Researcher says truck and trailer industry lags behind others, outlines benefits, and describes initiative involving NTEA
Apr 1, 2010 12:00 PM, By Rick Weber
DR Daniel Luria, research director for the Michigan Manufacturing Technology Center (MMTC), says he has been encouraging companies in the truck and trailer industry to participate in benchmarking because they are lagging behind those in other industries.
“Many NTEA distributors make as well as distribute, so many ‘manufacturing’ metrics apply,” he said. “If you distribute something that other companies make, you're still dealing with questions of, ‘How am I going to price it?’ ‘How do I figure out how much to mark up things I purchase from the outside?’ ‘How do I hold enough inventory to satisfy customer demand, but not so much that I have all my cash tied up?’ — which are similar questions to those who make things.”
In “Performance Benchmarking for Final-Stage Producers & Upfitters,” Luria explored an initiative between the NTEA and the Manufacturing Extension Partnership (MEP) to direct NTEA distributor members to MEP services that can help them make more money and, where it makes sense, be greener.
Step one: Work with NTEA to extend Michigan MEP's performance benchmarking to cover upfitting, service, repair, and parts distribution. Only 10 NTEA surveys have been completed so far, which he says is not nearly enough.
“It's a mystery to us why 700 or 800 companies were given this offer, but only 10 have done it so far,” he said.
Step two: To group companies with shared deficits for efficient training and consulting by the MEP program. The training would need to keep in mind the ways that truck equipment distributors are different from conventional manufacturers.
“Some upfitting does not require much, or any, manufacturing — cutting, welding, etc,” he said. “Many members live or die on service, repair, and parts sales. Less of what they do is easily amenable to offshoring. If utilization of fixed assets — ‘equipment uptime’ — is often less important, short lead times and prompt delivery may well be more essential.”
Why should NTEA companies benchmark?
Most companies have little idea of how good they are compared to other companies in their industry — and usually overestimate how good they are.
“You always get a high proportion of companies that say, ‘I think I'm pretty good,’ which makes benchmarking very difficult, because the first time you do it, we're almost sure to give companies a negative experience. Their first reaction is, ‘I don't believe this. I'm only in the 40th percentile? 60 percent of the companies are performing better? That can't be right.’ We show the data, and over time people come to accept that, and when they take actions to improve, they start making more money.”
Most companies manage based only on backward-looking financial data that tells them how they did but not what they should start doing differently.
“In most cases, there's almost nothing anybody can do next month to make those numbers improve, because financial data by definition is looking at the past. So if my earnings before interest and tax as a percent of my sales are 5%, and I'd like them to be 15%, what does EBIT tell me to do? We have to come up with metrics where we can actually see, looking at what's in the numerator and denominator, what you can do day-to-day to make those numbers get better.”
Even in the same market segments, the variance in performance is remarkably large.
“That tells you that companies that are average or below average have a lot of room for improvement.”
Poorer-performing companies pose a grave risk to their employees and communities when they decline or fail: lost jobs, pay, and tax receipts.
“Bad companies actually are a danger to good companies,” he said. “If companies don't know what they are doing and are starting to fail and in desperation are going to quote low in order to win business, that drives down prices across your industry. So you find yourself having to quote below your true costs in order to keep work — or your are forced to go after sales in unfamiliar market segments. There are companies that are beyond saving. Most of those companies intuitively know it at some level and are not going to invest much in improving their performance. These are companies that are not going to be interested in benchmarking. But if you have an intuition you are an average-performing company and want to get much better, benchmarking can give you the performance levels you should be striving for.”
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