Thursday, August 29, 2013

Express Service and the Future of the Service Department

Several major threats to dealer fixed operations are on the horizon. They all stem from the fact that the customers’ needs, the dealers’ perception of those needs, and dealers’ strengths do not always line up. Non-dealers,which include chains and independent repair facilities, have many weaknesses, but as you can see in the chart below, they are good where it matters: convenience and how customers view prices. Improvement in vehicle quality over time has meant less warranty work and repairs, and more regular maintenance and light repairs. Automotive service chains are effectively competing with dealers by increasing service levels for these maintenance services and simple repairs. All this darkens the outlook for dealers and OEMs, unless they change the way they do business.

To address changing market dynamics, and retain their customers and profits, many OEMs and dealers are looking at quick service operations (a.k.a. Express Service). In fact, a recent NASB benchmark study found that over 50% of OEMs are investigating the Express Service business model for many of their dealerships. The benefits of Express Service are widespread, but the key benefit is customer satisfaction, which drives customer retention and, ultimately, sales.

Express Service can help dealers become more competitive in their markets and improve their productivity and sales.

The journey to a successful Express Service program is not easy, and requires several considerations. Here is a quick list:

  • Management/Dealer Buy-In: Like any dealership change initiative, Express Service needs to be a core element of a dealership’s operations; that means buy-in and support from top level management, including the dealer principal. The installation process can take anywhere from one week to six months and typically involves an in-dealership assessment, as well as meetings with dealer management and the OEM on in-dealership training. Everyone needs to buy into the overall philosophy of “No appointment necessary”.
  • Dedicated Resources: Dedicating resources to Express operations is necessary for success. Dealers must assign separate technicians, service advisors, and service bays to these operations. A recent Carlisle benchmark revealed that the average Express Service operation includes one dedicated service advisor, two dedicated technicians and two bays. However, this differs from dealer to dealer, based on the need. Maintaining supplies of fast-moving parts in Express Service bays is also critical. The key is to have flexibility and simplicity. Remember kaizen.
  • Facilities: Another essential decision is whether or not to create a separate facility for Express operations. There are two distinct models: the Ford Quick Lane model, which has separate facilities for quick service operations, and Nissan Express Service, which leverages an existing, but separate, area within the dealership. Either way, it’s imperative that the services be separate from the main shop, with clear signage so customers can easily locate Express operations.
  • Process Excellence: Express operations are more art than science. They require a carefully orchestrated sequence of events when a customer comes in. Nail down the inspection and service process, and know the exact time for each step. Within 10 minutes the customer should be told what services his vehicle needs and how long it will take. Most OEMs support dealers with a robust installation process; they leverage third party and/or corporate field staff for installation and follow-up visits.
  • Staffing: The Express Service advisor should have a different background from staff in the main shop. Customer service in Express should emphasize personality and sales traits over automotive knowledge. It is important to have a succession plan in place for Express staff, because there is a high turnover rate associated with Express Service operations.
  • Services Offered: Most OEMs start Express operations with maintenance/scheduled services (Level 1). Once they perfect the process, they graduate to light repairs, such as brakes and tire repairs (Level 2). Very few offer medium to heavy repairs through Express operations.
  • Monitoring: Key performance indicators (KPIs) for Express Services typically include measuring demand, profitability, and customer satisfaction. It is also important to establish Express op-codes to track and monitor Express repair orders and related metrics. Some OEMs check in with Express Service operations annually, while others monitor data daily.

Bottom Line: To compete in the new market, OEMs and dealers must align their goals and processes. The industry has set the bar for change: fewer repairs, simpler maintenance services, and longer service intervals. The big auto chains, like Pep Boys and Firestone get this and are going after it. Just look at what they’re spending to market these services. OEMs must look more like “chains” in the future – in the new world, simplicity and dependability will be the trump card.

