Wednesday, December 14, 2011

2011 Parts Manager Survey: Executive Summary

After the downs of ’09 and the ups of ’10, the industry hoped that 2011 would be a “back to basics” year. For some, that was the case. However, the earthquake/tsunami that hit Japan in March of this year had a devastating impact on the supply chain for a number of OEMs – especially the Japanese importers.

Even with these challenges, however, the Asian OEMs continue their strong performance in terms of satisfying their Parts Managers. For Overall Satisfaction, Asian brands represent five out of the top seven brands.

Before digging more deeply into the 2011 results, let’s look at performance over a longer time horizon. The chart below shows Overall Satisfaction for the past 8 years – both in terms of “Top Box” (% respondents selecting “Very Satisfied) and “Top 2 Box” (% respondents selecting “Very Satisfied” or “Somewhat Satisfied”). For each metric, it shows both industry average (the bars) and industry best-in-class (the lines). Note that these results are just for U.S. OEMs.

The results are quite interesting. What we see is that industry averages have been improving over time – Top Box has improved by about 13 points, while Top 2 Box has improved by about 8 points. However, best-in-class scores have been relatively flat. What’s the take-away here?

Generally speaking, the gap between the “best in class (BIC)” and “worst in class (WIC)” performance has been shrinking. By leveraging benchmark efforts, such as this survey, to identify BIC performance and then [more importantly] to get behind the numbers to understand the process/policies driving the results, the industry is collectively raising the bar for average OEM parts performance.

You’ll notice above that I used the terms BIC/WIC “performance”, not “OEMs”. That was a conscious decision, as no OEM has figured everything out yet. OEMs with stellar performance in one area do not necessarily do great in other areas. That’s the magic of collaborative benchmarking -- we can get behind the numbers (the “who’s”) to understand the “how’s”, thereby enabling us to pick and choose who to emulate and how.

By the way, why has the BIC score been relatively flat? Quite simply, it is difficult for the high performers to consistently maintain their performance. Supply issues, recalls, IT implementations…even earthquakes all can cause a “best-in-class” performer to stumble for a year. And as we have learned many times over, our customers are quick to judge, but slow to forgive. A one-year stumble in satisfaction may take three years or more to recover from.

So, getting back to our 2011 results -- let’s consider the other categories on the survey. The following chart shows the results for each
of the 19 sections on our survey. It indicates the industry high, low, and average score for the “Overall Satisfaction” question in each section.

There are two important takeaways from this chart. First, note that the industry average is typically much closer to the high than the low score. This means that 1) being “average” may not be that bad, and 2) if you have the low score, you probably need to make some dramatic improvements.

Second, notice that the “supply chain” issues – on the left hand side of the chart (order processing systems, delivery, ship condition, availability, etc.) all have high scores close to 100%. Conversely, the sales/marketing issues on the right hand side of the chart (marketing, wholesale, accessories, training, pricing) have much lower “best in class” scores. Clearly, the industry is doing a better job of meeting our customer’s expectations with respect to supply chain than with sales and marketing issues.

For most categories, the OEM with the biggest gain experienced improvements of 10-20 points – that’s quite a dramatic increase in satisfaction. So, what have some of these companies done to achieve these results? Let’s look at the top two:

In the case of the ship-direct improvement, it seems – no surprise – that it is all about availability. In 2011, this OEM (“OEM 1”) increased their direct-ship availability by over 4 points, from 93.6% to 97.7%.

How did they do this? First, they attacked this from an organizational approach. While they historically had personnel that “chased” parts, OEM 1 instituted a new group in 2011 – Material Flow Coordinators. These folks are tasked with working with suppliers from a strategic level – capacity planning, forecast utilization, collaboration, performance tracking, etc.

In addition, OEM 1 brought “accountability” to the world of ship-direct. While many OEMs have policies linking availability and on-time performance to future business (both service parts and production), most OEMs exclude ship-direct suppliers from this policy. OEM 1 was one such OEM that historically fell into this category.

However, starting in 2011, OEM 1 brought ship-direct suppliers under the umbrella of this program. Now, any ship-direct supplier whose availability drops below 97% is subject to losing future business – both for service parts and production.

The 20 point accessory improvement exhibited by OEM 2 was a result of a number of new initiatives. First, they implemented a proactive inventory stocking program for newer accessories. Rather than wait for certain demand signals, they set minimum stocking levels for the market to assure representation of stock on any current accessory.

Further, OEM 2 conducted a comprehensive new model year launch of their soft goods product line during the summer. Through this program, they had product available 2-3 months earlier than any launch over the past 10 years.

OEM 2 also began conducting one-on-one merchandising and marketing visits with their dealers to support accessory sales. So far this year, they have already visited about a third of their dealers to discuss how to better sell accessories.

Finally, last year we examined the top drivers of satisfaction for each OEM. We conducted the same analysis this year and found a number of similarities, but some changes as well:
  • Availability continues to be a primary driver for most OEMs. In fact, it seems to have increased in importance.
  • Collision Wholesale support is starting to creep up as a more important driver of satisfaction. Note that Mechanical Wholesale support doesn’t even make the list.
  • Phone support – especially technical phone support – seems to be dropping somewhat in importance. It’s not that this is suddenly not important. Instead, it seems that many OEMs have been focusing and improving their performance in this area.
  • Pricing dropped precipitously in terms of importance. History shows us that as we improve performance to our dealers, their focus on pricing declines.

For more information on Carlisle’s surveys, please contact Harry Hollenberg at

Note: Spare Thoughts will be on a two week break after this post and we will resume our weekly posts in January 2012.  We wish you and your family a happy and safe holiday season. 

Friday, December 9, 2011

My Guy

by David P. Carlisle

Besides surveying several thousand service customers, in the past six months we’ve held 18 focus groups with these folks. We asked them what they read, how they make decisions, what they think, and where they go. They read electronic media and tend to use their handhelds for this. They rely on advice from friends and family. They go to Yelp and Google to read reviews from strangers. They think dealers are impersonal and expensive. And, they go to “My Guy”, whoever their guy really is, to get their vehicle serviced. They trust their “My Guy” implicitly – see more here . Months of focused research, and it really reduced down to something this simple. In the 90’s I remember how the industry embraced the complexity of dealer operations with multi-million dollar process reengineering and television commercials of actors throwing car keys around the dealership like Harlem Globetrotters. Well that crap sure didn’t work.

Hyundai’s Frank Ferrara, one of my heroes, asked me to talk to a large group of his service managers about “My Guy.” I had to make a choice. Did I go for “all 5s” and feed them some pabulum stirred up for the masses? Or, did I feel lucky? Hit them with the proof behind my very simple story – you know, the charts and raw data. I asked around and was cautioned that dealer groups do not like dense charts with too many small words. They wanted everything digested and bottom-lined. I ignored this advice and took a chance. After the presentation Frank got back to me with this. “As far as your presentation is concerned, as always it was content rich which was difficult for some in the audience to digest in 1 hour. Many, many of the service managers told me they took 6 to 8 pages of notes. This is amazing to me because they are never in the note taking mode.”

One of the service managers asked me to call him back to discuss his take on the evolution of service customers. We spent nearly an hour talking. I learned that dealer service managers are very smart, entrepreneurial, and operate by a very different rulebook. I also learned that I had a lot more to learn. I’m going to be honest with you; any satisfaction score less than “very satisfied” hits me in the gut like a Joe Frazier left hook. The dealers were even more strongly receptive to my message than the others sitting in the room. Dealer service managers get it. They understand evolving customer attitudes and the value of “My Guy.” Because they are there, day in and day out. It is no secret that their world is changing as a consequence of this. They know that it is a huge priority for the OEMs and for their business models. They speak our language…perhaps better than we do.

We do not need to bring out our process mappers and corporate change management guidelines. We don’t need to bring our agencies into the loop. We don’t need to brainstorm more globetrotter trickery to sell ideas that are birthed and launched in the cold vacuum of corporate inner space.

Bottom Line: We need to directly involve our dealer service managers in the architecture of becoming “My Guys” and better competing in the market for service customers. We need to de-brand the basic processes simply because there is such incredible movement across the brands by the folks who make it happen. If we want to throw keys around the dealership we need to understand that inside one year that same cast of characters might now be a Chevy guy throwing to a Ford guy, who tosses to a Toyota guy, who dunks it to a Hyundai guy, who lays it up to a BMW gal. We intend to launch a My Guy summit in the spring of 2012 that will consist of the top three service managers from a selection of multiple franchises. For three days, we will take them through the data and then figure out what to do…that works and is sustainable. No key tosses; just focusing on the keys to success in our brave new world. How to become and stay “My Guy.”

