Celebrating the company’s 85th year in the industrial distribution marketplace, Grainger CEO James Ryan reflects on the way “value” has changed in the minds of manufacturing customers.
It was 1927 when William W. (Bill) Grainger founded his first wholesale electric motor sales and distribution business in Chicago. Grainger established the company to provide an efficient solution for customers to access a consistent supply of electric motors. The business was incorporated as W.W. Grainger, Inc. in 1928, and sales in the early days were generated primarily through mail order via post cards and a catalog. The MotorBook, as the catalog was originally called, was the basis for today’s Grainger catalog.
To improve customer service, Bill Grainger opened a branch in Philadelphia in 1933 and then three additional branches the following year. By 1936, there were 15 branches in operation. It was evident that local branch service would be an integral part of the company’s future growth.
In 1967, Grainger became a public company, and its stock was traded in the over-the-counter market. Today, Grainger stock is sold under the GWW symbol on the New York and Chicago stock exchanges. Now a common name in any manufacturing plant you might set foot in, Grainger has expanded its product line over time to include one million+ products and repair parts, along with a services business that adds a strategic value function for Grainger customers, making this company less of a traditional supply house and more of a partner. With 711 branches worldwide and serving customers in 157 countries, the landscape has certainly changed since the first motor business opened its doors. James T. Ryan has logged 30+ years with the company, and has been Chief Executive Officer of W.W. Grainger, Inc. since June 1, 2008. IMPO recently spoke with Ryan about the changes he’s seen throughout his tenure, and what we might expect down the line as the company continues to innovate and grow.
IMPO: As Grainger embarks on its 85th year in the business, which key changes in its industrial distribution business model do you see as the most significant? Why?
JR: When I think about changes in the industry over the last couple of decades, there are a few that are prominent. The first is the trend for businesses looking to drive productivity improvement through supplier consolidation. Customers consolidating their suppliers as a way of reducing their procurement costs has driven significant change in the industry, and it’s driven significant change for Grainger as well. The pace of consolidation is picking up. You see more and more distributors – Grainger included – expanding their product lines, and adding services as a response to this trend. I think it’s a trend for the decade, that our product category – the MRO business – is being looked at as an area for businesses where they can improve their productivity. A related trend is where industrial distributors are now becoming much more of a strategic partner, because our customers are relying on fewer, larger partners and they’re looking to us to take on more that they may have been previously managing themselves.
IMPO: How have shifts in manufacturing practices changed what you’d consider Grainger’s primary value proposition?
JR: Our primary value proposition is a direct result of changes that are going on with our customers. The focus on productivity and supplier consolidation has driven us to add more products, so we’ve gone, in the U.S. alone, from about 80,000 products to 400,000 products in stock. The consolidation of suppliers by manufacturers is also driving us to add more services. We’ve invested significantly in inventory management services… these are all things that are hubbed around this notion of manufacturers wanting to improve productivity, and run their facilities in a safer, and more environmentally-friendly manner. A couple of other things that are going on as well include the growth of e-Commerce, which is a direct result of our customers looking to drive efficiencies in their purchasing process. In 1995, we were the first commerce-enabled website in our industry. Today, we have over 30 percent of our business going through the e-Commerce channel. That’s a dramatic change over a relatively short period of time. Also, the globalization of our business: Today over 25 percent of our business is outside the U.S. The other thing I’d point to is, as manufacturing customers are looking to fewer, larger suppliers to be more strategic partners, they’re demanding that we really understand their business. Our response to that has been an aggressive expansion of our sales force. We have more sellers inside of more manufacturing facilities today than we ever have, and we’re continuing to add salespeople at a much more aggressive rate, because salespeople are the ones that can be on the floor with our customers, understanding their businesses, and helping Grainger respond to and solve their day-to-day problems.
IMPO: From a customer standpoint, how has access to long-term, consistent feedback been able to influence the development of the Grainger value proposition of today? How about from a services standpoint?
JR: What customers are telling us is that they are operating in a much more competitive environment, and they’re competing in a global environment. What I mean by that is they have all sorts of different competitors – both domestic and international – and there’s not a customer that we talk to that is not looking for ways to drive more efficiency. What’s newer within the last ten years is that in our category – the MRO business – our customers are demanding that we help them figure out how to become more efficient. When I think about our business thirty years ago, price was always an issue and so was efficiency, but not nearly to the extent that it is today. Our customers are much more in tune with the total cost of acquisition than they ever were before. So they’re looking at the total price that they pay for the product, but also all of the other costs involved in finding, buying, and managing inventory, paying for the products – and they’re much more in tune to this total cost. They’re looking to us to help drive down total cost in this category.
IMPO: Is there anything, trend-wise, you see shaping the future of Grainger?
JR: This trend for the decade – the focus on driving productivity into customers’ businesses—is the most significant trend that we’ve seen in the last couple of decades. And it’s going to continue. It’s driving the growth of e-Commerce, and the expansion of our product offering, the expansion of our service offering, as well as the globalization of our business. It’s the most significant trend that we’ve seen in the industry for quite some time. We’re excited about it, because we built our business to respond to this trend. We have a very broad product offering, and we have a supply chain that can make that available today or tomorrow. We’re adding services to complement that product offering and we think there is ultimately regional and global scale that’s possible in this industry. This is a very exciting time in this industry in general, and it’s a very exciting time for Grainger.