Wednesday, April 28, 2010

Service Marketing in the 20th Century

I asked Jim Moloney for a proper name for “e-Fulfillment” and he came up with “service marketing.” The guy is a genius, so I’m not complaining.

Our business models are being torn apart and reborn in our marketing hatcheries. Things are about to change. Let me peer into the crystal ball and take a peek at what’s in store for us.

Where’s B2C going? If we look backwards a few years, we remember Hyundai’s experiment with B2C – selling parts on the internet. They were going after dwindling counter sales (DIY) with an ecommerce strategy that was perfect for the pre-bust internet revolution. It did not stand the test of time – maybe it was simply too far ahead of its time. We walked away from that lesson pretty sure that B2C was not a goldmine of opportunity. That was 10 years ago. Now there’s a lot happening in B2C across all our segments, and we are hopeful that we will see more success than we saw 10 years ago. For auto, B2C follows the path of modern consumer buying preference (via the internet) and the hope is that B2C will be additive. This goes for Heavy Truck as well. CE/Ag is more complex. B2C certainly will be additive in lawn & turf, but be more “industrial” in the CE and Ag sub-segments. It is probably here to stay.

How do you price B2C? One option is to create a dealer-centric strategy and let them price and compete. The laws of economic efficiency should take over, accelerated by the speed of the internet, and we will see the OEM market converge on a more price competitive position vs. the IAM. The main risk, though, is that we could spook a lot of customers as the market rationalizes. Another solution that would help customers and speed up market evolution would be to make price-shopping across multiple sellers easy, a la Amazon (but dealers, of course, wouldn’t go for this). Another option, already pursued by some, is to let dealers set prices, but also show the MSRP. This preserves dealer autonomy and provides customers assurance; it’s probably the most balanced approach.

B2B and how to reach dealer wholesale accounts? Simple, use established technology platforms and reach wholesale accounts and counter-sales customers with a single site. Once a wholesale account is established, dealer-centric (actually, customer-centric) pricing fits here, as do the laws of economics. Easy. No hand-wringing.

What about service retention and “traditional” service marketing? You need to embrace GM’s simple strategic building blocks of Capture, Connect, Close. Capture is relatively straight forward – brilliantly using branded search terms gets you to the first page of a Google search. Unbranded search terms are another matter – e.g., I type in “brake repair” in Google and who shows up on the top page? Mostly the independents, both in the organic results and the paid ads. GM and one of the Heavy Truck OEMs are going another direction and are able to get unbranded "captures" on the first page of a Google search via paid ads. Connecting is easy once you’ve captured – you take the web-searcher to a competent web page. Now, there’s a lot of art and science involved here, but the issues are now beyond finesse. The issues are all about transforming a lead into a sale. The offering must be attractive and the close must be seamless. OK, the big problem is the close. To close on the “lead” the dealer has to be a seamless partner. This is the desired “future state.” It is all about scheduling an appointment with as few clicks as possible. Ford’s Owner Center is a great benchmark for what an attractive selling environment needs to look like; VW is another great example. GM has gone down another path – a brilliant finesse. If you don’t have a world class Owners Center to bring customers to, then focus on connecting “leads” directly to the service providers … dealers. This is an additive strategy that really conforms to customers’ internet buying preferences – e.g., it would be additive to whatever benefits you could get from a Ford-like Owner Center. That’s what makes it brilliant.

The Owner Center is the equivalent of an aftersales shopping mall – here you can buy parts, schedule service, purchase extended service contracts/warranties, and get information (parts catalog, owner manual, Telematics report). Just go to the Ford Owner Center and take a look – this is what I’m talking about. This “shopping mall” is applicable to all our segments. If I have a tractor, I’d like to go to my OEM Owner Center to buy an extended warranty. And, maybe, some attachments and accessories. What about wearables? How about placing a parts order on my dealer, or scheduling remote service? What about making sure I get my annual maintenance kit for the lawn mower?

The Owner Center is a shopping mall concept that is applicable to all of our segments. It is – when properly executed – the promised land. All this will redefine how parts are sold, shipped, and delivered. All this will redefine our ship-from points, modal strategies, returns policies, and Ts&Cs. All this will redefine our inventory planning strategies and rules of inventory ownership. All this is coming at a breathtaking speed. Hold on for the ride.

