• The January announcement to close 73 branch offices in favor of virtual customer care hubs was years in the making.
• While MSC eliminated about 115 jobs, it created 135 new positions as part of its transformation.
• MSC re-engineered its value proposition to be more agile, technical and high touch.
In January, MSC Industrial Supply Co. CEO and President Erik Gershwind announced a bold move forward by permanently shuttering 73 branch offices while also slashing roughly 115 jobs.
Industrial distributor MSC Industrial Supply Co. said at the time that it expected to achieve ongoing annual cost savings of $15 million to $18 million beginning in fiscal 2022, and savings of $7 million to $9 million in fiscal 2021.
With the closure of the branch offices, which had been temporarily shut down due to the pandemic, MSC made the move to virtual customer care hubs. Speaking at the recent ISA 21 virtual conference, Gershwind said the job cuts and branch office closures weren’t a knee-jerk reaction to the COVID-19 pandemic, but rather the fruits of a plan that had been in the works for the past four or five years.
MSC, a North American distributor of metalworking and maintenance, repair and operations products and services, was founded in 1941 by Gershwind’s grandfather, Sid Jacobson. His uncle, Mitchell Jacobson became president in 1982 prior to Gershwind being named president and CEO in 2013. Gershwind credited both his uncle and grandfather for fostering a company culture for innovation through the years.
“Looking back, it looks like one moment, but it wasn’t quite one moment,” Gershwind said of the changes announced in January. “It happened iteratively, but I think for the impetus I go back to my grandfather and to my uncle Mitch and the legacy they put in this business around reinvention.”
Gershwind said the transition from the spot buy or catalog house model to becoming a mission-critical partner with MSC’s customers was driven by three catalysts.
No. 1, Gershwind and MSC’s leadership team saw disruptive threats on the horizon with new, agile, digital competitors emerging that played by different rules while enabling transparency for millennial buyers.
“We realized that the spot buy or the catalog house model that we’ve enjoyed for so long would certainly continue but it wouldn’t be enough anymore,” he said. “The second catalyst I point to was we started to hear a drumbeat louder and louder from our customer base. Our customer base is mostly manufacturing and heavy industry, and I would say that drumbeat began coming out of the global financial crisis of 2008-2009 when many of our customers faced a near-death experience.
“Many of them faced new challenges. There was a reawakening to the importance of cash, of lead times, of speeding up time to market. As this drumbeat began, our customers began seeing more competitive intensity, more overseas threats, more margin pressure, and their own disruptions. The drumbeat was around, ‘We need help. We don’t just need help getting products into our dock the next day.
“We actually need help running our business better. We need help finding productivity. We need help speeding up cycle times. We need help getting our end product into our customers hands faster, because that’s how we make money.’”
As the drumbeat picked up its cadence, MSC also saw an opportunity to fill in some gaps for its customers with its product lines and suppliers, which became the third catalyst.
“What we saw was a DNA that goes back to my grandfather around rolling up your sleeves and being there with customers on the plant floor,” he said. “We can really move the needle for a manufacturer in terms of productivity and cycle times. So we had the advantage there. We saw a product portfolio that had a full line of key suppliers that enabled us to come to our customers and be objective. The customer would know that we were going to recommend to them whatever the right tool for the job was.
“All of those things put together led us to this path to reposition the company from spot buy supplier to mission-critical partner. We re-engineered the value proposition to be more technical and more high touch,” Gershwind added. “We reshaped our salesforce to be able to sell the new value proposition, which meant moving from what was a one-size-fits-all model to a more segmented model. We re-engineered our supply chain to move from thinking about the four walls of our distribution centers to thinking end-to-end, from our suppliers’ plant floor all the way to our customers’ plant floor with inventory management solutions.”
MSC embraces technology, changes culture
Prior to January’s announcement, MSC also reformed its culture to accelerate the pace of change inside of the company to better align with what was happening outside of the company. As a result, MSC became more agile and better able embrace change.
“[W]e invested heavily in technology, and in particular digital technology as opposed to legacy technology,” Gershwind said. “When it came to technology, and to our customers, that allowed us to be more agile, move more quickly, to be more cloud-based, and to bring insights through mining data that’s sitting inside of our company.”
In order to replace the branch office locations with virtual customer care hubs, MSC planted the technology seeds long ago, according to Gershwind. MSC integrated its smartphone system so that customer care associates could connect with each other and customers anywhere in the country, and not just at the branch locations.
“We have a phone system whereby we can — even without a physical branch — recreate a branch,” he said. “We can network that branch into all of our different subject-matter experts, such as metalworking and tech experts, and we do it seamlessly.”
The second technology seed planted was a CRM system that enabled MSC’s salespeople to get a 360-degree view of the customer.
“Our customers are dealing with the same inside salesperson that they’ve been dealing with pre-COVID,” he said. “They’re sitting in their homes, but it’s the same person, and that relationship matters a lot. The second thing I’d say is our inventory model is not heavily branch-based. So most of our deliveries to customers are coming from centralized distribution centers for next-day delivery. Where our customers have same-day needs that are going to impact the production process, let’s put them on their plant floor through an inventory management solution.
“The service didn’t change. The person that they were dealing with, the knowledge, the history and the legacy didn’t change. I think that’s really paramount. All COVID did was accelerate a trend that was happening.”
MSC creates new jobs
While MSC did eliminate around 115 jobs, Gershwind said the company made a point to announce 135 new jobs around the same time for those who were impacted by the job cuts. Some of the new jobs moved from the previous branch offices positions into growth and customer-facing roles.
A high percentage of the employees that lost their jobs we’re able to move into the new positions, according to Gershwind. “I was really proud of the team and in the way we made this happen because it’s a move about growth,” he said of the company’s changes. “But we did it in a way that goes back to my grandfather’s values and the way we treat people.”
Be proactive in change management
Going on four decades, Gershwind said MSC’s mission statement has been to be the best industrial distributor in the world for its stakeholders, which are its associates, customers, owners and suppliers. He referenced a quote by hockey legend Wayne Gretzky about great skaters skating to where the puck is going to be instead of where it was. “Look at where the puck is going. Don’t look at snapshots, look at moving pictures and trend lines,” he said. “The third point I would raise is we also took a hard look at the risk of not moving, of not changing, and we thought that risk was great.
“This move was about growth. This was about taking cost out of areas that were not bringing value to a customer and moving it into areas and people that will.”
With such a big step beyond the limitations of the branch office locations, Gershwind said MSC tackled change management aggressively and proactively by putting a full-time executive in charge of the culture transformation. Transformation starts with “why” and not with “what,” according to Gershwind.
“It has to start with why we’re doing it,” he said. “Over the past few years, we rolled out a new brand promise. Same mission statement, same legacy, same values, but a new brand promise that signaled this shift from spot buy to mission critical. That brand promise is ‘Built to make you better.’ That’s our ‘why,’ and ingraining that into the company was critical. Because if you don’t understand the context for why change happens, it’s really hard to believe in it. The second thing is there’s a big effort inside the company for what we’re calling ‘democratize the change.’ What I mean by that is change can’t be led by me. It can’t be led by five, 50, or even 100 people. It’s got to get deep into the culture.”
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