Past Winner Stories
Independent Distributors Cooperative
www.idc-usa.com
The Independent Distributors Cooperative – USA (IDC) is joined forces to purchase, market, and sell in the rapidly changing and dynamic industrial marketplace. The mission of the IDC is to join independent distributors into a cooperative corporation, which will assist each member to remain independent and thrive within the free enterprise system. The IDC serves 160 member locations across the United States. These members are entitled to discount volume purchasing, rebate programs, national freight programs, use of the IDC Training Center, and access to one of the most advanced information technology systems in the industry.
The Challenges
Until 1997 the Independent Distributors Cooperative – USA (IDC) was a “board managed” corporation, meaning that out-of-state directors would give direction and instruction to the Executive Director on a day-today basis. Jack Bailey served as outside corporate counsel to the Board of Directors. On August 1, 1997 Bailey was appointed by the Board to take over the helm of the company as Chief Operating Officer and General Counsel.
Upon assuming this position Bailey immediately discovered numerous detrimental situations that endangered the continuation of the corporation. First and foremost was my discovery that the Board had received some very bad “expert advice” and entered into a self-funded employee health and medical plan that was made available to all member locations. This created a number of Multiple Employer Welfare Act (MEWA) issues that exposed the company to multiple state violations. To make matters worse, the Board had also been advised that 90% funding of the plan would be sufficient. From a legal standpoint, there was no question this plan could be fatal to the corporation. Additionally, a monetary deficiency existed and would be exacerbated with a plan termination and “run-out” period having a potential $850,000 liability. Little did we know a Department of Labor audit would be arriving as a result of this situation.
It also didn’t take long to realize that our operations were very poor. Inventory had been improperly managed and the term “customer service” was an oxymoron. With further investigation, it was learned that IDC customers are permitted to make an annual stock return of slow moving items, up to 5% of their previous year purchases. The problem was that in the last eight years, the IDC had never made any annual stock returns to it’s’ suppliers. As a result, the distribution centers were full of slow moving or no moving parts and order fill rates were disastrous.
The company also had a 34,000 sq. ft. distribution center in Dallas. The financial numbers did not look good for this center and those warehouse operations needed to be consolidated with the Indianapolis operations. Unfortunately, many of the southwest member locations, particularly those in Texas, were not going to be happy shareholders at the prospect of closing “their” distribution center.
The final challenge was the fact that the company had outgrown the facility in Greenwood and the lease was to expire soon. That meant that a new location for our national headquarters and distribution center had to be located and negotiated quickly. When the negotiations were completed, the enormous task of moving a distribution company and its’ inventory would have to be faced. Suffice it to say 1997-2000 were “make-or-break” challenging years for the IDC.
The Solutions
In a word, the solutions came in the form of people.
Jack Bailey, as Chief Operating Officer and General Counsel began immediately consulting with his legal peers to obtain the best advice in resolving the IDC Employee Health and Benefit Plan disaster. He consulted with Melissa Profitt Reese of the Ice Miller law firm for ERISA advice. She in turn suggested that Keith DeTrude of DeTrude and Associates be brought in to consult on the viability of the plan and the ramifications of terminating the plan. In the end, the plan was terminated and the $850,000 exposure was reduced to $650,000 which was prorated against the participating member locations. The Department of Labor audit concluded with no adverse findings.
As to operations issues, Bailey implemented a major overhaul of the management structure of the organization. Tracy Huntsmann was hired in 1998 as the Dallas Warehouse Manager, but was promoted to Inventory Control Manager in January 1999. He remains in that position today and the higher inventory at the IDC has never been better and the order-fill rates have never been higher. Teresa Smith was promoted from Controller to Director of Finance and Operations in January 1999 and continues in that position today. She was a key player in the resolution of the employee benefit plan and the restructuring of IDC operations. Lara Robertson was promoted to Customer Service Supervisor and IDC customer service is now graded between excellent and superb. Dawn Murphy was promoted to Warehouse Supervisor and today IDC members enjoy same day shipments and an error rate less than 1%. In December 1998 Tenna Pershing was hired as Director of Sales and Marketing. She remains in that position.
The IDC Dallas Distribution Center was closed and the warehouse operations were transferred to the Indianapolis Distribution Center. This change resulted in greater shipping and customer service efficiency. The southwest member locations accepted the closure of the Dallas facility when shown that had the facility been closed the prior four years, sales being equal, it would have placed an additional $1 million on the bottom line.
Bailey negotiated a new world-class facility for the corporation by taking advantage of an opportunity created by the bankruptcy of a prior tenant. The IDC facility, located next to Indianapolis International Airport, houses the IDC Indianapolis Distribution Center. With the outstanding planning by Teresa Smith, the move of the company and inventory was done seamlessly with no interruption of business.
