Executive Briefings

U.S. Distributor Puts Plan for Major Sales Growth on the Boil

Macna, the American seller of high-end industrial boilers from France, eyes the lucrative residential market - with the help of a logistics and warehousing partner.

Marketing Company of North America: the name may sound generic, but the product it sells is anything but. Based in Circleville, Ohio, Macna is the exclusive U.S. distributor of high-end, super-efficient boilers made in France. And it's poised for a big leap in market share.

Up to now, Macna has sold boilers made by France's De Dietrich & Cie primarily to the commercial and institutional sectors. But of the 350,000 cast-iron boilers sold in the U.S. each year, 80 percent are to residential buyers, according to Macna president Keith French. So the company is undertaking a big shift in its marketing strategy. "Residential growth is the key to expansion," he says.

Macna has already scored some success with an expensive product in a limited market. Founded in 1994 by chief executive officer Richard S. Guy, its first task was to furnish De Dietrich boilers to the Columbus, Ohio school district. The sale was made possible by legislation mandating the state's purchase of energy-saving equipment.

The French boiler was just right for the job. Manufactured by the De Dietrich Thermique subsidiary of the De Dietrich Group, it utilizes a unique cast-iron alloy dubbed Eutectic. The brand describes a material that is 30 percent more flexible than traditional cast iron, and won't crack under extremes of temperature. As a result, units can withstand lower minimum water temperatures, saving energy in the process.

The greater efficiency of De Dietrich boilers helps to offset their higher cost of manufacturing. Shipping also adds to the expense, but the State of Ohio came out ahead. The boilers realized energy savings of 31 percent, versus 8.2 percent for conventional models. In all, according to Columbus school officials, the De Dietrich boilers' return on investment was 54 percent higher than that of other units installed at the same time.

Macna also gets a boost from De Dietrich's global reputation. More than 300 years old, the company has a long history of making industrial and consumer products. Over the centuries, it has built everything from cannonballs to cars, although in 1991 owners sought to sharpen its focus by selling off the household appliance and forestry divisions.

In 2001, the family-owned De Dietrich went private following a friendly takeover by the Dutch bank ABN AMRO. In addition to heating equipment, the company today makes chemical process systems such as glass-lined containers, heat exchanges and filtration units. Total sales are in the neighborhood of $1bn.

Macna, however, continues to focus on De Dietrich boilers. And there's a certain downside to representing the product in America. For one thing, the region isn't De Dietrich's primary focus. Nearly 90 percent of its sales are in Europe, where it vies with a pair of German manufacturers for dominance in the high-end boiler market.

Moreover, the very quality of De Dietrich boilers tends to limit repeat business. The units are built to last 30 years or more, says French. So Macna must constantly search for new accounts, targeting the education, office, healthcare and apartment sectors.

Commercial models also pose a substantial supply-chain challenge, says French, with the larger units weighing more than five tons. Product arrives by ship in 20- and 40-foot containers, each carrying the disassembled components of up to 40 boilers. Most enter North America through the Port of Montreal, with Houston serving as an alternative point of entry. The containers are then trucked to De Dietrich in Ohio, where their contents are unloaded, stored and eventually reshipped to wholesalers.

The process of importing has become more difficult in recent years, says French. U.S. Customs has stepped up the scrutiny and inspection of incoming containers since the terrorist attacks of Sept. 11, 2001. And a stalled shipment can seriously jeopardize Macna's ability to serve its customers. The distributor needs time to assemble the 18 to 25 pieces that make up a commercial boiler, with an order cycle of around two weeks.

While residential units generally are received from France fully assembled--a shipment might consist of 1,000 units or more--Macna often must respond to a customer order within two days.

Macna is further logistically hampered by the fact that De Dietrich makes most of the key decisions on shipments to North America, including the type of product to be shipped and choice of carrier to move it. Add to that a high-end commercial market of just 10 percent of all U.S. boiler sales, against 90 percent for domestic makers of lower-efficiency models, and it's not surprising that Macna would seek out new opportunities.

