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November 2008
The Falcon Way
By Janet Kropinak

     To be successful, business owners—whether their company is small or large—must find a functional business model that serves their client base on a long-term basis. To continue to be successful that model must be tweaked and adapted as marketplace and client demands change. The right practices can help increase efficiency and improve financial and operating performance, whereas the wrong practices can run the business into the ground.

     Many companies subscribe to the principles of programs such as Six Sigma, Total Quality Management (TQM), Quick Response Manufacturing (QRM), and Lean Manufacturing (LM); a practice which stemmed from the Toyota Production System (TPS).

     But for Falcon Metal Corporation, success doesn’t come from selecting a single business model, but instead choosing the right components of several, creating the Falcon Way.

     President Don Nowak describes their model as an amalgam of lean manufacturing and open-book management, which allows them to focus on developing supply systems that help reduce the Total Procurement Cost (TPC) for their customers.

     And this model has proved to be a winning combination for the distributor, which celebrates its 30th anniversary next year.

 

Fastening a Business

     Bruce Roberts came to Charlotte in 1979 to open an industrial distribution business. Charlotte was an attractive location for a distribution hub because of its accessibility and the availability of financing. It was also positioned in the heart of the Carolinas, which would eventually become Falcon’s primary business footprint.

     The Peregrine Falcon, known as the fastest bird of prey, was the inspiration behind Falcon’s name. Roberts, a bird enthusiast, wanted the name to reflect the company’s ambition to deliver speedy and stealth service to their customers.

     Not long after going into business, Roberts began to see a common problem among many of their industrial customers. More and more companies were facing challenges controlling their component inventory, which in turn was leading to problems with efficiency and production in their plants.

     Roberts began thinking of ways he could change his own business model to adapt to the growing needs of his customers. In the early ’90s, Falcon bought a bar code inventory control system which was the first step towards creating a solution for these inventory problems.

     This new technology opened many opportunities for Falcon, but it was more than Roberts was prepared to take on alone, so he enlisted his friend, Don Nowak to join him in Charlotte to establish and take charge of the inventory management services.

Roberts had networked with Nowak for years through the National Fastener Distributors Association. Nowak had the expertise Roberts was looking for from his experience running a similar distribution company in Chicago.

     After considering Roberts’ offer, Nowak sold off his interest in the Chicago-based company and headed south to join Roberts and Falcon Metal in 1997. Nowak brought a wealth of experience in industrial manufacturing and distribution as well as an appreciation for how technology could be used in moving the company forward.

     Upon his arrival, Nowak helped Falcon adjust its business model by developing and implementing a Just-In-Time (JIT) inventory strategy, which allowed them to improve the return on investment for their customers by reducing in-process inventory and the     associated carrying costs.

     Their inventory management has since expanded, now representing the bulk of Falcon’s business. When Nowak joined the company, the revenues were at $2.8 million; he proudly acknowledges the close of their fiscal year in June with sales totaling almost $10 million.

     In January of this year, Roberts retired, and as was part of the initial plan, ownership was shifted to Nowak. Nowak says the transition has been “a seamless one,” with business continuing as usual.

     Moving forward, Nowak intends to focus more on IT services and marketing, which traditionally haven’t been Falcon’s strengths. “One of our challenges that we need to focus on is building better name recognition,” he admits.

     Describing himself as a direct and hands-on leader, Nowak is quick to deflect any credit for the company’s success to his employees and their execution of doing business the Falcon Way.

 

The Nuts and Bolts

     An important element of the Falcon Way is staying true to the principles of lean manufacturing, which considers the expenditure of resources for any means other than the creation of value for the presumed customer to be wasteful, and therefore a target for elimination.

     Using a “pull” system allows them to help their customers avoid overstocking by only replenishing material that has been consumed; reducing the amount of money their customers have tied up in inventory.

     Each of Falcon’s inventory management programs is tailored to meet the needs of the individual customers, many of whom are original equipment manufacturers (OEM).

     One of their most popular options for high-volume accounts is the Falcon Barcode Inventory System (FBIS). This system utilizes technology to assist OEM customers in managing their ordering process for class C production components. (These are the items that are the reverse of the 80/20 rule: the high number of low dollar value parts, including fasteners, fittings, screw machine parts, and stampings, etc.)

     FBIS eliminates down time due to lack of parts or inferior product. This system also replaces the customer’s tedious process of checking inventory levels, filling out requisitions, sourcing and expediting overdue orders.

