Davis & Warshow does business in New York City and surrounding environs. Based in Maspeth, an industrial/warehouse district that's part of Queens, they also operate four branches in Manhattan (two in Harlem), and one apiece in the Bronx, Brooklyn, Farmingdale (Long Island) and Mt. Kisco (Westchester County). They operate showrooms in conjunction with seven of their locations, as well as a standalone luxury showroom on 58th St. in midtown Manhattan.

Their delivery trucks buck some of the nation's most congested traffic. They compete against some 120 supply houses of every size, shape, neighborhood and ethnic configuration - as well as plenty of big boxes. They operate and centrally distribute out of an antiquated 200,000- sq.-ft. warehouse. They service some of the country's most demanding customers and have endured some of the nation's most crushing economic and psychological blows.

They have dealt with it all to become - actually, remain - one of the industry's premier PHCP wholesalers. Davis & Warshow has been at it since 1925, and over the years the company has transcended the anonymity that normally accompanies the mundane field of PHCP distribution. Davis & Warshow (D & W in local shorthand) has become a brand name in its marketplace. Trade customers regard D & W as the place to go for whatever they need, and for great service. Retail showroom customers patronize them because of a reputation for expertise not found at the myriad other places they can buy bathroom products.

This is the second time this New York City institution has been singled out by SUPPLY HOUSE TIMES as the cream of the crop. First time was in 1988. Much has happened in the ensuing 15 years.

D & W had sales volume of about $50 million back then. They lost a large slice of it in 1990-91 when NYC suffered an economic crisis that saw total business activity in the metropolitan area drop around 60%. D & W's sales declined about 12% during that period, according to President Frank Finkel. Besides the lousy economy, he owned up to a bad decision in making a foray into master distribution around the same time. “We found out over a three-year period that it just wasn't our business,” said Finkel.

At a peak in the late 1980s, D & W had almost 300 people on its payroll. By January 1991, employment had fallen below 200. Nonetheless, even in the depth of that local depression, the company's viability was never seriously threatened. They did what needed to be done in the way of belt-tightening, focused on doing more of what they did best, and even picked up some market share due to the disappearance of some competitors. When the NYC marketplace recovered, D & W was well positioned to take advantage of its fundamental business strengths.

Today's employment has inched back up to 265 while volume has climbed to around $75 million. D & W does a lot more business with fewer people than they did in the 1980s, and that is a large part of this story.

What's Old-Fashioned About D & W

Hands-on Management Founders Louis Warshow and Bernard Davis sold their interests in the company in 1947 and 1966, respectively. Their former business partner Irving Finkel remembers them fondly as “self-proclaimed optimists” who weathered the Great Depression through determination and “horse and buggy salesmanship.”

Ownership now rests with the Finkel family, although an ESOP divestiture is in the works and scheduled to begin in 2004. Irving Finkel joined the company in 1934. By 1941, he had acquired a one-third ownership of the company. He took on a larger share with Warshow's departure and became sole owner when Davis retired in 1966.

Still remarkably spry in mind and body at age 90, Irving has been retired for many years and spends half of the year in Florida. But he still has a desk at Maspeth headquarters and hangs out there when in town - 70 years of experience and guidance to aid in running this people-oriented business.

Son Frank joined the company in 1967 after acquiring a law degree and working briefly at a law firm. He took over as president of the company in 1987. Like his father used to do, Frank tends to be the first one in the office each morning at around 5:30 a.m. His “executive suite” consists of a small desk and computer terminal no different than those of the other dozen top managers who share the communal front office at Maspeth headquarters. In what resembles something of a gilded sweat shop, their work spaces are arranged wherever they fit just a few feet apart. Rank and status are invisible, job functions fluid, privacy impossible and vocal chords the main instrument of corporate communication, which is thick with banter.

Not only do the company honchos work in beehive fashion, most days they lunch together in a conference room on grub from a local deli. Frank Finkel loves the communal culture.

