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Ideal Supply - "Farming" For Opportunities

By Dave Wooldridge

As the winner of our fifth annual "Machine Shop of the Year" award contest, Ideal Supply Co., Listowel, Ontario, can claim a number of "firsts." It is the first Canadian recipient of our award and, to our knowledge, it is also the first machine shop which has obtained ISO (International Standards Organization) 9002 certification.

About two hours due east of Toronto and centrally located in the province of Ontario, Ideal's corporate headquarters are located in the middle of some of the richest farm country in all of Canada. Not too surprisingly, agricultural customers comprise about half of all of its automotive business. But Ideal's management are a progressive group that has continually been involved in innovations designed to expand both the markets it serves as well as the products and services that it offers.

In addition to its strong agricultural base, Ideal Supply serves the automotive domestic and import, heavy duty and industrial, performance, restoration, small engine and marine markets. The 10-employee machine shop in Listowel is one of the best equipped shops in Canada, encompasses a little more than 11,000 sq. ft. and next year will celebrate its 50th anniversary.

Ideal Supply actually consists of three major divisions - Automotive, Electrical and Industrial. The Electrical Division accounts for 70% of the company's $60 million in annual sales. Electrical Division sales encompass the full spectrum of both retail and wholesale electrical products including everything from fuses to wires to breakers to transformers. Industrial automation, utility supplies, motor controls, electrical tools and design assistance are offered in addition to its complete selection of electrical construction supplies.

Ideal's Electrical Division customers consist of electrical wholesalers, industrial and municipal and school board accounts as well as a variety of second tier suppliers. Ideal also operates two retail lighting outlets, known as Avon Lighting, within its Electrical Division.

Ideal's Industrial Division supplies a broad range of products to manufacturing plants, hospitals, boards of education and government institutions in its trading area. As industrial clients acquisition requirements and expectations continue to change dramatically, Ideal has responded with leading edge technology, expanded product offerings, centralized service centers, a preferred partnering program, and 24-hour emergency call service. With single-source supply (integrated supply) for all maintenance, repair and overhaul (MRO) needs, Ideal is satisfying ever changing demands for a broader range of product and application expertise from its customers.

The Automotive Division
The Automotive Division consists of a full range of automotive parts and services, including paint and body, tools and equipment, hydraulic supplies and radiator repair, hydraulics and engine rebuilding.

The company has had a strategic partnership with UAP/NAPA Auto Parts for the past 16 months. That relationship has made Ideal the largest distributor for UAP in Canada. UAP ships parts directly to Ideal Supply's 17 branch locations throughout Ontario from its two parts distribution centers. Ideal also services its headquarters and branch locations with a $3 million inventory out of Listowel.

Of Ideal's total 9500 customer accounts, automotive and machine shop represent about 4500. Eleven of Ideal's 17 branch locations also offer machine shop services, although the Listowel location handles about 45% of all machining and engine rebuilding work taken in.

The branch machine shops offer most services except for such items as complex cylinder head rebuilding, crank grinding, line boring/honing and block honing. Those jobs, however, can be delivered to Listowel and returned to branch locations within one to two days when required.

Of the company's 300 employees, 34 work in Ideal's machine shops. We had the opportunity to visit the main shop in Listowel, which presented a broad spectrum of machine work and engine rebuilding jobs in progress. As was mentioned, agricultural work accounts for about 50% of all machine work and engine rebuilding. Passenger car and light truck represents another 20%, with heavy duty, industrial and restoration work accounting for about 10%. The rest of the shop's jobs come from performance and a variety of other niche markets.

The day of our visit, in addition to typical import and domestic head and block work, we saw a variety of agricultural cranks being reground, a DOHC Mitsubishi cylinder head, a 1910 Tudhope four-cylinder engine in for a partial rebuild, a straight eight Auburn (1930s vintage), a Model A Ford engine, and a turn-of-the-century John Deere® flywheel engine, all making their way through disassembly, cleaning and the machining processes.