     “Our core competencies include managing C inventory items, technical knowledge, industry experience, flexibility and responsiveness,” explains Nowak.

     Falcon’s technology has made reordering materials a simple process of scanning the labels for items below minimum stock level. The scanned information is then uploaded directly into Falcon’s computer system; then a pick ticket is generated for products needing replenishment. The result, as seen by many of Falcon’s customers, is a substantial reduction in inventory levels.

     “Falcon’s inventory management program has allowed us to reduce our fastener inventory by over 50 percent,” praises Jack Randall, plant manager at ECII in Conover. “They come to our plant every two weeks to scan our stock of the parts we buy from them and replenish as needed in previously agreed upon quantities. In addition, being in constant communication regarding our production levels here, Falcon has done a wonderful job of maintaining sufficient stock of our parts in Charlotte ready for delivery at a moment’s notice should we require it.”

     Most of Falcon’s customers are served from the Charlotte headquarters. In addition, Falcon maintains two customer-specific distribution centers in South Carolina.

     Before customizing a program, Falcon’s employees work to gain a full understanding of the customer’s business and their goals. “We aren’t selling a ‘cookie-cutter’ program. We are partnering with our customer in an effort to develop a supply system that will ultimately reduce their total procurement cost (TPC),” says Nowak.

     “All costs need to be considered to ensure you are making the most cost-effective decisions for a business,” explains Nowak. “These costs include sourcing, paperwork, expediting, downtime, internal handling to final use point, carrying costs inventory, control, storage space cost, shrinkage and taxes and insurance.”

     In addition to reducing TPC, Falcon provides plant materials management services at point-of-use and/or component warehouses, and reduces the parts purchased by providing sub assemblies to the point of use locations.

     Falcon’s additional strengths include on-time delivery that exceeds 99 percent; error-free shipping performance that exceeds 99 percent; competitive pricing which allows their customers to stay competitive in their fields; and on-call services available 24 hours a day, seven days a week.

 

The Falcon Way

     Using lean manufacturing within its business model has helped Falcon meet and exceed the needs of its customers on the product side, but it is the open-book management style that has helped to build and retain a high-quality work force capable of meeting the customer service demands of current and potential customers.

      Nowak knows that before you can work on retaining employees, you have to get the right ones in place: “We go through an extensive interview process, including personality and skills testing, because we know how important it is to get the right people behind your organization and how much it can cost you in the short and long-term if you don’t.”

     Falcon uses Personalysis, a test designed to help a company and potential employees determine if they are going to be a good fit for each other’s goals and objectives.

     “In small companies especially, it is imperative that people mesh well and become a part of the corporate culture,” explains Nowak. “We find these tests allow us to assess if someone has the ability to not only do the requirements of the job, but also meet our high expectations in doing so.”

     After the right person is hired, Falcon offers many incentives to keep them happy. Monthly gain sharing, profit sharing, a 401(k) plan and cash bonuses based on company profitability are a few ways they incentivize their employees, in addition to what Nowak calls an “a very competitive salary.”

            “We offer a clear vision of what is required to sustain and grow the organization and in doing so create a positive work environment for the staff,” he explains.

     It is this vision that has helped Falcon   garner attention from both The Charlotte Observer and Charlotte Business Journal recognizing them among Charlotte’s best places to work.

     Nowak also explains that although it is a relatively uncommon practice among businesses today, Falcon operates under an open-book policy for all employees. Everyone is provided with access to the company’s financial information—revenues, profits, costs of goods, cash flow and expenses.

     This policy empowers employees to help the company improve and grow and encourages them to become more efficient workers.

     “Our open-book policy has not only helped us build loyalty among our employees, but also has helped us create a company culture that strives for and achieves superior service for our customers,” boasts Nowak.

     Customer Jack Randall attests to their superior service: “Although our program has run nearly flawlessly, as with any plan, things do not always go as expected. Whenever any issue has arisen, they have always gone over and above to do whatever was necessary to keep this plant running at full capacity, often at their expense. It doesn’t get any better than that.”

     Falcon’s formula seems to be working; the company has seen double-digit growth for the past six years, and although many are seeing economic downturns, Nowak speaks optimistically about the future: “With a stronger focus on marketing and IT, I think we are well on our way to positioning ourselves for a prosperous future.”

     “Our strongest asset is the quality and knowledge of our staff,” he continues. And as for Nowak himself, retirement isn’t on his agenda—at least not yet. “I’m still having too much fun doing what I’m doing,” he says with a smile.

Janet Kropinak is a Charlotte-based freelance writer.
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