Wednesday, October 24, 2012

Pick/Pack/Ship - In Search of a Standard Approach

Michael Sachs

Warehouse operations are fundamental to the service-parts business. So, you’d think that when you bring 21 companies together, all in the business of distributing motor-vehicle service-parts, that there would be a lot of commonality in the way they operate their distribution centers. Well, nothing could be further from the truth.

Earlier this month, we closed out our 2012 North America Parts Benchmark (NAPB) cycle in Chicago with a Focus Day devoted to the subject of outbound warehouse operations (actually, it lasted 1.5 days – lots to talk about). Once we got through the basics of high level facility and performance comparisons, we broke the session down into the following modules:
  • Slotting/Storage
  • Picking Strategies
  • Scanning/Technology/Equipment
  • Dock/Loading
  • Safety and Environmental

For every module we started by comparing the basics; for example, do you use temporary employees or do you have a WMS? In no case, did we find a significant bias toward one solution vs. another, even among top performers. Here are some examples:

Slotting/Storage – This is fundamental to efficient warehouse operations. If you don’t get this right, then it is very unlikely that you are running anywhere near peak efficiency. There is little debate about this. So, one would assume that there are some great off-the-shelf tools out there for managing the slotting/storage optimization process. Yet, only half the companies have a WMS that they rely on for this activity. Some of the best performers are in the “don’t have” category. The following charts provide a couple of other examples of how diverse the approaches are to warehouse storage:

Note: All charts are based on one data point per OEM. OEM names have been removed to protect anonymity.

Picking Strategies – One of the many ongoing debates in this field is whether or not a single person should be responsible for a given order line from pick through sort. The argument for doing this is that by having a single point of ownership, there is also a single point of accountability – no finger pointing when quality issues arise. This allows for both the identification of and training for people who need help with the quality of their work.

What’s interesting here is that those with the highest productivity within their respective industry segment tend to have a single point of line item ownership, yet some of the best quality comes from those with multiple points of ownership. Go figure.

Even for some of the most basic things there is no consensus; like how one traverses the warehouse or whether an operator picks and sorts each line (vs. picking all lines first, and then sorting).

Scanning/Technology/Equipment – Scanning is one of my favorite topics, because it seems that for every company that claims to have seen improvement by adding scanning there is another one that has seen improvement by reducing or eliminating scanning. Having said that, scanning is one of the few areas where the majority of industry players are in; about three-quarters of them. Again, whether a company scans or not is not a predictor of performance level. As the chart below illustrates, even among the majority of companies that scan, there is clearly some debate about how much scanning to do and where in the process it should occur.

Okay, by now I think you get the picture. Here are the Bottom Lines:
  1. There is no single way to achieve high levels of warehouse operations performance.
  2. While it is difficult to determine the key drivers of performance for any given OEM, the fact that each OEM does so many things differently from the next, even among top performers, suggests that everyone still has room for improvement.
  3. All of the above commentary, and accompanying charts, are interesting, but what really makes the 1.5 day investment valuable is the conversation about what companies actually do inside the four walls to achieve their performance levels.
  4. Bring together a large group of subject matter experts who all have a passion for warehouse excellence and over the course of 1.5 days everyone will learn many interesting things (as indicated by the 94% top-box overall satisfaction with the event), regardless of their performance level, and leave with their own customized list of ideas and action items.

Thursday, October 18, 2012

YourMechanic Wants to Kill Your Service Business

(And Other Observations from the 5th Digital Summit)
by Brian Crounse

Go check out YourMechanic. Here’s their offer: to repair your car in your driveway or at work, at your convenience. We may scoff at the range of repairs that they can offer, but we shouldn’t – for basic work, you can’t ask for a more convenient service. YourMechanic has an angle on trust and value as well (Convenience, Trust and Value are our three pillars of service). For Value, YourMechanic will give you a price quote for many types of work during the appointment scheduling process, with a low hourly rate (we’ve discussed the optics of labor rates many times in the past). YourMechanic also has a notable take at Trust; since they own the whole transaction, from appointment to billing, they can also own the review. The (few) repairers currently listed on YourMechanic have dozens of reviews, and they’re among the best we’ve seen in terms of timeliness, relevance, and details (see graphic).
YourMechanic is small (~10 employees; service available in pockets of the S.F. Bay Area only), and I have no idea if it will succeed (remember, I was worried about RepairPal, too). But, even ignoring the oil-change-in-your-driveway thing, we can learn from their approaches to Trust, Value and Convenience.

