Thursday, May 31, 2012

“My Guy” … or “My Big Brother”

We recently sent out the results of our annual North American Service Manager Survey: 23 reporting brands in the US and Canada, over 9,500 respondents, 61% response rate, 15+ topics, 100+ questions, ~38,000 text responses.

Even more impressive is what the industry has achieved since we launched this survey in 2005. The chart below shows average 2005 and 2012 Top-Two Box Satisfaction scores for the topics we cover.

Every category but two (Technical Training and Customer Satisfaction Measurement) has increased, including three categories (Support for Service Retention, Tools, and Diagnostic Equipment) that we introduced in later years to keep the survey up to date and relevant.

What is behind these tremendous improvements? A lot of hard work and never-tiring, continuous improvement, every year, over many years. Just to list a few examples from OEMs we talked to and that have shown score increases – both big and small – since the previous iteration of the survey in 2011:
  • Service Marketing: One OEM provided its dealers with better tools to segment and target their customer base. This measure, coupled with more "turnkey" retail-oriented promotions (dealers opt in and the OEM handles the execution), led to significantly higher satisfaction with Service Marketing.
  • Field Service Business Support: Another OEM sees the payoff from several years of training its field force in a consultative approach to developing annual business plans with dealers. Dealers are now actively looking for field force help in planning and “working the plans”.
  • Technical Support: Yet another OEM added Saturday hours to better support dealers that are open Saturdays – change does not have to be complicated!
  • Warranty Administration: A contentious area if there ever was one, but positive change is possible – One OEM increased self-authorization limits for warranty and goodwill, enabling the dealer to take care of the customer on the spot. This improved the service level and claims resolution process in the warranty claims call center, driving a big jump in scores!
  • Customer Satisfaction Measurement: The troubled child of the industry – low scores and one of only two categories with no improvement since 2005 in terms of industry average scores. There is an exception: one of our OEMs showing significantly higher year-over-year scores in this area. They moved away from strictly numerical scores to a more descriptive approach that asks clients to describe their service experience: How would you describe your service reception? Would you choose "I was greeted quickly by an associate that knew my name and why I was there that day." or would you choose "I had to wait for 10 minutes until someone would even acknowledge my presence."?
  • Communication: One of our OEMs, showing great improvements across the board, told us that they are changing the way they are communicating with their dealers in order to build stronger relationships with them. They are basically making the change from a fairly “top-down” approach to more of a “town hall” model. They combined this with making significant changes in service marketing, warranty administration (sounds familiar!), and customer complaint handling. For instance, they eliminated and changed some of the more contentious and potentially adversarial policies.
And the list continues…Multiply this (very incomplete) list over a period of seven years with 20 or so brands and you get at least a superficial impression of what the industry has accomplished and what is reflected in the tremendous improvements since 2005.

But, on a higher level and moving beyond the scores, what do all these measures – more open communication, improved marketing programs, new customer satisfaction methodology, better field, warranty and technical support – have in common? What is the “DNA” of these improvements?

We talked to another client for this blog; a client with an overall satisfaction improvement of nearly 40 points since 2005, catapulting them from near bottom to the top of the industry. This client summarizes it very well by stating: “The components which I believe have helped us be successful AND [emphasis added] have a strong partnership with our Service Managers include” … and then goes on to list, with few exceptions and with particular emphasis on accessibility and responsiveness, all the components shown above!

So, the “DNA”, the unifying theme of all these activities, is for OEMs to build trust and relationships with the people that they expect to build trust and relationships with the vehicle owner. “My guy” – that’s the way vehicle owners think of their neighborhood garage. They have a relationship with “my guy”, they trust him (or her) and, therefore, they come back time after time. If OEMs want dealer service personnel to become more like “my guy”, they have to be careful to avoid being “my big brother” and be more “my guy” themselves.

