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Enterprise — SupplyPro Helps With Managing Supply Rooms

Talk about ambition.

In 1997, three executive MBA students at San Diego State University stood up in front of their class and declared that their “idea” would be funded in 90 days.

Craig Collins, now co-founder and senior vice president of marketing for SupplyPro Inc., looks back at the occasion and laughs.

“I don’t know what we were thinking,” he said.

The funding would eventually come, but Collins and his partners , Bill Holmes and Dean Rosenberg , had some fine-tuning and research to do.

Sitting around a conference table in SupplyPro’s Sorrento Valley office, the trio recounted the story of how the company came to be.

The adventure started when Holmes approached Collins about the idea of an Internet-enabled storage cabinet for office supplies. Collins said the idea sounded like a good one since misuse of company supplies can cost companies a lot of money and headaches.

“It’s all I could think about for 24 hours,” Collins said. “These automated dispense systems have worked so well in the health care industry.”

Holmes was already familiar with these automated dispensing systems since he had worked for San Diego-based Pyxis Corp., which pioneered automated medication and supply dispensing systems for hospitals. (Pyxis now owns a minority stake in SupplyPro in exchange for a technology license for Pyxis’ dispensing system.)

Not everyone shared the vision of Collins, Holmes and Rosenberg.

Naysayers

“When we first started, people said it will never work outside the health care system,” Collins said. “If I had a dollar for every person who said it wouldn’t work out, I wouldn’t have needed any venture capital.”

Collins gave a demonstration of how the SupplyPro Internet-enabled supply cabinet works: First, the user swipes an ID badge to get access to the cabinet, which also includes a touch screen and a keyboard. Once users access the cabinet they must punch in how many items they take.

The high-tech cabinet, called the SupplyAgent, includes a built-in computer to monitor items in stock and automatically reorder supplies when necessary. The system also allows employees to view cabinet inventory from their desktop computers, and to place orders for special items that aren’t normally in stock. The cabinets are connected to SupplyPro’s data center.

“You have visibility into all your onsite inventory, which has never been done before,” Collins said. “We’re supplier-agnostic. What we manage is indirect materials. It can be office supplies, safety supplies or industrial supplies.”

Trillion-Dollar Market

Despite some naysayers, Collins and his classmates wrote a business plan based on the Web-enabled supply cabinet. Through market research, they found there were $1.5 trillion in maintenance, repair and operation supplies sold annually in the United States. According to the Business Product Industry Association, there are $200 billion worth of office supplies sold in the United States.

Collins, Holmes and Rosenberg also held a few focus groups that included BFGoodrich Aerospace/Aerostructures Group (then Rohr Inc.), which agreed to test the SupplyPro cabinet.

“The first question I asked was, ‘Who cares about office supplies and why would you spend so much money for an Internet-enabled automated storage system?'” Collins said. “A lot of them said, ‘Oh man, office supplies are the bane of my existence.'”

The next thing on SupplyPro’s agenda was to hire a good finance guy. Enter Martin Bridges, who received a call from Collins on a Friday night.

“I thought about it for 10 minutes and called him back,” said Bridges, now SupplyPro’s chief financial officer and vice president of finance. “I wasn’t familiar with the technology. But when the idea was explained to me I was painfully aware of how office supplies were handled. It made a lot of sense.”

Now Bridges had to help SupplyPro convince venture capitalists that the company’s system made sense.

The Hunt For Dollars

The hunt for a VC began.

“One VC would say, ‘What’s this mission statement stuff? Get rid of it. Your mission is to make money and the risk is that you go broke,'” said Rosenberg, SupplyPro’s vice president of technology. “So we re-wrote our business plan. Another VC would say keep the mission statement.

“Craig used to joke that if it didn’t work out, we’d go into the business-plan writing business.”

For Holmes, SupplyPro’s president and CEO, financing the company with VC money was the only way to go.

“I told the other founders we’re not going to fund this company with our money,” he said. “If this idea’s not good enough to attract somebody else’s money, then it’s not good enough.”

By December 1998, SupplyPro had several VCs to choose from , Tellis-Dickerson, a VC firm based in Santa Fe, N.M., was the first choice.

“We felt their personalities matched well with ours,” Holmes said. “You have to find people who are really going to help you, not just a company with a big name.”

