Of all the dirty little secrets in building material supply, the dirtiest may be this: We don’t know anywhere near as much about our businesses as we should. Too often, dealers operate based on crude metrics and out-of-date benchmarks. Such rough guides increasingly are a recipe for failure.
But there’s hope. Down in a rural part of coastal North Carolina, a modestly sized company has become an unlikely role model for pro dealers nationwide. And leading the way is a pleasantly rumpled, 63-year-old good ol’ boy named Leonard Safrit.
For nearly 38 years, Safrit has been molding Safrit’s Building Supply and its affiliates into one of the nation’s best-run building material dealers—and now 2013’s ProSales Dealer of the Year. It’s a national standard-bearer in centralized dispatching and activity-based pricing, and it has shown that, when it comes to what you sell, being small is no barrier to being diverse. Best of all, the Safrit’s way can help you take your operation to new heights, provided you begin with a willingness to analyze your business as never before and be ambitious about trying new products.
Of course, thinking like Leonard Safrit likely won’t come to you as naturally as it does to the real Leonard Safrit. He’s a rare mix of the linear and the elliptical, a trained engineer who loves finding insights in data but also enjoys telling stories that meander a while before reaching a memorable end. Spend time with him and odds are you’ll collect your own Safrit sayings, such as his view of online rivals: “God hasn’t invented an e-mail yet that will deliver a 2x4.” With Leonard, you laugh while you learn.
Always in the Black
Safrit’s is the smallest operation in years to receive ProSales’ Dealer of the Year award and, like most dealers nationwide, its annual revenues have gone on quite a roller-coaster ride. From roughly $500,000 in 1975, the year Leonard arrived and the first year the former sawmill became exclusively a sales yard, the Safrit’s operations peaked in the middle of the last decade at about $30 million. The housing crash sent them down to $14.8 million, but for the fiscal year ended last Oct. 31 they were back to about $19 million.
Notably, Safrit’s never fired anyone during the slump; instead, it relied on natural attrition to let the payroll drop from around 80 at its peak to about 52 today. Even more important, the only red ink that Safrit’s has ever printed is in its logo. The company has turned an operating profit every year, and it could have boasted a perfect record of net profits as well were it not for a few years ago when Leonard decided to give all profits back to the employees and accidentally doled out $35,000 more than he should have.
Three parts comprise the Safrit’s operations. Officially, it’s East Hardwoods Inc. (EHI), but the only store that bears that name is the central dispatching facility. EHI is in Cedar Point, halfway between the original Safrit’s Building Supply, based in Beaufort and where the corporate offices are, and Jacksonville Builder’s Supply, created from the acquisitions of Williams Lumber in October 1988 and the original Jacksonville Builder’s Supply in August 1998.
Such a multi-store setup has proven the undoing of other dealers, and Safrit has had his own challenges. “I’ve said any number of times you could easily deal better with two wives than with two building supplies,” he says. Twenty? Yes. But two? No. That’s too little. You’ve got all the overhead and bureaucracy. But my feeling has always been [you need to generate] $5 million in the building supply business or you don’t need to open your doors. So we came over here.”
Despite the complications, it turned out to be a lifesaving decision a couple of decades later when the housing crash came. That’s part of life in an area that always has been fragile. Unlike our past two Dealers of the Year, Safrit’s territory lacks the dense populations and above-average wealth of Southern California and northern New Jersey. Fewer than 250,000 people live in the 100-mile stretch of coastal North Carolina that make up the bulk of Safrit’s service area, and that number is really closer to 200,000 once you exclude the Marines at Camp Lejeune and at the corps’ air station at Cherry Point. Median household income here is 12% lower than the national average. Safrit’s headquarters city, Beaufort, probably hasn’t enjoyed above-average wealth since the pirate Blackbeard raided merchant ships off the nearby Outer Banks in the early 1700s.
Today the marauders are ProSales 100 dealers with branches as far as 120 miles away, bearing flags like ProBuild, Builders FirstSource, and Guy C. Lee, as well as closer rivals like Garris Evans. All saw Safrit’s territory in Jacksonville as a target, particularly during the housing crunch. Safrit’s Beaufort operation, on the other hand, is pretty much ringed by ocean, forests, and swamps, so growth prospects are dim at best.
