Signs posted throughout the sprawling campus of Lockheed Martin Aeronautics Co. in Marietta, Ga., warn of the dangers of FOD – Foreign Object Damage or Debris. It's a mission of this military aircraft maker to avoid FOD at every turn. The reason? FOD costs. And it can kill, too.

FOD occurs when an object that shouldn't have been there causes damage to aircraft, either on the ground or in the air. The term "foreign object" includes just about anything – tools, test equipment, extra washers, even personal items such as pocket change, that get left behind during production or maintenance of the aircraft. FOD can damage jet engines, jam control mechanisms or short-circuit electrical components. Such problems can cost a company millions of dollars. Even worse, they can cost the lives of a military crew.

FOD is never far from the mind of Todd Loftis, president of TMI-Integrated Services, a Fort Worth, Texas-based distributor with contracts to supply cutting tools to three Lockheed Martin facilities – in Marietta and Fort Worth, as well as Palmdale, Calif. The tools are used to build the C-130J, the F-16 Fighting Falcon, the F-22 Raptor, and the U.S. military's newest venture, the Joint Strike Fighter, among others. Helping Lockheed Martin reduce FOD in the production and maintenance of those aircraft is just one of many services this 46-year-old distribution company provides.

In fact, TMI is more focused on providing services than products to customers like Lockheed Martin. That's because helping to reduce the incidence of FOD is not something TMI does for free. At a time when consultants and academics are touting the need to charge for value-added services, TMI is actually doing it. With a long menu of service offerings, TMI not only addresses the FOD issue, but helps customers reduce costs in other ways, manage inventory, and streamline the manufacturing process.

In doing so, TMI is carving a niche for itself as a fee-based service provider – and betting that the distribution industry is heading in that direction.

"[Customers] need the services," Loftis explains. "We've invested in the skills and equipment to provide them. So … we've got to charge them for it."

TMI-Integrated Services was founded in 1957 as Tools & Metals, Inc., in Southern California. A distributor of cutting tools, TMI served the aerospace industry – still a large part of its business today, though the company has expanded and sells perishable tooling to customers in other industries. Loftis joined TMI in 1991. He took over as president seven years later, after landing TMI's first contract to supply Lockheed's Fort Worth facility with cutting tools used to build the F-16. Loftis set up TMI's Fort Worth office to support the account and later moved the company's headquarters there.

Even at that early stage, it was more about the service than the products for Loftis and this growing company. A major part of the Lockheed deal required supplying the cutting tools in kits that were delivered to mechanics and technicians on the assembly line. The kits kept the tools organized (helping to reduce FOD), saved employees' time (they had everything they needed at their fingertips), and reduced the amount of inventory Lockheed kept on hand. TMI had done some kitting of tools prior to the Lockheed contract, and Loftis saw the skill as a way to build business. Billing customers separately for the kits – and any other services that went along with them – just made sense, he says.

"I just speculated on where I thought the industry would go," says Loftis, explaining that he wanted TMI to stop selling widgets and start selling things that would lead to process improvements for customers.

"We sell the services, and the products will come along with it," adds Dan Miller, vice president of customer service, who joined TMI shortly after the company landed the Lockheed Martin Marietta contract, about five-and-a-half years ago.

Shari Gilbert, national sales manager for Hannibal Carbide Tool Co. of Hannibal, Mo., says that what it comes down to is, TMI saw a need at Lockheed Martin and set out to fill it. Gilbert has worked with TMI for more than 10 years and says that attitude is typical of the forward-thinking company. Hannibal Carbide supplies TMI with carbide-tipped cutting tools, many of which are used in the tool kits for Lockheed Martin. Gilbert considers TMI a leader in industrial distribution – a company that has the future of the industry figured out today.

"They are definitely a pattern to be followed," says Gilbert, who's worked for Hannibal Carbide for 17 years. "They truly are a market-driven distributor. They say, 'What do you need us to do for you?'– and that is an element that is going to be critical for the survival of distribution, I think."

Jack Turek at Lockheed Martin in Marietta agrees. He's worked with TMI since the distributor won the Marietta contract. Turek is responsible for tool control, tool crib operation, delivery of products to the plant floor and FOD control in Marietta. He says his relationship with TMI is the best he's seen between a customer and a distributor.

"They're like industrial doctors," Turek says. "You go to them with an undiagnosed problem and they find a solution. … My company's success is due to their flexibility and willingness to listen. If I went to war and was in battle, I'd want them behind me."

TMI's core services include the inspection, kitting, etching and tracking of cutting tools, and tool crib management programs, which come in many shapes and sizes. A walk through TMI's Stone Mountain, Ga., office and warehouse – which was opened to support the Lockheed Martin account – shows that this distributor does more than just stock and ship products. Each tool that enters the warehouse is inspected and then sent to an area where it will either be put into a tool kit or stocked on a shelf for a waiting customer. Most inventory that is stored is owned by the customer, not TMI, Loftis points out, reducing the dollars TMI has tied up in inventory.

