For years, the name Rice has drawn a lot of attention in the world of industrial distribution. And now, it is taking on even greater significance with the footprint that Dan Rice is putting on Victoria, Texas-based Service Supply Company as it’s CEO.
Dan is the son of the legendary Dr. Don Rice of Texas A&M University’s Industrial Distribution Program — a leader in educating leaders of tomorrow for the distribution channel. Dan, himself a graduate of that vaunted program, had a multi-decade successful career at corporate giant Allen-Bradley, and later its parent company Rockwell Automation. He spent time in Distributor Development, and as a Sales Engineer, Global Account Manager and Country Manager for Rockwell Automation de Mexico, SA de CV.
“Both my College Degree and my roles at Rockwell Automation were involved in distributor and channel development and these things helped prepare me to own and operate a distributorship some day,” Dan said.
Similarly, his wife Julie had built a highly-respected career in sales roles in the communication industry, before being a stay-at-home Mom for the Rice’s three children for about 15 years.
But after numerous promotions and corporate relocations — and with a young family —Dan and Julie decided that it was time to put down roots. And they wanted to return to Texas.
Research, timing and numbers were critical, and it all came together during their search process.
“We met with banks, VC companies and lots of mentors who owned their own businesses or had buy out experience. I took a year off to do the search full time and then it took almost another year to close in on the right company with the right deal. Even then, we went in as consultants with the option to acquire after one year, which we did. We looked at dozens of businesses through brokers, industry leads, cold calls, etc. It was actually a fun process, and I learned a great many things about how M&A activity works.
And about 10 years ago, they acquired Service Supply.
As Dan described, “We liked Service Supply for a couple of main reasons:
One downside, however, has been that what they expected would be a good labor base has proven a bit more of a struggle. For some more specialized or experienced positions, Dan has had to import them from other markets, as well as aggressively train current associates to grow into those positions.
As a bonus, though, about five years ago, Julie Rice came on board and took on the role of Industrial Sales Account Manager at Service Supply.
“In the last year or two, she has become the company’s top seller across all divisions in sales dollars and margins with a very limited customer list of less than five accounts. She has an amazing ability to build strong lasting relationships and her sales have grown over 200% in the last three years. It has been fun to watch her build these customer relationships, but when her customers don’t get what they need, I really hear about it at home. Ha! “When she isn’t chasing business, you will find Julie quietly encouraging and helping associates working through both business and personal issues. Her positive attitude and enthusiasm is infectious and our associates perform better because she is in the background as their cheerleader. We are thankful for her contributions to the company.”
With its headquarters in Victoria and a newly opened branch in Pleasanton, for a total of 50,000 square feet under roof, Service Supply sells plumbing and HVAC products to the residential, commercial and industrial markets, and has an Industrial Division that sells safety equipment and fire-retardant clothing, hand & power tools and MRO products. They typically have 30,000 SKUs in stock and roughly $4.5 million in inventory on hand, with 70 full-time associates. Their sales are typically comprised of 30% plumbing, 10% showroom, 20% HVAC and 40% industrial.
As Dan described, “Service Supply is a diversified distribution company serving many customers in several industries. The unflattering way to say who we are is, Service Supply is a mile wide and an inch deep. And both of these descriptions are true, but when you serve small markets you have to be a lot of things to a lot of different kinds of customers. We deliver into 40+ fair size Texas counties on a weekly basis with a delivery fleet that delivers all company products to customers in these small markets.”
Among their primary lines are:
The Rices have made well-strategized changes at Service Supply and are positioning it for maximum growth opportunities in the years ahead. They’re also having a lot of fun. I had a first-hand opportunity to spend time with the entire family during a recent visit to Victoria — and take part in their 65th Anniversary Celebration. They are passionate about the business and have a sincere interest in their associates, customers, vendors and community. They’re also extraordinarily gracious hosts and delightful people who genuinely embrace the people and world surrounding them.
Following is much more from the interview I did with Dan recently. Enjoy!
MJM: As you are marking Service Supply’s 65th anniversary, please give our readers a little glimpse at the history of the company?
Rice: The first owner responsible for starting Service Supply was Sandoval (Sandy) Sandhoffer, and he was originally from the Saint Louis area. He first moved from Saint Louis to Houston where he sold wire rope.
After traveling around in the South Texas region, he discovered Victoria and fell in love with the people and opportunities here. Victoria is very centrally located in South Texas and is at a crossroads where people travel from Corpus Christi to Houston, San Antonio to Houston and from Corpus to San Antonio. Many goods and services flowing between Mexico and The United States travel on Hwy 59 through Victoria. The city has a very rich history dating back to the 1500s when Spanish Missionaries established Missions throughout South Texas. The war for Texas independence was staged and fought in and around the South Texas Victoria area.
MJM: What do you believe have been some of the key factors for the company’s success and growth over the years?
