Fastenal is largely credited with driving the latest boom in industrial vending services among distributors. Fastenal had nearly 30,000 vending machines installed as of the end of the second quarter 2013, and while it recently backed off on its goal of 30,000 new vending machines this year, it continues to expand its program, called FAST Solutions, at a quick clip. Fastenal’s vending program has grown much faster than the competition’s.
Staff Writer Angela Poulson spoke with Fastenal CEO Will Oberton about Fastenal’s vending program, where it stands now and where it’s headed.
MDM: Where did the idea of pursuing an industrial vending solution for your customers originally come from?
Will Oberton: It originally, I believe, came from our customers who wanted it, and so we started buying machines from some of the other companies that were doing it – such as Cribmaster and SupplyPro – and I suppose we bought a hundred or so machines.
At some point we decided that we had to develop a deeper, more direct relationship with a vending manufacturer, and that’s when we started becoming big in it.
MDM: Are there lessons learned you wish you had known when you launched FAST Solutions?
Oberton: There are a lot of lessons we’ve learned. Most of them I won’t share for competitive reasons, but getting the product in vendible packages has been a huge undertaking for us.
Also, at some level, I’m surprised at customers that have no interest in the program because it’s purely a better way to distribute products. I shouldn’t be surprised by that, because many people in general are averse to change. Change is difficult, and this is a pretty big change.
MDM: You said back in 2011 (in Fastenal’s 2010 annual report) that Fastenal’s FAST Solutions program really took off in 2010. What do you think helped the program get off the ground?
Oberton: The biggest thing is we developed a direct relationship with the producer of the software and the manufacturer of the machines, and based on working with them, it put us in a more competitive position. In the past, the machines that we were buying were so expensive that the solution only worked with very large companies.
What we discovered by going direct to the manufacturers is that we could actually develop a solution for small to medium-sized customers, as well. So the scope of the opportunity became much, much larger because we were in a better cost position.
MDM: You recently announced you probably won’t reach your 30,000 new machines goal in 2013. Why?
Oberton: There are two main reasons. One is that the economy is slower than we had anticipated it would be. The other is we’ve quit pushing quite so hard on it. It’s not that we don’t want to make it happen and that we’re less optimistic, because we’re not. But we know that vending is a longer-cycle sale.
If I go out and make calls on a construction site today, I very likely could get orders today or tomorrow or the next day. If I go out and spend my day signing a vending machine, the chances of getting any return out of that machine in the next five or six months are very slim. We had put a tremendous amount of effort in that, but it’s a long-cycle sale, so we backed off the pressure, and said: “Hey, just go create growth, and if it happens to be vending, great, and if it happens to be you’re just selling threaded rod at a job site, that’s great.”
So we didn’t de-emphasize it, but let up a little bit in an effort to get more immediate sales.
MDM: Vending is known to be valuable as both a customer retention tool and as a customer acquisition tool. Do you think it’s more valuable one way or the other?
Oberton: I think it’s both. I don’t think it’s an either-or thing. We’ve signed a tremendous amount of business because we have a great program, and we’re retaining most of that business.
MDM: Since the inception of your vending program, has your view of which products are best-suited for use in the machines evolved? If so, how?
Oberton: It’s probably changed some. The thing I think we’ve discovered is that the most natural product for this type of distribution is things that people use en masse, like gloves, personal protective gear, safety glasses, things like that, because it’s a very good way to distribute it to your workforce. Safety products have been the best, and general MRO has also been very good.
MDM: Is there a disconnect between which products are most profitable and which ones customers want to see in the machines?
Oberton: No, not really, because it seems like the products that are slightly less profitable have greater volume, so many times it works out at the end. I may give up a little margin, but I pick it up in volume.
MDM: How will your new distribution center in Indiana help you reach your goals in vending?
Oberton: We’ve designed it so it will take work out of the stores. It will make vending a far more efficient business for our store employees.
Our experience is that when you make things easier for people to do, they’re going to work harder to sell that system. If I can put in a vending machine and sell $1,000 or $2,000 a month, and I don’t have a lot of work to do because the warehouse is doing most of the work for me, that’s a pretty good argument to go out and sell more.
MDM: Fastenal recently said it would be taking a closer look at underperforming vending contracts; how has that gone? Can you tell me a little more about the initiative?
Oberton: It’s going well. What we’re finding is that when we go out and visit the customers and have a good, constructive conversation, in a very high percentage of cases, they buy more product from us. It just takes us initiating the conversation.
It’s not telling the customer we’re not making enough money off it. We’re telling the customer that if you’re not using this system, it’s doing you no good as well, so it’s not just one-sided. If a customer has a machine taking up space in their plant, and they’re not using the machine, we want to find out why for both of our sakes. And in most cases, the customer says, “Well, what do I need to put in it? What data do you have that can show me where to go?”
In most cases, customers appreciate the business and try to make it work. In some cases, the customer says it’s not going to work out, and in those cases we need to figure out an exit plan. But that’s very rare.
MDM: What do you generally find needs to be changed to make it work?
Oberton: It’s almost always resetting the product. That’s 90 percent of what the meetings find, that we just didn’t have the right product in the machine. Either they had requested the wrong product, or we just didn’t get it right from the start.
We have 30,000 machines in the field, so we have great data on what’s selling and what isn’t, and we can break it down based on what type of a business they are. Are they a truck shop or a manufacturer or a small contractor? We can look at our data and do a comparative analysis and say: “Here are the top 20 items or 30 items that sell on a broad scale. We believe you may use the same ones.”
MDM: What do you see as the next steps in Fastenal’s vending program?
Oberton: I think to just continue to roll it out, and to continue to bring in new things like we’re doing with our distribution. It’s like any part of a business, if you want it to get better, you work hard to improve it continuously, and that’s what we’re going to do with our vending program. We’ll continue to work on creating a better delivery system for our customers. That’s all it is – a delivery system, and a very efficient one when it’s done well.
MDM: Tell me about Fastenal’s FAST Crib inventory management technology program and what makes it appealing to your customers.
Oberton: It’s a very good inventory management program, and it’s very, very flexible. Many customers, especially for medium-sized companies, they don’t know exactly how they want it set up, so the FAST Crib allows a lot of customization to meet the specific needs of that customer. It’s portable and flexible, which are two words you seldom hear when you’re talking about IT.
MDM: How are you balancing your vending initiatives with your more traditional sales and branch approach?
Oberton: Vending is just part of our traditional branch approach, since vending systems sell through the stores. When we look at a vending machine, we just look at it as off-site real estate, just another place to store product for the customer. It is absolutely integrated with our traditional approach.