How will the equipment marketplace change as we head into a new
millennium?
What new strategies must distributors adopt to thrive?
To find the answers to these questions,
CED asked nine of the
industry's brightest minds to give us their opinions.
OUR DESTINY IS A MATTER OF CHOICE, NOT CHANCE
By Earl K. Harbaugh
As we prepare for the turn of this century, there's no doubt that we'll witness many changes in our industry. In 1991, during my year as AED president, I continued to emphasize, as I do now, that the distributor's role would continue increasing in the marketing, sales, rental and product support of construction equipment.
It is extremely important that distributors be energetic, innovative and flexible in meeting the demands of customers, capital requirements, profit margins, employee hiring and training, and manufacturer relationships. As in the past, these areas will continue challenging us as we strive for returns on investment.
In focusing on customers and their expectations, the real changes will be in the continual improvement of timeliness and form of delivery for our products and services. Technological advances in both construction equipment and delivery systems will require new capital, additional training and the development of quality systems and services. If we're successful, our reward will come in the form of higher profit margins.
Personnel and capital utilization will play larger roles as both manufacturers and customers require increased services and timely product deliveries. We dealers will be challenged to find avenues to reduce the cost of distribution as costs, unfortunately, continue shifting to us.
Several recent studies have shown that technological advances and quality production have extended the machine life cycles. In the future, this life cycle extension will certainly provide an opportunity for dealer profit through aftermarket product support.
I see more industry consolidation among manufacturers, distributors and customers. Dealers will represent more product lines in expanding territories to larger customers. We must accept our role in this movement if we're to increase our profit margins and remain a viable part of the future in equipment distribution.
Increasing amounts of capital will be required to fund consolidations, rental fleets, larger product support operations and market development. I believe there continues to be opportunity for increasing profitability through rental and product support programs. A challenge for all of us will be to differentiate our services and products from each other.
Quality dealerships that demonstrate capital strength, professional personnel and expanded distribution will be the ones that satisfy supplier and customers requirements and ensure their place in the future.
Let's remember, our destiny is a matter of choice, not chance.
Earl Harbaugh is president of Ditch Witch of Illinois, a light equipment company in Carol Stream. He is also AED's 73rd president
HOW WELL CAN YOU COPE WITH THE UNEXPECTED?
By Jay Paradis
Two types of changes will affect construction equipment dealers over the next 10 or so years.
The first type of change is well-known to many dealers because it is already with us. For several years, we have been grappling with the decline of the traditional role of the "middleman," the dealer. In decades past, dealers played an important role in helping both manufacturer and end-user overcome the barriers of transportation and communication.
However, in recent years, improvements on both fronts--overnight delivery, cheap long distance calling, faxes and computers--have systematically eroded the traditional value that we bring to the supply chain. Dealers have had to either face up to the fact that the old services they offered are simply less important to both ends of the channel -- or they've ignored these changes and gone out of business.
The future will hold more of the same. We are still experiencing a technological revolution that is transforming our very reason for being. The role of the dealer is changing fundamentally and will continue to do so. What that new model of distribution will look like has not become commonly apparent. Nevertheless, to survive and prosper, dealers will have to adapt.
The second type of change is even more challenging because we don't even know what it is yet--and it will be that unanticipated trend or exogenous shock that blindsides us. I'm talking about an unexpected crisis, the equivalent of another equipment shortage or oil embargo. It will be something for which we have not planned, and it will have a profound effect on the rules of the game.
This type of "bolt from the blue" is almost as certain as it is impossible to predict. Every decade has brought its unexpected challenges, and there is no reason to think that the next decade will be any different. We can't say what the unexpected challenge will be; only that it will command our full attention in order to successfully grapple with it.
How will AED members need to transform their organizations to succeed in this environment?
Those dealer organizations that grow in the future will have at least one of two characteristics: They'll be Great Innovators and/or Quick Learners.
The great innovators are those organizations that come up with the answers. They'll be the new model of distribution for the 21st Century, the first ones to recognize the unexpected challenge and capitalize on it.
This is a high stakes game to play because the rewards are great if you are an industry leader--but the risks are even greater if you guess wrong. Nevertheless, this is the natural playing field of the entrepreneur, and there will be many organizations betting their future on this type of innovation.
The second group of organizations that succeed and grow are those that can quickly build on the work of the innovators. These organizations have a healthy sense of their own limitations, a desire to become better and the ability to learn from the outside and internalize what they learn. The best of these organizations will have the willingness to steal shamelessly from the best of the innovators.
