Tuesday, June 23, 2015

Why Ford Is Brilliant – Carlisle Scrapbook
by David P. Carlisle

Thirteen years ago, in 2002, Ford announced Daily Parts Advantage (DPA) to the world. Back then, it seemed simply brilliant. Now, more than a decade later, it seems even more brilliant.
DPA was an integrated strategy of revised stock order cycle times (“daily”), revised terms and conditions, and revised network structure. Perhaps the cleverest aspect of DPA was looking at parts very differently than anyone ever had previously. Ford concluded that parts were of three different types : (1) parts that needed to be close to dealers for a 24-hour cycle time and 24-hour order response time (ORT), (2) small parts that could be easily shipped by a parcel carrier and beat a 24-hour ORT, and (3) large bulky parts, typically used in collision repairs, that required a sparser network and could easily flourish with a 48-hour ORT.


Seems obvious. But, it sparked a lot of debate … particularly concerning the large bulky parts. Did dealers need them in 24 hours, or was 48 hours sufficient? Would collision market share suffer with longer ORTs? Would insurance companies react to longer ORTs that could ripple over to longer rental contracts for the insured? After thirteen years, the answers are in:
  • Nah
  • Nah
  • Nope
Collision market research that we are currently conducting confirms all this, and more. Ford was right and kudos to their team of innovators: Don Johnson, Kent O’Hara, Frederiek Toney, Anu Goel, Joe Kory, John Sullivan, Helmut Nittman, Brad Wallis, and many many more. Cisco Codena headed up aftersales at the time and his leadership (call it courage) deserves mentioning.


The collision research we are doing spans a wide area – the primary objective is to refine our estimate of the impact driverless vehicles and collision avoidance technologies will have on collision parts sales. However, one work stream involves process mapping typical current-state collision repair facilities. So far, we’ve seen three things that are interesting:
  1. Price. Because the insurance industry largely controls what goes on in a collision repair shop, the advantage always goes to the low price option. This explains why non-genuine parts dominate repair orders for “unprotected” vehicles. In some states, laws protect some owners from repairs using non-genuine parts. However, these laws typically only cover only newer cars and not all specify “genuine.” States with significant “genuine parts” protective legislation cover only about 22% of the population. Outside that, it’s the wild, wild west.
  2. Price. Order lead-time differences between genuine and aftermarket (AM) parts are not much of a deciding factor when sourcing a collision part. For “competitive” parts, OE order lead-times are generally competitive with aftermarket parts. However, aftermarket return rates are ~30%; almost six times the return rates of OEs. Factoring in this return rate differential (in order to receive a correct part) the expected cycle time difference between an AM and OE nearly vanishes. Problems arise with “non-competitive,” slower moving, genuine parts that have erratic lead-times. Since they are “non-competitive,” this is not much of an issue . I suspect that there’s never been a successful aftermarket company that decided to invest in tooling simply because they thought that having inventory and quicker-than-OE lead-times would make a difference. No, the decision is always made on volume and price.
  3. Price. OEs’ aggressive collision parts “price matching” programs might not cut it. In a case study of one collision shop, the owner took advantage of every price matching program offered by OEM dealers. Most of the OEM parts were bought at either an extended 11% discount off the already reduced OE part list price or a 30% discount off the independent aftermarket part list price. At the end of the eight months, the shop analyzed the results: labor profits increased 3 points, while whole parts profits decreased 12 points due to the price matching programs. The part profit impact is a pure, measurable loss, while the labor gain isn’t even necessarily absorbed by the shop. Overall, shop profits dropped by 5%. So, while collision shops readily admit OE fit makes for timelier repairs, the benefits do not drop to the bottom line.
So, yes, Ford was brilliant. Carving out separate supply chain strategies for different classes of parts saved money … and worked well in an integrated
strategy that led to huge improvements in dealer and end-customer service.
(Most of these customer benefits were encapsulated in Ford’s move to a daily stock order.) Our research, so far, seems rock-solid in supporting what Ford did with their bulk parts centers – because the big issues in the collision market are price, price, price. Marginal advantages in lead-times have about the same lasting market impact that larger tail fins did on late 50’s sedans.


