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FAMCO discusses its flexible procurement strategy

Frank O’Connor and Paul Gandy explain why FAMCO’s consultative approach to equipment procurement is enabling clients to overcome challenges related to cash flow

FAMCO's brand portfolio includes a diverse array of high-end manufacturers, including Volvo Construction Equipment.
FAMCO's brand portfolio includes a diverse array of high-end manufacturers, including Volvo Construction Equipment.

FAMCO has never been afraid to adapt its business to meet clients’ needs. The UAE-headquartered distributor, which represents a vast array brands across the GCC, prides itself on being the first to respond to the evolving requirements of the market.

In 2012, the company launched FAMCO Financial Services, a division dedicated to the provision of flexible financing packages for its product portfolio, which spans commercial vehicles, construction machinery, materials handling equipment, portable power products, and more.

In the years since, the firm has invested considerable amounts of time, effort, and money in a bid to integrate these alternative financing options within the fabric of its day-to-day business activities. The result, according to Frank O’Connor, FAMCO UAE’s managing director, is the ability to offer procurement packages that cater to the entire spectrum of industry.

“There’s plenty of activity within the market,” O’Connor tells Construction Week. “2015 was an excellent year for FAMCO, and I expect 2016 to be good as well. However, there does seem to be an issue with cash flow. This is the factor placing the largest strain on our clients.

“It’s difficult for firms to deal with delayed payments. They still have to buy diesel every day, and pay their operators and sub-contractors. They need help to diminish this burden on their balance sheets,” he explains.

And this – in a nutshell – is the driving force behind FAMCO’s ever-growing range of financing options. O’Connor and his team are using everything in their arsenal to make life a little easier for their clients.

“That’s why we created these packages,” says O’Connor. “And we took the decision to do so before our clients even asked. We can see the pain and the pressure that they’re under, so we’re out there laying these offers on the table. We want to show that there are other ways of approaching procurement.”

Today, FAMCO offers a diverse selection of procurement options, from the traditional model of ownership to rental and leasing packages – and everything in between. Indeed, the distributor has restructured its entire sales strategy around the concept of tailored procurement.

“In the vast majority of cases, our clients are surprised by what we’re offering,” explains O’Connor. Sometimes, the management of a company will simply ask us to visit them and provide a quote. But when we go out to give them that quote, we offer five or six different procurement options.

“Clients really are appreciative of this approach. They find it helpful in terms of both cash flow and budgeting,” he adds.

Last year, FAMCO UAE appointed Paul Gandy as its divisional manager for rental and used equipment. Since joining, Gandy and his team have worked to align the firm’s offerings with clients’ balance sheets and project timelines.

“We’re looking at the entire lifecycle of projects,” he explains. “We’re looking at how we can match our product offering to our clients’ projects – from ground preparation, through completion, to fit-out. We’ve researched where development activity is at the moment, and have focused our packages around these live projects.

“Historically, companies tended to use a single source for procurement, but there was a perception that this situation favoured suppliers. Firms began to stretch farther afield into multi-sourcing, and to some degree, this didn’t always work. Inconsistent supply-chain partners started to become a frustration for many companies. I think the consistency that FAMCO can offer – in terms of high-quality equipment and creative financial packages – can help ensure a smooth workflow.

“Today, clients are looking to integrate their businesses with strategic supply-chain partners. And obviously, smart and creative financial packages play a vital role in the establishment of strategic procurement processes,” says Gandy.

After speaking with O’Connor and Gandy, you’d be forgiven for assuming that FAMCO was a consultant, not a distributor. When questioned about this, Gandy suggests that for FAMCO, the line between the two is becoming increasingly blurred.

“I think that the success of FAMCO’s approach depends on intimacy and honesty with our clients,” he notes. “It’s about building trust and understanding their pain. We need to find out where the pinch-points are, and to some degree, anticipate them.

“That’s where honesty comes in; sitting down with clients and having frank discussions with one another. People being very open and honest; they’re looking for this long-term loyalty,” Gandy adds.

“We prefer to talk about our client base, rather than customers,” O’Connor elaborates. “Procurement management is something that needs to change within the market as a whole. It’s no longer just about the specifications of a machine. It’s about the whole-life cost; the support, the aftersales, the fuel, telematics – it’s absolutely endless.”

The broadening of procurement options is not only useful for end users; it is becoming increasingly necessary within the Middle East’s equipment market. But how, if at all, has the shift away from traditional ownership affected FAMCO’s bottom line?

“It doesn’t change the end result; it just moves the result” explains O’Connor. “Ultimately, the end result needs to be the same or better. However, we don’t get the margins to our bottom line at the beginning; we may have to wait until the end instead.

“It therefore changes the way in which you produce your margins. Today, it’s all mixed together in one bowl, whereas in the past, there were distinct lines. We made a margin selling the unit, and then we made another on aftersales. Today, these margins are mixed together over a longer period of time,” he points out.

Encouragingly for FAMCO, its flexible procurement strategy is serving to generate new revenue streams. O’Connor continues: “There’s also the margin whereby the client can choose to purchase the product at the end of the term. Alternatively, FAMCO may buy it back. Then you’re looking at second life: what do we do with that unit? Do we put it out on another lease or rental agreement, or do we take the profit from the market and sell it as used machinery?

“To be honest, having the opportunity to have second life with a machine probably does increase our chances of profitability. With risks though, because we’ve made pledges too. I would say that the traditional profits on the sale and the aftersales have definitely changed; they’ve become blended together. But second life – what happens at the end of the period – represents a new profit line. This is profit-stroke-risk, and FAMCO is working to take risk away from its clients,” he explains.

Obviously, it would be disingenuous to describe FAMCO’s approach to procurement as altruistic. Though it opens up additional avenues for clients, it also offers clear benefits for the distributor’s business. Nevertheless, this strategy is intended to offer long-term commercial sustainability for both FAMCO and its clients, according to O’Connor.

“There are plenty of manufacturers and suppliers out there at the moment offering quite crazy pricing and service contracts,” he remarks. “I don’t know how they’re going to sustain those offers. I don’t know how they’re going to fulfil their obligations. When FACMO’s sales engineers sit down with clients, the options they discuss relate to specific, guaranteed, fixed figures over unambiguous timeframes.”

This all links back to FAMCO’s position within the market: a partner rather than a supplier. “The shift from price to advice opens up huge opportunities for FAMCO,” says O’Connor. “We’ve built up an armoury that can be used to defeat our competitors.

“Five years ago, I had a vision, and I think we are extremely close to achieving that vision. At the end of every sales conversation, I want our salespeople to be able to say: ‘By the way, you get a machine with that offer’. They shouldn’t have to mention the machine before this point; it’s almost incidental.

“People already know that FAMCO supplies high-quality equipment. But the rest of our offering – flexible procurement and aftersales service – those things are equally important. They add such value to our clients’ businesses, and that’s what we want to achieve,” O’Connor concludes.

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Construction Week - Issue 754
Nov 23, 2019