Jay Paradis is board chairman of Brandeis Machinery & Supply Corp., a heavy equipment dealership headquartered in Louisville, Ky. Last year he served as AED's 76th president.
EVOLUTION, NOT REVOLUTION, HOLDS THE KEY TO THE FUTURE
By Harold Rick
At Wacker Corp. we believe market trends indicate a steady evolution rather than a dramatic revolution in the areas that will most significantly impact the construction equipment distributor. These include:
Growth in light equipment rental fleets. A strong rental program is the key to increasing customer base, and a larger customer base is the passport to growth and stability for the dealer of tomorrow. Rentals add significantly to the bottom line, especially when the market is soft.
Distributors who rent to sell will see a significant percentage of gross sales volume coming from their rental fleets. In a tight economy, rentals are an answer that addresses the contractor's need to spread his thinning capital while acquiring the tools that are vital to his trade. Because the distributor's ROI on rental equipment will be so impressive, he will portion more of his funding into an expanding rental fleet.
A demand for product quality. This may come as a surprise, but at Wacker we don't think price will be the big issue of the future. In the past, tough economic times fostered a "cheaper is good enough" thinking. But that doesn't cut it any longer.
Contractors realize that the performance and reliability they need to bring their jobs in on time and within budget just can't be delivered by cheap equipment. The distributor will have to be very selective in the products he rents and sells because his customer's perception of who he is--and how good he is--will depend upon the quality of the equipment he represents.
In short, your rental fleet will reach maximum return on investment only if the equipment you rent is mechanically reliable.
A demand for product availability. We're in a "just-in-time" marketing environment that will only become more pervasive in the years ahead. Credit binds will cause contractors to hold their investment capital until the last possible minute--and then their demand of the distributor will be, "Deliver my product now or I'll find someone who can."
Manufacturers must be prepared to (1.) help their distributors accurately forecast local market potential and then (2.) support this potential with product availability. The same can be said of parts and service. The contractor wants his down machine back up and running within hours, not days.
Even the most skilled mechanic can't repair a machine without parts. Therefore, the distributor will rely on the manufacturer to help set realistic parts inventories to insure the fast service the contractor demands. The distributor who skimps on parts and service will find it impossible to compete for the customer loyalty he needs to stay in business.
Manufacturer support. Consider how quickly we've adjusted to cell phones, fax machines and lap top computers. Technological change is rapid and constant.
No distributor has the resources to do all the training necessary to keep his people on top of the changes in products and marketing techniques. He'll have to take advantage of whatever help his manufacturer/supplier offers.
The demand upon the manufacturer to offer more support will surely increase. Manufacturers who offer sales and service schools, on-site sales training and in-house service training will be the suppliers of choice by distributors who wants to keep pace.
At the same time, the manufacturer will spend less time selling and more time educating distributor customers, thereby directing his sales/marketing efforts to the end-user at his jobsite.
The search for quality people. There's a people crunch coming, and it may well be the biggest headache for manufacturer and distributor alike. More sophisticated equipment and a faster paced market will demand better educated, more highly motivated personnel.
Good salesmen will be considered counselors, not peddlers, by their customers. To be successful, they'll have to know how their contractor's business works and be able to respond to his needs with solutions grounded on an extensive knowledge of the capabilities of the products he promotes. We are talking about relationship selling, built on personal integrity and a willingness to go to great lengths to satisfy the customer.
Service personnel will have to be more than "wrenches." They'll have to continually update their technical skills and be as comfortable with computer analyzing equipment as they are with a socket set. In general a good education and a positive attitude will be key qualities a distributor will look for in tomorrow's employees. Unfortunately, finding these people will likely be his most difficult challenge in the years ahead.
As much as events and technologies have changed in the past and will continue to change in the future, the picture of success for tomorrow's dealer has the same face--quality people, quality product, quality service.
Harold Rick is field sales manager for Wacker Corp., a light equipment manufacturer headquartered in Menomonee Falls, Wis.
FAMILY-OWNED BUSINESSES WILL NO LONGER DOMINATE
By Robert C. Miramonti
As we move into the 21st Century, equipment distributorships will continue shifting away from the traditional family ownership and management structure to a stronger corporate focus characterized by larger distributor operations and professional managers serving more sophisticated customers.