Wednesday, April 21, 2010

Peek at Session Content for Next Week’s NASPC in Indy

Next week’s conference will be packed with content. To tell the truth, we were a bit worried about the impact of the recession on change and creativity. Well, that was needless. The industry showed itself to be quite resilient. Here are next week’s headlines.

The Crystal Ball focuses on three things. First is the recent recessionary survey, taken by over 2,000 retailers across all NASPC market segments. The big news here is the lack of bad news – our retailers weathered the storm of 2009 quite well and the impact of the bankruptcies was pretty much imperceptible. Second is the state of the industry. Lots of bad news with 2009 sales numbers, but lots of reasons to feel pretty good about 2010. Last is the focus on e-Marketing/ecommerce. Lots happening here that spells huge opportunity for service retention. Ford’s service retention metrics show them to be a leader – we will talk about what they do to make this so.
The Supply Chain presentation shows that inventory reductions were a key area of focus in 2009; productivity gains were quite common, with the most productive companies showing some of the biggest gains; 80% of the companies showed quality improvements, and transportation cost reductions were quite substantial. The bottom line here is that there was a lot of supply chain improvement activity, using many different approaches. This presentation will spend most of its time focused on the how behind the numbers.
The Supply Chain Panel focuses on 4 success stories: Mercedes-Benz’s and Navistar’s stories on inventory reductions, and AGCO’s and Mopar’s success with improved warehouse performance.
The Sales Expectations Roundtable is all about sales growth and an understanding of the drivers of service-parts sales.
Two sessions on ecommerce, e-Marketing, e-Fulfillment … or whatever you want to call it. Participants across all market segments are participating here: the experts’ session participants have already digested 100 pages of case studies. Change in how we go to e-market has been breathtakingly rapid. It is all about capturing intent, connecting with potential customers, and closing the sale. There’s a lot here to share and learn.
The Transportation Roundtable is all about sharing 2009 success stories. The ‘09 recession opened the door to some modifications that were previously considered taboo. From finally focusing on cube utilization, to changing shift hours, or reducing DDS – the industry made some difficult, but smart decisions in ’09 – nearly all of these are replicable across the industry.
The Networks Panel will address some of the most dramatic changes from 2009. Previous redesigns have fueled dramatic improvements at companies such as Ford and VWGoA. This trend continued in 2009, despite (or due to) the economic pressures. The pendulum continues to swing on critical network decisions – emergency vs. full service facilities, in-source vs. outsource processes, cross-border shipments, etc.
The Terms & Conditions Mini-Panel reviews a lot of the change that took place in 2009 – returns, RIM, and performance terms. OEMs are using terms and conditions to encourage dealers to grow and improve service to end-customers. Ts & Cs can be powerful levers to change dealer behaviors and enhance your brand.
Reducing Dealer Excess & Obsolete Inventory Roundtable focuses on the near $1 billion in excess and obsolete (E&O) inventory in dealer parts departments. Dealer E&O inventory can be reduced through a mix of traditional and innovative approaches. You need to leverage the most successful approaches from the industry to systematically reduce dealer excess and obsolete inventory.
Lifecycle Management: End-of-Life Strategies Panel – Companies are using a wide range of strategies to improve end-of-life profitability. Treating EOL parts differently makes a difference.
POS Data Management Roundtable will explore what data OEMs are collecting from dealers and how they are using this information. POS business intelligence is no longer an afterthought, but a strategic necessity. To that end, OEMs must develop capabilities to harness the power of POS information.
Heavy Truck Field Force Management Roundtable preparatory data shows that there is enormous variance in the topics that field forces cover when visiting dealers… what’s a best practice? All this variability suggests there is opportunity for improvement.
Metrics Panel Discussion will show us that there are plenty of opportunities for improvement, large and small. There is no “single best way” to win out there, but if we listen carefully there are some common ingredients to success.
Human Resources Roundtable will focus on the “supply chain” challenges we all face in managing our warehouse workforce. Our people are our “factory” – being smart in managing them will be key to continued efficiency improvement.

See you in Indy!

Wednesday, April 7, 2010

Show n’ Tell - Climbing Out of the Recession – Good News for Parts Sales

We will spend a fair amount of time at this year’s NASPC conference dissecting last year’s parts sales and looking at what 2010 is shaping up to be. There’s cause to feel pretty good.