Bottom Line: That was the good news. The collision market is steadily becoming even more price driven, and Ford got ahead of the curve here. The bad news is that the insurance companies have been busy and have effectively commoditized the market during the past few decades. Price is more important than ever, and the squeeze will continue to tighten. Most of the genuine collision parts are used in the newer car parc, which is still continuing to recover from the 2008/9 recession. This makes for pretty nice year-over-year sales gains in this segment. However, when we finally achieve a steady state that resembles pre-recession conditions, we are bound to see that the OE segment of the collision market has shrunk. Big time. Then, when we lay on the anticipated market-melting impacts from collision avoidance technology and driverless vehicles … as my grandmother in-law would say, “oy veh!”

Tuesday, June 9, 2015

“Small Data” and Dynamic Scripting – Carlisle Research Scrapbook

“Big Data” is a big thing in aftersales service support – it will make our lives better in inventory management, sales forecasting, parts and service pricing, … and, ultimately, in better serving the needs of service customers. But, it’s going to take awhile.


Sorting through blizzards of data, big data is a valuable predictive tool. But, when the sightlines are fairly clear, we don’t have to put a lot of time and effort into fancy models and monster analyses. Effective service processes and simple surveys can capture the data directly from the customer - sample size of one - and be 100% accurate.


We might start with some recently available “small data.” We are about to release the syndicated 2015 Consumer Sentiment Survey – Dealer Customer Wave. Let’s take a peek.


#1. Some people will wait a long time, others won’t wait at all, yet others (more than a third) will wait an hour. Knowing the customer’s urgency is important information when prioritizing service, offering substitute transportation, and dispatching jobs to the service bays.


#2. Some people want to be greeted at their vehicle; others prefer to be greeted at a more traditional service advisor’s desk. Knowing this is important in designing dealer service lane processes – but again, “small data” shows us that even within a single dealership; there is no one size fits all.


#3. Not every service customer has the same preferences regarding how they are contacted for status updates. Less than 40% prefer “modern” methods – about the same as those who prefer phone calls. Again, different people are different.


These simple insights come from “Small Data” – a few thousand surveys of individual brand-service customers. The insights here show us that there isn’t one right answer that fits all – the data steers us into looking at customers within discrete segments, each segment having discrete preferences. We all know this is true.


So, why do we treat each service customer the same way when they schedule/arrive for a service appointment? It makes no sense.


Bottom Line: The technologists who are designing the tablets for Service Advisors should rely on some “small data” to accommodate service customer segment preferences. The service experience should be dynamically scripted to maximize accommodation of consumer preferences, which should then maximize consumer satisfaction.


To be perfectly clear, if I know Mary-Joe’s preferences are that: (1) she will wait up to 1.5 hours, (2) likes to be greeted at her car, and (3) wants texts to keep her up to date with her service, then I can…
  1. Prioritize my workload to make sure her car is finished inside 1.5 hours and not have to give her a loaner,
  2. Give her a priority customer card and shift her to a desk-less service lane, and
  3. Set up a texting schedule that keeps her apprised of progress.
We can accomplish results more readily than with big data by doing simple things like capturing customer profiles at first appointment, at service handoff, at scheduling, or at the owner portal. These can be done up front and occasionally refreshed. This removes the margin of error of big data, because we know we are right. And it’s a lot cheaper.


And, most importantly, we can deliver to Mary-Joe a flawless, repeatable service experience.


Wednesday, June 3, 2015

The Connected Vehicle First Needs To Be Connected – Carlisle Research “Scrapbook"

We do a lot of research about what goes on in the dealer service lane. Sometimes it is interesting to connect the dots between disparate sources of data and see if it better explains life, or what life promises. Here are three pictures from our scrapbook and some simple messages. What do you see in the scrapbook?
  1. According to dealers, not many repair orders are scheduled online.
  2. According to customers, many prefer to schedule online (more than those actually doing so, as shown above), while many others prefer to just call in and schedule their service.
  3. It seems that most customers would prefer to connect from their vehicle to schedule service.
Bottom Line: It seems that we have a problem with the tools we provide customers to schedule service today. Many are interested in doing it electronically, but less are actually doing so. Either dealers are slow to adopt or the current set of web-based service schedulers are flawed and not liked much by customers or dealers. Beyond this, customers want the convenience of scheduling from their vehicle, but we still have some work to do here.

