The Vanishing Distribution Channel: A Candid Look at Dealer Challenges

Oh, that's perfect. And then let me try and come back on two specific things. Number one, consulting. And in the consulting world, how long have you been dabbling in this now?

Okay, so let's start with last November and let's call that six months. It's not quite but close. How many consultants have you found in this space that people are able to use?

Isn't that a surprise?

So that's one track. The other track is how many people in your experience in the last 40 years have you run into that learned at the foot of a guy like Marvin Rush?

Okay, so that's exactly it. So what's been happening is the detailed understanding. of what the distribution channel does is lacking. We just continue to do what we've been doing the last 10,20,30,40 years.

You ask the question, and, well, because we've always done it that way. That's what I lovingly call a sacred cow. Shoot the, you know? So I don't have very many consultants. I don't have very many people that are in the industry that actually understand it. And then here's the third track. And let me throw it at the ages of 40 and down that are the leaders in the industry, whether it's the OEM, whether it's the customer, whether it's the dealer, distributor, whatever jargon. They came out of school. They were taught how to do their job by schools. They don't have any damn dirty fingernails. They very rarely go outside of their office and they don't know what they're going to find when they go out there. They don't even know the questions to ask.

And that's scary.

I had to deal with a credit card, which dealt me with a company that was with my late wife. And I called them. And I was on hold before I got my first response for 23 minutes. And I heard they were apologetic about every 90 seconds. And that person wasn't able to. deal with the issue. So they transferred me to another number. And I was on hold with that number another 31 minutes before I finally got a person. And that takes me to, and you heard me say this or write it, we've put profits over people for the last 40 years.

Which has taken us to a place that customers in America think that customer service sucks so bad they don't even complain anymore.

So I translate that, and I no longer call it profits over people like I used to. Now I talk about it's transactions over data. So everybody's measuring, and, you know, Bill Blackie introduced absorption back in the 50s, and I had the joy of offering to work for him. thought that the time, the amount,500 bucks or whatever the hell it was a month was too much. But that absorption basis has been in place for 75 years.

I think we need another measure.

And the measure I want people to start thinking about is return on assets and come up a little further in the helicopter with me. We've seen over the last 20 years. And then the last 40 years, an exponential curve of reductions of the number of supply points in the distribution channel. Correct. So as an example, in Canada, when I started with the Catechord, there were 10, let me call it 1970. Now there's two. In Canada, there used to be a multiplicity of dealers, and I'll just stay with construction for a second. Now there's one. Volvo, one. Komatsu, one, et cetera, et cetera. And then I think we get into a different place. I was given another one that really rattled me, that we've gotten ourselves into a position that we're more interested in short-term greed, and that's the word that was given to me, than we are in our grandchildren's future, which gets you right where you live. So the return on assets. is why we've had the number of distributors disappear. The number I want everybody to look to is I want you to have a 50% return on assets. That's all assets,

working capital, the whole smash. So let's look at net pre-tax, let's say 10%. And if I want 50% return on assets, I have to turn my assets five times. Now, you get in a plane with me, we go around the country and we'll stop at 100 dealers. We won't find two. Correct. That turn their assets four times. And they don't even think about that asset. The rental companies that I work with, none of them are below 50% return on asset. Correct. So being the devious guy that I am, I used to go into dealers and sit at the counter and just have a chat and a cup of coffee. And I'd find out more in that 30 minutes than you can imagine. So dealing with the rental companies, none of them that I work with are under 50% return on assets. None. So that means we've got to reframe the business completely. So go back to where I started. How many people are there that learned at the master's knee, like Marvin? How many consultants are out there that have dirty fingernails that know how to operate, can pick up a phone and do a sales order, can go in and do an inspection? And who the hell is going to lead us to this promised land? So big circle on that. Amazon, everybody talks about Amazon as the largest retailer in the world. And look at how successful we are. And at the very beginning of having four or five distribution centers within five minutes of where you are. Interesting statistic, though, Walmart still has more product sales than any other company in the world. And they deliver in 24 hours. in a manner that Amazon is trying to figure out how to do.

So this whole world is changing and change scares everybody.

And there's very few people that are out there that are able to analyze a situation to make a conclusion, to come to a conclusion, to make a suggestion, which is why I'm intrigued with you getting in the consulting business because I think you're one of the few that can do that.

Well, it's not necessarily a compliment. It might be a burden. I

Well, the other side of that, one of the guys that you're probably referencing, his name is Nick Maverick, has a company called Built Data.

He talks about three clicks.