The original idea was to build a new 10,000 square-foot warehouse, in addition to the company's current facility at Circleville of 5,000 square feet. To handle growth in sales, Macna would need to keep at least 35 more units on hand, a requirement that could easily fill the new space. In addition, says French, the distributor must keep a high level of safety stock on hand, in case import containers are delayed by Customs or other contingencies.

But another solution was at hand. Even though De Dietrich was calling the shots on imports, Macna was using the services of a customs broker to smooth the entry and arrival of containers.

For most of the time since its inception, that vendor was San Francisco-based Fritz Companies. Macna hired Fritz because the broker had an office in Columbus, just five miles away. It stuck with the vendor because of a strong personal relationship with staff, French said.

UPS Enters the Picture
Fritz was acquired by United Parcel Service in 2001, and UPS became Macna's provider of customs brokerage. But UPS's role was soon to grow significantly. When Macna announced its intention to build a new warehouse to handle anticipated growth, UPS Supply Chain Solutions (UPS SCS) suggested the distributor use its existing local warehouse for the extra space.

UPS SCS maintains a 38,000 square-foot, multi-user facility in Groveport, a Columbus suburb. That was more than enough room for Macna's immediate needs. And it eliminated the need for the company to spend heavily on a new warehouse, complete with systems and staff.

Rob McConathy, regional account manager for UPS SCS in Columbus, was among those who suggested that Macna outsource its new warehouse. He was already familiar to the customer, having started with Fritz shortly before it was acquired by UPS. The arrangement began last summer, giving Macna a much faster startup than construction of its own greenfield site.

At the Groveport warehouse, UPS SCS receives inbound containers, strips them out and records any damage to the contents. (In some cases, says McConathy, it takes pictures of the goods and e-mails them to Macna for review.) The items are then placed into storage on wooden skids.

The heavy units are kept on racks stacked three high, another idea that has saved Macna money. By using a smaller amount of floor space, the customer pays less to UPS SCS on a square-footage basis. The arrangement requires extra handling for putaway and picking, says French, but Macna still ends up getting a better deal than if the numerous boiler components had all been kept at floor level.

Upon receiving an order from Macna, UPS SCS picks all of the pieces that go into a given unit. (It does not assemble them; that job falls either to Macna or its customer.) The vendor then schedules pickup with a trucker previously approved by Macna, for delivery throughout the U.S. UPS SCS works from a pool of truckers that includes Watkins Motor Lines and Roadway Express (recently acquired by Yellow Corp.). Shipments generally go out the same day the order comes in, McConathy says.

Depending on the needs of the moment, roughly 20 percent of the UPS SCS facility is dedicated to Macna, McConathy says. The level of activity varies according to the schedule of inbound containers, which can temporarily flood the facility with product.

The operation is controlled by a warehouse management system developed internally by UPS. It must track and manage a wide variety of parts, allowing the vendor accurately to assemble the components that make up the many different models of De Dietrich boilers.

A Dual Strategy
Macna continues to operate its original, 5,000 square-foot warehouse separate from that of UPS SCS. French says the company still needs the Circleville facility for smaller transactions and orders requiring unusually quick turnaround. It also maintains a training facility at Circleville, offering courses on boiler installation and operation to contractors, engineers and maintenance professionals.

Eventually, French says, the two Columbus-area operations could be combined into one, managed by UPS SCS. For now, Macna prefers the flexibility of two locations, even though they generate additional cost.

"There's a little disconnect [between the two warehouses]," French admits, "but the tradeoff was still better than building another 10,000 square feet."

The role of UPS SCS, which could provide a full range of logistics services to Macna, is limited by De Dietrich's control over the inbound leg. Nevertheless, UPS SCS participates in carrier selection and booking for shipments moving outbound to wholesalers. And it communicates with carriers to track the progress of freight or confirm delivery in both directions. It also handles any complaints from dealers about late or incomplete shipments.

McConathy says UPS SCS would like to provide air and ocean freight services on the inbound side. "We could offer increased visibility and decreased transit time," he claims. But that depends on Macna's ability to convince De Dietrich to relinquish a measure of control over international orders.

