Customer satisfaction drives Dakota Supply Group. The Fargo, ND-based electrical, HVAC and plumbing distributor recently launched its “After Hours Experts” initiative to provide technical, service and sales support for customers beyond the routine Monday to Friday, 8-to-5 schedule. CEO Todd Kumm spoke with Associate Editor Eric Smith about how the company works to differentiate amid changing customer demands.
2017 MDM Market Leader Profile
Distributor: Dakota Supply Group
Headquarters: Fargo, ND
Leadership: CEO Todd Kumm; COO Dan Miller; Chief Segment Officer Mike Tupa; IT Director Brian Feickert; HR Director Melissa Lunak; Corporate Sales Manager Ryan Tracy; Corporate Pricing Manager Paul Mund; Director of Marketing and Analytics Todd Eber
MDM: How’s business?
Todd Kumm: The year started off, to be quite honest, a little slow. I don’t know whether it was election hangover or what. I truly believe that people didn’t plan much, not knowing what the outcome of the election was going to be. Now, of course, everybody wants everything done right away. So, they’re trying to catch up.
North Dakota’s down a lot because of oil; we’ve really flattened out there. And agriculture is a little slow too – I think the ag markets have taken a beating. But we’re seeing growth in the urban areas. Markets like Minneapolis and most of our urban areas tend to be a little stronger right now, so we are a little more comfortable.
MDM: As the economy slowly comes back to life, what kind of approach is the leadership team taking?
Kumm: This gives you a chance to train up your people, make sure you’ve got the right ones in the right places. We also evaluate debt and inventory. We’ve got to make sure we have the right stuff on the shelves. We don’t tend to drop our inventory as fast as ,say, business might drop. One of our strengths is having inventory, especially in the rural areas.
MDM: You mentioned training your people – what is DSG’s approach to recruiting and retaining the best and brightest talent and how critical is that for your success?
Kumm: Customers want to know who they’re talking to as much as which company they’re talking to. They build an individual relationship. So for us, retention is just as important as, if not more important than, acquiring new talent. It takes new talent time to build relationships out in the field.
Because Dakota Supply Group is an ESOP (employee stock ownership plan, which DSG formed in 1996), that’s a benefit that helps us attract people. Distribution is a good cash flow industry, which works well with ESOPs and helps us retain talent.
MDM: You’ve been with the company for more than a quarter century. Are you seeing changes in the type of workplace that the new generation is seeking?
Kumm: The traditional career path of working in the warehouse and moving to inside sales and then outside sales – I don’t think that flies anymore. Millennials don’t want to take that kind of career path. I think they want to contribute more immediately.
And I think it’s important that you communicate how they’re contributing. Open book management helps them a lot. They want transparency, to know how something works in the big picture.
MDM: Dakota Supply Group recently launched an “After Hours Experts” initiative to help customers beyond regular branch hours. What drove this decision and what’s been the response?
Kumm: It’s a way of differentiating ourselves. In the long run, it will go hand in hand with our e-commerce, but until that’s where it needs to be, we want to be accessible to our customers. We don’t get tons of calls at night, but every call we answer at night bumps our company up on the loyalty scale. This is about being there for the customers when they need us. The distribution industry is pretty much 8 to 5.
I would say we lost 15 percent of our market share to the do-it-yourself home market – Lowe’s, Home Depot and others – because we didn’t want to open up outside 8 to 5 or on Saturdays and Sundays. So they started servicing people. The same holds true with e-commerce. We have to answer what they want. One of the great things about e-commerce is that you’re open 24/7. This was a way to address that.
MDM: So where are you on the e-commerce path?
Kumm: We’re in the process of improving it. We don’t have the search capabilities and some of the things that, say, Amazon does – and I don’t know if we’ll ever reach the level that they do – but we have to make it more user friendly. But we’re trying to develop it as more than just an e-catalog.
I want to help the customer, especially since we’re in the contractor market, from beginning of a bid all the way through invoicing, job reports and eventually material. I think that’s how we have to differentiate ourselves.
MDM: How much revenue is coming through e-commerce? And do you have a goal for where you’d like it to be?
Kumm: We’re less than 1 or 2 percent, but I think in five to 10 years that’ll be 20 percent of our business. I think as distributors, we want that because it’s also more efficient. Let’s be real. That’s how we’re going to have to compete on the labor side of the market. I do see it driving up to that. But we’ll still have to provide some after-hours assistance for customers and allow them to ask questions.
