Between B2B customers demanding digital shopping options and online marketplaces looming around the corner, distributors must evolve or risk being left behind.
Erik Gershwind is the fourth CEO of MSC Industrial Supply Co. (NYSE: MSM). His grandfather, who founded the company, believed that if a business isn’t moving forward, it’s moving backward. Recently, the distributor reimagined its value proposition and rolled out a three-year plan called “Mission Critical” to accelerate market-share gains and earn a higher return on invested capital.
Gershwind spoke with Wholesale Change hosts Ian Heller and Jonathan Bein about how innovation drives MSC’s company vision, what steps they are taking to build culture and retain talent, and how they are redefining the way they support their customers.
Distribution Strategy Group: To start, can you walk us through your background with the company?
Erik Gershwind: So, I’m 50 years old. I mention that because my background with MSC goes back 50 years. I think “MSC” came out of my mouth before the words “mama” or “dad” did. But in all seriousness, MSC today is a publicly traded company, and we have all the governance that comes along with that. However, it’s a bit different from your typical public company because it’s still very much a family business.
My grandfather started MSC in 1941. His son Mitch, who is my uncle and our non-executive chair, grew the family business to a national platform on a national scale. MSC is now 81 years old, and I’m only our fourth CEO.
My history with the company goes all the way back. While my peers were off doing internships during summer break in college, I worked at MSC painting the warehouse floor, sweeping and answering phones in our call center. That was the best education I ever got: learning the business from the ground up at a young age.
I officially joined the company 25 years ago and was very fortunate because I had the opportunity to move through different areas of the company and really get a 360-degree view. I saw things from all sides, which has colored my thinking on talent development inside the company going forward.
DSG: How did those experiences working in different roles affect how you think about talent development?
Gershwind: Well, I think it’s important to be able to see all sides of an issue. Something law school helped me realize was how important perspective is in life. There’s something wonderful about being in a smaller business because you get to do everything. You really get to think like an owner.
For example, MSC’s mission statement says we aspire to be the best industrial distributor in the world as measured by our associates, customers, owners and suppliers. It recognizes that we’re part of an ecosystem and that decisions have to be run up against all stakeholders – not just one.
It’s harder to get that feeling of thinking like an owner when you have functions and charts. So helping people think like an owner involves buying and then selling – being on opposite sides. So I think what helps us inside MSC is creating people who can think like owners.
DSG: Right, you can’t really understand another person’s perspective until you’ve walked a mile in their loafers. For example, there’s this classic battle between the people who guard inventory performance and those responsible for selling; each has its own perspective. It seems like MSC’s values are that you treat people with respect regardless of their position. Can you tell us a little bit more about your company’s values?
Gershwind: If there’s one term to describe MSC, it would be values-based. The three principles that I think underpin MSC are values, growth and the idea of reinvention with respect to values.
My grandfather believed in integrity. During one of my first years in the company, I was walking the floor of an ISA show when somebody grabbed me. They pulled me aside and said, “I worked with your grandfather for a lot of years. His word was as good as gold. I never inked a deal with him – it was all done on a handshake because I trusted him that much.” That idea of integrity, empathy and caring about people is still alive in the company today.
I’d say the second principle is growth. My grandfather really believed that growth is the lifeblood of a business. It’s the engine that allows for reinvestment to improve your value proposition, help customers and create value. So, there’s this idea that standing still is the same as moving backward in a business.
The third one is transformation. Like Wayne Gretsky said, “Good players skate to where the puck is, and great players skate to where the puck is going.” We’ve always aspired to be great. My grandfather always believed a company’s values need to be anchored into the ground like the roots of an oak tree. But, everything around the values, like your value proposition and how you operate, needs to be reinvented on a regular basis.
DSG: You’ve recently launched a reinvention initiative called “Mission Critical.” Can you walk us through the thinking behind that initiative, where you are now and where you’re going?
Gershwind: It has probably been the biggest defining thing in my tenure as CEO. While we’ve come public with it in the past couple of years, the seeds for this actually go back to 2015 or so. I took over as CEO in 2013. I told my predecessor David Sandler, “David, I don’t know if you knew this was coming, but my timing was impeccable,” because, within months of assuming the role, Amazon had declared its intent to get into B2B and industrial supplies.