Despite those economic challenges and competitors, Safrit’s and affiliates have thrived because, like the area’s houses, they’ve sunk a lot of pilings into the sandy soil to create financial stability. Sales targets include the historic homes in Beaufort, founded in 1709 and North Carolina’s third-oldest community. (It’s pronounced BOW-fort, by the way, and mustn’t be confused with South Carolina’s Beaufort, which is pronounced BYEW-fert). Then there are the vacation condos and upscale homes on the barrier dunes of nearby Emerald Isle. From there, Safrit’s business pretty much jumps one county over to a much more modern scene: the rental apartments and modest homes in Jacksonville and near Camp Lejeune. There the builders are younger, more likely to use subs, and more interested in production efficiencies. Then on top of the residential trade comes whatever commercial business that’s available. That includes sales to the Marine bases; Beaufort store manager Matt Hawkins notes that the corps regularly buys truckloads of plywood from which it creates buildings that can be blown up for target practice.
Those mini-markets put pressure on Safrit’s to stock a wide assortment of products, but the company doesn’t stop there. In recent years, Safrit’s began selling rebar, masonry, and materials for docks and piers. There’s a van that sells nails and fixes nail guns at jobsites. The company dives into areas that other dealers eschew, like roofing and drywall. And it rents space on the main floor of its Jacksonville store to a cabinet supplier.
Above all, what makes Safrit’s special is Leonard Safrit. Seeing him operate reminds you of a wonderfully produced song: Even as you enjoy the melody, you can detect the extra elements that make the song—and its composer—stand out. For instance, here’s how Safrit praises Sue Vaughn, who just retired after 22 years as the company’s credit manager:
“If you’re a business owner you have to wear a lot of hats; she let me take one hat off. How could you ask for a better charge-off rate of 0.1896% when the national average is 0.5%? That means we saved, what, $1.5 million over the years? I’ve seen so many contractors get up early, put up a great product, satisfy customers, but they don’t book it and don’t keep credit straight. If you are at 2% profit, for every dollar you lose you have to earn $50 to make it up.”
There, in one statement, you get a man who: 1) appreciates key workers; 2) calculates numbers to several decimal points past the norm; 3) can compare what he’s doing with his peers; and 4) explains data in a way just about anyone can understand.
“Leonard knows his numbers about as well as anybody I’ve ever seen,” says Larry Adams, president of the Southern Building Material Association (SBMA). “The other [key quality] is his ability to pick the right people. He’s got employees who have been with him a long time and who are loyal.”
The newer hires as just as impressed. Fred Lund, who came on last year as executive vice president, recalls that when he arrived, “I thought I had a pretty good sense of numbers. Leonard’s taken me to a different level, and I still have a whole bunch to learn.” One running joke is that while baseball statisticians use sabermetrics, here they use Safritmetrics.
“Leonard never stops questioning any assumption we make,” says Jim Enter, the roundtable leader and consultant who has known Safrit since 1994. “He’ll peel that onion until there’s nothing left. It’s about discovery—we think we know something, but do we know it really?”
One example is Leonard’s multi-year project with Enter to devise a formula that measures a dealer’s true cost of serving a customer. Safrit feels he’s getting close to an answer now thanks to technology the company has put in, particularly DMSi’s management system and DQ Technologies’ GPS-based order delivery tracking software.
“How in the world can you sell Customer A, who requires you to go to the jobsite 30 times and builds 200 miles from the store, and Contractor B, who lives across the street and requires you to go to the site three times, for the same amount of money?” Safrit asks. “We’re doing it all the time, and that’s the stupidest thing in the world.”
Dealers everywhere ask the same question, but it’s in Beaufort, N.C., where the answer might come. The work already is yielding useful results.
“How many of our customers really know that it costs $157.23 on the average—and I don’t like averages either—to deliver one load of lumber?” Safrit says, drawing from numbers compiled for his own stores. “And they’re asking us to bring out $40 of stuff? We’re throwing $100 into the toilet every time.”
Of all the numbers a dealer can control, Safrit says, “the one big, true, slow rabbit is that 4.67% of what we sell something for [covers costs incur-red] from the time we pick it up, put it on a truck, until the truck gets back. Our whole sales team doesn’t cost 4%.”
Insights gleaned from diving into the numerical nitty-gritty likely will help keep Safrit’s profit record intact during a time in which building material suppliers’ margins continue to get squeezed. “Among the dealers that are under $40 million in revenue, 90% of them don’t know what it costs to serve a customer,” Enter says. “There are customers we can sell profitably at 13% [gross margin] and some we can’t sell profitably at 25%.”
