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Where’s The Money

 
Many distributors in today’s material handling environment get the same feeling that Clara Peller used to get in the old Wendy’s advertising campaign when she asked, “Where’s the beef?” Only in the distributors’ case, the question is, “Where’s the money?”As margin pressures continue to mount on distributors of material handling equipment, they are looking for ways to try to ease some of that pressure. Some distributors are diversifying into new product lines of both traditional and niche products. Some are looking to penetrate new customer markets. Some are looking to cut costs by outsourcing. Some are continuing to increase their concentration on a service department that is already very customer-focused. Still others are trying two or more of these philosophies. And surely, there are more ideas that our sample of distributors didn’t mention.Of course, nobody has all the answers. But as you can see from the examples that follow, there is hope. To be sure, many of these ideas are not new. But they are new to each of these companies. As the cliché goes, necessity is the mother of invention. The struggle to maintain margins continues, and distributors will continue trying innovative methods to keep up. As Atlantic Coast Toyotalift’s Vann Williford says, “We have to figure out how to continue to grow and stay ahead of the curve.”

Intensifying Service Efforts
Michael Brumleve, president of Cardinal Carryor (Lousiville, KY), believes that the best answer to the margin and commodity conundrum faced by material handling dealers is service. “The margin issue that we as dealers have allowed to take place is nothing but our own fault for lack of salesmanship,” he says. “The manufacturers have not insisted on this lower price. Dealers have allowed it to take place by letting people call a forklift a commodity. A manufactured item that requires service is not a commodity.”

    Michael Brumleve  
 
   
“You need other lines, but what difference does it make what those lines are if you use the same poor salesmanship and market control? You won’t make any additional profit on those products either.”  

— Michael Brumleve, President
Cardinal Carryor

 
   
 
     

At Cardinal Carryor, Brumleve strives to overcome that perception through an intense service focus. “You’ve got to become something unique to your customers and prove that you bring more to the table down the road,” he says. “That commodity mindset won’t change overnight, so you must be a service provider of excellent proportions now and in the future.”

Brumleve thinks that distributors can also counteract the problem by diversifying into new product lines, but even that strategy comes down to service. “Yes, you need other lines, but what difference does it make what those lines are if you use the same poor salesmanship and market control? Those products will become commodities, and then you won’t make any additional profit on them either.” Therefore, he values the ability to service a product as the highest deciding factor of what he will offer. “Service is the one innovation we as forklift dealers offer to the marketplace that no one else can provide. If it is not an item that requires human interaction to service, it is worthless to my future capabilities.”

This intense devotion and concentration on service is the one constant in a changing marketplace. “The market is going to change no matter what we do as dealers,” states Brumleve. “If we remain excellent in service throughout those changes, customers may go other places in the short term, but they will be back long-term—because we’re not going to send a forklift overseas to get it fixed.”

  John Foley    
 
   
  “Look at those manufacturers with whom you’re not doing a lot of base but already have the established relationship. Try to see where you have customers with applications for that type of equipment.”
  — John Foley, President
Binghamton Material Handling
   
 
     

Vann Williford, president of Atlantic Coast Toyota-lift (Winston-Salem, NC), has had some success counter-acting reduced margins by substantially increasing customer service sales. “We spend a great deal of time and effort working through any customer service issues, which means hiring people and making sure we have the proper parts availability.”

Several years ago, Lift Atlanta (Decatur, GA) President Mark Milovich made a strategic decision to only go after service business on products sold by Lift Atlanta. “That’s a different philosophy than some other dealers. We want to service who we sell and to focus our energies on maintaining the best service and quality that we can so our customers become long-term accounts. Competing for service work just causes more problems, and we’ve actually made good margins and revenues, and supported the manufacturers that we represent.”

The strategy pays off with increased parts sales. “We are often in Linde’s top three for parts sales, which gives us a larger annual return and better discounts,” Milovich says. “Plus, it builds loyalty. I’ll let the sales department go after the competitive business.” Milovich lives by the philosophy that the sales department will sell the first one, and the service and parts departments will sell the next ones, because “if we don’t have good service, then we’re no better than any other supplier out there.”