Rice: I think the biggest key factor is being opportunistic. Taking advantage of what the market gives you or competitor mistakes. Another major factor is being very determined to grow and drive the business forward, and this takes a lot of energy and persistence. Both of these factors lead you into new territories, products, and customers. The one factor that is the toughest to manage is protecting your company and customers from the downside in everything you do. This means buying right, negotiating favorable terms, watching the small details, and knowing when to say “no” to a deal.
MJM: Can you give us a thumbprint view of the company when you acquired it?
Rice: At that time the company had grown almost 100% in about three years but had been unable to keep pace with the sales growth in operations, logistics, traffic and inventory processes. They needed improvements in internal controls and discipline to deliver consistency to customers. So the first few years we focused on training, key measures, internal controls and operational consistency. You cannot become the customers’ “first choice” from a sales and marketing standpoint until you can consistently deliver customer satisfaction in the great majority of the facets of your business. As we got better at this, our customer loyalty and customer “wallet share” has continued to improve.
MJM: Your father, Dr. Don Rice, has been a significant force in the advancement of industrial distribution education. What can you share with our readers about his career and expertise?
Rice: Dr. Rice is the single best competitive advantage any distributor could have. His knowledge, wisdom and experience in profitability, quality systems and operations has been a great contributor to our current structure and metrics. We are applying the principals he learned from the industry and developed during his tenure at Texas A&M.
I have been privileged to know several great men during my career and count my Dad as one of these. He is my most trusted advisor in business, and in my personal life, and is a huge role model and mentor for all of our associates.
MJM:Talk about his role with Service Supply?
Rice: As the Chairman of Service Supply he spends a lot of time thinking about the economy, the company and our position and performance in our markets. He is a very capable mentor and doesn’t mind training our associates when needed. He stays abreast of the numbers daily and comments several times per week on our daily flash or monthly reports. The board and management Team meet quarterly, and he leads and participates actively in the meetings. We have all learned a lot from his counsel.
MJM: What can you share about the other members of the board of directors, their background, and how the board functions to guide Service Supply?
Rice: This may seem a bit weird to some readers, but after we purchased the company, the prior owners stayed on with the company. For the first seven years all three of the prior owners were board members at our request. And even today after 10 years, two of the three prior owners are on the board and we listen closely to what they have to say. We just think it should be this way and they are welcome to stay in the company as long as they like. One is an Outside Account Manager and the other is our Plumbing/HVAC Purchasing Manager.
Our fifth board member is our Director of Supply Chain. Every board member was active in designing, building, and implementing our new branch in Pleasanton.
MJM: What were the initial short-term goals you set when you initially made the acquisition, and are you happy with the results you’ve accomplished so far?
Rice: Our first short-term goal was to develop a firm operational and financial foundation for the company that could be built upon. We accomplished this by spending a huge amount of time training our associates and beginning to measure everything. We also joined buying groups, installed a sophisticated pricing system, and widened our market basket offerings.
MJM: You’ve built quite a team of people that obviously care so much, many of whom I had a chance to meet. First, what do you look for when hiring a person, and how do you determine the best fit for them within the company?
Rice: We do all of the standard background and financial checks, drug screens and reference checks. But, we stopped the practice of recycling folks with “experience in our industry” and started hiring Associates based on Attitude, Aptitude, Allegiance, and Initiative. We use Wonderlic personnel surveys and an intensive interview process involving more people depending on the size of the role. No one hires anyone individually and we have some very spirited meetings internally about potential candidate’s strengths, weaknesses or fit. Managers and supervisors know they better speak their piece about a particular candidate because when all agree to move forward on a candidate, I ask each interviewer and stakeholder for their personal commitment to make the candidate a success in the company. I remind them of their commitment when we have growing pains or an issue with an associate they helped hire. Hiring the right people is an extremely difficult process and we are forced to do a lot of training, but our customers and vendors like these new associates better than the ones we have hired in the past, and we think we are getting better results. As with all HR systems, it takes years to see how the candidates progress and see how you need to improve the process.
MJM: Second, how do you guide people to their full potential, and create such a culture of enthusiasm and service?
Rice: Yikes, what a tough question. The old MBO methods of finding the best people you can find and manage them by the numbers still rings true to me to a certain extent. But keeping Associates engaged and growing is more difficult than ever, Our societies expectations of instant everything, coupled with the transportability of retirement and health plans adds a greater degree of instability in the workforce. We use a couple of things that seem to work. One is a profit sharing plan that is aimed at an immediate monthly gratification plus an equal annual portion. We also try to treat our workforce like owners, they see our branch metrics every month because we do not think they can improve what they can’t see. We try to challenge their intellect, and id, by asking them what the right answer is if they were running the branch. We call this “getting their dog in the fight” which is voluntary, you cannot make this happen, you have to get it to happen. Full disclosure, we also require non-disclosures and non-competes from every Associate because we are not going to teach them to run a distribution business to have them become competitors.
MJM: With the oil & gas sector shifting momentum, how are you positioning yourself to leverage those opportunities?
