In search of ideal customers

by Richard Vurva

For many salesmen, any sale is a good sale. If a customer or prospect wants to buy something his company keeps in inventory, he’s happy to oblige. At Fastco Threaded Products Inc., a fastener distributor headquartered in Columbia, S.C., you won’t find salespeople pounding the pavement looking for anyone who buys nuts and bolts.

Fastco salespeople are more deliberate in their approach. Thanks to a clearly defined company vision and a 15-point strategic plan, they know precisely which type of customer values what they offer.

The ideal customer is an original equipment manufacturer (OEM) with a need for specialty fasteners that is also serious about improving processes and cutting costs. Salespeople needn’t waste their time calling on customers who care primarily about buying at the cheapest price, who want to maintain an arm’s length relationship with suppliers or aren’t interested in adopting best practices in inventory management and supply chain technology.

“Our ideal customer is an OEM who has a critical need for fasteners and Type C components, who is intent on reducing costs and improving processes. If they don’t care about those kind of things, we offer limited value to them,” says president and chief executive officer Christopher Ray.

Before acquiring the company a little more than a year ago, Ray was its chief financial officer. He purchased the 20-year-old business from the estate of the company’s founder after the previous owner died unexpectedly. Since that time, Ray started reenergizing the company by focusing on what it does best.

Along with other key members of the management team, he segmented customers into four distinct account groups (core, sustaining, thrust and prospects).

Core accounts are major customers where Fastco serves as the No. 1 supplier of fasteners and other Type C components such as screws, washers, nuts and bolts used in the OEM’s finished product.

Sustaining accounts are profitable accounts that don’t have core account potential.

Thrust accounts are current customers with the potential to become core accounts, but where Fastco is not the No. 1 fastener supplier.

Finally, prospects are those accounts identified as big buyers of fasteners that don’t have a relationship with Fastco.

If a company doesn’t fit into one of those four categories, Fastco salespeople won’t likely spend much time working the account. Categorizing customers into one ofthe four segments simplifies the sales process. Salespeople understand that their task essentially is to find customers that fit the profile of the ideal customer.

About half of Fastco’s $14 million in annual sales comes from vendor-managed inventory (VMI) accounts. While C-type components are critical in the production process, their cost represents a fraction of the total cost of the manufacturer’s finished goods, yet consume 70 to 80 percent of their purchasing activity. The Fastco Inventory Tracking System (F.I.T.S.), a customized inventory management program, enables OEM customers to focus on their core competencies.

“A majority of our business focuses on VMI accounts where we’re able to go in and sell them process improvements,” says Jerry Frick, senior vice president for major accounts.

Outside salespeople don’t spend much time on VMI accounts once they’ve been brought into the fold. These accounts are already sold on the benefits of doing business the Fastco way, so they don’t need an outside salesperson calling on them. To keep outside salespeople focused on soliciting new business, Fastco rewards them with a lump sum payout for signing up a VMI account, and then transitions the customer to an account manager to oversee daily activities.

“The salesman’s task is to find and, with management’s assistance, to capture prospects that we have identified in our ideal customer profile. The account manager’s job is to know more about that customer and their fastener and Type C component needs than anyone in the world, including the customer,” says vice president of sales and marketing Chuck Holmes.

Start with a plan
Another change Ray instituted after acquiring the company was to develop a strategic plan with 15 major objectives. Some of the goals included implementing compensation plans tied directly to company goals (for sales and non-sales positions), writing job descriptions for every employee, developing a company-wide training program, adding one new core account for each of Fastco’s five branches, and assigning specific percentage goals for reducing debt and slow-moving inventory and increasing sales and margins.

By the end of 2004, the company achieved most of its goals and began revising the list of objectives to serve as its road map for 2005. Ray says the strategic plan helped galvanize the company’s 51 employees into action.

“Everyone knows what we’re working on. If it’s not on this list, it’s not one of our goals and we’re not going to focus on it. This plan enabled us to tighten the focus of the whole company,” he says.

Profitability review
The company recently completed a comprehensive review of its customer base to determine the profitability of each account. The effort revealed that some customers required so many services and activities that Fastco couldn’t maintain the business at an acceptable profit level.

“When that happens, you have a choice,” says Ray. “You can either raise the margins to cover the amount of activity the customer requires or reduce the service level. The customer may choose to go someplace else.”

Through a letter-writing campaign and personal visits with customers, Fastco began educating customers about how it could help them eliminate redundant processes and cut costs. For example, by tracking fastener usage and instituting a bin replenishment or other point-of-use material handling programs, Fastco can drastically reduce a customer’s onsite inventory. It recently enabled one OEM to pull more than $100,000 in inventory from its warehouse.

“In most cases, we know more about the customer’s usage than the customer does,” says Frick. “We’re not going to be the cheapest source of supply, but you’re not going to find any company that serves the customer as well as Fastco can. Once we obtain a customer, we don’t lose them.”

The account review process helped Fastco significantly reduce the number of sustaining accounts without negatively impacting sales or profits.

“In a majority of cases, we were able to transition unprofitable customers into profitable ones. There were only a few cases where we helped them find another source of supply,” Ray says.

Continuous improvement
Fastco helps customers cut costs by improving (or eliminating) their processes, lowering their inventory costs, reducing errors and using state-of-the-art materials management technology.

Eliminate redundant processes. Because Fastco maintains a quality inspection lab equipped with state-of-the-art testing and measuring devices, customers don’t have to check products before putting them on their production line. The lab performs dimensional, hardness, ductility, plating/coating thickness tests and other quality inspections before shipping products either to a customer location or to one of its warehouses in Greenville, S.C., Morristown, Tenn., Louisville, Ky., and Madison, Ind.

Reduce inventory. Many customers operate on a one-week supply of fasteners and Type C components, trusting Fastco to get them the products they need in a timely manner. “In our twenty-year history, no Fastco customer has had to close a line because we did not deliver. When the Los Angeles longshoremen were on strike and many companies’ fasteners were sitting in the water off the L.A. docks, Fastco customers continued to get what they needed when they needed it,” Ray says.

Decrease errors. Bar-code scanning and other warehouse best practices reduce picking errors. Virtually all of the products Fastco keeps in inventory were purchased to support a specific customer, so warehouse manager Joe Rhodes recently reorganized the facility by customer rather than by product type. The change sped up the picking process and also improved order accuracy. Rhodes tracks the number of picking errors and posts them on a bulletin board so employees can see how much progress they’ve made from day to day and month to month. “Since reorganizing the warehouse, we’ve reduced errors by two-thirds and the picking time was cut in half,” says Ray.

Use state-of-the-art technology. Fastco recently upgraded to new distribution management software that consolidated functions previously handled by bolt-on software packages. The Advanced Distribution System from Prelude Systems Inc. allows managers to immediately transfer information between departments. “A lot of the things we used to have to perform manually, like shipping notifications and order acknowledgements, happen automatically now,” says operations manager Greg Baco. Before going live with the new software in early November, salespeople monitored customer usage on a daily basis to make sure it matched what was in stock and was covered on a customer’s blanket purchase order. “Our new system automatically calculates order points. Salespeople don’t have to do that anymore,” Baco says.

This article originally appeared in the January/February 2005 issue of Progressive Distributor. Copyright 2005.

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