French says the distributor is talking with the manufacturer about letting it handle import shipments "from soup to nuts." He, too, would prefer that one vendor provide a comprehensive point of contact for Macna and its supply-chain partners. When it comes to tracking, he says, the most difficult segment to monitor is that from the European factory to the distributor's U.S. warehouse. It's a journey that can result in multiple "black holes" of information.

A Plan for Growth
Better control over orders is key to Macna's plans. French charts a "very aggressive" five-year strategy, calling for a doubling of year-over-year sales for the next three years at least. "That will require a lot more transactions," he says. "I'd like to think that UPS would be involved as a single point of contact."

Additional U.S. distribution points might be in the future. With its geographically central location and easy access to transportation services, Columbus has supplied the entire country up to now. But that role will become increasingly difficult to support, especially as Macna moves into the residential boiler market. The majority of product for that sector is sold in the New England region, which will need a closer warehouse. McConathy says UPS SCS is likely to be involved.

Still, French insists, Macna isn't out to create huge amounts of additional storage. On the contrary it wants to start shipping direct to wholesalers. That strategy makes sense in the residential market, where units are already assembled. French wants to move from the current level of zero direct shipments to 80 percent of Macna's residential business.

"The objective is not to get product into our warehouse," he says. "It's to get it into the wholesaler's warehouse."

The commercial business, on the other hand, will require Macna to play a continuing role as intermediary between import containers and complex outbound orders. The size and configuration of the larger units requires it, French says. In addition, the distributor works closely with customer engineers to spec products for particular jobs.

UPS SCS is ready to handle the growth of Macna's U.S. business, says McConathy. "This operation here [in Columbus] is a dynamic one," he says. "We have some additional space, and in the coming year, we're fine." Beyond 2004, the vendor will likely have to increase its warehouse capacity on Macna's behalf.

Macna's goal is to meet the increasing demands of wholesalers and dealers as it broadens its presence in the U.S., both in the commercial and residential markets. The trick is to have the right items in the right place. "The better we refine that," French says, "the easier it's going to become to meet the shipping schedules."

Marketing Company of North America: the name may sound generic, but the product it sells is anything but. Based in Circleville, Ohio, Macna is the exclusive U.S. distributor of high-end, super-efficient boilers made in France. And it's poised for a big leap in market share.

Up to now, Macna has sold boilers made by France's De Dietrich & Cie primarily to the commercial and institutional sectors. But of the 350,000 cast-iron boilers sold in the U.S. each year, 80 percent are to residential buyers, according to Macna president Keith French. So the company is undertaking a big shift in its marketing strategy. "Residential growth is the key to expansion," he says.

Macna has already scored some success with an expensive product in a limited market. Founded in 1994 by chief executive officer Richard S. Guy, its first task was to furnish De Dietrich boilers to the Columbus, Ohio school district. The sale was made possible by legislation mandating the state's purchase of energy-saving equipment.

The French boiler was just right for the job. Manufactured by the De Dietrich Thermique subsidiary of the De Dietrich Group, it utilizes a unique cast-iron alloy dubbed Eutectic. The brand describes a material that is 30 percent more flexible than traditional cast iron, and won't crack under extremes of temperature. As a result, units can withstand lower minimum water temperatures, saving energy in the process.

The greater efficiency of De Dietrich boilers helps to offset their higher cost of manufacturing. Shipping also adds to the expense, but the State of Ohio came out ahead. The boilers realized energy savings of 31 percent, versus 8.2 percent for conventional models. In all, according to Columbus school officials, the De Dietrich boilers' return on investment was 54 percent higher than that of other units installed at the same time.

Macna also gets a boost from De Dietrich's global reputation. More than 300 years old, the company has a long history of making industrial and consumer products. Over the centuries, it has built everything from cannonballs to cars, although in 1991 owners sought to sharpen its focus by selling off the household appliance and forestry divisions.

