Graybar knows when purchase order says “tomorrow,” it means “in the morning.”
On this Fortune 500 company’s website, it states: “specializes in supply chain management services.”
Is it a leading third-party logistics provider? A well-known freight forwarder and customhouse broker?
No, that’s how Graybar Electric Co., an electrical wholesaler with 2013 sales of $5.7 billion, describes itself.
At any large construction site you may well see a Graybar truck making regular deliveries.
The company is a leading supplier to contractors, government agencies, industrial companies, and telephone and electrical utilities across North America.
Larry Giglio, Graybar’s senior vice president, said contractors, especially electrical, are the company’s largest customer base. It also sells to installers of data and communication systems, heating, security systems, ventilation and cooling equipment, and other mechanical systems.
Building a server farm?
“That’s a great application for us,” Giglio said. “Anywhere there’s big power and big data, it’s a great opportunity for us.”
Manufacturing is another major source of business for Graybar—selling direct to industrial companies, but also to contractors that, for example, make equipment going into a factory.
A company building the assembly line, or part of it, for an auto assembly plant might be a customer of Graybar. So might the company that makes parts for those automobiles.
A company building an oil refinery or chemical plant or a drug manufacturing facility likely has a place on Graybar’s customer list. Even hospitals or large buildings that have a steady need of parts for maintenance or refurbishments are included.
Graybar is ranked the fourth largest electrical distributor in the United States by the magazine Electrical Wholesaling, just behind Sonepar North America, WESCO International, and Rexel Holdings.
But Giglio said “in today’s environment anybody who sells those types of products is a competitor, and the landscape continues to change.” Today, companies such as Home Depot, Grainger, and Amazon sell some of the same products as Graybar.
Defining Distribution. Giglio believes Graybar’s distribution network is one of the things that sets it apart from the competition.
The company sells an enormous variety of electrical, communications, and data networking products. How many different items depends a lot on how you count them, but Giglio said one of the measurements the company uses is SKULs, or “units stocked in location,” and that number is near 1 million. This metric counts some units that are stocked at more than one of Graybar’s locations multiple times, but even if those duplicates are eliminated, the number is in the 100,000-125,000 range.
“Of course, we sell a lot more than that overall,” he said. The company has many other products in its catalogues that it does not keep on hand, but will buy from a supplier and then either ship the item though its own logistics network or drop-ship it if that is in the best interest of the customer and allowed by the supplier.
Giglio said around 55-60 percent of the company’s revenue is derived from products moving through its own warehouses, truck network or motor carriers it hires. The remainder is shipped directly from the suppliers. Those drop-shipped items are a higher percentage of sales because many are big, expensive products.
The company has a three-tiered logistics/warehouse strategy: many branch locations close to customers, with a layer of district service centers above that and a smaller number of national zone warehouses.
“The objective is to get materials as close to the customers as practical,” Giglio explained. Depending on the location, the branch service centers are warehouses with a footprint of anywhere between 4,000 square feet and 100,000 square feet.
Those branches stock the inventory Graybar needs on a daily basis to meet the demand of customers on any given day and the next morning, Giglio said.
Above that there is a layer of 13 district service centers (some of which may also serve a dual role as a branch service center). These tend to be located in big metropolitan areas, provide daily deliveries to outlying areas, and are larger facilities with more capability. According to the company’s annual 10-K report, at the end of 2013, it had 223 district and branch service centers, with 20 in Canada and one in Puerto Rico.
Graybar also has seven national zone warehouses. These are not meant to address a particular market, but perform backup services to its other facilities.
For example, if a branch location suddenly gets a big sale and needs a lot of product in a hurry, the national zone warehouse can ship product so the branch doesn’t have to wait for a manufacturer to fill its order.
This three-tier strategy took a while for Graybar to develop, Giglio said.
Originally, the company only had branch locations. Then it put in the four national zones for hard-to-find items and others that it could not afford to hold in inventory at every branch location.
It then decided to expand the number of zones to 16, thinking it could serve customers from those locations as easily as it could from the branches. Consultants helped Graybar pick locations so it could make those next-day delivers. And it worked—but only to an extent. In Atlanta, for example, it was able to deliver goods downtown in time, but not 50 miles out where many of its customers were.
“It became clear that these locations… were too far away from the customer to get them what they needed on a next-day basis,” Giglio said. “What we learned is what the customer means by ‘next day’ doesn’t mean ‘any time the next day.’ For us, it means ‘in the morning.’”