Friday, August 23, 2013

Powersports Companies: Don’t Spoil a Good First Impression

Like most industries looking to sustain their growth, manufacturers of heavy motorcycle (500cc +) and recreational products (jet skis, snowmobiles, ATVs) are targeting the developing world. The strategy makes sense: motorsports products are generally luxury items that appeal to the rapidly expanding middle and upper-middle classes in these regions1. OEMs have successfully brought their products to market, but a common sore point for consumers is aftersales support, especially the availability of parts and accessories. Customers can purchase vehicles, but still have a hard time getting parts to repair or accessorize them.

OEMs have always faced hurdles in getting their products into these countries. While mopeds are common, motorcycles greater than 250cc are not allowed in cities or on highways in Asia’s emerging markets. Recreational vehicles are often in demand in remote areas, where the challenge is to develop a base for sales and support. All OEMs struggle with high tariffs. The logistics in many countries can be diabolical, requiring a large number of dealerships relative to sales; this can impact training, service, and financial stability. Serving the developing world is not easy, but that’s no excuse for poor service.

Several common issues drive the problem of aftersales product availability.
  • Corporate governance: Some organizations do not have a centrally led strategy that sets goals on service levels for their dealers and end-customers. The result? Regional managers don’t set retail fill targets or make decisions that align with corporate goals in the region.
  • Dealer capabilities: Dealers in developing countries are often considerably smaller than those in the developed world; they have less money to invest in a broad inventory and less mindshare for inventory planning.
  • Longer lead times: The supply chain for the developing world is improving, but it can still take weeks to get products into rural areas of China, Brazil, and India.
Poor retail product availability has serious short and long term implications for powersports OEMs.
  1. Repurchase Loyalty
    The link between aftersales customer satisfaction and same-brand repurchase intent is clear and strong: every customer interaction is an opportunity to reinforce the brand and create an impression. However, when we discussed with several OEMs the issue of parts service levels (retail availability and lead times) in the developing world, they admitted this was a weakness.
    The bottom line: OEMs can’t grow or make profits, they can’t develop their brand or retain customers unless they can get parts into the markets and make them available for profitable sale.
  2. Evaporating Demand
    For most repair and wear parts, demand is inelastic: these parts must be replaced or the unit will not run. At the same time, accessories are often impulse purchases, with the majority made at the time of the unit’s sale. If these demands are not satisfied, they can evaporate along with the profit that comes with them.
  3. Counterfeiting
    Counterfeit parts are a growing issue in the developing world; an estimated $45 billion2 was lost in 2011. Counterfeit apparel is a challenge in its own right. The majority of the genuine products are produced in these same developing countries. Their consistently poor availability is the equivalent of firing a flare gun to would-be counterfeiters. They may find you anyway, but why make yourself a target?
What can OEMs do to improve their service levels in developing markets?

The solution to effective aftersales product availability will vary considerably by OEM and market segment. Each segment faces unique challenges; those with larger parent companies (e.g., Honda, BMW) can be better positioned for success. However, all OEMs can take steps to solve their problems.

Some places to start driving improvement include:
  • Global Inventory Deployment: This means having the right product available in the right place at the right time within the OEM network. If the part can’t be in the right place at the right time, someone needs to know exactly how to get it there. When sales are relatively low in developing markets, OEMs naturally want to keep inventory low, but they often focus too heavily on depth (stocking large quantities of a small number of parts) instead of breadth (stocking smaller quantities of more parts).
  • Retail Inventory Management (RIM): This means systematically recommending or automatically determining the products that dealers should stock, and how much. This is especially important for developing markets where dealers are often smaller and less technically sophisticated. One of the challenges in launching a sophisticated RIM program in the developing world is the many dealer management systems in use, all of which require data interfaces. However, some simple RIM implementations do exist. They can be used to improve fill rates to dealers until OEMs can implement a more robust system. The earlier a RIM program can be implemented in the lifecycle of a dealer, the easier it is to manage in the long term. The most successful RIM programs, in terms of uptake, have been a requirement at the time of dealer creation.
  • Service Level Product Segmentation: This strategy focuses on simplifying the challenge OEMs face when setting service targets for thousands of products. The goal is to link OEM and dealer goals in a way that produces maximum sales with minimum inventory, but also factors in customer expectations. Both RIM and global inventory management must provide informed, consistent, and actionable objectives to execute both of those programs.
Bottom Line: Globally, the solutions will vary widely depending on the organization’s size and structure. The solutions may also vary by region. However, the most important first step is organizational alignment to: (1) agree that there is an issue, (2) agree on the objectives and timelines for improvement, and (3) agree on how reaching those objectives can be supported centrally and locally.

