The office products business was not dominated by the big retail chains as it is today, so opportunity existed. But it wasn't easy; office products dealers were pressuring their wholesalers to limit dealerships. Ragan went to an office product trade show and found a wholesaler who was willing to take him on if he agreed to buy $10,000 worth of product.
Expansion into office products
Ragan viewed office products not only as a way to create a point of difference in the local OCS market, but also as a way to compete against office product companies that were expanding into OCS.
Fortunately for Ragan, his son, Dan, was then in his early 20s and looking to make his mark in the business. Once the company secured a distribution agreement with an office products wholesaler, the younger Ragan began visiting existing customers and asking for their office products business.
Dan Ragan learned the office product catalog and oversaw the expansion into this business. He said several key OCS customers were helpful in teaching him how to service their needs in this area.
Adding office products to OCS deliveries was not difficult. A bigger challenge was in educating OCS salespeople about office products, which include thousands of stock keeping units (SKUs).
The expansion into office products proved strategically important. By offering more services, the company became more appreciated by customers. The company was also able to minimize the impact of price increases, due to the leverage the expanded product line offered. If coffee prices increased, the company could offer to keep coffee prices stable in exchange for a larger order of office products.
The company did not offer the most competitive office product prices, Joe Ragan said, but the OCS gave them an advantage against larger office products firms. The Ragans decided to continue to focus on OCS, where they could distinguish themselves on the basis of service.
The average monthly office product bill is around $400. This puts the company in the second-tier office products market. The largest office product suppliers target accounts with $2,000 in monthly orders, he noted.
Cornerstone: customer service department
The Ragans developed a customer service department for both OCS and office products order fulfillment. They implemented a software system that integrated orders with delivery schedules. This order and delivery system remains the basis of the company's operations.
Customer service reps call customers for orders, take the orders, then provide completed order forms to the warehouse. The packers in the warehouse then load the trucks for the next day's deliveries. Delivery tickets are simultaneously printed for the drivers.
Because the size of the orders vary daily, the company uses a variety of different size delivery vehicles, from vans to tractor trailers, 45 in total.
The company recently introduced a new mapping software system that will automate its daily deliveries. The orders will automatically create delivery tickets along with delivery itineraries.
To date, the Ragans only warehouse about 5 percent of the 25,000 office product SKUs they sell, which account for 65 percent of products ordered. All of the office products are routed to the product wholesaler, which ships directly to the warehouse. Margins are naturally higher on the products they warehouse themselves.
As the company added more products, more of the customer service function moved from the driver to the customer service department. Drivers stopped cleaning equipment on-site. However, customers can request to have dirty airpots and glass bowls exchanged for clean equipment.
For many years, vending continued as an adjunct for accounts that requested it. While vending grew less important in terms of dollar volume, the company's technical vending capabilities proved important as OCS began to adopt some vending technology in the early 1990s.
The Single-cup challenge emerges
The nation's economy was in recession in the early 1990s, and the OCS industry faced some unique challenges of its own. Specialty coffee stores were expanding, creating a new competitor to OCS.
Filterfresh, a dedicated single-cup provider, was also expanding, creating both a new challenge and an opportunity. Filterfresh introduced the single-serve concept to the U.S., which allowed offices to have coffee house quality coffee. In the metropolitan Northeast, Filterfresh grabbed many of the largest OCS accounts.