2008 FIN – Peterson at STAFDA: Economy Requires Distributors to Reinvent Themselves

October 29

00:00 2014

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December 11, 2008 FIN – Today’s troubled economy requires companies to reinvent themselves, Rick Peterson told the Specialty Tools & Fasteners Distributors Association in his “Distributor State of Industry” speech.

Peterson, the 2008 STAFDA president, explained how his own distributorship has changed over the decades since All-West Fasteners Inc. opened in 1978 with two guys in a sparsely stocked south Seattle industrial area warehouse.

All-West initially supplied shipyards, fabricating shops and construction companies.
During the 1980s, with “smokestack” customers closing or moving, “we re-invented ourselves as a supplier of aircraft fasteners and military specification hardware. Later, All-West added electronic hardware as electronics manufacturing expanded in the Pacific Northwest.

Peterson advised distributors to find new ways to add value to supply relationships. All-West added vendor managed inventory to keep production lines running and to “minimize the total cost of supply. Our VMI program has played a key role in the growth of our company.”

A successfully operating VMI program gives buyers confidence to add additional products into the system.

“Professional purchasing managers today simply don’t need to spend their time on commodity parts such as screws, washers, nuts and bolts,” Peterson explained.

All-West also has had success with non-cancelable/nonreturnable agreements. “I originally came from the ‘handshake’ world of construction and industrial supply where you could always work out a compromise if a special order ended up gathering dust.”

But today with so many All-West items being special, “we learned to protect ourselves by using NCNRs.” Customers must acknowledge the NCNR provision before All-West accepts large purchase orders for special items.

Peterson advised STAFDA members to use “terms and conditions” to protect from product liability.

“We are the distributor not the insurer against all things bad in the universe. No single customer is ever so valuable that you should agree to indemnify them. Ever!”

Peterson also suggested protecting valuable information “to avoid getting used. Don’t invest dozens of person hours quoting the package until the customer agrees to your terms and conditions.”

This especially applies to threaded fastener distributors. “Rarely does your customer know the complete, correct industry descriptions for their bill of materials,” Peterson pointed out. “But too often, once we have given all of the information to the customer in good faith, they’ve taken our product descriptions and used it to troll for better pricing.”

“Exercise a non-disclosure agreement before starting the project,” Peterson urged.

The distributor’s proposal should give back only the part number and description the customer provided. “Do not give away all the details of your valuable work.”

Beyond the economic, oil, war and disaster volatilities of the past year, STAFDA is facing the “first nationwide housing crash since the 1930s and no one knows where it will end,” Peterson observed. As of August residential construction was down 38% from the previous year, and Peterson noted that economists agree the U.S. has entered a recession.

There have been 10 recessions since World War II averaging 10 months and a peak unemployment of 7.6%. Unemployment hit 10.8% in the 1981-82 recession.

“History tells us recessions are frequent and short lived before the business cycle self-corrects and prosperity returns,” Peterson noted. And, “though weakening,” at $14 trillion the U.S. economy “is hardly in a state of collapse.”

Lower interest rates “should make business loans easier to obtain once the dust settles.”

Residential construction may be down, but there are still plenty of non-residential building and infrastructure projects. STAFDA distributors “will need to shift their sales emphasis to commercial, industrial and other market sectors.”

With the U.S. elections over, the business sector will watch Congress on the “inappropriately named ‘Employee Free Choice Act’,” which would end secret ballot requirement for employees choosing a union.

Companies with more than $500,000 in annual sales and three or more non-supervisory employees could “wake up one morning in 2009 and find that you have a new business partner a labor union.” Rising energy prices, renewed concerns about the environment and technological breakthroughs” are creating a “green component to almost every aspect of the business world transportation, construction, purchasing and shipping. We should look at our own facilities from a green perspective,” Peterson recommended. Coordinating mechanical systems, putting computers on “hibernate” when not in use, or using shading to cut down on air conditioning use are useful ideas.

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