TO dig deep into “The Evolution of Distribution: Not Your Father’s Truck Business Any Longer,” a panel was assembled to discuss changes in distribution, consolidation, smarter, savvier customers, and the increased complexity of trucks.
Denise Rondini, president of Rondini Communications, moderated a panel that included: Bill Kozek, president of truck & parts for Navistar Inc; Steve Riordan, chairman/CEO for TruckPro LLC and CCC Parts Company; Bill Long, president/COO of the Automotive Aftermarket Suppliers Association (AASA); and Amy Kartch, director of the vehicle group and global aftermarket for Eaton.
Q: In the last decade, what are the most significant changes in the distribution market?
Kozek: From my standpoint, one of them is consolidation. Consolidation in the dealer network, not only in Navistar, but really in the industry. In 1964, Rush Enterprises was one store. Today, they’re more than 100 locations and they’re continuing to grow. They want to be solution providers. They’re not dealers. Also, our customers are consolidating. I would argue there isn’t an owner-operator market. Those owner-operator categories are really subsets of the Swifts of the world. The second item is technology. It’s changing significantly from the product end of things. Products are more complex. When something happens, the truck shuts down. Also from the distribution network. All of the operating systems are a lot more complex, which means you have to have intense infrastructure in people, systems, and facilities that you may not have seen 10 or 15 years ago.
Riordan: I’m a distribution guy. That’s all I’ve ever done. When you look at the aftermarket space, there are a couple of thousand distributors. There’s a tremendous amount of consolidation and it’s still highly fragmented. While it’s not our father’s distribution market or business, so many of the fundamentals are exactly the same as they were 20, 30, 50 years ago in terms of local product knowledge, delivery capacity, going to the customer when the customer needs it, billing, returns, fair-credit policies. All that has remained remarkably consistent in my 40 years in distribution. Having said that, technology is a big part. You have to have more technology platforms and have to find ways to differentiate yourself as a distributor from the big OEs who are getting stronger and more focused on the aftermarket side. So it’s an interesting marketplace. You have to keep that entrepreneurial spirit. If you lose that and get caught up in the bureaucracy of big business, you lose your customer. I’ve seen fragmentation but at the same time, a good consolidation opportunity because it’s very difficult to compete on large fleets. Large fleets have emerged over the last 10 to 15 years. As they’ve consolidated, there are only a few distributors who are able to fill those needs and provide consistent pricing and availability across the network.
Long: I’m going to answer this question from the perspective of the light-vehicle aftermarket. There are parallels between the light-duty aftermarket and the heavy-duty aftermarket. They are accused of being the ghosts of Christmas future. But it would be hard to talk about changes in the last 10 years without talking about consolidation. The practice of extended terms in the light-duty aftermarket for the past 10 years. Some might view it as good and others as bad. In the wake of increases in interest rates, it has repercussions for the industry. There are two other things. One is the concept of single-source supply. Back when I joined the industry, it wasn’t uncommon for a supplier to walk in and sell you an entire product line for all makes and products under a single brand. I’d also mention the trends in brand identity. Many of the large players have developed their own brands, so they can create their own differentiation and drive the value proposition instead of the way it used to be, with a single brand that might show up in four different auto parts stores on four different corners.
Kartch: From a supplier standpoint, customers and buying patterns are more savvy. Total cost of ownership is better understood. Customers want more information on products and what they can expect in the life cycle. So I think part of that has been increasing how we communicate that to customers. I also think the proliferation of brand has made us reinforce our value proposition.
Q: Is consolidation a good or bad thing? Does it present challenges for you and your suppliers?
Kozek: I’m not sure I can say it’s a good or bad thing, but it’s going to happen. It’s inevitable. It does bring up some big challenges for us. You now have a dealer network that has leverage over the OE, and that starts to not feel very good. But from the other standpoint, these public corporations are a lot more sophisticated. And ultimately, at the end of the day, downtime for our customers is the enemy. If you have an integrated Rush that has a huge footprint, he can take care of his customers a lot better, or our mutual customers a lot better, because he has seamless integration. So there are positives and negatives. I can’t say how it plays out. But there will be more and more consolidation.
Long: We’ve heard the term with consolidation: sophistication. On the light-vehicle side, what has come with it is a lot of data. Big data. Point of sale. That transition and level of sophistication has made everybody better—both suppliers and distributors, and the ability of getting the right part at the right place at the right time. Ultimately it has made us better.
Riordan: Statistically, most acquisitions fail to meet buyer and/or seller expectations. Everything looks great in the boardroom. If you make those decisions without understanding the cultures of different business and understanding that 2 plus 2 equals 7, 8, or 9 in the eyes of customers and the eyes of counter people and delivery people … if you don’t take those things into consideration, you’re going to have failure. It’s very labor intensive to put groups of people together in ways they are compatible and want to be on the same system and share resources. They don’t just want to get bigger; they want to get better. Scale will allow you to do more things. If you do it right, you can increase your profitability by consolidating the things that are not in the eyes of the customer; the back office, the systems, the way you move product around the channel. You also have the chance with size and scale to invest in more specialized ways to attract and make top suppliers that much happier with the result. Suppliers want strategic partners, and if those start, partners are also thinking locally while also operating locally. It’s a good blend, and usually everybody’s happy.
Kartch: I’d say consolidation has made us be more focused on understanding our markets and segments. I think we’ve done more to examine what our stage is and be more proactive in what types of programs and products that these segments will lend themselves to.
Q: What kinds of challenges do smarter customers bring to your company and what kinds of opportunities does that offer?
Kartch: One is just having information available. Are we looking at the problem or solution the same way the customer is? Do we understand what’s motivating them and what their drivers are? The other thing that it’s brought to our attention is our customers are looking for better ways to integrate and have the infrastructure and support to help them focus on what they want to do. They really want a better way to transact business with us.
Kozek: Your guys have done a wonderful job of getting in front of customers and showing them what’s new and what your product can do to improve the bottom line of our customers. What can be crazy is if I go in there and say, ‘Instead of putting this air dryer in, put this air dryer in.’ I think if there is a message for me, it’s, ‘Hey, I want to put the best stuff on the trucks. Just make sure you give me a little bit of time for me to go to engineering and make sure we’re doing it right.’ That’s the key. As I said earlier, downtime is the enemy of our customers. If they can go years with just scheduled maintenance, the lowest cost of ownership is going to show trucks are the way to go and some of the other types of industries—rail, for example—those won’t continue to grow.
Riordan: Way too much attention is put on invoice cost and not on total cost of ownership. We’re beginning to see that change. It’s very difficult to compete with big fleets unless you have that scale. So it’s a combination of factors going on. We have to educate those customers more. It’s a bit challenging but we’re getting there.
Q: Let’s talk about the increased complexity of today’s trucks and your ability to serve the market and distribute products?
Kozek: Trucks today are so much more complex. There are hundreds of sensors. I think at last count, there were 400 sensors that can trigger a check engine light. What distributors need to be able to do is figure out, ‘What does that mean? How do I fix it? I don’t have the right part. Can I get the truck to the next place where the right part is and we can order it?’ We have a system that has that intent—to make sure there is a diagnosis with that particular code. Everybody in the industry is going to have that. To succeed, the distributors are going to need to know how to handle that specific situation. That will be something that grows. By 2017, that number is going to double in terms of what causes the check engine light. You have to train at the driver level, technician level, and really at the salesman and supplier levels as well.