Bearings, Inc.

views updated

Bearings, Inc.

3600 Euclid Avenue
Cleveland, Ohio 44115-2515
U.S.A.
(216) 881-8900
Fax: (216) 881-8988

Public Company
Incorporated: 1928 as Ohio Ball Bearing Co.
Employees: 4,000
Sales: $936.25 million
Stock Exchanges: New York
SICs: 5085 Industrial Supplies

With over 340 stocking branches, seven distribution centers, and 20 service shops in 40 states, Bearings, Inc. ranks as one of America’s leading independent distributors of specialty replacement bearings, power transmission components, fluid power products, rubber products, and specialty parts. The bulk of the company’s sales are in the maintenance, repair, and operations (MRO) market, but Bearings also services original equipment manufacturers (OEM). Although the company diversified its offerings in the early 1990s, bearings still contributed the largest share of annual sales (49.7 percent) and Bearings, Inc. still controlled about one-fourth of the industrial bearings aftermarket. The firm expected to cross the $1 billion annual sales mark in fiscal 1995 (ending June 30, 1995).

The company does not manufacture a single product. Instead, it carries over 900,000 parts produced by more than 2,500 manufacturers. Over the course of its seven decades in business, Bearings, Inc.’s inventory has grown from about $24,000 in the 1920s to about $200 million in the early 1990s. In addition to moving products from their producers to their consumers, Bearings offers its customers services ranging from inventory management to just-in-time delivery to refurbishment and machining. The company’s branches are on call 24 hours a day, seven days a week, ready to service the 25,000 customer emergency calls received each year.

Bearings, Inc. was founded by Joseph M. Bruening in 1928. Orphaned as a toddler, Bruening was raised by an uncle and two aunts in early twentieth-century Cincinnati. He took engineering courses at the University of Cincinnati as a young man, but decided that he needed money more than schooling and dropped out. Bruening took his first job with Standard Parts’ Cincinnati division and started a practical education in the area of automotive axles and springs. Dissatisfied with Standard Parts’ progress, the young entrepreneur went to work for a customer, Tom Moore, in 1922. Moore’s business, called Detroit Ball Bearing Co., had begun selling replacement bearings to auto and truck dealers that year.

Later in 1922, after Detroit Ball Bearing established a Cleveland office, Bruening was assigned to run it. His first few days in the city on the shores of Lake Erie were not pleasant ones. Since he was new in town, Bruening secured a room at the downtown YMCA. While showering that first night, all his clothes and money were stolen. Undaunted, he borrowed some clothes from the “Y” and went to work.

Less than a year after his transfer, Bruening was surprised when Moore offered to sell him the profitable Cleveland office. Aware that Bruening had virtually no capital to invest, Moore proposed to give him half of the profits that the Cleveland branch had brought in up to that point: $2,600. Bruening borrowed thousands of dollars from his uncle and landlady as well, and he was able to pay off the entire purchase price of $26,000 within about eighteen months. The company, renamed Ohio Ball Bearing, made $82,000 in its first year of selling replacement parts for cars and trucks.

Bruening established his first branch outlet in Youngstown, Ohio, in 1927. From that point on, the company’s geographic reach grew in an ever-widening circle to include such other major Ohio cities as Akron, Columbus, and Cincinnati. Ohio Ball Bearing established its first out-of-state branch—in Indianapolis, Indiana—in 1937.

From its earliest years, the company positioned itself as a vital link in the distribution chain by cultivating a reputation for unparalleled inventory and service. As Bruening stated in a 1973 company history, “our reason for being is that neither manufacturer nor customer can efficiently stock a full line of replacement bearings or other parts. So we stock hundreds of thousands.... And when needed, we get them to the customer first.” In the early days, that emphasis on service sometimes meant hiring a local motorcycle dealer to deliver parts. By the 1990s, it meant chartering jets in the middle of the night, if necessary.

Ohio Ball Bearing began offering its services to industrial customers after World War II. The company grew quickly as a result of a string of acquisitions in the 1950s and 1960s that culminated in 1971. In 1952 Ohio Ball Bearing merged with Pennsylvania Bearings, Inc., Indiana Bearings, Inc., and West Virginia Bearings, Inc. The new entity was known as Bearings Specialists, Inc. The company name was shortened to just Bearings, Inc. after a 1953 merger with the Pennsylvania company of the same name. The 1957 acquisition of Dixie Bearings, Inc., Southern Bearings Co., and Bearings Service Co. expanded the distributor’s reach as far south as Florida.

Growth through acquisition continued in the next decade. Nei-man Bearings Co. and its subsidiaries in Missouri and Illinois, as well as Southern Bearings Service of Kentucky and Southern Bearings Co. of Arkansas, were all added to the firm in 1960. In the late 1960s and early 1970s Bearings, Inc. acquired five companies in the Pacific Northwest. This final series of purchases rounded out Bearings’ lengthy acquisition spree and brought it nearly nationwide coverage.

Throughout this period of activity, Bearings sales continued to grow. The company’s sales doubled from 1963 to 1973, income tripled over that period, and its number of branches grew nearly twofold. Bruening was still president when Bearings celebrated its 50th anniversary in 1973. By that time, the distributor boasted operations in 25 states.

Although it took Bearings 49 years to achieve $100 million in annual sales, that figure tripled over the course of the ensuing decade, to over $350 million in 1982. Bearings underwent a transformation in the late 1980s, however, that started at the highest levels of management. Struggling under the burdens of recession, competition from imports, stagnant growth in the market for bearings, and entrenched administration, the company’s chairmanship changed hands three times in the space of two years. John R. Cunin, who served as chief executive officer from 1982 to 1988 and chairman from 1983 to 1990, retired after a 44-year career with Bearings. He was succeeded by George L. LaMore, a 50-year veteran of the company.

