W W Grainger Inc's Business Segments

Grainger uses a multichannel business model to serve more than 1.6 million customers of all sizes with multiple ways to find and purchase products through a network of branches, field sales forces, direct marketing through catalogs and Internet channels. Orders can be placed via telephone, fax, Internet or in person. Products are available for immediate pick-up or for shipment. Grainger reports its operating results in three segments: Branch-based Distribution, Lab Safety and Integrated Supply. The Branch-based Distribution businesses primarily serve the needs of North American businesses for facility maintenance products. Lab Safety Supply, Inc. (Lab Safety), a direct marketing company, serves customers who purchase safety, industrial and other products. Integrated Supply serves customers seeking to outsource some or all of their indirect materials management processes.

Branch-based Distribution
The Branch-based Distribution businesses provide North American customers with product solutions for their facility maintenance and other product needs through logistics networks which are configured for rapid product availability. Grainger offers a broad selection of facility maintenance and other products through local branches, catalogs and the Internet. The Branch-based Distribution businesses consist of the following Grainger divisions: Industrial Supply, Acklands-Grainger Inc. (Canada), FindMRO, Export, Global Sourcing, Parts, Grainger, S.A. de C.V. (Mexico) and Grainger Caribe Inc. (Puerto Rico).

Lab Safety
Lab Safety is a direct marketer of safety and other industrial products to U.S. and Canadian businesses. Located in Janesville, Wisconsin, Lab Safety primarily reaches its customers through the distribution of multiple branded catalogs, including a CD-ROM version, and other marketing materials distributed throughout the year to targeted markets. Customers can purchase products through www.labsafety.com, www.benmeadows.com and www.gemplers.com.

Integrated Supply
Integrated Supply serves customers who have chosen to outsource some or all of their indirect materials management processes. This service enables customers to focus on their core business objectives. Integrated Supply offers a full complement of on-site outsourcing solutions, including business process reengineering, inventory and tool crib management, purchasing management and information management.

Digital
In April 2001, Grainger announced it was discontinuing the operations of Material Logic. All of Material Logic's branded e-commerce sites were shut down with the exception of FindMRO, which remains in the Branch-based Distribution segment.

Competition
Grainger faces competition in all markets it serves, from manufacturers (including some of its own suppliers) that sell directly to certain segments of the market, wholesale distributors, catalog houses and certain retail enterprises.

Grainger competes with manufacturers and other distributors primarily through local product availability, efficient service, sales representatives, competitive pricing, catalogs (which include product descriptions and, in certain cases, extensive technical and application data), electronic and Internet commerce technology and other efforts to assist customers in lowering their total facility maintenance costs. Grainger believes that it can effectively compete with manufacturers on small orders, but manufacturers may have an advantage in filling large orders.

Branch-based Distribution
The Branch-based Distribution businesses provide North American customers with product solutions for their facility maintenance and other product needs through logistics networks which are configured for rapid product availability. Grainger offers a broad selection of facility maintenance and other products through local branches, catalogs and the Internet. The Branch-based Distribution businesses consist of the following Grainger divisions: Industrial Supply, Acklands-Grainger Inc. (Canada), FindMRO, Export, Global Sourcing, Parts, Grainger, S.A. de C.V. (Mexico) and Grainger Caribe Inc. (Puerto Rico).

Industrial Supply
Industrial Supply offers U.S. businesses and institutions a combination of product breadth, local availability, speed of delivery, simplicity of ordering and competitively priced products. Industrial Supply distributes tools, lighting products, test instruments, cleaning supplies, material handling equipment, pumps and plumbing supplies, motors and many other items. Its customers range from small and medium-sized businesses to large corporations and governmental organizations.

Industrial Supply operates 394 branches located in all 50 states. These branches are generally located within 20 minutes of the majority of U.S. businesses and serve the immediate needs of their local markets allowing customers to pick up items directly from the branches.

Industrial Supply's branches range in size from small branches to large master branches. Branches are used to fulfill will-call needs and customer service. Master branches handle a higher volume of counter/will-call customers daily, in addition to shipping to customers for other branches in their area. On average, a branch is 20,000 square feet in size, has 10 employees and handles about 220 transactions per day.

Industrial Supply sells principally to customers which include industrial and commercial maintenance departments, service shops, manufacturers, hotels, government, retail organizations, transportation businesses, contractors, and healthcare and educational facilities. Sales transactions during 2003 were made to approximately 1.3 million customers. The Company's registered trademarks, including DAYTON' (principally electric motors, heating and ventilation equipment), TEEL' (liquid pumps), SPEEDAIRE' (air compressors), AIR HANDLER' (air filtration equipment), DEM-KOTE' (spray paints), WESTWARD' (principally hand and power tools), CONDOR' (safety products) and LUMAPRO' (task and outdoor lighting), as well as other Company trademarks. Grainger has taken steps to protect these trademarks against infringement and believes that they will remain available for future use in its business. Sales of remaining items generally consisted of products carrying the names of other well-recognized brands.

