Distribution Specialists to the Machinery Industry
April 2010
To: Presidents and CEOs of Specialized Farm Equipment Manufacturers
Subject: Your Distribution Strategy for the New Millennium
Why you should participate in this multi-client study
Specialized manufacturers face serious threats to the traditional way they sell and support their equipment through full-line farm equipment dealers. We can determine the impact of these threats on your distribution, and to examine alternative ways to reach your customers and prospects. We are prepared to recommend a distribution strategy specific for your company that we call “Distribution for the New Millennium”.
Now is the time for companies like yours to review how you distribute because of:
- • the threat of losing your existing dealers,
- • the current economic down-turn,
- • increasing global competition, and
- • the long-term strong demand for farm equipment.
Examining and adjusting your distribution strategy for the future will allow you to take full advantage of the future demand and lower your risks. Given trends of large farm equipment dealers and full-line manufacturers, unless specialized farm equipment manufacturers adjust to the significant changes in the environment, their future growth may be threatened.
Our comprehensive approach can be expensive for small and mid-size companies which is why we propose a multi-client study that lowers your cost to only $10,000 and increases the value to participating companies. This proposal is divided into the following sections.
a) Trends affecting Specialized Farm Equipment Manufacturers
b) Consequences of these trends on the traditional dealer distribution system
c) The Proposal (Goal, Approach, Deliverables)
d) Pricing, Timing and Terms
e) Professional Qualifications
A) Trends affecting Specialized Equipment distribution
Several trends affect suppliers to agriculture; the most fundamental of which are the consolidation of farms and growth of small farms.
The 2007 US and 2006 Canadian Censuses of Agriculture confirm the long-term decline in the number of mid-sized farmers and increasing concentration and sophistication of larger farmers. Today, 60% of the farm revenue is generated by the only 63,000 farms in North America who generate $1 million or more annually, less than 2% of the total !!
A big surprise is the increasing number of small farmers (less than 50 acres) which are primarily rural lifestylers. Their numbers increased by 125,000.
Specialized Manufacturers are significantly affected by the growth and distribution control strategies of major, multi-national manufacturers. In the last ten years, these companies have grown by consolidating companies and dealers, multiple branding, broadening their product lines, and increasing purity efforts at the dealer level.
CNH Global has acquired several specialized manufacturers while maintaining the Case IH and New Holland brands. Just recently they added the Work EZ ‘generic’ brand of specialized implements. The specialized equipment companies acquired by CNH in the last 10 years, include, in North America; Concord, DMI, Flexicoil, Tyler, and in Europe; Steyr, Fortschritt, and GEM.
The AGCO brands acquired are almost too numerous to mention but include Sunflower, Tye, Glencoe, Farmhand, Ag-Chem, Spra-Coupe, Willmar, Hesston, White, Fendt, and Dronningburg. AGCO markets their specialized products across two or more tiers of brands – AGCO at the low end (to end in 2011), Massey Ferguson in the middle and Challenger at the high end.
John Deere has also acquired several specialized companies (Comeco in sugar cane and LUSCO in landscaping) and developed the new Frontier brand which is a direct threat to specialized equipment manufacturers who desire to sell through Deere dealers. Frontier has a broad and growing product line that currently includes; Hay & Forage, Landscape, Loader Attachments, Manure Spreaders, Mowing, Seeding, Snowblowers and Snow Attachments, Tillage, and Trailer Equipment
Many of the acquisitions as well as the Frontier (JD) and Work EZ (CNH) brands extend the product range of the Majors into product niches of Specialized Manufacturers. In some cases, the new products are in categories which were pioneered by the Specialized Manufacturers (examples: DMI for conservation tillage, Concord and Flexicoil for air seeders)
We are seeing a rapid consolidation of farm equipment dealers driven by the overall reduction in the number of farmers and the increasing size and sophistication of machinery.
The 162 dealers who have five or more locations (see list attached) now represent almost 20% of the number of outlets and approximately 25% of the farm equipment volume. As these ‘mega dealers’ continue to grow, many will continue to drop the products of Specialized Manufacturers, either because of their desire to reduce their complexity by focusing on fewer products over a wider area, and/or because their ‘Anchor Brand’ / Major Manufacturers force competing product lines to be dropped as a condition of approving expansion.
The expanding product range of the Major Manufacturers is part of their ‘purity’ initiatives because, with comparable products they can pressure dealers to drop directly competitive lines.
An important trend is the dealer associations’ efforts to restrict the manufacturer’s ability to manage dealers.
In several states, legislation has been introduced which limits the flexibility to cancel dealers or which increase the cost of doing so (example: buy back provisions). In many cases, this movement is aimed at the consolidation and dealer development actions of Major Manufacturers; the different needs and circumstances of Specialized Manufacturers are often not considered.
With globalization, Specialized Manufacturers face increasing competition. Manufacturers from Europe and East Asia see the large North American market as a huge opportunity. Their products may compete directly or may represent new product categories.
Examples of European based companies who have expanded into North America range from well established, long term players like Claas, Kverneland, Krone, and Monosem to more recent entrants like Horsch and Lemken. From East Asia, in addition to Kubota and Yanmar, more recent entrants include Foton (China), Mahindra (India) and Kioti (Korea).
Like farmers, dealers have learned to better manage their assets and operate with lower inventories, especially during business down cycles. This action forces the manufacturer to carry more inventory themselves. This trend affects both Major and Specialized Manufacturers but the burden is more on the latter. This implies a reduced value of the distribution system to the manufacturer.