Lund says this practice of looking so closely at the numbers also is a great management tool. “What gets measured gets done—that’s the culture,” he says. “If you’re performing, he knows it. If you’re not performing, he knows it. Either way you’re going to hear about it. Larger organizations want it to be that way and there are managers within who are that way, but it doesn’t permeate the entire organization.”
Or as corporate sales chief Dave LeRoy puts it, Leonard Safrit “doesn’t do seat-of-the-pants management.”
Grand Central Station
Among his peers, Safrit is probably best known for the centralized dispatch system he set up in 1997 in a facility roughly midway along the 50 miles of N.C. 24 that link Beaufort and Jackson-ville. From a second-story tower overseeing a small facility in Cedar Point, manager Raena (pronounced Renee) Matthews manages an average of 60 deliveries a day made by Safrit’s trucks based here and at the two stores.
Chris Rader, an LBM management and technology consultant, says the idea of one person overseeing the dispatch and delivery efforts of multi-unit lumberyards remains a dream at most companies. “I get ulcers in my stomach when I see two trucks pass one another from different locations delivering into the same area,” Rader says. Centralized dispatching systems eliminate those problems, plus do a lot of the paperwork.
The improvements continue. Last spring, the company started tracking OTIF, short for On Time In Full. OTIF measures the percentage of deliveries that arrive at the jobsite by the time promised and carrying everything promised. East Hardwoods rates its current OTIF rate at 97%.
Meanwhile, yard workers are striving to load a truck and send it out again within 7-1/2 minutes. “Nationwide, they tell me that the average stop time was 37 minutes,” Safrit says. “You can’t wait 37 minutes; that’ll kill you.”
The place runs so efficiently that Enter says visiting dealers can’t figure out what makes it special: “Leonard is innovative in a way like, ‘Wow, why isn’t everyone doing this?’”
Recalls Safrit: “When we started, I thought, ‘Oh God, what are we doing?’ But we just got done looking at financials, and we would have never, ever thought the commodities part of this business would perform the way it’s doing right now. Yes, lumber prices are up, but it’s also because we’re so efficient at running that operation.”
Incentives To Grow
Safrit’s incentive plans for managers call for about about 40% of any bonus to be based on EBIT (earnings before interest and taxes) recorded by the entire company, and the rest to be based on the store’s EBIT.
Sales reps are paid on a 100% commission basis with the rep keeping 11% of the gross profit collected. But if the sales rep’s margin is better than the store average, he or she gets half of that. If the margin is beneath the store average, the rep takes half the hit.
The sales strategy begins with the goal of helping grow customers’ businesses. Safrit’s does that in part by using its own data discoveries to find ways to help builders operate more cost-efficiently, such as by offering discounts if a customer is willing to get the product within 48 hours of an order rather than 24. Safrit’s also holds classes on how a builder can lower its construction costs, how to improve a website, and how to boost the bottom line through better financial planning.
Rather than mail out invoices to all once a month, Safrit’s sends statements electronically as often as weekly to customers who wish to be billed that way. The change cut monthly postage by two-thirds and reduced A/R days significantly, the company says.
Safrit and his company can hold their own with regard to community support and service in LBM organizations like SBMA and Lumbermens Merchandising Corporation. But Leonard also has more personal causes. In 2004, as head of the state’s Masons, he pushed hard to integrate it with the group for black Masons. In addition, he is an officer in the Methodist church’s North Carolina Conference.
“Leonard doesn’t give back to the community because he thinks it’s good for business,” Lund says. “He does it because it’s in his soul.”
All that work comes on top of the care he provides for his 25-year-old son Wes, who has Asperger’s syndrome, a variety of autism. A combination of special schools, extensive testing, and regular oversight to see he gets his medication has enabled Wes to live on his own and work at an animal shelter. “You either wimp out or have to deal with this,” Safrit says, adding quickly that the lion’s share of the credit belongs to his wife, Sarah Jo. He also has two daughters: Ellen, a professional photographer, and Mary, a recent college graduate now on a mission trip.
Safrit plans to enter semi-retirement in 2014, but some who know him question whether he’ll be able to downshift. His passion remains strong.
“We have people who come in the store and say ‘Your grandfather helped my grandfather finance this house and get started and they sent all the materials down there and wouldn’t send us a bill until it was over,’” Safrit says. “When you hear people who talk like that and who made a dent and remember it from three generations, that’s pretty powerful stuff. I don’t know any other industry that you could get in that could give you that type of satisfaction.”