In 2001, the family-owned De Dietrich went private following a friendly takeover by the Dutch bank ABN AMRO. In addition to heating equipment, the company today makes chemical process systems such as glass-lined containers, heat exchanges and filtration units. Total sales are in the neighborhood of $1bn.

Macna, however, continues to focus on De Dietrich boilers. And there's a certain downside to representing the product in America. For one thing, the region isn't De Dietrich's primary focus. Nearly 90 percent of its sales are in Europe, where it vies with a pair of German manufacturers for dominance in the high-end boiler market.

Moreover, the very quality of De Dietrich boilers tends to limit repeat business. The units are built to last 30 years or more, says French. So Macna must constantly search for new accounts, targeting the education, office, healthcare and apartment sectors.

Commercial models also pose a substantial supply-chain challenge, says French, with the larger units weighing more than five tons. Product arrives by ship in 20- and 40-foot containers, each carrying the disassembled components of up to 40 boilers. Most enter North America through the Port of Montreal, with Houston serving as an alternative point of entry. The containers are then trucked to De Dietrich in Ohio, where their contents are unloaded, stored and eventually reshipped to wholesalers.

The process of importing has become more difficult in recent years, says French. U.S. Customs has stepped up the scrutiny and inspection of incoming containers since the terrorist attacks of Sept. 11, 2001. And a stalled shipment can seriously jeopardize Macna's ability to serve its customers. The distributor needs time to assemble the 18 to 25 pieces that make up a commercial boiler, with an order cycle of around two weeks.

While residential units generally are received from France fully assembled--a shipment might consist of 1,000 units or more--Macna often must respond to a customer order within two days.

Macna is further logistically hampered by the fact that De Dietrich makes most of the key decisions on shipments to North America, including the type of product to be shipped and choice of carrier to move it. Add to that a high-end commercial market of just 10 percent of all U.S. boiler sales, against 90 percent for domestic makers of lower-efficiency models, and it's not surprising that Macna would seek out new opportunities.

The original idea was to build a new 10,000 square-foot warehouse, in addition to the company's current facility at Circleville of 5,000 square feet. To handle growth in sales, Macna would need to keep at least 35 more units on hand, a requirement that could easily fill the new space. In addition, says French, the distributor must keep a high level of safety stock on hand, in case import containers are delayed by Customs or other contingencies.

But another solution was at hand. Even though De Dietrich was calling the shots on imports, Macna was using the services of a customs broker to smooth the entry and arrival of containers.

For most of the time since its inception, that vendor was San Francisco-based Fritz Companies. Macna hired Fritz because the broker had an office in Columbus, just five miles away. It stuck with the vendor because of a strong personal relationship with staff, French said.

UPS Enters the Picture
Fritz was acquired by United Parcel Service in 2001, and UPS became Macna's provider of customs brokerage. But UPS's role was soon to grow significantly. When Macna announced its intention to build a new warehouse to handle anticipated growth, UPS Supply Chain Solutions (UPS SCS) suggested the distributor use its existing local warehouse for the extra space.

UPS SCS maintains a 38,000 square-foot, multi-user facility in Groveport, a Columbus suburb. That was more than enough room for Macna's immediate needs. And it eliminated the need for the company to spend heavily on a new warehouse, complete with systems and staff.

Rob McConathy, regional account manager for UPS SCS in Columbus, was among those who suggested that Macna outsource its new warehouse. He was already familiar to the customer, having started with Fritz shortly before it was acquired by UPS. The arrangement began last summer, giving Macna a much faster startup than construction of its own greenfield site.

At the Groveport warehouse, UPS SCS receives inbound containers, strips them out and records any damage to the contents. (In some cases, says McConathy, it takes pictures of the goods and e-mails them to Macna for review.) The items are then placed into storage on wooden skids.

The heavy units are kept on racks stacked three high, another idea that has saved Macna money. By using a smaller amount of floor space, the customer pays less to UPS SCS on a square-footage basis. The arrangement requires extra handling for putaway and picking, says French, but Macna still ends up getting a better deal than if the numerous boiler components had all been kept at floor level.