In 1984 Cunin had set a goal of crossing the $1 billion mark in sales within four years. Instead, the company’s sales flattened out around the $490 million level from 1985 through 1987, and profits plummeted from $11 million in 1985 to $2.2 million in 1986, rebounding slightly to $6.2 million in 1987. The company resumed its pattern of growth after 1988, when a newcomer, John C. “Jack” Dannemiller, was brought on board. Although Cunin and LaMore had engineered a near-doubling of Bearings’ annual revenues from $351 million in 1982 to $630 million in 1989, undeniable changes in the marketplace called for a fresh new face. In 1991 the board of directors elected Dannemiller, a 53-year-old with just over three years at Bearings, as chairman and chief executive officer. A number of analysts praised Dannemiller as a good choice.

Dannemiller immediately embarked on a course intended to revitalize the company. Recognizing that Bearings needed to evolve to meet its customers’ changing needs, he instituted a reorganization that included acquisitions, consolidation, diversification, and a transformation of the corporate culture. The company had already added King Bearing, Inc., a California-based industrial distributor, to its roster in a $70.5 million acquisition in 1990. Although the purchase proved a bit difficult to integrate and increased Bearings’ debt level in the midst of a recession, it nearly quadrupled the parent company’s presence in the western United States and increased overall annual revenues by one-third. The addition of Baldwin Rubber Industries in 1993 augmented Bearings’ interests in fluid power control and other rubber products. In 1994 the company traded 196,000 shares of stock for ownership of Mainline Industrial Distributors, Inc. With that acquisition came an extra $34 million in annual sales and additional product lines. Bearings further bolstered its standing in the metropolitan Chicago area with the purchase of five more distribution centers later that year. As a result, the firm’s proportion of non-bearings sales increased from about 35 percent to over 50 percent during the early 1990s, and its range of products more than tripled. In light of this variety, Dannemiller considered changing the company’s name in 1995.

This rapid diversification not only made Bearings a more valuable supplier to its customers, but also gave it a stable of higher-margin products and reduced its exposure to unpredictable business cycles. The acquisitions provided Bearings with the critical mass to win and retain major accounts with Miller Brewing Company, Chrysler Corp., Milliken & Co., and Motorola Inc., all of whom were limiting their rosters of suppliers to those who provided the most comprehensive products and services.

Measures to increase productivity and efficiency included the consolidation of Bearings’ distribution centers from 15 in the late 1980s to seven by 1994. Bearings also instituted OMNEX 2.0, an advanced management information system, in 1990. This inventory control software provided instantaneous access to the company’s national inventory, and was used in conjunction with an electronic data interchange to facilitate faster, more accurate, and more efficient ordering and billing. Automation not only increased internal productivity, but also helped cut customers’ costs and thereby make Bearings that much more indispensable to its customers.

As part of the total quality management (TQM) plan the company adopted under the direction of Dannemiller, Bearings’ organizational structure was dramatically slimmed. Regional divisions were reduced from 13 to five, and middle managers were given more authority to operate their territories as they saw fit. The company also created over 1,200 quality improvement teams. Employees logged 200,000 hours of skill training in 1994 alone.

In 1995 Robert Damron of McDonald & Co. Investments Inc. told the Cleveland Plain Dealer that the CEO of Bearings “does not just want customers to be satisfied. He wants them to feel so jubilant that they would never think of buying anywhere else.” The efforts to improve quality paid off in a variety of ways. Bearings’ customer billing process was recognized as a “Best Practice” and became a standard imitated by other companies. Customers ranging from Chrysler Corp. to PPG Industries also recognized the distributor’s progress with quality awards. But perhaps the most satisfying rewards appeared at the “bottom line.” Sales per employee grew from $204,000 in 1992 to $228,000 in 1994, a 5.8 percent annual increase. Dannemiller set a goal of achieving $300,000 in sales per associate by 1999, an ambitious goal that will demand annual increases in sales per employee of over six percent over five years.

Other financial figures for the company were equally encouraging. Fiscal 1994 profits increased 42 percent over the previous year on a mere 13 percent increase in sales. The company marked its seventh consecutive year of revenue increases and its 30th consecutive year of quarterly dividend payments in 1994. Wall Street recognized this sterling fiscal performance by driving Bearings’ stock up from a low of about $18 in 1992 to a high of $37.50 in the third quarter of 1994.

Early in 1995, Dannemiller consummated a joint venture with two other distributors. The three companies proposed to offer industrial customers “one-stop shopping.” The International Supply Consortium made Cameron & Barkley Co.’s electrical components, Mcjunkin Corp.’s pipes, valves, and fittings, and Bearings’ industrial components available to customers under a unified ordering and billing scheme. Dannemiller told Andrew Osterland of Financial World that the cooperative could provide “90 percent of the repair and maintenance products that most manufacturers need.”

Analysts noted that Bearings’ strategy meshed well with economic trends in the mid-1990s. Richard Henderson, an industry observer with Pershing in New Jersey, commented to the Cleveland Plain Dealer that the “strong wind blowing at [Bearings’] back” was powered by stable prices, industrial productivity initiatives, and burgeoning economic growth. But Robert Damron of McDonald & Co. Investments Inc. warned that pending increases in the price of parts could interrupt the distributor’s momentum. Dannemiller, however, clearly did not agree with the latter hypothesis. He contended that he expected Bearings to exceed $1 billion in sales in 1994, and predicted that the company would achieve $2 billion in annual revenues by the year 2000.