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Dealing with dealers

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August 1, 2013 by Jim Barnes

Not much is static in the world of construction contracting, says Ron Slee, president of consulting firm R.J. Slee & Associates, Rancho Mirage, Calif. A welter of challenges in technology, the economy, human resources and business practices are leading contractors and equipment dealers into unconventional alliances.

“There is no question that the sophistication and complexity of modern equipment is an overriding driver in terms of the customer’s dependency on the dealer,” says Gary Agnew, vice-president, Customer Solutions, Finning Canada, Edmonton, Alta.

Contractors look to advanced machine technology to get an edge. For example, “when you look at machine control and guidance systems, a customer can get a 40 per cent improvement in productivity by using that technology,” says Agnew. The catch? “That growing complexity can take the customer out of his or her comfort zone. They are increasingly looking to the OEM/dealer for support in those areas.”

While it has made the machine more complex, technology has boosted the dealer’s ability to support the machine. Telematics, for example, enables the dealer to keep tabs on the condition and location of every machine in a fleet.
“The owner doesn’t have to do anything,” explains Rich Frontain, vice-president of product support, Brandt Tractor, Regina, Sask., not even an oil change. “We’ll go out and do the work after hours, when the machine is down,” says Frontain. The owner only finds out about it when he arrives in the morning to find a tag on the steering wheel saying the oil has been changed.

“We are using in-house technical capability to predict failures before they happen,” says Agnew. The goal is preventing downtime.

“Invariably, that’s a less-expensive alternative than repairing the machine after a catastrophic failure.”

Targeting waste
Fleets are shrinking as machines gain capacity and capability. Fewer machines can do the same work, but that means there is less slack in the system. “Where a contractor might have had 100 machines in his fleet in 1980, he might have had 90 in 2000 and 70 in 2010,” says Slee.

Tight business conditions mean most contractors do not want the once-popular “spare” machine sitting on their lots for parts or to cover excess workloads. “Those days are done… Since 2008, we have seen a much harder drive for the customer to have modern, mechanically sound, high-producing, fuel-efficient machines in the fleet. They’re trying to take the waste out of the system,” says Frontain.

That means downtime is a bigger risk. With a smaller number of highly productive machines, losing one to a breakdown can be a major problem.

Dealers are trying to make their operations leaner, too. “All the enhancements made to construction equipment—the new materials, the advanced manufacturing methods, the electronics—have not improved the profit margin on the machine. At best, it has remained the same,” says Slee.

“We started to look at what we spent our time doing as a shop,” says Frontain. All the mechanics were working hard, but the dealer wanted to find out what they were actually working on. “We realized we weren’t always working on the things that meant the greatest value for the customer,” he says.

Up until about 2006, the dealer had its local branches do pre-delivery work on equipment. “Some of those pre-deliveries are
extensive—they can take 40 or 50 man-hours to do. It can really tie up a lot of a shop’s time,” says Frontain.
Brandt decided to create a centralized pre-delivery facility in Regina that processes about 2,500 machines a year. “It frees up all that time in our shops for customer service,” says Frontain.

The slow death of DIY
The conventional wisdom among many contractors used to be that dealer service was expensive and you could save money by doing maintenance with your own mechanic. A few problems have emerged with that model,
according to Slee.

Skilled mechanics are in very short supply.
A dealer mechanic can turn around a job faster that one who does not have access to specialized information about the machines.

The dealerships’ mechanics have access to specialized analysis equipment.

“The contractor mechanics don’t do nearly as good a job as the dealer-trained service technician, nor do they work to the same standard of repair,” says Slee.

Two changes contributed to reductions in the numbers of contractor mechanics.

After the recession, some contractors started looking at the costs of recruiting and keeping mechanics on staff with a more skeptical eye. At about the same time, the equipment that started to come out—especially with the interim Tier-4 engines—was not easy for contractors to maintain themselves. And equipment is not going to be getting any
simpler in the future.

“Some of the older guys still have their own mechanics. They still think they can do it on their own. I think they’re going to learn very quickly that they can’t, once they start to buy modern technology,” says Frontain. They might be able to fix simple mechanical problems on a machine, replacing buckets and pulling pins, but the challenge of fully maintaining a modern machine is beyond most of them.

Are there savings in DIY maintenance? If it takes your mechanic a day to fix a
machine where the dealer—with access to detailed machine data, diagnostic equipment, specialized tooling and parts—might have done it in three hours, the real cost might be about the same. Add to that the
other costs of downtime, including possible penalties. Then, consider that the dealer might have been be able to eliminate the downtime altogether.

