Distribution's Challenges & ChangesWritten By Pam Gruebnau
Article Date: 07-01-2004
Copyright (C) 2004 Associated Equipment Distributors. All Rights Reserved.
Dealer and manufacturer execs discuss acquiring capital, assumption of risk, shortages, branding, succession and more
What are the biggest challenges facing dealers? How has business changed and how will it change in the next two years?
- A dealerís primary challenge is the acquisition of capital. Itís a huge issue for most dealers. They are pulling dollars out of family fortunes and trusts; itís how to stay a millionaire versus how to become a millionaire. The difference is you have to get dollars and intellectual capital back into the business. I got into this business because it was the most money I could make as a young man given my education and background. How many people have you hired today that feel that way?
- Not all technicians are comfortable with a laptop and a sledgehammer. There are opportunities to break that workflow into segments. Also there are opportunities associated with data flow. It takes a different kind of thinking. The most profitable person might be a software person, but we arenít good at getting them into the business.
- One of the biggest challenges we face is the assumption of risk from a customer, product and ownership standpoint. For example, weíre putting together a deal and the requirements are that we assume ownership, maintenance, warranty and risk, and guarantee production and availability. The only thing missing is how much risk are we willing to take on? We try to separate the risk, mitigate it and separate it, and hopefully itís not something that kills the dealership if it goes bad.
- The primary difference in the marketplace is the dealer. Product advantages are taking a backseat.
- The next two years the critical issue is strategic planning, Iím not so sure we have that at the moment as an industry. Weíre reacting to the market.
- I think customers have much more intellectual capital than we have. I see this as a major challenge.
- Equipment shortages. When you talk about return on investment, a 60- or 90-day delay could be the difference between being able to sell it this season or holding onto it until next season. Itís not a matter of getting the asset, itís getting it when you need it.
What are the biggest challenges facing manufacturers? How has business changed and how will it change in the next two years?
- There is a critical mass from a purchasing standpoint. Weíve spent a lot of time and money to drive costs down to improve quality.
- The cost of compliance for emissions is huge, and that may be whatís driving product line extensions.
- What manufacturers have done the last few years is gotten the processes down. We might have been ready for a little upturn, but not the tsunami that hit us. Dealers probably see us as being unreliable suppliers that like to capitalize on increased demand.
- Itís an internal issue Ė how do we remain a consistent supplier to dealers. As we produce fewer components, component vendors have a bigger impact on us, and we become less reliable. We have to manage the processes so we can be as efficient as possible.
- The biggest challenge weíre facing is how do we align with the distribution channel so we donít have customers going outside the channel to buy parts, service, or other products. There arenít enough consumers for us to afford to lose very many. Itís not like the car business with a few hundred thousand buyers. When customers go to someone else for parts and service, it hurts for a long time.
- A manufacturerís job is to create the best product in the world, and a dealer has to apply itself in the best way. What worries me is continuity. There is not a lot of new talent in the industry. The rental phenomenon has brought new talent into the industry, but how do we get kids turned onto the industry?
How has the manufacturerís attitude toward channel to market changed?
- It depends on the manufacturer and the product line. We expect to have 60 percent to 70 percent of a dealerís business be our brand. Itís not a control issue; itís what we think it takes to get the majority of a dealerís attention.
- Itís a channel-based strategy. We did market research to better understand what channels best meet a customerís requirements. We boiled it down to three: most important is dealers, a small piece is government agencies and thereís a growing corporate piece.
- We are committed to the independent dealer.
What is the impact when a manufacturer sells direct?
How does a manufacturer decide when and what to add to a line by bringing in a new brand? How much thought is given to the impact on dealers?
- Whether itís one machine or 500, when a manufacturer sells direct, it is taking a volume opportunity out of a dealerís hands. Plus you are training the customer to go around the dealer for a better deal. Manufacturers have siphoned off good accounts and thatís dangerous because dealers are the key to retaining business. Every machine sold direct takes dollars out of distribution, which we all agree needs more dollars. In reality, most customers admit they are not as well served by direct dealings with manufacturers.
- We sell directly to the federal government, but only because itís very difficult for an independent dealer to take care of a national account. We want to go to market through independent dealers. Customers want consistent pricing but they want it from a dealer.
Excerpted from July 2004 Construction Equipment Distribution.
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- Within manufacturing, there is not a lot of logic going into taking on another product line. Itís more ego than anything else. Our OEM took on skid steers. Why? Who knows? We need another skid steer like we need a third elbow.
- Breaking into market share is a difficult process. Our greatest opportunity to distribute our manufacturerís product is through product support. Product support demands will make or break a sale.
- Manufacturers expect us to accept major changes in product lines when we have not been involved in the decision. They are stirring up the pot and expect us to abandon relationships we have with other suppliers because of a decision they made on their own.
- When we visit our dealers, nothing is more disturbing than to see someone elseís product on the lot. For us to address or even consider another product or brand, we have to be almost forced into it.
- Itís got to be a good profit situation for both of us. If the dealer is not in a financial position to do it, then we have to supply capital to help him.
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