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Streamlining operations

BY Ken Clark

BOSTON —Johan van Tilburg, president and CEO of Tindell’s Building Materials in Knoxville, Tenn., took on the appearance of a high school math teacher at the front of a classroom in a Boston convention center. He went over simple calculations concerning a hypothetical dealer with $32 million in annual sales, gross margin of $8 million and turn of eight.

Then he asked the room full of fellow dealers what would happen if turn improved to nine.

“One turn in sales freed up $333,000,” Tilburg told the room. “It is the low-hanging fruit in this business.”

Thus began the educational session at Activant’s Pinnacle Technology Conference, designed as a response to the current macroeconomic conditions. Tilburg was one of three independent pro dealers to share best practices from personal experiences. The discussion began with turns, and continued at rapid-fire pace producing cash-generating or money-saving ideas. The ideas ranged from switching to free e-mail service providers to getting tougher with accounts receivable.

The key to increasing turn is to focus on the slow-moving items. “If you focus on the stuff that’s three, four or five turns a year, get it to eight, nine or 10 turns a year, you’re going to free up a lot of cash flow and help yourself,” Tilburg added. Tindell’s took a slow-moving store and made part of it an “outlet store,” which sold some of the slowest moving inventory or wrong orders at cost. “It works pretty well,” he said.

Health care costs. These represent one of the biggest and fastest growing expenses facing independents. At Tindell’s, employees are covered 100 percent by the company plan, Tilburg said. “We’re probably one of the few, but we’ve always felt a good way to keep our good people is to offer them something they couldn’t get elsewhere.”

The policy is subject to change, if costs keep rising, he said. Other independents have already taken action – particularly in the area of deductibles. At Westall Chandley in Asheville, N.C., deductibles were increased for employees, leading to big savings in premiums. But the company assumed half of the deductible—if the deductible was $5,000, the employee was responsible for the first $2,500. West-all said that move saved the company about $100,000 on insurance costs.

From the audience came a variety of related suggestions, including the importance of stressing to employees that health costs are rising. One tactic is a matter of semantics. Instead of describing a compensation package as $10 per hour, describe the same package as “$9 per hour plus health care.” Doing so promotes the idea that health care is a valuable company benefit.

Other practical ideas from the session included:

Accounts receivable. “You’re not the bank,” said Tilburg. “You can’t afford to be the bank. So don’t be the bank.” At Tindell’s a more aggressive accounts receivable policy calls for payment at the 15th of the next month. At the 20th, five days after the due date, customers are cut off. “You gotta get tough.”

Limiting hours. According to Bob Dixon Jr., assistant treasurer and chief information officer for Vidalia, Ga.-based VNS Corp., overtime was one of the major adjustments to the downturn in the economy. That included putting a stop to overtime, and also encouraging days off without pay for some employees. He said some employees saw the non-revenue option as a benefit and used them to spend time with their kids or on vacation. “You kind of love those people,” he said.

Consolidating locations. For multi-locations businesses, shutting the doors is an option. “You don’t have to sell the facilities,” said Tilburg. “Spread the volume to the other facilities and save yourself a bunch of expenses that way.”

At VNS Corp., with eight locations in Georgia, some locations have been turned into yards for inventory. “The customer won’t notice a difference,” said Dixon. “When he calls, he’ll talk to the same person, but that person won’t be at location one anymore, he’ll be at location two.”

Fleet management. Rodney Smith, operations manager for Westall Chandley reduced maintenance costs by buying used trucks that were better than the original, older fleet that was “serviced to death,” he said.

By parking vehicles, a dealer can save on taxes, insurance and maintenance. “It also forces the material managers in the yard to actually load their active trucks up efficiently.

Free e-mail. VNS Corp. scrapped its company e-mail service in favor of the Google e-mail service: gmail. One benefit of gmail—it’s free. “That’s going to save us money,” said Dixon. “Not big money. But money.”

Technology. Investing in technology is one part of the solution, making use of the technology already in place is another, according to Smith. Westall Chandley has been improving its inventory management for the past three years. “We need to take better control of how we manage inventory,” he added. “We had investment in our technology that we weren’t using, and we began using the tools and making better use of the system.” As a result, inventory was reduced $700,000 in the last year, he said.

Energy efficiency. We s tall Chandley changed out its showroom lights, replacing them with longer lasting compact fluorescent light bulbs (CFLs). Tindell’s actually applied for federal funds to bring higher efficiency lighting to its warehouse. With a 60 cents per square foot subsidy from the federal government, the company’s upgradedt-5 lighting system in its millwork warehouse cost nothing. “And it saved a bunch in utility bills.”

No more free lunches. Unless it’s company business with a client, the employees pay for their own meals.

Purchase cards. At Tindell’s, the company has arranged through its local bank for a purchasing card that offers a 2 percent rebate on its non-inventory purchases, from office supplies to flowers. “It’s not millions of dollars, but every little bit counts right now,” said Tilburg.

