Grand illusion

Aug 01, 2005 9:30 PM  By

If Jim Graham has his way, Utility Safeguard will one day be the Amazon.com of the construction world — a larger-than-life online store providing contractors with an easy way to buy construction and industrial supplies.

The three-year-old company has a way to go yet, of course. Though the Southampton, PA-based wholesale distributor has enjoyed annual growth of 200%-300%, it’s on track to do just $3 million in sales this year.

But by focusing on online sales and relying heavily on drop shipments, Graham has given the company an illusion of size. “If you go to our Website, we look a lot bigger than we really are,” he says. The Web store carries 3,000 SKUs — and, Graham is quick to point out, he is continually expanding his selection. Yet the Utility Safeguard warehouse stocks only 200 SKUs.

And in the beginning, Utility Safeguard didn’t stock even that much. The decision to fulfill a portion of the company’s product line from its own warehouse complicated order processing somewhat — but it also spurred much of the company’s growth.

Filling a niche

Utility Safeguard was born as a niche business serving the utility locating industry. The who? The folks who paint those red and orange arrows on streets and sidewalks so that construction crews know where underground power lines, pipelines, and phone lines are located before they start digging.

Having spent 15 years at a large utility construction firm, Graham knew the locating industry had a voracious appetite for marking paint, marking flags, and industrial batteries. He launched his business selling just those three product lines and worked his contacts to land his first suppliers and customers. He built his Website with a hosted e-commerce solution from NetSuite, a San Mateo, CA-based business applications provider. The Web-based program integrates the site with order processing and other back-end functions.

Graham began Utility Safeguard as a one-man band, running the business part-time out of his house and drop-shipping all merchandise. Today the company employs five full-time workers housed in a 3,000-sq.-ft. building that’s half office and half warehouse, with a small checkout area at the front of the warehouse to serve walk-in customers.

The company currently carries 100 product lines. Marking paint, flags, and batteries are still Utility Safeguard’s biggest sellers, but customers can also buy other kinds of paint, lubricants, barricade tape, safety fence, flashlights, safety vests, gloves, safety glasses, hard hats, cleaning products, first aid kits, and other supplies.

Utility Safeguard’s customer base has grown beyond the utility locating industry. Schools are coming to the site for athletic field striping paint and batteries for calculators. One customer recently purchased 20,000 batteries to power point-of-sale displays in Wal-Mart stores.

“We’ve worked hard at getting out there through the Internet, and we’re getting about 80,000 or 90,000 hits per month on our Website,” notes Graham. “We’re gaining 250-300 new customers a month.”

Sixty-five percent of Utility Safeguard’s orders come in through the online store; 30% come in on the toll-free line listed on the Website. The rest is walk-in business. Large orders such as 10 pallets of marking paint account for 75% of sales volume and are drop-shipped. Most small orders are fulfilled through the warehouse in Southampton, PA.

Before Utility Safeguard started carrying inventory, it couldn’t fulfill these smaller orders. Some of Graham’s suppliers require minimum orders ranging from $100 to $1,000. If you wanted to buy a single pair of gloves, you had to buy it elsewhere because Utility Safeguard’s supplier would sell them only by the case. By bringing inventory into his warehouse, Graham could crack open a case of gloves and ship one pair to a customer. “Once we started adding inventory, our sales took off because we were able to sell items in smaller quantities,” he notes.

Most customers place orders that require split fulfillment. Orders come into the online store, queue up in the system, and hang there until approved by Graham or one of his customer service reps. As soon as the order is approved, the NetSuite program generates the appropriate purchase orders. Noninventory items go directly into drop-ship. In-stock items are set up for fulfillment through Utility Safeguard’s warehouse. Out-of-stock items go into backorder unless forced by Graham or a CSR into drop-ship.

“For example,” explains Graham, “I’ll hit the ‘Approve’ button and if the order must be fulfilled by three different suppliers, the system will generate a separate purchase order to each of those companies. The system automatically e-mails or faxes the purchase orders, along with all of the shipping information, to those suppliers.”

Graham’s CSRs do everything from taking phone orders to picking, packing, and shipping. Orders for in-stock items queue up for fulfillment, and the system generates a packing list. Volume is small enough at the warehouse that the CSRs can fulfill orders as they are received throughout the day. A CSR will simply pick up the packing list, go into the warehouse, and wheel a cart through the racks, picking the order, packing it, and preparing it for shipment.

In by 2, out by 3

Utility Safeguard receives a daily total of 20-40 orders, ranging from a $25 pair of gloves to $300,000 worth of batteries. If an item is in the warehouse, it will likely ship that day. “We ship everything Fed Ex Ground, and they pick up at 3 p.m.,” says Graham. “If we receive the order by two o’clock, it’ll ship that day.”

One of Graham’s goals in moving to the warehouse last fall was to pursue the local construction market. “We wanted to have almost like a super-mini or micro-Home Depot where contractors could walk into our warehouse and pick their paint and safety supplies right out of the bins,” he says. “We’re very organized for that. We have nice clean floors and nice racks, the product is pretty well displayed, and there’s a checkout counter for them.”

Contractors pick their items out of the same inventory that’s used to fulfill online and phone orders. Point-of-sale transactions are not yet integrated in real time with the rest of Graham’s operation. The software provider, he notes, is developing a point-of-sale module, and as soon as that’s available, he will add it to his system.

“Our plan is to grow this business,” says Graham. In addition to expanding his online store, he’s looking to open two more brick-and-mortar facilities patterned after his Southampton operation. He plans to open a facility in Jacksonville, FL, later this year and another in Salt Lake City next year. Setting up additional business locations will enable him to pursue more local markets and shorten shipping times to customers in other parts of the country.

With new suppliers, new products, new markets, and new customers (plus new ways of reaching them), “this business keeps branching out on us,” says Graham. Clearly, for Utility Safeguard, the Web’s the limit.


Dana Dubbs is a freelance business writer based in Escondido, CA.

VITAL STATS

Headquarters: Southampton, PA

Website: www.utilitysafeguard.com

Revenue: Est. $3 million in 2005

Total employees: 5

Phone: 215-322-1150

Fax: 215-895-9825

Warehouse: Southampton, PA

SKUs: 3,000

Volume: 20-40 orders per day

Suppliers: E-commerce solution: NetSuite, San Mateo, CA

Racks, carts: Sam’s Club, Hatboro, PA