History of Fastenal
In a bold attempt to sell nuts and bolts through vending machines, Bob Kierlin started Fastenal, an industrial supplies company that grew into a publicly traded corporation offering thousands of products and services. The company started in 1967 in Winona, Minnesota and over the years have expanded their product mix to include services, such as inventory management and consulting. In 1994 they looked north to Canada for growth and by 2009 had set up sales centers in every province.
Today, Fastenal operates over 2000 branches across Us, Canada, Mexico, and Europe. They have a global reach with sourcing partners in China and Malaysia. This provides the company with the ability to reach lower cost countries and leverage economies of scale to generate cost savings.
The Industrial Supplies Wholesaling industry
In the United States, the Industrial Supplies Wholesaling industry is an $83.8B market. Between 2015 to 2020, the industry grew at an annualized rate of 0.9%. Growth in the industry ties to macroeconomic factors. As a result, past performance has been dismal as manufacturing has been volatile. Consequently, this depressed demand and growth, which had to be bolstered by the declining US dollar. [1]
Over the next five years, the industry is forecasted to grow at an even slower rate of 0.6% annually to $86B. The primary driver of growth will be manufacturing, as reshoring to the US and investments into infrastructure upgrades will drive spending. On the counter, interest rates are expected to hold steady and even potentially increase, reducing debt-driven expansion by companies. This will work against the industry growth.
Customer and competitors
The competitive landscape of the Industrial Supplies Wholesaling industry is highly fragmented. This is characterized by the market share by revenue held by the industry’s incumbents. The market leader, Genuine Parts Company (under the brand name Randor), only holds 6.1% of the market. The next competitors, WW Grainger Inc. and MSC Industrial Direct Co. have even less market share. With that, this signals that the industry likely competes on prices and customer service.
Customers who purchase from the industry players are primarily industrial and manufacturing users. There are also wholesalers who resale to other businesses, which make up 25.7% of the industry’s revenues. Given the nature and pattern of customers’ purchases, customer loyalty is very high in this industry. Establishing and maintaining this loyalty comes with providing personalized, high-quality customer service.
Fastenal’s business model
In its infancy, Fastenal started as a traditional resale of industrial supplies. As it grew, it began to expand its product offerings and services. Today, Fastenal offers over 15000 SKUs in products and a wide range of services. All of this is tailored to speak to their target customer, industrial companies. Everything from sourcing to tool rentals and repairs, the company offers a diverse mix of services which compliment one another. The company sells their products both in a branch and online.
For Fastenal’s customers, the company provides value by creating a one-stop-shop for different types of products and services that are imperative to their business. Customers save time from having to search and source products. Additionally, they can work with one account manager for their needs. This enables Fastenal with intimate knowledge of a clients’ full business, allowing them to continue evolving their product offering to meet client needs.
Fastenal success factors
One of Fastenal’s key success factors is a product mix that integrates with its global reach. By offering services, such as inventory management and freight, Fastenal delivers convenience for their clients at a competitive price. They can leverage their economies of scale to negotiate with suppliers. This allows the company to either reinvest in new services or pass savings along to customers.
In addition, providing different services helps improve profitability by complimenting their traditional business with high-margin services. They can leverage their position to use pricing tactics, like bundling, to create new product offerings to match unique customer tastes.
Another factor contributing to Fastenal’s success is the integration of technology into their services. Their use of simple tools such as RFID allows them to create an integrated supply chain, providing their clients with superior inventory management and insight. It also enables Fastenal with visibility on their clients’ supply lifecycle, allowing the sales team to proactive manage their clients. This can be incredibly important for lean manufacturing organizations who want to minimize their inventory.
Looking ahead – the future at Fastenal
As factors of growth begin to hamper increase in the market, the industry will become increasingly competitive on price. With that, Fastenal will need to continue to differentiate themselves while maintaining and even decreasing costs. This means creating new value-add services to extract more revenue from their existing customer base. Also, Fastenal will also need to view customer service as a direct tool for driving loyalty.
Related Readings
Professional Leadership Institute (PLI) is an educational website providing professionals from all types of businesses with practical education in human resources and leadership. To keep evolving your leadership toolkit, additional PLI resources below will be useful:
- How to Be a Great Coach to Your Team and Business
- Top 6 Courses for Business Owners and Senior Executives
- Top 5 Courses for Young Business Leaders
- Accountability Tools
[1] Jack Curran, “Industrial Supplies Wholesaling in the US,” IBISWorld, March 2020, accessed July 22, 2020
