Thursday, November 18, 2010

Supply Chain Dynamics for Hybrids and Electrics

Our industry is capable of some pretty profound “do-overs.” The Chevy Volt and Nissan Leaf are two good examples. Gives me hope in those product guys and gals.

What about our supply chains? Why can’t we design and launch a “do-over” riding on the back of this incredible product innovation? Our industry is in the process of proliferating small volume eco-variants of motor vehicle technology that is very different than our mass-produced combustion engine fleet. The Volt will be a fairly low-volume product with one gas engine, one electric motor, and a humongous battery pack. It will have unique sheet metal and interior trim, with the preponderance of its powertrain components being unique and low volume as well. The Volt and Leaf are not the sort of vehicles that the aftermarket will gladly tool up for. The only parts competition will come from LKQ and their junk car recycling strategy.

These are low volume products with a fair amount of haz-mat, without significant aftermarket competition, targeted at highly educated and influential eco-minded consumers, who do not buy based on an ROI calculation.

So, are we just fine with flowing the service parts for these products through our traditional supply chains? Last week we discussed GM’s bold move of killing Mr. Goodwrench so that Caddy customers don’t get Chevy-ized service – tough move that makes sense. Why can’t we step up to the task of reinvention in our supply chains? Let’s think about it.
  1. First off, let’s think about the margin-math. We expect to see supply chain costs, as a percent of sales, that are reasonable. We mostly focus on the numerator – that’s the supply chain costs. Why not focus on the denominator? We have premium products where customers are making choices that go well beyond driving economics. They will pay more. More for the vehicle and more for the parts. So, if we want to focus on supply chain as a cost of sales, let the numerator drive the denominator … not the other way around.

    Timeout: The main concern with the denominator argument is that while cost of ownership may not matter much for the first round of buyers, it will matter (more) for the 2nd and 3rd waves of buyers, who are the buyers that really matter if these vehicles are to reach critical mass. The optics of high maintenance/repair costs may be more costly than any incremental revenue derived from pricing for the first wave of buyers.
    Timeout: Nah! The counterargument to the above argument is that the maintenance costs for EVs may be lower than conventional vehicles (e.g. no oil changes), so you may as well take back some of those savings with parts pricing. This may be more true of the Leaf than the Volt, which still has a conventional engine tucked in there … that only runs a fraction of the time. One caveat – initially, when the technology is immature, piece costs tend to be high. These high cost parts need to be reasonably priced or OEMs may get harpooned in the press, appropriately, by environmental groups.

  2. Next, we need to think of what’s the best solution for low volume parts. Easy. Single centralized warehouse located in Memphis or Indianapolis.
  3. Transportation? Air freight for all but Haz-mat.
  4. Haz-mat? Easy. Not my labor – outsourced solution.
  5. How do you run a small warehouse? Easy, make it bigger with shared/collaborative partners.

Bottom line: Looks like a great opportunity for working together as an industry, possibly with the assistance of a 3PL. The industry’s been looking for supply chain collaboration opportunities – this one is a no-brainer. It’s in all our best interests to find a low-cost way to get this new market segment off the ground. Talks should begin now, before inertia sets in and we fall back on our existing networks.

Wednesday, November 10, 2010

Death of Brand – Mr. Goodwrench, May He Rest In Peace - David Carlisle

GM announced the death of the Goodwrench brand this week as part of their overall brand clean-up strategy. My guess is that this was not an easy issue to decide on, nor did the balance of pros and cons clearly tip in favor of a yea or nay. Goodwrench, as a brand, did pretty well for about 40 years – huge brand recognition, and its brand affinity was spot on. If I had a multi-brand GM store, it was difficult to open one service bay door and specialize in 3-4 brands of service. Mr. Goodwrench branded the entire batch of GM support that went into extraordinary aftersales support for Chevy, Geo, Pontiac, Buick, Oldsmobile, Cadillac, and GMC truck. It was simple, elegant, and brilliant. Better yet, it worked and was effective. Mr. Goodwrench had huge brand recognition. He “branded” the concept of a trusting, competent, service experience, and he hung out at GM stores. He was feely-touchy that actually worked.