“This routine has been our persona since the days of Mr. Davis and Mr. Warshow,” he informed. “I think it's a lot of fun. Most of us are in here for more than eight hours a day, and some of us put in more than twelve hours. But working together like this in close quarters enables us to help out one another a lot better than if we had private offices and cubicles with no interaction. And we put some humor into it, which makes for an enjoyable day.

“It also makes for a more productive day, because the ebb and flow of conversation enables all of us to learn something new every day. Guys will talk about visiting a customer, and you learn things about that customer and maybe some competitors. Things that go on in this 'fur ball' of an office help us become better at what we do,” said Frank.

A “one for all, all for one” egalitarian spirit pervades the company's ranks. I interviewed more than a half-dozen D & W personnel for this story, and without prompting, just about all of them expressed joy working for this company. “I've worked for a few supply houses before coming here, and this is the best I've been in,” commented vice president of showrooms Sheldon Malc. “We have the lowest turnover of showroom personnel I've ever seen. Working for Frank and Irving Finkel has been an absolute pleasure.”

Observed vice president of sales Alan Cohen: “People here are compensated well, not in random fashion, but based on how well they produce. That's a great tool for shaping performance. Plus, we're surrounded by a lot of nice people, and that makes it enjoyable when you spend 11 to 12 hours at work.”

Customer Service

They have always striven to be a full-service wholesaler stocking the full range of products used by their customers. D & W's offerings span the plumbing-heating-piping-tools spectrum, residential-commercial-industrial-municipal. D & W strives hard to become one-stop shopping supply houses.

Delivering goods in timely fashion is harder to do in NYC than just about any place in the country. D & W manages by getting delivery trucks on the road starting around 6 a.m., with the latest departure around 7 a.m. Any later than that, the trucks get bogged down in morning rush traffic and take hours longer to finish their rounds.

“The cost of a union plumber in New York City is now $82 an hour,” said Cohen. “So every hour of labor we can save the contractor is a lot. The price of material is not irrelevant to him, but it's not as big a factor as service. We get a lot of requests for 7 a.m. deliveries, and we're one of the few wholesalers able and willing to do it.”

Getting those trucks rolling at the crack of dawn is accomplished via round-the-clock staggered shifts of warehouse workers, 84 in all. The first group comes in at 6 a.m., which is also when the pick-up counter opens. Others start at 7 a.m. or 8 a.m., and then another big group starts its shift at 10 a.m. These daytime personnel focus on receiving materials, picking goods and bringing them to a staging area for nighttime loading.

The night warehouse shift begins at 10 p.m., charged mainly with loading trucks both for customer deliveries and branch replenishment. Late shift workers stay till 7 a.m., and may also help out at the counter if there's a large influx of early morning customers.

As another service enhancement, D & W operates a separate will call counter for orders called in or faxed. Contractors who use this service find their materials waiting for them upon arrival.

What's Modern About D & W

Warehouse Management Great customer service is an ideal held by all wholesalers. Nobody intends to treat customers badly. The tricky part is pulling it off and still making money. Many wholesalers have gone broke trying to stock everything customers might need and employing a small army of personnel to cater to their needs.

D & W can handle the strain because of another mindset ingrained in its corporate culture from the earliest days. This company has always been quick to invest in emerging technologies to enhance distribution efficiency. They were among the first PHCP wholesalers to computerize, and even before that, going back to the 1940s they used automated billing and tabulating machines that foreshadowed computers.

Today's D & W keeps that tradition alive with global positioning systems for its delivery trucks, pricing CD-ROMs for its customers, invoices faxed automatically to customers overnight, Nextel network communication devices for drivers and other gadgets that help slice a few pennies off each transaction. Their biggest technological investment, costing upwards of a million bucks when all the hardware, software and labor hours get factored in, was a paperless warehouse management system put in place about three years ago.