Upon receiving an order from Macna, UPS SCS picks all of the pieces that go into a given unit. (It does not assemble them; that job falls either to Macna or its customer.) The vendor then schedules pickup with a trucker previously approved by Macna, for delivery throughout the U.S. UPS SCS works from a pool of truckers that includes Watkins Motor Lines and Roadway Express (recently acquired by Yellow Corp.). Shipments generally go out the same day the order comes in, McConathy says.

Depending on the needs of the moment, roughly 20 percent of the UPS SCS facility is dedicated to Macna, McConathy says. The level of activity varies according to the schedule of inbound containers, which can temporarily flood the facility with product.

The operation is controlled by a warehouse management system developed internally by UPS. It must track and manage a wide variety of parts, allowing the vendor accurately to assemble the components that make up the many different models of De Dietrich boilers.

A Dual Strategy
Macna continues to operate its original, 5,000 square-foot warehouse separate from that of UPS SCS. French says the company still needs the Circleville facility for smaller transactions and orders requiring unusually quick turnaround. It also maintains a training facility at Circleville, offering courses on boiler installation and operation to contractors, engineers and maintenance professionals.

Eventually, French says, the two Columbus-area operations could be combined into one, managed by UPS SCS. For now, Macna prefers the flexibility of two locations, even though they generate additional cost.

"There's a little disconnect [between the two warehouses]," French admits, "but the tradeoff was still better than building another 10,000 square feet."

The role of UPS SCS, which could provide a full range of logistics services to Macna, is limited by De Dietrich's control over the inbound leg. Nevertheless, UPS SCS participates in carrier selection and booking for shipments moving outbound to wholesalers. And it communicates with carriers to track the progress of freight or confirm delivery in both directions. It also handles any complaints from dealers about late or incomplete shipments.

McConathy says UPS SCS would like to provide air and ocean freight services on the inbound side. "We could offer increased visibility and decreased transit time," he claims. But that depends on Macna's ability to convince De Dietrich to relinquish a measure of control over international orders.

French says the distributor is talking with the manufacturer about letting it handle import shipments "from soup to nuts." He, too, would prefer that one vendor provide a comprehensive point of contact for Macna and its supply-chain partners. When it comes to tracking, he says, the most difficult segment to monitor is that from the European factory to the distributor's U.S. warehouse. It's a journey that can result in multiple "black holes" of information.

A Plan for Growth
Better control over orders is key to Macna's plans. French charts a "very aggressive" five-year strategy, calling for a doubling of year-over-year sales for the next three years at least. "That will require a lot more transactions," he says. "I'd like to think that UPS would be involved as a single point of contact."

Additional U.S. distribution points might be in the future. With its geographically central location and easy access to transportation services, Columbus has supplied the entire country up to now. But that role will become increasingly difficult to support, especially as Macna moves into the residential boiler market. The majority of product for that sector is sold in the New England region, which will need a closer warehouse. McConathy says UPS SCS is likely to be involved.

Still, French insists, Macna isn't out to create huge amounts of additional storage. On the contrary it wants to start shipping direct to wholesalers. That strategy makes sense in the residential market, where units are already assembled. French wants to move from the current level of zero direct shipments to 80 percent of Macna's residential business.

"The objective is not to get product into our warehouse," he says. "It's to get it into the wholesaler's warehouse."

The commercial business, on the other hand, will require Macna to play a continuing role as intermediary between import containers and complex outbound orders. The size and configuration of the larger units requires it, French says. In addition, the distributor works closely with customer engineers to spec products for particular jobs.

UPS SCS is ready to handle the growth of Macna's U.S. business, says McConathy. "This operation here [in Columbus] is a dynamic one," he says. "We have some additional space, and in the coming year, we're fine." Beyond 2004, the vendor will likely have to increase its warehouse capacity on Macna's behalf.

Macna's goal is to meet the increasing demands of wholesalers and dealers as it broadens its presence in the U.S., both in the commercial and residential markets. The trick is to have the right items in the right place. "The better we refine that," French says, "the easier it's going to become to meet the shipping schedules."