But, a lot changed in 40 years. If we go back a decade and think about brand simplification in a more traditional media environment, it was easy to poke some holes in Mr. Goodwrench. Just who was that guy? Was he a brand of genuine service parts? Was he the tech who worked on your GM car? Was he a Chevy guy? Or a Caddy gal? Did he represent uniform GM service standards? Hard to tell. But, he’s dead now.

Does this mean that all “service branding” is bad? No. I suspect that GM’s decision- making was more aligned with strengthening the basic vehicle brands than with the economic benefits of brand simplification. There’s lots here to think about.

The problem with Mr. Goodwrench was in overall vehicle brand management. Here’s the rub in a nutshell. I buy a Cadillac in 45 minutes; the dealer does not make much from this sale (he makes more from my trade-in); some years GM even loses money on the sale; I become a “service customer” for 4-5 years, spend hours upon hours at the dealership, and I move from the Cadillac brand to a “Goodwrench” brand, … just like my Chevy buddies. OK, I go to the Caddy dealer for the service, but, I get a Chevy-ized Goodwrench service. So, I’m in the market for my next car and I talk with my Lexus buddies. They get “Lexus” service for those 4-5 years. They tell stories about their dealer. It is hard to drink a martini and boast about my Chevy-ized Mr. Goodwrench Cadillac service to the Lexus crowd. It’s just too complicated. Goodbye Mr. Goodwrench.

That seems pretty compelling. Let’s do a 360. There are loads of service-parts brands that don’t have a marquee moniker attached: ACDelco (parts), Motorcraft (parts), Mopar (parts and “performance”), Mobis (parts). In the past few years, Ford launched a different sort of “service brand” called Quick Lane. If you go to the internet you have to be quite discerning to see the link to Ford. Ford’s Quick Lane competes against chains like Jiffy Lube and Firestone/Goodyear. A lot of the customers in this segment are aftermarket loyalist – they are a “lost generation” of dealer customers – once thought of as gone forever and way too expensive to bring back in. Ford’s approach was different than GM’s; they came to the table much later and under very different circumstances. Ford re-branded their offerings to a segment of the service and parts market that they were weak in. Actually, the more appropriate term is they “re-entered” the market. The logic of this is compelling – customers stray away from dealers to do simple maintenance at places where they think they can get a better deal in terms of both price and convenience. Younger, more internet-savvy, customers stray even more than our traditional older demographics. Dealers have age-old poor reputations for price and time-centric convenience. So, Ford has the Quick Lane brand for that sort of stuff. It is separate, but integrated at the same time – Quick Lanes are owned and operated by Ford dealers and they get all the around-the-wheel sales benefits.

Well, they get a little more than that. Since it is associated with a dealer, for these “strayed” customers they get higher vehicle repurchase intent as a side benefit of delivering competent “Quick Lane” service to customers.

The big difference between the Ford and GM strategies was in market segmentation – GM rebranded the entire service market with Mr. Goodwrench, whereas, decades later, Ford re-branded a segment of the market where they had not been competitive.

Bottom Line: Brilliant ideas have a half-life. They progress from brilliant to average, and on to mundane. Goodwrench seems to have experienced that lifecycle – it was a great idea that wasn’t very good any more and could not survive the internal gauntlet of critical brand review. So, it died.

But, I wonder.

I wonder if that gold-plated brand, that still has incredible equity, could have been repositioned much like what Ford is doing with Quick Lane???

Friday, November 5, 2010

Sales & Operations Planning – Miss & Hit

We have been asked on numerous occasions to write a blog on Sales and Operations Planning processes. Dragged our feet on that one for awhile. During the past year we were asked by two clients to participate in such sessions; we did so on a pro bono basis.

One session was disappointing. The expectation of the group was to develop new strategies during the meeting that could make a significant difference in the bottom and top lines. Everybody sitting around the table was pretty smart, so there was little chance that they had not figured out the right bunch of things to do. We spent most of our time frustrated, trying to figure out what had already been figured out. Frankly, I walked away from that session bruised and feeling quite stupid. After all those decades of being immersed in aftersales strategy, I felt as if I drowned at that meeting.

The second session made me feel better. Different OEM with a different mindset. Frankly, I was skeptical walking into the session. The big difference, which I could only discern on reflection, was the increased focus on communication and coordination. Rather than judge our success solely based on whether we walked away from the meeting with the “answer”, we took a more holistic approach to make sure we all understood each other and what we were working toward.

