Wednesday, June 27, 2012

Demand Forecasting—Why Collaboration Is Key

Forecasting demand is critical to efficient and effective inventory management. Unfortunately, it’s not easy. We now have intelligent and efficient automated systems to help provide forecasts, but they can’t handle all exceptions or predict external factors—and we have certainly experienced a few external “factors” in the past several years (2008 financial crisis and Japanese earthquake, to name a couple).

Such events over the past few years have provided some key learnings and many OEMs are doing pretty well with forecast calculations. However, not all are fully communicating this information. While about 95% provide forecasts to external suppliers, only about 75% provide forecasts to internal suppliers. Why isn’t there more internal collaboration? Given the complex and often unpredictable nature of demand forecasting, communication and collaboration is vital to success.

At the 2012 NAPB in Chicago, we discussed some recent forecasting & inventory management success stories. What they all have in common is improved practices of collaboration and communication. Below are the key takeaways:
  • Get all responsible and accountable parties on the same page. Forecast metrics often require the input and oversight of several different parties. However, it’s rare that everyone involved in the compilation of this information has the same goal, involvement, and stake. Without such common ground, components of the metric can be disjointed or misunderstood. Aligning the understanding of the metric’s definition, calculation, value, impact, and use ensures that anyone responsible or accountable for the forecast (in however small a capacity) is well-informed and aware. And that means a better, cleaner forecast.
  • Meet face-to-face. So, how do you get everyone on the same page? Email? Not great. Phone? OK, but we can do better. Email and phone do little to open up communication and facilitate discussion. They’re fine day-to-day and in a pinch, but they don’t compare to meeting in-person. Being together as a team to discuss calculations and processes reinforces each team member’s responsibility and helps to clarify points of confusion and address concerns.
  • Share information consistently and often. Forecasts should be shared amongst all involved parties and should be shared with some frequency. One OEM with recent success developed a process of communicating forecasts and planned shipments on a monthly and weekly basis. This OEM provides reports at the company and the supplier level with sales, receipts, and inventory forecasts by month. With these monthly forecasts in mind, weekly shipment and order schedules are created for each warehouse based on individual capacity. These consistent reports keep suppliers and warehouses prepared and in the loop. This transparent and methodical process of information sharing has led to great process and efficiency improvements.
  • Address cultural differences and barriers. Often, parties involved in the calculation and dissemination of demand forecasts are scattered across the country and the world (just one reason why it is so important to meet face-to-face, at least occasionally). Team members may have very different cultural values and work styles. One OEM recently had issues coordinating between teams in the US and Asia. In addition to metric and process improvements, getting “back to basics” and reinforcing many things that had been miscommunicated, lost in translation, or falsely assumed, led to a more cohesive team environment, which paved the way for more efficient and innovative work.
  • Shake things up—don’t stick with the status quo. Innovative thinking is typically at the core of real success. One OEM showed us how powerful this can be. This OEM had a decent forecasting system, but it was a bit cumbersome and identified many exceptions, all of which had to be manually reviewed. So, the OEM developed a secondary, offline system through which to run all such exceptions. This generated a better adjusted forecast and reduced exceptions needing manual review. It required an intensive set up process, but collaborating with a diverse team rapid algorithm development and testing led to a more accurate forecasting system.
Bottom line: Forecasting demand is a complicated process with great impacts on inventory, fill rates, and ultimately customer satisfaction. While a lot of work goes into these forecasts, the importance of team dynamics and information sharing is occasionally overlooked or undervalued. Communication and collaboration in the forecasting process is important. This year’s success stories demonstrate great improvements in this area. Those who aren’t fully collaborating internally and externally need to get on board.

Wednesday, June 20, 2012

NAPB – Warehouse Technology Panel Wrap-up

Think back ten to fifteen years. Do you remember the time when you were able to live without mobile technology? In the early 1990’s cell phones were nearly as big as desktop printers and they had external batteries you had to carry with you in an extra suitcase. Back then, when people were talking about “Apple” chances were high that they meant the fruit. Much has changed over the course of the last fifteen years. Cell phones became smaller and smarter, communication and customers became mobile, and Apple became one of the world’s most valuable companies. Looking at the title of this blog, you might ask yourself: “These are all nice developments, but how does it all apply to warehouse technology?” Well, the answer is fairly simply: Recent technological developments not only affect our daily life, but also have a tremendous impact on the management of warehouse operations.