1 “China and India: tomorrow’s middle classes”, Ernst & Young Global Limited, accessed June 10, 2013, 

2 On the Road: U.S. Automotive Parts Industry Annual Assessment 2011

Tuesday, August 20, 2013

Global Parts Manager Survey – The Disappearing Satisfaction Gap

Our Global Parts Manager Survey has continued its expansion. What started in 2008 as a survey of the “EU G5” – France, Germany, Italy, Spain, UK, now spans the globe. In 2012, 21,500 respondents across 16 brands in 26 countries submitted close to 89,000 text responses. In September/ October of 2013, the survey will expand again, to cover 35 countries.

We mentioned in a previous blog (“Together we are smarter”) that the questionnaire fit most markets like a glove, which means the parts business is becoming global; the same tools, processes and technology solutions are being used everywhere. RIM is being deployed in Brazil, same-day delivery piloted in China, and wholesale programs contemplated in Russia. If the tools, processes, and technology solutions are the same, then it makes sense to manage this business globally, using common metrics and tools, such as the survey.

But still, one may ask, “What’s the point – ‘global’ sounds good, but does it really matter?” We believe it does. For proof, look at the survey results. The chart below shows “overall satisfaction” scores in 2011 for four brands – both luxury and non-luxury – that are represented within two market categories: an “Emerging Asian Market” (Red) and a “Mature European Market” (Blue). All brands are using the survey to improve their parts business, exchange information, and share best practices.

What do we see? In all four cases, parts manager satisfaction in Europe is higher than in Asia. And in most cases the gaps are very large: 10, 30, 35 points! It is fair to say that in 2011 the European parts managers were quite a bit happier with their OEM than their counterparts in Asia.

Fast forward to 2012 - what do we see now? A very different picture! For Brand A, satisfaction is HIGHER in Asia than in Europe by 3 points. For Brand B, the gap has almost closed, while it has drastically shrunk for C and D. Yes, it is still there, but the “happiness” gap is closing – fast!

Let’s put the two charts together and look at the data from yet another perspective. A couple of things are noteworthy:
  • All brands in both the Asian and European markets have improved overall satisfaction between 2011 and 2012.
  • Even the European market has improved consistently, despite a difficult economic climate and an already high satisfaction level. This indicates that there are pockets of performance, and satisfaction gains, left to uncover in even a well-run OEM parts business.
  • However, the key finding is that the “satisfaction gap” between the Emerging and Mature Market is shrinking, with the Asian markets improving faster than the European markets; in 2011, the gap between the brand averages was 21 points; in 2012 it was 10 points!

So, why does this matter and, again, why does a “global view” of part manager satisfaction matter? There is a variety of reasons:
  • In emerging markets, dealer purchase loyalty is often high. In part, that’s because OEMs may (not yet) face the sophisticated and ubiquitous competition they are facing in mature markets. This is likely going to change and probably is already changing. In addition, dealer parts purchase loyalty is written into dealer agreements in some emerging markets. This may also change, if, for instance, European legislation over the past decade or so that expressly prohibits such stipulations is any indication. So, overall it’s fair to assume that there will be more competition for the parts manager’s business, and this is when satisfaction with the OEM does matter; higher satisfaction drives higher purchase loyalty, as we have seen time and again in our surveys in North America and Europe. The survey surfaces low satisfaction and, thus, purchase loyalty vulnerability today in comparison to more mature markets and helps to address these issues and prepare for a more competitive future.
  • The parts business is a key link in the “service chain”; no part, no service or repair! We often see that happier parts managers can offer their service department higher off-the-shelf fill, arguably because their OEM offers better support. This is good for the parts manager, but it ultimately benefits the vehicle owner, who will also face an increasing array of choices for servicing and repairing his vehicle. And as vehicles become older and older in emerging markets, high off-the-shelf fill will be an important factor in keeping owners in the dealer channel.
Bottom line: In emerging markets, it is important to lay the foundation for a robust, competitive OEM/ dealer parts and service business NOW through a “world class” (not “emerging markets”) parts operation. We are looking forward to a successful 2013 survey ... and to a gap that has shrunken even further!