Thursday, May 24, 2012

Right to Repair Passes Massachusetts Senate

David Carlisle

I guess this was inevitable. Here’s the story, as printed in Fender Bender:

“The Massachusetts Right to Repair Coalition said the legislation is meant to protect motoring consumers by requiring auto manufacturers to sell all non-proprietary repair information, tools and safety-related bulletins to independent repair shops and new car dealers so they can repair vehicles using the same manufacturers’ codes and ensure a competitive marketplace in the auto repair industry. The legislation provides car companies with strong protections for their trade secrets, and only requires them to make available the same diagnostic and repair information they provide to their franchised dealers. …’We thank chairman Tom Kennedy and the legislation’s Senate sponsor, Sen. Jack Hart. Without their leadership, consumers would still be waiting for this step,” said Art Kinsman, spokesman for the Massachusetts Right to Repair Coalition. “We applaud the Senate for acting and look forward to passage in the House and then on to the Governor for his signature—consumers are waiting.’”

So, AAIA went for the jugular by using a Madison Avenue name for a law - “right to repair” – and getting it passed in Massachusetts … where, of course, we all have the right to repair … whatever. The AAIA was brilliant and I must nod to them – sort of like the nod I give to the Yankees when they demolish our Red Sox (well, not this year certainly).

May was a pretty good month for AAIA. Kia sent out the following TSB that caused quite a stir (Kia Technical Service Bulletin (TSB), #114 dated February 2012):
“Kia does not test or approve any aftermarket filters and only recommends the use of Kia genuine parts that are designed to operate at the specifications set forth during engine lubrication design and testing. If the engine oil has been changed recently and a noise condition has developed, perform an inspection of the oil filter and/or customer oil change maintenance records to help you in determining if an aftermarket filter or the wrong oil viscosity was used. If the vehicle is equipped with an aftermarket oil filter, perform an oil change and filter using the correct oil grade/viscosity and a replacement genuine Kia oil filter at the customer’s expense. … Note: Customer concerns as a result of incorrect oil viscosity or use of aftermarket oil filter should not be treated as a warranty repair and any related damage is not warrantable, nor is changing the engine oil and filter to isolate this condition.”
Sounds reasonable to me, and spot on. Well, the AAIA was not happy with this – In a May 7 letter, the Automotive Aftermarket Industry Association (AAIA) called upon the Federal Trade Commission (FTC) to take action against Kia Motors for allegedly misleading consumers pertaining to the use of non-original equipment replacement oil filters. The letter was also signed by the Automotive Oil Change Association (AOCA), the Tire Industry Association (TIA) and the Service Station Dealers of America (SSDA) -http://www.bodyshopbusiness.com/Article/100475/AAIA_Asks_FTC_to_Take_Action_on_Kia_Aftermarket_Parts_Bulletin.aspx

During the past few months, we have surveyed thousands of service customers in our annual Service Sentiment Survey. We coupled this with focus groups of Independent Repair Facilities (IRFs), Digital Service Customers (DSCs), Jobbers & WDs, and Dealer Parts Managers. We developed a market model that explains what’s been happening. Looks like Kia was right on target. The non-dealer market is bloated with bad, cheap parts that, in many cases, simply don’t work. The jobber and IRF focus groups were hilarious – great stories about the junk out there that ultimately hurts the end-customer. Right to repair? What about the right to know the truth? AAIA looks a lot like a lobbying group to me – sometimes the market for truth sucks.

Bottom Line: My uncle was a WWII vet. He would drink a lot of beer and become loquacious. I remember once talking about who started the war. He became animated. He said not to focus so much on who started it, but to think about who could have stopped it before it became all about guns and grenades. The AAIA did not get “right to repair” through the Massachusetts senate. The OEMs simply did not stop it.