    Patrick Stemper  
 
   
“By specializing in certain allied products, we can get more profitable business and maintain the suppliers’ demands for market share.”  
— Patrick Stemper, President
Badger Material Handling
 
   
 
     

Outsourcing

“I outsource everything,” says Eric Landtbom, president of Allied Engineering (Big Oak Valley, CA). Instead of having full-time employees, everything is done by contract. When he set up his business in 2003, he was shocked by some of the expenses. He realized that having even one employee as opposed to zero, the company would have to do twice as much business to break even just because of the Workers’ Compensation costs in California. It was for this reason that Landtbom set up his company the way he did. By not having any real employees, he can avoid that cost.

When establishing his business plan, Landtbom decided, “What do I need employees for?” He does his own books, quotes and costing. He does his own design, so he doesn’t need an AutoCAD driver. “It boiled down to needing labor and a project manager, and I was able to partner with two other companies for that,” he says.

It took a while to get the kinks out of the setup. “There was a six-month period where business was really slow, even though I was quoting and talking a lot,” he recalls. “I found out other companies were beating me by playing up their service capabilities.”

  Fred Oram    
 
   
  “I’m working on a best practices manual to document every process in the company. It’s a huge project that should save us money down the road.”
  — Fred Oram, President
Oram Material Handling Systems
   
 
     

To remedy that, Landtbom armed himself with a product and services card and explained his support infrastructure. “It was right around that time that those Verizon ‘my network’ commercials came out and I was able to draw parallels with those. After that, it turned around pretty quickly,” he relates. He received four orders in quick succession and business has been that way ever since.

“Looking back on it, the perception when the dot-com business bombed in the early 2000s, people were looking for brick and mortar again. I had to turn that perception around. My office became my clients’ offices and their facilities, where I could showcase successful projects.” In December 2005, Landtbom moved out of the Bay Area to a ranch in the country, built an office on the property and made a seamless transition. “I built a reputation with my clients where they know I will be there and follow through. The only thing I don’t do anymore is pound the pavement to try to drum up new business. I have enough to keep me happy; about 70 percent of my business is repeat business.” The strategy is working—revenues have grown from $300,000 in 2003 to over $1 million in 2006.

    Eric Landtbom  
 
   
“I built a reputation with my clients where they know I will be there and follow through. Now about 70 percent of my business is repeat business.”  
— Eric Landtbom, President
Allied Engineering
 
   
 
     

Conveyor service is all done through subcontractors. “If the project is out of the area, then I connect the customer with someone locally. If it’s under warranty, then I just cover it,” he says. “If it’s not warrantied, then they go direct. I don’t make any money on service because I really don’t need to. I could if I wanted to, but then I’d need employees and a building and that’s not what I want to do.”

Atlantic Coast Toyotalift outsources its battery and charger work. President Vann Williford explains, “We buy from a supplier, and when our customers need service, we outsource it. I know other forklift dealers do that in-house but we currently do not.” Williford and his staff are evaluating bringing that work inside to generate revenue.

Uncovering New Markets

Another method distributors are using to track down new revenues is to do business with non-traditional customers. Such is the case at Deep South Equipment Company (Shreveport, LA), where a shift in philosophy has proven successful. “We feel that some customer markets are not being serviced, and I have put people to work exclusively on those areas,” President John Parsons says. He points to certain areas of the food industry prevalent in his area of the country that have proven to be strong and getting stronger. “We’re targeting specific segments within the larger umbrella of the food industry, stable areas that we feel we can become specialists in,” he says. “That strategy so far has paid off and worked out pretty well for us.”

  John Parsons    
 
   
  “Some customer markets in our area are not being serviced, and I have put people to work exclusively on those areas.”
  — John Parsons, President
Deep South Equipment Company
   
 
     

Binghamton Material Handling (Binghamton, NY) has used this approach successfully for 22 years. “Other than our standard material handling distributorship, we also stock and sell Ridg-U-Rak. We’ve gone out to a non-traditional market, selling to other material handling distributors,” says President John Foley. Using the trade name Storage Masters, Foley and his brother Peter have become even more involved in that market over the last ten years. “We bought a building with a 40,000 sq. ft. warehouse. Now our facility can handle the volume we’ve seen,” Foley says.

