The Future That Was Meant To Be

by Kim Phelan

As S&D Industrial Tool Supply celebrates 40 years in 2024 as a cutting tool distribution specialist in Anaheim, California, one of Founders Sam and Diane Martlaro’s greatest sources of pride lies in the fact that five of their original customers are still doing business with S&D four decades later. Primarily serving a tight, four-county So-Cal radius of job shops that support military and commercial aerospace, as well as die mold manufacturers, automotive, medical, and oil and gas, S&D has been committed to outservicing larger competitors even while weathering economic downturns over the years, including a life-changing business turnaround in 2001.

The company goes to market as local tool and equipment experts who never start a conversation about price but manage to save their customers thousands – even hundreds of thousands. And they’re anchored in strong relationships with both customers and suppliers. Together with their longtime partner and field sales guru, CEO Jim Herman (25% owner), and a team of 13, including daughter Erin Chvat, who is accounting manager and a 10% owner), the Martlaros have carved out a well-respected position in their territory as a deep knowledge and solutions resource that will do what it takes to take care of their customers . . . many of whom have become management’s friends outside of work.

“We never wanted S&D to only be about Sam and Diane – what it actually stood for is service and dependability,” said Diane Martlaro, vice president of finance who has recently transferred her responsibilities to her daughter. “From the beginning, that was our core belief. The customer needs something and whatever it is, we’re going to get it for them. And if they need us to come over 10 times a day, we’re going over 10 times a day.”

Sam added, “When that phone rings, they’re not calling to say, ‘Hello, how are you.’ They’re calling to say ‘I have a need and I need it now,’ and whether it’s a handshake deal on credit terms or getting a part to them by the weekend, what I’ve tried to stand for is: Are you happy with my services?”

But now, as both the couple and Herman start talking about stepping back and transitioning ownership of the $9 million company they’ve built, the serendipitous arrival of two individuals on the team will ensure that S&D will indeed continue to thrive and grow under the leadership of a new “S” and a new “D.”

Chandan Shiroy, the new “S” of the next-gen S&D leadership, is a 20-year manufacturing veteran who supported distribution in the field. He met Sam Martlaro some three years ago at a customer facility, and, as many successes were racked up in the course of serving S&D accounts, a fast friendship was formed. By January 1, 2023, Shiroy had finally accepted Martlaro’s persuasive arguments to hop the fence and bring his deep industry and operational experience to the distribution side of the business. Shiroy has been vice president of operations for a year now, with a 10% share of ownership gifted to him from Martlaro. He is the author of something brand-new at the company: His “Vision 2024” plan comprises strategic goals and timelines for the company’s (1) digital transformation, (2) talent development, and (3) market leadership through expanded focus on vending solutions for customers.

Rewind almost 10 years into the past and Martlaro crossed paths with Darren Dives, who was the third generation of a family tool and die business. His 20 years of extensive manufacturing and machine shop expertise eventually landed him in Southern California. And while he had had discussions with Martlaro and Herman about working for S&D, he wound up taking a job with a competitor. But fate wasn’t finished with their connection. When the company he worked for was acquired by a national distributor, Dives was uncertain about his future there – at just the right moment, the invitation to join S&D was re-extended and he accepted.

For the last nine months, Dives – who is the next “D” of S&D – has served as vice president of sales, and through his connections in the marketplace he’s been responsible for nearly doubling the distributor’s annual sales. He’s also spearheading new product additions such as MRO, safety supplies, bandsaw blades, machine shop fluids, as well as some additional carbide end mill lines and another indexable line. Dives, too, has a Martlarogifted ownership share of 10%, and he has joined the journey with Shiroy to buy out the company over a period of several years.

Marlene Moreno, operations manager, and Diane Martlaro

LETTING GO

It’s tough letting go or even modifying the patterns one’s been used to, and Herman, who has been leading S&D’s field sales front with technical and relational dexterity since 1999, admits that embracing change is the biggest challenge in the transition. He and his wife have already purchased a home in Tennessee where they plan to reside in retirement starting this year, but he’ll retain partial ownership indefinitely and intends to come back in person about once a quarter.

“As the trust in Chandan and Darren has grown, this process has become easier every day,” Herman said, “understanding that we need to change to remain competitive as national distributors become even more aggressive in this market. We already see our customers embracing some of the changes and looking forward to the ones to come that we have discussed with them.”