YourMechanic was just one topic of discussion at our 5th Digital Summit, held earlier this month in Detroit. We’ve written a few times about these semi-annual events. We started looking closely at the digital aftersales space in 2010, when we realized that vehicle owners were (finally) starting to make their parts and service decisions—and conduct transactions like buying parts and making service appointments—online. In this respect, motor vehicle aftersales is 5-10 years behind the vehicle sales side of the house, and online e-commerce in general (it’s worth remembering that Amazon’s revenues have grown 12x in the past decade).

The main focus of the day was on Owner Centers and Online Appointments—two areas where we’ve made a ton of progress in the past two years. GM has a great new Owner Center, as do Hyundai and Mopar. Several others have refreshes or updates in the works. The good news is that we’ve collectively come a long way since our first look in 2010. We’ve figured out what content users are looking for (vehicle information, special offers, service appointments, and dealer locators), and are improving on offering up this information quickly and clearly. We’ve figured out that most of this information should be easily accessible, and not stuck behind a registration wall. Of course, we’d like our owners to register so that we can connect with them more effectively. But, it’s well known that people usually don’t bother to register at websites.

I wondered at the Summit why more companies don’t use social logins (logging in via Facebook, Twitter, Google, etc., accounts) to make registering owners as painless as possible. Some, like VW, let you login via Facebook, but most Owner Centers don’t offer this. The main reasons cited for not pursuing social logins were security and privacy. Believe me, I really don’t like the idea of Facebook knowing every time I log into a website—they know enough about me already— but, the reality is, when they are offered, I use social logins more often than not. And I’m not alone!

The reason I think a frictionless login is important is that most of our users simply don’t visit our website often, if at all. We know from our annual End-Consumer Sentiment Survey that most owners who use Owner Centers only use them 1-4 times a year. That’s not a lot. If we want to do any connecting beyond pointing our users to maintenance schedules or the nearest dealer, we have to make registration easy.

Or, make it automatic. Hyundai is the leader here; they’ve instituted Owner Center registration as part of the vehicle sales process, and it works. Hyundai’s Owner Center traffic is off the charts compared to other OEMs. They also have done a lot of other things right: they have a rich dealer locator (minimal clicks/pages to get from start to finish), and seamless integration between Owner Center login and their online service appointment scheduler (this seems like a no-brainer, but it’s yet another non-trivial systems integration challenge).

Speaking of online appointment schedulers, most auto OEMs have implemented them, or are in the process of doing so. While the percent of appointments made online vs. the phone is still relatively modest (less than 10%), the trend is steep (we saw a doubling in the past year). The time to figure out this capability is now. It’s one area where we clearly have a better offering than the independent aftermarket, and we can grow that gap. And here’s an unpaid endorsement – if you want online appointments and don’t know where to start, try Xtime.

Some existing chain players also have online appointment schedulers, but they’re pretty weak (the PepBoys scheduler is pretty slick, up to the point where it mentions – five steps into the process – that you can’t actually make an appointment, after all).