For Fred Hill and Son Company (Philadelphia, PA), an opportunity presented itself for the company to get into a different business model. Fred Hill is partnering with a parts distribution company to be the parts distributor for ten different locations of an end-user company. “It’s like a managed inventory program, and that’s a different strategy for us,” President Ken Shaw III says. “We’ve got expertise for designing the solution because that’s what we do for our customers, so we decided to take a look at it.” Essentially the setup requires Fred Hill to come up with and implement a solution utilizing warehouse management systems to track the parts and products for the customer. The parts provider ships to Fred Hill, who then distributes parts to the ten customer locations. “We wouldn’t be really selling any product; we’d be selling the service,” Shaw explains. “If it works here, there may be other opportunities with similar end-users where we could duplicate the model.”

Fred Oram, president of Oram Material Handling Systems, instructs his salespeople to demonstrate a new sweeper product with every new forklift delivery.

Oram Material Handling Systems (Kansas City, KS) is doing more “institutional business” with hospitals, junior colleges and universities. “Most of our traditional customers are industrial or distribution-oriented, so this is a market that we’ve never done much business with,” President Fred Oram says. If business continues to develop, Oram would like to be able to hire a specialist for niche products in these markets.

Diversify Your Market

“Today, you have to sell more than a lift truck,” says Steve Greenawalt, president of Alta Lift Truck Services (Wixom, MI). As such, Greenawalt has been focusing on allied lines, which he defines as anything other than a lift truck. “We have about half a dozen different lines of powered equipment that complement the forklifts but aren’t necessarily forklift-related,” Greenawalt says, adding that the company’s business in non-mobile allied products such as lift tables and racking is also picking up.

The multi-line strategy is one that 22-year industry veteran Greenawalt has embraced within the last ten years. “It’s something that occurs as a company goes through its maturity. Getting good product lines that complement the forklift line is something that you just evolve into,” he says. “You just don’t go out and say, ‘I’d like to get into a certain line,’ because those are lines that are probably already represented by a well-performing dealer. Perform well yourself and the manufacturers will come to you. In our business, success breeds success.”

  Mark Milovich    
 
   
  “Instead of trying to sell everything to everybody, we’ve limited our product offering so that we can become experts at each one.”
  — Mark Milovich, President
Lift Atlanta
   
 
     

Another distributor moving to more allied offerings is Badger Material Handling (New Berlin, WI), where General Manager Patrick Stemper has established specialists in the capital equipment sales department. “In our two largest counties for lift truck sales, we have two salespeople who cover each county with responsibility for forklifts only. Then we have allied specialists who don’t have a high concentration of lift truck business cover the material handling aspects. This way we can focus on both markets, where there is more profit to try to help offset the low margin on lift trucks.”

After making the move about a year ago, Stemper says allied market share and gross profits are increasing. “It looks as though by focusing on special areas of our product offerings and specializing where we can, we can get more of the business that is more profitable, yet maintain the manufacturers’ demand for market share. It’s an ongoing experiment, because we’ll try it in other aspects such as used equipment or short-term rental sales. Those are all on the docket.”

Atlantic Coast Toyotalift has begun an intensified focus on non-powered allied products such as conveyor, rack, docking equipment, bridge cranes and more. “Anything that our customer base may be buying from somebody else, we’re looking to expand into those areas and find some opportunities for products we didn’t previously handle,” Vann Williford says. “We want to try to expand some of the sales force into items that we haven’t done a great job of selling.”

    Vann Williford  
 
   
“We’re looking to expand into any areas where our customer base may be buying from somebody else and find some opportunities for products we didn’t previously handle.”  
— Vann Williford, President
Atlantic Coast Toyotalift
 
   
 
     

The company’s main focus will be on complementary products that will allow Atlantic Coast Toyotalift to become a one-stop shop. “Our customers are buying some products from other people that would be a fit for us to provide for them,” Williford says. To capitalize, Williford offers mini-excavators and skid steers. “We have the ability to go out and service customers in the field, have the experience for the hydraulics and are trying to find other niches to increase our revenue and increase our service and parts business.”

