Jim Olsztynski 0000-00-00 00:00:00
“The best time to grow is in a falling market.” Don’t you just love it when someone makes life easier for you? It may be a Boy Scout helping a frail old lady cross the street, or a friend lending some muscle when that heavy couch needs to be moved. For me, it’s a story subject who makes the article pretty much write itself. Mike Parham, co-owner along with brother Phil Parham of Pepco Sales & Marketing (Irving, TX), has that knack. Interviewing him elicits a fl urry of pithy statements that clarify their business and explain why it has thrived for decades under their leadership — and continues to do so even amid the wreckage of the Great Recession. In fact, three of those statements serve nicely as pivot points to explain Pepco’s success. PIVOTAL STATEMENT #1 – “The best time to grow is in a falling market.” Mike Parham didn’t originate that quote. He recites it from one of the business books whose ideas he takes to heart. In the last fi ve years the agency has implemented this philosophy by buying out several rep fi rms, expanding its HVAC business and also geographically into New Mexico, and opening a warehouse in Houston. Whereas most companies have cut staff the last couple of years, Pepco has added a dozen people. Thanks largely to a thriving energy industry, Pepco’s whopping Texas-plus territory hasn’t suffered the Great Recession as much as most other parts of the country, although that’s like saying they’ve merely been kneecapped rather than shot in the gut. Texas’ unemployment rate of 8.2% at last report was a point and a half better than the national average but still rather dismal. Likewise, housing starts and commercial construction have plummeted there, just somewhat less than everywhere else. So how do they keep growing amid the doldrums? Sheer pluck is part of the answer. “Building Partnerships for Life” is the agency’s motto. “We’re passionate and believe in what we do,” says Mike Parham. “We have the discipline to work hard for our manufacturers and customers.” The agency’s life extends all the way back to 1965 when it was started by Phil Parham Sr., father of the current principals. That lengthy history means they have a lot of lifetime partners to draw from among the region’s distributors. (They sell strictly to wholesale trade customers.) Mike Parham, 52, joined the agency full-time after finishing college in 1980. He persuaded brother Phil, 54, to come aboard in 1985 after Phil had spent his early career in the printing business, although while growing up both had paid dues doing grunt work in their father’s business. Mike serves as president, while Phil is vice president who oversees purchasing and serves as team leader for many plumbing product lines. Mike’s son, Charlie Parham, serves as general manager and heads up marketing. Two other children of his also work in the agency. Kevin Parham is an outside salesman working the Dallas-Ft. Worth area and Liz Parham leads a decorative sales (showroom) division. Pepco’s sales and customer service teams are a mix of industry veterans and bright young people with somewhat less experience but plenty of moxie. “Rep firms are getting larger and more sophisticated,” Mike Parham commented. “Just about everyone here has a college education. It’s not required but that’s just the way it’s worked out because we’re being asked to do a lot more for our manufacturers and everything is becoming more technical.” With a degree in finance from Stephen F. Austin University, Mike Parham has a split personality no less strange than that of the mythological half-man, half-horse centaur. At one end he is every bit a salesman. The incongruous other half is a de facto CFO obsessed with numbers crunching and business administration. “This agency is one big family and it’s my responsibility to make the right decisions for everybody,” he said. “We may not get everything right, but everyone can be darned sure we’re putting out the effort to do everything right.” A Pepco “playbook” contains standard operating procedures (SOPs) on almost every repetitive task that arises within a rep fi rm — how to handle new customers wanting credit, credit holds, notifying customers of price changes, how to deal with upset customers, warehouse procedures, sales procedures, inside sales, etc. It’s coupled with an employee guidebook containing policies, forms, job descriptions, etc. Monday mornings are given over to managers’ meetings replete with an agenda and idea sharing based on trainer/consultant Chet Holmes’ “52 Weeks of Improvement” concept. One of those SOPs is an eyebrow raiser. It’s a meeting request form Pepco asks its vendors to fi ll out anytime they wish to pay a visit. A common complaint of independent manufacturers reps is the amount of time they end up spending with visiting sales managers, keeping in mind that an agency may represent upwards of a dozen lines. Pepco doesn’t begrudge its manufacturers the right to visit, but both sides share an interest in making productive use of the time. “Our form asks them when they want to come, purpose of the visit, what a successful trip would look like and any particular distributors or verticals they want to meet with,” Parham said. “It helps us plan an itinerary that meets