Done in conjunction with their distribution software vendor, Mincron, D & W's system centers around radio-frequency handheld scanners tied to computerized order entry. When an order gets entered, it goes right to the pickers' “guns.” That's plural pickers, because each picker is assigned a zone and would receive only those items in his area. Soon as an item gets picked, it gets affixed with a scannable “MU” label (movable unit) that keeps track of it as it moves to a packing desk to be double checked, then to a staging area, and then onto a truck or to the will call area. All information is conveyed via bar codes, with amazing accuracy. General manager Stan Pilinko said it has reduced their inventory variance to less than .1%, and eliminated the need for year-end counting.

Most dramatic has been the reduction in errors. According to Frank Finkel, each month the company handles between 13,000 to 15,000 transactions with 65,000 to 75,000 item picks. Yet, “I don't think we can identify 10 errors a month. That's important, because it's incredibly costly to send someone out to Manhattan to straighten out a problem and lose him for half the day,” said Finkel.

The system reverberates with positive results throughout company operations. Pilferage, for instance, is almost nonexistent because every employee knows inventory is constantly reviewed via cycle counting.

“One of the big advantages to the system is a reduction in branch inventory,” advised Pilinko. “Before, branch managers would tend to overstock because we were slow getting material to them. Now, we generally have a maximum of two-day stock transfers, and if there's a tagged order for a customer, he'll have it the next day. So they tend to buy two months' worth of stock rather than six months. That leads to a tremendous savings in inventory expense.”

With all product knowledge and stocking locations compressed into bytes inside their virtually foolproof scanners, warehouse employees no longer spend precious minutes wandering around staring wistfully at shelves. “When we hire people for the warehouse, we don't have to beat the bushes for experienced people who know plumbing supplies,” said Pilinko. “Training time has gone from months to a matter of hours.

“In fact, knowing product can be a disadvantage at times,” he added. “One of the problems that arose when we implemented this system was that some people were ignoring the 'gun' and looking for items where they thought they should be. Our people had to learn to trust the gun rather than their instincts.”

An impressive facet of their warehouse management system is that it was cobbled together in a facility whose heyday roughly coincided with Babe Ruth's. Pilinko, who shepherded the retrofit project through its year-and-a-half implementation, winces in recalling the tedious effort.

First they had to record cubic dimensions and coordinate bar codes for all 38,000 of D & W's skus. This alone took months to complete. Then they had to measure the height, width and depth of all of the shelves, enter their locations into the system, and break them down into standard increments ranging from four inches for smaller items to three feet for boilers and other bulky inventory. Then each increment had to be affixed with bar code labels. Some of the process went reasonably smooth but other elements were excruciating.

“The biggest problem was with our truck loading program,” Pilinko said. “It was new and nobody had ever used it before. Mincron was here writing code while we worked.” And, of course, somehow D & W had to sustain normal operations while all this took place.

The payoff, though, is that D & W now operates like a stock car. Under the hood of its humdrum chassis is a souped-up engine capable of turning out some of PHCP distribution's most efficient RPMs.

Financial Management

Sandberg also singled out the company's budget process as a factor that may be just as important to D & W's recent success as their warehouse management system. At the time of my visit the company was gearing up for its annual two-day managers conclave in which they develop projections for their profit centers in the coming year. From late October through December, they crunch numbers product by product, customer by customer, month by month.

Profit center managers work under an incentive compensation plan based on bottom-line profitability, and the payout accelerates if they exceed their goals. “We feel that bottom-line profitability is the best measure of success. It incorporates sales, whether they're profit minded, and how they motivate their employees,” said Sandberg. “Basically, they run their own businesses.”

Each month the company produces a 50-page financial statement tracking actual performance against budget assumptions. “We develop realistic goals not just for compensation purposes, but to help us deal with problem areas,” said the company's CFO. “We're now in the seventh year of this process, and getting better and better at it. The branch managers used to regard it as a chore, but now they love it.

“We're real proud of our budget process. I don't think any of our competition does it with the amount of detail and intensity we do,” said Sandberg.

