Distributors Where OEMs Meet Customers

Mike Lavelle, vice president sales and marketing, Daewoo Heavy Industries America, doesn't mix words. "The role of the dealer or distributor of our products is the key to our success," he says. "All that we can do [for dealers], be it in terms of financial incentives, expanding the role of communications or providing signs for buildings, we have to do it."

Dr. Shankar Basu, president and CEO, Toyota Material Handling U.S.A., serves on the Material Handling Equipment Distributors Association's (MHEDA) Manufacturers Board of Advisers. He's in a unique position to observe the relationship between manufacturers and distributors. "The customer's needs [for a lift truck] are constantly changing and selling the truck is just the beginning," says Basu. "We [OEMs] have to work with our dealer networks to be able to respond to any situation, be it safety concerns, financial situations or whatever."

Helping its dealers provide customers with single-source answers is reflected in the words of his company's recent name change, replacing industrial equipment with material handling. In the near future the company will be adding products such as racking and conveyor to its product mix.

How to add value

There's little doubt that to retain business the dealer has to add value, particularly when selling a mature product such as lift trucks. For many dealers, that value comes through its parts and service department. Yet many customers are turning to non-OEM replacement parts or to the Internet to cut the cost of spare parts and repairs.

Though the job of the lift truck might be basic material handling, high technology, particularly the Internet, has become a mixed blessing in the material handling world. Some distributors and customers are benefiting from the use of the Internet for selling and buying. Others are waiting for the first big failure of online purchasing so that life can return to normal.

Many manufacturers -- Toyota Material Handling U.S.A., for example -- have established Web sites on which customers can spec a truck, find a local dealer or request a hard-to-find part. "The Web serves as a way to inform the buyer of what products are available," says Basu, "but it can't demo the product or service capabilities."

Basu was one of four manufacturers represented at a panel discussion of manufacturer and distributor relationships MHEDA's convention in May.

Other manufacturers -- Crown Equipment -- for example, have established "store fronts" (Crown MoveMore) on popular online auction sites such as eBay.Gregg Goodner, president, Hytrol Conveyor, was also on the panel of manufacturers and distributors at the MHEDA conference. And while Hytrol does not make lift trucks, his comments concerning Web purchasing and its impact on distributors are germane. "Web purchasing depends on the product," says Goodner. "It won't be a long-term way to purchase products. The weak economy led people to this way of buying and it doesn't develop the vital relationships end users require. The more support a product needs, the less chance there is to have successful sales on the Web."

Will sales via the Internet change the way distributors do business? To some degree it already has; however, in the long run, things might not change all that much, according to the experts. The Web is still a way for consumers to gather information and buy the occasional commodity part. The distributor who uses the Web wisely can develop leads and find growth opportunities in Web-based sales. Most agree that selling lift trucks, along with the required parts and service, is still a people business.

"We have a couple of large accounts," says John Muse, division manager for parts, Carolina Handling, a distributor of Raymond lift trucks, "driving us toward a Web-based ordering system, but by-and-large we haven't had a lot of pressure."

Muse says he knows the influence to make Web purchases is coming and his distributorship is working on a program for customers who would prefer to shop via the Internet. Muse does not feel the critical position of the dealer is threatened. For one lift truck dealer, Wisconsin Lift Truck Corp., the Internet has become a good was to source parts from its vendors. "Instead of picking up the phone, getting voice mail, etc.," says John Callen, corporate parts sales manager, "we use it as an added resource to determine if our manufacturers have the part in stock."

Callen says the Internet is not a way to grow the parts business. It's a way to gather information. For Callen it's still a face-to-face kind of business. "I get a laugh out of some guy who wants a single part and will e-mail us a couple times because he's in a hurry. If he's in such a hurry why doesn't he pick up the phone and call?"Many people in the parts end of the lift truck business are predicting increases in Web-purchasing, however, few are saying that it will have a major impact on the distributor's business.

Callen recalls that five years ago a major manufacturer announced it was opening its Web site to sell parts to end users and the distributor in the area would get a percentage of the sale. "To this day," he says, "I think they've sold only one part in this region and we received a small commission. It's not going to be a problem."At the end of the day, a human has to fix the truck and it's the human that determines which parts are required.

The greatest impact Callen sees is the level of parts being stocked is dropping."We're still selling a lot of parts," explains Callen, "only we're not selling as many at a time. No one wants to carry the inventory, and people are buying only the part they need, no spares."

This challenge has arisen from two factors says Callen. "First, the equipment goes away -- is sold or the model changes -- before it breaks down. This is, in part, because the quality of the equipment is getting better all the time."

Another factor is the competition in the marketplace for parts has driven out the notion that buying in quantity will get you a better price.