That’s our still our niche in the market – our expertise. That gives us a unique advantage over a lot of the large e-commerce places.
MDM: Where do you see the biggest threats for your company and for distribution as a whole? And how do you insulate yourself from the disruptions that are lurking?
Kumm: There are several disruptions I think we have. But the biggest one is not looking on the horizon to see how consumers are changing their habits. And thinking that we have to stick with what we’ve always done. Companies have to change. That’s part of what consumers want.
Again, the example I would cite is being 8 to 5 and no weekends. Yeah, that makes it really easy for me to manage my team, and everybody’s happy. But that isn’t what consumers want.
Not recognizing or anticipating consumer needs and what would create stickiness is one fear. The other is not being able to utilize our total technical knowledge or talent knowledge. That’s the one strength that we have. You might have somebody that’s really good with boilers across the company. Do you want that person to answer questions for customers in all five states or just one branch?
MDM: How do you define culture as a leader at DSG? And do you see leadership as being a critical component of a strong culture that can withstand disruptions and threats?
Kumm: Yes, I do. I think one of the things that leadership has to do in the situations that you just described is stick with their culture. They can’t be wishy washy and do what’s good for them individually at the time. They have to stick with the culture. Culture means buying into our major values, such as opening up and discussing things we need together.
We have a list of six major values that we’ve really been pushing that we want to concentrate more to get the next level of results. But it’s steering you down that path.
I hear a lot about strategy, and I like strategy, but that changes over time. I think culture will trump strategy every time because it’s something you’re going to stick with. Strategy can change on a whim. Culture comes first. And part of good leadership is not changing your culture, your values and your beliefs, but sticking with them.
It’s also showing people why they’re important. A lot of people have a whole different career or lifestyle or beliefs, so it’s important to change their beliefs so that they align with the path the company is on. Whether that’s done through the hiring process or culture management, it’s probably got to be done through both.
(Editor’s note: Dakota Supply Group has a company song, “Dakotaland,” sung to the tune of “O Christmas Tree.” Kumm even shared the song’s opening line: “Dakotaland, Dakotaland, upon this badger mound I stand.” Though “not everybody buys into that right away,” Kumm says of singing the song as a company, it’s ingrained in the culture at DSG.)
MDM: Dakota Supply Group has made a handful of acquisitions over the past few years. What’s the growth plan for DSG as you guys look ahead?
Kumm: I would definitely look at acquisitions. In our industry, I always compare an acquisition to buying that hot rod – the owner has to be willing to sell the hot rod. And both parties have to be willing to agree on the price. While the owner looks at the blood, sweat and tears he put into it, I see the fiscal value.
And with two factors, there are not too many companies I can just automatically walk up to and say, “Hey you’ve got to sell to me; I’m buying all your stock.” It doesn’t work that way. The other part of that is, you how know people are with their hot rods. Some of them feel they’re worth a lot more than what I might. And I understand that. It’s probably his third or fourth engine. And I’m not paying for the first two, but he thinks I should because that’s what he has invested in it.
But I do think you have to look at acquisitions because we’re in a very mature industry and there’s not a lot of green growth out there. If you look at some of the studies, it takes a lot for customers to switch. Green starts are harder to get to where you want and are probably more expensive than acquisitions.
MDM: What else can you share about the company or the industry?
Kumm: I’m an optimist. I think there are a lot of things that we can do to differentiate ourselves, but we just have to respond to what the end consumers want. That’s the age we’re in – the age of consumerism. And I think that’s fine. They have their right to do that. They’re paying for it.
I also look a lot at the distribution and manufacturer partnerships, and what’s our real role with each other. I think sometimes manufacturers and the distributors tend to almost be in competition with each other on who gets to make the most money out of this. The contractor wants to make money. We want to make money. The manufacturer wants to make money. Bottom line, the consumer wants the product as cheap as is possible. And we have to partner with both sides of the equation to make it work better.
MDM: So obviously channel relationships and partnerships are a critical part of thriving in this industry.
Kumm: Yes. Distributors are really there to help those people market. Give them access to the number of locations that they wouldn’t have. Look at some of the values, handle the accounts receivable. There’s a lot of value that we provide, including the number of deliveries. And sometimes distributors don’t sell the value we provide to manufacturers enough. I think we need to so that they understand what we do for them. But we also have to understand what they do for us.