The trends that will dictate this evolution include a continuing consolidation of smaller localized operations into bigger distributorships handling more nameplates and selling to a wide range of customers across global markets. However, the core anchors of the construction equipment business of tomorrow, especially on the heavy equipment side, will remain a network of independent distributors working in tandem with one or more equipment manufacturers to fulfill the increasingly specialized machinery needs of a wide range of customers.
The transition from an industry dominated by smaller family-owned businesses to one of specialized equipment corporations--often with annual revenues in excess of $100 million--will test the resolve and resourcefulness of distributorship managers on all levels. The financial implications alone are staggering as both inventory and rental fleet financing will become much bigger burdens. Technological advances will drive up the base sales prices of machinery, but they will lower unit operating costs as equipment becomes more durable, versatile and efficient.
Selling will often be done on a consultative basis, with a focus more on equipment usage as opposed to straight selling. This will be particularly evident in specialized applications such as mining.
Dealer personnel will be better trained and more talented. They'll need to approach each sale from the total customer perspective and be prepared to work more closely with the chief financial officers of their larger corporate customers. As equipment users search for more economical methods to obtain equipment, distributors will be looking for creative new ways to satisfy their customers' many needs, and they will vigorously search for practical ways to earn economies of scale for their distributorships.
In the area of financing, equipment manufacturers will find it in their best interests to assist distributors with inventory financing and creative rental fleet financing, as fleets continue to expand more rapidly than the general equipment markets. Ever increasing capital requirements will continue to exert pressure on distributorships.
Some manufacturers will likely guarantee at least a portion of the values of used equipment, especially in offering designer-type lease programs, even full-service lease programs. And there will likely be more joint ventures among distributors and among end-users to share in the responsibilities of ownership.
In the future, successful equipment distributors will practice a more sophisticated business approach to tackle technology, parts, service, sales and marketing issues. And they'll work closely with equipment manufacturers and suppliers in providing full-scale retail and rental services to more demanding customers.
Robert C. Miramonti is senior vice president and general manager for the Industrial Equipment Division of Associates Commercial Corp., a major industry finance company located in Dallas.
THREE KEYS TO SUCCESS: TRAINING, PRICING, MARKETING
By Richard J. Knopke
What will be the key trends affecting the dealer of tomorrow?
To get right to the point, the following issues will definitely face construction distribution during the next few years.
A. The need to establish an in-house permanent training director will become imperative. The combination of the skilled labor shortage and our increasing dependency on a changing technology demand it.
B. Distributors must become experts in marketing. The ability to know the profile of our customers, to understand and anticipate their needs and then act on this information will catapult those distributors to new levels of profitability.
C . Distributors must learn and understand pricing structures. Matrix pricing can be a competitive advantage if properly implemented. Not many distributors today understand pricing structures and levels.
Rich Knopke is president of Contractors Supply Co., a light equipment dealership in Kansas City, Mo. He served as AED president in 1986 and is currently chairman of the National Association of Wholesaler-Distributors in Washington, D.C.
BE READY TO PAY A HIGHER PRICE FOR CAPITAL
By Gilbert D. Gaedcke
What does the future hold for the dealer of tomorrow?
The most dynamic change we have seen in Texas has been the shrinking of capital availability through the banking system. However, now that markets are beginning to recover and banks are somewhat more secure, a large part of the banks' business has been taken by many of the asset lenders who have been quite aggressive in financing.
More important, an awful lot of private money has been put into leasing companies. To put it bluntly, this has made capital abundantly available but at a higher cost.
Private lenders under the auspices of leases demand interest rates upward of 17% to 25%, but the capital is readily available. This competition is starting to have an effect on the approach and attitude of bankers, and I foresee them becoming more flexible in the future.
In spite of a turnaround in the construction market, fewer and smaller sized projects have reduced the number of customers and continue to heap more competitive pressure on margins and profit for contractors and their dealers.
Commodities have always been cheap, even in our business. The only "added value" margins which seem to still be available are in service areas and the selection of products with more unique applications. In the small equipment business, many of the products are being treated as commodities, making price the only differential. However, as contractors begin to see a little deeper into the future, I predict pricing will become less important as people set longer term goals and expectations for their equipment and service.
Personnel continues to be a challenging issue. However, some extremely qualified people have become available, mostly recent college graduates and new entries in the construction equipment market. This youth and fresh talent is bringing about a challenging atmosphere in the economy, where there are some very aggressive young people willing to learn and do whatever is necessary to become successful.
