The Value of the Industrial Specialist: Building Distribution’s FutureThe Value of the Industrial Specialist: Building Distribution’s Future

The Value of the Industrial Specialist: Building Distribution’s Future Transcript:

Jeff White: Welcome to The Kula Ring, a podcast for manufacturing marketers brought to you by Kula Partners. My name is Jeff White, and joining me today is Carman Pirie. Carman, how are you doing, sir?

Carman Pirie: I am living dangerously.

Jeff White: I saw, yeah.

Carman Pirie: Yeah. It’s just what folks don’t know is that I’ve been getting progressively closer to game time when I take my last sip of water prior to the podcast. And I almost completely failed there, but I’m glad I made it back just in time, Jeff.

Jeff White: Yeah, no, I obviously sped up in order to try and put you on the spot.

Carman Pirie: Indeed. A different kind of show today. I like it when we have a different kind of show. It doesn’t, I mean, we always have different shows.

Jeff White: Yeah. But it’s not often that we have someone with a diversity of experience and expertise as our guest today.

Carman Pirie: Yeah. Again, a fun little niche topic, too. Let’s just jump right in because I think it’s gonna be cool.

Jeff White: Sure. So joining us today is Carl Tolbert. Carl is an author and researcher, and head engineer at Malloy Electric, and a recent author of the book, The 10 Immutable Laws of the Industrial Distribution Specialist. So welcome to The Kula Ring, Carl.

Carl Tolbert: Awesome. Thank you for having me. I’m really excited to be here.

Carman Pirie: Carl, it’s quite a resume that Jeff just rattled off. It’s bigger than that, I think, too. And I’m almost now I’m going to resist the urge to ask you where you get the time to do all these things.

Maybe jump right into the book. What led you down the path of writing this? Tell us about what got you inspired to do that.

Carl Tolbert:  I’ve been a specialist, an application engineer, for the last 20-some years for an industrial distributor in Georgia and Florida. And then in 22, right on the heels of COVID, like a lot of folks, I went back to school. And then I finished my doctorate in 2022, and the topic of my dissertation and my research was industrial distribution. And through it, I interviewed 32 distribution leaders, broken up into three distinct groups: distributors, independent rep agents, and brands. And along the way, it dawned on me that with really what’s going on with distribution, either you’re gonna become a logistics company purely, or you’re going to do ‘value adds’. You have to have industrial specialists, application engineers, and subject matter experts, and I found that that role was really underserved. This led to the book, The 10 Immutable Laws.

Carman Pirie: So is it, as you surveyed the landscape, that you just felt like the role was undervalued or that it was even diminishing over the time of your research?

Carl Tolbert: Oh yeah, ’cause see, what I found was every distributor, every rep agent, every brand deployed technical specialists differently. Some had metrics, some had decided they were going to hire all these advanced education folks, bypassing practical experience, so there were these, almost these best practices that started becoming more and more prevalent as I spoke to people about what worked and what didn’t work. And that’s what materialized in this whole discussion. Now, once upon a time, Frank Hurt, a very well-known industrial distributor, like a mentor and consultant. He wrote a book in 2008 about being an industrial specialist as well. But the book was through one of the wholesale distribution groups. It was more about tactics than what I wrote. So mine was a significant departure from the only other thing like it in existence.

Carman Pirie: As again, part of me always tries to tug this back towards the manufacturing and industrial marketer and what they ought to know or how this ought to change how they think about what it is they’re doing. But I guess I’d almost go one step before that and ask. How much of the there… seems like there’s a bit of a thrust towards cutting out distribution in some regards. A lot of manufacturers feel they can go direct. How much of what you’re seeing as a result of that thrust?

Carl Tolbert: Oh, significant. Significant, so you got a couple fronts. So you have Amazon crossing the threshold of 40 billion. And, everybody fears Amazon. I’ll get to an anecdote about that in a minute. But in Europe, manufacturers deal directly with users. There’s no distribution really, in China, actually is very similar to the United States in China. They have distribution in some other areas, like France. There was another dissertation by this researcher that was somewhat akin to mine. Published out of France ’cause they do have some distribution as well. But, in Atlanta, I can’t remember which think tank, but a gentleman named Abel Noir has been writing about the direct business pushes by manufacturing. And why this makes sense is that there’s a struggle between the three groups about how to get closest to the customer, right? So, what distribution represents the closest group to the customer in most cases? An inch deep. A mile wide. Distributors generally distribute a lot of different brands, where rep agents are often in the middle, and they represent five to 15 brands, and you have brands that generally have one. Obviously, sometimes they have sub-brands, but generally, they all struggle to get closest to the customer. And right now, with distribution, when they hold that data of who the customer is and what they’re buying, there’s a certain level of power in that, and that’s protection. And that’s where a lot of this tension comes from, that all three groups express to me individually. And when you do qualitative interviews, I’m governed by an IRB and all of the laws of protection, just like drug trials, there’s a certain level of anonymity that I have where I get a lot of honesty that I would never have gotten otherwise. So it was very significant, the insight that I got from all 32 interviews.

