Rusty Wood
Russell Debwood is the founder and owner of Rusty Wood, an established small company that specializes in the coordination and distribution of lumber between lumber mills and retail lumberyards.
Russell started his career as a sales rep for Ravelston Building Supplies 25 years ago, where he learned everything about the industry, including the logistics of lumber transportation. He quickly worked his way up to divisional manager and started developing closer relationships with customers in his area. After eight years of service with Ravelston, corporate restructuring gave Russell the chance to resign from his position and start his own company, Rusty Wood, and continue to work closely with the four largest mills in his west coast district. He bought carloads of lumber from them and then sold these orders to customers and arranged shipping. His profit margin is typically at a 6% markup (which was the rate for similar companies in other areas). The mills were pleased to benefit from the ease of the hassle-free large volume sales, and Russell was growing a successful business as the ‘middle man’.
As years passed, the process became flawless. The mills would call Russell when they had a carload of product and they would provide him with the condition, grade, and quantity of each board in the load. Being the only company of his kind in his specific geographic area, the opportunities were endless. He wasn’t required to buy every carload that was available, however he rarely passed them up, as he found more and more customers who were willing to make purchases through Rusty Wood.
Russell always maintained good working relationships with both his customers and suppliers. Most of his work could be handled over the phone or by email, however, Russell still visited all of his customers on a monthly basis to ensure they were still happy and also to clear up any potential concerns or problems. His business was very successful until about five years ago when the first large home improvement chain moved into the area to compete directly against the local lumberyards.
Within 18 months, three large home improvement retail chains had moved into Russell’s market area. A year later, 12% of Russell’s customers had gone out of business and more than half were losing sales. Clearly, the large chains had the capital to buy lumber in huge quantities at a discounted rate from the mills; this allowed them to offer customers a well-stocked one-stop shop, with lower prices.
Russell’s close relationship to his customers helped him maintain enough business to keep his company running for the last few years, but it had been a struggle. Recently, a new salesman entered the market in Russell’s district. He offers the exact same service as Rusty Wood, but is undercutting the industry’s established pricing structures as an attempt to capture a majority of the business opportunities. Russell’s close customer relationships are starting to matter less as his longtime customers begin making their purchase decisions based on minimal prices and tight profits, rather than customer service or loyalty. Currently, Russell has about half of the business that he had a year ago. He is concerned for his livelihood as he doubts that there is (in the long term) enough business opportunities left to support two companies. Even with the business that he has right now, he is barely making a profit.
Last week, Russell received a phone call from Nathan Worship; an old work acquaintance. Nathan is the district manager of Wood Works Inc. Wood Works is a well-established local company that manufactures and sells windows, doors, and a couple other smaller lines. They do not sell to the large chains as they believe that local businesses need to be protected and given the opportunity to grow. Worship focuses his sales on local lumberyards and he is aware that Russell has a long-standing, positive relationship with most of them. Worship would like to hire Russell as Wood Work’s exclusive sales rep for their line of residential windows and accessories in Rusty Wood’s existing service area. Wood Works has recently implemented a new program to help lumberyards successfully market and sell these product lines that has proven to be more profitable due to a higher mark up. Worship is convinced that Wood Works has something new to offer that will be equally enticing and that Russell’s existing relationship with the lumberyards is the key to profitability.
Worship invited Russell to a meeting to make his proposal. The program will focus on the market for residential windows. Currently, the bulk of residential windows that are sold are of the mid-range line. These standard-sized windows sell easily if they are in stock and a decent price. The large chains generally stock and sell the majority of these mid-range windows; they sell very few high-end or low-end product lines. Customers can find most standard-sized windows at these stores. However, for anything outside of these parameters, a custom order is required.
Lumberyards, on the other hand, don’t bother stocking any windows; they rely on business from custom orders which they order from different factories and can generally deliver to the customer within a month. The window business among lumberyards in the area is split fairly evenly; sales are based on a combination of competitive prices and the personal relationships that the sales reps have developed with customers. Wood Works not only relies on good customer service, but they also recently set up an online program where you can directly access their prices and availability. Customers are happier now that they can immediately get a quote and estimated delivery time. Worship hopes this program will be successful not only for residential sales, but eventually lead to stronger commercial sales.
There seems to be a high demand in the commercial sector for commercial grade windows that meet commercial safety codes, yet also provide other features. Some commercial builders want the look of a residential window with an attractive wooden framework, but still require the security and quality of the heavy duty steel-framed commercial window. Wood Works plans to offer a program where the basic windows and frames are interchangeable. As a result, lumberyards could gain more business by breaking into the commercial market with an offer of these new combination windows. Customers could build any look with any quality, plus the program would offer a level of technical support that would be superior to all large home improvement retail chains. The possibilities are endless, as could be the profits. Though a few other companies have similar lines, they’ve never been marketed properly and they are not well known. Worship is certain that with Russell’s commitment and longtime relationships in the area, plus Wood Works’ training system and support system, this new program will be a huge success for both Wood Works and Russell alike.
Russell has three choices at this point. He could: (i) accept Worship’s offer and still continue his own lumber business on the side, (ii) abandon his lumber business and put all of his efforts into this new position with Wood Works, or (iii) decline the offer and put all of his efforts into Rusty Wood.
Worship will need to know in two weeks if Russell would like the job. Otherwise, he will need to rework his plan and try to find a new candidate. Please discuss Russell’s current situation in conjunction with the new offer.
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