Thoughts, Musing, and Rants About Distribution In The Powersports Industry.

[Grab yourself a cup of coffee, make yourself comfortable; this might take a while.]

Recently, a big player in the powersports industry distribution game made a point of saying that when it comes to things supply chain related, that I “don’t know what the f*** I’m talking about.

Now here’s my line of thought (if you think I’m talking out my ass, please feel free to leave a comment and let me know why. Anyone willing to leave their non-anonymous response will be posted here):

If I was just some raving lunatic that was shooting off his mouth about something that he knew nothing about, and that his points were 100% invalid, don’t you think that someone running a major distribution company would do one of the following:

1) If they were really concerned that what I had written (and I what I may write in the future) would cause product manufacturers and retailers to realize that their company’s version of distribution is a non-value-added burden on the powersports industry and start alternatives, he could have taken this as an opportunity to offer a well thought-out rebuttal to my points of view.

They could have turned this into an opportunity to offer a cogent explanation to the industry of why their sector of the industry offers value and are not really the vampire dinosaurs that I think they are.

2) The more realistic case would be to just ignore me… Seriously… Who the hell am I in the grand scheme of things in this industry? When’s the last time you saw an executive come down this hard on something if they were not trying to bury it or were not afraid of it?

I’m not some good ol’ boy industry fixture like the rest of the power players that seem content to ride this industry off the side of a mountain. I’m just a dude that in 7 years came into this industry and:

• Single-handily built up a multi-million dollar e-commerce line of business for a dealership
• Wrote a very well received monthly column on using internet-related technology in Dealernews for 5 years (I was writing about topics like e-commerce, social media, internet advertising, search engine optimization, etc. literally years before most people in this industry were even aware of their existence)
• Presented on internet related topics at Indy for a few years (my sessions were the only ones, year after year, that were literally standing-room only…)
• Won a grand prize in the Peak Dealership Performance Dealership Superstar Competition
• There’s more stuff in there but I think you get the point…

I’m bringing up some of these things not to boast, but to point out that while I’ve got a half-way decent resume in the 7 years or so I’ve been working around here.

So you gotta wonder why a rich, powerful, experienced executive would risk doing what he did… I mean if I was actually talking out my ass like they seems to think, then there’s no risk right? I’m just the lunatic wandering the streets, sign in hand, prognosticating that the end is nigh…

Here’s what I think…

They know I’m right and they doesn’t want other people to realize it too.

I think that the large distributors out there recognize that what I’ve said and what I’ve written about is pretty much the truth. Look at this column from July of 2006. 5 years ago! They’ve seen the extinction even looming closer and have no idea what to do about it!

I think they recognizes that one of two things are going to happen…

1) Massive collapse and consolidation of the retail channel which will allow the large distis to move the same amount of product to a smaller number of retailers, increasing their margins because the network complexity is drastically reduced. Where do you think some of those big, typically automotive focused e-commerce only outfits are getting their product from? However, this is going to take some time, so they need to convince manufacturers and more importantly retailers and the ol’ fashioned dealers out there that things are just fine long enough for this to come about. Mr. Motorcycle Dealer, this is your captain speaking. Please ignore that iceberg off the starboard bow.

–OR–

2) A new, smart, progressive player (or group of players) are going to emerge that will finally release all of the pent up inefficiency in our supply chain through technology enabled disintermediation. Our industry is soooo phenomenally ripe for massive disintermediation that it’s not even funny…

There’s finally some movement in this area. Check out D2M for example. I have no involvement with these guys. I don’t know ‘em and have never even talked to them. But I like what it seems like they are trying to do. Leverage modern computing and communications infrastructure and things like outsourced or 3rd party logistics and connect the manufacturer directly to the retailers in as efficient a manner as possible. Only provide functions that are value-added in terms of utility. I really hope these guys can make a run of it.

If you are a manufacturer or retailer, you need to look at what D2M is doing. Look at what Dusty Moto is doing. Look at what Shopatron is doing. They are all working on these types of disintermediation steps in their own way. It’s just a matter of time before someone pops up that does it “right.” You can just smell the fear coming out of the distribution company boardrooms.

So, why should you think that I do in fact know WTF I’m talking about?

Well, for starters, I actually have a degree in supply chain management from Michigan State University. Graduated with honors. Landed an awesome job in 1992 during a recession before I had even graduated. MSU’s College of Business was one of the first colleges in the world to recognize the importance of what is now referred to as supply chain management (back then it was called Materials and Logistics Management).

Being a young man that grew up in a manufacturing centric state like Michigan, it only took me a few days in that program to recognize that the ideas behind this movement were some of the most powerful ideas to emerge in business in a long, long time. Keep in mind, this was also around the time when the USA was worried about getting our butts handed to us by the Japanese, so there was a real emphasis on things like efficiency, cost-reduction, and quality (this was the re-awakening of awareness of folks like Deming, long before anyone in business had a clue what a sigma was let alone why you’d need six of them, and a few random stories about a crazy kid named Michael Saul Dell that had an idea about how to revolutionize an industry that seems a lot like ours… Enthusiast driven but burdened with an inefficent supply chain and retail channel).

It’s also important for context to point out that I’m also a complete computer geek. I got my first computer (an Atari 800XL) way back in 1983 when I was 13. I taught myself to program in BASIC and Assembly (I was mostly in it for the graphics…). My awareness of and expertise using computer stuff would prove to be an enabling force going forward.

I graduated with a great job at AMD working on some interesting and challenging solutions for unique problems they had with their manufacturing planning processes. They had some of the most brilliant engineers in the world designing and building computer chips, but their manufacturing planning infrastructure was stuck in the days of in index cards and large Lotus 123 spreadsheets… Seriously… Millions and millions of dollars worth of manufacturing was production planned by a room full of admins using Excel and email.