their expectations and uses time efficiently. The purpose is not to turn anyone away. We just don’t want to waste their time and ours.” Does he ever catch fl ak from manufacturers who think they’re being cheeky? “Actually, they love it,” he replied. “In fact, word has spread and we’ve received requests from some major manufacturers we don’t even represent for a copy of our form. Recently we developed a postvisit form they fi ll out to grade their trip and give us feedback on how our sales team performed. This policy has turned what’s sometimes an aggravation into a win-win.” Pepco’s SOPs are a productivity and quality control tool, but they allow for plenty of fl exibility. They operate under a philosophy the president calls “customerization.” “Some vendors and customers want to do things certain ways and others in different ways,” he explained. “Whatever they want, we’ll seek ways to accommodate. I think reps have to do more than just supply product these days. We have to ask our partners how we can help them and solve their problems, doing whatever it takes.” Data management is a key to running their increasingly complex business. Each day Pepco’s president pores over call reports from the agency’s 16 outside sales reps, and each month absorbs a 6-inch thick stack of printouts detailing virtually every number and ratio imaginable about the agency’s business. He can determine how much money Pepco makes on each sales call per product, for instance. Parham uses such data to formulate policies and practices to maximize productivity, such as mandating the number of sales calls its outside staff ought to average (18 per week). Advanced technology makes it all possible. Parham raves about the DDI distribution management system, dynaMACS sales management software and Telenotes automated call reporting systems used by Pepco. He learned about all of them and more via the AIM/R organization of independent manufacturers reps, of which he recently concluded his stint as president and now serves as chairman. “Joining AIM/R was one of the smartest business decisions our company has ever made,” he said. “Reps who don’t belong don’t know what they’re missing. Now we’ve got big name manufacturers showing up at the annual meetings, and they like what they see as well.” PIVOTAL STATEMENT #2 – “We need to get rid of our SLBs.” That’s shorthand for “self-limiting beliefs. It’s important to keep an open mind and look at opportunities that are not normal,” said Parham. A prime example goes back about a decade to a decision that Mike declares was a turning point for the agency. “We had a line that just didn’t fit strategically anymore and dropped it in favor of an international vendor that had zero presence here. Everyone thought I was crazy to make this decision,” he recalls, “but the line (Vitra) took off and sort of catapulted us along with it.” Pepco since has taken on other foreign lines, which entail both pluses and minuses. A lot of due diligence is required before trust can be established on both sides, and since lead times are stretched with overseas shipping, most of Pepco’s foreign representation is buy-sell. This, of course, requires a large warehouse and inventory investment (seven figures’ worth in Pepco’s case). As for the upsides, one is that many foreign manufacturers are not wedded to our industry’s traditional 30-day rep agreement. Companies anxious to build a presence in the U.S. frequently will negotiate longer-term contracts. And, of course, there’s much to be said for getting in on the ground floor of a successful venture. “Plenty of international companies in our industry have been imbedded here so long most people don’t even think of them as foreign manufacturers anymore, like Grohe, TOTO and so on,” Parham noted. “Yet years ago someone had to take a fl ing representing those companies, and the ones that helped them grow prospered. Foreign companies offer great opportunities for reps, as long as it fits their business.” Another discarded SLB is something Pepco offers that is unusual among stocking reps with such a far-fl ung territory — free delivery (for sufficient order size) to supply houses throughout most of the Lone Star State. How can they afford it? Mike Parham claims they can deliver cheaper than any freight company. “Our trucking service started back in the 1970s when my Dad started it to compete with a competitor on the manufacturing side (he used to make PVC pipe and fittings). In fact, I started out driving a truck we used to call ‘Old Bruce.’ Customers got used to us doing it, so we just kept it up. We have been very creative in logistics and our costs have actually gone down.” Another SLB overturned at Pepco is the traditional sales management role. Starting at the beginning of this year, Pepco appointed two industry veterans, Bruce Wood and Bob Hardage, to serve as Product Development Managers (PDM) for plumbing and HVAC, respectively. Formerly principals with their own rep agencies before being acquired by Pepco, the PDMs spend almost all of their time on the road in support of strategic initiatives. These might be anything from a new product rollout to shoring up a weakness in some market sector, to anything else that demands more concentrated attention than can be given by a territory salesman or sales manager with myriad duties. “A PDM is like the rover in softball who covers gaps in the area of highest activity,” Parham explained. “Whereas a salesman may spend a couple of days in a territory, the PDM might spend an entire week there calling on secondary market players like contractors and engineers. He will do deeper research in the territory that the salesman doesn’t have time to do. Let’s say a certain product isn’t getting the results we’d like. The PDM will go to distributors, contractors and everyone else trying to fi nd out what’s in the way, why they like what they’re buying and what we can do to get their business.” PIVOTAL STATEMENT #3 – “We don’t fl y this thing at 100,000 feet, but at 1,500 feet.” Mike Parham tossed that metaphor in discussing his and brother Phil’s own sales activities. Despite the complexity of managing a modern rep agency, both still make regular sales calls. “This business is still about relationships, passion and caring,” said Mike. “We can’t be everywhere, which is why we came up with our PDM program, but our role is to support that initiative as well as keep in touch with our lifetime business partners.” A meeting request form makes manufacturer visits productive. Pepco has established a number of programs aimed at deepening relationships and removing the distinction between personal and business aspects. One is an annual Caribbean “Super Trip” promotion that entails a point system tied to purchases. Customers as well as Pepco and manufacturer personnel vie for the prize of being included on the trip. According to Mike Parham, the highest number of attendees ever was 94. Last year’s recessionary total was still sizable at 54. “It’s a friendly event,” he noted. “Nobody talks business on the trip.” Pepco sales reps do talk business with customers as part of an annual customer review in which they ask a series of questions related to their product lines and agency performance. At one level it’s a tool for business forecasting, but also “a great opportunity to let customers know we care about their business.” Something similar takes place with the agency’s manufacturers. They have it written into their contract that each year their manufacturers sit down with Pepco for a review of past performance and define expectations for the coming year. I asked Mike what he thought was the biggest source of misunderstanding between reps and their manufacturers. Without hesitating he replied, “not understanding our cost of doing business — and to a large extent that’s our fault for not communicating.” This issue has become problematic to independent reps in recent years as companies at all levels of the supply chain have looked at ways to pare costs — and for manufacturers, rep commissions are a tempting target. A commission cut from 5% to 3% — not unheard of with some manufacturers — represents a 40% cutback in revenues to a rep firm. “As a rep you have to state your case as to why it shouldn’t happen to you,” Mike noted. “We’re not a small business anymore. We offer health care, 401(k), profit sharing and so on. I want our principals to understand that selling their products throughout our vast territory results in our sales team running up hotel bills an average of 79 nights a month, along with travel expenses, entertainment and so on. We have to generate a lot of revenue to support these activities, and we have to do a better job of sharing our cost structure for the things we do on their behalf.” I asked Phil Parham how the business has changed in the quartercentury since he’s been a part of it. “In the old days, my brother and I would come back from making sales calls and go over all the orders we wrote that day. You never bothered making appointments, you just went out to visit all your friends and it was all about coming back with orders in hand. “It’s still all about relationships, but they’re mostly developed after hours,” said Phil. “Now our sales calls are extremely professional, and we never go in without an appointment and an agenda. Our customers’ time is valuable and we have to respect that.” His brother quipped, “In the old days, it sure was fun not having a cell phone!” The two brothers seem to get along quite well, which is not a given in a family business. What’s the secret? I asked. “We both care about this business,” Phil replied. “He knows I have his back and he mine. Mike is more high strung and a bigger risk taker than me, so we balance each other out.” Mike’s take on it was: “It brings peace of mind when there’s total trust. Plus, he has his customers that he takes care of and bonds with, and I have mine. Our responsibilities in the company are different, and we mesh well.” Even in these harsh times, a mood of optimism pervades every corner of Pepco’s home offi ce. “Housing starts are beginning to inch up,” said Mike, “and we’re excited because we believe our markets are going to be turned around after the hardest time of my career. When it does we’ll be positioned even better to capitalize, because we made the right investments in people and technology.” To view their lines and for more information about Pepco Sales & Marketing, visit www.pepcosales.com.
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