We will accommodate a maximum of seven sponsoring brands with the My Guy Summit. Beyond these sponsoring brands, we will solicit the best of the best dealer service managers outside the sponsor group. We intend to permit strategic suppliers as sponsors. The summit will be a dealer-only crowd with no sponsoring corporate observers present. All sponsors get the full-unexpurgated results in whatever form they need to make change. If you are interested, please contact Robert Desel -

Friday, December 2, 2011

Musings: A Tale of Seven Cities - by David Carlisle

Make that seven OEMs. We collect tons of data on parts and service performance for dozens of OEMs here, in Europe, South America, Africa, Australia, and Asia. Let’s just focus on seven OEMs where we have monthly Market Watch (“MW”) parts sales data, Parts Manager (“PM”) satisfaction data, Service Manager (“SM”) satisfaction data, and JD Power CSI data. I normalized the data based on high and low scores for each data line item, and used a bit of dead reckoning for representing JD Power data at an OEM level. This is in the chart below. There is no single equation that relates all the data to a key performance metric – in this case, change in sales per 5 year UIO for 2011 vs. 2010 – call this “sales per UIO”. What emerges are seven different stories.

The Basics is all about an OEM who is very focused on availability satisfaction – getting the parts to the point of sale – perhaps at the expense of returns policies and pricing. Sales per UIO for the past year is just short of mid-pack, but last year was better than most due to brilliant digital strategies. Dealer purchase loyalty is lackluster, but not surprising given returns satisfaction. The messages here are consistency over time, point of sale availability, and being at the leading edge in digital strategies. These are the basics, and it is difficult to argue with this sort of strategy.

Nailing the Top is all about significant improvements to sales per UIO this year as a consequence of a broad focus on point of sale availability and customer retention. This is a company that takes metrics seriously and has a more traditional focus on customer retention that comes from field organization touch-points. Couple this with progressive terms and conditions and fairly brilliant digital strategies and you start to sell some parts. The big question is, will all this be enough in 2013-2015 when the sweet spot of customer pay UIO starts to sour?

Blessed 4Ps is all about great people, products, prices, and policies. Just having the first two puts you in a leadership position, where you don’t have to worry very much. Purchase loyalty is, not surprisingly, on the low side, mostly due to the relatively sparse dealer network that hampers dealer-to-dealer wholesale support.

Know Thy Place is all about the power of the brand and the respect within an organization of their brand. Respect is the key word here.

Rocky IV is all about attitude and aggressiveness. It’s Rocky butting up against that enormous Russian fighter. And winning. It is all about the power of leadership and the focus of an organization.

At the Limit is the story of a great and mature brand, great product, but, ultimately, the lack of resources. Here, there is very little difference between this “city” and “Nailing the Top” (they know what to do across a broad spectrum) and Rocky IV (really smart leadership and some stunning talent). There really is no reason for the low normalized positions in purchase loyalty and sales per UIO.

Need the Green is the story of a comer. Corporate has their sights set very high, great brand getting stronger, great product, very smart leadership, scrappy talent, and empowered. Empowered to nail the key stepping stone metrics. Normalized sales per UIO is at the bottom of the group simply because they did not falter during the recession – kept going strong with a consistent strategy and consistent investments. They need the green to get where they are going.

Bottom line: The efficacy of our business strategies cannot be tested with a universal equation populated with standardized variables. Rather, the variables themselves tell a story. And, it is pretty important to understand your story, because circumstances might change, …or, you might need to change. What do I see in this chart? I see “power”: brand, product, people, leadership, programs, measurement, attitude, and aggressiveness. I see “threats”: resources, investment capital, and commitment. And, I see “strategies”: digital, point of sale availability, pricing, and terms & conditions.

Friday, November 18, 2011

Dream 3PL Checklist for Farming Out Your Supply Chain

In the old days, an automotive service-parts third party logistics (3PL) provider looked a lot like public warehousing that the rest of the world was using. They provided a network of bricks n’ mortar warehouses with labor. Your suppliers shipped to them and they shipped to your customers. The business case compared your bricks n’ mortar to theirs and your labor costs to theirs. If they saved you enough money, well, then you might “outsource.” Some companies have specialized in outbound transportation, where they have great DDS route-building algorithms. They have site managers who take on the day-to-day carrier coordination. They have teams who negotiate carrier rates and break-bulk costs. Lately these companies have been offering collaborative savings to multiple OEMs. Other 3PLs offer IT solutions and process control solutions. Kit building, receiving inspection and consolidation, small parcel management are a bunch of other add-on solutions.

The landscape is very 1950’s. Lots of players, lots of redundancy, lots of bits and pieces to manage. It is very sub-optimal. So were those 8 mpg gas-guzzlers in the 1960s. 3PLs must evolve, and when they do there are some serious costs to be saved by all their customers. Here’s my evolutionary checklist:
  1. Not My IT. Putting in new enterprise supply chain systems costs tens of millions of dollars and takes years. You do a comprehensive requirements definition and supplier selection process and then buy an SAP variant that doesn’t work very well and costs a fortune more than the fortune you budgeted to integrate it all. Why not use a 3PL that bought that Cadillac SAP system for all their customers to use? Why not use it on their mainframe? Why not use mostly their people to run it? Why not use our own people just for the mission critical stuff like lifecycle planning and forecast parameter setting? Why not depend on the 3PL to hire the integrators – on the cheap – to build the interfaces to the sources of our data? There’s a 20% return on sales business here for the integrators that smells a heck of a lot better to the OEMs than typical software value-creation pricing policies.
  2. Not My Lean. Who cares about process classification when it’s really all about cost and quality? Too many do, who shouldn’t. Lean really is all about lean costs and robust quality. So, I really don’t care about those process control boards, Taekwondo cards, and “no fear” existential slogans. Why can’t I just go out and buy this stuff and harvest the benefits in less than a lifetime.
  3. Not My Depot. Who cares about dedicated warehouses and dedicated bins for “my” parts? If Vintage Parts can be world class with hundreds of thousands of commingled part numbers, then so can a mainstream 3PL. We need to focus on cost and quality rather than the accouterments of where each part dwells. Damage, cycle time, fill rates, and cost as a percent of sales.
  4. Not My Carrier. Who cares if DDS routes have multiple OEMs on them? When I go to my Chevy dealer for service I could care less about the truck that showed up at 2AM to drop off fresh parts. Nobody cares. Collaborated, consolidated, customer delivery is not a nice-to-have, it should be a basic requirement. The same goes for inbound. By the way, who really cares about logos on trucks? Get rid of them.
  5. Not My Break-Bulk. Who cares if these collaborated consolidated customer deliveries originate from a collaborative and consolidated break-bulk facility? Nobody. These facilities should, also, be receiving consolidated supplier drop-ship orders for the DDS routes, as well as referrals … and small parcel orders for criticals where we can still make the OTD work.
  6. Not My Returns Processing. Who cares if everybody’s dirty warranty returns and obsolescence returns share the same aisle? Nobody should.
  7. Not My Follow-up and Expediting. If we can use a third party to process our invoices and charge our suppliers a ridiculous line-item charge for this, well, why can’t we farm out all of our post-ordering activities to make sure the stuff arrives in time for the customer order?
  8. Not My Export Packing and Freight Forwarding. The best we’ve seen here is Volvo out of Sweden. However, this is an area where few others shine. Why can’t 3PLs offer a blanket supply chain service that wraps around some areas of distinctive incompetence? Why is this an afterthought?
  9. Not My Reman. Why can’t 3PLs offer an integrated service for all the stuff that aftersales is supposed to be doing well. Why can’t we get a 3PL to understand that reman is big money and represents low-hanging fruit? Why haven’t we seen a credible “LRP” – Lead Reman Provider – come in and knock our socks off?
  10. Yes, My Metrics! Why do 3PLs constantly play 3-card Monte with the metrics? Why can’t they simply adopt NAPB metrics and report their performance in the universal language of motor vehicle supply chain? Why not use a consistent report card that spans all players in the market?

Friday, November 4, 2011

Why I Don’t Believe AutoMD Can Claim a 57% Variance in Auto Repairs for the Same Service - by David Carlisle

I pulled this off the internet: "New auto repair quote service, AutoMD Negotiator, reveals that Minneapolis vehicle owners can overpay $341 on average for vehicle repair. … A new, national report by reveals that Minneapolis car owners are potentially overpaying by 57% on average on car repair" (

Ultimately this news plug was all about US Auto Parts Network, Inc., who owns AutoMD Negotiator, selling more parts. “57%” is awfully precise. Let’s take a look to see if they are worthy of this precision. Bottom line, they are not.

We have done extensive research on emerging digital service customers (EDSCs) over the past several years. About one third of all service customers are EDSCs – service customers who use the Internet to research motor vehicle service options – and about 40% of these switch service providers based on their research. They switch, but do not emerge more satisfied.

