Thursday, August 20, 2009

Reman Picture Book … Or, If Opportunities Were Ships, Many Reman “Ocean Liners” Would Be Called the Titanic

For the past decade we have worked in reman on the auto side and HE side, but have never gotten into the mind of the end-customer. Well, within the past month we concluded a detailed look at the reman business from the customer and dealer/distributor perspectives. This was a joint program with a client and our 2009 summer staff – we did this in 2008 as well and focused on accessories. This most recent effort was interesting and showed some telling program “stress points.” Just looking at the reman opportunity makes many OEMs star struck – it is huge. We have seen reman strategy goals set to increase total parts sales by 20%, but making this happen involves resolving a lot of execution stress points. It is better to start thinking about likely program failures before designing an attack to capitalize on likely opportunities. So, this blog focuses on the fizzle, not the fizz. Ideas are a dime a dozen. Failure avoidance is where the real money is. Enjoy.

In the movie “Contact” Matthew McConaughey’s character, Palmer Joss, talked about Occam’s razor. It is all about explanations – when you have an array of possible explanations for something, usually the simplest one is the best. “Contact” is all about alien exploration, this blog is about alien thinking.

At this past year’s NASPC we talked about accessory sales in the mind of the buyer and we discussed research that explained a double-digit market share shift away from the OEMs to the independents. It was very simple: customers simply were not asked for the sale. The car salesperson did not even try to sell accessories to the customer. Accessories are sold by Auto, Heavy Truck, Ag, and Construction.

OK, let’s talk reman in CE and Ag. Car guys out there – pay attention, the lessons here apply to you, too. Reman is another area of huge opportunity, and a fairly huge frustration for many OEMs. Some OEMs have cracked the code here, others have not. Rather than tell the story with words, let me mostly rely on simple pictures.

First off, when we look from OEM to OEM we see a lot of variability in reman as a percent of sales. Maybe some OEMs are doing things differently.

Our surveys indicate that reman is important to CE and Ag dealers. In fact, 80% of dealers/distributors in this sample said that it is either necessary or very important.
Our most recent end-customer survey indicates that customers have a very good impression of reman – so, they aren’t the problem (the percentages reflect “agree” survey responses). They’ll buy the stuff.

Now this is interesting. A lot of customers decided to buy reman after talking to someone at the dealer or distributor. Hmm. Where have I heard of this before?

Well, this is not surprising – as Yogi Berra would say, it’s Occam’s razor all over again. Overall about 60% of dealers/distributors don’t have a “position” on reman or do not bring it up in the sales process. If you dig under the surface of this, 75% of the customers who don’t buy reman go to “reman-mute” dealers. Certainly this is consistent with what we found with accessories.

Another movie reference works where; “Field of Dreams.” If you don’t build it, they won’t come.

It is all about execution. You can check the boxes all you want on program design, and create wonderful PowerPoint presentations, but if you don’t get it right at the point(s) of execution, who cares. Reman has huge revenue generation upside for all sectors, but unlike other parts groups, it has some unique challenges. First off, mediocre reman programs ride on the back of warranty cost reduction strategies, i.e., you can save a lot of money by installing a reman engine when the new one fails during the warranty period. These savings are obvious, so you tend to structure reman strategies for engines and transmissions and sub-optimize your ROI. Second, reman involves highly specialized “manufacturing”, and service-parts organizations don’t do much of that. You can farm this out to a third party, but then purchasing gets involved … in something that they really have little experience with. Third, reman involves core management – reverse logistics – to sustain its feedstock and contain competition. This is another area of execution that service-parts organizations would rather stay away from. Fourth – the lynchpin – your dealers and distributors need to actively sell reman. This involves revenue management (dealers/distributors typically can get higher prices and thus more incremental profit dollars on new parts versus reman as the cheaper alternative), field organization contact, training (e.g., need to focus on quality reputations of new quality versus reman quality - while the issue might be moot, many dealers have experienced reman aftermarket substitution that is less expensive but not as good - this can make dealers a bit gun shy), service management (well conditioned dealers typically recommend reman if they have a good service business, e.g., if their service business is strong they want the turnover – they want machines in and out, so they sell the reman and get the installation labor and then move on to the next machine; if they do not, they may try to sell a rebuild to sell the extra labor hours), warranty program management … all those little details.

Two other takeaways:

  • Maybe your reman strategy needs to be remanufactured.
  • Maybe you should look for the simple execution explanations for other program disappointments.

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