At this year’s NAPB conference in Chicago, we spent 90 minutes discussing recent trends in warehouse technology and their impact on both quality and productivity of warehouse operations. The NAPB panel discussion allowed nearly 100 subject matter experts from leading automotive and heavy equipment manufacturers to spend time sharing and learning from each other. OEMs discussed major challenges and best practices in the areas of   i) warehouse picking technology,  ii) warehouse management systems, and  iii) material handling equipment.

The goal of this article is to provide a brief summary of the best practices and discussions covered during the panel discussion.

Warehouse Picking Technology
Not surprisingly, the majority of participants use scanning technologies during the picking process, with RF-directed picking being the most commonly used technology.

Historically doing little scanning (i.e., only on an “as needed” basis by picker), one OEM found great success in expanding scanning throughout all of their warehouses nationwide. By introducing the scanning technology to both the picking (“scan the ticket and part on the pick”) and the sorting (“scan the ticket and tote on the sort”) processes, this OEM has not only been able to reduce errors by up to 70% in select warehouses, but has also managed to minimize the negative impacts of scanning on warehouse productivity.

And speaking of warehouse productivity, many participants reported an increase in productivity by an average 6% to 8% due to the use of scanning technology. To further increase productivity gains, one OEM extends the scanning technology to capture information for a real-time management monitoring tool. Once fully operational, a dashboard will provide warehouse supervisors with real-time information on the productivity of individual warehouse workers. This will not only increase transparency tremendously, but also enable supervisors to make appropriate adjustments as soon as necessary.

Warehouse Management Systems
Participants currently use a broad range of different warehouse management systems with in-house legacy, Red Prairie, IBM DView, and SAP being the most commonly used systems. When looking at the functionalities, many OEMs use their warehouse management systems for real-time receiving, location level inventory management, and – less often – labor management.

When speaking of warehouse management systems, one OEM has experienced great success in implementing and customizing one of these products on a step-by-step basis. Initially having installed two of five modules in all of its warehouses in 2009, last year the OEM installed a fully integrated labor tracking module. By supporting a single “virtual” box covering all PDC locations, the system now allows the OEM to perform real-time labor tracking functionalities. By installing and customizing a standardized publicly available IT system, this OEM was not only able to implement a state-of-the-art warehouse management system that fully supports real-time based applications, but also saved a lot of money by not having to hire industrial engineers.

Material Handling Equipment
When it comes to handling parts and materials, most participants use man-up pickers, followed by floor-level powered equipment and power conveyors. Automated material handling systems are rarely used; only two OEMs take advantage of this technology.

Currently, a smaller number of OEMs are experimenting with software that is able to monitor lift truck performance. Also, during the course of the last year, a few OEMs began switching to optimized/rapid battery chargers. When speaking of rapid charging batteries it is noteworthy that, during the panel discussion, one OEM referred to them as a “no brainer”. And frankly, with no self-failures, only one required battery per truck, no downsizing, and the flexibility of being charged anytime for any period of time, compared with conventional batteries, rapid charging batteries seem to be the better alternative.

These are just a few of many ideas and best practices shared by participants during 90 minutes of intensive discussion and exchange of ideas and experiences. All participants were very interested to hear the challenges that others are facing and the initiatives they are using to overcome them. It was interesting to note that even those who are doing well can learn from the others.

Bottom Line: Recent technological changes have had a tremendous impact on warehouse operations. The times when warehouse managers were experiencing a negative trade-off between quality improvement and productivity gains seem to have finally come to an end. Today, faster, smaller and smarter applications enable improving both warehouse quality and productivity. However, one challenge still remains - in a continuously changing environment of available technologies, it becomes increasingly harder for warehouse managers to keep up the pace.

Friday, June 15, 2012

Customer Retention Modalities in the Motor Vehicle Industry

David Carlisle
For the first six months of this year my pet project was to determine why OEM parts sales had been so robust in 2010 and 2011. Had all those brilliant service retention efforts finally paid off? Had all those service satisfaction surveys sent to warranty customers finally turned the tide in customer-pay business? Nah. What happened was quite simple and we finally have something for which to thank all those brilliant Eastern consultants. They ruined the market for the competition. Let me explain.

