First quarter train wreck not necessarily an anomaly

Blogs Bill Wade May 3, 2013

So we got through a universally stinky first three months of 2013. Don’t wipe your brow and relax with the idea that now ‘everything will return to normal’. News flash! This is normal.

There are plenty of coming disruptions that can already be seen, like 2013 tax law revisions and the great unknown of Obamacare’s enormous disruptions. According to a survey from the National Association for the Self-Employed, businesses will experience a 1,250 percent increase in the amount of tax-related paperwork required. A jobless recovery doesn’t help.

Almost every major supplier missed sales/revenue and profit plans. Coupled with the prospect of a moribund construction market, uncertain funding for states and municipalities and an oversold stock market (look at first quarter’s multiple ‘misses’ in earnings by the bluest of blue chips), we may just be embarking on some real structural volume changes in the heavy-duty parts and service markets.

Have we succeeded in saving our way to a fortune?

Obviously, this is no time to ‘unbatten the hatches’. As an industry, heavy duty distribution has done a remarkable job of expense reduction, but cost cutting achievement invariably erodes with time.

Why?

My feeling is that reduction programs usually don’t address the real sources of costs. Some programs are simply too difficult to sustain once the wolf is no longer at the door. Most often managers lack deep enough insight into ‘net’ operations (at the customer and SKU level) to set useful and reasonable cost targets.

‘Best practices’ can actually cloud managers’ vision. Many find comfort in easily attainable benchmarks (what others have accomplished), rather than analyzing the true corrosion of their own specific net profitability.

Fire drill measures, such as across-the-board cuts that don’t differentiate between what adds value or destroys it, disintegrate morale.

A recent McKinsey study surfaced with several great suggestions that will work as well as your personal commitment and management consistency allow:

Bill Wade is a partner at Wade & Partners and a heavy-duty aftermarket veteran. He is the author of Aftermarket Innovations. He can be reached at bwade@wade-partners.com.

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