The reason for this is due to the low quality of the information they get from the Internet. Like Auto MD Negotiator. Let me explain.

The AutoMD Negotiator claims that their service is the solution to consumers’ price shopping quandary: “We call shops and negotiate for you, so you won’t overpay for auto repair.” In a nutshell, here’s how the Negotiator works: the user enters his vehicle and repair information, receives quotes to his inbox, selects one and schedules an appointment – all without picking up the phone. One of the charts in the AutoMD propaganda piece showed price quotes for a Saab in Minnesota – Saab is nearly bankrupt and primarily a Northeast niche specialty vehicle. To find out more, we went online and used AutoMD’s Negotiator. We submitted a wheel bearing replacement for a 2000 Hyundai Sonata. In a few hours, we received three quotes for the repair in our inbox, all from independent shops or chains, ranging from $450 to $611. As you can see in the chart, none of these quotes passed the laugh test. For more data points, we entered three more repairs. After receiving more quotes back from the Negotiator, we decided to call all the shops directly for quotes to see how they would compare. Three out of the eight quotes (37.5%) we received from the Negotiator were equivalent to the quotes we received when we called the shops directly – one of these three quotes was the same, but for 2 bearings instead of one. So far in our experiment they score two out of eight – 25%.

It appears that sometimes the Negotiator actually called the service provider directly (in the case of the chain franchise), but they never revealed that they were calling on behalf of AutoMD. Other times, it seems that they didn’t call at all, because surely they would have been told, as were we, that the shop didn’t perform those types of repairs. We called up AutoMD pretending to be a shop. We asked how we could sign up to be considered for the Negotiator. As it turns out, there are no fees or surcharges for service providers that want to be listed on AutoMD. Furthermore, there are no requirements for service providers who wish to be listed. Shops are asked to provide basic information, but there is no certification process, at least according to the person we spoke with.

When using the Negotiator, there are no selection criteria besides price – and sometimes the cheapest is the cheapest for a reason. When entering a repair request, the Negotiator doesn’t allow the user to restrict his search to certified providers or specify whether he would like genuine parts. There is no option to filter for providers that offer loaner vehicles or other conveniences, which are critical for those of us who only have one vehicle or who need Wi-Fi to check email when waiting for our vehicle during a workday.

The Negotiator claims to save users time and money, but without a robust process for collecting service provider information, how can the user be assured that the service provider selected by the Negotiator is a legitimate business? Based on our phone calls, the Negotiator also missed the boat on some crucial information; imagine a customer’s frustration if he showed up to an appointment scheduled through the Negotiator, only to find that the selected service provider can’t perform the needed repair. Or, if the user’s repair was performed by someone who is unqualified and/or puts a junk part in his car. At the end of the day, finding the lowest price is not the same as finding the best value, but it seems the Negotiator is not programmed to understand this distinction.

Bottom Line: AutoMD Negotiator is fatally flawed and should die from a thousand cuts. The first “cut” is from a meat cleaver – using a call center to call up service shops for a self-diagnosed repair is just plain silly. If the intent is to help customers find the best price for the service they want, you really need to start with what they want. Do they want cheap? Do they want quality? Do they want amenities? AutoMD Negotiator is like Nextag’s pricing of squirt guns. The price range is from $10 to $2,107. The “Miller 198130 Water Cooled MIG Gun” with quick disconnect represents a price variance of around 99.5%. Or, it might be a heck of a lot better squirt gun. Or, it might be a mistake and not a squirt gun at all. If you want to compare prices for automotive service, you need to do a lot more work than AutoMD does.

Friday, October 28, 2011

Amazon Prime – Are There Lessons for Service-Parts? - by Brian Crounse

Amazon’s stock got hammered this week, following relatively weak third quarter earnings, and it’s no longer a $100 billion company. At the time of this writing, it’s “only” worth $98B. The Harvard Business Review has some insights on why the weak earnings for Q3 may not be so problematic.

To date, I’ve talked about Amazon’s online victory, and about its problems at a warehouse in PA. In this post, I want to look at one prominent piece of Amazon’s customer retention strategy, Amazon Prime.

I got to thinking about Prime after reading this Practical Ecommerce article, which sheds some light on Prime’s successes. For those of you not familiar with Prime, here’s how it works:
  • Sign up for $79 a year (79 is a prime number. Get it?)…
  • …or it’s free if you sign up for e.g. Amazon Mom
  • Get free standard or 2 day shipping on all orders (no minimum order size)
  • Or get $3.99 overnight shipping per unit
  • Access some streaming digital media (e.g. movies) bundled for free
Prime was first launched back in 2004 or so, but seems to have really gained traction recently (the article reports that there were 2 million Prime Customers in 2009, which increased to 5 million in 2011).

The genius of Prime is that it removes nearly all friction from Amazon purchases. Once Amazon gets a customer over the hurdle to commit to the $79, there really are no more hurdles for placing orders. Customers don’t have to do the math to check whether a purchase makes sense once shipping charges are added in. They don’t have to wait to pool enough purchases together to make shipping charges acceptable (or qualify for other free shipping programs that have minimum order sizes). They don’t have to wait a week for slow-boat free shipping. They don’t have to pay much more for next-day service. Amazon easily becomes the first option for making purchases.

The consumer part of me LOVES this. The part of me that likes supporting local businesses HATES this (because I buy so much more from Amazon now). The part of me that works on customer retention strategy LOVES this. The supply chain analyst in me HATES this.

Amazon is basically willing to risk significantly lower margins (due to less shipping revenue, and higher shipping costs) in exchange for growth opportunity.

For customers paying the $79, the margin risk to Amazon is actually quite low. The chart below shows Amazon’s net profit (gross profit minus fulfillment and transport expense, plus shipping charges1) for a few different cases, assuming no change in customer behavior after joining Prime. The baseline case is the blue curve: it starts at zero and slopes up based on Amazon’s operating margins (gross margin less fulfillment and net transport costs). The green line shows estimated profits for customers that always use Super Saver Shipping. Amazon makes less money on these customers per dollar purchased, because the savings in transport costs (slow boat vs. standard) are likely lower than the lost shipping charge revenue. But the point of Super Saver Shipping is to grow sales by converting ~$15 purchases into $25+ purchases.

The purple line is for Prime customers. Note that it gets a big head start at $0 purchases. The $79 membership fee is a significant profit source for any customer that buys less than $1,000 of goods a year. That’s because Amazon is in a low margin business2. By making Prime sufficiently awesome (and having the ability to make frictionless purchases is pretty awesome), Amazon can really pump its profits from smaller customers. In fact, if you buy less than about $800 a year from Amazon, and join Prime at $79, they don’t even need you to order anything the next year. You already gave them the profit they’d get from selling you stuff.

The key thing about Super Saver Shipping is that Amazon already gives up a lot of transport cost recovery, especially for larger customers, whose average order size is very likely to be greater than $25. While the gap between the blue curve (where Amazon recovers much of the transport costs by charging the customer) and the purple Prime curve gets large for large customers, the gap between the green Super Saver Shipping curve and the Prime curve is much smaller. What this means is that Amazon isn’t really risking much with Prime. Any incremental sales volume, for almost all customers, leads to greater profit, despite higher transport costs and lost shipping charges. That’s a pretty cool strategy.

So what’s the take-home for service-parts?

It depends on the customer. Our dealers are already committed to us; they are franchises. So the part we can focus on is making purchases from us frictionless, to maintain or increase dealer purchase loyalty. How do we do this? One proven way is Retail Inventory Management (RIM). At its best, RIM makes buying from the OEM very easy. Parts arrive, as needed, with relatively little attention and labor required from the parts manager. And the best OEMs design RIM policies so that dealers can get quickly the parts not stocked by RIM, at a reasonable cost, without hoops to jump through. Kind of like the no-minimum, $3.99 1-Day shipping option for Prime.

But not all RIM implementations are perfect. They don’t always do an obviously superior job of managing parts inventory, and we don’t always make it easy enough for dealers to obtain non-stocked parts. So, many of us have room for improvement. In recent years, we’ve hosted several successful roundtable and panel sessions about RIM at our benchmark conferences. The next session for NAPB participants is our Focus Day on RIM, coming this February. This will be a great opportunity to discuss how we can make our RIM systems act as our version of Amazon Prime.

But even RIM has limited upside. Our dealers are already fairly loyal customers. The customers that aren’t so loyal are the independent repairers. What might an Amazon Prime program look like for them?