Jeff White: What would you say was the most surprising thing about what you heard from the distributor’s side?

Carl Tolbert: Oh, okay, from the distributor side. They have this inherent fear that everybody’s always taking their business. And it’s true to some extent, but primarily it’s from the logistics. And this is one of the things that everybody agreed on, is that if I’m selling a part or a widget or a component that’s very commoditized and I’m just doing it on price, right? Then all of a sudden, you have no protection. It’s price-driven. It’s different. And distributors, especially independent ones, are evolving into the value-added model because now the brand doesn’t matter. But more knowledge of the specialist or the technical sales folks or who’s applying the product and creating that solution. And you make significantly more than just the selling price and parts. So everybody agrees on these tactics. Just the approach is different. And you see this almost with the declining e-commerce stores with a lot of distributors now. Remember, there was a push for e-commerce, and then a lot of them now are saying, Hey, this is a weak investment. I really can’t have this because I’m losing the war to the Graingers, the eBays, the Amazons. All these people with these Goliath e-commerce platforms,

Carman Pirie: Is it realistic to think that you’re going to be able to maintain the relationship-driven side of that sale if you can’t service the electronic side of that sale, if that makes sense?

Carl Tolbert: Oh, there’s been a debate on that, right? ‘Cause all these manufacturers are saying, Hey, you gotta have e-commerce to comply. And I think there’s this hybrid approach where maybe they have a storefront or a catalogue or an ERP system that allows you to do that, but it’s not gonna be like a B2B or a B2C type of sales process. I think they’re still out there. But there are a lot of distributors who have completely abandoned e-commerce. The brands are not speaking about a technical sales specialist at the distributor level.

Jeff White: Do brands not see the power of that? I get that they may be concerned about who owns the relationship and who owns the data, but I have to think about the end customer having that person in place who truly understands the technology, who truly understands how things work together, all of that, wouldn’t they see some of the power in that?

Carl Tolbert: It’s a double-edged sword. So I had one brand confide in me that they hated specialists. Because it took the power of knowledge away from them, because they wanted to be relied on, and then they can be in control. And like I have my thumb on the distributor, and this happens a lot with the automation side of the business, like sensors and those things, right? So there’s a certain power play. The other thing is there’s a high level of hubris. That reps and brands have where they feel that, Hey, I’m the brand and I have all this knowledge.

And most times, distributors don’t have these experts in the field. But I beg to differ. There are a lot of specialists I’ve spoken with over the years, in reliability, in automation, or bearing, you name it. That’s how distributors actually start to succeed more and more if the specialist business is handled correctly.

Which is, again The 10 Laws. But the brands have this weird, love-hate relationship with it. They don’t like the big distributors that don’t need them because they can’t control them, so they must get closer to the customer. And this is why things like POS and MAP policies and these other things have all adapted over the last several years to mitigate some of that power that distribution has. By simply knowing where the customers are and understanding that tension.

Carman Pirie: Are there any brands that stand out to you or stood out in your research as running counter to that, that seemed to really collaborate incredibly well with the distribution specialist that leaned into that collaboration versus into the tension of it?

Carl Tolbert: That’s a good question. I think it’s tough because it’s pockets of brilliance. It’s not just overall. See, what I’ve also found is that when you start looking… ‘Cause I also created this thing that’s not part of the book, called, it’s a variant to the net promoter score, that I use, as a vendor brand report card. And so you guys are familiar with the net promoter score, obviously, right? Would you recommend this brand to your friends and family? That was Wright Felt’s initial idea, right? But it doesn’t go far enough. So I expanded into four more questions, talking about product quality or ease of doing business and pricing, and the last one was support.