The current Industrial Supply catalog, issued in February 2004, offers more than 82,000 facility maintenance and other products. Approximately 1.5 million copies of the catalog were produced. A CD-ROM version of the catalog supplements the paper version. Approximately 550,000 copies of the CD-ROM catalog were produced.

Customers can purchase products through grainger.com. This Web site serves as a prominent service channel for the Industrial Supply division. Customers have access to a much larger selection of products through grainger.com than is contained in the catalog. It is available 24/7, providing real-time product availability, customer-specific pricing, multiple product search capabilities, customer personalization, and links to customer support and the fulfillment system. For large customers interested in connecting to grainger.com through sophisticated purchasing platforms, grainger.com has a universal connection. This technology translates the different data formats used by electronic marketplaces, exchanges, and e-procurement systems and allows information from these systems to be fed directly into Industrial Supply's operating platform.

Industrial Supply purchases products for sale from approximately 1,200 suppliers, most of which are manufacturers. No single supplier comprised more than 10% of Industrial Supply's purchases and no significant difficulty has been encountered with respect to sources of supply.

Acklands-Grainger Inc. (Acklands)
Acklands is Canada's leading broad-line distributor of industrial, automotive fleet and safety supplies. It serves customers through 174 branches and five distribution centers across Canada. Acklands distributes tools, lighting products, safety supplies, pneumatics, instruments, welding equipment and supplies, motors and shop equipment, and many other items. During 2003, approximately 14,000 sales transactions were completed daily. A comprehensive catalog, printed in both English and French, showcases the product line to facilitate customer selection. This catalog, with more than 43,000 products, supports the efforts of field sales representatives throughout Canada. In addition, customers can purchase products through www.acklandsgrainger.com.

FindMRO
FindMRO is a sourcing service. Through sophisticated search technologies and sourcing expertise, FindMRO locates facilities maintenance and other products when a source is unknown to the customer. FindMRO has access to more than 4,000 suppliers and five million products. Orders can be placed with a Grainger sales representative or a branch employee.

Global Sourcing
Global Sourcing procures competitively priced, high-quality products produced outside the United States. Grainger businesses sell these items primarily under private labels. Products obtained through Global Sourcing include WESTWARD' tools, LUMAPRO' lighting products and CONDOR' safety products, as well as products bearing other trademarks.

Parts
Parts provides customers access to more than 2.5 million parts and accessories, stocking nearly 77,000 of them in its Northbrook, Illinois, warehouse. Customers can purchase parts over the telephone, at grainger.com, or through a Grainger sales representative or branch employee. Trained customer service representatives have online access to more than 300,000 pages of detailed parts diagrams. Parts handled approximately 1.6 million customer calls in 2003 through its call centers in Northbrook, Illinois, and Waterloo, Iowa.

Mexico
Grainger's operations in Mexico provide local businesses with facility maintenance and other products from both Mexico and the United States. From its five locations in Mexico and U.S. branches along the border, the business provides delivery of approximately 63,000 products throughout Mexico. The largest facility, an 85,000 square foot DC, is located outside of Monterrey, Mexico. Customers can order products using a Spanish-language general catalog or purchase them through www.grainger.com.mx.

Lab Safety
Lab Safety is a direct marketer of safety and other industrial products to U.S. and Canadian businesses. Located in Janesville, Wisconsin, Lab Safety primarily reaches its customers through the distribution of multiple branded catalogs, including a CD-ROM version, and other marketing materials distributed throughout the year to targeted markets. Customers can purchase products through www.labsafety.com, www.benmeadows.com and www.gemplers.com.

Lab Safety offers extensive product depth, technical support and high service levels. It is a primary supplier for many small and medium-sized companies and a backup supplier for many larger companies. During 2003, Lab Safety issued 11 unique catalogs covering safety supplies, material handling, security and other products, targeted to specific customer groups. Lab Safety provides access to more than 130,000 products through its catalogs.

Integrated Supply
Integrated Supply serves customers who have chosen to outsource some or all of their indirect materials management processes. This service enables customers to focus on their core business objectives. Integrated Supply offers a full complement of on-site outsourcing solutions, including business process reengineering, inventory and tool crib management, purchasing management and information management.

Digital
In April 2001, Grainger announced it was discontinuing the operations of Material Logic. All of Material Logic's branded e-commerce sites were shut down with the exception of FindMRO, which remains in the Branch-based Distribution segment.