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Letter to the Editor

Moving Toward a New Model

The relationships between shops and jobbers will change - if jobbers hope to remain successful.

The current business model being used by most paint jobbers in this industry will have to change unless jobbers are willing to accept continued eroding of margins and profits.

That's the view of Bernie Blickenstaff, a former collision repair shop owner, the owner of a paint distribution company, and president of Collision Management Services, Inc., a training and consultant firm. Blickenstaff said the way shops and jobbers interact has to change if jobbers are to survive.

"The only option [for jobbers] is to reduce operating expenses," Blickenstaff said. "We've got to take cost out of how we're delivering value to our customers. The only other option is to take it out of your bottom line. Does this make me happy? No. But this pressure is not unique to distribution. If you can't live with the realities of a mature industry, get out of the business."

Blickenstaff's message is not all doom-and-gloom for jobbers, however. He believes jobbers who move toward a new business model will be those who not only survive but thrive. And he offers a vision for one such model, with the initial steps that jobbers - and their shop customers - must take to make it a reality.

The market today

Jobbers in today's market face much the same realities of collision repairers:

• Strong competition
  Mid-sized jobbers are finding more competition from above ("mega-jobbers") and below ("wagon-peddlers"). Some parts groups are making significant in-roads into the paint market. And the increasing number and strength of national accounts and alliances will only add to the competition.
• Increased discounting
  This takes many forms, Blickenstaff said, but isn't likely to go away any time soon. Unlike the technology or pharmaceutical industries, the collision industry is mature and not growing significantly.
  "It's peaked," he said. "[Discounting] is a common phenomena that happens anytime an industry becomes fairly crowded and is not growth-oriented. Once it matures, price becomes a very sensitive issue. And unless I can distinguish myself among the crowd, then price is the only issue."
• Constantly increasing demands for service from customers
  Just as shops are being forced to do more for their customers, they're also expecting more from their suppliers. The jobber that at one time just delivered paint is now routinely expected to provide technical and warranty support, multiple daily deliveries, shop inventory control, training, and temporary fill-in painters. "They want to pay less and have you do more," Blickenstaff said. "I'm not trivializing this, but again, it's not unique to our industry. Customers become more demanding when they have options."
• Shrinking profits
  The above trends have an inevitable result: lower margins and profits. Even a jobber lucky enough to keep operating costs stable - a challenge given the increasing demand for services - is likely to see those costs grow as a percentage of net sales because of discounting.
• Difficulty of differentiating
  Blickenstaff said that although the paint manufacturers might not be thrilled to hear him say it, the products that jobbers offer have largely become a commodity, all with similar qualities.
  "Do I still want to go out and pitch product performance? Absolutely," Blickenstaff said. "Is that part of the value I want to portray? Absolutely. But when it comes down to the end of the day, isn't it fair to say all these products have become good performers? The answer is yes. With more and more out there, product is not the decision maker. That just creates more of a need to distinguish ourselves in other ways."
  Unfortunately, Blickenstaff said, the services jobbers have offered to try to differentiate themselves also are becoming increasingly "routine." Frequent deliveries, shop inventory control and technical support - though expensive for the jobber - have become expected and don't set the jobber apart in the eyes of the customer. Blickenstaff said that for most jobbers 85 to 98 percent of their operational and sales support costs go toward these "routine services."

The new model

There's no reason to think any of the above trends are going to change, Blickenstaff said.

"This is not going to go away," he said. "Get over it. I know that's not easy to swallow, but that pressure is not going to go away. So clearly we need a new model of distribution. We can't take this old model and move forward with this kind of pressure."

The new business model, he said, must allow the jobber to reduce operating costs, while at the same time allowing the jobber to increase sales by differentiating itself from the competition.

Blickenstaff said he believes jobbers must begin to move toward this new model in three key ways.

