Tuesday, January 27, 2015

Lean Inside a Parts Warehouse: Different Paths to Success Or Failure
by David P. Carlisle

For decades now, I have been fascinated with the Field of Dreams “build it and they will come” metaphor. I first heard it, obviously, in the movie where it sorta made sense in the context of fantasy. Next, Carl Sloane mentioned it as a reinvigoration strategy to motivate his partners in Temple, Barker, & Sloane (now Oliver Wyman) to grow the business. He majestically said, “Build it …. and they will come.” Carl was a god-like figure and that was all the Kool-Aid I needed to do his bidding.

To me, “build it and they will come” always recalls the phrase’s roots in a fantasy movie about a baseball game. This makes it a perfect metaphor when discussing business strategies. Some strategies are based in fantasy. Others are not.

That brings us to “lean”. Lean warehousing started at Toyota, and had no ties to fantasy. It combined Toyota’s approach to manufacturing with shop floor realities – largely interpreted by Tony Gomes (who now manages Honda’s NA warehouse operations).
Tony is the real thing – he talks with passion about the three lean building-blocks: process, tools & technology, and culture. Tony stresses culture.

I have argued with Tony for more than a decade, pretty much all in my head. Tony stresses each and every bullet in the culture box. With passion. I am not a purist and tend to stress the subset of bullets that work within each culture.

OK, back to the metaphor, “build it and they will come.” It is all about “it” – just what is “it”? I think Tony and I would agree on this: “it” is a combination of methods and tools that constantly evolves as a consequence of an organization’s culture.” “It”, too, reflects the organization’s culture, and “it”, too, evolves. “It” would be markedly different from culture to culture, reflecting different goals, values, constraints, and attitudes. I suspect that Honda warehouses, under Tony, look very different from the Toyota warehouses where Tony grew up.

Case in point, GM’s lean journey focused on productivity and quality, where they trudged a two-decade path from worst to best. You can see a plot of their progress in "The Story of GM’s 19-Year Ascent to Best-in-Class Warehouse Productivity.”

Looking inside a lean GM parts warehouse is very different from the inside of a Toyota, … or Volkswagen warehouse. VW made the climb up with a much faster pace than GM – the story is told in “Digging Deeper Into Lean at Volkswagen Group of America.”

Toyota, GM, VW, and, I suspect, Honda are all slaves to CI – continuous improvement. The only thing they might have in common is a touchstone lean graphic talking about methods, tools & technology, and culture.

Another approach to that lean field of dreams is to sloganize it. This left-most path in the above graphic is a corruption that can get all of our heads nodding and saying, “yeah, yeah, yeah.”

First, set your sightline on “lean” and announce that it is your strategy – “announce it and they will build it.” It is easy to imagine this as a top-down strategy of the George Patton variety. The marketing folks participate in a staff meeting, hear the new direction, and do what they do best: merchandise it.

Billboards everywhere. Electronic displays on the shop floor. Banners. Pages and pages on their web site. Slogans on business cards. And, pamphlets to be distributed to customers. These efforts usually stop short of specially printed books of matches.

This sort of lean strategy makes me feel uncomfortable. It reminds me of visiting a house where most of the art on the wall is of big-eyed children. What can you say?

Really, nothing. It is simply too embarrassing. And, that’s why it typically does not work. It is hard to criticize a soup label if you can’t taste the soup, or if the can is empty.

Bottom Line: If you’ve been staring at big-eyed children for a while, you might not be able to see very clearly, or assess where you are in the journey to lean. Here’s what you need to do:
  1. Look at your productivity and quality metrics versus a relevant benchmark group and assess if you are in the top (best) quintile or not. If you are in one of the bottom three quintiles, you probably are not a lean shop.
  2. If your people tell you that the benchmark metrics are irrelevant, then you probably are not a lean shop.
  3. If you suspect that you are in one of those bottom three quintiles and you see a lot of “big-eyed children” posters, slogans, and web-razzle-dazzle, then you probably are not a lean shop.
At this point, you have discovered that you are either on the journey to lean, or not. If you are not, get rid of the big-eyed children poster and merchandising. Then, get your head around the idea that lean is all about the nature and boundaries of your company culture, using appropriate methods and tools. “It” will not look exactly like anybody else’s lean derivation. In time, “it” will evolve to be your own statement of culture.

