November, 2006

Shelly Enterprises: Perkasie, Pennsylvania

With room to expand, better efficiencies and a strategy for the future, Shelly Enterprises is poised for growth.

By Steve Easley

It is both good and bad when a company reaches the point where it has maximized its capacity. It is good in the sense that the company has grown successfully. But it’s bad because the company is standing still so long as it remains constrained.

Shelly Enterprises, based in Perkasie, Pa., found itself in this situation a year ago. “We were physically constrained,” says company co-owner Bill Shelly. “We were bursting at the seams. We were so bound, we weren’t efficient and we couldn’t move forward.”

But this year, Shelly’s opened a new distribution center and re-arranged operations at other locations. It took advantage of newfound space. And in June, the company celebrated the opening of a kitchen design center.

“We look forward to growing into this new capacity,” says Bill Shelly.

FILLING UP

Bill Shelly and his cousin, Greg Shelly, own Shelly Enterprises and are the only stockholders. Their grandfather founded the company in 1923 and their fathers both worked in the business. Bill and Greg, who have both earned MBA degrees, decided to work in the family business because the opportunities looked good in the 1970s and because they wanted to work for a small company and make a difference.

Shelly’s has 10 locations in eastern Pennsylvania, seven of them full-line yards. Its market stretches from the suburbs of Philadelphia north to the Poconos. Four hundred employees work for the company, which is 90% contractor sales, with two-thirds of those sales to new-start construction. Each yard employs two outside salespeople on

average, with inside salespeople and support staff to assist in contractor sales.

Revenues have been steady for Shelly Enterprises for the past several years,

reporting revenues of $125 million last year. “We did an acquisition about five years ago,” says Bill Shelly. “We saw three or four years of strong growth and were in a sort of digestive mode, working toward full capacity.”

The housing market in the area, according to Shelly, stays relatively level despite national trends. The area has had an influx of people moving west out of New Jersey who may commute back East for jobs.

“Our market is really a blessing,” says Shelly. “It’s highly fragmented, not dominated by one or two large builders. It gives us the opportunity to choose to work with customers who have the same values we do, who really have a stake in their business. There are lots of smart regional builders here who we have the opportunity to work with.

“We try to stay small, to think small. We want to focus on our local customers and stay in local markets,” adds Shelly.

KEEPING PACE

One challenge for Shelly’s is simply keeping up with the ever-increasing pace of business. “Everything moves so fast,” says Shelly. “Cycle times to build are faster. There are more product offerings, more options. It’s a challenge to keep up.”

Shelly’s uses technology to alleviate the burden of administrative work wherever possible. It uses electronic data interchange with vendors such as Andersen and its cabinet supplier. It uses dispatch software to communicate logistics information company-wide. And the truss plant is highly automated.

“Another challenge for us is the consolidation in the building materials industry and in the homebuilding industry,” says Shelly. “We need to make sure to keep adding value.” Shelly’s faces competition from other independents and larger national chains, like Stock Lumber and 84 Lumber. “When big boxes moved in, we decided to focus on core product groups and scaled up. It helped us thrive and be more efficient when many independents failed,” says Shelly.

While opportunities exist, the company thinks it has a winning formula

in its conservative growth strategy. Installed sales, for example, is an area where it is very careful. “If a builder wants us to do an installation, it’s because they have a problem, so we are very deliberate about what we’ll do,” Shelly explains. “We pick and choose. Mostly, Shelly’s installs kitchens and interior millwork.”

FINDING SPACE

Shelly Enterprises applied its “slow and steady” philosophy as it physically

expanded this year. The company added a distribution center and a kitchen design center. And, according to Bill Shelly, it “increased capacities and improved efficiencies.”

The 28-acre distribution center, which features 80,000 sq. ft. under roof, got its occupancy permit in March 2006. The interior millwork shop moved in over the course of four to six weeks. Cross-dock capacity for windows and cabinets increased by 100%. Fifty-five employees work at the site now.

The distribution center is a “reclaimed” industrial site. “It fit for us, for what we wanted to do,” says Shelly. “It was also good for the community that we cleaned up what was quite an eyesore.” The site allowed Shelly’s to add a rail siding to receive lumber and panel products. The company is trying to ship directly to job sites as much as possible, but is also distributing to other yards from the center.

“We’re getting adjusted to a new routine,” says Shelly. “We’re working out some operational issues. We anticipate that it will take six months to a year to get fully acclimated.”

The truss and wall panel plant at another location has extra space now that the pre-hung door operation has relocated to the new distribution center. The next step is to expand the truss and wall panel plant into the now free factory space.

Bill Shelly says he wouldn’t do much differently with the distribution center if he had it to do over. “We’ve been fortunate. We just have little tweaks to make.” He does suggest that companies go into this process aware that it will take longer to get approvals than planned and will cost more than planned. “Just keep in mind that it’s a long-term investment and that it’s all about improving customer service,” advises Shelly.

The other big investment for the company is its first stand-alone kitchen design center. The 3,500-sq.-ft. center celebrated its grand opening in June. The kitchen business has been a source of growth for Shelly’s. “It’s a $10 million part of our business now and has seen growth in the 10-15% range over the past five to seven years,” says Shelly. The company has kitchen showrooms in its yards, but this stand-alone concept is a new one.

Also new is the market for the kitchen design center—western Philadelphia. “Market research shows that this area will support high-end kitchen products,” says Shelly.

Three designers work on site with the market sales manager. Shelly’s current builder/remodeler customers are invited to bring in their customers. All business, for now, will be done on a referral basis, with no walk-in customers. Shelly’s offers kitchen installation services from this location as well.

“We’ll see how it goes before we make plans for more locations like this one,” says Shelly. “The company will only move as fast as the people who work here can.

“We’ll do everything slow and steady,” Shelly repeats.

Bill Shelly acknowledges that the company’s expansion required a great deal of capital. “It’s all about the long-term and adding value to the services we offer our customers,” he says. “Shelly’s could do 20% more business as we grow into our new capacity."

With room to grow, improved efficiency and a deliberate business plan, Shelly Enterprises’ capacity for success seems unlimited.