We’ve been pouring over the results of the 2010 NASPC Recessionary Parts Survey that was conducted in February and March of this year. Over 2,000 parts managers took part in the survey and they reported fairly miserable results for 2009.
  • Truck, Engine, and Motorcycle got hammered.
  • CE/Ag did about as well as domestic auto.
  • With the importers doing the least-worst.
Bottom line is that retailers in all segments expect to see growth in 2010. Auto takes the lead, with CE/Ag retailers coming in about half as bullish. There were some surprises that we will discuss at the conference. So, what do we have? We have a couple of thousand front line troops telling us that battle conditions last year were terrible … and, also telling us that they feel a lot better about 2010.

Things are getting better in the market. We chart detailed monthly parts sales for 6 OEMs – mixture of domestics and importers. Just looking at M&R sales (the chart with too many lines oscillating in it), it is apparent that we started climbing out of the recession in the second half of 2009. To most of us, it certainly didn’t feel like it. You can see the trends even more clearly when looking at the sales deltas per 5-year UIO (last chart in this blog). This chart is loaded with information. First off, it shows that the auto OEMs have been gradually increasing their dollar sales per relevant unit in operation (5-year UIO) since the 4th quarter of 2008. The big problem for everybody was the sheer drop in car sales experienced in 2009. Even though the OEMs sold more stuff per vehicle, the sheer drop in vehicles sold could not be overcome.

Time-out: The 2010 NASPC Collaborative Forecast had baked in some assumptions that will offset, or eventually slow-down, some part of the sales rebound. Unfortunately, the higher quality of new vehicles will partially offset the gains in the 0 to 5 year old market … and car/truck mix will also have an effect. The 4 to 7 year old market will decline as 2007-2010 vehicles roll through starting in 2011. The domestics will be hardest hit. Companies with paid maintenance (i.e. VW and BMW) will enjoy higher retention. Toyota's recent gambit to include maintenance for two years is interesting and may be a forerunner of future policy ... 36 month bumper to bumper with maintenance may become industry standard. Ford is always an interesting case and may surprise everyone with some bold moves. The decline in older vehicles on the road, due to high scrap rates, will hurt aftermarket the most as vehicle age begins to drop. .
The other message was that one OEM pulled away from the pack – I call it “Big Red” on the chart. Big Red seems to be doing something different with customer service retention. We will unmask Big Red at the conference and talk about what they are doing that makes such a big difference.

Our retailers’ bullishness is credible. We are pulling out of the recessionary nose dive, and this is across all segments that we track. Increases in whole-goods sales will bring back parts sales, and we can all enjoy the 2010 baseball season with even more relish than last year.

Thursday, April 1, 2010

Looking at Recession Hurricane Damage – Sleuthing Into What Happened to GM’s Back Orders in 2009?

A lot of things that were supposed to happen, did. And a few things that were supposed to happen, didn’t. The Keynesian Paradox of Thrift was predicted to cause dealers to order less, bullwhipping to the OEMs who were supposed to order a lot less, and ending with the crack of the whip causing parts suppliers to buckle under and cease doing business. Or at the very least, cease doing business very well. Back orders were assumed to be a problem once the recession set in, and the hardest hit would be a company like GM that went into bankruptcy.

Well, that story didn’t play like we imagined. Not that many suppliers ceased doing business. GM, who was the big guy on the block, was supposed to get thrashed by supplier terminations and blasted by suppliers’ lack of performance. Didn’t happen.

Sherlock Holmes would have gauged the extent of GM’s recessionary “hurricane damage” by looking at back orders. “It’s elementary”, if you do not have the part and a dealer orders it, it goes on back order. If you have supplier problems, you can see it in your back orders.

Well, you all “know my methods”, let‘s first search for clues in the NASPC Parts Manager Satisfaction Survey (PMSS). Dealers hate back orders. Traditionally, the biggest driver of dealer parts manager satisfaction has been parts availability. Back orders certainly aren’t available. When the 2009 PMSS was published in October 2009 (reflecting September survey responses), we saw that GM’s parts manager satisfaction was down. This was not surprising – it could have been due to poor supplier performance, resulting in excessive back orders. That would have nicely fit the “driver” theory. OK, there are really two drivers of parts manager satisfaction – the other one is cash flow (call them “terms and conditions” and “returns”). When an OEM makes any significant change in these, they get clobbered by their dealers and this has a nuclear sunset halo effect that touches nearly everything and lasts about 2 years. We all know this. What happened to GM’s 2009 PMSS?
  • Dealers clobbered them on their material return program.
  • And, they clobbered them on their ship-direct program.
  • Satisfaction with back orders was caught in the overall negative “availability” halo, but was more an “orange” flag than a red flag.
  • But, they gave GM big high-5’s on a few investment programs – huge satisfaction increase in training, good scores for all forms of phone support, and an increase in satisfaction in parts marketing.
  • So, looking at the PMSS details, we could not pinpoint back orders as being a torpedo that would sink GM more than anybody else. We needed to look further.
“When you have eliminated the impossible, whatever remains, however improbable, must be the truth?” Let’s look at the 2010 NASPC Databook (it will be available to members in a couple of weeks). The NASPC sets a level playing field and re-states all the OEM’s back orders to eliminate as many apples from the oranges as possible. Here’s what we do: we take the average of how many lines are on back order for the calendar year, and divide this by the total lines shipped in the same period … then multiply this by 365 days in a calendar year.