And what I found through that, ’cause I had three major brands run my report cards. I won’t mention ’em ’cause it’s all part of the IRB and academic stuff. But what we found were relationships in the field regionally, that person matters to the distributor. So if a brand is national, for instance, and say they have 20 different brand representatives in the field, whether it’s an industrial, like an independent rep agent, or a brand employee, those individuals’ relationships with the distributors make all the difference in the world. So it doesn’t matter if you have the technical people or not. It just, it’s just all about that relationship. And it’s shockingly clear, actually, right? So if the distributor sees no value in this individual that the brand hired, then no matter what happens, they’re not gonna work with that individual, period. And I’ve seen this play out with all my interviews as well. The other research I’ve done is unpublished at this point.

Carman Pirie: It doesn’t paint a picture of something that’s particularly easy to break into.

Carl Tolbert: Oh no, it’s not. It’s very cloistered. But we call distribution almost kinda like a mafia. Once you’re in, that’s what you do. What we find is that a distributor can go work for a rep agency or a brand, but it’s very different; difficult to get a brand person to go work for a distributor. Because they don’t have deep pockets. It’s different. It’s entrepreneurial. It’s very much a faster pace ,and you have to deal with all the brands, not just one. And this is always a shocker to the brand folks that do try to work for brands, but they generally don’t last long.

Jeff White: What do you… You mentioned that distribution is a uniquely North American phenomenon somewhat with some prevalence in Europe and stuff like that. What do you attribute that to? Is it just the sheer scale of our land mass here?

Carl Tolbert: Yes. Actually, that’s one of the laws, proximity. So the remoteness of folks anymore isn’t cutting it. So to actually effectively create these relationships and grow this business with expertise and knowledge and value-add, the specialist has to be somewhat close to the action and the folks that are relying purely on remote, ’cause that’s what COVID did, actually, are having a hard time of it anymore. And so this is kind of part of this bigger point is in Europe, you can drive across Germany in how many hours? Try driving across Texas? Or like when I drive across South Dakota all the way to North Dakota, it’s like an eight-hour trip. It’s like going from Atlanta to Ocala.

It’s just, the geography, North America, is so tremendously big. I think they got used to that because, like you get Siemens, so they’re used to all these brands in Germany, and the drive. A choice in Amsterdam is Danfoss. If you have these country relationships, you are just very solid. I remember going to Finland and meeting with ABB; this was a few years ago. They were shocked. We didn’t do, use the service that the Europeans did. They were shocked that we didn’t do all this other stuff. And a lot of it came down to purely geography.

Carman Pirie: You mentioned the… It’s interesting to consider the power of proximity, and I’m, maybe this is a silly question, but part of me wonders. How much of the work is actually still happening remotely, but it’s important that it’s done remotely by somebody who’s actually reasonably close to you.

Carl Tolbert: Yeah. I get it. There was a famous story that your customers won’t buy from you unless you’re local. And this guy moved his warehouse to another country. And his customers never noticed. It’s anecdotal, but what I find is that when a specialist has to physically walk into the plant to look at an application, it’s the difference, right?

Supplying parts it’s a little different, purely being remote. The support characteristics are, and even with AI, I write a lot about AI in the book; there’s a whole separate chapter about AI being a multiplier. And I do a lot of research on AI as well. Both blame and the new, what I call the tertiary orality, is a new PA, another paper I’m working on, where it’s like digitally mediated. So we’re almost like moving back to, talking around the campfire, but that’s another story. But the point I’m trying to make is that even specialists don’t fear AI. AI is a, it’s just it helps the job, but ultimately the technical person has to own the suggestions and the AI data that’s used, right?

Because there’s actually a case right now, it’s in litigation, and I can’t, there was a, this $3 million error from a food company that they relied on data from AI exclusively, and it was a complete, colossal, just catastrophe, right? And so it’s going on right now, and I just think about that.

I use that as almost a lighting rod, going, that’s why you still need human oversight. Because the engineering’s there, the math is there. I’ve run tons of tests. I’ve ran statistical analysis through AI and did it by hand programming through Python, and I’m coming up with the same data, but sometimes it gets something wrong. You’re like, oh, really? And I think AI is gonna be around forever. It’s changing and evolving, but it’s just a matter of every organization having to come up with a standardization of usage. But again, it’s just that I write exclusively about this in the book as well, and how it’s taking shape, it’s pretty exciting.

Carman Pirie: I wanna, when we talk about that evolving role of the specialist and even the kind of renewed power of the specialist post COVID. It seems to me that there’s at least some level of intersection with the great change that’s happening in our workforce right now. And I’m curious what you’ve found in your research about how that role is changing as new people are moving into it. Is there a style of specialists that’s dying off? Is there a way of doing business that we’re not going to see again?