Williford emphasizes that the answer is not to take on another forklift line that competes with his current lines. “You can’t serve two masters,” he says. “We’re trying to find areas with some opportunities and do a hard study of the whole material handling side to try to identify where we can be a player.”

Cardinal Carryor‘s Michael Brumleve is also looking at taking on additional products. “My people are excellent in fields that aren’t glamorous, and they can work on an engine and high-level computer electronics. In addition, they have thorough understanding of hydraulics and ergonomics.” Therefore, Brumleve is looking at products that require similar skills—things like trash compactors with electric motors and pneumatics, Segway movers, and possibly other types of large equipment.

Diversification is also the strategy for Fred Hill and Son Company. Traditionally a storage & handling provider, Ken Shaw III saw the potential market for those products diminishing as he projected forward. “Looking at some information on the conveyor industry, the forecasts are almost ten times what the rack market is as far as dollars spent on equipment,” Shaw says. “So I said, that’s an area where we have some knowledge. I can hire some expertise and align myself with strategic vendors. It wasn’t a big leap to add that offering into what we already did.”

  Steve Greenawalt    
 
   
  “It’s been something we’ve evolved into. We looked into the opportunities and were able to pick up several good lines. It’s up to us to make sure we have the internal people who can sell those products or services.”
  — Steve Greenawalt, President
Alta Lift Truck Services
   
 
     

Shaw made the move about three years ago with mixed results. Fred Hill secured the Hytrol, Automotion and TGW-ERMANCO lines and hired an experienced systems engineer. “I have good, varied conveyor lines, but it’s not as easy as one might think on the surface,” Shaw says. “We have all the pieces we need to be able to provide engineered systems solutions for customers. The tough part is altering the perception of what Fred Hill is to end-users so that when a conveyor project comes along, they think to call us.”

Shaw recently began working with a marketing firm to try to put together some collateral capabilities brochures and presentation folders and come up with ways to try to increase the awareness of the new capability, “so we can develop cohesive ways to change the customers’ perceptions of who we are and what we can do.” The problem arises, Shaw says, when customers don’t have an immediate need because the Fred Hill name is not yet ingrained for engineered systems work. “We are making progress. It’s just not as quick as I anticipated it would happen,” Shaw says.

Less Is More

At Lift Atlanta, Mark Milovich takes a different tack. Instead of trying to expand, the company has “circled the wagons,” as Milovich puts it. The company only pushes its four main product lines—Linde, Hyundai, Taylor-Dunn burden carriers and Pal-finger truck-mounted forklifts. “We represent some other lines like aerial platforms and things like that, but they’re not a significant part of the product mix,” he says. “Instead of trying to sell everything to everybody, we’ve limited our product offering so that we can become experts at each one.” As an added benefit of such a strategy, Milovich points out that he doesn’t have the market-share headaches that more diversified dealers might face. “We don’t have the stress of trying to keep multiple manufacturers happy. Each supplier knows where their place is within our dealership.”

Lift Atlanta technician

At Lift Atlanta, technicians only service equipment sold by the company. The company became a Hyundai dealer in 2006.

New Products With Higher Margins

If the products you sell are not providing you with enough profit margin for you to be comfortable, then perhaps dabbling in complementary product lines may be the way to go. But which ones?

Binghamton Material Handling‘s John Foley cites the loading dock and door markets as specific areas where the company is doing more business in the last two years. “Our traditional markets have been in unit manufacturing rather than bulk manufacturing. Door systems have given us a product to sell to end-users who are very process-oriented. It’s a foot-in-the-door product,” he says.

Foley is also trying to leverage existing relationships with both his customers and suppliers. “There are people within our own customer base with whom we’re not doing business. For example,” he says, “if we’re doing a lot of business with a manufacturer’s engineering department, we should start calling on the maintenance or traffic departments.” Foley also points to greater emphasis on balancing the manufacturers he represents to capitalize on the 80-20 rule. “We’re doing 80 percent of our business with 20 percent of our suppliers. Look at those manufacturers where you’re not doing a lot of base, where you already have the established relationship, and try to see where you have customers with applications for that type of equipment.”