To make buying from us as easy as buying from Amazon via Prime, think of all the hurdles involved with buying parts from our dealers.
  • Repairer has to be motivated to call a dealer, rather than their usual all-brands sources
  • Repairer has to wait on hold for 15 minutes
  • Repairer has to talk with a distracted parts manager to be sure they have the right part
  • Repairer has to wait several hours for the parts to be delivered
  • Repairer has to be prepared to bicker over a return if there’s something wrong with the parts (incorrect part, damage, etc.)
I’m just dreaming, but maybe we could follow Prime’s lead and do this: For a fixed price (that could be waived under various favorable conditions), independent repairers could:
  • Access an online multi-brand, detailed catalog of genuine parts;
  • Place an order online, which is then routed to the closest participating wholesaling dealer and confirmed, with a stated same-day ETA;
  • Offer guaranteed order response times - the repairer gets a discount if the parts are late, which both the dealer and OEM eat.
Actually, I’m not completely dreaming. Some OEMs have their own commercial parts sites that have some of these features. Others are looking closely at patching into aftermarket ordering systems. OEConnection’s RepairLink with MORE is in the right ballpark, at least on paper. But the key is in the execution, so that ordering parts from our wholesaling dealers is truly frictionless.

1We’re leaving marketing, S&GA, and other non-supply chain costs out of the equation here, which means we’re assuming they are fixed costs. The parameters for fulfillment, transport costs, and shipping charges are estimates based on Amazon’s annual reports. It’s difficult to precisely estimate key items like the incremental cost of 2-day vs. Super Saver Shipping, so these curves do have some uncertainty.
2It’s non-digital retail business, at least. Its digital businesses may be another story.

Friday, October 21, 2011

Running a Warehouse—What We Should Not Learn From Amazon - by Brian Crounse

A couple weeks ago, I wrote about Amazon’s impressive growth over the past decade, and what it means for the motor vehicle service parts industry (quick summary: “Even if we can’t see the money yet with digital service customers, maybe we need to take the long view and be confident in our efforts”).

There are a number of other aspects of Amazon’s business that I think provide insights for service parts. But for this post, I want to talk about how not to run a warehouse.

You may have seen news in the past month (originally in the Lehigh Valley Morning Call) about some problems Amazon has been having at its warehouses in Breinigsville, PA. Among other things, it seems that the heat index inside the Amazon warehouses often rose above 100 degrees this past summer, which resulted in situations where workers reported seeing “paramedics bring people out of the warehouse in wheelchairs and on stretchers.” In particular, on June 3, 2011, Amazon acknowledged in a letter to OSHA that “15 out of 1,600 employees experienced heat-related symptoms.” And on June 10th, a doctor at the Lehigh Valley Hospital called OSHA to report that “several patients have come in the last couple days with heat related injuries” from Amazon.

Let’s put a few things in context. In our database of North American service parts warehouses, 65 of 225 warehouses that provided us with CY2010 safety data had zero recordable incidents over the entire year. Having one percent of your workforce suffering from overheating on a single day is simply unacceptable.

If you have ambulances on-call outside your workplace, you’ve got problems.

Such problems are unusual, even in warehouses in hotter climates. I asked a couple clients, folks who have spent considerable time in warehouse environments, what they thought. Here’s what one said:
I had seen some of the original reports on that incident and found it odd … our PA warehouse is fairly cool even in warm weather, so its not really an issue there.

What I found odd is that I have worked in warehouses in locations prone to extreme temperatures. … but processes are in place to handle it. Also, when I was at [a] warehouse in … California, [we] often saw temps over 100 F for 10+ days in a row. The key to ensuring employee safety and reasonable comfort were always the same… The issues appear to all be with how Amazon handled it, and not warehousing in general.
So, what exactly happened here?
  1. Amazon’s Breinigsville warehouses are “activity-dense.” It’s possible to estimate Amazon’s warehouse space productivity from their annual reports; the amount of dollars shipped per square foot per year are fairly high relative to the service parts warehouses we know best here at Carlisle & Company.
  2. These warehouses are also “people-dense.” 1,600 workers (more during peak seasons) in 1.6 million square feet of warehouse space is a lot. I suspect the prior tenants of these warehouses (the buildings date back to 2000, but Amazon’s only been in them since 2010) didn’t have this many people packed in them. By itself, space efficiency is a good thing, but when you have a lot of people, with a lot of machines, moving a lot of product, it going to generate a lot of heat.
  3. These buildings may not have very good thermal performance. It’s hard to say much without getting in the building and doing an energy audit, but the one thing that’s apparent from the aerial view is that these warehouses have black roofs. That’s not unusual for warehouses in the northeast, but it sure doesn’t help keep the building cool in the summer. For a contrast, if you look north a few hundred yards, you’ll find a very bright, white roof on the NestlĂ©® Pure Life® water bottling facility at 305 Nestle Way. This building was certified as LEED Gold in 2009. Or, go take a look at the warehouses near the Ontario, CA airport: all light-colored roofs.
  4. Amazon doesn’t seem to care very much about its warehouse workers. Is that provocative enough? I am basing that statement on 3 pieces of evidence: The Morning Call story, a recent WSJ article by Richard Brandt, and a recent accidental public Google+ post (key quote: “Amazon does everything wrong, and Google does everything right”). The following is an excerpt from the Brandt article.

    During the first few weeks, everyone at the company was working until two or three in the morning to get the books packed, addressed and shipped. Mr. Bezos had neglected to order packing tables, so people ended up on their knees on the concrete floor to package the books. He later recalled in a speech that, after hours of doing this, he commented to one of the employees that they had to get knee pads. The employee, Nicholas Lovejoy, "looked at me like I was a Martian," Mr. Bezos said. Mr. Lovejoy suggested the obvious: Buy some tables. "I thought that was the most brilliant idea I had ever heard in my life," he said.
It appears to me that Bezos and Amazon have a laser focus on their core strategic priorities, but don’t pay as much attention to the details as they should. Yes, I know that Bezos spent a week working at an Amazon warehouse in 2009. And that he applied the five whys in response to a safety incident in 2004. But, again, if you have ambulances parked outside your warehouse in 2011, something’s amiss.

In summary: Amazon:
  1. Pushes a lot of volume through its warehouses
  2. Does so with a lot of people
  3. In warehouses with black roofs
  4. Doesn’t always place a premium on workplace safety
Maybe these problems, at least #3 and #4, are isolated to these particular warehouses. I hope so, because fixing a couple warehouses is easier than fixing the whole company. But if these issues are Amazon-wide, Amazon needs to make some changes. Here are two suggestions:
  1. Amazon should focus more on sustainability, making it a core part of corporate culture. Why is this relevant? Because high-performance, sustainable buildings promote safety and productivity.

    Amazon is not completely remiss in this area; here’s a page that lists of a number of energy-saving kaizen projects, describes Amazon’s LEED Gold HQ buildings, and notes that four Amazon warehouses were LEED-CI (Commercial Interior) certified in 2009. These are all good things. But Amazon should and could do more—clearly, not all warehouses are high performing. In contrast, Google focuses enormous amounts of attention and resources on energy efficiency and renewable energy.
  2. Take care of its people, for real. Amazon clearly has morale and rentention problems, at least at its Breinigsville warehouses. Amazon can probably get away with this in the current labor market, but 1) it’s not a sustainable long-term strategy and 2) it’s not the right way to treat people. I am reminded of Paul O'Neill’s strategy when he arrived at Alcoa as an outsider CEO in 1987. He choose safety as his number one key performance indicator because 1) it won him support of the unions, 2) trained the organization to focus on, and achieve, specific targets, and 3) it was the right thing to do. O'Neill was able to then extend his success with improving workplace safety to improve all aspects of the business, resulting in a very successful tenure at Alcoa through 2000.
These are things that all of us can be doing, if we’re not already.

In the next post in this series, I’ll get back to something Amazon does well – retain its customers, and what it means for service parts.

Thursday, October 13, 2011

Quick & Easy Lessons from the Consumer Call Center Data Book - by Jay Cremins & Sarah Outslay

Recently, one of our benchmark participants was asked: “Why were you interested in participating in this benchmark?” Their reply was superb: “So that we can move toward more common definitions” … and answer “where we are weak or best.”

The reply was superb because improving continuously, as required to stay relevant in today’s business environment, is impossible if you fail to discover best in class practices, ideas, and processes to implement. In this particular case, the benchmark was consumer call center oriented.

Using examples from the consumer call center benchmark as a model, the remainder of this document will dissect two key facets of the reply: “common definitions” and “weak or best.”

Common Definitions

Industries are different … companies are different … business units are different … call centers are definitely different. Complexities include managing consumer-facing call centers, dealer-facing call centers, mixed-purpose call centers, a combination of two, or a combination of three. There is only one way to appropriately compare practices. Collaborating among peers to develop and agree upon common definitions.

In our recent consumer call center study, the OEM participants had highly variable consumer-facing Average Handling Time (AHT). This data was misleading.

