P.E. O'Hair & Co., a prominent American Institute member, seems on the surface, to be a study in contradictions. Yet, Neil O'Hair, president, has led his nine-branch company through more that 50 years of successful operations, showing a profit in every year except one in the depression.
By Ted Isaacman
What are the factors that make for success in the supply business? In the past 2 1/2 years we have written much about the tools, gadgets, facilities, ideas and management methods that make the cash register ring in this business. There is a growing "book" concerning success in the wholesale business, and it is a good book, proved by experience and bound to loom much larger in the industry's future.
But, perhaps we haven't written nearly enough about the success factor that -past, present and future -is possibly thee most important of all; namely, the powerful impact of human personality. When the authentic quality is there, it seems to have the capacity to make its own rules and almost invariably wins out, no matter what.
The word "personality," as used in this sense, means many things and encompasses the whole human equation as applied to a business situation. It means leadership; the capacity to get superior performance out of people. It means experience, constantly updated. It means a sure instinct about markets and people; the courage to be an innovator and the self-confidence to make fast decisions.
It is not surprising that the annals of the phc supply business are loaded with strong and colorful personalities. Even a large supply house is still small enough for the influence of the top man to be felt throughout the business all the time. And the fast-moving, free-wheeling nature of this business seems to have a strong attraction for that type of person and affords them an environment perfectly to their liking.
Illustrative of this major fact about our business is Neil O�Hair, 72, president of P. E. O�Hair & Co. with headquarters in San Francisco and branches in eight other Northern California cities. O'Hair is one of the most colorful industry figures of this era, with the authentic golden touch. He plays it largely by ear but with perfect pitch. In 50 years in the business, he has failed to make a profit only once -at the nadir of the depression, and only then because $100,000 of bad debts were written off at once.
Playing it by ear, O'Hair consistently -- and profitably -- does things that would seem to violate the "book" on how to run a supply house. For example:
If this seems like a study in contradictions, perhaps you had better read on a bit further. As will be shown later, there is a consistent logic to it all -plus a keen eye to the balance sheet. Thee company is pragmatic to the hilt. If a given approach to any situation makes sense --and money --they will do it that way.
None of this should imply that the company is in opposition to the concepts and tools of modern management. Douglas O'Hair, an executive of the company and Neil's nephew, is a graduate of American Institute's Harvard Business School course.
Regarding this, Neil O'Hair says, "The educational courses presented by the industry associations are no solution to the problems of this business, but they are a great help in attacking them. The industry is becoming more and more complex. If we are to keep up with the times, our people must be equipped with latest tools of business and industry, particularly as they relate to our field. These courses are the only practical way to do this.�
Background
Before getting into the specific aspects of this company, perhaps a little background is in order. Many leading wholesalers can claim to have started with nothing. The O'Hair family started with a lot less than nothing: a pile of rubble, a dishonored insurance policy and a devastated city.
San Francisco, April 18, 1906 -- the great earthquake and fire -- an 18 year-old boy stands amid the wreckage of a city and his family's business. Concerning the earthquake, O'Hair says: "There isn't much to remember. It started a little after four in the morning. It just shook, and then bummed for three days." It might be added that there was no salvage value at all to the business and that his insurance company defaulted on its San Francisco claims.
Stripped to the skin by the greatest catastrophe ever to hit an American city, O'Hair and his family then set out to build a business. Growth has been steady ever since. The San Francisco business was reactivated. The first branch was opened in 1909, across the bay in Oak- land. Fresno opened a few years later.
The company grew rapidly during the 1920's, as it in- creased its area of coverage. At that time there was very little manufacturing of the industry's products on the west coast. Everything came from the east, often by ship. Hence, freight rates were a dominant factor in shaping the supply business of the area.
In general, the rate structure was such that it was usually more economical for a shop to buy its material at a seaport -San Francisco or Oakland -and ship the goods from there to their home city. Thus, the freight situation fostered the development of large firms in the Bay area while retarding the creation of "home town" supply houses and branches. ,
O'Hair's growth policy was influenced by that fact. But, toward the end of the 1920's there was a major modification in the rate structure as applied to this situation. Con- currently there was a growing demand on the part of con- tractors for more local sources of supply. All this motivated O'Hair into a branch policy.
In 1931 they bought out small supply houses in Monterey, San Jose and Stockton, forming them into Western Plumbing Supply Co. Later, the Monterey store was closed and another, in Salinas, was acquired to replace it.
Just prior to World War II, the O'Hairs became affiliated with the J. R. Deterding Company, a phc supply house in Sacramento. This arrangement still exists.
Shortly after World War II, the great influx of people into Northern California caused a huge building boom all along the San Francisco peninsula. P. E. O'Hair & Co. quickly recognized t~ tremendous growth potential of the area and established a branch at Redwood City, about 30 miles south of San Francisco. This area might have been served from both San Francisco and San Jose, but the company was taking no chances; they made certain they had goods where people needed them.