The hiring of experienced people in our industry has not produced the efficiencies one might expect. This new investment in young people is going to require more training but, in the long run, will produce better results.
Manufacturers are continuing to reap the rewards of an expanding market with somewhat of an increased distribution. However, those manufacturers who have embraced partnering and more exclusive distribution relationships have reaped even greater rewards in terms of penetration and market share. The manufacturers who chose to multiply distribution during the down term are finding a continuing decline in market share and concentration, in spite of their early gains.
I do not visualize the equipment industry changing too much, as construction is still relegated to a relatively manual, service-sensitive support market.
However, the acquisition and growth of national rental chains will certainly be a phenomenon to watch. There have been a few successful ventures, but the majority of the ones that I am familiar with have not sustained the efficient, service-minded atmosphere of the locally owned competition.
Only time will tell if this is truly an industry that can be conglomerated on a national basis for a long time period.
Gil Gaedcke is chairman of the board of Gaedcke Equipment Co., a Houston-based light equipment dealership. He served as AED's president in 1985.
DEALERS MUST CONTINUE FINDING BETTER 'MOUSETRAPS'
By Eric Mueller
The flurry of manufacturer mergers and acquisitions during the past decade has created unbelievable confusion for distribution networks. Look for this trend to continue as industrial manufacturers adjust their business plans and capitalization requirements for the global marketplace.
In addition, manufacturers will rationalize each and every product model commensurate to its ROI and P&L accountability, no longer offering products merely to fill out product lines. "Losers" will be dropped in favor of more lucrative opportunities. Consequently, dealers will need to source a variety of products from multiple suppliers if they want to provide one-stop shopping for their customer base.
There will be added pressure placed upon distributors from the large manufacturers. Full-line equipment manufacturers are, in essence, competing for "shelf space" with some short lines and will need to reduce overhead costs accordingly. Today, many short-line companies have been living off the coat tails of the dealer development programs instituted by large manufacturers. There will be additional pressure placed upon distributors for in-house training, advertising, promotion and financing.
Distributors will need to constantly look for new "mousetraps" for their customers. Dealers unable to adjust to changing market trends by offering new products with cutting edge technology will miss out on the rewards of early profits prior to the influx of competition. Such is the case of hydraulic breakers and pneumatic boring tools, where profit margins are reduced as the number of competitive suppliers increases.
Obviously the bottom line for customers using equipment is to make money. Dealers who demonstrate how their customers can make more money will succeed.
Product positioning as it relates to equipment application is changing. This can be evidenced when comparing North American equipment usage to many European operations.
Most North Americans subscribe to the "bigger is better" theory when selecting their equipment, whereas Europeans prefer to choose the smallest piece available to do the job efficiently. Many European projects are completed with only one prime machine that utilizes many different types of attachments through "quick attach" systems.
Look for opportunistic North American dealers to aggressively promote products through the versatility of attachments. This type of concept will enable traditional "dirt" houses to expand into growing niche markets such as environmental clean-up, demolition, recycling, material handling, etc.
The product support functions of parts and service are also going through changes every day. With global component resourcing, shared manufacturer technology and private brand labeling, there are fewer captive parts to be sold by the dealer. Customers are able to purchase competitive parts from a myriad of sources, some outside the traditional equipment dealer channel. Again, progressive dealers will explore creative avenues such as the use of PC/modem direct link-up access with their customers in order to maximize parts sales opportunities.
Professional management of parts inventory in the future will be a key factor for the success of a dealership. Supporting additional product lines will challenge the parts department to maintain acceptable customer service support.
Decisions will need to be made regarding on-shelf inventory for aged products. It becomes increasingly expensive to sustain ongoing support for older machines when, realistically, it's impossible to provide 100% fill on first pass. Even some manufacturers are segregating their aged, slow-moving parts distribution channels to outside operations that provide custom parts service on an as-needed basis.
Service departments are modifying their operations to become more self-sufficient due to reductions of many traditional factory technical support systems. Dealer service personnel are often placed in a position to deal with suppliers who have downsized support departments and lost experienced technicians. Many products are sourced off shore where communication may be a difficult task. Service departments are also altering their procedural systems to accommodate what has become, in many cases, their largest customer--the dealer's own rental fleet.
The most valuable assets at a dealership are its human resources. One of the most alarming problems has been the lack of young people entering the business. Through the difficult years, trainee programs were eliminated and department staffs were normally reduced on a seniority basis.