Example:
  • OEM shipped 365,000 order lines in 2009 (could be multiple pieces in a line – for example, if a dealer ordered 5 screws of Part # 12345 in an order, this would be one order “line”)
  • OEM has, on average, 1,000 order lines on back order (this number fluctuates from day to day, so we take the average of several snapshots over the course of the year)
  • 365 * (1,000/365,000) =1 calendar day’s business on back order
Of all the automotive aftersales entities reporting to the North American Service Parts Conference (NASPC) with 2009 data, all but one experienced year-over-year increases in back orders expressed as a percentage of a single calendar day of business. Hmm.

GM was one of the 16 who experienced increases.

Time out: Sherlock would not look at the absolute numbers reported (see the chart titled “Change in Backorder Queue”) because GM’s back orders are somewhat inflated by RIM and ACDelco. Let me give an example. If a dealer receives notice that a part is backordered, he/she can call up their ACDelco WD (located close by) and order the part. If the ACDelco WD has it in stock, they can deliver it to the dealer same day – no sweat on this one. Now, if it is a RIM part, the dealer can delete the order … but it will be re-ordered next day and create another back order … so why bother deleting it. No other OEM has this second channel idiosyncrasy. Bottom line – you need to use a windage estimate for GM’s back orders and look at year-over-year differences.
However, GM’s proportional increase from 2008 to 2009 was less than the average auto sector increase (look at the top chart).
Time out: To put this into perspective, OEMs typically have on back order less than one third of one percent of their annual dealer order lines. This is a very, very small number – think about it in comparison to what you’d expect when you get your washing machine fixed. (I don’t think I’ve ever had a home appliance repair where some part was not on back order.)
Why was GM’s proportional increase less than average? We would have expected them to be “Katrina’d” … flooded with back orders. Why didn’t that happen?
  • We all saw what was coming by the last quarter of 2008, and we all knew that suppliers were going to get squeezed at best, creamed at worst. GM knew that with all of their problems, they could not be passive about this. So they planned and acted very swiftly.
  • To tell the truth, all the OEMs planned and acted swiftly … GM had their entire company riding on how well they reacted to the recessionary hurricane of 2009 … so, they may have been swifter than most others.
  • GM cut back spending, but they were smart about it. You can see from the PMSS that they continued their investment in technical support, training, and marketing.
  • Everybody knew GM was going to make it – so suppliers cut their biggest customer some slack during the dark days of the bankruptcy.
  • Comparing the above two charts, the HE sector (that got severely blasted last year) fared better than Auto. HE and Auto largely have different supply bases. Auto OEMs more commonly share their own supply base.
  • GM had more experience with their supply base, had more clout, and was more willing to refine terms and conditions that were more conducive to what suppliers needed to produce and ship parts.
  • The other Auto OEMs had less experience with problematic domestic suppliers, had less clout, and were less likely to be flexible.
  • GM’s supply chain team is pretty smart – so, they acted quickly and didn’t need to commission two studies to give them a solution that was “precisely late.”
  • GM’s purchasing organization is the most evolved – they have progressed beyond the dark-Kutner days to now being better to work with than some of the cut-throat purchasing organizations that the other OEMs have recently cultivated. So, who do you cut some slack for? Purchasing organizations that treat you like a commodity and strip out your sense of self-respect? So, it is safe to conclude that GM’s purchasing organization worked better with their supplier base than other OEM purchasing organizations.
Bottom Line: So far this year, GM’s customer back orders are down 24% and all of this is a non-problem. Their floodgates held and they survived.

All of this was pretty obvious when we considered all the facts. “They were the footprints of a gigantic hound!”