Reaching for new heights
This summer saw the creation of Pinnacle Affiliates, a new US dealer group for large independent dealers, spearheaded by the highly-respected Dave Guernsey, CEO of leading dealer Guernsey Office Products (GOP)
The Pinnacle Affiliates group initially consists of three members: GOP, Nebraska-based Eakes Office Plus and Illinois dealer Warehouse Direct, all three of them achieve annual sales around the $50 million mark.
"If you’re not moving forwards you’re probably moving backwards," is an oft-cited business adage but it is probably an apt one to describe Dave Guernsey’s career in the OP industry and his relentless drive to develop his business.
A fierce proponent of the independent dealer community, Guernsey was instrumental in the establishment of BPGI in 1997 and has been involved in numerous other industry initiatives down the years aimed at strengthening the ability of the independent dealer to compete with the power channel players.
After a well-documented departure from is.group in 2005 following the dealer group’s roll-out of its controversial RDC programme, GOP and a number of other larger dealers joined rival group TriMega where Guernsey found a partner willing to take on his Dealer-Supplier Collaborative (DSC) initiative that helped larger dealers establish better partnerships with vendors and reduce supply chain costs.
Even though GOP has now left the TriMega umbrella, Guernsey is quick to defend the group. "I’ve been asked what is wrong with TriMega and my answer to that is nothing is wrong with TriMega. I think they are a fine organisation and there is no question that when we went to them with our DSC concept it was a good marriage."
So what made Guernsey decide to branch out with the Pinnacle concept at this particular time? "Many people have asked ‘at this particular time’ and I’m not sure I know what to infer from that part of the question!" he says.
"We’ve all been in business for a long period of time and we’re constantly re-evaluating our supply chain relationships and our business models in light of a rapidly-changing market place. We work in a tremendously competitive industry and every little thing that you can do to make it better, it’s probably something you should do.
"The simple answer is that in a review which goes back about a year to a year and a half ago, Warehouse Direct and GOP started discussing whether there are better ways to go forward than rather just to accept the status quo."
Bringing Eakes into the fold, the three would-be partners – who Guernsey all describes as "progressive dealers" – quickly established that joining forces could allow them to make savings, notably in the key area of the supply chain and they were able to move from a concept to a reality in a relatively short space of time.
Guernsey argues that there are a number of compelling reasons why the Pinnacle model will be successful.
First is catering for the needs of larger dealers.
Quite what defines a larger dealer is open to interpretation but Guernsey reckons that annual sales in excess of $20 million is a good starting point, but not the only thing to consider.
"Perhaps an even more important metric is related to a dealer’s direct buy volume – what kind of material handling capabilities they have, what kind of order size they can accept, those kinds of things are very, very important.
"There are a number of other things that are involved as well, such as working with the manufacturers on the marketing side of the business, on consumer-oriented category
marketing, and so forth."
Things that Guernsey does not feel that larger dealers can get the most out of as part of a traditional dealer groups.
"Going back a number of years, there were large-dealer-only groups, and they were that for a reason. They morphed into the structures that we have today largely because of the power channel – and this was in the days of USOP and Corporate Express. The dealer groups began to huddle together and they began to take the approach that they were all things to all dealers.
"And during that time it probably made sense that they huddled under the same umbrella the way they did. Today, we are simply asking the question: ‘Does it make sense for all of us to still huddle under the same umbrella or does it make sense for dealers with very similar characteristics to work together on their own peer relationships and their relationships with the supply chain?’ We think it does."
A view which is magnanimously shared by CEO of is.group Mike Gentile, who says that he doesn’t feel threatened by the creation of a new dealer group.
"Buying groups must realise that dealers have disparate needs and that one size does not fit all," he admits.
"ISG made errors in judgment in the past on that exact issue and we learned from those mistakes. You just have to look around to see how our industry is changing.
"Wholesalers, big boxes and dealers are all consolidating and evolving. Buying groups must also change by listening more to their members and responding openly and honestly."
Guernsey also admits that large dealers can feel frustrated by the co-operative set-up of dealer groups where each member has an equal vote regardless of its size.
"You’ve got dealer groups with members with top line sales ranging from $1 million to $70 million a year, and there’s a vast difference within that group," he points out.
