The Fastenal Company, Winona, MN, sales of $489,157 for the first quarter ended March 31, 2007, an increase of 13.3% over the same period last year. Profit increased 12.9%.
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During the first three months of 2007, Fastenal opened 73 new sites, as it did in the first quarter 2006. There were 2,000 sites as of Dec. 31, 2006.
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Current Initiatives
During the last several years, Fastenal has been pursuing initiatives to improve its operational performance. These include: a new freight model, tactical changes to working capital model, an expanded store model called CSP2, and a ‘master stocking hub’ distribution model.
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The freight model is an effort to haul a higher percentage of products with the Fastenal trucking network and to charge freight more consistently in its operating units. This initiative positively impacted the latter two-thirds of 2005, all of 2006, and the first three months of 2007 despite the fact we experienced year-over-year increases of approximately 31.7% and 5.3%, respectively, in per gallon diesel fuel costs during the first two periods.
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The diesel fuel cost per gallon softened in the last four months of 2006 as Fastenal’s average price per gallon dropped below $2.90, and the average price per gallon dropped to $2.59 in the first three months of 2007.
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The tactical changes to Fastenal’s working capital model include the establishment of a central call center for accounts receivable collection and the establishment of financial business rules for the purchasing of products outside the standard stocking model (formerly referred to as CSP) at the store.
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The CSP2 store model represents an expansion of the core stocking items and sales personnel in an existing store with the goal of driving additional product sales to existing customers, target customers, and specific geographic areas within established markets. During the first three months of 2007, 39 stores were converted to the CSP2 format. This resulted in 232 stores converted to the CSP2 format since the third quarter of 2005, plus six stores opened with the CSP2 format.
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The master stocking hub distribution model represents an ‘everything in the catalog’ location. Historically, Fastenal has stocked a core selection of products (5,500 SKUs) plus customer-specific products at each store location. Distribution centers would stock the core selection, plus other products with sufficient sales history to warrant stocking in a distribution center. Stores would utilize their local or distribution center inventory to satisfy most of their customers’ needs and would then directly purchase additional items to satisfy the rest of their customers’ needs.
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When analyzing this local (or store) spending Fastenal said it noted the following: This is an inefficient transaction for a store, because it is a ‘one off’ purchase, Fastenal doesn’t always benefit from good price negotiation, freight costs on these transactions are meaningfully higher than the average transaction, and in many cases, Fastenal has sufficient volume at the company-wide level to warrant stocking it somewhere.
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As a result, Fastenal transformed its Indianapolis, IN, distribution center from a regional DC into both a regional DC and a North American master stocking hub. In the future, Fastenal reported, as volume justifies it, it anticipates its Modesto, CA, distribution center will assume a similar role for stores west of the Rocky Mountains.