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EXHIBIT 99
October 24, 2000
To All Moore-Handley Associates:
When we took executive responsibility for Moore-Handley in 1997 we set as our
company goal becoming the highest quality operator with the lowest operating
costs of any full-service hardware-home center distributor in the country. While
these goals may seem contradictory, we believed we could accomplish them by
pulling together a team of dedicated, knowledgeable associates and equipping
them with the latest in electronic communication products. As a result of three
years of intense effort, to which many of you have made important contributions,
we believe our company has become a leading-edge distributor in the hard goods
industry. Here are the improvements, department by department, that have helped
us do so.
SALES
All of Moore-Handley's Territory and District Managers as well as most of our
dealers use SalesHelper(R), Moore-Handley's proprietary electronic catalog. This
Windows-based system allows the dealer and/or Territory Manager to use a laptop
or desktop PC to look up and order from our 38,000 items. For ease of operation
there are a number of look up functions:
1. Item name 5. Competitor item number
2. Moore-Handley item number 6. UPC code
3. Catalog page 7. Vendor name
4. Dealer item number 8. Vendor part number
Most SKUs in SalesHelper(R) have digitized color pictures with complete product
descriptions. The dealer or Territory Manager can build an order and transmit it
to Moore-Handley in seconds with the push of a button. The ordering function can
be automated further by electronically linking SalesHelper(R) to a point-of-sale
or bar-code reading device.
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There are also many other enhancements SalesHelper(R) offers the dealer.
The dealer can:
1. Prepare electronic quotes for contractor customers, instantly
review and adjust the quotes for more gross margin.
2. Write his own Moore-Handley credits and receive instant
electronic credit on his account. (This credit process used to
take weeks and lots of dealer and Territory Manager time.)
3. Take his inventory electronically, saving hundreds of
man-hours.
4. Review Moore-Handley's inventory electronically while online;
offline, he can review suggested substitutions if a given item
is out of stock.
5. Print bar-coded price stickers, bin labels and pallet labels.
Through SalesHelper(R) Moore-Handley currently transacts $75-80 million in
business each year.
SalesHelper(R) also contains a special Gross Margin enhancement program called
"MoneyMaker". Through MoneyMaker the dealer can instantaneously adjust the gross
margin in his store, either store-wide or by category (e.g. plumbing or
electric), or by SKU. Using a database provided by Moore-Handley, the dealer can
compare his retail prices to the big box retails based on up-to-date data. This
enables the dealer to price against the big boxes on price-sensitive items and
immediately adjust other product prices to preserve gross margin. The program
also prints out the bin labels necessary to immediately re-price the changed
items.
Moore-Handley also offers the dealers through the Territory Manager another
proprietary program called "Tool Box". By using Tool Box the Territory Manager
can access sales information by SKU from our composite dealer database to look
at Moore-Handley's best selling SKUs and see whether or not the dealer stocks
them. If the dealer doesn't stock these key selling items, the dealer and
Territory Manager can easily add them to the store, immediately adding to its
sales potential.
By providing these services to our core dealers - those who have made
significant volume commitments to Moore-Handley - we have given them simple,
powerful, and profit producing tools. One result of our electronic capabilities
is that our average Territory Manager now is responsible for more than $3
million in annual dealer sales - - a number that would have been unachievable a
few years ago.
This summer we introduced another electronic catalog called "SalesHelper(R)
LITE". This catalog was created for dealers across the country for use in our
new division, National Wholesale Hardware. Using this simple, self-loading CD a
dealer anywhere in the country can order any stocked product at any time,
computer-to-computer, from Moore-Handley's warehouse. Already dealers in
Illinois, Pennsylvania, New York and elsewhere are beginning to use this
effortless, cost-effective way of ordering product. By partnering with leading
delivery services such
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as UPS, we can provide rapid, reliable and cost-effective delivery service to
these dealers.
WAREHOUSE
In 1997 when we took executive responsibility, the Moore-Handley warehouse had
many challenges. Products were spread through the warehouse with no regard for
velocity, vendor integrity, bin size, or other elements necessary for orderly,
efficient put away, picking or shipping. Error rates on both picking and
shipping were unacceptable. There was no way to measure associate productivity
or accuracy.
Using data provided by the IT department, we re-set the entire warehouse on the
mainframe taking into account velocity and bin size, as well as other important
product criteria such as product size, weight, and whether the product was
conveyable or non-conveyable. When we completed the computer model we began the
arduous task of resizing and relocating virtually every "bin" in the warehouse.
Then we relocated all of the 38,000 products in those bins. All of these moves
had to be done at night and on weekends, at great cost and lost profits, so that
we could continue running the daily business.