It was not the AHT that was widely variable; rather, it was each firm’s definition of AHT that was widely variable. Collectively agreeing on a common definition allowed valid comparisons and meaningful analysis, such as the correlation between overall satisfaction and phone AHT:

Based on the data reported by participants, the correlation between reducing AHT and increasing satisfaction is tenuous. Lesson learned: AHT matters; but, it is not a primary driver of consumer-facing satisfaction.

Weak or Best

Prior to this benchmark, OEM B believed that they managed attrition at a best in class rate:

Because they chose to be subjected to outside comparison, they are now aware of opportunities to improve – and have a peer from whom they may learn how.

OEM B also discovered opportunities to improve a high level corporate goal: consumer-facing satisfaction.

Based on the study data, consumer-facing satisfaction does not correlate with:
  • AHT (see above)
  • ASA – Average Speed to Answer
However, analysis of the benchmark data indicates that consumer-facing satisfaction does correlate with:
  • Case load per agent
  • “Quality Performance” metrics
Lesson learned: AHT and ASA matter; but, case load per agent and quality performance metrics correlate with consumer-facing satisfaction.

These examples, all from the call center benchmark data book, highlight how we all use benchmarking as a fundamental strategic process “so that we can move toward more common definitions” … and answer “where we are weak or best.”

Friday, October 7, 2011

Quality Focus Day - The Power of Benchmarking - by Charlotte Williamson

Think back to preschool. What were some of the key skills you learned?
Did you include counting on that list? Maybe you remember teaching your children how to count to ten before they even began school. This is one of the most basic skills we learn as children, and it is used on a daily basis throughout life.

At last week’s NAPB Focus Day, we spent 8 hours discussing warehouse quality: damages, counting errors, wrong part errors, etc. We’ve seen companies add voice technology and scanners (and remove these tools as well), all in an attempt to be more productive and perform with higher quality. But the quality tool that came up over and over again is something you learned in pre-school: how to count. It happens to everyone, but when you lose track in the middle of counting, it can cause errors in our dealers’ orders and impact our quality and satisfaction scores. The anecdotal evidence shows that shortages tend to occur when picking quantities from 2 to about 10. The problems seem to go away when you get into the hundreds of units and can be helped by having quiet zones in the warehouse, allowing our workers to focus on the task at hand.

The NAPB Focus Days allow experts from the major heavy equipment and automotive manufacturers to spend the day sharing and learning from each other. Each expert has time to present their struggles, tools, and best practices, followed by questions from the group. The attendees came away with lists of ideas for improving quality to take back to their teams. Some ideas are easy, can be implemented quickly, and are low cost. Others will take more planning and budget, but have been tested and proven to be effective by our peers.

The solutions presented by the participants range the gamut from working with people and refining processes to implementing new technology.

One company has found great success in reducing picking errors by working with its people. All employees go through a 35-minute training to learn tips and tricks for counting quickly and accurately. They have a 3 -minute narrated version of the training for on-the-floor use at the time of counting errors. This reinforces the basic skills needed to prevent shortages and overages, resulting in almost a 50% reduction in picking errors year-over-year.

Another company found that they can improve their dealers’ receiving processes by intentionally sending them an over-shipment, under-shipment, and mis-pick and then monitoring the resulting claims. For any dealer who does not accurately report the incorrect shipments, the company will give them time to develop a plan to fix their receiving processes. In the past, dealers have tended to report shortages but not overages. Now that the dealers know they are being monitored, overage claims have become more balanced with shortages.

Sometimes technology changes can have unintended consequences. One company found that switching to voice picking not only let them improve quality, but also enabled them to monitor employees in detail and view productivity over specific time periods. This allows them to see gaps in the day where little or no work is being performed. They can use this information for discussions with employees about their work performance and have seen an immediate improvement after the employees were made aware of this functionality and their own performance.

These are just three of the many ideas and success stories shared by the 20 participating companies during 8 hours of presentations and discussions. The participants were very interested to hear the challenges that others are facing and the initiatives they are using to overcome them. This is a unique forum at which companies can interact at many different levels (strategic and tactical) and benefit from each others’ knowledge and experience. Even those who are doing well can learn from the others during the Focus Days.

We look forward to seeing subject matter experts at the 2012 NAPB Focus Days, which are being scheduled to deep dive on the topics of Supply Chain Collaboration, RIM, Pick/Pack/Sort/Ship, as well as two sessions on eMarketing.

Friday, September 30, 2011

Long Term Digital Transformation – What Can We Learn From Amazon? - by Brian Crounse

I’ve been thinking about Amazon recently. There hasn’t exactly been a shortage of ink spilled or bits flipped by people writing about Amazon. But I’m not writing about the Kindle Fire. Or how Amazon’s 2012 Kindle-related sales may exceed $6 billion. Or about Zappos. Or the Elastic Compute Cloud. All of those topics are interesting, but that’s not what I want to talk about.

I want to talk about OEM motor vehicle aftersales.

While Amazon and this industry have their differences (e.g. Amazon doesn’t have to ship mining truck axles to the middle of Chile, but they ship to millions of customers, and have seasonality issues that make even harvest-time at an agricultural OEM look tame), they have some basic commonalities: they both exist in a time of digital transformation, they both have awesome supply chain challenges, they both sell service parts, and they both want more market share. In this post, I want to talk about digital transformation. I’ll discuss the other topics in future posts.

Digital Transformation

At Carlisle & Company, we are spending a lot of time collaborating with our clients on digital aftersales strategies. Sometimes, the skeptic in me wonders why. Though we think we understand how future behavior by emerging digital service customers (EDSCs—a horrid consulting acronym if there ever was one) will shape the market, early returns are ambiguous. While our surveys and focus groups tell us that these customers are substantial in number even today, and currently have their opinions of service options shaped by online resources like reviews, it’s still hard to see where the dollars are, or how the money we invest will reap returns.

We at Carlisle haven’t earned much money in this domain yet, despite substantial investments of thought and time, and our clients, who are busy building and enhancing owner centers, online appointment capabilities, and mobile apps, haven’t hit the ball out of the park yet either. Are we doing this because we’re smart and thinking long term, or because it’s trendy and fun? While I personally schedule my car service appointments online, and have a few parts and service-related applications on my phone, I’m not exactly a representative sample. I think way more about vehicle aftersales than normal people. I also wear those weird Vibram toe shoes around the office—I’m kind of an outlier.

But then I am reminded of Amazon. Its 1997 letter to shareholders (a letter that Jeff Bezos is obviously proud of; it’s helpfully reprinted in each year’s 10-K) emphasizes that “It’s All About the Long Term.” And it was. And is. Amazon had a net loss in 1997. And 1998. And 1999. It had a net loss of $1.4B on $2.7B in net sales (yes, a net of -51%) in 2000. By 2001 (another year with a net loss), Amazon’s market cap was 80% off its peak, driven down in part by the dot-com bubble burst, in part by these mounting losses and negative free cash flow. In 2001, it was reasonable to be nervous about Amazon’s future.

Meanwhile, in 2001, the Borders Group reported $87M in earnings on $3.3B in sales, the 6th consecutive year of steady profits.

We all know what happened since then. Amazon bet on online commerce, executed brilliantly, and won. Borders lost. They weren’t direct competitors, but they sold enough of the same stuff, so they provide a useful contrast. It’s amazing to me not just that Amazon survived, not that they “won”, but that they won big.

Here’s their sales trend since 1997. I used a log scale to highlight how steady the growth has been on a percentage basis for the past decade:

Here’s a chart of their net income by year, and a simple (no discounting) cumulative sum of their net income/loss. Amazon would argue that free cash flow is a better measure of performance, and I’d usually agree, but I went with net income because the free cash flow calculations that I could track down were incomplete and a little dodgy.

I find these curves remarkable, because of both the size of the annual and cumulative losses, and the current positive trajectory. Amazon’s cumulative income, even before any consideration of a discount rate, was negative from its founding through 2009. It’s now throwing off $1B+ a year in income, supposedly more in free cash flow, and has a market cap of over $100B (at the time of this writing). Talk about focusing on the long term. And, eventually, succeeding. Big.

So how does Amazon’s current success, which has many factors, apply to OEM vehicle aftersales businesses?

Here’s my point: Even if we can’t see the money yet with digital service customers, maybe we need to take the long view and be confident in our efforts. We know that the web, social media, and mobile devices are profoundly changing how consumers select and purchase goods and services. We believe that we need to engage in these areas, at the very least as a defensive action, as our research indicates that digital consumers tend to move away from genuine OEM parts and service. Beyond that, we believe that we can use digital media to strengthen our relationships with our customers. The hard benefit NPV of our efforts may not be apparent yet.

