Global Fastener News

1997 FIN – Petterson: Integrated Supply an Answer to Customer Supplier Reductions

June 18
00:00 2012

October 24, 1997 FIN – Integrated supply is expanding because customers wanting to reduce the number of suppliers are driving the market, Scott Petterson of Fasteners Inc. told the Western Association of Fastener Distributors fall meeting.

Potlach Corporation is typical of wood products companies of the Pacific Northwest with nationwide facilities and a desire to reduce suppliers. Potlach had 12,000 MRO suppliers and decided to cut to eight.
“Fasteners wasn’t one of those,” the Spokane, WA-based distributor noted.
“Customers are saying, ‘You’ve been doing a good job,'” Petterson said. “But these kind of decisions are not being made by the purchasing department. These decisions are made by the CEO’s in the boardrooms.”
That is where such companies as W.W. Grainger step in to be the full line supplier. Grainger created an alliance with Fastenal Company to supply fasteners.
“Grainger has been very aggressive,” Petterson noted. “Though not always successful.”
CFO’s are eyeing the size of purchasing departments for dramatic reductions,” he pointed out.
“If your contact with a company is never above the purchasing department, you are vulnerable,” Petterson emphasized.
Because many distributors are proudly privately owned and multi-generational entrepreneurs, they don’t want to sell out.
An alternative has become to bring affiliated distributors together in an integrated supply entity.
With integrated supply the customer receives one bill, “and as far as they are concerned they have one supplier.”
The customer has fewer vendors and transactions, Petterson said. The integrated supply alliance makes maximum use of predefined terms for prices, delivery and storage; has commodity groups for all materials; and improved material access for end users.
Integrated supply virtually requires electronic commerce, Petterson said. “If you are not effectively using EDI, you need to,” he counseled.
Integrated supplier candidates must have some form of TQM.
Integrated supply usually involves the “four singing sisters”” of electrical, a general line/industrial mill supplier, power transmission/fluid equipment and pipe/valve fittings. The “chorus” consists of safety, fastener, welding tools, electronics, paper, metals, HVAC, maintenance services and other distributors.
The partners must be able to meet regularly and expect a lot of difficulties. There may be animosity between some partners.
“Will integrated supply last? Yes. Will this change? Yes,” he added.
Successful distributors in coming years must find ways to leverage buying power and work with suppliers and customers to reduce costs.
Reducing a customer’s costs is vital, Petterson said. An iPower survey found 38% of any plant’s MRO inventories to be “obsolete or unneeded.”
When a distributor can show a customer how to save money on inventory “you start to get people’s attention,” Petterson said.
Distributors are facing four choices: Do nothing, try to get excluded, try to play as first-tier supplier or what many will do- quit or sell out, Petterson said. ©1997/2012 Fastener Industry News
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