MSC Industrial Supply is using the Ariba Network to improve customer engagement and provide innovative solutions. Customers are facing pressures to speed up their supply chains and get products to market faster. MSC is using data from transactions on the Ariba Network and from vending machines installed at customer sites to gain insights and help customers optimize their operations and reduce inefficiencies. Collaboration enabled by technology like Ariba is critical for companies to work together efficiently and drive improvements across shared supply chains.

1. Modern Supply Chains -- How Leading Companies are
Engaging Customers in Entirely New Ways
Transcript of a BriefingsDirect podcast on how innovations in supply chain management are
enabling companies to improve on indirect materials procurement.
Listen to the podcast. Find it on iTunes. Sponsor: Ariba, an SAP company.
Dana Gardner: Hello, and welcome to a special BriefingsDirect podcast series coming to you
from the recent 2014 Ariba LIVE Conference in Las Vegas. We’re here the week of March 17 to
explore the latest in collaborative commerce and to learn how innovative
companies are tapping into the networked economy.
We’ll see how these companies are improving their real-time business
productivity and sales, along with building far-reaching relationships with new
business partners and customers.
I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of
Ariba-sponsored BriefingsDirect discussions.
Our next innovator case study focuses on the new face of customer engagement and
procurement modernization. We’ll see how MSC Industrial Supply is improving how they define
and relate to their customers in the manufacturing sector.
We will learn how MSC has been using the Ariba Network to bolster customer engagements, and
to provide new and innovative solutions to their customers as well.
So join me now in welcoming our guest, Erik Gershwind, President and
CEO of MSC Industrial Supply in Melville, New York. Welcome.
Erik Gershwind: Good morning, Dana. Thank you for having me
today. Great to be with you.
Gardner: What procurement pressures are your customers facing? Why are they looking to
change things? What's wrong with the status quo?
Gershwind: Most of our customers are North American manufacturers. One of the sea changes
that we have seen occur, particular since the 2008-2009 global recession, is if you look back for
the past two decades, there was a heavy focus by procurement, supply chain, and finance
organizations on price, on cost.
Gardner

2. Of course, that's still critically important, but since the 2008-2009 recession, businesses around
the world, and certainly manufacturers in North America, now have a much greater awareness on
the importance of cash flow and speed through the supply chain.
Bigger priority
That's probably the biggest thing that we’ve seen in the past few years. Our customers are
telling us that speed of the supply chain, getting to market faster, so they can have more of their
products into their customers’ hands faster, is becoming a much bigger priority.
Gardner: So to be swift, agile, and lean in the way you go to market requires that you look at
your internal processes, and get lean there. Is that right?
Gershwind: Dana, that’s exactly right. Leaner supply chains turn into shorter lead times. Shorter
lead times mean faster speed to market. And all of that requires really tight
dependency from every single link in the supply chain.
What we’ve found is that everything that’s happening in our supply chain right
now is driven by the end-user, what's happening with the customer, but that
customer’s needs are working their way back very quickly.
And collaboration, which is enabled by technology, is making it critically
important in order to be effective in leaning things out.
Gardner: I certainly want to learn more about how you’re modernizing procurement and
bringing benefits, but first, tell us a little bit about MSC, for those of our listeners and readers
who are not familiar with you.
Gershwind: MSC is a distributor of industrial supplies. We sell over a million items, primarily
into manufacturing or any maintenance environment. That could be anything from a safety glove,
to an abrasive, to the most advanced metal cutting tools that are used in the manufacturing
process.
We exist so that we can help businesses focus on their business. We do that by ensuring that
supply chains run smoothly. Our small part in that bigger mission is around taking the
complexity, the obstacles, and the inefficiencies out of maintenance, repair, and operations
(MRO) materials.
We were founded over 70 years ago in a tiny storefront on the lower East Side of Manhattan, and
everybody at MSC, including myself, has been part of what's been an amazing growth story.
We focus on anything that's an indirect part of a production process. So not the raw materials, not
the direct stuff, but all of the other things that keep plants running. That’s what we specialize in.
Gershwind