With the acquisition and management of the right people in the right places, combined with the implementation of a powerful information technology system, the IDC has overcome enormous obstacles and now enjoys success in a recovering economy. In 2001, the industrial distribution industry reported a 10-20% drop in revenue over prior year. The IDC reported a 14% increase in revenue for the same period. As of June 2002 YTD, the IDC shows a 12% increase in revenue over the outstanding 2001 performance.
It’s about people.
The Challenges
Until 1997 the Independent Distributors Cooperative – USA (IDC) was a “board managed” corporation, meaning that out-of-state directors would give direction and instruction to the Executive Director on a day-today basis. Jack Bailey served as outside corporate counsel to the Board of Directors. On August 1, 1997 Bailey was appointed by the Board to take over the helm of the company as Chief Operating Officer and General Counsel.
Upon assuming this position Bailey immediately discovered numerous detrimental situations that endangered the continuation of the corporation. First and foremost was my discovery that the Board had received some very bad “expert advice” and entered into a self-funded employee health and medical plan that was made available to all member locations. This created a number of Multiple Employer Welfare Act (MEWA) issues that exposed the company to multiple state violations. To make matters worse, the Board had also been advised that 90% funding of the plan would be sufficient. From a legal standpoint, there was no question this plan could be fatal to the corporation. Additionally, a monetary deficiency existed and would be exacerbated with a plan termination and “run-out” period having a potential $850,000 liability. Little did we know a Department of Labor audit would be arriving as a result of this situation.
It also didn’t take long to realize that our operations were very poor. Inventory had been improperly managed and the term “customer service” was an oxymoron. With further investigation, it was learned that IDC customers are permitted to make an annual stock return of slow moving items, up to 5% of their previous year purchases. The problem was that in the last eight years, the IDC had never made any annual stock returns to it’s’ suppliers. As a result, the distribution centers were full of slow moving or no moving parts and order fill rates were disastrous.
The company also had a 34,000 sq. ft. distribution center in Dallas. The financial numbers did not look good for this center and those warehouse operations needed to be consolidated with the Indianapolis operations. Unfortunately, many of the southwest member locations, particularly those in Texas, were not going to be happy shareholders at the prospect of closing “their” distribution center.
The final challenge was the fact that the company had outgrown the facility in Greenwood and the lease was to expire soon. That meant that a new location for our national headquarters and distribution center had to be located and negotiated quickly. When the negotiations were completed, the enormous task of moving a distribution company and its’ inventory would have to be faced. Suffice it to say 1997-2000 were “make-or-break” challenging years for the IDC.
The Solutions
In a word, the solutions came in the form of people.
Jack Bailey, as Chief Operating Officer and General Counsel began immediately consulting with his legal peers to obtain the best advice in resolving the IDC Employee Health and Benefit Plan disaster. He consulted with Melissa Profitt Reese of the Ice Miller law firm for ERISA advice. She in turn suggested that Keith DeTrude of DeTrude and Associates be brought in to consult on the viability of the plan and the ramifications of terminating the plan. In the end, the plan was terminated and the $850,000 exposure was reduced to $650,000 which was prorated against the participating member locations. The Department of Labor audit concluded with no adverse findings.
As to operations issues, Bailey implemented a major overhaul of the management structure of the organization. Tracy Huntsmann was hired in 1998 as the Dallas Warehouse Manager, but was promoted to Inventory Control Manager in January 1999. He remains in that position today and the higher inventory at the IDC has never been better and the order-fill rates have never been higher. Teresa Smith was promoted from Controller to Director of Finance and Operations in January 1999 and continues in that position today. She was a key player in the resolution of the employee benefit plan and the restructuring of IDC operations. Lara Robertson was promoted to Customer Service Supervisor and IDC customer service is now graded between excellent and superb. Dawn Murphy was promoted to Warehouse Supervisor and today IDC members enjoy same day shipments and an error rate less than 1%. In December 1998 Tenna Pershing was hired as Director of Sales and Marketing. She remains in that position.
The IDC Dallas Distribution Center was closed and the warehouse operations were transferred to the Indianapolis Distribution Center. This change resulted in greater shipping and customer service efficiency. The southwest member locations accepted the closure of the Dallas facility when shown that had the facility been closed the prior four years, sales being equal, it would have placed an additional $1 million on the bottom line.
Bailey negotiated a new world-class facility for the corporation by taking advantage of an opportunity created by the bankruptcy of a prior tenant. The IDC facility, located next to Indianapolis International Airport, houses the IDC Indianapolis Distribution Center. With the outstanding planning by Teresa Smith, the move of the company and inventory was done seamlessly with no interruption of business.
With the acquisition and management of the right people in the right places, combined with the implementation of a powerful information technology system, the IDC has overcome enormous obstacles and now enjoys success in a recovering economy. In 2001, the industrial distribution industry reported a 10-20% drop in revenue over prior year. The IDC reported a 14% increase in revenue for the same period. As of June 2002 YTD, the IDC shows a 12% increase in revenue over the outstanding 2001 performance.
It’s about people.