Analyze bills. Tindell’s renegotiated a contract with its phone service provider and refinanced loans at more agreeable rates. Tillburg added that there are also significant savings opportunities when purchasing office supplies

Analyze customers. VNS Corp. actually measured the profitability of customers. “What are they buying from us, what’s their payment patterns, their returns—we measure those things,” said Dixon. Unprofitable customers soon become former customers, he said.

Reassign staff. In the boom years, it was possible to move some of the top salesmen into corporate positions or training positions. But in tighter times, VNS wants these people out with customers. “We’ve moved key people closer to the sale,” said Dixon. “And that’s been a good move for us.”

One last bit of advice came from Duffy Waters, Activant’s director of industry relations. “Ask your employees for ideas,” he suggested. “They know what’s going on in your operations.”

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Home Depot to close 15 stores

BY HBSDEALER Staff

Home Depot will close 15 underperforming stores, the company has announced, and remove 50 future openings from the new store pipeline. The closings will include layoffs of about 1,300 employees.

The closings, at locations in the Midwest and Northeast, will generate approximately $547 million in pre-tax charges in the company’s first quarter. The company will release first-quarter results on May 20.

The stores to be closed are as follows:

• Store no. 2015 in East Fort Wayne, Ind.

• Store no. 2032 in Marion, Ind.

• Store no. 2310 in Frankfort, Ky.

• Store no. 379 Opelousas, La.

• Store no. 2819 Cottage Grove, Minn.

• Store no. 6901 East Brunswick, N.J.

• Store no. 6904 Saddle Brook, N.J.

• Store no. 6171 Rome, N.Y.

• Store no. 3702 Bismarck, N.D.

• Store no. 3874 Findlay, Ohio

• Store no. 3865 Lima, Ohio

• Store no. 4552 Brattleboro, Vt.

• Store no. 4932 Beaver Dam, Wis.

• Store no. 4933 Fond du Lac, Wis.

• Store no. 4913 Milwaukee, Wis.

Home Depot said in a statement it still intends to build 55 new stores this fiscal year, including 36 new stores in the United States.

As for other stores in the works, the company said it has “determined that it will no longer pursue the opening of approximately 50 U.S. stores that have been in its new store pipeline, in some cases for more than 10 years. Accordingly, the company will record a charge of approximately $400 million related to capitalized development costs and ongoing obligations associated with those future store locations.”

“This is a continuation of our disciplined approach to capital allocation that we outlined last year,” said Frank Blake, Home Depot chairman and CEO, in a statement. “We will invest in our core retail business, in this case our existing stores, which drive our most profitable sales. Our capital efficiency model will also provide improved returns for our shareholders through dividends and share repurchase.”

Home Depot added that investments in existing retail stores will continue to include “maintenance, merchandising resets and other initiatives to improve all elements of the customer’s shopping experience.”

The company reiterated that its total capital spending for the current fiscal year is projected to be approximately $2.3 billion, down from $3.6 billion last year.

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Sherwin-Williams earnings fall in the first quarter

BY HBSDEALER Staff

Sherwin-Williams saw earnings fall in the first quarter of 2008, but the worldwide paint and coatings giant is still seeing strength in international sales.

Earnings fell 30.3 percent in the first quarter to $77.9 million from $111.8 million in the same period last year. Net sales grew just over 1 percent to $1.78 billion from $1.76 billion in the same period last year.

The stronger net sales were in large part due to strong Global Group sales, as was the case last quarter. Favorable currency rates and eight acquisitions since last year’s first quarter helped aid international sales, according to the paint company.

In the company’s retail Paint Stores Group, net sales were $1.031 billion in the quarter, 1.9 percent lower than in last year’s first quarter. Sales were weak due to “soft architectural paint sales and weak sales in non-paint categories partially offset by improved industrial maintenance product sales.”

Same-store sales decreased 6.5 percent compared with last year, and earnings decreased 31.9 percent. Earnings were weaker because of increased product and freight costs, the company noted.

The company’s Consumer Group, which includes paint products like Dutch Boy, saw sales decrease 4.8 percent in the quarter to $286.9 million. The sales decline was due primarily “to soft DIY demand at most of the segment’s retail customers.” Earnings in the Consumer Group were down 23.7 percent due to higher raw material costs, as well as a lower volume of movement at the company’s distribution centers.

The Global Group’s net sales increased 14.8 percent to $461.9 million due to market share gains, selling price increases, favorable currency translation and acquisitions. Earnings for the Global Group increased 21.7 percent to $7.7 million.

“Paint demand in the domestic new residential, residential repaint, DIY and commercial markets was weaker during the first quarter than we had anticipated at the start of the year,” said Christopher Connor, chairman and CEO of Sherwin-Williams. “We continue to be pleased with the strong sales improvements of the foreign business units in our Global Group and the continued growth they have been achieving in the architectural, industrial maintenance, OEM and automotive finishes product lines.”

Connor also noted that the Paint Stores Group opened 17 new stores in the first quarter and closed 23 “redundant stores.”

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