In addition to YourMechanic, ClearMechanic aims to be the “OpenTable of car repair”. While they have a slick user interface, and offer Convenience, it’s less clear how they’re going to nail Value and Trust. Getting your car fixed isn’t quite like going to a restaurant, where the prices are well-defined and customer reviews are (somewhat) relevant and trustworthy. ClearMechanic relies on Yelp reviews, which is better than trying to capture and host their own, but has its limitations (among other things, car dealer reviews on Yelp reflect a mix of sales and service experiences). ClearMechanic does some things right regarding their repairer directory: All dealers are eligible (they even note that “dealerships possess certain technical advantages due to their manufacturer affiliations”), but only “high-quality” independent repair shops are— they’ll only list those with “outstanding Yelp reviews” (4.5 or 5.0 stars) or “prestigious third-party certifications (AAA, Diamond and ASE Blue Seal)”. It’s a start.

So, the good news is that our Owner Centers have collectively improved, dramatically in several cases, compared to what we saw in 2010. Similarly, our online appointment capabilities are gearing up well, just in time. And, we’re leading the aftermarket in both categories. For now. The bad news is that we still have a challenge getting owners to know about and use all these great offerings. Hooking them up at the vehicle sale is one leading practice. Another would be to register them during service events. However, doing so requires a) a compelling reason for both owners and service writers to make the effort, and b) an insanely painless registration process. And the worst news is that players like YourMechanic are looking to disrupt our whole business. Will they?

We’ll hold our next Digital Summit in 2013, date and location TBD. Our focus is TBD, as well, though we’re leaning toward a deep dive on parts e-commerce, plus, possibly, another look at the topic of online reviews. We hope to see you there!

Wednesday, October 10, 2012

What Are Parts Manager Best Practices?

What tangible, observable parts manager best practices are consistent with higher levels of wholesale sales?

Does anybody know? I wonder.

What about best practices that result in higher stocking fill? Best practices that result in higher counter sales?

What, exactly, do the best of the best do to have the highest level of fleet sales? Are there any best practices consistent with higher service loyalty?

Many of us think we know these. And we do. We can list dozens of good things that a parts manager should do. Nobody can list the top three.


We must prove they work.

Parts managers are smart; if we can’t prove it, they will head for the Danish and talk about how crappy your stock order discount is. You have to show them the money.

If I do this one thing, how much is it worth?
We just did this with service manager/advisor best practices and had a workshop with an elite group in Chicago – Hyundai, Volvo, VW, and Acura service mangers attended. Based on a survey of over 600 dealers, we were able to correlate market share differentials with tangible, observable best practices. The service managers spent the day in a workshop concerning these best practices. This approach “showed them the money.” 100% of the session satisfaction survey scores were checked as “very satisfied” – satisfaction with the MyGuy Workshop, the session content, the facilitation and the organization.

The NAPB Steering Committee met last week and decided that a similar approach might work for parts managers. So, we will be launching a best practices survey to participating companies in the next few months – this will be completely different than the current parts manager survey that focuses on parts manager satisfaction with OEM programs and performance. We will have a report-out at the spring conference in Chicago.

Bottom line: What am I hoping for? A compelling short list of things a parts manager should do to drive increased performance that he/she feels in his/her pocketbook. This is a cross-sector effort. Interested? Talk to your Steering Committee member or call Mike Sachs.

Wednesday, October 3, 2012

Are Our Strategy Gurus Missing Something? Why Can’t A DRP Strategy Work For Customer Pay?

Staples is changing its tune. The top chart in the cluster below is from a 1997 strategy assessment we did of the US automotive industry. Fifteen years ago it was clear and “easy” to see what was happening. There was a giant sucking sound dragging us from local stores to price-driven large stores to technology-enabled convenience. The chart below the sucking sound slide shows the evolution of Staples. They recently announced the closing of a bunch of stores and eating a charge of more than $1 billion. Easy. They got caught with bloated assets in an Amazon-designed shopping world. Well, if you are Staples, maybe this is just getting back on track. Staples is the 2nd largest online retailer in the U.S. and Canada. Why do they need bricks and mortar?

This was inevitable.

