Helping customers not to spend

Armed with Palm Pilots, laptops and other technology tools, S&S Tool and Supply teaches customers how to save money.

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American author and humorist Kin Hubbard once wrote, “The safest way to double your money is to fold it over once and put it in your pocket.”  Here’s another saying about money that comes not from an early 20th-century author but from a more unlikely source, a seller of MRO supplies and services: “Don’t buy things you don’t need.”

You could say that Steve Tomkovicz is a crusader of sorts. He views his company’s role as being a “cost handler” for customers. S&S Tool and Supply in Benicia, Calif., keeps a close eye on not just how, but why, customers spend their money. He believes that one of the ways he can be most helpful to customers is to teach them how to keep more money in their pockets.

S&S was one of the first West Coast distributors to focus on asset management. It developed a bar-code tracking system to track consumable items in oil refineries nearly two decades ago. Called S&S Asset Management Systems, or SSAMS, the system was the first step to show companies how to manage the supply chain, save money and — perhaps most important — how not to spend money.

“We would rather show you how to spend 70 percent less even if the bottom-line markup is 10 percent more, because now you’re only buying $330,000 worth of consumables rather than $1 million. Wouldn’t you rather spend $330,000 than save 2 percent on $1 million?” Tomkovicz asks.

He says a major problem at most buyers is that every department is responsible for a part of the spend but no one is responsible for the total spend in MRO products. This causes the overall spend picture to be skewed drastically.

“We have the desire, systems and management skills to help customers see what they spend and eliminate the waste,” he says.

Today, S&S generates about $30 million a year as a distributor of mill supplies, tools, welding and safety supplies, and janitorial products, running distribution centers, multiple onsite vendor stores and tool rooms for customers including Pacific Gas & Electric, NUMMI/GM/Toyota joint venture, Tyco Electronics, U.S. Steel, United Airlines, five area oil refineries, two chemical plants and others.

The company manages vending machines (SSAMS VEND) to help customers control how much they spend on consumable items, but it also uses other technologies, including the Internet, EDI, remote data collection and mobile computing. Despite being considerably more high-tech today than when the company began in 1983, one thing hasn’t changed. They still believe the easiest way to save money is to not spend it.

“It’s not just being the best business and following the best practices in supply chain management,” Tomkovicz says. “It’s also important to just reduce what you spend from the get-go. Don’t buy things you don’t need.”

First, ask why
Many customers look at their total MRO expenditures in order to leverage their purchasing power with suppliers. Tomkovicz says before companies ask suppliers how they can leverage volume buying, they need to first ask themselves why they spend what they spend.

When they look closely, many companies discover a great deal of incongruity in their actions. For example, they often insist on buying tools that are warranted for life, yet they buy them over and over again. They may employ only 50 people in a plant, yet they purchase 6,000 flashlights a year. Or, they rent a power tool for $200 a month to save money, but forget to return it when their project is completed, and end up racking up thousands of dollars in rental charges.

S&S looks for those incongruities and tries to make sense of them. For example, whenever S&S rents a tool to a customer, it enters the starting date and the estimated end date into its database. When the end date arrives, S&S sends someone to pick up the tool.

One refinery used to consume 10,000 flashlights in a six-week period. When plant employees wanted a flashlight, all they had to do was walk to the storeroom and ask. After S&S began managing the storeroom, they scanned each employee’s badge before passing out flashlights. Usage dropped to about 35 flashlights every six weeks.

When S&S started dispensing batteries from onsite vending machines at another customer’s location, forcing employees to scan their badge before the machine released the battery, usage went from about 5,000 per month to 500.

“For most distributors, everything is based on volume.  For S&S, it’s based on relationships,” Tomkovicz says.

Data drives behavior
S&S captures data in a variety of ways and then analyzes the data to help customers lower their overall costs. When an employee swipes his badge at a vending machine, SSAMS software captures critical information such as who completed the transaction, what they took, how much they took and where it will be used.

If a worker checks out a pair of safety goggles from an S&S-managed storeroom, the transaction is immediately fed into the Eclipse inventory management program running the storeroom just as if it were another S&S branch.

Capturing point-of-use data enables S&S to provide better management reports. In the past, when a customer requested a shipment of 1,000 safety glasses, S&S would ship it to a centralized warehouse. Today, the same order might be shipped to multiple locations within a customer’s plant, or to more than one city, and the software tracks it by department or even by individual.

“Suppose a customer has two substations of the same size with the same number of people, but one spent $150,000 a month and the other spent $5,000. I might not be able to tell them why, but I can tell them their spend is incredibly different for places they’re calling the same,” Tomkovicz says.

Just because he prides himself on being careful about how companies spend money, don’t mistake Tomkovicz for being a penny pincher. In the past few years, S&S invested about $500,000 in computer hardware and software.

“Having the most advanced computer systems drives our cost of doing business down, our shipping reliability up, and enables S&S to be the highest-quality and lowest-cost provider in the industry,” he says.

All delivery drivers carry a Palm Pilot handheld personal digital assistant (PDA). The PDA streamlines the proof-of-delivery process by enabling drivers to capture electronic signatures on their Palm devices using the Eclipse Signature Capture application.

When drivers return to the warehouse at night, they load their Palm devices into a cradle and press the hot sync button. It automatically synchronizes everything into the system. There’s no need to enter shipment confirmation by hand. The system also automatically authorizes the accounting software to submit an invoice and capture the payment.

The majority of the salespeople also have laptops.  They can link into the system anytime day or night. Salespeople utilize information on usage trends and business reports to create and maintain supply solutions and loss reduction programs for customers.

“With the Eclipse system, everything is real time. So, when I logged onto the system from home last night, I could see exactly how many orders we have in-house, exactly what’s pending in shipping and, to the minute, what’s in inventory,” he says.

Room for improvement
Tomkovicz is pleased with the way S&S has improved the flow of products and information between his company and customers. But he says there is room for improvement, particularly in the ways that distributors and their suppliers do business.

“I can go into a grocery store where I buy my Cheerios and they do bar coding. Yet when I ask a major manufacturer from whom I buy $1 million worth of products a year for a disk with all of my bottom-line pricing, they say no,” he says.

It’s another of those incongruities that bothers Tomkovicz. He’d like to see more manufacturers conduct business with distributors electronically. Currently, he says about 20 percent of his suppliers are technologically savvy.

He adds that manufacturers that make it easy to do business with them earn more of his business. For example, Danaher provides product pricing in an electronic format that S&S loads into its database. Prices are firm for a year. It saves countless hours of time trying to figure out a myriad of discounts that most manufacturers build into their pricing matrices.

“I can tell our people in purchasing and sales that all they have to do is log onto their computer. When a customer calls, they know that when they look something up, it’s correct,” he says.

When the difference between a profitable or unprofitable sale can be pennies, having accurate manufacturer pricing is invaluable.

“Manufacturers and distributors have a long way to go. If we want to wean costs out of the system, there are a lot of ways to do it where nobody has to get hit in the profit end of it. I think people within the channel are looking at it but it’s definitely not happening fast enough for me,” he says.

This article originally appeared in the March/April 2002 issue of Progressive Distributor. Copyright 2002.

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