2005 Supply & Demand Chain 100 Case Study - M.J. Pipe & Supply / Silvon Software, Inc.

Profiles in Supply Chain Enablement: Armed with new performance management tools, a small distributor aims to take on the big guys

Profiles in Supply Chain Enablement: Armed with new performance management tools, a small distributor aims to take on the big guys

Company: M.J. Pipe & Supply (Rochester, NY)
Company Size: Small
Company Sector: Distribution
Area(s) of Enablement: Decision Support
Enabler: Silvon Software, Inc. (Westmont, IL)

SDCE 100 2005Case Study: Anyone who doubts whether small and midsize enterprises (SMEs) can leverage technology to compete with much larger players should have a chat with Michael Dooley, president of M.J. Pipe & Supply. By implementing an analytical tool to optimize its inventory, Dooley says that his relatively small distribution business has been able to "leapfrog" competitors that are anywhere from five to ten times (or more) larger.

"We were hoping [the technology] would take us to another level and get us out in front of our competitors, and we know that it's done that," says Dooley, adding, "We've gone from staying with the pack to getting way out in front of it."

A Technology Roadmap

Located in Rochester, N.Y., M.J. Pipe & Supply is a sales distributor of water and sewer infrastructure products to contractors, plumbers, developers and municipalities. As the head of a smaller enterprise, Dooley says he is primarily concerned with his company's bottom line, but M.J. Pipe also has taken steps to build its top line by differentiating itself from its larger competitors with higher customer service levels.

The company began this journey about four years ago, in 2001, when Dooley first began talking with a software company called Silvon Software, a Westmont, Ill.-based provider of business performance management solutions for the supply chain. At the time, Dooley says that he was primarily looking for guidance on how M.J. Pipe could develop its information technology (IT) infrastructure to give the company a leg up on its competition. "It was really more to develop a technology roadmap," Dooley says, explaining his decision to approach Silvon. "Because it's very easy to spend a lot of money on technology, but it's hard to know whether you are going down a road where the investment is really going to help you."

After initial meetings in which Silvon determined that M.J. Pipe had the technical capacity and infrastructure to handle the software company's solutions, the distributor implemented the Sales Performance Management (SPM) module of the provider's Stratum suite of applications. The Sales & Profitability Performance component of the SPM module was designed to let sales staff analyze and manage customer and product profitability, breaking down sales by customer, product and geography to identify trends and relationships.

A Culture Shift

M.J. Pipe began using the solution in September 2001, and within a month, Dooley says, he started to see a change in the way his staff went about the sales process. By giving the sales staff access to a "single version of the truth" about which customers and products were most profitable, the staff was able to focus on those sales that yielded the best margin for the company. "When people start asking questions based on the data that are available to them, you get a cultural shift," Dooley explains. The result: the company has seen consistent 5 percent improvements on its margins year over year since the implementation went live.

By mid-2003 Dooley was looking for opportunities to use other modules from Silvon to ramp up his company's operations. An obvious target for improvement: inventory management, a perennial challenge for a distribution business. Like any business, M.J. Pipe was looking to ensure that it had the right products on hand to satisfy its customers' requirements while minimizing inventory levels. But that was a particularly tricky balancing act for M.J. Pipe because of the nature of its business, selling supplies into the construction contractor market, where customers frequently have last-minute orders that need to be filled immediately lest an ongoing project be brought to an unplanned halt. To address this challenge, the company implemented Silvon's Inventory Performance Management (IPM) module, a tool for analyzing, planning and managing inventory positions.

M.J. Pipe signed an agreement with Silvon in November 2003 to deploy the IPM module, and by the end of March the implementation was largely complete. However, Dooley says that the company began seeing improvements in its fill rates almost from the beginning of the deployment. "We took our fill rates from 94.8 percent in January to 99.27 percent in May," he says, "and that's across all of our product categories: A's, B's and C's, rental items and specials." Moreover, within the first four months of the implementation M.J. Pipe had reduced its inventory 14.2 percent from the previous year. "We're seeing results on both ends of the spectrum, which I find very exciting from a business point of view," Dooley adds.

A Process Change

Those results came not only from the planning capabilities within the software but also from the reporting functionality in the solution. Dooley says that the software allows the company's sales staff and management to monitor fill rates by customer or product category essentially on a real-time basis, so that when a problem pops up ? when a fill rate drops below a certain level ? M.J. Pipe's employees can take action immediately to fix the issue, resulting in higher customer satisfaction levels. Furthermore, the sales staff is able to use the fill rate reports generated by the system as a sales tool, demonstrating the level of service that the company is providing to its customers, information that Dooley believes his competitors are not able to provide.

In addition to fill rates, the system allows Dooley to track his accounts receivable and days sales outstanding, and because the software can be accessed over the Web, he can check up on the business' operations even when he's out of town. "Within the first five minutes in the morning when my computers comes on, I am able to get a great snapshot of exactly what's happening in my business, right down to the customer level," he says.

The IPM implementation did result in some process changes at M.J. Pipe, specifically around the way that the company calculated its fill rates. This, again, is a result of the particular nature of the market into which M.J. Pipe sells. For example, a customer might place a master order for 90 fire hydrants, but a contractor would most likely not need all 90 at once. Instead, the customer might want 30 hydrants a month for three months. In the past, working off the master order, M.J. Pipe would ship the first 30 to the customer and put the remainder on backorder, which resulted in a very low fill rate being reported out of the inventory system, even though the company was meeting its customers demand at the time that the contractors needed the products.

A Competitive Edge

To correct the situation, Dooley says that he worked for much of the month of January last year redesigning the way that the company processes sales orders. M.J. Pipe now breaks each master down into separate shipments, with each release against the master being treated as a separate order, so that the process correctly reflects what customers really want when they want it. Ultimately, Dooley feels that it was worth the effort to change his company's process to conform to the requirements of the software. "I would prefer to change my process to more what's best-in-class than try to make the software fit with something that's below best-in-class," he says.

Looking ahead, M.J. Pipe sees two additional opportunities to leverage Silvon's solutions. On the one hand, the company was looking at the possibility of providing point-of-sale data back to its own suppliers, a practice not particularly common in this industry. On the other hand, Dooley is looking at the functionality within the Stratum solution's purchasing module to provide metrics that would allow M.J. Pipe to analyze vendors based on their performance.

As far as the return on M.J. Pipe's investment to date in the Silvon solutions, Dooley figures that the company saw a payback on the SPM module within the first year of using the tool, and that the IPM module paid for itself within just a few months, at the most, given the inventory reductions. But more importantly, Dooley feels that the new capabilities have given the company a competitive edge and allowed M.J. Pipe, in some ways, to get a jump on much larger competitors. "We've gone from grinding it out to really having a lot of fun and leapfrogging the pack, and we're really excited about that," he concludes.

This case study originally appeared as "Leapfrogging the Competition at M.J. Pipe & Supply" in the December 2004/January 2005 issue of Supply & Demand Chain Executive.

For more stories of successful supply chain implementations, read the "2005 Supply & Demand Chain Executive 100" article in the June/July 2005 issue of the magazine. Also watch the Today's Headlines section of SDCExec.com every Tuesday and Thursday for more in depth best practices drawn from this year's Supply & Demand Chain Executive 100.