The company's newest branch is in Santa Rosa, about 50 miles north of the Golden Gate. It too came into existence because of the policy of "availability." About six years ago they discovered that one salesman was doing a good deal of business in the area, particularly on car- load merchandise distributed from the railhead. Following the evident demand, they established a branch there and last year constructed a modern, one-story building to house it.
Today the company has 265 employees and travels 45 salesmen. While the sales volume was not revealed, the sheer mass of the thing would suggest that it is easily in the top 25 among industry supply houses nationally. Now, for a closer look at their facilities and highly effective way of doing business.
San Francisco Headquarters
San Francisco is the only outlet in the organization with multi-story facilities. All branches are single-story, and the newer ones are adapted to "modern" materials handling to an extent not possible in the home office.
The two-story headquarters building was built specifically for the supply house in 1926. It has a 137 ft. frontage on one of the main commercial streets of the city and extends 275 ft. deep. There is also a two-story 75 X 100 ft. ell. Behind the building is a corrugated steel storage area with approximately 10,000 sq. ft. of space. Over 75,000 sq. ft. of storage space is devoted to steel pipe. This is divided between a pipe yard, about two miles from the main building, which contains 60,000 sq. ft. of ground space, and 15,000 sq. ft. of rented steel warehouse space adjacent to the headquarters.
Extension of their present facilities is not practical be- cause land values in San Francisco are now approaching $5.00 per sq. ft. Land prices in San Francisco proper are probably the highest in the country. The city sits on the tip of a peninsula with no possibilities of expansion. The continued growth of the city has made even warehouse district land fantastically high-priced.
Jack Middleton, vice president of Western Plumbing Supply, says the present building was constructed so that another story could be added. However, they have abandoned that idea, realizing the higher you go, the more expensive it becomes to handle merchandise. Instead, the company is making efforts to better utilize its available storage areas.
Here is a prime example of O'Hair's pragmatic, common-sense approach to its business. Conditions being what they are in San Francisco, they accept the problems and costs of primarily manual handling and dispersed facilities. It adds to their costs, but the solution would cost more than the problem.
The branches are a different story. Here, neither natural barriers nor excessive land costs impose any problem. So, the branches, all modern single-story, are tops in handling efficiency.
The Branches
With the exception of Fresno, which lies 200 miles to the south, all branches are within 100 miles of the San Francisco headquarters. All are managed by energetic and capable young men. They are: Walter Larson, at Santa Rosa; Frank Savage, at Stockton; H. M. McColm, at Fresno; Art Hirschfeld, at San Jose; LeRoy Hall, at Salinas; Russ Deterding, Jr., at Sacramento; and Doug Williams, at Redwood City, Williams also serves as "manager of branches," overseeing the other branches and coordinating their activities.
Each manager has only one order: make a profit! For the most part they operate their branches as independent concerns, with only the overall company policy set by the headquarters in San Francisco.
Neil O'Hair says: "I think branches should operate basically as separate entities. There should be central control in the areas of major buying and credit, but they should be as independent as possible."
Three of the nine outlets operate under the P. E. O'Hair & Co. banner. They are San Francisco, Redwood City and Santa Rosa. Western Plumbing Supply, a separate company, also operates three: San Jose, Salinas and Stockton.
The other three branches all have individual names: Fresno Plumbing Supply Company; Oakland Plumbing Supply Company; and J. R. Deterding Company, at Sacramento.
General ledgers are kept in Oakland, Fresno and Sacramento for the individual branches involved. Ledgers for the three P. E. O'Hair branches are kept in San Francisco, and books for Western Plumbing Supply are held in San Jose.
At the end of each year, however, the final accounting for each branch is done in San Francisco. Tax returns, financial statements, etc., are made out then. This pro- vides a central source of financial management.
To the modern management theorist, all this might seem like a patchwork of names and administrative method. According to Jack Middleton, "It just grew, like Topsy." However, it does again illustrate the pragmatic nature of a company that is much more interested in moving merchandise than playing office. The branches were opened and acquired to make money. They are making money, so why fiddle around with a winning routine?
Sales Method
Redwood City lies about half-way between San Francisco and San Jose, approximately 25 miles from each. Oakland is directly across from San Francisco, just a few minutes ride across the Bay Bridge. P. E. O'Hair & Co. has branches in all these locations. Salesmen from these branches almost inevitably will have overlapping territories. Isn't this wasteful? Again, the pragmatic answer.
Bill Mueser, general manager of the overall corporation and sales manager for P. E. O'Hair & Co., thinks this overlapping works to the supply house's benefit. Some customers insist on buying from more than one O'Hair branch, even though they know it's all really the same company. Mueser is mystified by this, but accepts the fact: "I don't know why this should be. But, I know that if men from both locations stopped calling on them, we wouldn't get the same volume of business from them."
Jack Middleton states the case for this policy in even stronger terms: "We don't attempt to have anyone branch monopolize an account. We want to provide service. That's the only thing we have to offer over and above what our competitors can offer. We all have essentially the same products, and through competition our prices tend to level out. You have to stick fairly close to the price level set or you won't sell anyone. So, the long and short of it is, the thing we have to sell is service: have the merchandise when and where the man needs it." Another example of how the company would rather get business than serve an abstract theory is their approach to covering the larger cities..
