Friday, April 27, 2012

Notes from Chicago

At this week’s NAPB, twenty seven companies sent 259 team members to work from sun-up to sun-down on a benchmarking and research curriculum that 31 Steering Committee Members designed last October. The Data Book went out a few weeks ago that was the blood, sweat, and tears of 45 Data Gathers. In Chicago, the 259 participants spent 32 hours together, after choosing which of 19 sessions to attend. Sessions lasted between 90 minutes and four hours. This is our 20th year of doing this - this year there were some tough choices and tough topics:
  1. Keynote
  2. Independent aftermarket
  3. Digital update
  4. BMW facility tour
  5. GM facility tour
  6. Terms & conditions
  7. Dealer communications
  8. Headcount benchmarking
  9. Telematics
  10. Gray market and counterfeit parts
  11. Hybrid & Electric vehicle parts
  12. Diesel particulate filters
  13. Supply chain
  14. Supply chain success stories
  15. Outbound transport flows & measures
  16. Packaging and condition of delivery
  17. Warehouse technology
  18. Forecasting & inventory management
  19. Managing 3PLs
Since participants send their resident subject matter experts to the sessions, the content is more post-doc level than 101/201 level. The sessions have to appeal to the true experts in the field, … or they slaughter us in the satisfaction ratings. These folks are not easy scorers – it is very difficult to get top-box satisfaction much higher than 65%. A successful session gets top-two box satisfaction scores of 95%, where there is plenty of feedback for future improvement.
Timeout: Let me put this into context. The 259 participants come from all over the world – North America, Europe, and Asia. The 27 companies represent segments spanning automobile, heavy truck, medium duty truck, agriculture, construction, mining, powertrain, and tire wholesaling. Now, imagine all these cultures and sectors sitting down in the same room, where the topic is Gray Market or Aftermarket, and emerging “satisfied.”
Less than 90% top-two box is considered a failure. Our attitude about these failures is fairly schizophrenic – if we do not fail at least once a year, we are not stretching ourselves enough … and thus we risk becoming stale and sophomoric. Of course, the Carlisle folks who are responsible for the bombed session content don’t get much sleep for a week or so – all self-imposed.

Bottom line: Lots of work. Looking good. Thank goodness for those Steering Committee Members and Data Gathers.

Thursday, April 12, 2012

Eight Things Albert Would Do In This New Economy

In two weeks we will meet in Chicago at the NAPB and spend a lot of time together reviewing data and thinking. It is a 20-year-old annual ritual that we all go through that is quite unlike any other experience in our day-to-day lives. Nobody’s trying to sell stuff, age-old laws of presentation are thrown out the window, and we spend hours listening, talking, and thinking. It is an annual review of all the data we can legally share and that is relevant to our industry. It is a ton of information. Some OEMs send supply chain folks, others send sales and marketing. It is difficult to nail down the precise DNA of the 250 participants in this ritual. We spend hour-upon-hour in session time and try to emerge enlightened. We ask, what are the three things we need to do in the next 12 months? OK, it is Wednesday at lunch and there are not three things, but rather eight. Let’s see if you come to the same conclusion as Albert.
  1. Get the message of OEM quality out everywhere – web, print, boxes, merchandising
  2. Don’t dawdle with your B2B strategies – use B2B2C as a Trojan horse for your mechanical parts wholesale strategy
  3. Increase parts warranties for parts in high cost repairs; no need to cover labor
  4. Refurbish all those old parts marketing programs (e.g., Mopar’s “Lifestyles”) to support RIM compliance with an attitude
  5. Focus your customer retention efforts on the service advisor (SA) and leverage “My Guy” concepts; train SAs in best practices and merchandise to parts managers
  6. Accelerate development of digital owners’ center with simplified “key” service functionality
  7. Invest heavily in digital applications and technology – this is your customers’ future; think COUPONS & MOBILE
  8. Test every new investment against mile-high standards for product quality, availability, and uptime
Bottom line: Supply chain, sales, marketing, finance, service operations, pricing, and all those other traditional silos we have in aftersales really are all connected … and not in any imaginable way are there silos anymore.

Wednesday, April 4, 2012

System Fill vs. Facing Fill – Which Way’s The Strategy?

This used to be an easy question … if you stayed strictly theoretical and assumed that recessions were finally behind us, that parts managers did what we told them to, and that our new programs were just stunningly brilliant. It still is a fairly easy question to answer if we stick with reality.

Our dealers are still stuck with a recessionary hangover and this shows up in lean parts inventories. Our customers don’t have a lot to spend, so suppliers have flooded the e-market (as well as the other markets) with cheap parts. As a consequence of this, jobbers and WDs have to supply a broader assortment of parts with more spotty demand, availability, and ORTs. This is good for our dealers...if they have the parts.

If our parts managers would simply use our brilliant RIM (Retail Inventory Management) solutions to stock all their parts, we would be happy in a system fill world. We could design their inventories to nearly always be in stock and we could replenish these inventories at our convenience.

Well, that certainly doesn’t work.

Part populations are still growing as OEMs kick out more vehicle configurations with more parts and more complexity. It simply is not economically practical for a dealer to have near perfect in-stock performance. So, we design RIM systems to make sure that the best bunch of parts is usually in stock. RIM does a better job of this than a parts manager, simply because of the richness of the information and technology that goes into the decision-making.

Inevitably, dealer parts managers will rely on fairly crude non-RIM processes for replenishing parts inventories not on RIM. This might represent a significant portion of their sales … or, lost sales. Non-RIM dealer inventories also suffer from unintended consequences. RIM inventories have the most favorable returns policies …we do this to encourage parts managers to use RIM. The problem with this policy carrot is that it creates a disincentive to hold many non-RIM parts in inventory – breadth-wise and depth-wise. So, we end up with worse-than-normal fill rates for parts not managed by RIM. For non-RIM parts, facing fill is critically important, while system fill can be somewhat irrelevant. Dealers will predictably be out-of-stock for certain parts. And, for a bunch of these parts, parts managers will rely on their daily stock order for replenishment. It’s cheaper that way. Remember, “recessionary hangover.” And, while we may have very high system fill for these parts, they will take longer to replenish. More dissatisfied customers and lost sales.
Timeout: (Gene Metheny) I would say that the mix of facing versus system fill may be a bit different in the CE/AG world. It is simply impossible to carry everything facing and the ability to carry less-critical items centrally can lower inventory costs dramatically without severely impacting service.
It is not just parts managers who suffer from a recessionary hangover. The OEMs are infected, too. To make RIM work in this market, we need to support it with higher levels of facing fill. But, we might not want to travel down that path. Higher facing fill leads to higher inventories (that can be manageable) and denser warehouse parts slotting (OK, now this represents a lot of work). The offsets are lower referral costs, lower expedited freight, higher customer satisfaction, and lower lost sales. Hard and soft savings. Messy. I thought that “lean” meant flexible? Maybe it does, and maybe we aren’t.

Bottom line: Your system fill metric is only as good as the lack of competitiveness of your parts, the ORT of your stock order referral process, or breadth of RIM coverage. Five things can happen when a part is called for at a dealership and it’s not there: (1) they get if from another dealer and lose margin, (2) they buy non-Genuine from the aftermarket, (3) they lose the parts sale, (4) they lose the service sale, or (5) they tell a story to the customer and the customer waits until they get the part. None of these outcomes are positive. In all five cases, high facing fill provides better (not perfect) outcomes.