What Can We Learn from Material Handling?Written By Kim Phelan
Article Date: 12-03-2007
Copyright(C) 2007 Associated Equipment Distributors. All Rights Reserved.
Larry O'Neill is the former president and CEO of Patten Industries, a Caterpillar CE dealership serving the Chicago metropolitan region. A year ago, he shifted into the parallel industry of material handling (MH) to become the top executive at Equipment Depot of Illinois, also serving the greater Chicago area with six locations. CED editor Kim Phelan recently spoke with O'Neill to contrast the two distribution industries and highlight some of the MH best practices that could benefit construction equipment dealers.
What's been the No. 1 surprise to you about the MH distribution business since crossing over from construction equipment?
I thought there'd be quite a bit of difference, operationally, functionally, within this dealership versus a construction dealership - but actually there is not a great deal. You're running a business, you're selling a whole good, a piece of equipment, and you plan to service it and sell parts to it; you'll trade it in and sell another one, and have a used equipment department; so, virtually the two run very similarly.
What I find is that the customers are different - in the manner by which you, the dealer, go after their product support business. There is definitely more focus of team in our agreements to become the No. 1 source of parts and service revenue on the MH side. Even though this is a focus on the construction side, I think [MH] has discovered what the customer needs are, and they've structured themselves around the concept and the value of developing agreements for total maintenance and repair, and long- term rentals.
In MH, when you start to look at somebody running a large warehouse, they are not really looking to be in the repair business, the used equipment business, or anything else. They really just want a forklift to move product and be running all the time and have great service and be able to get any kind of help or solution provided to them at any time of the day, any day of the week.
And in your experience construction distribution doesn't go after the product support business with same rigor?
I think [MH] is further along than the earthmoving contruction-type dealership is today, but [CE] dealers know they've got to get there, especially with the smaller product. For example, when you get into skid-steers, you definitely have to look at the customer and not treat them
like you treated your large fleet customers; this is a small product, which they depend on immensely
to put food on the table and shoes on their kids. What dealers need to do is provide a solution that is probably different from the ones that have been traditionally offered to construction customers.
The MH side is definitely more conscious of the urgency to make sure that total maintenance and repairs are a facet of every transaction if possible.
Finding creative solutions is kind of your trademark, isn't it?
If we don't continually find creative ways to be different from our competitors, no matter what industry it is, we'll probably be changing the sign out front some day.
Right now, we have launched something new and are currently advertising it for our customers: Because the MH business can be very seasonal, our customers can suddenly need 10 more trucks during Christmas, but when this crunch comes somebody in the background is scrambling, saying, "Yeah, but where do we get 10 more operators for just this short period of time?!"
As we brainstormed about how we can really be different from our competitors, we decided as a company that today, we will offer an operator with our trucks. We will rent a truck with an operator for as long as they want them. The nice part is, they have no responsibility for Workmans Comp, so they can run their business and not have the risks and liabilities that go along with the employee side of this business.
Where in the world are you getting those kinds of human resources?
We've got them.
We wouldn't be offering it if we couldn't do it. We've got the availability of over 1,500 operators - at any given time. We looked at it in a different way; it's just stepping out of the box, looking at it, and asking, "What can we do that nobody else can?"
And if you take that principle, you can pretty much lay it over any business.
The customer down the street from us may never need an operator, but he'll know that we offer that, and he's going to think, "Wow, that's really different." It's going to make him remember our name when he needs just a rental machine. Or when he needs to buy a machine. Or needs a part. Or whatever it might be in the future. He'll remember that we're the people who are trying to cover needs, so that's who he's going to go to in the future.
What about rental operations - is there a different sort of approach here as well?
On the MH side, the big difference there is that they have gone to the point of large, capitalized fleets, and that is so they can service the customer - they understand providing rental, along with the other solutions they bring to the table for the customer, is really a major factor.
In many cases it has surprised me how large their fleets are, but it's because they've recognized the customers' needs and they have to adapt with the variations and the fluctuations of demand - especially with seasonality and holidays for large distribution areas. They need to be able to sometimes provide 10 or 20 extra forklifts, and so they've made that commitment to have some very large, capitalized fleets.
It's actually quite interesting, because when you look at it, the construction side is also starting to move in that direction and has been for several years now, or else you wouldn't have the Uniteds and other national rental companies.
Today, you have to ask yourself, "How far, as a dealer, do I want to go into this?" And I think a lot of dealer principals are starting to realize they're at that turn and now, when they're deciding what percentage of new product is going to go into rental, they're saying, "Is it going to be 50 or 60 percent," instead of just a few years ago when it was 20 to 30 percent.