Finally, larger and more technically sophisticated equipment requires increased dealer investment in people and facilities for assembly and support. Where dealers cannot invest adequately, they will focus on fewer product lines. This often leaves a Specialized Manufacturer to find another dealer.
B) Consequences of Trends to Specialized Manufacturer Distribution
There are several significant consequences of these trends.
First is that the traditional distribution model for Specialized Manufacturers is changing and under threat.
The traditional system is for the Specialized Manufacturer to recruit the best available dealer of a tractor brand in a trade center.
Now, because there are fewer tractor dealers available in total, and within a trade area, the choices are more limited. Plus it is more difficult to recruit or retain major tractor dealers for distribution.
Given more and more restrictive dealer contract laws, it is expensive for manufacturers to ‘fight’ Dealers Associations.
Finally, as a Specialized Manufacturer you need to anticipate changing trends, and to have considered and decided on alternative distribution models before they negatively affect your business. All of these consequences are more threatening when the business is in a down-cycle.
C) Proposal
We propose to recommend a distribution direction for the future starting with a ‘White Paper‘ that fully analyzes the effects of all trends above, considers all possible alternative distribution models, and then recommends a direction specific to your company.
Because this approach is extensive, and because of the diversity of needs of various Specialized Equipment manufacturers, we propose that this project be commissioned by subscription. Each subscriber would receive recommendations specific to their needs in addition to the general generic recommendations.
The topics of the New Millennium Distribution Strategy White Paper will be:
- An analysis of the value added and costs of the traditional distribution system.
- An example will be the inventory carrying cost versus time to delivery depending on whether the dealer or the manufacturer is stocking.
- Another example is the way the Internet changes customer information gathering and factory contact.
- Forecast of the number of dealers who are available for a traditional distribution model.
- This number will continue to shrink through economic pressures, more mega-dealers and the purity efforts of the Majors.
- Review distribution models including but not limited to:
- Maintaining Traditional ‘Best in Trade Area’ Model
- Separate Specialized Products only dealers
- “Bird Dog” or Selling Commissions to Manufacturer representatives
- Dedicated sales force with direct to customer delivery and installation.
- Co-marketing. This could mean distribution to all dealers of the same brand in the same area. For example, to sell to AGCO Challenger dealers on the West Coast. This approach could also work with some of the mega-dealers.
The key deliverable is a recommendation of the best future distribution direction both in general and for each subscribed company – a recommendation specific to that company.
Included with the recommendations is a SWAT analysis of each distribution alternative considered and the data that supports the conclusions.
D) Price, Timing and Terms
Please call or email us for specific pricing and terms.
We have proposed that FEMA, as an association, also participate in this study, and if approved would lower the cost to individual subscribers. We are approaching AEM members also.
For all projects, travel and incidental expenses would be added. We ask for 50% upon your approval of a project with the balance due within 30 days of completion of a project.
We are prepared to begin these programs within 30 days of your approval and after receiving the approval of the fourth company. The analysis could take up to three months depending on the number of subscribers.
E) Professional Qualifications
Currie Management Consultants, Inc. is uniquely qualified to assist Specialized Equipment Manufacturers because of our experience, insights and focus as ‘Distribution Specialists to the Machinery Industry’.
For more than 30 years, Currie Management Consultants has worked for both manufacturers of capital equipment and their dealers. We understand the difference in perspective of a manufacturer and of a dealer, and how the two must be reconciled to create profitable, long-term relationships for both.
We operate in nine different sectors of the capital equipment industry including farm and construction equipment, and therefore can take best practices from one industry to another.
Personally, I can speak from experience about Major Full-Line Brand dealers and Specialized Products because of the previous work I’ve done.
- Vice President of Dealer Development for Case IH.
- A global position that I led for several years after the merger between Case and New Holland. We developed programs to upgrade or replace dealers, including a global dealer standards program.
- Product and Marketing Director for Ag Systems.
- During my career I’ve been Product Director for all ag product lines (Large & Small Tractors, Combines/Cotton Harvesting, Ag Systems).
- When responsible for Ag Systems (Hay and Forage, Tillage, Planting and Seeding), I was also responsible for Marketing so I learned to understand product design and application, distribution and changing customer needs for specialized equipment who were key competitors.
- I was heavily involved in the acquisitions & integration of Specialized Manufacturers. These included Concord (air drills), DMI (tillage), Flexicoil (tillage and air drills), GEM Sprayers (UK), and Forschritt (Germany hay).
- Field Sales Management, which included dealers’ recruitment and development.
- VP, Case Construction, Europe, Africa, Middle East, CIS
- VP, Case Construction, Southeast Asia, Australia, New Zealand
- Region Sales Manager, Case IH, Illinois and Wisconsin
- Area Sales Manager, IHC, Maryland, Virginia and Delaware
The attached brochure describes our capabilities which include Distribution/Dealer Development, Business Performance Review, Financial Modeling, and Performance Management, as well as a long list of seminars and workshops on various business topics.
There are significant references of our work on our website. Those references show our concentration on dealers as a channel of distribution for industrial products for major manufacturers in the U.S. and globally.
We are pleased to submit this proposal because we believe that it is wise to anticipate significant changes to distribution with the down-cycle of the farming business and to prepare your companies to thrive in the next good times.
We expect that you will have questions or comments about these proposals. I am prepared to answer any questions by phone, conference call or in person at the FEMA Spring Clinic in KC.
Sincerely,
George Russell
Executive Partner
847 219 7252
www.linkedin.com/in/georgerussell
Additional informational documents for this project are listed below. Click on the document name to download the PDF:
Capabilities of Currie Management Consultants in Farm and Construction Equipment