But, I am reminded again of Borders and Amazon. One company seemed intent on preserving its established, profitable business, with some online enhancements, all the way to Chapter 11. The other bet big on its digital strategy, executed brilliantly, and is worth $100 billion.

Friday, September 23, 2011

Survival of the Fittest – Fast-Fits Are Fitter Than You Think - by Stephan Brackertz

Every now and then we take a look at what is going on in Europe. And there is an interesting story unfolding right now we wanted to share… Carlisle recently conducted a major survey of over 5,000 European automotive end-customers in 5 countries. What we found was a mix of “we knew that already”, some “surprises”, as well as some real “bombs”. Bombs are more than surprises… they are things we didn’t know at all or things where our common knowledge is actually wrong. One of the things we learned – and this is a real bomb – is that Fast-Fits are on their way to eating the dealers’ lunch. All indications are that Fast-Fits are stealing dealer customers away and are doing so successfully.

How is this happening you may ask? Here are some survey insights:
  • About one fifth of customers already go online to search for Aftersales related information.
  • Customers that are online are about evenly split between dealer loyalists and aftermarket workshop loyalists (independent workshops and fast-fits).
  • Prompts from the independent aftermarket tempt them to try a different repair provider (25-45% of online customers change repair provider based on what they find on the Internet).
  • The prompts typically come from fast-fits. They are sucking dealer customers and independent workshop customers in to try fast-fit services.
  • A sizeable portion of self-declared “dealer loyalists” are already defecting to Fast-Fits.
  • This issue is big enough to notice in Europe, and huge enough to panic in the United Kingdom.
So what? A typical response to this may be, “we OEMs don’t have to worry because Fast-Fits deliver awful customer satisfaction; our dealers are far better.” Not so. In fact, our survey data shows that ‘dealer defectors’ are satisfied with their service experience at fast-fits. This is a big deal after all.

“Why didn’t I know about this?” may be the next question. That’s mainly because we underestimated Fast-Fits in the past and their ability to evolve and re-invent themselves. This is happening below our radar. And if we look back we can understand how we underestimated Fast-Fits.

Let’s backtrack a bit, to the way it used to be…
Fast-fit chains like ATU, Speedy, Midas, and Mekonomen grew to a significant presence in Europe with many hundreds of outlets. Private equity firms saw a good business model and many fast-fits were bought by private equity investors that loaded up the capital structure with debt. Fast-fits became marketing masters – bombarding consumers with low price messages in print fliers, TV, and radio. They pulled a lot of customers into their workshops and then bungled things up by not delivering service quality. Worse, poor employee compensation plans ensured that up-selling glided into phony repairs and rip-off territory. These plans would have made Amway proud.

As a result, Fast-Fits were like jet engines – they sucked in a lot of customers, squeezed them, burned them up and spewed them out at high
speeds. Most of the customers didn’t “stick” due to the poor service experience – but loyalty didn’t matter in this business model. As long as there were enough fresh, unburned customers around to suck in, the jet engine could keep spinning. Over the years OEMs became less and less worried as enough customers spread the word that service quality is awful and business practices are frivolous. When the recession and the debt crisis hit we thought we could write-off Fast-Fits completely and focus on other threats.

The recession was like a near-death experience to Fast-Fits:
  • Customers clenched up and spent less, delaying service and repairs
  • Older cars were being pulled off the road by cash-for-clunkers programs
  • Rolling over large gobs of private equity debt became tricky
Let’s fast forward back to where we are today and where we will be if we don’t react…

Fast-fits are back and are snapping away at our “dealer loyalists”. The enabler for this is the Internet. A brilliant and comprehensive plan to take advantage of the Internet is helping fast-fits back from the brink of destruction. We underestimated the fast-fits. The experience shows that they are damn good at evolving. If it’s survival of the fittest out there, fast-fits may be fitter than we think.

Let’s compare some of the DNA of fast-fits and OEMs. Two very different animals, but wouldn’t it be nice if we could splice out some of those fast-fit genes and integrate them into our OEM genome? Especially the genes about Internet strategy and speed to evolve?

So fast-fit DNA explains much of what we are seeing. And the natural environment is also changing in their favor (how Darwinian). Customers are moving into the online world. Fast-fits have already adapted to this change quite quickly. To stay fit, OEMs need to be ready to make the next evolutionary step into this space.
There’s lots more interesting aspects to this story – ask us for the details or a look at some of the scary survey data.

P.S.: Oh, and how did fast-fits fix the customer perception problem with workshop quality so quickly? Wouldn’t we love to splice out and implant that gene into our DNA?

Thursday, September 15, 2011

Future Shock – Social Media, Call Centers, Digital Service Customers, and the End of Those Good Old Days - David Carlisle

This week we hosted our third Digital Aftersales Summit for 14 OEMs, where the focus was on social media, digital everything, and our emerging digital service customers (EDSCs). Eight hours, heavy participation, no salesmen, and pretty much no breaks. OK, this marathon session wiped out most of the participants. The leaders want it that way. I, personally, just hate breaks. Waste of time.

Social media really is very simple; it’s all about a profound role reversal. In the old days you bought a big chunk of air-time, crafted tight 30- and 60-second messages for millions of dollars, then let ‘er rip. Millions of impressions later, people bought your stuff. Never could do much with a ROI on this. So, they bought your stuff and if they didn’t like it they called you on an 800-number. Technology evolved to a point where your 800-number was manned by a computer with a sweet digital voice that would get everything it needed to know after customers spent 10 minutes shouting nouns and verbs and inputting complex alphanumeric strings on the phone dial. This eventually got them to a person they couldn’t understand and who knew nothing. Only the brave and strong ran this gauntlet to finally explode with anger at the customer service representatives. Yeah, those were the good old days.

Now we put up Facebook pages and plot to get “liked”; we do fewer of those
atomic ad blasts, because it’s all highly personalized and targeted now. OEM page content has to look like your Aunt Millie’s so it doesn’t give off an impersonal, corporate vibe. Want to be friendly-like. Agencies don’t do well with this sort of strategic dumbing down. Still have those 800-numbers. But, now when customers buy stuff and don’t like it, they tweet their discontent to what could be millions of connected potential customers … or slam you on Yelp/Google/Dealer Rater … the list goes on and on. So, we’ve got to figure out what to do with all those tweets & slams. In the old days we slapped that unhappy customer around with our call center constipation; now, he/she owns us. Role reversal.

Timeout: Ultimately it is this simple, but the implications are incredibly profound. Earth shaking. All those corporate customer service policies and procedures (and their associated infrastructure) are lined up to service the traditional un-empowered customer. Yesterday, all you needed were a few people to interface with the agency and a large call center that architecturally resembled a Temple Grandin-designed slaughterhouse. You could outsource it. This stuff does not work for digitally savvy customers. They don’t watch TV, don’t read print, skip commercials, avoid paid ads, don’t bother with 800-numbers, and express their feelings both bad and, well bad, using Twitter. None of our policies, procedures, infrastructure, or other junk works for these folks. It’s a corporate Betamax dilemma: (1) most executives think their “Betamax” marketing and customer service infrastructures are working just fine, (2) the “Betamax” owners know that ain’t so. (3) So, do you go out and buy a VHS player or… (4) cobble something together and wait for the equivalent of DVD, Blu-ray, or Netflix to come along. Not clear yet.
Who’s wreaking all this damage to our yesterday solutions? To quote one of our Digital Summit participants, it’s basically anyone with a pulse and access to the internet. Emerging Digital Service Customers (EDSCs) go to the web for information, education, and decision-making. In as few clicks as possible, they know everything they need to know and become empowered:
  1. costs & savings,
  2. locations, and
  3. what others think about the service.
So, when they choose a service provider they can figure out if they are paying more than they would at other close-by alternatives and they can determine if past customers were satisfied.

Dealers are not in the sweet spot of any EDSC target – there’s just a lot fewer of them inside a default 10-mile search radius than there are independent service providers. Yesterday’s rope-a-dope customer
management strategies are just as obsolete as those Betamax strategies I just talked about. Rude behavior, price padding, aggressive up-selling, phony free inspections, and other stuff from the service providers’ rope-a-dope arsenal has shifted from opaque to transparent. All a customer has to do is walk back to their car, grab their iPhone, check costs and prices, read through Yelp, and determine if they’ve been bamboozled. Worse yet, they become ticked off and use Twitter to broadcast their research findings to a couple of million folks searching for this sort of stuff … to write stories and blogs, to make decisions on where to get service, to make decisions on what car to buy. They put the car into drive and move on to another shop. The flim-flam man at the shop won’t even know what hit him and has no idea how to respond.
Timeout: Worse yet, what if he’s really not a flim-flam man? Here’s the real American Tragedy. He could be a dealer service advisor quoting double-netted parts prices for Genuine parts on a 150,000 mile junker, using warranty-driven labor rates that are posted on the wall, following inspection procedures that he heard about at NADA that were endorsed by his/her field rep, and relying on training he got in high school because none’s available from the OEM. DOA.
Bottom Line – It’s 1981, again. That was the year of the first JD Power Survey and represents the backbone of Toyota’s reputation for quality and customer satisfaction. The critical IQS survey came later, representing a nexus for mass customer opinions. This profoundly changed our industry and who was what on the game board. OK, Consumer Reports helped, too. JD Power is another Betamax artifact. They just don’t know it yet. If reputation is still important to this new generation customer – and it is – it is being very differently defined. The rules are different. Winners will understand this sooner. Losers will defend their tight budgets and hold on to their Betamax customer retention strategies until it is too late. The game board is about to change again. It might just be those importers from Detroit that now have the advantage. Again.

