Making waves with MRO

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Making waves with MRO

Maintenance, repairs and operations (MRO) is a product pool which an increasing number of successful independents are exploring in an ongoing bid to diversify their offerings. Lisa Veeck takes a deep dive into the sector and finds that while some dealers are still testing the waters, others have taken the plunge and are now buoyant

While MRO accounts for less than 10 percent of sales at Supply Chimp, New York City, New York, president Joe McKenna expects this percentage to climb in the coming years. “We became involved in the category based on what customers were asking for,” he says. “We do mostly GSA [General Services Administration] contracts and the person responsible for business machines is also responsible for purchasing MRO-related items. We could see what customers were buying on the contracts, so we got a GSA contract that allows us to sell MRO specifically.” Supply Chimp’s biggest MRO customer is US defense, including the Air Force, Army and Navy.

According to McKenna, the MRO segment dovetails neatly with office products. “There are some similarities, in that both include equipment and consumables and have broad catalogs,” he says. “We are just dipping our toes in the category, selling locks, door fasteners and other security-related items. We are on GSA Advantage, but it’s a competitive marketplace, so we make our money on volume versus maximum margins.”

The precise percentage of MRO business at The Supply Room, Ashland, Virginia, depends on how the category is defined. “If you include janitorial and facility maintenance supplies, it’s about 20 percent of our business,” explains chief operating officer Yancy Jones Jr. “If you exclude those, it’s below 5 percent. But it is a natural addition for customers buying janitorial from us. Our customers would ask us if we could get them an item—that’s how we got into it.”

The Supply Room’s non-janitorial MRO includes safety gear and facility supplies, such as ladders, stools and power tools. Jones says that while the company generally doesn’t get involved in small hardware, like bolts and screws, it will for large volume orders. “Lighting is another area we are considering,” he continues. “Some dealers do well in it and we are thinking it might make a nice addition.”

At Office Express Office Products, Cedar Rapids, Iowa, MRO accounts for 8 percent of sales, up from zero two years ago. Here, the category includes products focused on safety, such as vests, hard hats, fluorescent jackets and locks; floor chemicals and other industrial supplies; and personal protective equipment separate from janitorial products, such as hard hats, sweatbands, face shields and more. According to president Ben Keel, the company remains on the lookout for new areas within the category, as well as new suppliers.

Selling MRO was part of a well-thought-out business strategy for 1st Source Business Supplies, Minneapolis, Minnesota, where it now generates 30 percent of sales. “COVID-19 was a horrible time, but it pointed out to us that we must sell items that are needed in good times and bad,” recalls CEO Greg McLeod. “MRO includes those items. It was a learning process and getting to where we are has taken a lot of hard work. The journey took longer than expected, but it’s a good category for us.” Major MRO clients include food and electronic manufacturers, road construction, hospitality and gaming, such as casinos.

“We sell fasteners; for one account with a million-square-foot warehouse, we supply all the fasteners for its assembly line,” says McLeod. “We also sell tools, metal grading and even decking. We’ve sold $100,000 in air filtration. We sell ladders and tool chests. Then, we throw safety and a wide variety of PPE into the mix, like hard hats, vests, eye protection and gloves. We sell nine different color-coded gloves to one food manufacturing plant.”

 

Product procurement

When it comes to purchasing MRO, Office Express turns to different sources, reports Keel: “We buy MRO from our traditional office product wholesalers like Essendant, other distributor/wholesaler partners like R.J. Schinner and direct from manufacturers through our buying groups.”

The Supply Room also sources MRO from traditional office product and janitorial wholesalers and redistributors. “But we’ve also become part of the Do It Best INCOM Supply program, so we have access to products from that organization locally and online,” says Jones. “It allows us to buy direct in volume so we can do larger bids and orders.”

McKenna notes: “A key difference between office products and MRO is Supply Chimp buys MRO from distributors, our competitors. It’s not like office products; there are not a lot of MRO wholesalers.”

 

Sizing up the competition

At Office Express, MRO accounts for anywhere from 5 to 10 percent of the company’s spend, compared to 3 to 4 percent for office products. “Profit margins are more lucrative in MRO and there’s less competition, since there is not an abundance of players,” explains Keel.

While the competition may be limited, top suppliers include such behemoths as W.W. Grainger, Uline and Fastenal. Yet their size doesn’t concern Keel: “The disadvantage for us is we don’t have a million-square-foot warehouse, so we can’t stock and get some MRO to customers that need it tomorrow. It may take us two to three days. But the companies that deliver next day charge a premium and freight. Some customers think they don’t pay for freight with the big suppliers, but when I suggest they look at the bill, they usually find they do. We don’t charge freight and we don’t have minimum orders. A lot of the big MRO companies don’t offer service and support. We do and we team up with other local companies to help educate our customers in this category.”

According to Keel, the buy local trend also helps: “Everyone understands a business needs to make money and we keep the money local and hire local people. So, we make healthy margins and keep it local while our customers get a one-stop shop, cost savings and better customer service. It’s a win-win.”