Tullis-Dickerson invested $4.2 million in SupplyPro, while Rob McKay, owner of The McKay Foundation in San Francisco, invested $750,000. SupplyPro is in the process of another round of venture funding.

“This is the only non-health care investment we have made. This one is unique for us,” said Michael Schafer, general partner at Tullis-Dickerson. “But we knew the Pyxis technology and we knew how robust that technology was. With the number of units they had out we knew there wasn’t a question about (SupplyPro’s) cabinet. The real question that surrounded SupplyPro was could we implement the plan and the vision these guys had?”

So Far, So Good

Schafer’s answer: So far, so good.

“I think the company has rolled its product out a little more slowly than we anticipated, but that’s the good news. They haven’t made any mistakes. And if you talk to their customers, they are extremely satisfied.”

SupplyPro’s customers include BFGoodrich, Solar Turbines, General Electric Co., Pepsi, Cisco Systems, Sprint Corp., Ernst & Young and EIS Com-Kyle, a national electronics distributor based in Fremont.

“It fills a very unique niche in our market,” said Freddie Chavez, general manager of national contract supply programs for EIS Com-Kyle in San Diego. “Our market is lacking a good inventory management system.”

Chavez said SupplyPro’s Internet-enabled supply cabinet, which costs between $12,000 and $20,000, gives EIS Com-Kyle a competitive advantage.

“Everybody’s pricing is competitive. We need to be more efficient in getting the product to our customers and driving down the soft costs. It puts us for the first time as a distributor out in front of the curve, by showing something new to the customers.

“It’s going to fill a huge void from where we’re at today and where E-commerce is heading.”

Using The Internet Properly

The Internet, Holmes said, is the key to it all. He said SupplyPro is using the Internet the way it was intended to be used.

“There are a lot of people who think all you have to do is get a bunch of revenue and promote high Web traffic to get investors excited,” he said. “But where’s the real business model? How do these companies make money? The Internet was never intended to do that. It was designed to be an information conduit available to everyone to pass rich data.”

Driving real hard dollar costs savings for customers and having a tangible product also play a role in a tech company’s success these days, Collins said.

“The thing that’s interesting to me is you saw (Gateway founder) Ted Waitt stand up on a stage and say, ‘Here are Internet-enabled household appliances. We’re working on these things and they should be ready in three to five years.’ Everybody gets excited about it.

“While everybody’s talking about it, we’re doing it,” Collins said. “We have an Internet-enabled appliance and it’s really working.”

Hiring the right people also has aided in SupplyPro’s success. SupplyPro’s national sales people, for example, come from powerhouses like Iomega Corp., Lucent Technologies and Octel Communications Corp.

“We’ve found it remarkably easy to hire the very best people,” Holmes said.

‘A Great Incentive’

“There is a great incentive to work together to have the company prosper,” he said, adding that each employee receives stock options.

While serious about their business, the folks at SupplyPro don’t take themselves too seriously. The company even has monthly pingpong tournaments.

SupplyPro employees also work “normal” hours for the most part, unlike many young tech companies where employees work anywhere from 60 to 80 hours a week.

In the beginning, however, there were a lot of late nights for the company’s founders.

“We were all working full-time and getting our MBAs,” said Collins, former director of marketing for Daou Systems in San Diego. “When you’re on a first-name basis with the lady on the graveyard shift at Kinko’s, you know you’re working too hard.”

That hard work has certainly paid off.

Not only do people actually believe in SupplyPro’s Internet-enabled storage cabinet, but the company has also made some money.

SupplyPro, which generated $500,000 last year, expects $12 million to $15 million in fiscal 2000.

Collins said the hefty jump in revenues is a result of an increase in customers.

“We only had three initial customers last year and we were going to a lot of trade shows trying to get more customers. We hired our first sales person last May,” he said. “Since then we have been gaining momentum and getting more people involved and getting referrals.”

SupplyPro plans to continue to boost its revenues by introducing new uses of its Internet-enabled supply cabinet. SupplyPro executives have talked to U.S. Navy officials about the concept of designing applications for aircraft carriers and mobile telecommunications trucks. Wireless features are also an example of what’s to come for SupplyPro’s system.

SupplyPro eventually plans to go global with its Internet-enabled supply cabinet by partnering with companies in other countries.

“It’s just such a gigantic market,” Collins said. “There are numerous opportunities. We want to be the best of class in the market we’re already in. That’s our primary mission right now.”

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