Global Fastener News

2001 FIN – Pentacon’s Technology Changing Faster Than Expected

April 09
00:00 2015


January 22, 2001 FIN – How fast is technology changing?
Pentacon Inc. was formed less than three years ago, but even the electronic strategies Pentacon envisioned in March of 1998 have already been surpassed.
This fall Pentacon unveiled several new online capabilities.
When asked during a FIN interview how much of the new technology was part of the original Pentacon strategy, CEO Mark Baldwin responded with a simple hand gesture emphasizing the word “zero.”
Rick Ehrensaft, Pentacon director of marketing and leader of its e-commerce group, is excited to explain the new e-commerce software that was designed “to create value for both sides of the supply chain.”
Pentacon’s ecOptimize group offers comprehensive business-to-business e-commerce tools. Among them is XCHAIN, a “private network” connecting the entire supply chain to optimize the movement of all goods and information.
“I know of no other company with a program that matches ecOptimize,” Ehrensaft proclaimed.
XCHAIN is a supply chain integration tool that allows all participants in the supply chain to exchange information and transact business regardless of computer system, level of sophistication or geography. It enables a state-of-the-art Supplier Mall called XFILL in which Pentacon’s ecOptimize group becomes the arms and legs to manage the materials from the common database, Ehrensaft explained.
Baldwin termed XCHAIN as “a supply chain optimization tool.” By building a private exchange where the customer regulates who has access, “you don’t get the rogue supplier or unqualified source. All suppliers are precertified.”
The software gives Pentacon its own online RFQ system to establish market costs for materials, procure product and help customers by allowing them to take part in the auction process.
An example would be Pentacon’s integrated system with General Electric. “We read a bar code, and all applicable data is filtered into their system and ours to create purchase orders, receipts, invoicing, replenishment and payment. This simple transaction set is all done without paperwork,” Ehrensaft explained. This technology is vital, because customers “are willing to pay us for inventory management. They are not willing to subsidize unnecessary costs.”
Pentacon also is using sourcing technology that is driving material costs down. With easy international sourcing via online auctions, Pentacon’s sourcing team is looking throughout North America, Asia and Eastern Europe for new suppliers.

Stock Price Disappointment
While the technology wasn’t expected three years ago, neither was Pentacon’s drop in stock price.
Pentacon’s stock has suffered since the March 1998 IPO. Shares opened at $10 and rose as high as $14 in 1998. In 1999 the price ranged from 2 1/16 to 6 3/16 and closed the year at 3 1/8.
The 2000 high was 5.86 and recently hovered at 0.8.
“It’s the market, not Pentacon,” Baldwin said in reference to the aerospace industry. The Pentacon Aerospace Group provided 48% of Pentacon’s 1999 revenues.
Baldwin believes Pentacon hasn’t lost market share in the aerospace industry and sales and earnings will rebound along with the aerospace market.
As the entire fastener industry knows, there are few good statistics on fastener sales. But Baldwin explained that, knowing the players in the market, “we’ve got some reasonably good information on what the others are doing,” allowing him to conclude that Pentacon has not lost market share.
To a lesser extent than the impact from the downturn in the aerospace market, Wall Street “doesn’t like small-cap stocks,” Baldwin told FIN.
Though he is always aware of the stock price, it doesn’t control business decisions. “At the end of the day, you’ve got to make decisions on what is right for the business, not the stock price,” Baldwin explained.
Baldwin pointed out that Pentacon’s EBITDA earnings remain strong, at slightly over 10%. He is hopeful such news as reducing debt and winning new contracts will catch investors’ interest. Pentacon booked about $7.6 million in new contracts with 14 customers during the third quarter of 2000 and signed a $6 million three-year contract with Telex Communications Inc. during the fourth quarter.
Those new contracts show the value of the corporation. “In many cases our legacy companies would not have been included in these bid lists by themselves,” Baldwin observed.
Nonetheless the good news was countered by a half million-dollar net loss in the third quarter of 2000 on revenues of $67.8 million.