From there, tools that go into kits are etched with serial numbers and logged into TMI's proprietary software system called Tracker. The etching and tracking of tools helps with FOD control (something all aerospace and government accounts are concerned with) by allowing both TMI and the customer to keep tabs on every tool.

TMI provides more than 22,000 part numbers for the Lockheed Martin account, alone. In addition, there are more than 245 tool kit configurations, comprised of more than 900 items, just for the F-22. All of the tool kits are designed by Lockheed Martin engineers, then created by TMI. Some of the kits are large tool cabinets, while others look like industrial briefcases. In every kit, tools are packed in brightly colored foam, a feature TMI came up with when bidding on the original Fort Worth contract. Each tool fits into its own slot cut into the foam, which keeps the tools from banging against each other and makes it easy for mechanics and technicians to see that they're put back in their place when they are finished with them.

Once the cutting tools and any accessories are packed into the tool kits, the kits are labeled for delivery to the Lockheed Martin assembly line. The kits are returned to TMI for refurbishing, and sent back to the customer within 24 hours.

Much of TMI's daily business in Stone Mountain is dedicated to Lockheed Martin. However, TMI has taken the skills it's developed for the aeronautics company and used them to build business with other accounts in the area. A local Air Force base, a bearings plant and some metalworking shops are among other customers. TMI also works with Northrop Grumman and has a corporate contract with Siemens Corp.

TMI's ability to provide such a wide range of services, alone, sets the company apart from traditional distributors that just stock and ship products. What makes the company even more unique is its ability to separate those services from the products, document them and charge separately for them. Loftis explains that this way, if his company were to lose the product portion of the business, it's got a lock on the service side of the equation and is less likely to be shut out of the account.

"We are constantly doing things that save the customer money," he explains, adding that it's not easy for a customer to give that up – even if they find someone else to come in and supply the products for less.

As an example, he points to another of TMI's big aerospace accounts. The customer buys the majority of its MRO products from a large integrated supplier, but uses TMI for inspection, kitting and delivery of tools to the assembly line. The integrated supplier ships the tools and accessories to TMI, and TMI takes it from there.

TMI charges for services with separate contracts – one each for the tooling itself (if TMI is providing it), inspection services, kitting, etching, tracking, delivery, and so on. Loftis says the fees are worth it for customers, because it would cost them more in time and money to do it themselves. And besides, he says, in the case of Lockheed Martin and other aerospace customers, their job is to build airplanes, not manage tooling.

"They go and build a multi-million dollar airplane with the assurance that we've given them the tools to do the job," explains Miller.

As TMI develops its expertise in each of those service areas, Loftis is confident the distributor will continue to win business, even as other distributors catch on to this service-oriented, fee-based approach.

"Most items that are truly commodities will drive toward a reverse-auction format," he says, pointing to the need for distributors – especially small and mid-sized ones – to adapt to the fee-based service model. "And if you're in a product niche, there will continue to be more price erosion.

"In the end, you have this trend of [customers] wanting to outsource. Those [distributors] that are going to be successful will be able to separate the products from the services. And those that will get the business are the ones that can quantify it. …It's a lot easier said than done."

TMI is adding new inventory management capabilities to its service arsenal, as well. Tool vending machines and lockers are part of an unmanned tool crib experiment at Lockheed Martin in Marietta that Loftis and Miller hope to roll out to other parts of the plant and to other customers. The machines monitor and control tool use at the plant, reduce personnel costs and allow the customer to operate the tool crib around-the-clock. TMI charges separately for this service, as well.

While TMI is doing its best to make sure the company is paid for the services it provides, it hasn't abandoned traditional distribution business yet. In fact, TMI does business in three main ways: Intrinsic, Extrinsic and Strategic. Loftis describes the terms as follows: Intrinsic business is traditional business – price and deliver. It accounts for 25 percent of TMI's total sales. Extrinsic means that customers purchase services from TMI in an à la carte fashion; it accounts for 40 percent of TMI's sales. The remaining 35 percent is Strategic. These are integrated supply-type customers, who buy from TMI all or most of the products and services the company has to offer.

Loftis says TMI is focused on building Extrinsic business. It's the kind of business conducive to the widest range of customers, who can contract for what they want, depending on their size and needs.

Though TMI's business model continues to evolve, Loftis and his colleagues believe they're on the right track with the service-oriented, fee-based approach they began in the late 1990s. Since then, the company has grown from one location to five and increased sales from $11 million in 1998 to $32 million last year. Loftis says he's shooting for $48 million in sales for 2003, a figure TMI is on track to reach.

Such statistics speak for themselves, says Gilbert, of Hannibal Carbide.

"I see Tools & Metals surviving in an industry that is going into a downhill spiral," she says. "They are definitely doing something right. In an economy like we're faced with today, if you are growing, you are doing something right. Not just something – a lot of things."