McLeod is equally undaunted by the MRO giant suppliers and says dealers can compete and win, including on price. “I have a lot of respect for the Graingers and Fastenals that have been able to make billions of dollars,” he acknowledges. “They have all-powerful websites and name recognition. However, we perceive a weakness in the biggest MRO players. They’ve gotten sloppy and arrogant, with out-of-control pricing and poor service. Customers find they don’t have to put up with that for the price they pay. We offer great service and can compete on price. Sometimes it’s hard to convince customers. But we are hitting our stride in MRO, and it’s getting easier because we have a good track record and are building a resume of satisfied customers. Also, as the big guys are falling down on their value proposition, customers are more likely to pick up the phone and hear what we have to say.”

 

Reaping the benefits

In Keel’s opinion, the main advantage of MRO is its ability to strengthen customer relationships. “If you have partners that allow you to give fair prices on what you are selling now and add MRO, you have completed the package. Today, we can offer office products, furniture, janitorial, breakroom and MRO. It allows dealers to further infiltrate their accounts, which is an advantage.”

McLeod agrees: “There’s no question it leads to stickier relationships. The products are mission critical—these customers have to have them or they will have to shut down. And they get you higher up the chain versus office products, where you might find yourself talking to the third receptionist in nine months. With MRO, you are dealing with people with more stripes on their sleeves: decision-makers, CEOs, presidents, division managers, operations managers and key people who control the purse. They are more business-minded people who look at the whole picture—shipping, pricing, delivery and service. Also, unlike office products, if the company doesn’t have some of these items, it will have to shut down its manufacturing.”

Jones takes a similar view. “The Supply Room’s ability to add MRO products gives us an advantage over the competition,” he suggests. “Our customers prefer to come to us and not have to go to 10 different vendors. We are selling them towels and tissues, so they can easily add MRO to the order.”

He also considers the limited calls for next-day deliveries a plus: “Most companies don’t need MRO products the next day. They are like the janitorial customers—they are good with agreed-upon scheduled deliveries. Of course, sometimes you get an urgent order, but it’s not the norm.”

Keel concurs: “The need for next-day delivery isn’t there like it is with office products. It’s like janitorial customers that are good with once-a-week scheduled deliveries.”

 

Facing the challenges

When asked how easy it is to expand into MRO, McKenna admits that “there is definitely a learning curve”: “You need to understand the SKU assortment. You may carry 100 types of screws, but the customer needs the 101st. The others won’t do because the screws are very specific. It requires inventory management and catalog maintenance. We are mainly an e-tailer and keeping the website updated with all the product images, pricing, etc. can be a challenge.”

For Jones, “Having the right vendors and support partners as you expand in the area is crucial. Customers like our service, but being cost-competitive and having the right stock available is a main hurdle that we need to keep working on. We don’t need to be the lowest price, but we can’t be way off; we need to be in the range.”

McLeod believes the biggest challenge to entering MRO is sourcing: “Some wholesalers don’t get it. They focus on other categories or retail, and there’s such a wide range in their pricing. We are looking for a B2B partner, a direct manufacturer or a wholesaler committed to MRO that can help us with fulfillment with enough margin for the supplier and us to make money and still save the customer money.”

 

Diving in

Supply Chimp’s McKenna recommends MRO as an area ripe for expansion into, but warns: “This is a broad category and can require significant inventory. So choosing bite-size chunks can make it more attractive. Pick some general areas you want to be in and find distributors.”

Jones would also espouse a little-by-little approach. “MRO is vast,” he explains. “Thinking that you will sell MRO to all customers is not effective. Start expanding with a subset of customers. Focus on specific industries and customers that use more MRO. Establish what you want your program to be and find who can get you access to those items. Establish your network before you begin selling and set realistic expectations.”

As a starting point, Office Express’s Keel suggests: “Ask your customers general questions like, ‘Are you buying from Uline and if so what products? What are your pain points? How do you handle returns? Do you get usage reports? Do you have a dedicated rep?’ Dive deep into what makes you different—better than the competition.”

And once you’ve taken the plunge, 1st Source’s McLeod advises: “Give it time to incubate. Don’t sit back and do nothing, but be patient; continue what you are doing in other categories. Also, tap into your network. Bounce ideas off other dealers and manufacturers, and don’t be afraid to ask questions and ask for advice. And as the owner, be involved—especially in the beginning. The two types of leaders are ‘Kiss my ring’ and ‘Follow my lead.’ Be the second. Once the program is up and running, let your reps take over. But at the start, they don’t know enough; and many of the big deals we’ve made are because they know they are dealing with the owner. This means learning about the MRO you will be selling, since it’s tough to teach people what you don’t know. So, determine the value proposition, develop the talk track and attend the meetings. MRO isn’t the panacea for all dealers’ challenges but it can bring significant and sustainable sales.”