Thursday, May 21, 2015

Why Driverless Vehicles Are Inevitable, and Why We Care About This
by David P. Carlisle

For quite a while, driverless vehicles have been in the news almost daily. Now we hear that Google has perfected its self-driving car, and that driverless vehicles will be commonplace inside the next five years. This is very important to everybody in our industry, as well as to consumers. Safety and cost are the two big benefits to vehicle owners and drivers. Driverless vehicles will crash less, which means fewer injuries and fatalities, and, inevitably, lower insurance premiums.


For the industry, fewer totaled vehicles will take a bite out of vehicle replacement sales. Lower collision rates will take a bite out of collision parts and labor sales. The driverless car will profoundly change the industry. So, yes, we care about it.


In fact, this innovative “product” is almost fully baked and ready to go. As a successful prototype, we already “have” it. But, do we “want” it??? Is our nation’s legal and regulatory apparatus ready and willing to accommodate this new technology ?


I think those changes will be made. Here are six good reasons why the driverless vehicle is inevitable.
  1. It’s not that big of a deal for our highways to accommodate driverless vehicles. In the U.S. we have approximately 4 million miles of roads. About 3% of those lane miles are devoted to interstates/freeways/expressways, but that 3% also carries about 30% of all vehicle miles traveled. We predict driverless vehicles will probably be using these high-capacity roadways.
  2. We are running out of highway capacity. Our current population of 325 million has grown 14% since 2000, and will grow another 4% by 2020. But, our highways certainly haven’t grown 14% since 2000. In other words an increasing population is being serviced by a highly constricted highway system now operating over capacity. That’s a big problem.
  3. Furthermore, a highway’s carrying capacity is not a smooth linear progression. We’ve all experienced this. You are traveling steadily down a busy interstate, and suddenly see a police car on the side of the road flashing like a Christmas tree. Everybody slows down, rubber-necks, and what was OK traffic becomes a parking lot. This chain reaction – slow human response time coupled with the human capacity for distraction – screws things up. Let the machine drive and the humans gawk, as is their nature. The driverless car would have a very significant, positive, impact on highway capacity.
  4. Boomers are aging. Right now Baby Boomers, the 50 and 60-somethings, represent a tad more than 27% of the U.S. population. By 2020 Boomers will still account for around 20% of the population, but they’ll be slower and their reaction times more retarded. The adverse impact on highway capacity and safety won’t be trivial. Instead of a bunch of young NASCAR drivers, we will have 14% more older drivers with typical declines in vision, judgment, and response time . Yuk. Hmm… if a Toyota can parallel park itself better than a 20-something can, who knows how much a machine can improve on the driving of a 70-year-old Boomer?
  5. Driverless is more green. The energy crisis has melded into an environmental global warming crisis, and it is environmentally irresponsible not to try to reduce fossil fuel consumption. Driverless vehicles, especially in trucking, can take a huge chunk out of fuel consumption through platooning and by taking advantage of vehicular drafting. This works for cars, too. Here, again, machine beats man.
  6. Truck “Platooning” saves lots of money. Imagine a convoy of seven trucks. Typical cost of operation is a little more than $1 a mile for a long-haul vehicle – so this convoy costs about $7 a mile to operate. Around 20% of that cost is for fuel, but fuel consumption can benefit from drafting – maybe we can save 20% of the fuel cost with this. ($1.40 per mile in fuel cost for the seven trucks goes down by $0.28 – a 4% drop in total operating cost.) Labor is about 30% of the operating cost. Typically, labor would account for a bit more than $2.10 of the $7 a mile. But, if we “platoon”, we only need one driver in the lead. So, we save $1.80 of the $2.10 truck driver expense, or another 26% of the total cost. This is serious, compelling, money.
Bottom line: It is a very safe bet that we will see driverless vehicles somewhere on the road inside the next five years.

Thursday, May 14, 2015

Why General Motors No Longer Has Parts Warehouses; They Have “Distribution Plants”
by David P. Carlisle

(“I … agree … about the need to do away with the term “warehouse”. To me, the word brings up the image of the last scene in “Raiders of the Lost Ark”…. massive storage of items that rarely move. The whole point of a Parts Distribution Center is to distribute, not store.” Cheryl LeMieux, General Motors)


If you put together a few facts about parts distribution you have to ask an obvious question. Fact #1: General Motors has had the highest parts distribution center network productivity in the industry since 2010. Five straight years of leadership is not a blip. Fact #2: at the same time, they have been in the top 2-4 OEMs in terms of quality – they actually take more pride in quality leadership than productivity leadership. The question: How do they do it?


