CONSULTANTS TO THE AFTERMARKET

Bill Wade

 

This Downturn Has Increased
Distributor Value

Fleets Find Largest Value Return from
Knowledgeable Specialists

By Bill Wade

Fleets and independent repair facilities (and truck dealers, for that matter) haven’t been effectively leveraging the value of their distributors in terms of both direct and indirect savings.

Recent conversations with fleets and distributors strongly suggests a shift should be occurring among heavy duty service suppliers in the way they manage their vendor relationships and measure value in both direct and indirect cost savings.

The challenge for both customer and supplier is to find the appropriate metrics... the right analytics... to quantify more qualitative measures of distribution value.

Leading fleets are moving from transactional to strategic relationships with key suppliers. Traditional core distribution values (logistics, transaction processing, etc.) remain critical measures, but are becoming only a part of a larger set of metrics.

There is a key shift among fleets developing broader-based improvement programs that place a higher value on knowledge-based services – specialized diagnostic skills, knowledge of specific equipment challenges and even nettlesome corporate procedures.

A few years ago, these services may have been taken for granted or not included in supplier evaluation, particularly as national contract initiatives grew as cost-efficiency programs. Today, there is more recognition that key suppliers and their specific service capabilities can yield a higher return on investment.

It Is Leaning toward Total Cost of Operation - Not Simply Price

Some customers remain focused on lowering transaction costs. While the issue of price will never be absent from any HD relationship, many end-user customers are broadening their methods to measure the real total value they gain from suppliers.

Fleets increasingly need to find critical ideas outside the shop walls to address cost challenges and solve day-to-day operational problems, often with reduced capital, operating expenditures and labor.

Increasingly, the factors with the largest value return are knowledgeable fleet specialists, who fulfill specific needs in four critical areas:

  • Product Availability
  • Cost Control & Process Improvement
  • Service Reliability
  • Measurable & Intangible Relationship Values

Cannibalization only stretches so far!

Today’s transportation landscape is putting unprecedented demands on maintenance supervisors. While a global economic recovery may spur a rise in utilization rates, maintenance execs are almost universally squeezed with fewer internal resources.

More importantly, internal skill sets that traditionally provided a knowledge base for specing, operating and maintenance support have been depleted over the past three years.

Maintenance managers have had to find alternate and smarter ways to improve vehicle reliability, labor efficiency, unit optimization, warranty and service management.

New ownership and top management (increasingly from outside the HD fleet business) have instituted new forms of vendor management programs as part of larger continuous improvement initiatives.

These initiatives include supply chain optimization, vendor rationalization, vehicle lifecycle management and lean process improvement efforts. Based on these industry competitive forces, a few key trends have begun to surface:

Corporate management is demanding hard-cost savings, yet often remains resistant to supply-chain innovations, such as VMI, that could significantly reduce transaction and holding costs.

The ability to outsource services and skill sets traditionally managed in-house has in fact become a new skill set for managers. Managers are increasingly evaluated on vendors’ overall ability to perform, including emergency service, technical support and on-time delivery.

Best-in-Class Fleets Actively Differentiate

Innovators use a broader set of evaluation tools to measure return from distributor relationships than they did just a few years ago. Total cost of ownership, total cost reduction and other metrics have become relevant vendor benchmarks.

Innovators are integrating key suppliers into their organizations and leveraging this specialized knowledge to achieve continuous improvement goals. Hopefully, obsolete are the days when a large pool of vendors was managed in an adversarial manner to achieve purchasing department goals.

The traditional core values of distribution haven’t changed, but their relative importance clearly has as alternate channels, sourcing options and competitive pressures have mushroomed in recent years. Why?

Best-in-Class fleets clearly differentiate in their ability to take advantage of the service-oriented skill sets of their distributors to compensate for fewer internal resources. In short, they look beyond "traditional" distribution functions...sourcing, inventory, credit, sales/fulfillment, technical support... to obtain more complex and deeper value-producing capabilities.

The relationships are deeper, better, and more cost-effective than more traditional approaches. Independent distribution has always been unique in the delivery of a combination of products and services to provide solutions to truck operators.

Four Key Areas Are Cornerstones

Core distribution functions continue to be necessary and high-value services, but there is increasing focus on what is often termed value-added services. Innovators are altering the way they measure their sources, revising vendor requirements to incorporate a broader mix of services and functions to yield a higher total value contribution:

Service Reliability. An outstanding record of performance in the basic "blocking and tackling" of distribution... getting the right product into the customer’s hands when he needs it, day in and day out, and being responsive when questions or problems arise... has re-emerged as the most important factor in determining which fleet specialist (or other parts source) a customer will choose as an ongoing strategic partner.

Product Availability. The most critical issues trucking customers face in 2010 are concerns over pent-up price increases and product availability. Demand planning will quickly become a dominant issue, as nearly everyone realizes that there is insufficient inventory in the total system to satisfy soon to skyrocket parts and service demand.

Cost Control & Process Improvement. Here’s what one major fleet VP told me: “We’ve significantly downsized our maintenance staff. We need distributors who can troubleshoot our maintenance issues, and know our operations and equipment well enough to know how to be part of the team and come up with the best solution. We still demand hard cost savings and documentation of the savings they produce, but increasingly the real good ones are finding new areas where they can help us”.

Measurable & Intangible Values. While the days of the ‘doughnut patrol’ are probably (and tearfully) over, there continues to be a strong need for more than accounting metrics in measuring supplier performance.

Customers increasingly seek information about the most innovative methods other companies are using to optimize equipment life cycles, including application specification, purchase, inventory, maintenance, recycling and disposal.

They are also differentiating their distributor choices based on the "intangible" value brought by expert salespeople and other support team members who not only are technical experts in their product area, but also take a personal interest in knowing and anticipating their customers’ needs. These are service skills that define the value the customer receives in comparison to the low-price provider in the market.

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