After strictly selling Linde product since the late 1990s, Lift Atlanta became the authorized dealer for Hyundai in northern Georgia in January 2006. President Mark Milovich says the line has been a good fit at his company. “The Linde product is a higher-end product and designed for rougher applications. It’s definitely a niche product, and there were many customers we could not get access to.” When Milovich was approached by Hyundai, he decided to take a chance on a product that gave entrance to the lower and middle segments of the market. “The Hyundai and Linde lines are not really going to sell to the same users anyway; it gives us a complementary product to offer to a different pool of customers.” Milovich says the strategy is beginning to pay dividends, as 2007 has been a very strong year.

  Ken Shaw III    
 
   
  “Forecasts for the conveyor industry are almost ten times the rack market. It wasn’t a big leap to add that offering into what we already did.”
  — Ken Shaw III, President
Fred Hill and Son Company
   
 
     

A similar ploy was undertaken by Vann Williford at Atlantic Coast Toyotalift. “We have filled some niche gaps in our product offering with other lines at capacities that Toyota doesn’t currently offer,” he says. At the heavy end, Williford added offerings from Hoist, while he took on Mariotti to fill the opposite end.

Mariotti makes 1,200 and 1,500-pound capacity electric trucks, which Williford added three years ago. “It is very much a niche product. It can literally drive through an office doorway and is very functional for certain small businesses,” he says, citing many of the old furniture and textile manufacturing facilities in the area. “Many of those facilities are really old. They actually have wooden floors and elevators that can’t support a 3,000-pound forklift, so introducing a smaller product makes sense for them. That has been a successful move for us.”

Alta Lift Truck Services is putting more focus into the tire business, an area it had overlooked previously. The search for complementary products doesn’t stop there. “We’ve looked at the battery business and anything else that complements the forklift and is sold through the same channels,” President Steve Greenawalt says. “We try to pick lines that our existing sales force can sell.”

To help with this, Greenawalt hired an allied sales manager to specifically help salespeople identify and sell the featured benefits of these different types of products. “It’s a different sale than a lift truck, so you have to help your salespeople sell. You have to not only instill the confidence in your customers, but you have to instill the confidence in your salespeople so they’re comfortable selling your product lines,” he says.

Alta Lift Truck Services

Additional allied product offerings have helped Alta Lift Truck Services grow its business.

Alta Lift Truck Services is further refining its sales force by dividing the allied sales into mobile and non-mobile sectors. “It’s been something we’ve evolved into. We looked into the opportunities and were able to pick up several good lines. It’s up to us to make sure we have the internal people that sell those products or services.”

The sweeper/scrubber market has been a solution for Oram Material Handling Systems, where Fred Oram recently added a line of radial sweepers. One reason Oram chose Trek is because they are a local supplier. “I just have this thing about local, geographically close suppliers. They are able to bring a lot more support to our sales staff, in terms of training and helping facilitate demonstrations,” he says.

That’s not the only reason he chose this product, however. The Trek radial sweeper attaches to the front of a forklift and can be easily stored out of the way when not in use. “It’s a really cool niche idea,” Oram says. “The salespeople will make more money selling this product than they do selling the forklifts because there is so much more margin in it.”

Every time Oram’s sales staff demonstrates or delivers a new lift truck to a customer, they also demonstrate the utility of this new sweeper product. “The salespeople actually have fun doing it because it’s such a new idea and a significantly unique alternative to the way their customers are currently operating,” Oram says.

In addition to sweepers, Oram Material Handling Systems also added personnel lifts to replace rolling ladders, which are “personal injury nightmares” for certain customers. “We’re finding that a lot of box stores are using these as alternatives to traditional industrial lifts,” Oram says. “Most of the time, they’re not picking full pallet loads, so they don’t need 3,000 pounds of capacity to have someone retrieve a small product. Plus, they fit through personnel doors, so you can take them into the office and change the light bulbs. The margins on these are good because there aren’t a lot of alternative manufacturers.”

The company completed its diversification strategy by adding a line of Chinese forklifts. “There isn’t a lot of sizzle and fancy stuff, but it’s a good product,” Oram says. “There are a lot of people out there thinking about buying used equipment that could be moved up into this product for a few dollars more.

Material Handling Equipment Distributors Association

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