In October 2008, Lehman brothers went broke and collapsed. This was the ignition point for the recession that started, in earnest, in 2009. The recession birthed the market for “cheap” – cheap fashion, cheap cars, cheap food…and cheap auto parts. Simple. A new market was born, but it needed sales, marketing, production, and distribution. It needed the internet. The internet had matured since its bubble burst in 2000. You want to sell some cheap parts?

  1. Get them from East Asia, no questions asked, and use the internet for all your supply-side planning, contact, and communication. You can figure out who to use and how to use them from consultants.
  2. Market them via the internet. Get a consultant to help you with search term optimization and pay folks to write hundreds of pages of hidden text to get on the first page of a Google search.
  3. Sell them, once they are on your site, with a broad array of choices from dirt cheap to ridiculous. Use consultants to make this part of your site sticky.
  4. Distribute them like Amazon – direct from one warehouse, using premium freight. Who cares about one/two/three-step distribution models and dealing with CARQUEST. Use a consultant to set this up.
This works. Go to, look up brake pads for a Chevy Cobalt, and you find a slew of options ranging from $33.39 to over $200.

Since 2010, the number of digital service customers has risen astronomically – from 32% of the surveyed population to 55%. So, it is safe to assume that most service customers use the internet for some form of research. They check things out. One of the things they check out is parts prices. So, when they go in for service, and get sticker shock, they ask why the parts cost so much. Worse yet, they ask the service shop to use cheap parts, like the ones they find so easily on the internet. This was confirmed by independent repair facility (IRF) folks at one of our recent focus groups.
The proliferation of cheap parts, indeed, is wrecking the independent aftermarket – the market model I showed a few weeks back ( is valid.

But, the question that has been ringing in my mind for the past 18 months is, “Are all those programs the OEMs are using to increase service retention working?” I think not … with one exception. Most of the unexpected parts sales upside experienced by the OEMs during the past two years can be explained by: (1) longer initial vehicle retention that benefits dealer service, (2) harvesting of deferred maintenance stockpiled from the gloomy days of 2009, and (3) using 2009 as the new basis for year-over-year comparisons – which is like using road kill to gauge the beauty of a fluffy-tailed squirrel. Hmm. We are trying to get back to a 17MM sales year, and this will compress the new-vehicle ownership cycle. And, we’ve already wrung out most of the deferred maintenance. So, we are stuck with just the road kill to make us feel brilliant.

Digital Service Customers (“DSCs” who are now the majority of service customers - generally go to dealers for warranty work, and go to their “My Guy” for customer-pay work. Rather than ask if any of those OEM programs are working, it makes more sense to examine the process, reflect, and see if anything has really changed.
  1. I figure out my vehicle needs service. This is the one, overwhelming, exception. Many brands now use telematics to diagnose problems and steer remedial action. OnStar is still the king of the hill here.
  2. I book service. If you don’t have telematics (OK, even if you have it), you call a dealer and talk to a service manager. Online scheduling, which is generally flawed, is not on the top-10 list of things service customers value.
  3. I go in for my appointment and talk to the service advisor. This is the industry’s black hole. Service advisors are trained by the service manager, and customer sensitivity training is not part of the curriculum. Nobody owns this fulcrum – if Ayn Rand were alive, she’d say that this Atlas has already shrugged.
  4. I never see the parts manager. Most of the OEM parts programs are focused on the parts manager, who pretty much never sees a service customer. I’m still trying to figure out how they can make much of a difference in customer service retention.
  5. The repair is completed and I get my paperwork from the service advisor (who I have no relationship with). OK, they do a good job, generally, because they have great well-trained technicians (who I never see) and use Genuine parts (that I don’t know what are). Hey, warranty work is free, but when I’m off warranty I go to “My Guy” who treats me like a valued customer and looks out for me.
  6. I get a survey asking me how satisfied I am. The service advisor already asked me if I was completely satisfied – first real eye contact we had. He asked for top scores and explained how important it was to him. So, I get the survey and give them “all 5s” because I think they will send the survey to that service advisor who stared at me and might kill my dog if I don’t give him “all 5s.”
Bottom line: We are situated at a unique point in history. Cheap parts are … temporarily … wrecking the aftermarket and causing some level of dissatisfaction in the independent aftermarket. If this were a Clay-Liston fight, we’d see an uppercut that would bring Sonny to the mat. Instead, we are blowing bubbles. With the exception of telematics (GM’s OnStar, Hyundai’s Blue Link and Komatsu’s Komtrax being great examples), I’m not feeling the love. It’s one of those modalities.