Thursday, May 17, 2012

Terms & Conditions Redux

In May 2009, Paul Gurizzian and Gene Metheny wrote a Spare Parts blog discussing the state of the industry in regards to Terms and Conditions. They identified three classifications of Terms & Conditions:
  • Traditional Terms – an approach from the past, but still being used at roughly half of OEMs (in May 2009);
  • Incentive Terms – an approach of the present and being used at roughly the other half of OEMs (in May 2009); and
  • Performance Terms – an approach for the future that is being used by a few OEMs.
Performance Terms are effective because they reward dealers for directly achieving definitive corporate objectives (think growth) and end-customer service (think CSI). In other words, they focus on results rather than inputs. But, implementing these is not without challenges. There are hard requirements, like meaningful and robust metrics calculated from accurate and manageable data. And, Paul and Gene identified other “soft” requirements, like dealer readiness for performance-based payouts and OEM commitment to sustain their anticipated change management.

But there’s more to it than that – Performance Terms also help move dealers toward aligning their operations more effectively with our higher velocity supply chains. Traditional Terms are great at promoting behavior to support the supply chains of yesteryear, but we’ve changed and need our dealers to evolve to fully act as the partners operating our supply chain terminus. If we don’t, the best laid network simply won’t work because of a misaligned tier.

Timeout: About a year ago, and almost two years after that blog was written, Carlisle met with the parts director of a large heavy truck dealership group in the southeast. He told us that his current struggle was finding ways to fairly redesign the compensation structure and management of his team of outside parts salespeople: “My team’s fleet sales can’t just be an annuity payment. They need to be paid for growing the bottom line. I can’t afford to pay them to just show up.”

Maybe dealers are ready for this kind of treatment, too

Fast forward to the 2012 NAPB and we find that OEMs are refining Performance Terms and even more are implementing them. After having largely survived the automotive industry’s equivalent of Europe’s current debt crisis, all OEMs are now getting serious about ridding themselves of dealer “entitlements,” the 21st century’s newest dirty word. A quick summary:

  • An Agricultural Equipment OEM has a renewed focus on part sales growth, and took the plunge from Incentive to Performance Terms by directly compensating for overall volume and growth, and also mandating more efficient supply chain operations with required monthly returns (no longer annual) and mandating daily stock orders. What did they find?
    • “Dealers like the improved delivery times.”
    • “Returns satisfaction went up significantly.”
    • “As a company, we’re OK spending more money on discounts that get us more growth.”
    • “There wasn’t a lot of pushback from dealers.”
  • A domestic auto OEM wants dealers to provide customers with better part availability, so they overhauled their terms and conditions to directly pay based on the quality of dealer parts inventory – do they have the right parts to promote growth? What did they find?
    • Dealers report higher fill rates and lower inventory.
    • As an enterprise, they are one step closer in the evolution of the dealer parts sales manager.
  • Another domestic auto OEM identified dealer parts purchase loyalty as a major opportunity and tweaked their industry-leading Performance Terms to require higher parts purchase loyalty from dealers. What did they find?
    • Parts purchase loyalty improved about 1-2 points.
    • There wasn’t increased incentive spend despite improved retail sales.
    • “We collected and incorporated dealer feedback for how to measure and reward ‘good’ behavior.”
Bottom line: Common questions about performance terms reflect a real doubt that dealers are ready to be paid for performance. In reality there is strong evidence that dealers want to be rewarded for results. The showcased OEMs at NAPB all shared stories of strong dealer reception and performance improvements. Additionally, some of the largest dealers are implementing this approach within their organizations to drive improvements and better manage their businesses. We shouldn’t let our fear of change, or presumed dealer resistance, prevent us from evolving our supply chains and operations.

Thursday, May 10, 2012

Cost-Plus or Fixed-Price – What’s the Best Type of Contract to Promote Productivity and Reduce Costs?

At the North America Parts Benchmark (NAPB) this year, we gathered a group of motor vehicle OEM subject matter experts to discuss how they use and manage third party logistics (3PL) providers for warehouse operations, transportation and other activities. While we talked about 3PLs in general, we did not discuss any 3PL in particular.