Due to enormous effort by our warehouse associates and inventory controllers, we
were able to increase our service level (fill rate) to over 96% (99% on A and B
items) even while carrying out this complicated move. Today, this service level
is routine.
Upon completion of the warehouse moves, we began a five step process of
introducing radio frequency laser-based barcode scanners. These devices, known
as "guns", are loaded by radio frequency from the mainframe with complete
product information.
We began the process with our order-picking associates. The mainframe picking
program starts by creating the optimum pick-path for selecting merchandise. When
the picker gets to the right bin, the device electronically reads product
numbers and then in a fraction of a second transmits the data to the mainframe
for verification. Simultaneously the program begins building the dealer invoice.
Today the picking system is fully in place throughout the warehouse and has
reduced picking errors by 50%, an elimination of thousands of errors per year,
which in turn greatly reduces our costs of re-handling errors and returns.
Once the electronic picking program was in place, we began developing a multiple
picking system enabling a picker to pick more than one dealer at a time. This is
primarily a productivity-enhancing system, which enables order pickers to pick
anywhere from four dealers (for larger product) to eight (for items picked for
repack) thereby reducing unproductive "walk time" from 75% to almost 90%. While
it has taken time and expensive training for our order-picking associates to
learn this new
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system, it has now begun to show productivity gains. We believe these gains will
be enhanced by an incentive system for outstanding performance, made possible by
measurements derived from the electronic "guns".
With the picking program finished and in full operation, we turned to shipping.
Our conveyor system already electronically sorted dealers' packages by truck
lane. However, we had an unacceptable number of errors when loading dealers'
boxes onto their specific pallets since there can be as many as 20 dealer orders
on a truck. Using an electronic receiver/transmitter strapped to the loader's
arm with a fingertip laser reader, our loaders now verify every dealers' package
to every pallet while keeping both hands free to load boxes. In a few months
this has reduced our shipping errors by 40%, making our dealers' shipments more
accurate while greatly reducing the cost of lost or mis-shipped items. Initially
this system slowed down the loaders and reduced productivity, but as the loaders
have become more proficient, productivity is beginning to rebound. As with
picking, we will introduce an incentive for outstanding performance which we
believe will increase productivity even more.
We are now in the process of completing the final two stages of electronic
control of the warehouse which are receiving and stock put-away, scheduled to be
completed by year-end. Upon completion of these two systems, the warehouse will
be fully electronic from receipt of product from the vendors to shipment to our
dealers.
What this will mean is that our order-handling will be almost error-free, from
the dealer's order on SalesHelper(R) or SalesHelper(R) LITE, to when it leaves
the warehouse. These product-handling systems are as important, or perhaps more
important, than electronic ordering.
DELIVERY
In 1997 Moore-Handley already owned a sophisticated electronic "routing"
program. Unfortunately, it was not being used. Now it is being used daily to
electronically optimize all of the company's routes as well as to increase back
hauls. It also is used on a quarterly basis to help Territory Managers budget
their time and miles more effectively, thus increasing their productivity.
ADMINISTRATION - INFORMATION HANDLING
The last link in forging a completely electronic company is the integration of
the information-handling systems from inventory control and ordering, through
receiving, dealer billing, accounts receivable and payable, as well as the
promotional interaction between Merchandising and Advertising. Considerable
progress has been made this year and our goal is complete electronic integration
of all departments and functions by the end of 2001. While this will require
additional
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costs to implement, early indications are that the payback will be faster than
in the warehouse.
THE FUTURE
What does all this mean in terms of Moore-Handley's future and yours? By
integrating these advanced technologies into Moore-Handley's operations, we have
set the direction for what we believe will improve Moore-Handley's profitability
in 2001 and for many years to come. Our investment in expanded electronics has
made it possible to add to our Core Hardware operations, so that we now have
three divisions:
1. Core Hardware
2. National Wholesale Hardware
3. M/R Warehouse
Core Hardware Division - Using SalesHelper(R) has enabled us to help dealers
improve their sales, gross margin and inventory turns and compete more
effectively against the "big boxes". As more dealers become fully proficient in
the use of these tools, it will strengthen their competitiveness and
profitability. Since our future and survival depends on theirs, this is of
central importance to Moore-Handley as well as our dealers. As more dealers use
all of our resources, especially our electronic ones, to increase their
profitability we will form a stronger "partnership".
Finally, for our dealers who want to expand their offering with no investment in
additional stock, we will offer in the fourth quarter, for an investment of a
few thousand dollars, an electronic computer-based kiosk for their stores. This
kiosk will give the dealers the ability to offer their customers instant
electronic access to Moore-Handley's 38,000 items. While we have the capability
to deliver these products directly to our dealers' customers, we emphasize rapid
delivery to the dealer to bring his customers back to the store. We believe this
kiosk will significantly increase the sales and competitiveness of those dealers
who elect to purchase it.