That was the first of a few catalysts that caused us to take a hard look at the company’s value proposition. We realized it was time for the next chapter of our story – the next reinvention, if you will, of the company’s legacy.
For those who knew us before, we were referred to as a “catalog house” or a “spot-buy” supplier. MSC’s value proposition was centered around having a broad and deep product assortment, great logistics with next-day delivery and a frictionless customer experience. That was our role for our customers for a couple of decades.
Then, a few things happened that triggered a change. One was our realization that whether or not Amazon got it right, a new business would come in with those same capabilities. At the same time, our customers expressed that they were facing their own margin pressures. They faced competitive threats and disruption and needed help running their businesses better. So, the idea of freeing up inventory and speeding up lead times and getting products into our customers’ hands faster was building.
So, we took stock of what we had and said, “We can help our customers in a bigger way.” Before, our role stopped when we delivered the product. But, we realized we could play a more significant role and help our customers overcome some of their challenges.
The roots of our business were in metalworking supplies and cutting tools. We also had, through a combination of hiring internal development and acquisition specialists, built a solid technical sales force. A lot of people were former machinists or engineers.
If you’re a manufacturer, things like cutting tools and metalworking supplies can actually influence the final output and product. We felt we could move the needle for our customers starving for help.
We captured this in a brand promise called “Built to make you better.” The idea was that we were going to do more than just ship products – we wanted to help make our customers, suppliers and partners better. Over a number of years, that led to widespread changes to reposition MSC. Our value proposition shifted to a more integrated, technical high-touch value proposition.
Going through a transition, particularly as a public company, is not for the faint of heart. “Mission Critical” was about becoming mission critical and helping our customers tackle mission-critical challenges on the plant floor. It’s become our mantra around bringing this to life and accelerating performance in the business, which is starting to pick up steam now.
DSG: Looking at your value-added services, the theme that comes through, again and again, is, “Save time, reduce cost and improve productivity.” Are you helping your customers improve productivity? If so, how?
Gershwind: We are. Of the three things you mentioned, productivity is probably the biggest lever. Certainly, our customers love it when we can save them money, but unlocking growth for them is an even bigger opportunity and lever for value creation.
Most of our customers are facing a manufacturing skills gap that has accelerated since the pandemic. They are running out of people and space to support the work. They’re afraid to spend money to add another line to their capacity or expand their building and don’t know how they’ll staff the machines.
About two years ago, I was part of one evaluation with a prospective customer in the aerospace business. Their challenge was that they were facing a tremendous drain on working capital because they didn’t have enough capacity. We brought in some of our technical experts to put a pitch together and do an operational evaluation.
One of the things that we found was that they were running their machines too slowly. They weren’t pushing their tooling at the appropriate RPMs. The reason for this, which is very typical, was that they couldn’t hire people, so they were bringing in risk-averse and inexperienced temps. No one wants to push the envelope; the worst thing you could do is break a tool and shut down the production line. So they had the machines running well below capacity.
Long story short, we were able to double the capacity of their current machines, so they didn’t have to hire new people or add machines. They were able to take on more work without adding capacity.
DSG: Although sales reps aren’t going away, the bar is being raised. Sales reps today need significant technical expertise to make recommendations and find solutions. How do you figure out where the bar needs to be set for your outside sales reps and other customer-facing personnel? Then, how do you get them over that bar?
Gershwind: Those are great questions. As I mentioned earlier, there was a transition from a spot-buy model to this new value proposition, which required a change in our sales force. I knew it wasn’t going to be an easy lift. When you start tinkering with the sales force in a distribution business, it’s the equivalent of brain surgery on the body. It’s complicated because you’re changing customer relationships.
So first, we segmented the sales force. We felt that there were certain competencies and a base proficiency any account manager needed to have. That kind of proficiency takes decades; it doesn’t come from online training – it’s from experience. Somebody who is more seasoned and who has a machinist or engineering background is more likely to be assigned to a highly complex metalworking environment. On top of that, there are specialist groups who will come in and support the account manager.
The bar has risen for any salesperson. The days of thinking you can just come in and do a regular check-in are over. There’s no need for that; there was no need for it to begin with. If you’re going to show up and the customer is going to invest time with you, you have to bring some value.