Tuesday, January 20, 2015

Outsourcing? Well, It’s Not So Easy Anymore
by David P. Carlisle

In 2015, we will be probing deeply into third party logistics (3PL), based on NAPB and EPB steering committee desires. We will be launching two 3PL surveys to the OEMs, conducting two different sessions at the conferences, and looking into the future with the Crystal Ball. Here’s a glimpse at some fundamental issues.

Twenty years ago, or so, was the heyday of parts outsourcing. Originally, an OEM’s most compelling reason for outsourcing was to support entry into new markets – e.g., Chrysler into Europe and Asia in the early 1990s. New markets were quickly eclipsed by new costs. Many who outsourced did so to reduce costs; variable labor cost reductions, headcount reductions, fixed facility cost reductions, technology investment reductions, and transportation cost reductions. If you started with bloated and inefficient warehouse operations, then it was easy to sit at a desk, and make outsourcing pencil. The big decision for OEMs was – “who” to outsource to.

The “outsourcers” (3PLs) were great marketers, but mostly had middling facilities and/or know-how. Greatness wasn’t essential for them to succeed back then; it was more about the razzle-dazzle. Mediocre warehouse operations could outperform the client’s operations and make the critical, original business case work. Once the parts operations had transitioned to the 3PL, it was essential for 3PLs to erase all the ways their clients could make comparisons. The 3PLs did not want to be held up to established standards. Razzle-dazzle.

  A lot has changed since then. First off, OEMs quite often found that life after outsourcing was not better. In a recent survey, only 46% of OEMs felt that costs were “better”; only 23% felt service was better. In fact, 31% felt service was worse. Well, that will wake you up in the morning.

OEMs found that continuous improvement of their own operations, as well as what they could see of the entire industry, was better. This is demonstrated in the 2004-2013 bar charts showing productivity and quality for over 100 OEM parts warehouses (insourced operations and outsourced). Over time, new methods, new technology, and new culture resulted in very significant improvements in productivity and cost. In many cases, the performance resulting from these improvements was better than the cost and productivity of 3PL operations.

Examining benchmark productivity for Europe, the numbers suggest that 3PLs have actually been losing ground in productivity; compare 2009-2014 to 2003-2013. In North America, outsourcing productivity gains seems to be on par with that of insourced operations. But, that’s not good enough. The real issues have to do with the rapidity of evolution, and the “big delta” one should get from outsourcing. OEMs are asking themselves, “Why bother?”

Decade-long 3PL contracts started to feel like the early days of a bad marriage.

Worse yet, the quality of internal operations has vastly improved, leaving 3PLs as high cost … and low quality.

Bottom Line: The razzle-dazzle doesn’t work anymore. Something else has to change. Over the past two decades, the OEMs have made plenty of changes … to such an extent that 3PLs and outsourcing simply do not pencil any more. The change needs to come from the 3PLs, if they are to survive. They need to leapfrog the evolution in practices adopted and experienced by their customers and potential customers. They need to offer “upper first quintile” cost performance and quality. They need to be measured, and measure up. They need to structure contracts that are unambiguous. They need to razzle-dazzle themselves for a change.

Friday, January 16, 2015

The Missing Piece of Dealer Service Marketing
by Nate Chenenko

I recently bought a certified pre-owned vehicle, and not long thereafter I received this email from the selling dealer. Looks good, right? It tells me what I need to know – my vehicle needs its 50,000-mile service. And it’s actionable – there are links right in the email to schedule an appointment and to get directions.

There’s only one problem: my car doesn’t have 49,223 miles. In fact, I received this email about a month after I bought the car, and when I got the email my car had fewer than 37,000 miles on it. We know that inaccurate mileage estimates are a problem in these service reminders, but, in this case, both the dealer and the OEM knew the actual mileage of the car.

This example shows that we have problems on two levels.
  • On a micro level, the problem is that we’ve got the wrong mileage estimate
  • On a macro level, the problem is that our service marketing isn’t as effective as it could be.
Leveraging a telematics system can help OEMs address both points. On the micro-level point, telematics provides the necessary mileage data to the OEM. No more estimation is required – OEMs now know the exact mileage of each vehicle. The macro-level point is far more important. Telematics nullifies the need for email service reminders in their current form.

