Companies should use this painful recessionary period to reassess their operations, adjust, and adapt.
“It's a great time to seize the opportunity — that opportunity to be able to sit back and say, ‘OK, now what do I need to get my company to where we need to be two, five, 10 years from now?’ ” said Moh Hayatou, managing partner of MHS Partners, a global boutique management advisory firm that assists businesses in improving sales productivity and global-market entry. “It almost forces you to plan. Those who redefine themselves tend to come out stronger and bigger and stick around for much longer.”
Hayatou presented “Truck Equipment Industry: The Road to Business Recovery,” drawing on an analysis of two ground-breaking National Truck Equipment Association (NTEA) reports: “North American Truck Equipment Industry Outlook and Strategy Report,” which was finished in 2007 and takes a look at macroeconomic forces impacting the industry today; and “Profitability, Cost, and Technology Playbook,” which was finished last summer and helps to link global trends into deployable opportunities and tactics for companies.
“Relationships are not what they used to be,” he said. “It used to be a pretty straightforward process. Now everybody's working with everybody. What's driving this is that the industry is consolidating and become driven by cost and competition to the point where everybody in the value chain is trying to directly touch the end user. The end user has become more informed, larger, and more powerful.
“You have chassis manufacturers driving sales as opposed to just taking care of producing the chassis themselves. Manufacturers are doing more than just manufacturing equipment — they upfit trucks, drive sales, sell equipment. With truck dealers, same thing.”
He described the impact of changes in value-chain relationships in the truck-equipment industry.
“There's downward pressure on small and mid-sized truck-equipment distributors and manufacturers,” he said. “Customers are getting larger. Equipment manufacturers are getting larger and more integrated and becoming more competitive. Then there's pressure coming from market dynamics that are not necessarily part of the value chain: technology adoption, human capital and labor issues, and regulation legislation.
“On the back side, there are mergers and acquisitions, with bottom feeders moving in to acquire small to mid-size distributors and manufacturers. As a consequence of all of that, we're left with two decisions: strategically embrace change or tactically react to change incrementally. Where are we going to be two, three, five years from now, and what do we need to do to make sure we're still here two, three, five years from now?”
Regulatory pressure
Hayatou presented an issue prioritization matrix, saying the following have a high probable impact on the industry: intense regulatory pressure and technology innovation; shortage of qualified labor; and consolidation.
And these could have a medium impact: small- and medium-size distributors losing their ability to compete in the mid to high end of the market; and end-user consolidation is likely to continue to drive industry structure.
“The customer now is impatient,” he said. “That forces the traditional supplier to adjust.
“Truck-equipment industry players are doing more. Industry consolidation has led to a blurring of the lines in the roles and responsibilities in the value chain. The question to ask: Can distributors and manufacturers of various sizes afford not to change their roles and responsibilities and how are they doing so?
“Competitive rivalry is intensifying. Revenue growth is driven by aggressive price-cutting and major concessions to the customers. The question to ask: Is a growth strategy solely based on price-cutting sustainable? What other strategies does the industry use for long-term sustainable growth?
“Economic conditions are shrinking the pool of opportunity. More customers are cutting back on work-truck purchases. The questions to ask: How are companies reacting to customers cutting back? What are the short- and medium-term impacts, and how do companies cope?”
He said there are six key trends affecting the industry in terms of evaluating future opportunities and threats:
- Globalization
“What opportunities does it create? Are there markets we can go after? It could be export sales, licensing, strategic alliances. Then there's the sourcing strategy. We've seen how the fluctuations in prices are altered by global factors. Not just the US economy. So how do we globally find an efficient source to get product for a lower cost and try to get it there faster? Outsourcing is something we've seen.”
- Consolidation
“Truck-equipment manufacturers are buying other truck-equipment manufacturers or distributors. Or vice versa.”
- Standardization
“This is important because it's driving a lot of pools and shipthroughs.”
- Regulation.
- Technology.
- Labor and human capital.
“Truck chassis manufacturers are affected to a high degree by everything except labor,” he said. “Truck dealers are affected to a high degree by consolidation, standardization, and technology. Truck-equipment manufacturers are affected to a high degree by consolidation, standardization, technology, and labor. Distributors/upfitters are affected to a high degree by consolidation, standardization, regulation, technology, and labor. And end users primarily by technology.”
He said the industry is highly fragmented and mature, forcing consolidation. In order to compete, distributors and manufacturers are forging synergistic strategic alliances.
Push to innovate
Innovation is being forced by pressing customer requirements for more efficient products. Manufacturers and distributors are increasingly investing in technology, equipment, and talent.
“An interesting story I've heard many times over is that customers are involving themselves in the process of specifying the technical aspects of the truck and to some extent the material used to build the truck,” he said. “They're pushing suppliers to look at it in a way they've never done before to innovate and make them more energy efficient.”
The “carbon footprint” of the final truck product and related services has become a key purchase factor. OEMs, distributors and manufacturers are increasingly seeking to incorporate green initiatives.
Global supply-chain management and sourcing are critical success factors. Distributors and manufacturers are streamlining supply-chain activities and leveraging various technologies.
OEMs have been experiencing dramatic disruptions in truck-chassis production.
“So the industry is, for better or worse, married to OEMs,” he said. “I'm sure it's keeping some of you up nights, but that's just the reality. This is an industry close to $40 billion, excluding chassis. So these guys can't afford not to be in there. It's creating stomach aches and is very volatile, but it's not going to go away.”
Describing market conditions for customers, he said:
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The industrial market (fleets, municipals, etc) is strong.
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Customers are spending more on parts and services. “It's a consequence of customers cutting back on purchasing new trucks. It's an area that is profitable in this environment.”
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Customers' expectations for quality are higher. “I was just amazed by how much they know about the truck-equipment industry. The implication there is that you can't sell to them if you don't speak at the same level. If you're not a master at what you do, it's going to be extremely difficult.”
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Customers are moving from buying to leasing trucks.
The market conditions for competitors:
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The competition has intensified around price and product features.
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Manufacturers and distributors stock more inventories to satisfy customer demands.
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The focus is on building customer loyalty and gaining share. “If you do your homework, they will buy.”
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Competition from national providers has intensified for the local distributors.
The market conditions for technology:
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There is no common hybrid or alternative fuels strategy.
Small companies generally lack resources to be up- to-date on technology.
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Technology has outpaced several distributors' and manufacturers' ability to adapt. “It's almost as if with every new day, the sun brings a new technological challenge. It could be anywhere from technology within your product or related to a process or technology training. A lot of companies are lagging behind.”
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Technology adoption is driven by customers, OEMs, dealers, and manufacturers.
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Distributors and manufacturers with no CRM (customer relations management) technologies could be at a disadvantage.
The market conditions for cost structure:
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Rising fuel prices affect various aspects of TEI players.
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Material cost has increased dramatically.
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Distributors and manufacturers increasingly have to contend with inventory costs.
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Other rising overhead costs include insurance and compliance costs.
To deal with margin pressures, he gave these suggestions:
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Propose solutions that fit the customer environment. “Private fleets are willing to pay a premium. Pursue customers seeking custom products.”
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Work collaboratively with customers to reduce costs. “Focus on fleets and collaborate on reducing their costs. Review specifications and assess how the cost of the body can be reduced.”
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Continuously assess customers' preferences. “Anticipate and adjust to changing customer preferences. Implement e-commerce.”
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Be more selective on the customer being served. “Lifetime value of customers becomes critical. How much is an account worth over the lifetime of the business?”
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Develop technical expertise. “Distributors should become the technical experts for the fleets. Fleet management expect it.”