If you walk through a GM parts “warehouse” and pretend that you know absolutely nothing about parts “warehouses,” you’d swear that you are in a state-of-the-art assembly plant. A really good one at that. Material flows into the “plant” at a near just-in-time rate. The material is processed and staged – we call this “binning”. Ultimately, the material is assembled into custom orders and shipped out to dealers. Just like assembly plants that make vehicles.


This is not a radical process; for the past 20-or-so years Toyota has leveraged the Toyota Production System in its parts facilities. Many other OEMs have codified their manufacturing process strategies and lent this lean toolkit to service parts distribution.


Toyota is justifiably credited with putting “lean” inside the warehouse. They adapted their manufacturing practices to the parts warehouse – key among these was the elimination of “muda” – waste. These adaptations are what I term “Vertical”; that is, lean manufacturing techniques that apply outside a manufacturing plant. This represents a different way of thinking that can have profound results.


Take, for instance, “kaizen” – practice of continuous improvement – another “Vertical” that profoundly changed our industry. Toyota is the undisputed master of lean Verticals.
Time-out: Six Sigma is a good example of an “extreme” lean Vertical. The term "six sigma process" comes from the notion that if one has six standard deviations between the process mean and the nearest specification limit, practically no items will fail to meet specifications. This very simple concept has a cult following. Typically, outside of Toyota, activists/gurus of various individual lean Verticals are messianic in their advocacy, where all else is diminished inside the micro-nuances of process and technique.


Moving through and mastering a complex set of rules, new gurus are coronated with black belts once they make it to the promised land. Novices look upon these extreme Verticals and become dazed and confused. But, they can’t show their confusion, because they’re expected to understand; they are drilled on the utter simplicity of what is, sometimes, a process of Rube Goldberg complexity. When talking with some Six Sigma shops, I’ve identified what seem to be three groups of followers: those who have others do, those who do, and those who just don’t get it. The focus is typically on the individual Six Sigma efforts and not the consolidated total result. Sometimes, it appears that the whole is less than the sum of the parts. Maybe it’s just me.
It is easy to find lean warehousing practices outside Toyota, where you will encounter a broad cross-section of Vertical approaches. Many of these facilities are managed by warehouse managers who have been heavily influenced by Toyota, or that are run at a network level by supply chain executives … who, also, have been heavily influenced by Toyota.


Typically, we see lean Vertical principals applied, independently, at each facility. The logic behind this makes sense, because at the heart of most lean strategies is Kaizen. Continuous improvement begins at the home, and each home is different.


These warehouses generally look clean, uncluttered, simple, no-tech, bright, and efficient. These are very common impressions. However, most of us non-insiders cannot fully grasp the material flow inside an hour’s tour. That’s because the common Vertical lean practices and touch points look different from one facility to another.


But, GM is very different. Instead of borrowing and adapting lean practices from the manufacturing group, GM runs their service parts supply chain like a string of production plants. Charlie Hyndman is the vice president, who grew up in manufacturing (http://ccsparethoughts.blogspot.com/2013/11/interview-with-charlie-hyndman-is-he.html), and has been at the helm of GM’s aftersales supply chain for more than a decade. His entire team performs like a world-class manufacturing team.
This is an important point: because GM runs its parts supply chain like a manufacturing operation, and not as a “borrower” of lean manufacturing Verticals, it is, by definition, more effective. Why? For the same reason that an endless stream of copies of copies inevitably degrades the information. Only the original provides the clarity of the “original” ideas.
GM strips away the mystique, making their lean approaches easier to grasp … and grow. It makes more sense to explain by example.


All of GM’s “template” parts facilities are cookie cutter designs. They have long, wide aisles devoted to the fastest moving parts (approximately 40% of the volume and associated labor). For years the picking path within a bay resembled a typewriter – moved along the top shelf and picked, came back and picked the next shelf down, and finally came back and picked parts from the bottom shelf.


Like all facilities, workers at the GM Chicago facility are trained in continuous improvement. Inevitably, they figured out that this method of picking parts was inefficient. If you picked parts up and down, you would save steps and time.