Machine Shop Division Manager, Kim MacKenzie, told us that cylinder head repair, crank grinding (primarily for agricultural applications) and radiator repair were currently the busiest departments in his shop. That's right, radiator repair! Each branch location that offers machine shop services, as well as the shop in Listowel, also offer custom radiator rebuilding and stock a line of exchange rebuilt radiators.

Ideal's rebuilt engine warranty requires that the vehicle's cooling system and radiator be inspected. About 25% of the time a rebuilt radiator is sold with a rebuilt engine. "Clean and repair" work on radiators is almost always done on the remaining engine sales.

Ideal has offered radiator rebuilding since 1967. MacKenzie notes that it is part of a value-added approach to selling engines that allows the company to make an additional profit and helps ensure that customers enjoy trouble-free engine performance.

"We provide a lifetime warranty on the passenger car and light truck radiators," said MacKenzie. "The heavy duty applications get a one-year warranty. It provides us with nice gross margins and there is not a lot of overhead cost since we can house the entire department in a 20' x 30' room staffed with two employees. It takes about 1-1/2 to 2 hours to rebuild the typical passenger car or light truck radiator and about three hours to do the typical agricultural unit. The really large radiators for heavy duty applications, though, can take a day."

In today's market machine shops cannot depend on the typical 350, 302 or 231 engine and head work to remain profitable over the long term. Production engine rebuilders and retailers provide far too much price competition on these types of engines. In Canada, the OEM new car dealerships are also much more active in competing for the parts and service business in the independent aftermarket.

As many machine shops have come to realize, diversification is an important ingredient to achieving long term profitability, and to also help smooth out the sometimes cyclical nature of the business. In its own markets, Ideal Supply has found that when its electrical business slacks off in the winter, its automotive business increases, and vice versa.

Other examples of Ideal's Automotive Division's diversification, in addition to its radiator business, include a complete hydraulic service center. The center is the area's largest distributor of hose and couplings. From 1/4" to 2" hose and couplings can be cut and crimped to meet specific diesel fuel, gasoline, oil, air and hydraulic applications.

Like the radiator business, the hydraulic center offers Ideal another way to package a variety of services and products to an expanded customer base. Providing hydraulic service to its agricultural and industrial accounts, as well as its heavy duty and automotive customers, allows Ideal's 14 Automotive Division salesmen to sell the other machine shop services and products it has to offer to those customers.

Ideal also operates a separate tool and equipment business known as Global Tools and Equipment. Tools and equipment are sold and/or rented to a variety of agricultural, industrial and automotive accounts. The company offers everything from battery chargers, hand tools and arc welders to garage creepers and pneumatic tools to body repair and lifting equipment.

"A shop just doing passenger car and light truck machining and rebuilding is in trouble," offered MacKenzie. "Shops just offering those products and services often have to cut their prices to compete for that business. When that happens they are unable to invest in the type of equipment and employee training that they need to keep up to speed with today's technology."

"We are very diversified," added Dave Murtha, Quality Coordinator for Ideal. "Innovation is a major part of what we do today. What was new five years ago is the norm now. Things change fast."

A major aspect of Ideal's evolving innovation has been its investment in becoming ISO 9002 certified. ISO certification, which Ideal received at the end of 1996, is the crowning achievement of the company's quality initiative. But it is also a living document through which Ideal can ensure the highest quality products and services are extended to its customers. Independent quality audits are performed by KPMG on a periodic basis to ensure that the company is following its continuous improvement program.

"We realized that we needed a plan to be able to maintain our 'Service In Quality,' initiative," explained Murtha. "ISO 9002 certification has provided us with the ability to link customer satisfaction with constant quality improvement. Customer satisfaction and continuous improvement in quality and service have been married to a regimentation process that ensures it."

A lot of news has been provided on large corporations that have achieved ISO 9002 certification, but for a machine shop to implement these procedures is quite an achievement. The short explanation for what ISO certification is would be to say that through a process of documentation, products and services can be provided that meet or exceed customer expectations on a consistent basis. ISO certification also provides an environment in which continuous improvement of the operations of the business can be achieved.

"When we first got involved with ISO certification we thought of it mostly as a plaque we could hang on the wall and a flag we could fly in front of our headquarters," said Murtha. "But what we found was that it gave each of our employees a voice in improving the system. It brought us together as a team in an environment in which we could make continuous improvements."