Finding customers

Another challenge distributors face is the dwindling base of large lift truck fleet purchasers. As manufacturing has moved off shore, companies that formerly purchased 100 trucks have disappeared. "When I started in this business 20 years ago," says Callen, "we had, just here in Milwaukee, eight companies that had more than 100 lift trucks, and hundreds of thousands of dollars of parts on their shelves. Now there is one or two left in this area."

Elsewhere the story is different. "We have a lot of programs with our customers such as delivery/pickup, consignment inventory or inventory management," he explains, "that would be hard to supplant with online purchases or reverse auctions." He adds that many of these programs will remain whether the customer purchases online, via the telephone or in person.

The key, says Muse, is to provide enough services to the customers so that they won't want to go to these other sources of purchasing. A well-trained group of customer service representatives plays a major role in the success of a dealer. "For customers with a significant fleet of trucks, the goal is to keep the customer's trucks up and running," says Muse. Toward that end, Carolina Handling has numerous consignment programs aimed at reducing the price pressure created by non-OEM parts. The benefit of having customer service representatives providing on-site contact and visibility with the customer cannot be overestimated.

Distributors have been feeling pressure from non-OEM parts manufacturers for a number of years. Combating that pressure often comes down to a single word: service.

"If someone is looking for the low price," says Muse, "there's not much we can do. When it comes to field sales and service, however, they don't measure up to a distributor."

The sheer volume of parts, and the training required to install those parts, particularly when lift truck models change, can be a challenge for parts managers. Darin Finch, operations manager, Hy-Tek Material Handling, says, "It might not be the challenge it is if we handled only one line of trucks. However, more than 50 percent of the service work we do is on lines other than what we sell."

Online training has become almost a staple in the lift truck industry, pressed for qualified technicians and time to train them.

"Certification of repair technicians, especially for emission controls," says Lavelle, "is not a huge leap in technology, but more of a trend toward sophistication. Technicians will not be overwhelmed so upgrading a person's skills should not be a challenge."

Often, dealers provide incentives to employees who upgrade their skills. Many emphasize that training adds value to the individual as well as the company.A challenge Finch has in his geographic area is finding employees with the basic computer skills required for today's equipment. "The repair training is not as much of an issue as is getting the technicians up to speed on laptop computers," he says. "I did a poll of my technicians and nearly half had never turned on a computer." He says the education challenge will be even greater by the end of 2005 when all his technicians will be using laptops to diagnose and trouble shoot trucks.

"For the rest of the year we'll be doing some emissions controls training because that's a major part of our business," says Finch. "However, I'll also be sending them [technicians] to computer classes rather than lift truck classes so they have some basic computer skills."

An overlooked area when buying parts from someone other than a dealer is shipping. Lavelle says the cost of parts in the aftermarket, for dealers or anyone faced with shipping, has been impacted by the way fees are charged. "Rates [airfreight charges] are determined by the dimensions of the box, often ignoring the weight," he told distributors at a recent dealers meeting. "So it can cost more to ship bulky, lightweight items than heavy, more expensive parts."

Rentals, an emerging challenge

At this year's MHEDA conference, there was much discussion around the emergence of large lift truck rental companies and whether these purchasers of numerous trucks were receiving more favorable pricing than distributors that have been in the distribution chain for many years. Rental fleets are competing with long-term leasing and contracts offered by the dealers.

Certainly, end users are being driven by cost; however cost should not be the only factor, according to distributors.

Sam Grooms, president and principal, Hy-Tek Material Handling, which distributes Yale lift trucks, says, distributors need more protection. "The manufacturer needs to protect the distributor because we're out there, every day, selling the OEM's products. We have to remain competitive or we'll go away."

Ed Reel, senior vice president, Peach State Integrated Technologies, says manufacturers have the tools that allow distributors to create leverage with customers. "We [distributors] build our relationships via communication and integrity and have to keep in mind that the end user is a mutual customer of ours and the manufacturer. We add the value to the equipment the customer is buying to solve his challenges."

Finch adds that Hy-Tek is always concerned about that personal connection with the customer. It makes every effort to brand itself as Hy-Tek, not as a particular product dealer. "So when the customer says, 'We need to buy another lift truck. Let's buy it from Hy-Tek,' we don't lose our identity, and the business, if the customer goes to a manufacturers Web site."

Callen notes that the rental companies do a great job with their storefronts but when it comes to service and parts, they leave a lot to be desired. The end user then has to turn to the local distributor for parts and service. "The end user," says Callen, "doesn't want to use a lot of different people. He wants a single source, not someone who drops off the equipment and sends a bill. When the truck breaks down he sees the value of a distributor."

Distributors and manufacturers agree that communication between the two groups is essential to understanding the position of the other. -- MHM