Wednesday, July 8, 2009

Common Knowledge: Its Not Who You Know, It’s Who Really Knows

A lot of what we do is a function of common knowledge. Stuff we simply know a lot about. We know why parts sales are down simply because we walk the halls and collect information 24/7 and listen. We know why we can’t sell M&R wholesale because we talk to dealers; we even visit them. We take them out to lunch, and really understand how it works back there. Undercarriage? Power Generation? Accessories? Powertrain? Collision? Same answer; been there done that.

In fact, we take huge pride in understanding our customer requirements. A badge of pride is how much time we spend with our customers. We rattle off dealer names and tell great stories we’ve been told. We accumulate a lot of common knowledge, and pick up a fair amount of confidence and swagger in the process. We use this to make decisions at lightning speed. Because we know it cold, and because others don’t. It’s common knowledge.

I thought it would be interesting to challenge “common knowledge” and use real data instead of competing opinions and anecdotal wisdom. The easiest way to do this was to ask our survey team to take a recent survey and break down the industry responses by who filled out the survey. These surveys have gigantic sample sizes, so nothing was lost in the process.

Our annual Accessory Survey was completed in April, 2009. The chart with the red and green bars is pretty interesting. It contrasts “average” industry sales manager vs. parts manager satisfaction with accessory pre-installation programs. There’s quite a difference here. Parts managers are pretty specific in their dissatisfaction; sales managers are pretty happy. This is just one slice from the April Accessory survey. The parts manager’s cut on things differs from the sales manager’s in a broad range of areas. The person who sells accessories to end customers is the sales manager; usually not the parts manager. I wonder why the sales managers rate the “pre-installation of accessories” so high? Maybe because it involves less work than dealing with their parts department (postpone “spot delivery”, order the part, schedule installation, arrange loaner car, etc.) … and maybe the higher commissionable gross on the tricked out car will put a little something extra in their pocket. By the way, the person we tend to listen to and accumulate “common knowledge” from is the parts manager.

Maybe common knowledge shouldn’t be so common. Further, maybe the way we learn things should be challenged as well.

The major underlying message of the recent Lean at Volkswagen blogs was all about learning. Several years ago, using data and metrics, Eric Johnson learned that Volkswagen’s productivity was lagging. The evidence was indisputable. He created a burning platform for change, made people accountable, and leveraged metrics to measure progress. Eric was not steeped in warehousing and supply chain common knowledge; he decided to learn it from scratch. Not based on folklore and other people’s stories, but based on fresh facts. Volkswagen moved from supply chain back-of-the-pack to best-in-class. Volkswagen busted the myth of common knowledge.

OK, so, (1) dealer parts managers probably are not the best source of common knowledge in how to sell accessories, and (2) you don’t need a lot of supply chain common knowledge to get started on the path to best-in-class. Maybe there are more than 2 common knowledge myths in service parts?
  1. It is common knowledge that dealers cannot wholesale M&R parts to independent repair facilities. They don’t have the training, counter sales staff, field organization, delivery infrastructure, attractive-enough prices, and reputations. Parts managers know these limitations hands down – they know that the real “wholesale market” is for collision and D2D. So, spending time here is probably a waste of time. Hell, its common knowledge. I wonder; how are some OEMs busting the myth and getting double-digit gains in M&R wholesale?
  2. Everyone knows that price increases have a negative impact on satisfaction and sales volumes. Economists teach courses on pricing elasticity. In an economy like this, who would dare mess with pricing? Sales and marketing staffs know their customers cold and know when too much is too much. The risks are too great, so don’t bother. I wonder; if pricing elasticities are “real”, they’d be most real for the IAM. So how did the IAM raise prices so much in the last few years and still look so good to Wall Street?
  3. Most people will tell you that reman is for later in the product lifecycle, when market share is at risk and a lower priced part is all that will sell. Therefore, you shouldn’t offer reman too early in the lifecycle, because it will simply cannibalize sales of higher margin parts. Just listen to your engineering, purchasing, and sales staffs to learn this. I wonder; if this is true, then why are the HE segments so much more aggressive in reman when they have much more loyal customers for brand new genuine parts?
  4. Local Distribution Centers (LDCs) work in Europe; in fact they are growing in numbers. Nevertheless, American supply chain experts know that LDCs won’t work in the US, because of our unique geography. Just listen to your US supply chain peer group; the fact that no one has started one up here is reason enough not to consider the idea. I wonder; if we look at European vs. US service retention percentages, old-country Europe wins hands-down … could this have anything to do with different service location and parts distribution strategies?
  5. Sales and Marketing folks all know that service reminders have mediocre response rates and that you can’t increase the efficiency/effectiveness of service reminders except by including increasingly generous offers. Because of the heavy reliance on third parties to run service reminder programs, it’s too difficult to get the right data to drill down to find out what’s really effective and what’s not. Even though the spend in this area is generally very large, any improvements simply won’t justify the effort. I wonder; are all the service marketing firms out there just plain incompetent? Or, do some do it differently?
  6. It is common knowledge that you need a specific parts field organization for each whole goods brand. Daimler Truck supports both Freightliner and Western Star with the same field organization. Volvo and Mack have and continue to support both brands from the same field organization. Isuzu parts field supports Isuzu, Chevy and GMC dealers. But, these are all truck OEMs and they are very different. I wonder; are they really that different?
  7. It is common knowledge that dealer sales departments do not want to sell accessories. Of course when the Lojack rep offers to slide a few bucks to the sales or F&I manager for referring customers, but doing no other work, suddenly Lojack is listed on the addendum sticker on every vehicle in stock. I wonder if dealers using “genuine” OEM parts purchased through their parts department think that the negligible commission is eclipsed by the herculean hassle factor.
  8. It is common knowledge that field reps help dealers grow the business. I wonder; our field today is not what it was “back in the day” when “we” were in the field. What is left of the field seems to be undertrained and understaffed to the point of being barely competent to complete their checklists … much less to be business consultants who can help dealers grow business.
  9. It is common knowledge that there is a trade-off between inventory turns and fill rates. I wonder; NASPC industry trends show that a lot of companies are increasing both turns and fill rates.
  10. It is common knowledge that improving warehouse quality has a drag on productivity. I wonder; NASPC attention to the numbers seems to disprove this myth, too.
  11. It is common knowledge that to grow parts sales you need to re-loyalize owners that defected to the aftermarket rather than simply retaining current customers. I wonder; the costs to recapture seem awfully steep versus the costs to fix specific problems that give customers an excuse to exit.

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