Dinner with DRP (Direct Repair Program). I had dinner last weekend with a friend who works at a local collision DRP. Huge facility. He told me that they specify aftermarket parts for all vehicles over one year old. The OEM dealer is allowed to match the price of the aftermarket; if they don’t, the DRP orders the aftermarket parts. The DRP gets between $35 and $40 a labor hour, flat rate, to work on the wrecks. Obviously, the technicians get a lot less than this. They are instructed to “fit” all the parts, and if an aftermarket part does not fit, they return it and go with genuine. He said that the biggest targets for aftermarket parts are the domestics and Honda. LKQ’s nirvana … Oh, ah, heavy truck folks, they are targeting you, too. Knew they would. My DRP friend said that that they actually do pretty good work, but he’d never put aftermarket parts on his car. But, he does what he’s told. Easy. Again, no surprises here.

Of course, this was inevitable.

But, surely, this can’t happen to us. Are we immune to that giant sucking sound? Staples sure wasn’t. Fifteen years ago, like us, they must have seen the signs that their big boxes were destined to be phased out. The 2000/2001
Internet collapse made them strategically numb to the inevitable, and they are now taking a charge of one billion dollars to make the switch. Amazon saw the same stuff and suffered mightily, but they started at where the giant sucking sound was taking everybody. Now, all they have to be worried about are like-competitors, which is a lot better than worrying about everybody. Plus, in addition to selling you everything under the sun on Amazon.com, they will also sell you shoes on Zappos.com, baby items on Diapers.com, pet supplies on Wag.com, toys on Yoyo.com, and even replacement auto parts through AmazonSupply.com. The list goes on and on. Mitt, Staples really needs you now.

Where’s the giant sucking sound taking us? So, how does the giant sucking sound drag our aftersales customers from local stores to price-driven large stores to technology-enabled convenience? I think the answer can be seen in the collision DRPs. Look at our dealers as being the high cost local stores … because, that’s what they are. A disruptive innovator might come along and develop a DRP-like model for customer pay maintenance and repair. They’d need to focus on all aspects of customer pay work for which dealers charge $95 an hour. They would have to do better than dealers on the stuff that customers value most (see chart on Tier-1 customer values – thumbs down are values where independents are seen as being “better” than dealers). This should be a lay-up for them. Number one on that list is having the vehicle ready when promised, and number two is charging a reasonable labor rate. Hmmm. $40 an hour vs. $95 an hour? Heck, that’s a lot of money.

Why can’t a Trader Joe’s-like entity (lets’ call it Trader Dave’s) come into the market and clean up? If there were a MyGuy concept operating in the grocery industry, it would be at Trader Joes. Nail the Tier-1 values, do spectacular work, quickly build a positive social network reputation (which drives word of mouth), control variable costs, leverage right-to-repair to gain access to everything the OEMs have, and be nice at the checkout. I’m sure we can find an offshore source of organic brake rotors to keep customers happy.

Time Out: Do you know who owns Trader Joe’s? Organic farmers in Oregon? Surfers in SoCal? Nope, it’s owned by Aldi, a German discount store chain at which 95% of the products are Aldi branded (that’s why almost everything at Trader Joe’s has their name on it). According to The Wall Street Journal in January 2009,”Aldi is so cheap that Wal-Mart Stores Inc. closed its discount outlets in Germany [in 2006] partly because shoppers found the U.S. giant too expensive in comparison.” Just think about that for a minute, your favorite neighborhood Trader Joe’s is owned by a company that makes even Wal-Mart seem too expensive.

Bottom Line: Fifteen years ago we mapped out a very simple business migration path that has been validated with countless restructurings and bankruptcies. Think Circuit City or Borders. These companies saw this just as clearly as we did. But, they could not escape the giant sucking sound. They couldn’t escape because they had invested too much in their status quo –billions of dollars on all of those big boxes. Don’t get caught in a sunk-cost fallacy. Staples is reducing their big box exposure while they still can. The OEMs loosely franchise dealers who’ve invested billions, too. All in all, the OE dealer networks are a perfect fit for our migration model. What’s to stop a “Trader Dave’s” from figuring this out and offering a product/process that makes customers happy and instills trust? Not much.

Of course, this is inevitable.