And so go backwards. It's 1970. I'm kind of the parts manager in a Caterpillar dealer head office. And Caterpillar used us as a prototype for product support selling. First ones in the world. And the primary prerequisite, and I thought it was a scream, was that the writing was neat. And the second criteria was we're going to pay commission on competitive items. And none of the competitive items were items that Caterpillar manufactured, which I also found intriguing. And to put a circle on that thing, we'd interview people, we'd hire the people, we'd give them a customer list, we'd give them the keys to the truck and point them to the door.

And we still do that. And there's no real training. Don Buttrey does a great job for pillars. Xerox has had a program for years called Professional Selling Skills that does a good job. But nobody's telling a salesman how to manage their damn time.

None of the salesmen put forward an objective by customer for next year.

And then. If it wasn't Nick and has built three clicks, the salesman spends nights going over what they're going to do tomorrow. I used to for a while,20 or so years ago, I'd do evaluations of salesmen. I'd get in a truck with the guy and we'd go around. And they had the day all scoped out, but I'm sitting with their customer list and everything's fine until about the middle of the day. Then I say, well, we're close to this guy. Why don't we go in there? And that's when it fell apart.

So I'm doing a survey for a dealer in the northwest of the U.S. And one of the customers was a woman. And a dealer had created a product support salesman that was a woman. And this boss of the customer had two comments. One, your female salesman is taking my managers out at night and their wives are getting upset.

had not considered that for a minute. The other was that damn Napa truck delivery person with her shorts and tank top, everybody in the shop stopped to go see what she's up to today. And then I'm talking to a guy last week. This isn't my example of 23 or 18 minutes, whatever that I was waiting. And this person said to me, I called three or four suppliers. I got voicemail with everybody but one. I got a real person with one person. He said, who do you think I did the business with? We've got this whole market coverage sales mystique. They're clerks, Troy.

PR clerks. What can I do for you today? Hey, how'd you like that football game on Sunday? This is ridiculous.

Let me interrupt for a second. At one point, I was supervising the office and the counter in a parts department.

And I might have told you this story in the classroom because I tell it to everybody. I'm in a cubicle that's looking at the front door of the dealership. And to my right, the left of the door, but to my right looking at the door is the receptionist, the telephone operator. There's a small table, a couple of comfortable chairs and a courtesy telephone. To my left is the parts counter. And there's eight guys. Now, this is Hewitt Equipment. And Bob was a wonderful guy. classy guy. A little bit of a side story. I'm out doing a physical inventory in the warehouse and I'm wearing jeans and a sweatshirt and I'm dirty and sweaty. And Bob comes out elegant in a three-piece suit and he puts his arm around my shoulder and he looks me square in the eye and says, I'm really disappointed in you. And you know the kind of guy I am. And my response to him was, yeah, me too, Bob. What's your disappointment? And you can see his whole body start to fall apart. He says, we'll talk about this later. When you get a moment, come see me. But what it gets down to is nobody really understands. They're putting the people that I call your heroes, the ones that build the relationship with your customers, the contact points. I don't care who they are. Right. It's a receptionist, a telephone person, a sales rental. I don't care. But they're the ones that build the relationship. And they're under unbelievable stress. So what I want to do, and I'm talking to all kinds of people about this, I want your personnel, your human resources, I want that on the balance sheet. And they look at me, well, how the hell would we do that? It's pretty simple. Goodness, you know how much you pay them. You know what the benefits are. Put it on the balance sheet. Well, what do you want me to do? Is it an asset or a liability? It's an asset.

So how much do you pay these guys? Let's just take a number. Let's make it easy. Let's say we pay $120,000 a year all in. It's too high, but let's use that because it makes the arithmetic easy. If my return on assets is going to be valid, then I want it to be 50%, and my assets are 10 grand on the balance sheet, and there's nothing else, then I have to generate $20,000 every month of net income. If $20,000 a month of net income is my number, and let's just say, for instance, I make 10% return on sales, which is strong, not very many dealers get there, that means that I have to sell $200,000 with that one human asset every month. That means I need to sell $2.4 million worth of product every year.

So I go down to the parts department, and... You might have a million dollars a year as a standard for a parts and service person on the counter. You might have $250,000 a year for a technician. How the hell do we get this done? Well, we don't. That's why the number of dealers is shrinking. And then let me just close it before you start. Internet's coming along. Technology's coming along. We'll get in another plane. We'll go visit 100 dealers. And I bet you we won't find two that have 20% of their parts and service sales. on the internet.

Even today?

I'm just being gentle, as I usually am, right? Or I try to be. But this whole world is so ripe for change. Artificial intelligence, it was in a blog a while back, was at a Dartmouth conference in 1954. That's 70 years ago.

