Crunch time

General Tool & Supply Company rolls out a cost-savings program to employees.

In the weeks before holding a semi-annual or annual review with a major customer, it’s crunch time for Randy Shearer. That’s when the sales manager for General Tool & Supply Company’s northwest territory gathers cost-savings reports employees generated over the preceding months. Since contracts with key customers specify that General Tool & Supply report cost savings on a regular basis, Shearer understands the importance of documenting value-added activities.

His reports track savings in multiple categories, such as process improvements, time savings/efficiency, substitutions/alternatives, negotiated price improvements, freight, inventory management, volume discounts and other discounts.

“We collect information from a variety of sources,” Shearer explains. “Some of it comes from our purchasing department or from inside sales. As they process orders, they may negotiate a special discount or recommend a product substitution and jot a note down. Then, of course, there’s activity from the outside salesman. We accumulate all of that and a few weeks before the review, I start running reports and tallying the total savings.”

In the past, most of his efforts focused on high-tech customers in the company’s electronics division. For example, in 2004, General Tool & Supply documented more than $88,000 in savings for three longstanding customer accounts.

Seeing success in a single business unit, the management team realized they could make a bigger impact for customers by expanding the program company-wide in 2005.

“Looking at the success we had in this one area of the company, we decided we needed to be more active across the entire company. So, we’ve challenged all of our groups to focus on documenting cost savings,” says Jim Miller, vice president of sales and marketing.

In addition to its Portland, Ore., headquarters, General Tool & Supply maintains branches in Washington and Idaho, plus the Industrial Tool & Supply division in Arizona. During rollout meetings early in the year, managers challenged each business unit and branch to begin recording cost savings and provided them with a cost savings report form to use as a template. (Click here to see sample form).

“We saw that the whole value-added cost savings effort was important to our customers and was something we needed to be better at reporting. A lot of times we did the work, we just didn’t document it,” says Miller.

The company’s goal is to tally a minimum of $200,000 in cost savings for the year. The business unit with the highest total will share a $3,000 cash prize, and employees on the second and third place teams will split $2,000 and $1,000 respectively.

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“We’re trying to get their attention by offering an award and making it a competition, but we’re getting the word across that we need to do this. On a quarterly basis, when I have my quarterly review, that’s one of the things we’ll discuss. This is an expectation now,” says Miller.

Shearer is leading the effort to train employees in documenting cost savings. During meetings with employees, he provided examples of the types of things employees do that can impact a customer’s bottom line and formulas to calculate the savings. For example, expediting shipments of critical parts to minimize plant downtime impacts labor costs. By multiplying the number of hours saved times the hourly employee cost (less any implementation costs), General Tool & Supply can put a dollar figure on the value of its activity.

“We want people to always be thinking about what we’re doing to help customers lower costs, improve processes and become more productive. We’ve been doing it for years and years, but we need to capture it so we can get credit for it,” says Shearer.

Miller adds that part of the education process is to remind employees that virtually every employee contributes to cost savings. From drivers who provide after-hours emergency deliveries, to inside salespeople who take a large order from a customer and request a special discount from the vendor, to outside salespeople and product application specialists, everyone can impact the bottom line.

“Often, we just do those things and then move on to the next task at hand. We never record it as a cost savings. So, we’re trying to educate our people that they’re all involved in generating cost savings that translate through to our customer,” he says.

Shearer plans to attend a seminar by value-added consultant Tim Underhill later this year to learn how to use Underhill’s SalesStrat software program developed to help companies sell their value-added solutions. He admits the company’s focus on value-added documentation is a work in progress.

“Our approach is evolving,” says Shearer. “As we get more sophisticated, we may come up with a better approach to track cost savings.”

He knows for certain that General Tool & Supply will continue to stress to employees the importance of providing value-added services and cost savings.

“Our motivation is to separate ourselves from suppliers that customers may find on the Internet who offer the cheapest price. We want the decision-makers at key accounts to know the value we offer them,” he says.

When crunch time rolls around again with the company’s key accounts, Shearer is confident General Tool & Supply will be ready to demonstrate its value to those customers.

This article was prepared exclusively for ValueAddedPartners.org. Copyright 2005.

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