WD-40: Small Companies, Big Returns

By Edward Cone Print this article Print

The lubricant maker used to have a Brand Forress.

Mike Freeman's job was to fix something that wasn't broken.

WD-40 Co., where Freeman is president of North American operations, makes WD-40 lubricant spray. For decades, that was all it made, and the San Diego company was expert at getting those iconic blue-and-yellow cans onto its retail customers' shelves.

But when WD-40 embarked on an acquisition strategy in 1997, Freeman had to reinvent the information systems supporting manufacturing and distribution. He ended up building a system from scratch to integrate new products, manufacturing partners, suppliers, and sales channels. "We looked at our supply chain, and it was ruthlessly efficient, but not real flexible," says Freeman, who was chief information officer at the time. "We had to break it apart and put it back together with the flexibility to handle different products."

Today WD-40 has seven brands, including Spot Shot stain remover, 3-in-One Oil, Carpet Fresh rug cleaner, 2000 Flushes toilet cleaner, and Lava and Solvol soaps. Only about 60% of its $238.1 million in revenue for the 2003 fiscal year, ended Aug. 31, came from its original WD-40 product. Income for the year was $28.6 million, or $1.71 a share. "They have done a good job of integrating the acquisitions into the business," says Liam Burke, a stock analyst who follows the company for brokerage Ferris, Baker Watts in Baltimore.

As part of a four-year plan to almost double sales and earnings per share, the company hopes to reach $275 million in sales and $1.90 in earnings per share, respectively, by the end of fiscal 2004.

"There has been no report to indicate that they won't get to those objectives," says Burke. The strategy originally called for the first two years' growth to be driven by acquisitions, and the subsequent two years by organic growth, including new products based on the existing brands, such as a version of Spot Shot now under development for sale in pet stores.

Freeman's challenge was to create an information system that could track sales and inventory for all WD-40 products, and that allowed the company's wide range of customers to order and pay for all products on a single invoice. A common system was essential to the efficiency needed to meet WD-40's financial goals.

Freeman, 50, bet on an unusually close relationship with a key software vendor to make the new brand integration work. After looking at enterprise resource planning systems from major vendors such as SAP and Oracle, and smaller ones like QAD Inc., he chose a package called Innatrack from Draves & Barke Systems, a small company in Eden Prairie, Minn., with $1.5 million in revenue this year.

The relationship is almost symbiotic. WD-40 agreed to test early versions of new Innatrack releases, into which the vendor would build the functions WD-40 needed to support its expanding product base, such as the ability to handle the promotional and rebate demands of grocery chains.

Draves & Barke Chief Executive Roy Barke says larger companies may profit from reexamining the ways they work with their own software vendors. "It's a trust factor," he says. "We're like a consultant, and we can bounce ideas across to each other, think outside our organizational constraints. We watch out for the needs they express." Says Freeman, "We communicate directly with them without any third parties for development and implementation. That costs less and gives us more value for what we spend."

This article was originally published on 2003-10-01
Senior Writer and author of the Know It All blog

Ed Cone has worked as a contributing editor at Wired, a staff writer at Forbes, a senior writer for Ziff Davis with Baseline and Interactive Week, and as a freelancer based in Paris and then North Carolina for a wide variety of magazines and papers including the International Herald Tribune, Texas Monthly, and Playboy. He writes an opinion column in his hometown paper, the Greensboro News & Record, and publishes the semi-popular EdCone.com weblog. He lives in North Carolina with his wife, Lisa, two kids, and a dog.
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