Anyway, I developed a few computer programs and business processes that helped dramatically improve things like production planning efficiency and cost reductions that garnered me a special award from the then President and founder Jerry Sanders. Not bad for a guy out of college for about a year if I do say so myself!

I was also APICS/CPIM certified at a level that would have qualified me for Fellow status once I had met the publishing criteria (I never did pursue that…). I don’t think they give those out to people that don’t know WTF they are talking about in the world of supply chain management.

After that, I had a chance to go work for my dream company at the time (because I was a huge, huge computer graphics and animation geek… Still am…) Silicon Graphics Inc. In one aspect of my work there, I created a massive corporate intranet / enterprise portal (keep in mind that this was in like 1996 before people even had the word intranet to describe what I built) for the manufacturing organization that provided a real-time dashboard representing several aspects of the manufacturing and financial planing process. This replaced a process that used to take up to two weeks to compile by hand by a team of people. [Geek alert! System was built using cron jobs, unix shell scripts, perl scripts, javascript, some ancient VM language I don’t remember the name of, etc. And it used cool 3D visualization based on VRML too!]

“Thanks for the resume bub… What in the hell does this have to do with the issue at hand?”

I’m pointing out that I have a proven track record of not only knowing what I’m talking about when it comes to topics that involve supply chain management and technology, I’ve been there, done that, still have the t-shirts, awards, certifications, and the college degree that prove it.

So yea… I do know WTF I’m talking about.

When I first started in the powersports industry a few years ago, I was absolutely blown away by how unbelievably backwards and benighted it was from a business process and technology standpoint. (Since then I’ve met many, many younger, smarter folks that have found themselves in this industry that have reached the same conclusions… Too bad that all the folks at the top running things are old-fashioned, ignorant, and comfortable enough to ride things out until they can retire… Oh well, I guess we’ll just have to hope our industry survives long enough for the Politburo to die off and get some fresh blood in at the top).

One of the most glaring issues was the absolutely out-sized amount of power and influence the middle men in our industry have. I can’t think of another industry that’s as large as ours in aggregate that has a group of middle-men that provide so little in terms of value-add, yet wield so much power and influence. They even compete with their own manufacturing customers with their house brands (actually, you can look at a few industries like the hobby industry to see a little bit of a microcosm of what may happen to us…)!

So, what do the large distributors really offer to justify their pre-cambrian existence?

Some people have told me that they offer things like financing to dealers so they can afford to stock more product. But that’s retarded. Any smart dealer should be buying anything and everything he can (especially special order product that has already been “sold”) on a low interest credit card that offers some kind of reward (miles, etc.). Dealers that are doing that all tell me that the terms are better than they get from the distributor anyway. Quibble with details if you must, but I find it hard to believe that a line of credit is worth the Faustian bargain that we get in return.

What about on the manufacturing side? Well, I’m told that there are plenty of uninformed or lazy manufactures that are pretty much selling their souls hoping for the large orders from the bigs distis. They are apparently not aware of the companies that have gone to distribution only to have their products knocked-off in China and then sold as “house brands.” Or they have also apparently not talked to companies that have done the analysis and realized that the margin they are losing to the distributors, as well as the inflexibility on product planning imposed by the distis, among other things, is more than made up for by using modern information systems, outsourced logistics (3PL’s etc.), and so on to go direct or at least semi-direct.

As I’ve said in the past, because of the widely scattered nature of the supply base and the retail channels in our industry, there is a place for a middle-man in our industry. To realize certain efficiencies it makes sense to have a nexus for demand concentration and information sharing. However, I’m positive that the solution relies on bits rather than atoms. Technology enabled disintermediation.

So by now (if you’re still reading) you gotta be wondering why in the hell I’m bothering to do this (i.e. riding down the boulevard at 120mph with a line of dirty laundry flapping behind me)…

I like this industry. I like motorcycles. I like dirtbikes and quads, and ATV’s, and UTV’s, and e-bikes, and racing, and PWC, and boats… I also like the way that somehow, in spite of all the factors conspiring against it, our industry has been able to hang on to the model of the local mom-and-pop dealership. I like that for the most part that the primary touch-points for the consumer remains a retail establishment that was most likely founded and run by a dyed-in-the-wool enthusiast with grease and oil under his fingernails, mud in his hair, or scuffs on his knee pucks.

However, when you plot a line from the recent history, through the current state, you end up with a pretty much inescapable conclusion that the current model is doomed. The entrenched powers (the OEM’s, the large distributors, the mega-online retailers) are all quite content with the way things are heading. They not only like this massive consolidation, they welcome it with open arms! They don’t need to figure out how to do business with thousands and thousands of independent shops in more flexible and efficient ways that take advantage of advances in technology and modern business practices. They can just sit tight, wait for all of the small shops to die off and sell the same volumes of products to a smaller number of retailers. Kawasaki in Costco? Motorcycle parts and gear at WalMart and on Amazon?

The only hope for our industry, if it’s to retain the enthusiast driven profile that it currently has, is for the supply chain to become more efficient, reactive and progressive. Eliminate all non-value added aspects. Embrace technology and focus on the power of bits over atoms. Information over inventory.

When you have the presidents of large distributors working so hard to silence dissident voices like mine, and considering the abysmal lack of a unifying force for the dealers/retailers to counter this power (no strong national dealer/retailer organization, a toothless and ineffective trade press) the outlook doesn’t look too bright.

If you think I’m totally wrong, please let me know. Tell me where I’m off base and I’ll consider it. Better yet, make it an open discussion. I promise to post any non-anonymous rebuttal in its entirety.

If you think I’m right, don’t tell me… Tell them. And take your business elsewhere.