- 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.
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.”