Think about the process necessary for a customer to take action on an email service reminder:
  1. Open email program/website
  2. Click on dealer email, which likely looks like spam
  3. Read the entire email to see that service is required – and check that the email has the correct estimated mileage for the vehicle
  4. Click or call to schedule an appointment
  5. Go through appointment scheduling process
Whereas, if a telematics system is fully leveraged for service initiation, the process looks like this:
  1. See a service reminder pop up inside the vehicle
  2. Use the in-vehicle appointment scheduling feature/tool to set up an appointment
This shorter process with more targeted information (better mileage estimates; more local dealer recommendations) is more likely to drive customers to the dealer for service. There are still pros to the old email approach – you can actually look at your calendar, at your convenience, before settling on an appointment date and time. Some owners may opt out of the telematics system entirely. But the improvements telematics can make to the service reminder concept will result in higher service retention.

Bottom Line: In addition to its other benefits, telematics will solve some existing service marketing issues by targeting regular service reminders to those who really need them, and by making those reminders more accurate.

Friday, January 9, 2015

Parts Manager Satisfaction: The Industry Continues To Move The Needle
by Harry Hollenberg

In 2014, Carlisle & Company conducted the 13th annual North American Parts Manager Satisfaction Survey. Supported by 40 automotive brands/OEMs across North America, this industry-syndicated survey solicited responses from over 9,500 parts managers. Response rates continued to hover around 66% for the industry, with 20 unique brand/countries achieving > 90% response rate.

U.S. brands led in terms of Overall Satisfaction, with an average of 55% top-box satisfaction – up four points from last year. Mexican brands showed the biggest gain, jumping from an average top-box satisfaction of 29% in 2013 to 49% in 2014. Finally, Canadian brands stayed constant at an average 41% top-box satisfaction.

Year-over-year increases outweighed decreases on a roughly 3:1 basis, with the biggest improvements exhibited by two Mexican brands – each gaining over 30 points in Overall Satisfaction. In the U.S., the biggest gainers benefited from a “return to normalcy” as they managed to straighten out their supply chain systems.

  This chart looks at 2014 Overall Satisfaction across the individual categories, with the candlesticks representing industry high, low, and average. U.S. brands represent 13 of the best-in-class scores, Mexican brands represent three, while Canadian brands represent the remaining two.

Similar to previous years, Parts Representative, Order Processing Phone Support, and Order Processing Systems have the highest average satisfaction, in the 60%-70% range. Also like previous years, Pricing and Accessories have the lowest average satisfaction, right around the 30%-40% mark.

It is interesting to note that the company with the most “best-in-class” ratings also has the highest satisfaction with Pricing. As discussed in our November 14th blog, we consistently see that parts managers are relatively more satisfied with pricing (relative to the rest of the industry) when they are satisfied with the rest of the areas in which the OEM supports them. Dealerships don’t usually like paying OEM parts prices, but it is easier to accept when they feel the OEM is doing a good job of supporting their needs.

So, what were some of the key process/people/policy changes that the biggest “movers and shakers” made over the last year? Some of these (which were documented in more depth with the participating OEMs) included:
  • Reducing minimum piece prices for allowable parts returns
  • Streamlining communications describing material return process and policies
  • Improving fill levels by leveraging offerings of inventory management system, including conducting simulations and modifying stocking parameters
  • Focusing on back order reduction by intense monitoring (e.g., detailed daily B/O reports), heightened focus on expediting, better planning for inventory needs (especially for accessories and promotional parts), and increased sharing of status (with brands, customer care, etc.)
  • Offering faster order response time to smaller/remote dealers
  • Upgrading speed and reliability of electronic parts catalog system
  • Redesigning order hotline to assure each call/request is closely monitored and dealers are provided frequent updates on progress
  • Most notably, one OEM opened a Canadian PDC, rather than supporting their Canadian dealers out of the U.S. This OEM experienced a 30+ point gain in satisfaction after this decision.
In fact, the industry continues to make dramatic strides across all facets of parts manager satisfaction. As shown on this last chart, OEMs with best-in-class improvements saw gains ranging from 12 to 45 points across the entire spectrum of parts manager support. Clearly, there are still improvement opportunities available, and information gleaned from Carlisle’s surveys will help OEMs focus their limited resources on the right initiatives.

