Case Study: AH Harris
Building Supplies with an Entrepreneurial Bent
Renting job trailers is common today, but imagine pioneering the practice nearly a century ago. AH Harris launched their first business as a trucking company way back in 1916. With an entrepreneurial spirit they quickly recognized a number of unmet customer needs and did the American thing. They built a business around renting job site trailers to construction companies.
Along the way they observed still more unsatisfied customer needs and expanded their operations into the wholesale construction products industry. Today, the West Hartford Connecticut based company operates 40 locations in 10 states from Maine to North Carolina. But their service doesn't end at the point of delivery.
AH Harris offers not only construction materials, but provides the tools and services required to make their customers work more efficiently. For instance, AH Harris offers a full line of concrete form rentals throughout their organization. Today, this is an important part of their business and the company maintains service centers throughout the 10 states served.
After many years of operation by the Harris family, AH Harris was acquired by a private equity firm. The same level of devotion to customer and industry service continues as several members of the Harris family are still working inside the business.
Recently, we had the opportunity to speak with Jonathan Stanek, CFO of AH Harris. Jonathan exemplifies the new breed of strategically-focused CFOs. Demonstrating the actions of this new generation of CFOs, Jonathan provides not only financial staff services, but also tactical and strategic direction based on the financial and market conditions.
According to Mr. Stanek, "One of the main challenges of my job is to refocus the company's cash on available opportunities. This includes traditional things like the careful maintenance of Accounts Receivable, management of inventory, management of rental assets, and management of financial risks but extends into streamlining other parts of the business. Because they represent a significant portion of the distribution business, freight costs were one of the priorities for command and control."
Early in 2010, AH Harris began a plan for segmenting and justifying customer investment as part of their freight analysis. It was during this time an AH Harris Regional Manager brought Strategic Pricing Associates to Mr. Stanek's attention.
Again quoting Mr. Stanek, "We had begun the process in house, but upon learning of SPA, decided we could drive results quicker using an outside firm. We did due diligence and explored several other companies in the pricing industry. The selection was based around three criteria: speed of implementation, completeness of the offering and feedback from current clients. And, Strategic Pricing Associates had some very credible clients who raved about the results. As a matter of fact, many openly shared the results with us."
The industry AH Harris serves is atypical from many wholesale lines of trade. Segmentation of customers is based both on size and cost of service. As one would expect, Jonathan's team has set up a number of metrics based on number of transactions, number of deliveries made and other customer measures. Rather than use the traditional approach of applying the pricing process to the smallest customers first, AH Harris implemented an across the board company-wide role out.
The pricing process was launched at a company-wide meeting, with various AH Harris executives underlining the advantages of a scientific approach to pricing. SPA's David Bauders took part in the rollout and explained the science behind the system.
Aside from gross margin improvements, which continue to grow as more sales are channeled through the SPA Pricing Cube, the company has seen operational enhancements as a by-product of the SPA work.
"We improved the overall accuracy and consistency of pricing across the board. Our people don't fall victim to the 'last price paid' trap anymore and customers are always provided with a fair and well thought out price."
The SPA process is now in its fourth year at AH Harris and gross margin improvements continue. SPA typically assists their clients in adding two full points of gross margin. AH Harris sees this as real and visualizes even more as their sales team applies what they've learned over time. As Mr. Stanek says, "This is a sustainable gain."
Finally, we asked Mr. Stanek to share his experience with our readers by laying out lessons learned. Here are his thoughts:
"Given the time frame required to make a scientific process really work, don't worry about perfection. Get it out there and moving forward quickly.
It's important to keep the momentum moving forward by continuing to focus on the process during the months following the initial rollout. For AH Harris, it's been nearly four years and we are still talking up the process.
Expect a natural tension from employees. Different departments are incented to maximize different aspects of the business. This is a good thing."
It's been nearly a century since Mr. Harris and his family launched the company. Much has changed since those early days, but one thing remains constant. AH Harris is ever morphing and changing to match their offerings to the customer's environment. AH Harris continues to search for innovation. And, in our minds, that's the sign of a healthy distributor.