It is important to take a step back and think about the impact that significant strategic change can have on five business success drivers that we hold most dear: assets, structural cost, staff “headcount”, policy, and partner coordination. By just focusing on the top five staff groups in an aftersales organization we can see the impacts of “big” change in these five business success drivers. While business strategy setting is often spearheaded by sales and marketing, the ripples of internal impact are most heavily felt by IT and supply chain – notice the number of red dots in the graph.

It took IT decades to elbow their way to inclusion at strategy tables. They are now seen as key internal partners, because of their now familiar “incrementality” (“so, you really want to do this? well, it will cost X, I can’t start until Y, and it is Z on my list of priorities.”). The supply chain organization is often left out in the dark – not only does its “cost center” designation sometimes relegate it to an afterthought, but it also does not typically possess the clear dependencies of the IT organization nor the air-cover from an all-powerful CIO.

Let’s take a look at our current business environment. The dark days of 2009 are behind us, yet we are suspicious of our “recovery.” At worst, we question if it is a bubble that might burst and, at best, we think that sales growth might settle down to something much more modest. We all like what happened when we leaned-up last year: less inventory assets, lower structural cost, leaner staffing, and higher profits. Organizationally we still like to “peanut-butter” workforce staff allocations and cost reduction targets.

Our industry is pretty smart and has settled on a fairly tight set of key strategies. Many OEMs are convinced that some version of Saturn’s RIM (Retailer Inventory Management) makes the most sense for managing enormous enterprise inventory deployment … but they still struggle with how to accommodate/manage system and facing fill rates, sales and marketing push programs, broader retailer RIM parts coverage, uniform retailer acceptance, and total network supply chain optimization. All OEMs are embarking on aggressive digital strategies to increase market share and/or protect current turfs. These encompass owner centers, rewards programs, extended service plans, B2C, and B2B capabilities. Similarly, all OEMs are focusing on service retention to increase service, parts, and whole goods market share. Some OEMs maintain a “can’t get there from here” perspective, while others have a “can’t get there soon enough” attitude. Finally, finally, we see some movement on mechanical wholesale strategies, which really are critical parts of “retention” strategies. This year’s North American Parts Manager Survey will provide us all with plenty of food for thought in mechanical wholesale retailer perspectives. Accessories are taking off with increased vehicle sales and there’s lots of opportunity to grow faster, better, more-er, and cheaper here. And, the industry seems to be migrating more towards performance-based terms and conditions that act as enablers for the other five strategies. My guess is that this set of six strategies encompasses 90% of the “change” that is taking place at the 30 or so OEMs we closely follow.

So, when we map out the potential impacts of these more specific key strategies on the five business success drivers, we see that all of them have some impact; three have wholloping impacts. This reflects common sense that we now take for granted. Ford rolled out their integrated Daily Parts Advantage (DPA) strategy nearly a decade ago and we are, now, all used to highly integrated strategies. Yet, our strategy formulation processes largely remain non-integrated. We need to fix this.

Bottom Line of What I Learned From My Second Sales and Operations Planning Session:
  1. Involve all major parties that need to be integrated in your strategic rollouts.
  2. Let sales & marketing lead the charge in strategy formulation.
  3. Do not over-prepare or you will never meet.
  4. Do not meet with the expectation of developing new strategies. Rather, meet with the objectives to discuss pre-formulated strategies or to refine integration of these strategies.
  5. Let the conversation flow – do not bring out a stop watch.
  6. Do not be defensive – admit to past disappointments. The best strategies are the result of incremental improvements birthed from program disappointments.
  7. Don’t expect this to be a “one and done” meeting – your primary objective should be ongoing communication and alignment, not necessarily “joint decision making.” Like our RIM systems, if we and our dealers agree on parameters, it does not matter who “places” the order—either way we’ll achieve the same results.
  8. Leave your turf scars and attitudes at the door. Focus on implementing the right strategies at the lowest cost in the quickest timeframe.
  9. Don’t feel compelled to do somebody else’s job. Sales takes care of customers and is responsible for understanding their requirements. Marketing is all about share growth, awareness, and messaging in an increasingly digital world. Supply chain, service operations, and IT are independent enablers.
  10. Have some fun and talk a lot. Continue to do so.