increase contact with medium-sized customers, Grainger is upping the number of inside salespeople focused on them by 35 percent. In addition, the distributor plans to send 100 percent more catalogs to smaller businesses next year, and do more direct mail with this group.

Improved Logistics Network
Grainger’s North American network can now reach 99 percent of its customers with next-day ground delivery when orders are received by 5 p.m. the previous day, said Peters.

Since 2000, the company has worked to improve the efficiency of its network and has built five new Distribution Centers and retrofitted four DCs, while adding a million square feet of warehouse space. Grainger also has four master branches and 497 branches. Grainger has automated all of its DCs, which has improved productivity and cut headcount by 1,000.

It was also able to reduce inventory about $115 million. The DCs now provide daily replenishment to branches.

W.W. Grainger, Inc., with 2005 sales of $5.5 billion, is a broad line supplier of facilities maintenance products serving businesses and institutions in Canada, China, Mexico and the United States. It expects revenues of $5.9 billion for 2006.

Canada and Mexico
Grainger is increasing its focus on reducing costs in Mexico and Canada, just as it’s done in the U.S. Canada operations comprise about one-tenth of Grainger’s overall corporate revenues. The Canadian operations have been growing in mid-single digits in the past few years, with operating margins dipping to low single digits.

Grainger aims to improve profitability there, as well as inventory accuracy and availability and pricing discipline. Canada will increase its mix of private-label products and increase global sourcing in collaboration with the U.S. operation.

Grainger estimates Mexico to be a $10 billion MRO market opportunity. Mexico operations have seen 20 percent sales growth in the past three years and have remained profitable. It will focus on adding new customers by adding branches and sales reps, as well as three additional master branches one each on the Atlantic and Pacific coasts, and one in Mexico City.

Grainger will start implementing an SAP IT platform in Mexico next year. Canada will start implementing a system in 2008.

At its annual investor conference, Grainger said it would focus on growing its Lab Safety Supply business and continue to grow its presence in China. Grainger also wants to increase business with small and medium customers.

Grainger, Chicago, IL, plans to look outside its core North American MRO business for growth, including Lab Safety Supply expansion and growth in China. Grainger executives spoke to investors Nov. 15 at its annual investor conference in Chicago.

Lab Safety Supply recently agreed to buy two catalog houses that sell tools, instruments and reference materials to the $2.5 billion building and home inspection market. It also bought Rand Material Handling earlier this year.

“Our strategy is to accelerate LSS’s growth by finding premier direct marketing companies that complement the company’s targeted catalog approach,” said Grainger Chairman and CEO Richard L. Keyser. “This acquisition will enable LSS to further diversify its customer base into the services sector.”

Grainger estimates a $400 million market opportunity for Lab Safety Supply. The subsidiary has grown outside its core customer base manufacturing, which has decreased in share of Lab Safety sales from 40 percent in 2000 to 25 percent now. Lab Safety has worked to diversify its product and customer base, reaching markets as varied as forestry, agriculture/horticulture, and towing services, while decreasing its exposure to manufacturing.

China, where Grainger recently opened its first master branch and published a Chinese-language catalog, is another focus for Grainger. “A new manufacturing plant opens there every 25 seconds,” said President Jim Ryan. Grainger expects the MRO market there to grow to $71 billion by 2014. The Chinese economy is growing at a compound annual rate of 9 percent, Ryan said.

Other notes of interest from Grainger’s annual investor conference:

Wider Gross Margins
Since 2004, when its logistics update was completed Grainger has focused on driving cost and waste out of its operations. Over the past four years, Grainger has improved its gross margin by 500 basis points. This has been done by:

• Developing a supplier scorecard to evaluate supplier performance and product line review, which provides process improvement and cost reduction opportunities for suppliers and Grainger, such as on-time delivery and transactional quality, product quality, cost inflation and portfolio performance.
  
• Sourcing products from more than 20 countries. Gross margins on these products are 50 percent higher than average products. About 5 percent of cost of goods sold are sourced through Grainger Global Sourcing division.
  
• The private label program produces gross margins 400 basis points higher than the national brands Grainger offers. Now 24 percent of sales are private label. Grainger expects about 30 percent will be private label by 2010.
  
• “We’ve been successful in managing inflation recovery by, when necessary, passing on increases in product acquisition or transportation costs to our customers,” said Kevin Peters, senior vice president for Supply Chain Management.
  
  
  

Smaller Customers
“We’re doing a solid job with large customers businesses with more than 100 employees,” said President Jim Ryan. Large customers comprise 43 percent of Grainger’s revenues in the U.S. and for Grainger, that segment is growing at double digits.

But its small and medium customer base is smaller and grows more slowly. Market expansion has helped target this base, Ryan said. “There’s a great opportunity to grow our business faster by growing our small and medium customer segment.” In market expansion areas, Grainger’s small and medium customer base is growing twice that of nonexpansion markets.

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