Friday, September 9, 2011

Carlisle Launches a New “Technician Feedback Survey”

While Carlisle has long been conducting industry-syndicated surveys focused on Parts Managers, Service Managers, and Sales Managers, the Technician has, for too long, been ignored. That came to an end this week, as Carlisle launched the pilot version of its new Technician Feedback Survey.

This survey – while focused predominately on better understanding the factors impacting technician retention – also delves into other issues critical to technician satisfaction. These include such areas as training, rewards/recognition programs, job motivations, career paths, etc.

At just 2.5 days into the launch, this survey is clearly a wild success. With only 6 OEMs participating in the pilot, we have already received over 2,500 responses. Based on comments from the respondents, this survey is long overdue:
  • I really like that you are doing this survey. It gives me a place to give my opinion and insights on how [OEM] is doing.
  • 35 years and this is the first time they ask what I thought
  • It was short/to the point, shows commitment to the technician
  • Thanks for asking the rank and file guys!!
  • Very nice to see the company actually interested in the people making it a great company
  • I think it is great that you are giving us at the dealership level an opportunity to provide input
  • This Survey is a wonderful idea and I’m happy to share my thoughts
  • I’m just happy that someone is even interested in my opinion as a tech - good job [OEM]
  • I really appreciate the opportunity to voice my comments and concerns…
  • It is nice to see [OEM] finally asking the technician for their input.
  • Good survey!! Helps me vent my issues, management won’t listen without firing me.
  • I like the fact I have been given the opportunity to be heard and would like to see more surveys like this one
  • Any time someone cares enough to ask what we think as techs is appreciated.
Initial results from the survey will be reviewed at the upcoming Automotive Roundtable in October. Following that meeting, we will begin discussions regarding a full industry roll-out for 2012.

Friday, September 2, 2011

Emerging Digital Service Customers (EDSCs) – How They Play Outside Auto

EDSCs are very different from typical customers. We’ve talked a lot about this. Most importantly, they differ in (1) using information on the internet to commoditize parts and labor, and (2) relying on social media and the more broadly defined e-community to tell them the truth. This, in fact, is really about the commoditization of product merchandising, marketing, selling, and ultimately, differentiation. Here’s how it plays out. Car’s broke. Use mobile device to find service provider close-by. Sort providers based on customer reviews. Choose provider. Check parts and service quotes based on internet research. Negotiate. Form opinion based on cost benchmarks, results, and trust. Write review. Resistance is futile.

OK, that’s cars. Before we move on to heavy equipment, let’s consider medium duty trucks. Medium duty truck owners are more like car owners than heavy truck. These owner operators don’t have large fleets of trucks. They primarily focus on their bakery, local brewery, or plumbing supply business. They are more sophisticated than car owners, but, unlike heavy truck fleet owners, they do not have fleet managers that focus on uptime and cost.

What about heavy trucks, farm equipment, and construction? Twenty-two year old sales reps typically don’t play in these sandboxes. My caution here is to watch the technology and how it is used; don’t overly fixate on the customer. The patterns of customer loyalty erosion outside auto and medium duty truck will reflect how technology will be used, not the genetics of a brand or a customer.

Ag, heavy truck (HT), and construction dealers have much stronger aftersales customer relationships than their automotive cousins – this is truer of Ag and construction than HT. That is important because these sorts of products typically don’t have tail fins, 20 color choices, tuned exhausts, and fancy fat low-profile wheels and tires. Ultimately, they are commodities that are primarily differentiated by acquisition cost, performance, uptime, and total cost of ownership. Up-time is critical and this is all about fast response to maintenance and repair needs. Now, let’s watch the technology.
Time out: The largest, most sophisticated fleets are using technology to maximize value, not just to find cheaper parts and service. In particular, they want easier parts and service, and will pay more for it; for example, telematics and infrastructure that are integrated with dealers’ DMS and fleets’ purchasing systems that automatically open repair orders, send estimates to fleets, and then send POs from fleets back to dealers. Dealers that can support this will get the aftersales business.
Two things are bound to happen. First, dealer/distributor labor rates and parts costs will become more benchmark-able for the faster moving wear parts that are available through the aftermarket. Second lines will help here, but they might not be able to plumb the depths of competitive pricing. Labor rates will be more transparent from dealer to dealer … and from dealer to non-dealer. Fix-my-own commercial operators will buy more from the internet. They will buy what’s available … and more will become available. That’s the good news.

The bad news is that they will document their experience and write customer reviews – they will do this because they will find these reviews helpful in choosing dealers, and choosing manufacturers. This will serve to further commoditize these segments. Winners will be (1) low cost total providers, (2) with great digital marketing presence, (3) with extraordinary supply chain performance, and (4) who closely watch the technology, how it is used, and get in front of their customer needs … rather than chase after them.

Thursday, August 25, 2011

Repair Pal Pals – Superstars of the Independent Aftermarket

First off, I’ve got to give AutoMD a compliment. They really don’t try much to hide that they are owned by US Auto Parts. They are a wolf in a wolf’s clothing, and savvy EDSCs see this … and move on to Google and Yelp for help.
RepairPal is different. They are wolves in sheep’s clothes. Mort Schwartz is on their advisory board – he’s on WorldPac’s board of directors, too. Mort’s a consultant to Genuine Parts, headed up Strauss Discount Auto, and been a Svengali to the independent aftermarket for decades. He’s got his own company – Schwartz Advisors, where Rick Keister is an affiliate. Rick ran Keystone Automotive and Delco Remy’s aftermarket businesses.

Rick is a RepairPal investor too.


My mother told me that I’d always be judged by who I hang out with.

Bottom line: RepairPal is an AutoMD wannabe – an extension of the independent aftermarket that makes its money from selling non-genuine parts and service. Hey, there are lots of companies like this out there. They certainly aren’t objective sources of automotive service and repair information. They need to come out of the closet.

Wednesday, August 17, 2011

The Coupon Phenomenon - by Charlotte Buchanan

As a consequence of the recession and resulting consumer thrift, coupon distribution and usage has skyrocketed in the last few years. And it’s not just coupon-clipping moms on TLC buying hundreds of rolls of toilet paper and jars of peanut butter. Our summer focus groups have highlighted the importance of coupons and specials in influencing EDSCs’ (Emerging Digital Service Customers) everyday purchasing decisions. EDSCs proudly report how they comb the internet for deals. They know what websites to visit and what phrases to type into Google in order to find coupons for specific goods and services. When it comes to LOF service, they know Jiffy Lube offers a standing $5 off coupon on their website.

Timeout: How do they know this? Well, a Google search for “oil change coupons” or “oil change” turns up the Jiffy Lube website as the top result. Alexa’s search analytics tool confirms that the highest impact query driving organic search traffic to is in fact “oil change coupons”. This is not just dumb luck for Jiffy Lube.

Through ubiquitous daily deal sites like Groupon, EDSCs also receive coupons right to their inbox. The aftermarket quickly jumped on the Groupon bandwagon, with Midas, Goodyear, and a host of independent repair facilities selling thousands of oil change deals in 2010. OEMs came late to the party; this April a group of ten Chicago-area Hyundai dealers tested the water by offering a $29 Groupon for an oil change, tire rotation, carwash and multipoint inspection. Over 1,300 people purchased the deal, many of them new customers and/or owners of competitive makes. Other OEMs and dealers quickly followed suit, offering various deals across the country.

Hyundai’s press release indicated that they will be monitoring redemptions of their Groupon, which expires this fall, to assess the promotion’s benefit. One metric will be whether Groupon holders purchase additional parts and service during their Groupon appointment. Another, far more important metric, will be what these customers do after they redeem their Groupon. How many new customers return to the dealer six months, a year, two years down the road, and for what? Can dealers convert these dealer-skeptic EDSCs into loyal customers?

Bottom Line: Coupons have proved to be a lever that OEMs and dealers (as well as aftermarket providers) can use to get people in the door. However, coupons alone won’t educate customers about the benefits of genuine parts and service. And, as we explored in a previous blog, customers who don’t know what “genuine” means won’t prefer it. We must educate customers to retain them.