National Wholesale Hardware - In the past, Moore-Handley sometimes pursued sales
without regard to profitability. Now, through a computer-based internal report,
every dealer is measured for profitability. We are determined to focus all our
efforts on those dealers who are profitable and want to grow with us.
Using the profitability report, during 2000 we divided our dealer base into
those who wanted to "partner" and make a major commitment to grow with us and
those who did not. For the former we continue to provide full services which
includes everything from Retail Development to advertising to all of our
electronic capabilities. To those who did not want full service from
Moore-Handley but wanted a distributor who could provide an error-free, 96%-plus
service level as a strong secondary supplier, we offered self-ordering,
computer-to-computer, at competitive prices
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through our National Wholesale Hardware Division, using the SalesHelper(R) LITE
electronic catalog. Those dealers that chose this program have reduced their
cost of goods and have become profitable for Moore-Handley.
Some of these dealers elected not to choose National Wholesale Hardware, and we
proactively severed our business relationship with them, which meant a
significant planned decline in sales in the second and third quarters.
Meanwhile, SalesHelper(R) LITE has opened national and international markets to
Moore-Handley. As recently as six months ago we were limited to sales in the
southern states where we had Territory Managers and truck routes. Now, through
direct mail, national advertising and telesales we are acquiring business from
all over the country. After initial testing, which included installing a
mail-order management software program, we are beginning a national rollout of
this program.
M/R (Maintenance and Repair) Warehouse - has enabled our dealers and
Moore-Handley to expand our markets to include institutional end-users of our
products. These include both profit and non-profit institutions such as
apartment and office complexes, universities, industry, and municipalities to
name a few. We have partnered with our major dealers in their markets and we are
selling directly to the end-user in major cities where our dealers do not sell
end-users. For the past 18 months we have tested this program in Birmingham and
have confirmed that the MRO business is large, carries higher than traditional
margins and has strong growth potential. We plan to accelerate the growth of
this business. However, there will be no channel conflict with our dealer base
now or in the future.
As with our other two divisions, the combination of a fully-electronic catalog,
coupled with computer-to-computer ordering, and state of the art error-reduction
technology in the warehouse makes our M/R Warehouse offering, whether through
dealers or direct to end-users, extremely competitive. Outside studies have
indicated that nationally this is a multi-billion dollar market with no dominant
competitors.
While there have been significant start-up costs in testing and beginning to
develop each of these two new businesses, both appear to offer major growth
opportunities in the years ahead. We intend to pursue them.
PROFIT
We believe the steps we have taken, many of them costly, have positioned
Moore-Handley to be a leader nationally in the hard goods distribution business.
Our confidence is shared by our vendors who have partnered with us to help grow
many of the previously described programs. Now it is time for us to focus on
delivering profit. For it is only through profit that we can continue your and
our growth.
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When we took executive responsibility for the company, we asked each department
head, "How can we improve the quality of Moore-Handley's offering to our
dealer?" While we will continue to maintain and improve quality, we believe the
major structural efforts of doing so are now behind us. So, as we begin the
annual budget process for 2001, we are asking every department head to measure
every program and associate by another question: "How will this program or this
person improve the company's profitability while maintaining and improving the
quality of our service?" This management focus will greatly improve our bottom
line profit.
During the past three years, as our systems permitted, we have gradually moved
associates to incentive compensation programs. We hope to continue to expand
these programs until every person in the company has part of his or her
compensation based on their productivity and the company's profits. In 1998 we
introduced a company-wide employee stock purchase program to enable many
associates to become shareholders. If the company's profits improve, everyone
who participated will benefit through stock ownership.
One of our objectives is to have a leaner, stronger organization but one with
better-paid and better-trained associates. We already have begun to accomplish
this goal. Our head count at the end of September 2000 was about one-fifth lower
than a year ago. As we move forward, we will continue to challenge all positions
and all of you who contribute will benefit along with the company.
In conclusion, both of us realize that the great gains we have made in the
quality of Moore-Handley's service to dealers in the past three years have
required great effort on the part of many associates. We know that there are
those who have worked weekends and nights to make it possible. We believe we are
now positioned to begin to improve the company's profitability and again, we
intend that those of you who contribute at high levels will share in the
company's gains.
Sincerely,
/s/ Bill Riley
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Bill Riley
Chairman and Chief Executive Officer
/s/ Mike Gaines
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Mike Gaines
President and Chief Operating Officer
BR/MG/db
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