Herman adds that the employees are embracing the leadership Shiroy has brought to the inside team, and Dives has “brought technology and sales tools to our outside sales team I didn’t even know existed,” he said. “When outside sales guys are saying they want more meetings because this is great and helpful, it’s clear Darren is on the right track. So as long as Sam and I don’t screw it up, things are moving nicely! The only negative I can think of is that transition is expensive – we have new ownership coming on board while current ownership is still also on salary. Not that this was unexpected, but it’s definitely a struggle and something others should be aware of.”

Erin Chvat, accounting manager

His exit planning advice for peers in small-size distributorships: “Start a lot earlier than you think you need to. In a company our size, we retain and grow business through the relationships we have and cultivate. To transfer this type of trust to a new person takes time. The key is finding the right people – you are putting your retirement nest egg in someone else’s hands and need to know it’s secure.”

Martlaro added that it is essential, albeit difficult, to let go of responsibilities and believe in the up-and-coming management team.

“The positive for me has been how diligent Chandan has been,” Martlaro said. “The negative for me was during the first few months it seemed like “diligent” took way too long – I like things to be now. I also did not realize how many new moving parts S&D had going on in 2023. The good that came from this was me interfacing more and more with Chandan because he calms me down.”

Martlaro is more than calm about the outlook for his business in 2024; in fact, based on continuous conversations with customers about their backlogs and expectations, he is projecting a healthy 15% sales increase this year.

“Luckily for us, Chandan has put together the most intensive business plan in writing that S&D has ever had,” Martlaro said. “Using that as a spring board, S&D should do just fine moving forward.”

WE SOLVE PROBLEMS

John Scott, inside sales team

S&D’s collective management group describes their market environment as more “on fire” than they’ve ever seen it, which Dives attributes in part to customers’ No. 1 problem: a skilled labor shortage exacerbated by mass retirements. Lack of experience and training about how to plan ahead for tools to align with upcoming jobs in the pipeline creates a sense of panic and urgency – and today’s Amazon mindset of next-day-everything doesn’t help.

At the same time, the reduction of experienced workers is the ideal opportunity for S&D to fill in the gaps and help someone who’s not highly skilled make a highly tight tolerance part, all while making both the management and the shop floor employee look good.

“We solve problems,” Dives said. “It’s our connection with the customers directly on the shop floor and providing solutions to their problems – that’s what we do all day long. And we feel that we do it at a much higher level than a majority of our competition can or is willing to do. It can be pretty tough to go out and put our butts on the line sometimes and make those decisions or do that necessary run around to get them out of a bind.”

Herman illustrated how he and the team immerse in the customer’s pain and deliver simple solutions with large dividends.

Chandan Shiroy and Sam Martlaro

“One of our customers was drilling an aluminum plate, and it was taking them about 35–40 minutes to drill a hole,” Herman recalled. “We went in with a brand-new tool – they had to buy about $1,000 worth of tools. But instead of taking an hour, it took them three minutes a hole. They had 240 holes per plate, and they had 10 plates, so 2,400 holes, and we saved them 57 minutes. At $100-an-hour shop rate, it’s not hard to figure out how much money that saved them.”

WINDS OF CHANGE FEEL PRETTY GOOD

Those many success stories aren’t going to remain the lore inside anyone’s head anymore, according to Shiroy. One of his new initiatives is telling those examples of solved problems in a blog area of S&D’s website. He has also instituted a regimented cross-training initiative among all the personnel roles to ensure no hiccup occurs in customer service and delivery on commitments if one person is out of the office. Of course, says Shiroy, nothing irritates a customer more than having to wait a week (much less a few hours) because someone’s on vacation.

Darren Dives speaks with Francisco Sanudo at a customer's shop floor

And there’s much more to the transformations he has set in motion. One big change in the works is an ERP system that is revolutionizing (aka automating) the company’s ability to simplify (aka digitize) accounts receivable payment options, thus creating significant savings for both the distributor and their customers. Shiroy is especially excited about the inventory forecasting capabilities that are being implemented.

The company is revamping its website to include an e-commerce feature with a shopping cart, but showcasing only its premier suppliers in front of customers, because they recognize that when you take care of your best suppliers, they take care of you.

“Automation of key areas like finance, order desk, and sales makes us very nimble and agile to adapt to our customers’ needs – something our bigger competitors will always struggle with,” said Shiroy. “It’s like the difference between a speedboat and a massive cruise ship. While the big competitors are busy navigating their bureaucratic waters, we’re zipping around, meeting customer needs with precision.”

Bob Coonis and Cesar Garcia

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