Monday, December 15, 2014

Big Data and The Future of Vehicle Diagnostics
(an excerpt)


Dealers pride themselves on the quality and accuracy of service they provide. They know that they are the genuine service option, and that their technicians are highly trained and supported by the manufacturer’s diagnostic information. Yet, industry-wide benchmarking indicates that some manufacturers see fixed-right-first-time (FRFT) metrics as low at 90% – one of every ten vehicles leaves the service lane without being fully repaired. Needless to say, this can hurt customer retention and brand loyalty. In fact, “My vehicle is fixed right the first time” was the fifth most important selection criteria for consumers in Carlisle & Company’s 2014 Consumer Sentiment Survey (Figure 1).

In Carlisle’s industry-wide Technician Survey, technicians estimated that they spent roughly one-third of their time on diagnostic work (Figure 2); in many cases this is billed directly to the customer. While this time is necessary to properly repair a car, it significantly reduces a technician’s efficiency. Vehicles are also becoming more complex; their interdependent systems require more advanced diagnostic tools.

In short, FRFT rates and technician efficiency won’t improve until diagnostics improve. Improving these metrics requires making higher quality and intuitive diagnostic tools/systems available to technicians. New big data analytics models, such as Artificial Neural Networks, could improve the speed and accuracy of repair identification immensely.

READ ENTIRE ARTICLE 2014 Big Data and The Future of Vehicle Diagnostics


The goal of improving existing diagnostic processes is to increase FRFT rates, enhance service capacity, increase customer pay sales, reduce warranty costs, and, ultimately, drive customer retention. This paper presents a big data approach that can successfully utilize the heuristic, “experiential” knowledge within the dealer network as an effective strategy to reach that objective.

At the enterprise level, the data would be particularly useful in identifying potential recalls based on systems and parts with high failure or error rates. The data would also stimulate engineering and service process improvements. For the supply chain, the data from onboard diagnostic feeds could be used to help forecast parts sales, predict demand, and anticipate forward parts deployment. These predictive analytics would help the OEM identify potential, impending failures, and notify the customer to get their car repaired before it even breaks. The information could also be used for targeted, timely marketing of maintenance intervals and regular service.

There are many barriers to overcome to achieve full implementation: integration of the data, its security, and its ownership. For this reason, Carlisle believes that this topic represents an area that could benefit from industry collaboration. A well implemented connected diagnostic process would improve not only our vehicles but the customer experience, technician efficiency, and shop profitability.

If you are interested in participating in this collaborative effort or have more questions please contact Chad Walker at cwalker@carlisle-co.com

Monday, December 1, 2014

2014 Fall NASB: Express Service Metrics – A Recap
by Eliza Johnson

At our recent North America Service Benchmark (NASB) fall meeting, one of the key topics was Express Service Metrics—the tracking of performance metrics and KPIs related specifically to Express Service.

At this point, most OEMs either have, or are planning to implement soon, an Express Service program. As Express Service becomes more common, it is becoming an integral part of many dealerships and a way to manage dealer service business. However, the rise of Express Service also drives a shift in the dealer’s staffing strategy, capacity, and profitability model. As these programs both enable and require the dealership to handle service in a very different way, we need to look at them with a critical eye separately from the main service drive.

Most OEMs report that Express Service dealers perform better than dealers that do not offer Express Service. As such, they are tracking a variety of metrics to measure and assess these programs. Currently, most OEMs are focused on volume and customer satisfaction measures including number of ROs, sales volume, sales by commodity, and overall customer satisfaction. These are all fairly common and are being used to understand the level of Express adoption and whether it is making customers happy. Retention metrics are common as well, although these are all a little different (retention overall, by vehicle age, by commodity, etc.). Fewer OEMs are tracking profitability and operations/efficiency metrics. And while many OEMs have developed dashboards and other express-specific reporting tools, these help them manage the business at the dealer level, but don’t identify what is best-in-class.