For this reason, Pinnacle Affiliates has been organised as a limited liability company (LLC). Ownership of the LLC won’t be differentiated by the size of the dealers, argues Guernsey, because members are, and will continue to be, of a certain, similar size. The disparate member issue no longer exists.
Low cost structure
Another key element of the Pinnacle model is its low cost structure. Guernsey points out that annual costs for members are substantially less than what it costs to belong to another dealer group and the key to this is the leveraging approach that has been put in place, requiring very little initial capital outlay and putting the group on a sound financial footing from day one.
"I think the approach that we’re using makes a lot of sense," he argues. "We wanted to leverage what the industry already provides as opposed to reinventing the wheel or duplicating expenses."
In fact, Guernsey has turned to his old friends at is.group with whom Pinnacle has signed an outsourcing contract for IT and administration support. This includes placing orders and tracking orders when appropriate, centralised billing, offering merchandising programmes and the flow of programme elements from manufacturers to dealer, indicates Mike Gentile, who also points out that no extra staffing has been required by is.group.
"It’s really no different from outsourcing any service a business requires," states Guernsey.
What this means is that a small team from within the member organisations can focus on the key strategic elements of the group.
Using a matrix management approach, Guernsey himself will serve as Chairman, Warehouse Direct’s Kevin Johnson is Vice-Chairman and Mark Miller of Eakes will act as Secretary/Treasurer and will also represent Pinnacle as an adviser on the is.group board. Guernsey says that they will pull from the experience of their collective management, filling project roles as required.
Two other staff are also involved in the group, with Steve Marzak taking up the role of purchaser and GOP’s Marketing Director Daria Moore taking care of web presence and other marketing roles as and when required.
This low cost model means that Pinnacle is not going to be scrambling to achieve a critical membership mass in order to survive.
"Critical mass is not an issue," states Guernsey.
"This was one of the things which was important when we put this thing together. We said this has to be financially viable with less, not more – it does not require a mass of members that you have to manage on different levels."
"And that’s important when you consider that the number of large dealers throughout the US probably doesn’t exceed 25 anyway!" he adds.
The same thing goes for geographical reach.
While Guernsey remains confident that Pinnacle will add members from other parts of the US, he says that the group does not have a game plan to be in every market.
"Our main orientation relates to the size of our members," he reiterates. "We don’t want to compromise our size standards by trying to cover every market. What we want is strong dealers in good and growing markets and good representation for our manufacturers in the markets we’re serving."
This should be achievable given that between them the three members have over 100 sales people in three US sub-markets.
Ironically, another reason for Pinnacle choosing to work with is.group is the group’s RDC programme, the reason for the 2005 fall out, a point that is not lost on Guernsey.
"Three and a half years ago we left because of the RDC programme, now we consider it an attribute. But that programme today has dramatically changed under Mike Gentile."
Guernsey says that Pinnacle members will have access to the RDC programme, but will use it as best fits for the individual businesses, with some using it more than others. From a GOP point of view he expects to make some use of it, but the majority of purchasing will go direct to GOP’s favoured manufacturers.
is.group’s distribution tie-up with IT distributor Synnex was also another deciding factor as GOP already does most of its IT distribution through Synnex. "Using Synnex’s existing infrastructure rather than paying for its own was a positive move and made a lot of sense," says Guernsey.
Pinnacle has also been careful to keep its purchasing within the broader independent dealer community by hooking into BPGI programmes, hardly surprising given Guernsey’s own personal links with the organisation he helped create and which he chaired for four years.
Guernsey says that the first month of operations has been consumed by "pretty mundane" business basics such as drafting by-laws, putting financial systems into place and assigning discreet tasks to members using the matrix management approach.
The real challenges lie ahead: aligning the individual dealerships with the new supply chain relationships, finalising the systems with is.group, several vendor changes, 2009 catalogue issues and private label possibilities (using is.group’s Legacy brand had been mentioned, but whether this will be affected by the recent sale of brand partner ActionEmco is not yet clear).
Guernsey expects all these vital tasks to be the main focal points for the next few months. Only after that will we have a clearer picture of whether the Pinnacle model looks like succeeding.
But who would bet against it given the industry knowledge and enthusiasm of its Chairman?
"I’m really excited about the possibilities," enthuses Guernsey.
And that coming from a seasoned OP veteran is a breath of fresh air.