They were correct – moving to the new picking path saved 1,000 steps each shift per worker, and 14 miles of steps per shift across all pickers. This continuous improvement philosophy (call it Kaizen) is deeply embedded in GM’s workforce culture; they do not need ornamentations, or coronations, to internally merchandise this sort of concept.


In isolation this plant would not be remarkable – it’s the result of a typical lean Vertical – Kaizen. What is remarkable is that each of GM’s template parts facilities is “massively parallel.” Each has the same fast-pick aisle configuration, and each employs up-and-down picking. This has enabled GM to replicate the results in the Chicago facility across the entire network. Inside of five weeks.


Perhaps what’s even more remarkable is that GM’s Chicago facility is the 15th most productive parts “warehouse” out of 192 motor vehicle parts warehouses in the Carlisle benchmark database (productivity for just hourly labor; looking at “all in” labor, it is 5th ). GM’s Chicago facility is firmly entrenched in the first quintile – top 20% of all warehouses – where you might not expect there was much more room for improvement.


It took me more than a decade to understand what GM was doing. At the center of my confusion was the term “template warehouses” that they used to label their new parts facilities. I heard this and thought of nouns (things), not verbs (processes). What GM has done is standardize their process “templates” across all of their facilities. They wrap all this inside their “Global Manufacturing System” (GMS).


Time-out: GM’s Global Manufacturing System (GMS) has driven dramatic improvements in safety, quality, productivity, and cost. At its heart is a dynamic, best-practice based approach to manufacturing that engages every level of the organization. As such, the GMS umbrella is used to design comprehensive training programs to teach “lean” to the shop floor: Standardized Operating Sheets (SOS), Job Element Sheets (JES),
and Job Instruction Training (JIT) are the backbone of continuous improvement and sustainability. In the example here of a Job Element Sheet it is easy to see a comprehensive approach to measuring out job steps.
This is critical, because GM designs training programs around shop-floor processes. Process compliance – “management” – is covered by audits. The audits can be either comprehensive or short: ten-minutes.


If everybody is a “black belt” on the shop floor, and nobody can break a stiff 2x4 in half with a leg thrust, then you probably don’t need any nifty labels. That’s what I see in GMS … and what makes it very difficult for others to emulate. GMS has coupled two key lean Verticals (continuous improvement and short lead time) with one organizational principal (people involvement), a centuries- old manufacturing principal (standardization), and a singular driving customer objective (built-in quality). GMS is incredibly logical and simple; possibly too much so to be taken seriously by others struggling to improve, and sustain any gains.
Bottom Line: GMS has no fancy pyramid scheme to coddle the gurus.
It is simple and incredibly easy to understand. Maybe that’s why it works so well in a parts distribution environment. Most firms use a handful of Vertical lean processes to get lagging quintile warehouses to toe the line. That only gets you so far. GMS is focused on standardization, documentation, training and auditing … across all global facilities … with the objective to minimize network variability.


It works. That’s why GM is at the top of the heap in parts distribution … and likely to stay there.


Wednesday, March 11, 2015

Wholesaling With Wormholes
by Brian Steinmetz

Well, they’re not the same wormholes you saw in Interstellar, but these wormholes provide nearly instantaneous direct paths from your parts counter to the customers you are trying to reach. I’m talking about targeted digital wholesale marketing – sending customized email messages directly to the parts purchasing decision-makers at a dealership’s wholesale customers.


For years, automotive dealerships have used targeted digital marketing to reach out to their retail customers (“We were glad to have you in for an oil change last month! Come back for 10% off your next one!”). With some small adjustments, this technique can also serve dealerships that are contacting their wholesale customers (fleets, independent garages, or body shops). Unlike retail customers, individual wholesale customers purchase large volumes of parts, which means wholesale targeted marketing can yield significant returns.


But it needs to be done right. How do you create your strategy?


An effective targeted digital marketing strategy is typically part of a larger customer relationship management (CRM) initiative. However, the digital marketing provides a unique feature: the ability to directly track impact. This tracking takes the form of monitoring delivery rates, open rates, and click-through rates for your marketing initiative as a whole, as well as for each individual customer. Knowing which customers are actually opening the marketing messages will produce a list of hot leads for a counter salesperson to follow up on.