As it stands, OEMs aren’t aligned in how they are tracking Express Service programs—and this lack of consistency means there is no coherent way to benchmark Express operations. Establishing a common set of benchmarks and gaining dealer and industry acceptance is critical to understanding the long term success of Express Service programs. And, in driving change at the dealership to best support Express Service, these standardized metrics need to be socialized and integrated into dealership processes (accounting, etc.) and training. The key here is to identify what is best-in-class for Express Service and what high performance looks like. To do so, we need comparable data. As a result, Carlisle spent time at the most recent NASB meeting rationalizing metrics to make benchmarking Express Service a reality

During the meeting, we discussed potential metrics in the areas of Volume, Retention, Customers, Satisfaction, Staff, and Operations. The goal was to confirm a small set (10-15) of metrics to be established immediately and discuss future additions. Below is a summary of the outcome and the initial set of measurements that will serve as an industry benchmark:

This represents a starting set of metrics, which most OEMs are able to track and agree are key to assessing and managing the Express business. As a starting point, this allows us to understand how Express volume compares amongst OEMs vis-à-vis standard repair service, the impact on the customer experience and retention, and staff productivity and consistency. While this is a starting point, it will be important to integrate additional productivity measures as well as profitability measures in the future—OEMs will need to lay the groundwork to collect the data necessary. Additionally, as these metrics become standardized, we can introduce segmentation to assess, on a deeper level, distinctions for vehicle age and type.

Bottom Line: Express Service is now an industry standard and OEMs believe these programs are performing well. However, there is little standardization within the industry regarding how to measure these programs. Assessing performance long term will require robust reporting and an established set of benchmarking metrics across OEMs. By adopting and measuring these metrics, OEMs can assess themselves and manage and track dealer improvement plans.

Monday, November 17, 2014

Hey, Maybe Being Good Is Great
by David P. Carlisle

We have been measuring parts manager satisfaction for about a decade now. We do it on a global basis for some OEMs, and pretty much have the entire North American auto market covered. In other words, our measurements represent nearly all automotive OEMs. Lately, the leader in U.S. overall parts manager satisfaction has been an Asian OEM that is noted for blistering excellence. Our satisfaction survey is not a public beauty contest, so we cannot share the names with you. But, we can share insights. And a fundamental, driving question:

So what?

Or, what’s so good about being a satisfaction leader?

The same OEM that is the perennial leader in U.S. parts manager satisfaction not only leads in overall satisfaction, but leads in many individual categories of parts manager satisfaction: order processing system, collision wholesale, parts availability, accessories.

And pricing satisfaction.

Most folks familiar with parts pricing find it intriguing and, at the same time, baffling. How do you effectively price 150,000 parts? How do you know whether you are too high or too low? How can you effectively measure pricing elasticity? (OK, you can’t.) How do you price to “competitive levels” when most of your parts are somewhat captive? See, these questions are both intriguing and baffling.

To be an effective parts pricer, you must listen to the market. This goes beyond the math and science – you listen to dealers. If they complain a lot, relative to the competition, you’ve got a problem. If they do not, you might have an opportunity.

The parts manager survey reflects the market. It is nothing more than a listening device. So, what are the dealers telling this best-in-class OEM? Up and down the line, dealers are saying that they are doing well. They might be saying (probably are saying) that, given how well things are going, “We are pretty happy with your parts pricing.”

Let’s consider parts sales for a big auto OEM – $2 billion in sales each year is pretty close to the median for these companies. Let’s assume that annual CPI parts pricing fetches you 3-4% of added sales; call it 3.5%. Next, let’s make a safe assumption that being number one in parts manager satisfaction will allow you to get 4.5% instead of the typical 3.5%. This is a very safe assumption. So, what’s the 1% worth? $20,000,000 annually. Twenty million. Twenty million that can be partially invested in processes and programs that will make life for dealers better. Like improvements to your order processing system, improved collision wholesale, higher parts availability, and more effective accessories.

Bottom Line: Parts manager satisfaction is not a beauty contest. It is the market speaking to us all. It is the market speaking to you. If you listen, you might find that it’s worth it.