Garry Bartecki Distribution headwinds
Improve productivity and reduce costs. Those are the deliverables promised my just about 100% of the ads you read regarding both warehouse space and manufacturing floors. The scary part is that these rewards result from robotics, a lower headcount, and a specific claim to reduce equipment Cap X by $200000 to $400000. Great results for the distribution centers and manufacturers, but not so great for the material handling dealers since those references to Cap-X spend probably represent what you are selling and renting, selling parts for and providing maintenance on.
If the distribution technology potential improvements are not enough to deal with, you now have the national retail entities offering distribution and delivery services for goods they did not sell. I had to study this for a bit, but it does make sense if a distributor wants to expand their warehouse locations to be closer to their customers, or just looking for a way to simplify their product delivery.
Amazon and Walmart are two of the national companies that move products to just about every city in the country. So why not add other goods to their delivery trucks to stock a local warehouse or deliver the product to the end user.
As of today, Amazon is just providing this service for companies selling products via Amazon. It is expected they will expand to non-sellers if this initial venture proves to be profitable.
Walmart will provide the service for any vendor where it makes sense to do so.
When you think about it these programs make sense if the seller’s goal is to improve logistics problems, allowing faster delivery times for less cost. A win-win.
Again, I would like to consider the impact of this type of program on the material handling business. And again, I arrive at potential negative impact.
Inventories currently stored, in a facility you now provide equipment and support to, may now be moved out of your territory or placed into a facility you do not do business with
Inventories may be relocated to various locations across the country where you do not do business.
New business coming into your territory may be under an Amazon or Walmart contract where they provide the material handling services.
I can see this type of service expanding at the expense of your bottom line.
Let’s face it, manufacturers and distributors want to sell and deliver faster, and will use methods to achieve those goals because when compared to their current process it costs less and adds to customer satisfaction.
The point here is the demand for material handling services in your territory could decline because the robots are moving and counting the inventory, or building product in a robotic production line, or because there is less inventory to work with because it has been moved out of the territory.
So how does Material Handling Management deal with this situation?
- Be a source for the technological improvements distributors and manufacturers need.
- Be a resource to maintain the new systems being installed.
- Partner up with independent professionals who can help prepare a plan of action and system selection.
- Educate customers about potential changes needed to remain competitive.
- Outsource to get what you need to put this plan into place.
Let’s assume these changes will take place. What else do you need to remain profitable and competitive?
- Prepare a budget reflecting slower unit sales and adjustments for parts and service.
- Add new revenue sources once you have a plan in place to offer new services.
- Find and implement technology to reduce headcount and reduce costs.
- Further tune the budget to where GP margin can cover expenses, interest and taxes.
- Use these new metrics to become more competitive in your region.
- Add new business.
- Make customers want to work with YOU!
I have this type of conversation with dealers and rental companies on a regular basis. Most of the time the discussion revolves around exit planning, be it current or five- years off. What I tell them is do it NOW if they are a current seller, before the —- hits the fan and you have a 10-year window before values improve to where they are today. If they want to stay another five years, I suggest they will have to make the improvements mentioned above to keep the value up, and if they can’t stomach the aggravation and cost, to execute the exit as soon as possible, because the alternative is the risk of lower values even though the technology improvements were made to stay competitive. Maybe there is something in between where you can get some money off the table and remain on board to help the company move forward.
None of this is easy to deal with. But industries go through cycles, with a need to make major adjustments to generate adequate free cash flow that covers the nut. But to try and push these changes through just working with your current personnel is very questionable. This is why I suggest outsourcing to determine the changes required, the solutions available and the time and cost to make conversions.
About the Columnist:
Garry Bartecki is a CPA MBA with GB Financial Services LLC and a Wholesaler columnist since August 1993. E-mail [email protected] to contact Garry.