Pentacon’s Future
While the e-commerce technology and stock prices aren’t what they expected, much of the original strategy for Pentacon is progressing as planned.
Pentacon is well on its way being one integrated entity instead of the five founding companies – known now as the “legacy” companies – and four acquisitions operating autonomously. All now use the Pentacon name.
Pentacon is well into an “ongoing blending of cultures,” and within five years there will be one corporate culture. “We’ve already done the tough stuff,” vice chairman Jack Fatica said.
Fatica told FIN change will be a major part of that culture. “What will propel us in the future is being a learning culture. People have to be more productive every year.” That requires training, team building and continuous improvement, Fatica noted.
Baldwin emphasized that Pentacon encourages employee learning both professionally and personally.
Ehrensaft emphasized the need to continuously “explore better ways to take costs out.” Baldwin uses four terms to describe what Pentacon is doing to build the business: Growth, productivity, technology and customer satisfaction.
The executives emphasize productivity, Just-in-Time instead of Just-in-Case stocking, reducing the number of suppliers and forming partnerships, creating value, benchmarking, and generating good margins. “The toughest customers prepare you,” Baldwin said in appreciation of the high bar GE and others set for Pentacon.
Fatica predicted Pentacon will “always be the first to step up to the plate” on coming issues. Customers “like to see that aggressiveness to stay on the winning curve.”
Though Pentacon’s technology has changed from what Baldwin started with in 1998, at least one of his original plans has remained in effect. He once described the corporate headquarters as “overhead” and promised to keep it trim. Today, only nine employees work in the 7th floor headquarters in an office building in the western suburbs of Houston.
What is not in the immediate plans are more major acquisitions.
Baldwin indicated there may be small “strategic in nature” acquisitions,” but “to do one of size we may need help with the stock price.”
Baldwin expects industry consolidation to continue, but at a slower pace, in the next five years and predicts that the fastener suppliers with the better electronic tools and international sourcing will be the winners. “We do believe the industry is changing, and we are on the leading edge,” Baldwin remarked.  ©2001/2015 Fastener Industry News.
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Fatica: Would Do It Again

“It has renewed my whole energy level,” Jack Fatica said of his involvement in Pentacon Inc.
Fatica had participated in consolidations before AXS Solutions of Erie, PA, was invited to become one of the five founding companies in the March 1998 rollup forming Pentacon.
Fatica had merged Champion Bolt Corp. in Erie, PA, with Chicago-based Hoyt Fastener Corp. two years earlier to form AXS Solutions.
Fatica didn’t sell his business to play golf after 34 years in the fastener industry. He became vice chairman of the new company and works with the management team on a day-to-day basis.
“The rollup exceeded my expectations,” Fatica declared. But after nearly three years he admitted he doesn’t “have even one dark hair left in my head.” Though he acknowledged he “didn’t realize how different” working in a publicly held company was, Fatica downplayed the change from private entrepreneur to publicly held corporate executive.
“It hasn’t changed,” Fatica reflected on his role. “Control comes from leadership. With the team we have put together, I feel I have more control now.”
He faces many of the same issues in Pentacon as he had before. Most are “people related and, therefore, people are always the solution.”
A high point has been the computer conversion and integration of Pentacon’s Aerospace Group “on time and on budget, which is a tribute to the type of people we have,” Fatica reflected. “Our Industrial Group integration and computer conversion is under way, and we expect the same success.”
Fatica’s biggest disappointment has been the Pentacon stock price. “Much of that has been really out of our control,” he said in reference to a difficult aerospace market, in which nearly half of Pentacon’s revenues have been generated.
Fatica took 2/3 of the value of AXS in stock and 1/3 in cash, because he wanted to have a significant ownership stake in the new corporation.
Would Fatica do it all over again? “Absolutely,” he declared. “No doubt.”  ©2001/2015 Fastener Industry News.
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