Issues 2000: Plumbing Execs Talk About A Changing Industry
Something tells us Ronald A. Pace has seen the changes affecting the plumbing industry before. As an executive in the electronics industry in the 1980s, Pace was "summoned" by one of his major automotive accounts. "I thought we were doing a very fine job - we were at 90 percent delivery by line item," he remembers. "We had all the right quality ratings. We had driven down our cost. And I was promptly told that if I didn't get my delivery up to 99 percent, I was going to lose the account!"
Pace came to Kohler Co. in 1995 and managed the company's mergers and acquisitions department and later moved to the cabinetry and tile division. He was named to his current position last June.
Kenneth D. Konopa joined Kohler in 1998 as vice president/marketing, Plumbing North America. Before joining
Kohler, Konopa worked at Moen Inc. as marketing director for bath products, and was responsible for the financial
performance and marketing strategies of the Moen's bath brands.
Integrated SolutionsPM: What forces are reshaping the plumbing market?
Pace: No one is ever going to dictate to consumers what products they'll consume, when they'll consume them and at what price. Consumers are far more knowledgeable than they were 10-15 years ago, and that knowledge will only continue to grow.
They're not only better educated about products, but they're more demanding on the delivery and installation of those products in the broadest sense. As a result, the individual "product" isn't the driving force in the marketplace anymore as much as integrated solutions to provide complete bathroom or kitchen solutions to the consumer in a way that recognizes they have less time to devote to the design, selection and installation of their bathroom or kitchen upgrade. These solutions also need to take into account that there is a skilled labor shortage throughout our industry.
PM: What do you mean by "integrated solutions?"
Pace: An element of integrated solutions is the linkage of end user demand for product configurations with the manner in which we drive our own production, as well as how every one of our other partners in the supply chain drives theirs. We've already begun through computerization to link the demand we place on our suppliers for raw material with our production schedules.
PM: By "end user demand" are you referring to consumer demand?
Pace: By the end of the day, I do mean the consumer. It will take time to get there. But I liken it to this comparison of cause and effect: If you're driving down the highway and you're in the back of 300 cars, you can come to a dead stop - even if there's no accident. Rather, the first motorist tapped on his brakes and the second person stepped on them a little harder, and so on and so forth until you go back far enough, and there you are not moving at all. By being in better touch with the lead car - the customer - we can avoid this.
Integrated solutions eliminate a lot of nonvalue-added steps. That is going to be critical for everyone in the supply chain in order to make the traffic move more efficiently.
PM: It's easy to see how you can link your demands to your suppliers, but what about your distributors?
Konopa: One of the things we're working on is to have our customers access information such as stock levels, availability and lead time directly through an Extranet. They'll also be able to track past orders on line - what was shipped, when it was shipped. The routing number. Recognizing time gaps between East and West coasts. We'll end up with a more efficient supply chain.
PM: How did we all get to point where we're sitting 300 cars back on the highway?
Pace: Historically, our industry has built all sorts of pockets of inventory that were required because we grew up at a time when transportation was not as efficient and communications were at a slower pace.
Inventory has been the major feedback loop for all of us. One day, a purchasing agent says my reorder points are X, I must reorder. Other purchasing agents discover the same thing on the same day. That eventually depletes inventory at the wholesale level. Finally, several months go by, the manufacturer gets these huge orders and thinks, my gosh, we've got a booming market place, we'd better increase production. So the manufacturer places a whole bunch of orders to their suppliers.
So what happens is you get this enormous whipsaw action that has created inefficiencies throughout the pipeline. With a supply chain philosophy, we can better understand end user demand and improve our service levels more appropriately. In the process, what you eliminate is the need for those inventory buffers. When you do that, you get rid of the whipsaw and lower the total cost of the supply chain.
PM: Much of what you're discussing has a lot to do with running your own operations and wholesaling better, but what does this do for contractors?
Pace: Again consider inventory. As a result of how we used to do business, ultimately what we did was create inventory that wasn't based on real demand.
Meanwhile, distributors usually erred on the side of too much - too much square footage and too much staff. Inventory is wonderful. It fills whatever space you have no matter how large it is! You rarely see empty distribution centers. So if you put the fixed capital in place for all that, somewhere that's costing someone money. It's not free. Eliminating that will ultimately give the contractors better value.
