Changing Times

June 1, 2003
As many of you checked luggage and caught homeward flights after the National Association of Electrical Dis-tributors' (NAED) annual meeting this spring,

As many of you checked luggage and caught homeward flights after the National Association of Electrical Dis-tributors' (NAED) annual meeting this spring, Electrical Wholesaling visited with top management at The Reynolds Co. in Dallas. Members of their executive team who made the trip to the Orlando-Fla. meeting returned to the office discussing hot topics like e-commerce, consolidation and the labor shortage. But then, those issues, and the changes necessary because of them, have been hot topics at Reynolds for quite a while.

After all, Reynolds couldn't add $64 million in sales - jumping from $25 million in 1992 to $89 million last year - without implementing some change. So, just what happened over the last seven years?

Most notably, Reynolds aggressively expanded its construction division, which accounts for the majority of its exceptional sales growth. For a company founded primarily to serve industrial customers, that was a big change. Then, about three years ago, President Donald Reynolds shifted most of the responsibility for running the company to his two sons. Walt Reynolds, executive vice president and general manager, oversees day-to-day operations. Donald Reynolds, Jr., vice president of operations, oversees the technical side. The "boys," with help from the company's executive team - composed of six vice presidents and three directors - are working on other changes as well.

"Our company is at a size where we are at a major fork in the road," says Walt. "We're not a small company anymore, but we're not a large company yet. We have to commit significantly to growth - acquisition growth and geographical growth." He says the Reynolds Co. probably will be in at least three other markets by the end of the year. In addition to its Dallas headquarters, Reynolds currently has locations in Austin, Texas; and San Antonio.

That's a lot of change for the family-owned Reynolds Co., which broke off from Cummins Supply Co. in 1985. Founded by Walt and Donald, Jr.'s grandfather, Cummins Supply Co. got its start in 1946. Their dad, Donald, Sr., joined his father-in-law's business about 20 years ago and then took over a portion of the business as The Reynolds Co. Until about four years ago, The Reynolds Co. made most of its money by catering to industrial customers.

GROWING CONSTRUCTION Today about 60% of the company's revenue comes from the construction/contractor division. "We've just gone through a major growth spurt," says Gus Valforte, vice president for the contractor division. "We can pat ourselves on the back, but it's been a great market on the construction side."

Dallas' market wasn't always so good. When the oil market bottomed out back in the '80s, the region's real estate market followed. Since then, Texas has aggressively pursued and attracted companies from the computer and telecom industry. Folks at Reynolds say the market has been strong for the last decade, and the trend is expected to continue for the next five years.

Although the region's construction growth has certainly played a role in the growth of Reynolds' contractor division, it alone doesn't account for the $73 million of budgeted contractor sales projected for 2000. Walt says that since Valforte joined The Reynolds Co. five years ago, he's helped reinvent the way the company does business.

With the majority of products sold to electrical contractors being lighting, switchgear and commodity products, Valforte added a second tier of managers, one for each of those product groups. "It's hard when you grow like we have to have your arms around all the sales," says Valforte. "(With) three direct reports that are responsible for the different product groups, I can spend time on the big-picture stuff."

That "big-picture stuff" included adding engineered or prefabricated products to the commodity group. With electrical contractors struggling against a manpower shortage and a booming construction market, the executive team at Reynolds saw an opportunity. "I think contractors are getting wiser and trying to compensate manpower with labor savings opportunities," says Valforte. "We've got to be creative and offer different solutions that can help them reduce labor. That's one of the biggest reasons we started the prefab division."

According to Valforte, electrical contractors embrace the value in having systems - branch wiring, modular wiring, lighting and power distribution systems - arrive at the job site already assembled. "All they've got to do is just quickly install it," says Valforte. "We do our own drawings...we're able to take an electrical system and prefab it all together...(we) box it all up." The contractors just unbox it and install it.

Of course, prefabbing also takes work away from the contractor and some are hesitant because they have to give up some control of the project. But because of the construction marketplace and shortage of labor, there's an opportunity for them to balance that out and go after more projects, says Valforte.

"It was a need of our customers," says Valforte. "We're always looking at areas where we can bring more value to them. Obviously, we (distributors) all sell the same products. We all basically have the same pricing. So what distinguishes us against our competitors is that extra value."

"We offer more value by bringing in people who can do the engineering," say Mark Richmond, who joined Reynolds' prefab group after working for a prefab company. "Others leave it to the contractor to do design/build. Reynolds takes the burden off the client (contractor)."

Taking the burden off the client is a large contributor to Reynolds' success, according to Walt. "They (customers) lean on the supplier more," says Walt. "Traditionally, a distributor's success was based on the lines that he had, then the people, and then technology. Today, it's more people, technology and then lines. There is no question that this company's biggest asset is its people."

That's why Reynolds makes it a priority to hire people with a great deal of technical competency. The majority of their outside salespeople are engineers, and their product specialists really know their stuff.

"You almost have to be an investigative reporter when you're talking to the customer," says John Wisniewski, vice president of the industrial division. "You have to ask the right questions, interpret their answers and sometimes you might have to lead them in a particular direction without being obtrusive and trying to come off like a used car salesperson."

"Our customers are not always savvy about the product," says Wisniewski. "The (customer) says, 'I need this.' Well, what are you doing with it? What's the application? What are you trying to accomplish?" Although the product the customer says he needs may be a totally logical starting point, the better value for the overall process might be a little better upgrade product, says Wisniewski. Sometimes the upgrade will have features that make things easier down the road. By putting products that are more easily upgradable or scalable to the process into customer facilities, the customer doesn't buy equipment and then find out a year later when production has increased on the line that he must rip it out and put in new equipment.