In the New York area, Graybar learned that it made sense to replace three smaller warehouses with a service center in Carteret, N.J. By having a much larger facility with more inventory and modern handling equipment, Graybar is able to provide better service to its customers, he said.
Graybar gets its products from these warehouses to its customers using its own fleet of 800 trucks manned with company drivers. But the company will augment its fleet with other motor carriers when necessary.
Giglio explained, “based on the variability in customer demand, we can’t afford to have enough fleet to get to all the places where people want product first thing in the morning, which is a big demand of our customers.”
He noted the company must not only deal with changes in demand over time, but variability in where deliveries need to go.
“We have a number of routes we can run, but we also have contractors doing work all over town and a lot of them want it in the morning. So you have to get to so many places and you cannot realistically afford to have a fleet to meet all those demands directly,” he said.
The company does a lot of shipping with UPS from its zones and district service centers, but Giglio said Graybar also relies heavily on companies that “are not well known for local deliveries, independent courier-type service providers that show up at its branch service centers, get loaded and have specific delivery assignments.”
For inbound logistics requirements, Giglio said Graybar’s strategy is to buy direct from the manufacturers and have product delivered into each of its locations whenever it can.
That can sometimes be tough to achieve because at smaller locations it may be difficult for Graybar to meet the requirements of the manufacturer for minimum purchases or freight allowances. In those cases, the company will have product delivered to one of the district warehouses and redistribute through its network. Graybar is a big user of both UPS and various national and regional truckers for less-than-truckload services.
The company offers value-added services to customers, such as kiting—putting together all the parts that a customer requires to accomplish a particular task.
“For example, we have what we call a ‘palletainer,’ which is a plastic pallet with sides on it and we’ll put everything they need for that installation in that palletainer, so it’s in one spot. And we’ll deliver palletainers to multiple locations, so they have what they need close to their equipment,” Giglio said.
Graybar performs the same service for contractors building apartments or offices, where each unit needs essentially the same products—it will put together all the hardware and wire that floor or unit needs.
“It’s a very valuable service,” Giglio said. “We try to promote it because we see value in it for the customer and us, but it is limited in who sees the value.”
The company also has a program called “Smart Stock,” through which products are barcoded and customers can scan them as they are used and Graybar will automatically restock their inventory. It can set up trailers that are manned or unmanned at job sites where the inventory is kept.
As a job progresses, the inventory can be adjusted to include different types or quantities of equipment.
For one client, Graybar took over inventory management at seven locations, installing its own employees and managing the inventory at those facilities. This way the customer gets billed as it uses goods, rather than when it replenishes or acquires material.
“We are in the material management business and so the insights we have can provide great value” to customers that do not have that as a core strength, Giglio said. “Without that sort of service they end up with a lot of dollars in inventory sitting around they don’t even need anymore.”
Graybar can even install a variety of vending machines or lockers at a customer’s location where employees can obtain parts and tools. The machines can be restocked as materials are consumed.
Changing Customers. Earlier in its history, the company did more over-the-counter sales at its branch locations, but Giglio said that has become less common.
“Contractors today have evolved to the point where many of them require materials to be brought to them, versus sending their technicians to go pick stuff up. It’s very costly to them, so most of our customers, who 20 years ago would have picked up their material, require that it be delivered, and many times in a special way with all the additional services we’re able to provide,” Giglio said.
In most cases, Graybar owns the products it sells through its logistics network. But if it is financially rewarding, Giglio said there are instances which it will act as a 3PL for some manufacturers whose products it sells.
He noted there are pluses and minuses to being a 3PL rather than a distributor. A 3PL does not have to pay for the inventory it handles, but Giglio said it does involve “utilization of square footage, and square footage does have a cost. It’s all about movement and velocity and warehousing. If it’s moving through and you’re active—well then whether you sell or you don’t sell, you’ll get paid. But anytime material comes in and it doesn’t move regularly or moves sporadically you’re going to be challenged to make money.”
Giglio said Graybar is careful about expansion of its product lines. For example, it sells wire, conduit and controllers to heating and air conditioner contractors, but not the actual air conditioning units. Similarly, it will sell the cables or racks that a company building a data center needs, but not the computers.
Graybar has distributed a variety of products, eve appliances at one point. The mix has changed as the supply chain evolves or products do not generate enough activity. Giglio said, “we continually evaluate new product categories.”
The company has a large operation in Canada and sells some product overseas, but Giglio said its international sales are primarily to support Graybar’s domestic customers which are doing work abroad. Generally, Graybar will move the product to the customer’s freight forwarder, who will then arrange the international shipment.
This article was published in the December 2014 issue of American Shipper.
