The Search For A Channel To MarketWritten By: Frank Manfredi
Article Date: 06-01-2005
Copyright(C) 2008 Associated Equipment Distributors. All Rights Reserved.
After-sale parts and service are the critical link.
Moving products into the marketplace is what AED distributor members are all about. The associate members of the organization belong to AED because they want to access the AED distributor. Students of moving goods to market call the distributor process moving goods through "channels to market". Over the past few decades, a new channel to market emerged in the form of the rental companies. Once a rental company has written off a machine in its fleet, the machine is sold to an equipment user. However, the rental companies usually cannot provide after-sale parts and service support.
After-sale parts and service support are critical in the distribution process. Obtaining parts and service are a part of the equipment users' supply chain. Buying a machine is simple, but keeping it operating for long periods of time requires reliance on a number of links in that chain, such as the original selling distributors, his parts and service departments, will-fit parts suppliers (if the machine is out of warranty), and independent service providers.
In the 1970s, it was easy for equipment manufacturers to establish and maintain a distributor network that was capable of providing all the links in the supply chain. I have heard it estimated that the cost of getting a product into the hands of a user is about 30 percent. These costs are generally higher for large equipment and lower for small products. The emphasis on reducing costs has gotten a lot of attention recently.
Since the 1970s, the number of distributors has greatly declined leaving manufacturers with holes in their supply chains. Not only holes in geographic territories but also with organizations that cannot provide all the links in the chain - sales, parts and service. Supplying their customers has gotten harder, more complicated and more expensive for manufacturers.
A number of manufacturers are addressing channel to market issues in non-traditional ways. Deere, for example, is selling through their independent distributor network, direct to national rental companies, through an internal group to large fleet owners (these transactions are passed through their distributors) and through Deere's company-owned distributor, Nortrax. JCB indicated it counts three channels in its distribution strategy: independent distributors, direct sales to large rental companies, and through "big-box" retailers, such as The Home Depot and Lowe's.
Manufacturers of small equipment are currently frustrated about how to provide their customers with after-sale support. Companies such as Wacker and Multiquip sell products that can generally be loaded on the back of a pickup. They can find lots of distributors and contractor supply houses to sell the products, but getting minimally adequate service for them is another matter.
Wacker recently started its own after-sale network, EquipPro. The first locations are owned by Wacker, but the company is trying to franchise outlets in other markets.
Multiquip has established a network of authorized service providers, organizations that have no obligation to sell Multiquip products but have agreed to stock parts and train people to fix them.
JCB has been experimenting with establishing a network of authorized service centers for the same reason - they can find lots of companies to sell their machines, but there are fewer that are willing to stock parts and provide service.
On the rental side of the market channel, NationsRent has made no secret that it plans to rent, sell and provide after-sale parts and service. If they succeed in executing the plan, they may become the first truly national equipment distributor. United Rentals is in the process of establishing regional service centers that will sell repair services. Ahern Rentals, a large regional rental company based in Las Vegas, is already providing equipment owners with "paid-for" repair services.
The old saying that necessity is the mother of invention is certainly applicable in the equipment distribution business today. Manufacturers need to put their machines in the hands of equipment users and make sure they can keep them operating. Equipment users need to keep their machines operating. The process that makes that happen, the channel to market, is changing rapidly. In my opinion, the final structure of the distributor will not fully evolve for another five to 10 years.
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