Showrooms

D & W's wholesale business is based on providing what their trade and specifying customers want. The showroom business, especially the high-end segment, aims to shape customer wants by tantalizing them with products they don't see and can't get anywhere else. Said showroom vice president Sheldon Malc, “We do a lot of research to bring in product that will differentiate ourselves from everyone else and still allow us to make decent margins.” While consumers are the main target market, the higher end showrooms in particular cater to a mixture of retail and trade customers - mainly interior designers, architects and remodeling general contractors.

High-end product gets emphasized at the mid-town Manhattan and Westchester County (Mt. Kisco) showrooms. Most of the others tend toward mid-range product displays, reflecting their locations in middle-class communities such as Farmingdale (Long Island), Bronx, Brooklyn and Harlem (two locations).

The showroom at Maspeth is hard to categorize. “Maspeth is interesting because it's in a working class neighborhood, yet it still attracts an affluent clientele from western Long Island. So we have a mixture of high-end and mid-range product,” said Malc.

Maspeth draws considerable traffic, which to this observer seems counterintuitive. In a building physically separated from the headquarters warehouse by a pipe yard, the showroom is still part of a complex in an industrial area and just down the street from a cemetery. The displays are on a second-floor walkup and invisible from the street. There are no other retail establishments in the vicinity, so no walk-in traffic. Visitors have to have this destination in mind. Yet, the people come. Partly it's because of convenience, being only a few blocks from the intersection of the Long Island and Queens Expressways. Even more to the point, it's the D & W brand name - coupled with considerable retail advertising - that brings them in. I suspect this venture would be a miserable failure if it were Joe Blow's showroom.

Incidentally, there's a Home Expo not far away. “Our salespeople are much more knowledgeable than anyone you'll ever meet at Home Expo,” said Malc. “Most people who go there don't feel comfortable buying in that kind of environment unless they know exactly what they want and how to install it. They feel more comfortable dealing with our people.”

In fact, instead of looking at them as competitors, Frank Finkel credits the big boxes with helping to boost D & W's showroom business. “Home Depot and Lowe's have helped create demand,” he explains. “Yet, the public is better served by coming to one of our showrooms than one of theirs.

“Our showroom business has grown at a greater rate than our other businesses. We put great effort into that. With interest rates low and a recession going on in this city, people are reluctant to make drastic changes in their life, but they still have incremental value in their homes, so they're fixing them up, especially the baths and kitchens,” said Finkel.

What's Ahead For D & W

Excluding the unionized employees, about half of D & W personnel will participate in the ESOP, earning stock in accordance with a formula based on salary and tenure after a vesting period. The company will retain an existing 401k program for employees, but will no longer contribute profit-sharing dollars to the 401k, putting them into the ESOP instead.

“We feel this program will incentivize people at all levels of our company,” said Sandberg. “It's a win-win for everybody as long as the company does well, and we expect to do well. In our estimation the stock market may not return to a period of exceptional growth for many years, and we think this company is a better bet.”

There likely will be some territorial and market growth in D & W's future, although grandiose expansion plans have never been part of the company's strategy. Theirs is more of an opportunistic mindset. They are not on the prowl for acquisitions, but have made a few as opportunities arise that they see to be a good fit. Same with product diversification.

A good example of the D & W approach came with its push to become a bigger factor in the PVF market. They have been a player in the PVF business for most of their history, and have had a pipe fabrication shop for decades. But in recent years D & W saw business slipping away as customers subbed out sales to companies attuned to high-performance valves and actuation. So a couple of years ago they hired PVF veteran Tim Warlan as vice president of PVF/industrial sales to give them a boost. The company has seen that business grow a bit at a time when the market is generally down. Prior to the recent push, D & W didn't sell pipe larger than 6-inch seamless. Now, according to Warlan, they stock up to 24-inch seamless, ERW and weld fittings, and valves as large as 18-inch in the 150-lb. class.

D & W certainly will be forging ahead with further technological initiatives. As noted earlier, they are doing a top-to-bottom assessment of their software needs with an eye toward venturing more deeply into e-commerce and vendor managed inventory. “Right now, we do practically no online purchasing, but we think there are considerable cost savings there we'd like to tap into,” said CFO Sandberg.