3. Hot topic
Gardner: Another thing that’s going on, in addition to business pressure to be lean and agile,
are some technology improvements over the past several years. One of those is a topic of the day,
a hot topic, big data and the analytics that you can derive from more and more types of content
and gain more and more insight.
How do you get information or acquire insights or analysis that can allow you to then bring
better approaches to your customers in helping them be lean and efficient?
Gershwind: Historically, when I look at the core assets of MSC as a distributor, there were three
things I would highlight: our people, first and foremost; our inventory; and our distribution
centers, our physical assets.
What we’re quickly realizing is that there's a fourth one that’s every bit as important as the other
three assets. That's information. You’re absolutely right. With every transaction that occurs,
especially because of technology now, there's learning in there.
To answer your question, we’re using technology to help us harvest that data, use it to drive
improvements within our own four walls, but more importantly, with our customers and with our
suppliers.
I’ll give you two examples of how we’re employing technology. One is Ariba. Ariba is the
perfect platform for connecting buyers and sellers. It's a network, but it's a network that leaves
footprints. With every transaction, there’s a footprint left behind that’s waiting to be mined for
operational improvements.
Another example is our vending initiative. We at MSC will take a little piece of ourselves and
put a vending machine on the plant floor of our customers to store tools and let them take
responsibility for procurement. Certainly, one advantage is security and inventory optimization,
but there is information to be mined in each one of those machines, and we’re using that to help
our customers.
Gardner: Tell me about your history of working with Ariba. How long have you been doing it,
and what are some of the chief benefits that you see in using Ariba's Network and various cloud-
based services to conduct your own procurement and tighten up your own processes?
Gershwind: MSC has been a seller on the Ariba Network for well over a decade. If you’ll bear
with me, I’ll share a quick story, a trip down memory lane. One of our very first Ariba
interactions was close to 15 years ago. One of our customers at the time, a big manufacturer,
asked us if we could get up and running on the Ariba Network in less than a month's time.

4. The three partners together -- the customer, MSC, and Ariba -- rolled up our sleeves. We had
teams working on the same side of the table for a month straight. It was a great example of
collaboration.
First transaction
And I still remember us huddled around the computer screen, waiting for that first transaction
to go through. I’m proud to say that that customer relationship is one of the best we have still
today.
In terms of the benefits that we as a seller see, there are three things I would point to.
Number one is certainly enhanced revenue growth. Number two is cost savings, because
transactions are now done electronically. But I would call out the third one as the most important.
Ariba is helping us collaborate. It’s bringing business networking to happen faster, more
efficiently, and more frequently. And those collaborations are resulting in innovations to our
supply chains collectively and are driving improvements.
Gardner: Erik, I’d like to return to this notion of the vending machines that, as you said, was an
extension of your business into the actual physical plant of your customers. This reminds me of
what happens in technology on the Internet. For big bundles of objects and data, rather than
going from the server of the originator down to the individual user, we have what we call content
delivery networks (CDNs), where we put those objects out as far toward the last mile as possible.
It seems to me that this is an interesting development for physical goods, and you also, of course,
get the data back on how they are used. Explain to me your rationale and how far you’ve taken
this into the market, this concept of the extension of your physical distribution capabilities into
the very physical plant of your customers.
Gershwind: Vending and the idea of extending ourselves into our customers’ supply chains is a
critical element of fulfilling our mission of helping supply chains run more effectively.
I’ll share a quick example with you. This is a customer that uses vending machines for us. This
customer has about 150 vending machines installed as part of an MSC system across 75
locations in North America, and that system is yielding tremendous benefits for them.
Recently their MRO category manager was in New York and shared with me that at one site in
Alabama, one of this company’s locations, their people were doing a mile-long walk there and
back just to get to a centralized storeroom and get a supply replacement or part of a tool.
Think about that for a second, a mile walk. If somebody is doing that just once a day, and by the
way, many are doing it multiple times a day, they’re walking a marathon by the end of the month.
So by bringing inventory closer to where work is getting done, this company is saving time and
they are translating that time savings into real dollar savings.

5. Gardner: I suppose there is also a common thread here with mobility, where people can use
their mobile devices or smartphones to conduct businesses, activities, and processes and allow
for check-offs, okays, and so forth, reducing that last mile and compressing the distance.
It also reminds me of being able to, in a sense, cross organizational boundaries. They become
fuzzy. Your organization is inside another, for example.
Let's take this to a theoretical level. As we look three, four, or five years down the road, is the
nature of buyer and seller changing? Are we really combining them into a common supply-chain
ecosystem, where there isn’t necessarily an adversarial relationship, but something different,
more collaborative?
Collaboration
Gershwind: Dana, you just hit the keyword. It's collaboration. The way we look at it, we’re all
part of one supply chain. There's no such thing anymore as "my" supply chain and "your" supply
chain. It’s one supply chain, and we are all interdependent parts of the one bigger supply chain.
The reality is that we can't be effective without each other, and that's how business is going to be
run. The beauty of Ariba, more and more, is that it's making that collaboration happen faster,
more efficiently, and more effectively.
Gardner: Now, what about the data, returning to that subject. It’s okay with you to share data
with Ariba and Ariba to share data with you. Then, we extrapolate that across industries,
verticals, and go global. The amount of information we’re gathering, even anonymized and
private, gives us great insights. We can start to be more predictive. That is to say, you know your
supply chain, what your customers will demand maybe quite a bit before, or we can identify risks
when things go amiss, sooner rather than later.
So do you have any thoughts about the future of analysis and intelligence when we apply it to the
supply chain equation?
Gershwind: It goes back to the idea that, as a distributor, we used to think of ourselves as being
in the hard goods business, and of course, we still are, and always will be, but we’re also in the
information business.
The biggest change and trend that I would point to is the idea that information is now being used
beyond our own four walls. At MSC, we always did a fairly decent job of mining our own data
for supply chain improvements, forecasting, and understanding what to purchase.
What’s now happening, and it all starts because of our customers’ needs, that’s working its way
back through the supply chain, is data and information is now being used to help our customers,
and even our suppliers run their businesses better.