PEOPLE CULTURE Finding and keeping salespeople and product specialists who can be "investigative reporters" for Reynolds' customers is a challenge in today's tight labor market. "We have to be relentless talent scouts," says Walt. "We have been able to attract some very talented people."

But, it's a challenge right now to attract salespeople and keep them because of other opportunities out there. "Whenever we look for salespeople, what we run into is that we need the same skill sets other managers in different industries need," says Randy Maxey, vice president of finance. "If a person can sell electrical, they can probably sell all kinds of other products. We're competing a lot more in the marketplace for salespeople skills. And then those same salespeople are looking at what we can provide them in terms of a offer."

Reynolds' executive team realizes how important it is to keep good employees happy. The company covers 100% of employees' medical and dental insurance, offers a 401(k) program with matching funds, and the company pays employees well. "I have always been an adamant believer that you pay above market for above market performance," says Walt. "I also like to establish the fact that the last reason people come to work here is money. That takes care of itself. Somebody comes to work here because of the culture, because of the benefit package.

"We have an incredible culture based on hard work, fun, energy and teamwork," says Walt. "Our culture is so good. I often tell my wife how proud I am of this. If anything ever happened to it..."

One of the things Walt does to ensure nothing does happen to that culture is listening to Reynolds employees. When Walt took over the company three years ago, he surveyed employees about their needs and concerns. When asked what was most important to them, training was No. 1 on the list. Walt says, "We have an open-door training policy: if you want training, you come and ask us and you'll get it."

"We believed, to build this business, we had to have really great salespeople," says Walt. "We believe to stay in this business and to continue to succeed we have to have really great businesspeople." That's why they've been educating the entire company on things like income statements, true costs, true break-even points. "We've made them understand risk - financial risk," says Walt. "I think that has really contributed to the way they think day in, day out. And, that's an ever-evolving process."

Reynolds' Tech Center at its Dallas headquarters seats more than 50 people. The company has consistent product training and computer training programs in place for all the divisions and all employees. The Tech Center's big wall-size screen and comfortable seating with built-in tables makes those mass mandatory training sessions simple. Additionally, the Tech Center has four computer workstations to do training in small groups.

"If you can teach someone how to use a tool, they are going to be much more efficient at servicing the customer," says Donald, Jr. "But you have to put the tools in place, too." He's currently working on implementing a new tool, an on-line procedures guide, so that employees will be able to look up any function they do in the system or on the network. He's also working at putting tools out there for customers - inside sales, warehouse and accounting and purchasing - so they can go look up information.

Another challenge Reynolds faces is selling the value of its employees' technical competencies, says David Russell, director of business development. "That's something that distributors just gave away in the past. To differentiate yourself from your competitors you have to market and sell that technical competency so you don't get lumped in with all the other distributors."

COMPETITIVE CHANGE "Our competition changes everyday," says Walt. "Today, our biggest competition is the traditional distributor model - the big chains - the Graybars, the Rexels and the WESCOs. Tomorrow, I don't see them as the big competition. The dot-com portals are becoming our competition, but they are also becoming our friends."

Reynolds is readying itself for both dot-com friends and foes with several e-commerce packages. The company has aligned itself as a fulfillment arm with two integrated-supply portals, Affiliated Distributors' (A-D) and "It's their competition that's going to bring a lot of competition to us," says Walt. "It also presents our biggest opportunity."

In addition to partnering with and, Reynolds has its own e-commerce initiative called Reynolds-Online, which enters directly into the company's NxTrend business system. It allows customers to go on the Internet and enter orders; expedite orders; and check stock, price and availability. Reynolds also recently signed up with, a vertical marketplace for government buyers and a subsidiary of Digital Commerce Corp., Herndon, Va.

"We need to manage how we use those (e-commerce packages)," says Russell. "They're not one-size-fits-all. We have to be selective about where we use them, how we use them, how we promote them, and which customers we target. You can't have your sales organization go into every customer just saying, 'Here's our four solutions.' Which solution is the most appropriate? It changes customer by customer, situation by situation."

Reynolds will target national-account customers with, which also acts as an e-commerce center for regional and local distributors servicing national accounts. Using this solution, Reynolds would be partnered with other distributors to service a national account, according to Russell. In addition to servicing national accounts, Reynolds gleans business from the site's individual market accounts. In this situation, Russell explains, market-account customers go to the Web-commerce portal and order products. The order then gets routed to a distributor in the local market to be fulfilled.

With, Russell says Reynolds will be targeting a significant portion of its current customer base. Reynolds-Online is a solution for their local single-site customer accounts.

"I don't think many distributor organizations are thinking of this in terms of selecting customers and targeting solutions," says Russell. "I think the vast majority of distribution feels threatened by it because they don't know how they will add value in that world."

Concerns about creating value in this changing dot-com world are natural. "If the leaders of both groups - the fulfillment groups and the dot-com initiatives - are on the same page about what the value proposition is, then it's an enormously valuable solution," says Donald, Jr. "If it's based on driving a stock price, it will be pretty tough."

Russell says they hear things from customers and manufacturers like, "Well, if all this goes electronic, what do we need you guys for?"

"It's a great example of an industry being developed by trial and error," says Donald Jr. "You're looking at guys and gals who have to create value in a virtual world. And how do they do that? That's the biggest question. How do you create value in a virtual world, and what is it worth? Now, if you could ship orders over the Internet, it'd be a no-brainer."

But product can't be shipped over the Internet. "Someone is always going to have to fulfill the order," says Russell. "Someone is always going to have to handle the product. Someone is always going to have to go out and promote the concept or solution. We want to be that someone."