Frank Finkel sees e-commerce as working hand-in-hand with a growing movement toward vendor consolidation. “Our focus over the last year has been to look at our vendors and winnow out those who are not giving us what we need to service our customers. Also, we had too much product duplication. Why should any wholesaler have two different brands of 50-gallon, five-year water heaters? I don't know why, but we did it for 25 years. Do we need two major plumbing fixture lines? We did it for 78 years, but 21st century reality dictates choosing to partner with the manufacturer that enables us to best serve our customers. We've made tough choices that turned over longstanding relationships. That hurts, but with today's margin squeeze and competition, we can't afford not to take a hard look at manufacturers' performance and our inventory commitment.

“Vendors themselves are making consolidation easier by their own acquisitions,” Finkel continued. “Now you often can depend on one manufacturer for two or three manufacturers' product lines. There's one invoice and you avoid double-handling material by shipping directly to the branches.”

A past president and longtime board member of the American Supply Association, Finkel is one of the organization's biggest boosters. “Many of the things that we do are a direct result of our contacts through ASA with other members. There is no other place for a wholesaler to network as successfully with other companies that are in the forefront of best practices.” <<

Sidebar: 4th Generation Now Aboard At D & W

Like everyone else in the company, his duties vary, though David's main job for now is to learn as much as he can about the company and the business. “What are his main impressions of this business?” I asked.

“Now that I'm involved, I'm gaining an appreciation for the way our company does business. We're basically a service company. We have expertise our customers rely on, and an attitude of getting them what they need as soon as they need it. Our ultimate goal is to do that so well, we become their only source of supply,” said David.

David represents the fourth generation of the Finkel family in the business. (Co-founder Bernard Davis was married to Dora Finkel, the sister of Frank's grandfather.)

Sidebar: Mailboxes For Scanners

When the system was first put in place three years ago, broken or misplaced scanners were a constant plague. D & W solved the problem in an elegantly simple and inexpensive way.

They assigned scanners to individual employees and made them responsible for their upkeep and safeguarding. Each warehouse worker is assigned his or her own scanner, along with a lockable mailbox to store it at shift's end. Lost and damaged units declined dramatically. “They now have a sense of ownership of these devices,” said GM Stan Pilinko. “It's amazing how few problems we have with the scanners compared to before.”

Sidebar: Security Consciousness

ID cards, tightly controlled entry and closed-circuit monitoring have been part of D & W's M.O. for decades. In recent years they've beefed up security even tighter. The company's main facility in Maspeth features security attendants at the main gate, and on duty round the clock.

CFO Joel Sandberg remarked about a recent low-tech security initiative that has proven remarkably effective. “For a period of time at night, we have a pack of guard dogs patrolling the area,” he said. “It's inexpensive and works better than anything else.”

Sidebar: No More Outside Salespeople

New York presents a daunting landscape for order-taking sales calls. The pace of business is hectic, and most contractors spend little time in the office. Streets are congested, parking expensive - when it can be found.

“Two questions every customer has anywhere in the supply chain has to do with price and availability,” said sales vp Alan Cohen. “Ultimately, he will have to contact someone in this office to get those answers. It's a duplication of work to pay a guy to visit someone in the field, only to call back here to get answers to the key questions. We've simply eliminated the middleman.”

Cohen added that they did not eliminate salespeople, just the role of the outside salesperson. Cohen and many other people in the company still visit customers with whom they have relationships or as need arises. Only now all calls are made via appointment. “Instead of a handful of people calling on customers, we've now got a boatload. But we no longer have people knocking on doors and leaving cards without a response,” said Cohen.

The decision to do away with the outside sales force evolved over a period of years. D & W has become more promotion-minded during that time, getting involved for the first time in trip promotions and the like. A biennial trade show held at Maspeth headquarters draws as many as 600 contractors and continues to grow in what GM Pilinko called “bells and whistles.”

