Chicago-based Grainger (NYSE: GWW) is rapidly scaling up. The distributor has grown 30 percent from 2008 to 2012, from $6.9 billion to $9 billion.
At the distributor's recent Annual Analyst Meeting, President and CEO Jim Ryan said scale has led to higher productivity and better customer service, in turn lowering operating expenses and cost of goods sold.
He reported that operating expenses as a percent of sales have gone down from 28.5 percent in 2006 to 27.5 percent in 2012. Cost of goods sold has fallen from 60.2 percent in 2006 to 55.8 percent in 2012 in North America.
Grainger continues to expand its product selection and has also grown its ability to offer a suite of services, adding inventory management and safety services. “Five years ago we weren’t in the position to do that,” Ryan said. “We are today.”
Ryan pointed to the new 1-million-square-foot distribution center in Minooka, IL, where the distributor held its analyst meeting, as an example of the benefits of scale on operations. He said the DC’s 80 inventory staff also manage Grainger’s $1.5 billion in inventory across all of Grainger’s businesses in North America.
The distributor has leveraged scale for purchasing, supply chain upgrades and upgrades to its systems and information, Ryan says. For example, identifying products such as fasteners that the distributor can consolidate purchasing for on a global scale will drive down cost of goods sold.
The distributor also is starting to see the early benefits of scale on the analytics side. It’s been running SAP in the U.S. for more than 10 years; in North America Grainger has up to 200,000 transactions a day. In those transactions, Ryan says, the distributor can glean useful data about its customers, including what they buy and how they buy, as well as their preferences and behaviors.
“We’re in the early innings of mining this information that comes out of our SAP and e-commerce system,” he says. Grainger says its focus on building scale, which allows for better data and customer segmentation, will help it capture a larger percentage of wallet with customers and grow market share at a time when customers continue to consolidate supplier bases.