And hardly anybody uses it today. I'm talking to Joseph Albright, who's getting his doctorate this spring. He's doing lecture series for us on supply chain. He teaches classes at Bradley and Indiana University. And I said, what's the student like today? He said, oh, geez, you know, they're not even smart enough to use chat GPT and understand when they submit the paper that the grammar's wrong.

We've got a problem fundamentally. We do. And so that's why I wanted to kind of get you out into the public view, because there's so few of you and because I know what you can do. And starting is a bit of a problem. I still remember that when I did it in 1980. Of course, I was 25 years younger than you are now, so I had a lot of time to make mistakes. Your medium-duty truck is a perfect example.

Well, even just local delivery, for goodness sake, is a perfect example. I designed warehouses as a consultant early in my career with the railways in Canada. And one of the trips that I was on was in Germany, was in Stuttgart at a Kodak distribution center for all of Europe, something like 1973. So it's a long time ago. And you walk in the door. of this distribution center, and the lights come on. There was nobody working there. It was all computerized. My chin hit the ground because we're looking at handing a guy a piece of paper every time an order comes in. There's three to five items on the piece of paper and say, go pick it up. And we try to customer the same, whether it's a field, a shop, a walk-in, a branch, whatever, it didn't matter. And I'm kind of taken aback. Then I go to Chicago, and I got another distribution center. And the men in the warehouse are given a full day's work when they arrive. So every item that we're supposed to pick was given to them at 8 o 'clock in the morning. And the statement was, when you finished it, you can go home. So the productive guys were leaving in five hours and the slugs were leaving at 10 hours. But the slugs could see the prize at the end of the line and they were motivated to catch up. We have none of that today, Troy. None. No.

You're absolutely right. But the other failure in that whole thing is we'll go and ask 100 people how they determine what the standard time should be for the job. And I would submit to you maybe 90% of them will say it's the average.

And a man drowned in a river of average depth of six inches. It ain't the average at all.

Now, I'm not going to, you know, one of my, my minor was statistics. I'm not going to get into heavy duty math, but what you're looking at is pick a time and then what's the standard deviation off that time? It's not average at all. No. It'll fall on your nose on average. So, you know, there's, there's so many aspects of the business that are just screaming for somebody to provide exposure. When I started in the consulting business in 1980, there was hardly anybody doing what I was doing. I called myself a rent-a-manager, and I charged the same rate as a field service technician did. So my challenge to the dealer was, you know, I can run your business better than you can, and you're going to pay me to prove it. But I'm not going to charge you more than what you charge your customers for your technicians. So they were going to be embarrassed if they were going to say no, because what the hell are they going to lose, right?

And son of a gun, the son of a, made money for me doing it that way. And he was right.

And I had one guy who was the son of a category that got canceled because he didn't want to get in the rental business, who used to have me do personality profiles for every job that he wanted me to do. And it was kind of cute because I worked in a prison and I was taught how to do those things. I did it for criminals to determine treatment patterns. Fred was the guy's name. That's all I'll go with. And he gave me this to hire me the first time. He said, you're perfect. This is great. And about a year later, he had another job. We worked seven or eight months together. And he said, you know anybody that does this? I said, well, what are you looking for? She said, well, you don't have those characteristics. So what are you looking for? He told me. I said, well, send me the questionnaire, the profile. I sent it back to him. The next thing was I got a phone call. I said, how the hell do you do that? I said, what? He said, that was a completely different profile and it fit this job perfectly. How do you do that? My answer, little flick was, I'm not just a pretty face and, you know, looking at me, it ain't true, but we have to be able to find openness. Right. And that's another aspect of leadership that's kind of interesting. We've got two assessments that we're putting on the site this week. on leadership. One is called Reflect EF, which determines are you a strategy person, are you an implementation person, are you a doer? And the other one is called a tabletop exercise, and it's are you open-minded or closed? Right. So that's six variables. And I look at everything like a sports team. The manager, the leader, never hits the field of play. They're on the sideline. And my metaphor for that is a conductor. The conductor is the only musician that has their back to the audience, to the customer.

And they're totally dependent on the people in front that have the instruments in their hands, and he doesn't have or she doesn't have one anywhere near it.

Oh, and they wouldn't know. They typically, and I don't mean this as a smack. Are you part of the problem, part of the solution? What are your pain points? What keeps you awake at night? Yeah. And then... You know, this methodology we use, you mentioned computer systems, and that's a classic. I call it paper to glass. All we've done is we've taken a piece of paper and a manual process, put it on a computer and made it happen faster.