“We're the only company I know of that hosts a trade show in its own supply house,” he said. “We're trying to reach out to customers in different ways, and we feel they have been more effective than outside sales calls.”

Sidebar: Working The Big Project

The project, which began in 2000, is a mixed-use structure that will include a hotel, office space, restaurants, shops, a concert hall, a TV studio and residential space. The components each had separate issues and separate contractors. Through its relationship with the plumbing contractor involved in the residential and hotel portions, D & W worked with the general contractor and design group before the project went out to bid.

“We worked closely with the designers in the early stages of the project,” said Mark Bembia, D & W's office manager and commercial specifications director. “We provided them with sample product to review and spent a good deal of time listening to their needs and recommending product that would meet specifications while keeping costs in check.”

Sheldon Malc, director of showrooms for D & W, also played a major role in the project. “We felt that spending the amount of time we did with the contractor and designer before the project was awarded was a worthwhile risk. We even went so far as to work with a faucet manufacturer to develop a model specific to the project.”

The project required that the delivery trucks arrive before 7 a.m. to ensure a place on line for the two loading docks available. And with no onsite storage, the wholesaler had to be able to stock material for next-day deliveries. In fact, with certain items coming in from overseas, D & W brought the entire order over early to ensure availability.

“Our customers know how we operate on a daily basis,” said Bembia. “It's that ongoing effort that brings them back to D & W on their important projects. When something like AOL TW comes around, you can't just flip a switch and provide excellent service. You have to live it every day and that is what D & W is all about.”

Sidebar: The Legacy Of 9/11

Fortunately, no D & W employees or family members were lost in the World Trade Center atrocity, but plenty of friends and business associates were among the casualties. Moreover, the hundreds of police and fire personnel who perished belong to all New Yorkers.

D & W joined many other area businesses in contributing time and materials to the rescue effort in the weeks and months that followed. They also have erected a shrine in honor of those who fell. It sits a few feet inside the security gate at Maspeth headquarters. It's made of reflective material and resembles the haunting twin shafts of light that were on display on the first anniversary of 9/11, a day upon which all D & W locations closed for an hour of reflection.

Sidebar: An Alternative To Holiday Gifts

They set up the Davis & Warshow Scholarship Foundation as a tax-exempt charity. Each year they contribute thousands of dollars to the Foundation, about what they would spend on customer holiday gifts. The money gets dispensed as scholarships - $500 a year for four years - to recipients.

At Christmas time, in lieu of gifts, they send out a card asking for nominations for the scholarship program. Everyone gets a crack at it, and even if recipients have nobody to nominate, they are likely to look kindly at D & W because of its effort.

Sidebar: Supply House Times Wholesalers of the Year

1960 - Noland Co.

1961 - EMCO, Ltd.

1962 - Raub Supply

1963 - Atlas Supply Co.

1964 - A. Y. McDonald

1965 - Horne-Wilson

1966 - Taylor Companies

1967 - Palmer Supply

1968 - J. Levitt

1969 - Kiefaber Co.

1970 - None

1971 - None

1972 - None

1973 - Hajoca

1974 - Ferguson Enterprises

1975 - Standard Plumbing Supply

1976 - CSC, Inc.

1977 - Trumbull Supply

1978 - Harry Cooper Co.

1979 - F. W. Webb

1980 - Slakey Bros.

1981 - RAL Corp.

1982 - Familian NW

1983 - Moore Supply

1984 - Apex Supply

1985 - Noland Co.

1986 - Familian Corp.

1987 - Hughes Supply

1988 - Davis & Warshow

1989 - LaCrosse Plumbing Supply

1990 - A. Y. McDonald

1991 - RAL Corp.

1992 - Columbia Pipe & Supply

1993 - LCR Corp.

1994 - Ferguson Enterprises

1995 - Hughes Supply

1996 - Familian NW

1997 - F. W. Webb

1998 - Apex Supply

1999 - Torrington Supply

2000 - Wolff Bros.

2001 - Lehman Pipe & Supply

2002 - Todd Pipe & Supply

2003 - Davis & Warshow