It is incomplete, but at least enough for them to run with it and complete it for us.”

Keith Nowak, MPT Drives, credits growing automotive industry sales for helping his company experience key growth in 2015.  

At Madison Heights, Michigan, based MPT Drives, 90% of its business is with original equipment manufacturing (OEM) customers, said owner-president Keith Nowak. MPT Drives specializes in mechanical (mounted bearings; chain and sprocket drives; couplings; and various bearing products) and electrical (AC and DC motors and controls; sensors, clutches and brakes) products.  

“[OEM] is basically our niche. You have big MROs around here. I have Granger right down the street. Literally,” said Nowak. “They are the big MRO people. So we don’t tend to even go after that business. We stick with our OEMs. I don’t even attempt to develop the MRO stuff. If it falls in our lap, we will definitely deal with it. But I don’t actually pursue it. Our niche is dealing with engineering houses and OEMs.”

Despite a Michigan location, MPT does not deal or sell directly to the automakers. But the company does work with many customers who support the automotive industry, mostly in automation. So when Nowak said in late May that MPT has “probably had the best six months we’ve had in the last five years,” he can bluntly give the main reason.

“For us, it is people buying cars,” he said.

Mudge Fasteners also stays focused on its niche customers and markets—an approach that has paid off in steady business over the past couple of years, Mudge explained.

“Our customer mix for the type of the industries we are selling to is still pretty much the same. There haven’t been any big changes there,” Mudge said, noting that the company’s customer base includes solar and wind power, commercial construction, automotive, and some action sports industries.  “We’re looking at more geographical expansion with our existing markets at this point. We don’t really have a new industry target right now.”

One longtime Mudge Fastener customer is ESL Power Systems of Corona, California. The two companies have worked together for 12 years, said Michael Hellmers, ESL’s president. ESL designs and manufactures safety-interlock solutions. Rapid service and distributor partnering enabled ESL to respond quickly three years ago when Hurricane Sandy struck the northeast.

“We had some very quick orders that came in [due to Sandy],” Hellmers said. “When we have those issues and those very tight time constraints, we do rely on that vendor network. Mudge is certainly one of those vendors that are able to turn on a dime and assist us.”

“They handle all the just-in-time for our fastener business. They are also solutions sellers,” explained Jaime Hatzfeld, ESL’s director of operations. “When we have issues and we’re trying to figure out what type of fastener to use or we can’t get a specific fastener, they are able to go and find something for us.”

Like many successful manufacturers, ESL will, when possible, partner with a distributor such as Mudge on certain projects.

“When we are designing a product for certain customers and we are doing large quantities,” explained Hatzfeld, “we will get with [Mudge] to find out what the most cost-efficient way is to purchase it, and what types of materials are available.”

Manufacturing Returning to the U.S.?

There are a number of thoughts on the topic of whether or not some manufacturing is now returning—or will be in the future—to the United States or North America. Some see only slight indications of this. Others think the move back to North America has already begun and will only continue.

At ESL, both Hellmers and Hatzfeld recently returned from a trip to China. The main purpose of the trip was to meet with a vendor partner there that does sub-assembly for ESL. Citing concerns over quality control, production lead time, and rising Chinese labor costs, Hellmers said ESL is looking at possibly moving much of this production back to North America over the next few years.

“The tipping point in our opinion, and from reading some articles about it, is somewhere between 2016 and 2017 where the labor rates here in the U.S. and certainly in Mexico will be lower than dealing with China,” Hellmers explained.

While ESL has no immediate plans to take business from China, Hellmers said, “long-term, we do see pulling business back here to the United States—Texas, Nevada, California, or in Mexico. Long-term, I think China is going to have a real tough time.”

Nowak said he also sees manufacturing coming back to the United States and North America.

“A lot of the manufacturers that we deal with are moving some stuff back,” he said. “Our customers who build the automation—they moved all the build to China. But a lot of them are now moving it back.”

Nowak cited many of the same concerns voice by leaders at ESL: increased labor costs in China coupled with inconsistent quality control.

“The quality isn’t the same. You look at the increased labor costs and then you look at the reject cost. All of a sudden, now it is not such a good deal anymore,” Nowak explained. “I have heard as much as a 30% reject rate on parts coming from overseas. You have to figure that into your costs. And that adds up a lot.”

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