Carl Tolbert: That’s an awesome question. Yeah. So what I’m seeing is education, right? So there was a push for a long time to get people with degrees and advanced education, engineering, et cetera. And the reality is that the specialists are more successful coming from the plants themselves, from the industries that they’re trying to serve. So I’d rather, there was a famous example I used in the book about this group. It was a bunch of technical specialists, a distributor hired, and this guy had a master’s degree from an elite university in mechanical engineering, and he couldn’t generate sales, right? It was just a complete and utter failure. And then his replacement was a third shift maintenance guy, a supervisor from one of the local plants. And the guy crushed it, like 2 million in sales in the first three months. And it was just… he spoke the language, he knew the business. And honestly, even in my work now in engineering, I think it’s 80% of what I see is 20% basic knowledge. It’s just, it’s not that hard. It’s mostly experience. Then I get into hard stuff; it does come up once in a while, but I have vast resources that could help me from the brands and other places if I do get stuck. But you need somebody who speaks that language, who gets it, who’s had those problems at two in the morning.

That’s really where you get your new candidates for work. So you go get those folks, they’re already learning the hard way from manufacturing, or municipalities, or from the water.  You do have unicorns, and I’m one of those unicorns. I know several. If I’m a distributor and I’m hiring specialists, that’s the pool I wanna look at first.

Jeff White: Doesn’t that mean that it’s going to be incredibly difficult for young people to break into this. If you need that level and depth of experience and having been in the trenches when stuff breaks and being able to problem solve and fix those problems. Those kids are not coming up with that level of knowledge.

Carl Tolbert: Yeah. I think you have to have a proving ground for the next generation, which is field service. There are mechanics, there are electricians, there are trades. There are lots of opportunities in those fields, and that’s really where they have to learn the same way I did. I started out as an electrician in high school. Then I was in the Navy and I was a technician, and then, so it builds over time. So you can’t have it instantly is really the point. I remember recently, I was talking to one of the tech school guys we hired as a field service person at Malloy, and he talked to me about how much of an expert he was at PLCs. Okay, how many PLCs have you done in the field? We don’t really work on a lot; mostly, we do drives and motors and stuff like that. He said, I’ve never programmed the PLC in the field, just in school. I’m like, okay. I’ll tell you what, once you’ve done a plant and a couple of machines, and I can say that you’re up with the intermediate level of PLC knowledge, but right now you have a taste of it, my friend, but nothing more.

Carman Pirie: I think it all points to Jeff’s question in that, or at least I think what’s embedded in your question, Jeff, it’s gonna be awfully hard to actually replenish these specialists as folks retire out. It’s going to be a serious recruiting challenge. But of course, it also speaks to the recruiting challenge for manufacturers who are trying to displace that level of closeness to customer knowledge. It’s not something that’s easy to execute on, frankly.

Carl Tolbert: Yeah. I also find, you’re alluding to something else, as well as the sales enablement. See, one of the things we find is that you can find a very good group of energetic and high-potential sellers that are young, that don’t have a lot of experience, but how do you get them to work with the venerable, almost curmudgeonly group of specialists? And it’s an art in itself, getting the engineers and the technical people, the specialists, to work with a new group of sellers that have no idea how to make that happen. And a lot of organizations are struggling with that right now. I know one of the biggest motor rewind companies in the world. They have 400 salesmen. They have no idea how to get them to work with the specialists of the brands, the reps, or the other distributors on their own team; they struggle with that significantly. And again, it’s another chapter of my book is how to work with specialists. So I think that’s actually gonna turn out to be one of the more popular chapters, I think.

Carman Pirie: It can’t be the technical gap that we’re trying to overcome there, because then the only solution would be that the salespeople have to become technically smarter, and that seems maybe harder to do. So what is the solution there?

Carl Tolbert: Yeah, so the technical depth comes with time. That’s just all it is. But getting the groups to work together is understanding that, hey, listen, you have two types of sales calls. One’s the milk run, one’s the professional sales call, where you have like an agenda and a purpose.

And it’s just understanding how it works when you show up with an agenda. You have an audience, you have the specialist there to talk about something specific, and always have a reason to come back, there’s a solution that like… I have to have, all these sales calls scheduled that are like that. But the reality is you only need one or two. And the rest of ’em could be milk runs, they could be just introductory calls, but just a process of, all right, this is how this works. But there also has to be metrics involved where everything’s activity-based. So part of the commission or the structure of the seller has to be involved, you have to ride with the sellers, you have to do demos, you have to do lunch and learns.