And I always go back to what does the customer need and what does the customer want? And we don't ask those questions. So the customer calls into the parts counter and wants to order parts. And I do this all the time. or used to, I'm not on the road as I used to be, but I pick up the phone and I put it out beside the guy's ear and I said, what's that noise? And they'd look at me weird. And I said, you don't hear that noise, do you? What do you mean? Well, that's the dial tone. Do you ever pick up the phone and dial out or do you pick up the phone and there's somebody there? Oh, there's somebody there.

And then I say, well, what's the first thing you ask the customer? Well, they got to tell me who they are. And I said, Yeah, that's kind of cool. So a customer's coming into you and you ask who they are. What do you think the question is they want to ask? Well, have you got it? How much is it? So all we did is we went from paper to glass. We didn't try and figure out what the base problem was or find a solution to it. And we continue to do that and have been doing it my whole work life, which now, believe it or not, is 55 years. Right. And before long, I'll figure it out.

But you can have that conversation, Troy, with probably 80 or 90 percent of the distributors in this country, if not the world.

You know, it's remarkable. How do we know we're successful? Well, our financial statements, they come out every month. Gee, I didn't hit my goals this month. Well, that's last month. What the hell is that? You know, so now I spend my first week or two looking backwards to find out what I should have done differently that caused that problem. And I make so now I'm it's kind of like going on vacation for two weeks and nobody does your job. And you come back the first day, first week. You're catching up all of the stuff that should have been done by somebody else. It drives me crazy.

I'm going to take us off the table and into a completely different area now. In the year 2033, it's forecast that America is going to be short 3.8 million employees.

The current administration wants to bring more manufacturing back into America. That's not going to make 3.8 million. It's probably going to be 7.6 or 15 million or something else. So there's chapter A. Chapter B, the people that are going to be in the workforce in 2033 when this 3.8 million shortage are there are in grade four today.

The reading comprehension in grade four at grade level is 32% in America. The arithmetic comprehension is 37% in America. That means basically two-thirds of the people aren't even up to grade level.

Okay. We're going to be able with technology, and I'm not going to go through the iteration of all of the things, but it starts from a computer in the 40s and 50s through telematics, through GPS, through all of this stuff. We're going to be able to eliminate through technology probably 50% of the workers. But because of that education level, we don't have brain power to be able to take advantage of the work that they're going to have, the time they're going to have to be able to work in their head.

So here comes Ed Gordon, one of our contributors. We've got some very smart people that write for us. on blogs and podcasts and other things. Ed said he's got a PhD in economics and another PhD in history. One isn't enough. He's on the board of the Federal Reserve in Chicago. He teaches at Northwestern. 21 bestsellers on the New York Times. One of them was called Future Shock. In that, he said in 2030,50% of the workforce in America, that's about 75 million people. It's a little higher than that, but make that number that way. are going to be unemployable because they won't have the skills. So here's another stool. And we say, OK, we've spent hundreds of trillions of dollars in technology. How much have we spent on sociology? So what the hell is America or any society, for that matter? And America is the one that is most able because our economy is the best with the mix of what we've got with work, et cetera, et cetera, is better than any other country in the world. That is, except for China, I can force you to work or other places, not many. Right. How the hell do we get this done? And the fourth stool is, I'm 78 now. A lot of my friends are running dealerships. They're the same age. Right. They're protecting the status quo. They're making more money than they ever dreamt they would. They don't want to touch anything for fear it'll blow up. And they've held back a whole generation, the next generation of leaders, which should have a 10 or 15 year gap. They're in the industry because they're not having the opportunity. We so desperately need people like you and what you're going to do to come in and start helping us fix this. And there's enough market out there for you to call up and say, yeah, and they understand what we're talking about. 60,70% don't, but they're 30 or 40, you'll be fine. This is a really difficult time and nobody realizes it.

So that's a perfect place to end this particular podcast, Troy, because we we have to get better at our game. Yes, I'm in workforce development, adult education. I'm starting with the age of 16 and going to 76. because we're going to have to retool over our lifetime many times because of technology changes and business changes. But I think we've covered a lot of ground. Yes. Right? We've got two or three or more. We should probably plan on one of these things a month for a while, maybe for the rest of the year, because there's enough for us to be gabbing about. Sure. So I'd like to thank you, and I'd like to thank the audience for listening. This has been a long... podcast for us, but I think it's been a meaningful one. So mahalo to all of you, and, Gloria, I look forward to the next one, and to all the rest of you out there, have a great day. Mahalo. Thank you for listening to our podcast. We appreciate your support. Should you have any thoughts or comments, please don't hesitate to contact us at www. learningwithoutscars. com. The time is now. Mahalo.