If you had to boil it down, what fundamental principle from MH would construction equipment distributors be wise to adopt?
One of the things a lot of CE distributors can look at, especially if they're representing a good-size manufacturer, is how the MH distributors go to market overall with their small product. What I mean is that the skid-steer side of your business is going to be totally different than your large dozer side or your large wheel loader side.
Again, for example, recognize that the rental fleet is very important because a lot of skid-steer owners are fairly small-sized operations, at least initially - they may have anywhere from one to three, but at times they need four or five, and it may be for a short period of time or even for a six-month period; and then they might not know if they have work for the following year.
Develop a rental fleet that is available and that is full of the correct attachments in the skid-steer and backhoe areas, and then look at how the MH industry goes to market by getting an introduction to the customer through rental, and then look at all the services they offer to support it afterward with total maintenance and repair. Those smaller skid-steer customers are probably working from dawn to dusk, and they probably work seven days a week; and really on a Sunday they should be spending time with their family and not changing oil on their skid-steers or loader backhoes. So if you've got a program that fits into their budget and you can make it affordable, to offer a complete solution is really an answer for these people.
As factory-authorized dealers, CE distributors certainly have those capabilities, so is it just a matter of repackaging and marketing their product support services?
The smaller the product, the more of a commodity it becomes, so it's not so much about the product today - as you say, it's more about what you package as a dealer supporting that product. That's where you have to come in and probably cross some unusual lines or borders that you didn't in the past. But it's going to mean having a fleet ready for them and offering long-term rental options; come out with the concepts of an operating lease with total maintenance and repair so the customer knows he can have a low cost, day in and day out. It's something that's a little different that hasn't been approached before - it's a departure from where you either have the money or borrow the money, or maybe the dealer is financing it. Carrying the paper and the liabilities and risks when you're investing in your own business is a real burden for these customers. If you can find a way to put equipment into his hands, it will really make a difference for these smaller, utility-type contractors.
I believe construction dealers can really utilize some of the concepts that are used to sell a forklift today.
How about MH - what could they be learning and adopting from CE distributors?
The utilization of technology on the construction side is pretty well advanced compared to MH, and more so because a lot of new tracking and monitoring technology has a good price tag to it.
Of course, when you're selling a piece of equipment that's $200,000, it's easier to put this $2,000 device on there to track for repairs and location and a multitude of things - that's only 1 percent of the purchase price. But when you try to start putting that $2,000 item on something that averages $20,000, you've got a real challenge.
Also, on the construction side, you have a lot of technology and Internet tools being jointly or solely developed by manufacturers, which makes it a lot easier for the dealer to develop sophisticated Web sites and Internet ordering tools. MH dealers are less likely to jump on with just one supplier, and so manufacturers would be reluctant to offer these products because it might end up being utilized for competitor equipment at the same time.
Having advanced business systems where parts ordering, for example, is made very simple and travels right through the system - in my experience, this has become more prevalent on the construction side, and that's something MH can definitely pick up from them.
You've taken the somewhat daring step of publicly guaranteeing the customer's satisfaction with your company. Seems risky - is it worth it?
In both industries a lot of this equipment is starting to become a commodity, but the initial purchase price is only 3 to 5 percent of the total owning and operating cost. So what the dealer is, what they offer, who they are, and how they stand behind that product is 95 percent of your cost for owning that piece of equipment.
It's easy to say we'll do this and that and everything else, but think about how the customer looks at it: I'm glad you're the best, but what does that mean for me? What is that going to do to my pocketbook if you're not? But if you are the best, and you'll penalize yourself if you drop the ball, that means I can depend on you 24 hours a day, seven days a week. I know that you'll get the parts in here in 24 or 48 hours.
Lip service is great, but when you pull it out of your pocketbook, you definitely are making sure your standards are where they should be. And if you're a department manager and you have to reach into your operating statement and take less of a gross profit because we didn't keep our promise, it definitely reminds them how good they have to be.
If we're not going to be able to stand behind our statements, then the real problem is that we're not good enough to distinguish what we're selling from what everybody else is selling.
Can you offer some final take-aways for both industries?
Look at the customer; what are all the challenges they have? And what can I do to provide solutions for them? That's what we're doing here, and it's what I did in construction equipment, too. Always look at the end user and get into their world; really understand what they need, and then figure out how you can provide a solution for them.
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