Electronic delivery also allows you to customize messages for different recipients. Your active customers could receive one message, thanking them for their continued business with a 5% discount on product line ABC, while inactive customers that you’re trying to recapture could receive different messages, like a 10% discount on another product line.



“Sounds great. But does it actually work?” Yes, it does. One automotive OEM that employs this wholesale direct digital marketing strategy consistently sees positive outcomes. For every month that these messages have gone out, roughly 7% of their “inactive” wholesale customer base (those that had not purchased parts in 90 days) came back to the dealership for their first parts purchase in a while. Active customers who received these marketing messages became inactive at a lower rate than others. Taking a larger view of the situation and evaluating the OEM’s entire wholesale customer base, the customers who received the messages purchased more parts year-over-year than customers who didn’t receive messages.


Bottom Line: Targeted direct digital marketing to wholesale customers has the potential to yield huge returns on investment, when paired with a well-planned CRM strategy. The ability to deliver to your wholesale customers a tailored message cheaply, quickly, and easily is one that we all can access; we just need to build a plan and then send a ship through the wormhole.


Tuesday, March 3, 2015

Service Lane Technology: Up Close or Impersonal? What Do Consumers Really Want?
by Meredith Collins

Do consumers really want Service Lane Technology? We examined this important question as part of a recent focus day on Service Lane Technology (SLT) solutions. During the day, OEMs and SLT providers discussed where the technology is headed. While researching this topic, we also held a focus group with customers who had been exposed to service lane technology, in order to gauge their perception of it. The general sentiment of this group – which consisted of people in their late thirties and older – was that SLT could be a good thing, but only if the dealership uses it properly. That is, these customers still want their interactions to be personal; they expect a certain level of human connection.


After watching the footage from the focus group many, many times, I realized that these people shared a common idea of what a service experience should be like, and how technology can help provide it. I understood their feelings – yet their concerns didn’t reflect at all how I feel about Service Lane Technology.


For example, they want their Service Advisor to know their name; to know their children’s names. I don’t care if my Service Advisor remembers me. They want hand-written MPIs, as this demonstrates a “personal touch” and “extra attention”. I want an MPI that I can easily read, preferably one printed from a computer and emailed to me. They think it’s rude when their Service Advisor fails to make eye contact, and instead focuses on entering information into his tablet. I don’t care if he’s paying attention to me; I want him to be paying attention to my car.


So, what is driving the difference between my expectations of the service lane and the focus groups’? Why is my view of technology and customer experience so different from theirs? The answer: a generation gap.


Millennials – which I’m going to define as anyone under the age of 30 – have come to view the customer experience very differently from the generations before them.


I think there are two key points here:
  1. Millennials don’t need, or even want, to have a personal connection while in the service lane. We aren’t necessarily looking for the MyGuy experience. Rather, we want our service or repair to be efficient and quick, causing minimal disruption to our lives.
  2. We are also significantly more comfortable with the use of technology. We grew up with it; we don’t remember a time when it didn’t play a significant role in our lives.
With this in mind, I think that SLT is the key to providing millennials with efficient, streamlined service. Think about it: I rely on my smart phone to complete several important tasks every day. I trust it to do my banking, pay my utility bills, order an Uber, repay friends for splitting an Uber, navigate around Boston, etc. These apps aren’t particularly new or revolutionary, but the point is that I actually use them. In fact, I am completely reliant on them. People in earlier generations, however, are less likely to trust the technology to make such important transactions.


This may explain the disconnect between reactions of different groups of consumers in the service lane. Millennials are more comfortable having technology replace old processes. So, not only will millennials trust SLT, we’ll be turned off by the failure to use it.


Our research into SLT has determined that it is undoubtedly the way of the future. Not long from now, every service lane will have some form technology, and the entire service process will flow smoothly from scheduling to check-in, to write-up, through the service itself, and finally post-service. The biggest unknown is how quickly dealers will adopt SLT.


Up to this point, they’ve been slow to make changes, as there is pushback from service departments that are comfortable with the way things are. I argue, however, that SLT adoption needs to be a priority for dealers. More and more millennials are becoming car owners and are choosing where to service their cars. Even though the older customer base may hesitate to trust technology in the service lane, an increasing customer population will expect it.


Bottom Line: The next generation of customers is here. We want dealers to have technology solutions in the service lane to make the time we spend there more streamlined and efficient. Lack of technology may mean lack of our business.