Some contractors “think they have core competency in fixing equipment. They have been around equipment their whole lives. They’re not afraid to get under the machine and get greasy,” says Frontain. “The bottom line is why would you if you don’t have to? The dealer will take care of everything and it’s all built into the price of the machine.”

Frontain offers Brandt itself as an example of focusing on core competency. The firm runs a fleet of more than 300 service vehicles, purchased with a three-year extended warranty and a three-year maintenance plan, explains Frontain.

His service managers voiced some concern when he first explained that he wanted the supplier to service the vehicles. They would say, “You mean I have to take it to the truck dealer every time I want an oil change? I can do it right here in the shop.” Frontain told them he did not want Brandt’s mechanics working on its trucks. “That’s not our core competency. It’s not worth it; it’s not what we do. We want our mechanics to spend their time fixing customers’ machines.”

Sound strategy
“Particularly since the recession started, we are seeing customers focusing more on their core businesses. Increasingly, where activities are not core to them, they are looking for partners like us to play a bigger role in supporting those activities,” says Agnew.

The smart dealer and the smart contractor are coming to realize that self-interest is limiting them. They need to work together in joint interest, says Slee. “We have to find a way where we can both make money if we’re going to be here for another 20, 30 or 40 years.”

Perhaps it is a far-fetched idea, but “If every operator of a machine was a dealer employee—dealer-trained and dealer-managed—I suspect that the volume of parts and service consumption per operating hour would drop by between a quarter and a half,”
says Slee.

The experts we interviewed all emphasized that this kind of partnership has to be assessed in terms of life-cycle costs. By failing to take into account the numerous ongoing risks in equipment ownership and focusing exclusively on the purchase price, buying the cheapest machine could turn out to be the most expensive alternative—long-term.

“Our role is to get the customers to understand that cost-per-hour, cost-per-ton proposition throughout the lifecycle,” says Agnew. “We are the experts, simply because we spent heavily and spend our whole working lives focused on developing our capabilities around equipment. It’s important that we play an
educational role.”

The new partnerships are win/win/win for the manufacturers, dealers and contractors. “The integration of information from the customer through the dealer and OEM is absolutely critical,” says Agnew. “The consolidation of global information on product performance helps in the design of new products, facilitates predictive repairs and helps makes the customer more successful.”

The shape of things to come
As these changes accelerate, it seems likely that a variety of customer-support programs will be consolidated into comprehensive and integrated customer support. “Rather than participating in five or six separate programs with us, I see further integration into a single solution that involves a guaranteed performance level focusing more on lifecycle costs… We manage all the complexity,” says Agnew.

In that sense, the dealer will become a true partner with the customer, rather than just a supplier. The dealer will be as committed to keeping his machines running as the contractor is, according to Agnew.

“For me, it’s a pretty exciting time. It is not just about selling or fixing machines anymore. It is about eliminating downtime and improving production throughput. We are at the stage where there is some good early adoption. Some customers are migrating from their traditional management practices,” says Agnew.

The new paradigm is a work in progress. “It’s not a fully mature relationship yet—it is very much in the early stages. But it’s absolutely critical for everyone’s success,” says Slee.

“The relationship between the dealer and the contractor is about to change. It is about to be transformed radically. The ones that are open to this change are going to be very successful. And those that are not might be putting their business at risk. It has to be partnerships,” says Slee. “I don’t see any other way for people to survive this. There’s just too much at risk.”

Jim Barnes is On-Site’s contributing editor. Send comments to eidtor@on-sitemag.com.

Local concerns
You do not have to be a large-scale dealer to read the writing on the wall. Dealers like G.F. Preston Sales and Service Ltd., Sundridge Ont. are seeing the same trends, says Luke Preston, general manager.

The firm covers a large area in Ontario. Preston says it is quite easy for customers to find service in their local neighborhoods. However, many prefer to come to Preston because of the quality of the service. “The factory-trained mechanics are much more knowledgeable about our product lines,” says Preston. “As the machine gets more complicated, it’s harder for the customers to work on them themselves, so strong warranty becomes more important.”

Ongoing service programs that strengthen the dealer-to-customer connection are very important, he says. “Service can be
supplied through a service subscription. Once the customer buys into it, they don’t have to worry about anything.”

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