Friday, June 8, 2012

What’s the Value of Telematics Today and Tomorrow?

In-vehicle telematics have been around for a while (think of OnStar 10+ years ago). However, telematics are now becoming technologically advanced, widespread, and often standard equipment on new vehicles. These systems bring drivers and operators a variety of services including safety, diagnostic, monitoring, navigation, and entertainment. They have revolutionized, and continue to evolve the vehicle ownership experience. While the benefits to customers are fairly apparent (ease-of-use, information, productivity, entertainment to name a few), these systems benefit OEMs as well. So, beyond customer satisfaction, where does the industry stand? What is the real value of telematics to OEMs today? And what will it be in the coming years?

Currently, auto OEMs offer a wide variety of telematics features focused more on enhancing the driving experience and less on diagnostics and service. Conversely, heavy equipment OEMs tend to offer less on the side of entertainment and safety and focus more on providing a superior aftersales experience. Regardless of each OEM’s particular strong suit, across the industry, the majority of these OEMs are looking at ways to use telematics features to improve and enable customer relationship management and service retention. The key here is to get real-time data from the vehicle and take targeted actions, enabled by technology and dealer processes. Today, most OEMs collect diagnostics codes, subsystem status, and vehicle location information.

Heavy equipment OEMs use telematics data more pervasively than auto OEMs, mostly for vehicle/part failure analysis.

Regardless of each OEM’s specific offerings, the overarching focus of the industry is on providing customers with diagnostic reports and keeping them aware of the status of their vehicle maintenance and repair needs. However, how do we know those customers are going to use the dealer for such maintenance and repairs? This is where a few leading OEMs take the next step. Several OEMs offer customers special features to distribute service specials and coupons and to locate dealers. A very select few OEMs offer customers the ability to contact service representatives and/or dealerships to make appointments as necessary, all enabled by backend technology integration. Telematics enables OEMs to create a targeted approach to each individual customer, based on the exact status of the vehicle.

Further, even if we can get these customers into the dealership, how do we ensure they have a positive experience and keep them coming back? Diagnostic and fault code information gathered by the in-vehicle telematics systems, if available to dealerships, prepares them and provides them advance notice of what the issue is and what are the possible service and parts required to solve it. Some OEMs automatically ping customers’ “preferred” dealer at the time of fault codes, and for certain fault codes, are able to advise which parts may be needed. All of this information gathered by the telematics system means that the dealer is informed and prepared, and, hopefully, that the customer’s service experience is a positive one.

Given the strides made in service and diagnostic features, what potential value is there that OEMs should and will start to capitalize on in the next several years? Part forecasting and inventory management – as telematics systems gather data on fault codes and part failures, OEMs can use that information to get a sense of what demand will look like and how inventory will need to be deployed, both at their PDCs and dealerships. Think RIM enabled by telematics! While most OEMs say that few of their fault codes can currently be linked to specific parts, some can, and OEMs want to refine and categorize these fault codes. The technology isn’t quite there yet to allow OEMs to directly tie in their telematics data to their forecasting processes, but OEMs want to see that evolve and are beginning to invest resources in exploring and developing that link. The value of telematics will continue to grow and will soon go beyond customer satisfaction and service retention, to tie into inventory management processes—it’s only a matter of time.

Bottom line: For OEMs today, the real tangible and attainable value of in-vehicle telematics is building a relationship with the customer and improving the aftersales experience. Today, most OEMs provide proactive diagnostics and maintenance/repair information. A few use this information to facilitate service initiation and appointment setting and execute targeted marketing. No one has cracked the code on using this information to manage the supply chain. But, OEMs are looking toward what’s next and, in the coming years, we’re going to see a lot of value out of telematics for forecasting and inventory management—the technology is getting there and OEMs are gearing up.