Rice: We have been very fortunate to be located in the center of the Eagleford Shale play in South Texas and this has accelerated all of our businesses’ in the last several years. This has been a driver for us in expanding geographically as our customers are asking for assistance in new areas. We have several new projects in the works but have slowed our pursuit awaiting the oil industry’s reaction to oil prices, but there are still opportunities out there right now.
MJM: You recently opened a branch in Pleasanton. How does this help move you into the future?
Rice: Pleasanton is our first attempt to put all company product lines into a single small market serving location and has only been open since November 2014. It was been well accepted so far and we feel this is a model we will want to reproduce in the future when other opportunities become available.
MJM: You also have a unique uniform embroidery business. Talk about how that got started, the type of jobs you’re able to produce, how fast, and typical customers?
Rice: Yes, the uniform business is an outgrowth of our safety business and this has been a fun business to grow into as there were several market forces that accelerated this business. Personal Protective Equipment (PPE) is a head to toe kind of business and customers want their uniforms with reflective striping, badges, patches and direct embroidery. Our goal to be a full service safety provider and offer turnkey PPE solutions includes providing complete and customized FR uniforms. We initially bought a small company to enter the business, but we can now produce several million dollars in uniforms annually. We build uniforms in as little as one day to two weeks depending on the complexity and all operations are in house. We started by focusing on the oilfield uniform programs but this has morphed into city, county, ISD, plumbing and HVAC uniforms as many of our customers find out what we can do for them. We have a full-time work wear specialist who has been to all the vendor training and she is a very busy these days.
MJM: I noticed when I was touring your facilities, that you’ve implemented a number of unique features — for example, the projector TV above the counter at the branch, etc. Talk about how you came up with some of these ideas, and how they help your team internally as well as your customers?
Rice: On the outside of the building we offer shade, a hand wash station and ice machine to help customers cope with their day, and on the inside we offer A/C, popcorn, video projection, and courteous service to make the time go faster while they are in our store. All of our ideas came from Associates or customers as they thought about what could improve the customer experience in our store, and we listened.
MJM: How is purchasing managed — inventory management system, corporate purchasing, and branch managers?
Rice: We manage purchasing and inventory together as a supply chain and use our business system to help us maximize inventory turns and GMROII. We commission our sales people on contribution to margin and by inventory disposition and both of these help us manage purchasing and inventory better. Branches are measured individually, and branch Associates participate in their branches profit plan.
MJM: Share if you would some of your strategic planning and the goals you have for the company?
Rice: I remember a few years back the prognosticators were predicting the end of the world for independent distributors through disintermediation. And then this same kind of disintermediation caused the customers we serve to outsource everything possible outside their own core competencies in attempts to create more value for their customers. Wow, and it created a bonanza of opportunities for all the distributors who could capitalize on the customer’s outsourcing needs.
While our demise was over predicted, disintermediation has come to distribution in ways we never expected. For instance, we used to simply collect checks from paying customers who paid their statement monthly, then it went to them paying individual invoices monthly and now they want to pay by the line on an invoice. In addition, the ways customers pay us with credit cards, debit cards, ACH’s, wire transfers and this creates a lot of new work for the same sales dollars. Same thing in payables where we used to pay our statements monthly on very consistent terms, but now we pay the buying groups who pay the vendors, and special terms are changing constantly based on our vendors needs.
All these new ways to collect and pay has really increased our accounting, IT/IS and banking costs and I don’t think anyone saw disintermediation entering our businesses quite like this. Compound this with banking and internet security issues and this can really increase distributor operating costs. We really need our banks and IT/IS vendors to step up their game and produce better streamlined product offerings to help us with our increasing transaction types and processing costs.
Now the industry is buzzing about Omnichannel, and like Disintermediation, it is not a death knell for independent distribution like some are saying, but I am pretty sure we will be affected to a large extent, but it could also create a lot of new opportunities and spaces to grow into. One thing that is for sure is the need to be able to change and adapt faster is going to be a big deal. And we are focusing strategically on how to do this.
MJM: In talking about your traditional wholesale distribution business, what are some of the key things you’ve done to build customer relationships?
Rice: We are endeavoring to sell higher in all customer organizations in efforts to get closer to decision makers. We lost a million plus dollar opportunity to Staples who added the product we were selling to their web portal for that particular customer’s 120 locations. Now the customers at the locations order this product with their office supplies, which might sound strange, but it sure shaped our thinking about what the customer’s value, where they value it, and what customer service means to them. But most importantly is it pushed us harder to move into the level 2 and 3 executives who make a lot of those decisions. Remember Omnichanel?
MJM: What do you view as some of the biggest opportunities and challenges as we enter 2015?
Rice: We have enjoyed a lot of success in the last few years being in a very fast growing environment where we actually enjoyed the high price of oil. But it’s going to get tougher for us in the near future and possibly longer. We have to see this as an opportunity and a challenge is to continue to take share from our competitors.