At the same time, many other industries were attracting good young prospects with much more appealing positions than standing knee-deep in mud on a contractor's jobsite. Recently, perhaps because of better times, there appears to be a resurgence of young people in the equipment business.
In addition, there seems to be a number of younger managers being appointed to key positions at dealerships. Historically the road to executive management was a long and tedious journey. Perhaps dealer principals are looking for more sophistication in their managers to initiate contemporary business practices. As the distribution network is condensed through expansion and conglomerate purchases, there will be changes as to how personnel act or react within corporate atmospheres.
In one sense, tomorrow's dealers will share something with their counterparts of today. Those companies that identify future trends, adapt accordingly and focus their efforts toward the changing environment will continue to enjoy the benefits of being a winner.
Eric Mueller is vice president of NorAm Marketing Services, Inc., in Palatine, Ill. The company represents the Fiatallis model 65-C motor grader in North America.
REMEMBER IKE'S WORDS: 'PLANNING IS EVERYTHING!'
By H.B. "Bud" Hayden
More and more organizations are identifying their "core competencies" and focusing their efforts on improvement in these areas. One result of these efforts is the outsourcing of functions that are necessary but not critical to their success.
As an example, a local utility has identified power generation and transmission as core competencies. In the future, they may outsource such functions as design, construction and equipment fleet maintenance.
Nobody would disagree that these latter functions are necessary, but are they truly critical to the utility's success? Conventional wisdom is that stakeholders are better served by concentrating on core competencies and outsourcing functions deemed not to be critical.
Contractors also will be evaluating their core competencies. I suggest many will begin outsourcing equipment ownership and maintenance. As such, distributors will be well advised to gear up in the following areas:
Product support. Customers may own a core fleet of equipment but outsource the fleet management aspects to distributors. Not only will dealers be asked to transport, store, repair and maintain equipment, they'll also be asked to evaluate products and replace them when appropriate. Those distributors with quality programs embracing, offering and successfully initiating "partnering" agreements will certainly have a distinct advantage.
Rental. The demand for rental equipment will continue to increase. This has a number of implications for the distributor including:
o Lower sales volume. As rentals have continued to increase, the sale of equipment has leveled off and in certain product categories has even decreased.
o Increase in rental operations. Demand for rental product has and will continue to increase. Dealers will need to improve their rental management skills, particularly in the areas of product mix, transaction systems, cash flow and ROI.
I enjoy comparing business to professional sports. One observation I have is that championship teams, regardless of the sport, have speed. Consumers, including contractors, also want speed. Technology (computers and programs) combined with a quality/continuous improvement program will be a requirement for distributors to not only provide the speed desired in a rental transaction but also to provide a hassle-free environment in which to do business.
Response time (Do you have it? Is it ready? Is it available?) and convenience (does the customer have to pick up the equipment, or can it be delivered?) will certainly be critical factors. Those firms having the proper systems and procedures in place will become not only the supplier of choice but also the top performers.
As our friend Jay Paradis points out, companies with the happiest customers make the most money. So while meeting and exceeding your customer's expectations is vitally important, it has the added benefit of being financially rewarding.
The caliber of sales representatives--and the relationships they develop with clients--will always be important. But greater reliance on inside personnel and the systems they employ will be more critical to the ongoing success of the distributorship. Knowledgeable (and empowered!) inside sales personnel capable of responding immediately to inquiries, particularly in a rental environment, will be critical.
Planning has always been important. We all know that if we don't have a destination in mind, traveling any road will be just fine. Defining goals and objectives will even be more important for the dealer of tomorrow. A detailed business plan (the map) covering the following subjects will be essential:
The business plan is a wonderful tool for communicating with your management team. You can also share edited versions with lenders, manufacturers and employee groups (good employee communication can do wonders!). It can facilitate the implementation of working arrangements that are in alignment with and supportive of the goals and objectives outlined.
In closing, I want to emphasize that representing viable manufacturers has always been the key to a successful distributorship. But with the "window of differentiation" closing, dealer services will be increasingly more important to customers who have greater equipment-acquisition choices.
Remember Eisenhower's words: "Planning is everything!" Speed is essential. The future belongs to those who organize, mobilize and execute.
The good news is that you are in control!
Bud Hayden is president of Metroquip, Inc., a Minneapolis dealership specializing in aerial lift equipment. In 1992 he was AED's 74th president.
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