Dave Baiocchi headshot Dave Baiocchi

Operating from a vacant lot

As we bring 2021 to a close, we are just beginning to ascertain the new realities of a changing workforce and economy.  A pandemic we all believed would be firmly in the rear-view mirror by the summer of 2021 has continued to infect not only our populace, but also our workforce, our corporate policies, and our economic outlook for the foreseeable future. Although some would argue with me, this author believes that the ongoing responses to the pandemic have become less about the science of eradication and therapeutics, and more about political control over private enterprise, public education, and basic personal freedoms.

No, this article will not be a political argument on either side of the ideological spectrum.  There will always be a cacophony of noise created by the 24/7, social media-driven news cycle.  Behind this noise, however, there appear to be more permanent and serious ramifications linking the effects of the pandemic to developing demographic, societal, and educational realities that pose an existential threat to the distribution status quo.  We need to forecast what this means to us on a regional basis, and what preparations we need to make to insulate our business from the coming storms. (Yes, there will be more than one).   I want to address some of the most urgent challenges both this month and in the January edition and suggest ways that we can establish defensive measures that will actually strengthen our hand, and prepare us for the realities of the ’20s and beyond.

Supply Chain Hell

As I write this, there are hundreds of container ships anchored offshore and in bays and harbors, anxiously awaiting their turn to offload their cargo in the United States.  There are several reasons for the backlog.

First, there is the continued surge of shipping volume created by the shift to online ordering.  Fueled by the pandemic, the shift to online ordering continues to bring more products from offshore markets.  This additional volume clogs an already crowded supply chain infrastructure.

Second, there is a severe shortage of truck drivers to take those containers out of the ports.  This shortage can be partially blamed on pandemic mandates, as drivers that refuse to accept the vaccine, are being furloughed.  The pandemic also incentivized aging drivers to retire.  New drivers replacing the retirees cannot get licensed as DMV’s have all experienced extended periods of pandemic-related closures and limited operations.

It’s no secret that nearly everything is in short supply, and prices are increasing exponentially.   It’s not just groceries and Christmas gifts either.  Steel, electrical parts, tires, and other components to manufacture equipment are also unavailable.  For decades, we have been able to count on stable lead times for new equipment of 12-16 weeks.  Presently, I haven’t talked to one dealer that has a confirmed lead time of fewer than 9 months, with most over 12 months, and even that, is subject to change.

So, how do we respond to the absence of new equipment in the marketplace?  How do we prepare our customers for extended lead times?  How do we survive in the meantime?  As a distributor, there are certain things you must have to be able to remain solvent.  Product is one of those things.  You cannot issue invoices for products you cannot deliver.  It’s difficult to represent your capabilities from a vacant lot.  We have no control over the absence of new products arriving from the OEM.  So, we need to focus on areas where we do have control.

Rental Fleet Recalibration

Having been a rental manager as well as a dealer principal, I fully understand the well-accepted and proven “best practices” of a properly executed rental accounting cycle.  We put units into service in our rental fleet every year with certain expectations of how long they will remain in rental service before they are considered for retirement and remarketing as used equipment.

In most cases, this period is from as little as 30 months to as long as 5 years.  Many factors go into calculating optimum rental fleet cycles. These factors include rental utilization, costs for maintenance and repair, borrowing costs, and seasonal considerations.

Desperate times, however, call for desperate measures.  No matter what our rental accounting expectations may have been in the past, the rental fleet is inventory under the dealer’s control.  Accessing at least a portion of that inventory early to aid in filling the 9–12-month hole in the supply chain will help us keep our long-term customers.

My advice is to deploy these assets strategically.  Find opportunities to provide incentives to customers to extend existing contracts well past the supply chain interruption.  Use late model rental units to supplant units with high maintenance costs.  Purchase units from the lease provider well before expiration, and then extend the contract as needed.  Preserve your customers, and keep looking forward.  Nobody will have ample inventory so there is a mitigated risk of addressing this head-on with the customer.  Make your customer part of the strategic plan.

We can argue all day long about how hard this will be.  One thing remains clear. What we currently OWN, is all we have to work with.  Deploy it carefully and strategically.

Bolstering Service

When customers can’t buy equipment, we must expect that the need for maintenance and repair will be on the increase.  My contention is that the dealer offerings in the service department are far too thin to be effective in the coming year.

Most dealers offer a PM program or a full maintenance program with very little middle ground.  System maintenance for transmissions, hydraulic systems, brake systems, and engine maintenance are routinely ignored unless it is actively managed.  The vast majority of dealer service departments have maintenance programs that are wrapped solely around PM completion (with some segment 2 repairs).

The fact remains that a planned maintenance service only replaces the engine oil and provides lubrication.  In order to properly care for customers that may be pushing their equipment past its economic life, we have to create expanded and comprehensive programs that address every system.  RDS has helped many dealers create these offerings.  Now more than ever it is imperative that we have these solutions in place, and ready to deploy.

Nobody wants to work!

I already know what you’re thinking.   How in the world can we develop and offer expanded maintenance programs when I can’t even find anyone qualified to turn a wrench?  I get it.  This is part- two of this discussion.  Labor shortages have been an insidiously growing problem for far longer than the pandemic has been with us.  We have all “gotten by”, by stealing techs from the competition, or by creating “homegrown” development and training solutions.  As of now…. we are at critical mass.   There are actually two forces at play that will only make the labor shortage more acute as we move forward.

The first is outlined in the book “The Fourth Industrial Revolution by Klaus Schwab.  In the book, the author details the changes that will take place in the short-term future as AI and digital tools replace human interaction.  The book deals with the subject matter on a macro-economic basis with valid concerns about cyber security, encryption, and geopolitical control of data at the highest levels.  The future realities suggested, however, also apply to circumstances more salient to dealership operations.  Is our technology sufficient?  Will employees want to work for us if we don’t have the proper digital tools? Will customers buy from us, if we don’t offer a minimum level of digital sophistication?

The second force at play is connected with the first.  It’s commonly referred to as “Job Shock”.  Garry Bartecki, my friend and colleague has referenced this on multiple occasions (in this publication) and suggested that readers follow ongoing content on the subject as published by Edward Gordon of Imperial Consulting.  You can read these articles on www.MHWmag.com by searching Job Shock.

Simply put…Job Shock is shorthand for the issue of not having a labor pool with the right talent, the right education, or the right motivation.  Like it or not, most relevant employment in the future will be inextricably tied to education in science, technology, engineering, and mathematics (STEM).  Low-wage – lower-paying jobs will be replaced by (4th Industrial Revolution) technology.   For decades the United States educational system has operated secondary educational institutions that were more concerned with social promotion than learning.  Testing has been sacrificed on the altar of “equity”.  Thousands of freshmen invest the first year of their college experience in remedial courses.  The needs of the 21st-century economy will not be satiated by those earning degrees in gender studies, art history, and rhetoric.

The pandemic only magnified these imbalances, and we see it in all of its stark reality.  If nobody is willing to flip burgers for $18 an hour, how are we ever going to fill our service vans with qualified employees?

We need new ideas and fresh incentives to not only bolster our offerings but bolster our ranks as well.  Next month, I will suggest some initiatives that may help in filling these vacancies.

Until then…. buckle up, it’s going to be a bumpy ride.

About the Author:

Dave Baiocchi is the president of Resonant Dealer Services LLC.  He has spent 39 years in the equipment business as a sales manager, aftermarket director, and dealer principal.  Dave now consults with dealerships nationwide to establish and enhance best practices, especially in the area of aftermarket development and performance.  E-mail editorial@mhwmag.com to contact Dave.

Author: Dave Baiocchi

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