In metropolitan areas, all salesmen are assigned accounts rather than territories. In discussing this system, Bill Mueser says: "We know we incur slightly higher travel expense this way. But, we've found cases where a very good sales- man just couldn't sell a certain account. We send another man after this same customer, and he does the job. H you layout fixed territories, you just can't expect one man to get along with, or be accepted by, everybody in that area. In less populous areas you have no choice. It has to be by territory. It's just too expensive to support more than one salesman for the relatively small volume."
Supporting their salesmen, the company has a regular schedule of advertising in local and state contractor's and plumber's journals. Also, they issue direct mail "bulletins" three or four times a year, usually in connection with special sales. They also use manufacturer's literature as envelope stuffers with their monthly statements.
Compensation for salesmen is on a salary plus bonus arrangement. Occasionally they will put on an incentive drive for a specific item, usually a new product. This is normally done when a manufacturer is encouraging a temporary selling campaign. A pension plan for all salaried employees is part of the company's benefit to employees.
Most of the 45 salesmen are general line men. About 60 percent of the company's business is in plumbing goods; 20 percent in heating; and the remainder is divided about equally between industrial sales and tools. These are figures for the total O'Hair business complex.
There are certain variances in this pattern at individual branches. For example, in San Jose or Oakland, where industrial business is solicited more strongly than other locations, this category could represent 30 to 50 percent.
In circumstances such as that, some use is made of specialized salesmen. In San Francisco, for example, there are three industrial salesmen and four men inside who help service their accounts, Even these men, however, are used for plumbing-heating sales in an emergency.
The company is known nationally as a major operator in the California tract market. Less well-known is its success in cultivating the small shops and its fine counter business. The O'Hair organization considers counter trade the most advantageous type of business, because there is no dickering over price, no delivery costs and less handling. The only catch, they think, is that the physical plant must be adapted to capitalize on these possibilities. With their more modern buildings, good parking facilities, etc., branches are particularly suited to this business.
Another policy the company follows is the encouragement of as much package, or other full unit, selling as possible. Elmer Nelson, secretary-treasurer of both P. E. O'Hair and Western Plumbing Supply, points out some of the difficulties in this approach: "Selling by the package or other full unit is very desirable. But, usually, the man who comes to the counter is the driver, or helper, and he just lays the order down on the counter and expects it to be filled. He isn't in a position to take more than the quantity on the order. Of course, when our salesmen call on customers they try to educate them to ordering in full units. But, you've got to sell on the basis the customer orders. We don't try to drive or dictate to the contractor, and make him think we're just trying to load him up."
Important to their selling method, indeed central to the whole nature and character of the company, is its approach to inventory and buying.
Inventory Policy
In advertising through local contractor journals, the O'Hair companies use the following slogan: "Our Pride Is In Our Inventory." This is more than an empty phrase; it is one of the company's basic tenets. O'Hair believes you must have complete inventories to serve the needs of your customers; that this makes sales.
Over 20,000 items are carried in the O'Hair organization. It is all handled without perpetual inventory control at any point. Elmer Nelson doesn't think they need it.
"Perpetual inventory wouldn't tell us what we want to know -what the situation is today," he explains. "It will tell you what you had on hand a week or two ago, because it takes that long to check items in and out."
Nelson speaks with awe when he describes Neil O'Hair's ability to keep mental records. "Many times I've walked through one of our warehouses with him -and not slowly either. Then weeks, or even months, later, he would tell me how many of a certain item was on hand there. What's more, he's invariably right."
In addition to being the human Univac at predicting inventory needs, O'Hair is also the company's master buyer. Whether it is intuition or reflex-like business analysis, he seems to have the knack of making the right buying decision. Modestly he disclaims any great or superior wisdom. "No one knows all the answers," he says. "To be successful, you just have to be right more often than you're wrong."
O'Hair has often astonished suppliers at his willingness to plunge on a big buy. Such little things as storage space and turnover don't seem to bother him much. If the attraction is there, he might buy a year's supply or more.
Says O'Hair: "In some items it doesn't make any difference how much you have on hand. Over a reasonable period of time it's all going to sell. So, on an item with regular movement, you don't really care how many you've got. If the price is extremely good, we buy and then worry about the storage space."
As the SUPPLY HOUSE TIMES reporters watched O'Hair in action, it was hard to believe the man is 72 years old. His driving approach to business, his uninhibited thinking, and many unorthodox viewpoints often seemed more like those of a young man setting out to make a mark.
Usually, when a company has been in business over 50 years and has long been a major factor in its industry, it acquires a certain staid tranquility .It falls in love with itself and gets preoccupied with considerations of dignity and decorum. Everything becomes sort of bland and quiet as they resolutely turn away from methods that made them.
Most assuredly, that hasn't happened at P. E. O'Hair & Company. Nor is it likely too. For in this, as in other things, Neil O'Hair is an original.
Source: Supply House Times, October, 1960