Within the machine shop a team of seven employees met for several months to document all of the procedures in the shop and to create flow charts. Through implementation of documented procedures, Ideal has seen significant improvements.

"We've seen productivity improvements and cost reductions," explained Murtha. "For example, where once we used 100 different forms in our warehouse, we now have just 20. "We've seen real improvements in the relationships we have with our customers and our vendors. Continuous improvement is working."

"We also believe that our employees are happier, more satisfied and more productive," added MacKenzie. "There is more accountability under ISO. Our process now requires that we handle any problems that come up in a specific manner. It's forced us to work together as a team. It's a process that happens throughout the entire company, including the machine shop and the various departments within the machine shop.

"It's not that we were lost or doing a poor job before we implemented ISO," said MacKenzie. "But through ISO we found how to put all of us on the same page. We could ensure that all of us were working together to achieve continuous improvement in our products and services."

Ideal Supply has also been innovative in developing a "Going The Extra Mile" incentive program for its employees. Under the program, each employee has a card in which other employees can place a "Going The Extra Mile" sticker, along with a brief description of what the employee did to deserve the sticker.

For each 30 stickers that an employee earns, he or she receives $30 worth of gift certificates to McDonald's. For every 125 stickers an employee earns the company awards overnight accommodations to a resort.

"It's part of our employee orientation program and its our way of creating what we refer to as a 'thank you cultural' within the shop," explained MacKenzie. "Every department in the shop participates in the program."

Ideal Supply also tries to be innovative in the way in which it markets its products and services its customers. MacKenzie says the company prefers to avoid discounting its products and services whenever possible, trying instead to cross market its diversified services and provide its customers with promotional opportunities.

One of the promotional tools Ideal Supply uses is to provide retail customers who are able to wait for their repair work with a gift certificate to a local restaurant. The certificate pictures a cup of coffee and pastries on its face. The certificate is inserted on an 8-1/2" x 11" sheet of paper that includes the company's name, address, toll free number and Internet address, along with a message that reads: Taking time to say "Thanks." We appreciate your business...from the Machine Shop and Radiator Service Staff.

In its efforts to stay busy 12 months out of the year, Ideal aggressively markets and promotes its products and services. The company advertises through a variety of mediums including local newspapers, shop ads on invoices and monthly statements, direct mail flyers, company/consumer product guides, newsletters, crankshaft, cylinder head and radiator shipping boxes, signage on all company vehicles, including a restored 1935 two-ton truck which often finds its way to local parades and fund raisers, and through the Internet.

The company's Internet web page (www.idealsupply.com) consists of about 35 pages which, among other things, detail the products and services the company's three divisions offer, provide branch locations addresses, contacts and services, and offer direct links to suppliers' web pages.

Company President, Tim MacDonald, notes that Ideal Supply's customer base has been evolving, and that those customers, more and more, are looking for expanded information and resources. "Our customers are becoming more sophisticated," said MacDonald. "They increasingly want more access to technical and service and product information that we have."

While acknowledging that Ideal must continue to be aggressive with its outside sales force, he says that his company must also provide better and more immediate answers to customer questions. "The more sophisticated customer is really the one we want," explained MacDonald. "And it is that customer that wants immediate answers to technical, service, job turnaround and product questions. We feel that the Internet will be another resource that will make it easier for our customers to do business with us. Eventually we will probably issue our customers a password which will also allow them to place orders with us through the Internet."

MacDonald seems pleased with the diversification and the sales growth that Ideal Supply has been able to achieve since it first opened for business in 1926. But he knows that competition for his company's products and services will only increase over time. He noted that growth can come from new business as well as existing business, but that in both cases it must be managed correctly.

"We are always searching for new markets," concluded MacDonald. "But it's just as important that we continue to find ways to do a better job at what we're already doing. In both cases, we have to remain financially stable in order to support that growth."

Ideal Supply Co. seems to have used the past 72 years exceptionally well to position itself to be successful well into the next business millennium. Through management initiatives and product and service innovation its future looks very secure over both the short and long term.

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