1. Jobbers have to reduce operating expenses.
   "Everybody's got to do more with less," Blickenstaff said. "That doesn't necessarily mean I've got to get rid of people. I've just got to grow my sales, and not necessarily proportionately add cost with that sales growth."
   There are a number of ways to approach this. Blickenstaff's own company, for example, consolidated store sites.
   "We went from five stores to four, and didn't lose one customer," he said. "And we went out of the 'redistribution business.' We had a warehouse attached to our main store and everything came to that warehouse and then got redistributed to five stores. Why? We had a $300,000 annual cost that immediately went away. Some of those paychecks were redistributed to other stores, but the warehouse manger left, the brick-and-mortar left. Why the heck were we bringing everything in and redistributing it?"
   Blickenstaff said jobbers also need to look at reducing delivery costs. One way to do this is to measure average invoice amounts - with an eye on increasing the dollar amount per invoice. Higher invoices, he said, mean fewer orders, less time on the phones, and a more efficient fulfillment process and fewer deliveries.
   Even if not used for electronic commerce, a website also can help reduce a jobber's operating expenses.
   "When I've got a website for my collision client, he doesn't call me for MSDS sheets," Blickenstaff said. He doesn't call me for a training schedule. He doesn't call me for pricing structures. He doesn't call me for an order sheet. He pulls it up and there it is."
2. The ordering and inventory processes have to be automated.
   Blickenstaff believes technology will help automate much of the ordering process to reduce jobber "counter costs" related to phone calls and data re-entry.
   "Whoever imagined you'd go to the grocery store or Home Depot and check yourself out," Blickenstaff said. "The technology is out there for us to automate the routine services we offer. It isn't going to happen tomorrow, but there's the ability to do things that in the end would help manage shop inventory and create order capability. Industries all around us are improving their supply chain, gaining efficiencies through technology."
   If a jobber can track his inventory at multiple stores, for example, why can't a shop be similarly linked to the jobber to automate inventory control?
   Another key part of reducing expenses, Blickenstaff believes, is helping shops to better manage their own inventory to move toward once-a-week orders and deliveries.
   "This business of pulling orders on these little tickets all day long and running to people three, four and five times a day is killing us," he said. "In fact, two or three times a day is ridiculous. I know what you're thinking: 'Man, they can't live with one delivery a week.' I can tell you, there are customers out there doing it."
   The concept of shops mixing their own paint was also once seen as far-fetched to many jobbers, Blickenstaff contends. But just as that change offered benefits for both the jobber and the shop, jobbers need to communicate to shops the benefits of better inventory control.
   "Anytime they call in anything other than a weekly stock order, why do they call it in? Because they're out of it," Blickenstaff said. "And what does that repair job do until that order shows up? It sits. And then I've got someone showing up with a delivery and that's going to interrupt production. That's very costly not only to us, but also to them. It's an inefficiency. We need to start bringing tools and training and reasons why it's in their best interest to better manage their own inventory. "
   Jobbers could also encourage weekly ordering by offering a financial incentive for doing so - or a financial disincentive for daily orders.
   "When they're asking for that deeper deal or something, get something in return for it," Blickenstaff suggests. "Step up and ask for it in a business fashion. 'Yes, we can do this, but here's what we need in return…'"
   Blickenstaff believes the biggest benefit of improving the inventory and ordering process is that the cost savings will enable the jobber to put resources toward the third change he foresees...
3. Jobbers have to offer more business systems support for shops.
   Reducing the costs of "routine services" doesn't mean the jobber isn't still going to be closely involved with its shop customers, Blickenstaff cautions. It just gives the jobber resources to spend in helping the shop in other ways.
   "As you streamline in other areas, you can take your salespeople and let them be more business-support oriented," he said. "That person may still be in the shop once a week but for different reasons: Not to order paint, but as a business consultant. Instead of kicking cans and writing orders and fixing problems and shuffling inventory, now you can create a value by delivering more of those business support systems that help the shop in a broader fashion. You'll be able to do more than just routine services and making sure they have what they need every day. You'll have the ability to go into a collision center and provide something to them that no one else does. That's critical in the future of this business."
   While jobbers have often looked to the paint manufacturers to provide this type of industry expertise for their shop customers, Blickenstaff said the manufacturers are also looking to reduce costs, and successful jobbers should be able to step in to provide help with shop marketing, best practices, business analysis, and shop productivity assistance. This also will help jobbers, who often worry about the manufacturers' growing relationship with the end-user, demonstrate the value they bring to the market.
   "Whether you like it or not, if you want to sell paint to the collision business, you better learn the collision business," Blickenstaff tells jobbers. "You better know the collision business better than your competitor. It starts with the fundamentals, the two things they all hold us accountable for: How to make money on materials and get more out of the paint department. If they're not making money on materials, you're at risk.
   "They're clearly looking for help," Blickenstaff said of shops. "It's jobbers who provide that value in a real credible way that are going to be the winners in this business in the future."

The only option

Blickenstaff said that while not all jobbers will share his vision of the future, it's clear that market pressures will force some type of change.

"Something's gotta give," he said. "I can't offer competitive pricing, routine services, technical support, a growing amount of business system support, and make a reasonable profit. I can't accomplish all that. The question just becomes: What's going to go away so I can support all this and profit?"

He said too few jobbers are thinking about ways to address these changes and are too focused on just meeting every new customer demand.

"Someone in your business has to take the time to sit down and plan strategy, not just stay on the front line putting fires out everyday," he said. "If nobody is working on a vision, looking at what you can change, it's never going to change. Don't get hung up thinking this is all going to happen next week. The question is: How do you move in that direction? You have to figure out what the end looks like and how to take baby steps in that direction."   o

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