Konopa: Suppose everyone is sharing this information and a contractor has to finish a job. If we know what the tentative timing is for that job - and that's how tight our information begins to link - then the contractor is guaranteed that he's going to have the product to finish the work and move on to the next job. So he's got a continuous stream on uninterrupted productive time. He gets his products on time, can take on more work and use his labor more wisely.
From a contractor's perspective, integrated solutions eliminate chasing around for product. That's a tremendous cost savings.
The 'Brand Experience'PM: Considering how much the market has changed with the advent of retail home centers, how has marketing your company's "brand name" changed?
Konopa: From our perspective, we've haven't changed how we market our brand name. What we have changed is our emphasis on brand awareness. And by that I don't just mean that people are aware of our brand name, but are also exposed to the whole Kohler experience. That's meant we've had to emphasize the importance to all our channels - whether it's wholesale or retail - of the proper presentation of our products. We want consumers to have a consistent experience with our brand.
Pace: There's a concept called "brand experience," which goes beyond style and delivery. It's goes to quality, to service, to packaging, to instructions. The value that brand experience has to consumers is what we consider important. The supreme compliment would be for anyone to say, "You're a pleasure to do business with and I'd like to do business with you again." That's what the brand experience means to us.
PM: Was that always the case? Even before the advent of home centers?
Konopa: For us, yes. There's real meaning when a wholesaler can say his showroom is a "registered Kohler showroom." It means they have product, product knowledge, the history of dealing with our products. We're very passionate about our brand and how its portrayed.
PM: How has the dollars spent on consumer and trade advertising changed?
Konopa: Home centers haven't had an effect on this strategy. Kohler has always emphasized a mix of consumer and trade advertising. Trade advertising has remained steady over the years and consumer advertising has increased. Both the wholesaler and retailer benefit from the brand pull.
PM: How does your company deal with home centers?
Konopa: We don't deal any differently with home centers than we do our wholesale accounts. We sell everyone on the benefits of a consistent brand image. We've always been that way. It comes down to how to get product to the consumer effectively. It didn't change how we do business. We're just changing how we do it in the most efficient manner.
PM: Where does that leave the contractor? How do contractors compete against the retail channel?
Pace: I think they bring a tremendous package to the marketplace. They may not have a lock on the product as they once did, but they can bring a level of service that few others can duplicate.
They have a whole "branding experience" of their own. They can take in the logistical needs of their customers and deal with the geometry of the installation.
Clearly, the margin to be had from product is less because the competition for that product is greater. But the profitability that can be extracted from offering an integrated solution is greater since two-income households have much less time than they have ever had.
Compare the elapsed time of a typical bath remodel with the actual work time of the installation itself. There is a wide difference between the two. Why? A lot had to do with availability of product and its delivery.
But think about what a contractor can do to narrow that time down, by saying, "I'm going to be there promptly at noon and the job will be completed by 6 p.m." That's got tremendous value as opposed to closing off the bathroom for three days. Customers will pay for that level of service.
Contractors are on the leading edge, if you think about it. It's a matter now of carrying it off more effectively. The retail channel will struggle with that.
Konopa: There's also some simple things a contractor can do. At times, too much information can be a dangerous thing. Consumers need to rely on an expert to help sort through the myriad of alternatives - and a contractor is definitely an expert. The interaction of picking out product and understanding the design of the overall approach is also much better suited for a showroom than a home center.
I don't think we're seeing a lot of contractors opening their own showrooms. But the ones that want to cut down on the decision-making process for their customers are forming alliances with wholesaler showrooms.
Pace: We tend to think that a consumer is a homogenous body. But there are different consumers. There are certainly consumers who would not walk into a home center. For some, the experience is overwhelming. There are some consumers who want to have the palette narrowed a bit and work with someone who can help with the process, including the installation, selection and the delivery process.
PM: Still, there is increasing competition for providing this process. Home centers are increasingly offering installation. Home Depot's Expo offers high-end product and design service.
Pace: In the businesses I've been involved in, I've never been blessed with a panacea. In any case, you have to be effective in executing what the customer wants. But the issue is who's positioned to do that. Clearly from a standpoint of leadership, it would seem that the professional trade has the best position. They understand their customers and they understand the vagaries of going out and doing the job. They live with that day in, day out. They're in an ideal position right now to a leadership role in providing complete solutions to the consumer.