You have to… all these things that specialists provide or the brands provide, and the people that are already successful already do that without being prompted. So there’s just this thing about how the nuts and bolts work, and once people get it, and then there are some metrics that actually go with it. And the simplest one is just engagement, right? So once you start getting that going, then all of a sudden it’s not as difficult. I think that getting over the initial hump of how this is supposed to work is the biggest problem I’ve seen with distributors. Working between new sellers and specialists.

Carman Pirie: Carl, this has been a fascinating conversation. I’m struggling to know even how I want to try to bring it to a close, but I think I feel like you’re contrary enough. You may have an answer to this question. I’m just wondering, as you look on the horizon, what’s something that we… In the way that the go-to-market motion can serve industrial distributors. The customers that they serve are the value that they provide. What, as you look ahead five, 10 years, is there something that stands out that you think people just don’t understand, they don’t see? Something that’s coming that you do, or maybe the other way around?

Everybody assumes it’s going to change in one way, and you’re not buying it? I’d be curious, where do you think your crystal ball departs the most from conventional wisdom in the sector?

Carl Tolbert: Oh yeah. Great question. Distributors are gonna continue to be gobbled up by bigger organizations, right? So that’s the first thing is that a lot of the independents, the family businesses, they’re changing, and a lot of them are continuing to be sold off to the bigger organizations. But you see less and less of that, right? Because the numbers are becoming fewer and fewer, whether it’s rewind shops, mechanical outfits, or integrators. Or bigger distributors like Motion or Applied, right? Or Grainger, take your pick, right? So eventually the acquisition phase will be kaput. There won’t be anymore, right? And you won’t see people getting into the distribution business, as I’ve rarely seen startups.

You might see some organizational moves from one market into a new market, but you rarely see brand-new distributorships growing. I think the rep, independent rep agencies are also falling by the wayside. I think that’s a slowly changing, evolving group as well. It doesn’t matter if it’s HTD or PTDA or Issa, the middle people, a lot of them are aging out, too.

There are no incentives to go into that business, even if it’s familial. You have a, hey, my third generation is gonna take over the rep agency. Then it has its own kind of problems as well, from the inheritance perspective. Now, distributors, I think that embracing the value add will survive and continue to grow and thrive. I’ve actually addressed that quite a bit because all the research, think tanks are saying, the distributions are on the decline, and ’cause of the direct business and other things. But I think if your distributor focuses on the value add and they’re smart about how they run business and have metrics and other factors, they’ll survive, and actually grow.

I see an evolution of some businesses where they’re gonna get into other things more specific to value add and keep going that direction. And is the purely selling parts, is it really going to still be as profitable as it was in the eighties? And the answer is absolutely not. It’s all eroding so parts business on its own merit.

That’s one of the arguments I always had with people like Motion Ministries that go after the contract. How much money do they make on the actual contracts? Or is this just the fact that they beat up all the brands for rebates? There’s a broader financial discussion about the rebate business and contract business. And that’s why a lot of these parts distributors the logistics companies survive. That’s ’cause that’s what they do. So I think that we’re going to see some clear evolution. Where a lot of brands are taking more of that direct business, and I think a lot of rep agents are going to stop, they’re going to focus on OEMs.

I think a lot of that’s happened in other industries that are parallel to industrial distribution. So I think the surviving rep agents are going to be OEM-specific and maybe even not even worry about distribution anymore. It’s going to be curious, I don’t know. I always talk about having at least five years, maybe 10 years left to see how this plays out before I get completely tired of it. But I consult a lot. It’s amazing the people who call me about some of the things that I talk about, and I’ve created new tools like the Specialist Health Index. So I actually measure the health of a specialist within an organization. And it’s validated. It’s my own design. And it’s fascinating too. So you do qualitative reviews, you do a personality review, and then a profile. And then you actually take a survey that I created to discuss how healthy your specialists are within the organization. So are they going to stick around? How do they handle leadership? It’s fascinating to see the data on that, too. It’s not published in the book

Carman Pirie: That was fascinating to imagine the health in those specialist roles and how that will power the value add that you say is so critical to the ongoing success of industrial distribution to get out of just trying to sell parts, obviously, and see the future in that value add.

So seems to be a massive part of it. And Carl, thank you so much for sharing your thoughts with us today. It’s been a pleasure to have you on the show.

Carl Tolbert: Awesome. Thank you so much. It’s been a while since I’ve done a podcast, and I was very excited to participate.

Jeff White: Much appreciated. It was fascinating. Thanks.