Friday, August 12, 2011

“Right to Repair” – There’s an Awful Lot Not Right About It - David Carlisle

OK, I will move on after this blog. It is difficult to be a Massachusetts liberal living among like-minded do-gooders who love to mint laws protecting civil liberties and promulgate social got-to-haves. Trillions of dollars in debt and we still churn out new laws that compromise liberal, civil, and social interests with conservative pork barrels. Right to Repair is a simply wonderful example of this.
Massachusetts is becoming another battleground on this issue – I hope that the Old North Bridge is strong enough to handle the load, again. What’s “right to repair” all about? It’s about a bill making its way through the Massachusetts legislature “allowing independent auto mechanics access to the same repair information available to dealership mechanics.” ( 7/6/2010 Mass. Senate approves Right to Repair Act) If you do a Google search on this topic you get a lot of hits and very few points of view. Let me simplify it all for you.
A lot of companies that produce non-dealer auto parts are supporting a non-profit industry group, AAIA (Automotive Aftermarket Industry Association) in their multi-million dollar lobbying efforts to push this legislation through to set legal precedence so that they can sell more parts and make more money. They chose Massachusetts as a battleground state because we voted for McGovern, feel strongly about civil liberties, and, heck, ain’t fixing your car where you want a civil liberty? So, because we are a bunch of Democrats, a bunch of Republican businesspersons are playing us as a bunch of dupes.
Let’s look at the Massachusetts Right to Repair Coalition and examine the facts that they are making their case with.

They (look at the names on the coalition – mostly a bunch of parts companies) want a level playing field that requires the manufacturers to provide to independents the same repair and diagnostics information that they provide to their dealers … at a fair price. This is a non-issue because this information has been available since 2002. There are lots of sources for this information – the big one is the National Automotive Service Task Force (NASTF at NASTF says that the information currently available covers 99.8% of all repairs. Consumer Reports independently says that lack of access to data represents about .2% of all repairs, and that may be overstated. The missing .2% might be a function of language skills, education, training, IQ, and lack of basic technology. So, this issue is all about 2 repairs in a thousand. Have you ever had what they call an “intermittent failure?” These are service problems that are nearly impossible to diagnose because they come and go. It might just be that the 2 in 1,000 statistic is incredibly overstated, and irrelevant. How often do automotive service technicians experience intermittent failures and do not have enough information to complete the repair? This “demand” is like stating, “when did you stop beating your wife, for a fair price?” The false accusation and negative inference is the intent.

They want to ensure consumers’ choice of where to get their car fixed. We all have that choice today – just read the signs in the waiting rooms of Joe’s Sunoco, Jiffy Lube, Firestone, Midas, and any other independent mechanic. So, there’s nothing here either.

They want to save consumers $300 - $500 per family annually. How? We see numbers like this all the time but with no substantiation. We recently documented a mystery shop at Jiffy Lube – a non-dealer independent service outlet – and determined that you could save more than $150 a year by going to a dealer. Now, this is really simple stuff – changing your oil. Where’s the proof on the tougher stuff? Nothing’s here.

They want to protect Massachusetts drivers and their families by requiring all safety bulletins and recall information be distributed to all repairers, not just independent repair shops. Done! This information is all over the internet, sometimes, in the most unexpected places. If you have a few minutes to go to Google and type in “technical service bulletin” you will find “Clever Dude” which describes how to get all the TSBs you could ever want. To get everything, all the gory details, it’s going to cost you $24.95 for each vehicle; or, you can get a summary for free from Edmunds. Again, there’s nothing in this Coalition’s demand that is not already done and documented as history.

Finally, the coalition wants to protect 32,000 jobs in Massachusetts related to the independent automobile industry, including more than 5,700 repair shops. It’s not like all those jobs and service shops are going to China. The reality is that the OEMs have been steadily losing market share over the years. 75% of all non-warranty repairs are already done by the independent shops. The work will stay in Massachusetts and the shops will continue to benefit from increasing independent aftermarket market share. This last coalition worry-wart is just plain stupid. Not really. The lobbyists are really being paid to shift more sales, profits, and jobs away from dealers to non-dealer service outlets.
Never assume that someone spending millions of dollars lobbying something is truly stupid. If none of their facts line up very well, then something must be missing. That’s why I read the Massachusetts House Bill 102.
The bill stipulates that the OEMs make available to the independent motor vehicle repair facilities pretty much everything involved in product support at the same cost and terms that they charge authorized dealers. And they want it in the same form and same manner that all this stuff is provided to dealers. This includes diagnosis, service, training, repair information, and tools. If they don’t do this and the law passes, the independents can sue based on unfair and deceptive trade practices.
This reflects the brilliance of the lobbyists who wrote this bill. They found an elegant trap - voters want to hear about how they can save money & jobs, and protect their civil rights. Voters do not want to pay attention long enough to understand and appreciate complexities. And, here, the complexities are profound. Embedded in the Right to Repair bills are three things – “hidden agendas” – that the “coalition” really wants:
  1. “Everything” - The independent aftermarket parts and service providers want everything, including information that is intellectual property representing multi-billion dollar investments into competitive advantages.
  2. “Same Cost” - The independent repair shops want it at the same cost dealers get it for.
  3. “Big Stick” - The lawyers want an enormous litigation club where anybody can launch an “unfair and deceptive trade practice” lawsuit.
Spreading the wealth of information at the same cost that dealers get might sound reasonable on the surface. But, it is not. In the area of long-term customer support, OEMs generally treat service and engineering as cost centers, and parts sales as a profit center. A lot of stuff that Bill 102 asks for is provided at no charge to dealers: diagnostic systems development, training curriculum development, tool design, hotline technical support, internet technical support, technical service bulletins … the list goes on. Some of this stuff is provided to dealers at minimal cost/profit levels – dealer service training, technician certification, dealer technical systems support, tools; again the list goes on. OEMs do this because it incentivizes dealers to invest in their own customer support and provide the highest possible level of service. This “stuff” costs millions of dollars annually, and the investment is internally seen as:
  1. A way to differentiate brands in the market place – e.g., a Yugo vs. a Toyota. Yugo’s lack of customer support in the US market was one reason for its failure. Ultimately, customers benefit from Chevy’s higher standard of customer support.
  2. A way to increase end-customer satisfaction, achieve higher brand recognition, higher brand loyalty, and sell more cars and trucks.
  3. Just part of the cost structure that is offset by parts profits.
Codifying a bunch of vague claims and demands into a law, then giving lawyers an atomic-sized “unfair and deceptive trade practice” stick is going to cost millions of dollars in legal fees. With thousands of independent service stations in each state, it would be fairly easy to assemble class action lawsuits. One way or another, millions of dollars of excess cost will be incurred by the OEMs to defend their interpretations of a vague law and for protecting their competitive secrets. Who suffers? Vehicle and service customers who, ultimately, will have to pay for all those lawyer Gulfstream jets. We should name this law for what it really does: Lawyers’ Right to Fleece You More (LRFYM) Act.

If you compare a typical OEM to NAPA and most of those parts companies who are paying the Right to Repair lobbyists, the OEM provides a lot more services, and bears a lot more cost, due to the stuff that Bill 102 asks for “at the same cost and terms that they charge dealers.” It’s because OEM parts sales is a profit center and service and engineering are cost centers. The lobbyists know this, the lawmakers simply don’t care, and those liberal Massachusetts voters, like me, are all dupes.

Jay Forrester, the MIT inventor of System Dynamics, would love to build a system dynamics model of what would happen if this bill were to pass. Consumers would ultimately get slaughtered.
  • Disclosure of relevant IP would make it easier for off-shore companies to make cheap unregulated and untested safety-related parts that would be marketed – like what we all see today when we buy contaminated frozen shrimp from Vietnamese fish farms.
  • All the OEMs would have to start charging dealers fair and stand-alone prices for all the stuff that Bill 102 ask for – they’d have to do this because there is simply too much cost involved to give it away for free or at current costs and terms.
  • OEMs could reduce parts costs to do this, but, due to matrix pricing, consumers would never see this. The dealers would need to preserve current prices to preserve fixed operations profits.
  • Human nature would take over in this very cyclical, mature industry. These higher costs would cause many dealers not to buy the training, technician, certification, tools, hotline support, technical service bulletins, diagnostic support … the list goes on.
  • Because of the costs, the independents would not buy this stuff either.
  • With declining sales for all this “stuff”, OEMs would reduce their investments. And, both the content and quality of this “stuff” would decline over time.
  • It might take 5 years, but sheer economics and system dynamics would combine to give the US market a KO punch. We’d end up with a Yugo market.