One of the main topics covered was on the contract type, should we be using cost-plus or fixed-price contracts?

Cost-plus contracts require the OEM to pay for the 3PL’s costs, plus a fee for profit. This type of contract has several advantages:
  • It can result in a lower price than expected for the OEM, as there is less risk for the 3PL in accurately predicting their costs.
  • The contract can easily be scaled in the case of future expansion.
But there are also disadvantages to cost-plus pricing:
  • The 3PL has less incentive to reduce costs, as they are being reimbursed for them anyway.
  • There is little need to improve efficiency, productivity, and quality.
  • If the 3PL does not adjust the labor force as needed, you may be paying for excess labor.
Fixed-price contracts are often on a price-per-line basis, whereby the 3PL is paid for each line shipped from and received at the warehouse. This offers a different set of advantages:
  • The OEM can predict their costs based on the volumes expected.
  • The cost can easily be passed to the customer in the form of a handling fee.
  • The 3PL is encouraged to be more productive, as they can bring in more money per hour if they ship more lines.
Disadvantages to fixed-price contracts include:
  • 3PLs may under-bid to secure the contract and then are unable to perform.
  • The 3PL has little incentive to reduce costs for the OEM, but has a large incentive to reduce their internal costs, sometimes to the extent where quality suffers.
  • There can be difficulty with scalability; large increases in volume could result in much higher costs to the OEM.
There is a mix of contract types used by the OEMs in attendance, with no clear trend as to where the industry is moving. Some companies shared that they are moving from a cost-plus model to a fixed-price model, and others are moving in the opposite direction.
Satisfaction was similar across contract models, with a slight advantage to cost-plus in the small sample of companies surveyed.
Bottom Line: About two-thirds of the OEMs we talked with do not use bonuses or penalties to encourage the 3PLs to achieve performance targets. OEMs need to think hard about how best to implement performance-based incentives as part of either type of contract to minimize costs and maximize productivity, quality, and overall service level.

Wednesday, May 2, 2012

Diesel Particulate Filters – To Clean or Not to Clean, That Is the ROI Question

“Diesel particulate filters? Aren’t they often just an afterthought?” No, not really. Last week at NAPB we hosted a small but select group of subject matter experts from the heavy truck, construction, and agriculture equipment industries. Here are the takeaways from the discussion:
  • DPFs that are removed from the engine and regenerated off-board pose particular challenges for service parts OEMs. Industry strategies on how to replace DPFs in the field range from high control at one OEM to a dealer support model at another.
  • In North America, OEMs are competing against a prolific network of third party service providers with DPF cleaning facilities.
  • Many OEMs struggle to see the value-add in offering reman DPFs, as dealers increasingly turn to those local sources for cleaning or purchase their own cleaning equipment.
  • Dealers tend to return only the worst cores to their OEM for reman, leading to high core fallout rates for the OEM.
  • Yet, even if not directly offering DPF reman, OEMs want to retain control of the process that is used by 3rd parties to ensure high quality of the reman DPFs.
  • ROI is an issue: Does the revenue from DPF cleanings per year warrant the high initial purchase price of cleaning equipment; particularly outside of the over-the-road truck segment?
  • Does this sound familiar? Customers ignore service maintenance reminders, and OEMs and dealers struggle to get customers to commit to a frequent maintenance cycle when it comes to DPFs. One attendee summed it up nicely, “At the end of the day, it’s just a filter that’s expensive.”
Bottom Line: OEMs are on the fence about the business viability of a central DPF reman model – these parts represent a customer uptime requirement, but yield little to no marginal revenue potential. Accessibility and speed of service are issues: Customers seem to prefer locally available service solutions offered by dealers or third party providers. ROI is another concern. Is the investment in equipment worth the revenue potential and more consistent customer support? Those OEMs who have added DPF reman to their services are not convinced. In fact, we already see some OEMs abandoning the central model and moving this service down to the dealer level.