6. So the vending example I gave you is a great one. As I said, each one of those electronic
transactions is a footprint. It’s the same thing with our website. E-commerce now represents
nearly 50 percent of MSC’s revenues. Every single one of those transactions leaves behind little
breadcrumbs that give us insights that we can then use and share with our customers and further
back in the supply chain with our suppliers.
Gardner: It seems to me, Erik, that it requires a third party like the Ariba Network to aggregate
and bring intelligence to bear on this massive data. I know that they’re leveraging the HANA
platform from SAP more and more to do that sort of big-data analysis and intelligence gathering.
How important is it for you to look at that third party and see them in a trusted fashion? Could
you do this alone, and are there many other organizations that can fill the role like Ariba Network
is?
Bringing business together
Gershwind: I don't think anybody can do it alone anymore. That's really the nature of the
supply chain that we just talked about. What Ariba does is bring businesses together.
Think of it as a virtual networking forum. It used to be that, in the old days, you were able to
network when you got together maybe once a quarter. Ariba is letting that happen in real time, all
the time.
Are there others doing it? Maybe, but none that we trust more than Ariba. As I said, we’ve been
doing it for well over a decade with them and we view them as an extension of ourselves into our
customers.
Gardner: We’re about out of time, but let’s look to the future. Do you have any ideas about what
you’d like to see from your unique position in the supply chain business, in manufacturing, and
in indirect goods? What would you like to see for the next revolution?
Gershwind: The one thing I would point to that we haven't talked about is the opportunity that’s
sitting right in front of procurement and supply chain, when it comes to indirect materials. For
the last decade or so, procurement has done a wonderful job cleaning up direct materials, getting
clear line of sight, optimizing the supply chain, and taking cost out.
Earlier this morning, in the general session, I referred to direct materials as the garage of the
house, because everybody goes in, it’s a high profile spot, everybody is in it, it’s core to your
operations, and it’s gotten a lot of attention.
Indirect materials is like the attic of your house. If it's anything like my attic, it’s neglected, the
light bulb hasn't been replaced. So it’s dark and you can't see what's going on.

7. What we do know is that today, sitting in North American businesses, is $145 billion of MRO
inventory alone, let alone broader indirect materials. We also know that 70 percent of that is
likely never to be used.
So sitting in front of procurement is a $100 billion opportunity. It's not just the job of
procurement, but all of us as a supply chain. It's sitting there waiting for us.
Gardner: What do you mean? How do we attack this problem, clean up the attic, as it were? Do
we need to have better inventory? Do we have just-in-time supply chain, ordering and
fulfillment? What is it that we need to bring to indirect that’s missing?
Three things
Gershwind: There are three things that we want to bring to indirect procurement and get at the
attic. Number one is looking for time. The natural bias is to focus on cost, but what we’ve come
to learn with our customers who are doing it well is that, if you focus on time savings, the cost
savings does follow. That's number one.
Number two, we need light. We need light up there and we need to bring a flashlight with us.
That flashlight is technology -- technology like Ariba. Use technology as the flashlight.
And the third thing, and we’ve been hitting on it all morning here, is collaboration. Get another
set of eyes. It's hard to see things by yourself. You can't be successful on your own. So bring
partners in and help you attack that $100 billion.
Gardner: So we are really talking about modernizing indirect procurement in ways that we have
already established. We know these things work and we just have to establish the will and then
bring it into that part of the business.
Gershwind: That’s it. It’s about taking what we have already done in the garage and applying it
to the attic. That’s right.
Gardner: Well, very good, I am afraid we’ll have to leave it there. We’ve been talking about
how MSC Industrial Supply is improving how they define and relate to their customers by
bringing new innovations to the indirect procurement process. And by examining this user’s
experiences, we’re learning how MSC has leveraged the Ariba Network to bolster their customer
engagements with new insights, technology, and innovation.
So a big thanks to our guest, Erik Gershwind, President and CEO of MSC Industrial Supply.
Thank you, Erik.
Gershwind: Thank you, Dana.

8. Gardner: And thanks to our audience for joining this special podcast coming to you from the
2014 Ariba LIVE Conference in Las Vegas.
I’m Dana Gardner, Principal Analyst at Interarbor Solutions, your host throughout this series of
Ariba-sponsored BriefingsDirect discussions. Thanks again for listening, and come back next
time.
Listen to the podcast. Find it on iTunes. Sponsor: Ariba, an SAP company.
Transcript of a BriefingsDirect podcast on how innovations in supply chain management are
enabling companies to improve on indirect materials procurement. Copyright Interarbor
Solutions, LLC, 2005-2014. All rights reserved.
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