Friday, August 9, 2013

How to Assess Success in Re-pricing?


Quick Summary:
  • Tracking the success of re-pricing actions is essential in order to make sure profits are maximized.
  • A rough ‘sales before/sales after’ approach is clearly inefficient and insufficient.
  • Using “success ratios” on a commodity or product line level is a simple yet elegant way to assess the re-pricing success.
  • Dealer, field and customer feedback can also help you assess the success of a re-pricing project.

So here you are, several months after your highly anticipated re-pricing project – the one on which you spent countless hours and late nights trying to find the optimal price point for thousands of parts. You have segmented your parts based on competitiveness, raised prices where margins were low for less competitive parts and used competitive price analysis to re-price your more competitive parts. You are convinced that your team did a great job, but the Board wants evidence that the company’s resources were well spent. With all the external parameters influencing spare parts sales (general state of the economy, competition, change in units in operation, etc.), this is easier said than done.

In our project work experience, we find that most of the effort is focused on re-pricing; almost none on management by metrics. By not tracking success, companies are leaving value on the table.

Our clients find it hard to measure success in pricing because:
  • They usually simply compare the sum of parts sales before re-pricing to the sum of parts sales after re-pricing. Although it usually gives a rough idea if sales went up or down, the numbers are far too crude to show what really happened – because, essentially, you are comparing apples to oranges.
  • When they find that they can go to an individual part number level to track success, they are reluctant to invest the resources necessary to do so; it would take far too long to evaluate thousands of re-priced parts. Therefore, a more systematic method of measurement is required.
  • An unbiased evaluation of what happened is required. Success tracking is not about good news propaganda; some brutally honest questioning is required. Even if for individual parts or product lines there was a dip in sales, there is value in exploiting this learning to get it right with corrective action.
So, what do you do?

The first step is to define success:
  • For pricing purposes, success can be defined as a long-run, sustainable increase in profit.
  • In some cases this may actually mean selling fewer units at a higher price. In some cases this may mean selling more units at a lower price.
  • The classic example of success is a price increase without a negative impact on unit volumes.
  • Carlisle’s work shows that it is possible to improve margins through pricing and at the same time increase customer satisfaction. And all this can be done without significant drops in volume.
Consider the approach below:
  • Work with deep historical data. The seasonality of motor vehicle parts business means that you need at least two years of data for analysis (one prior and one after re-pricing). More than two years is ideal (if you can afford to wait).
  • Take inflation into account – a price increase is on a ‘real’ basis only if it covers the inflation rate and then some. Anything else is just keeping up with the economy.
  • Segment your analyses. That is, analyze very slow moving parts differently; analyze parts with very low or very high prices differently from the rest of your parts. And, of course, do not analyze competitive and less competitive parts together. They are not all the same animals, and they do not follow the same market rules.
  • Allocate your parts as in the table below – this relatively simple table can take you a long way (for our project work, this table is less simple and features more volume- and price-change buckets):

Ideally, you want to carry out this analysis product line by product line. Once this is done, take a step back and look at the results:

Quadrant 1: GOOD – For these parts, the re-pricing was basically successful: a change in price did not negatively affect the sales. Quadrant 2: BAD – Declining volume for these parts, which might be due to the price increase. Or was it something else? Quadrant 3: SURPRISING – The volume sold of these parts decreased even though their prices also decreased. Investigate why this happened.

Now compute a ‘success ratio’ (usually, Ratio = number of parts in Quadrant 1 / number of parts in Quadrant 2) to see the percentage of parts the program positively affected compared to the parts it negatively affected. If the percentage is higher than 1, chances are you did a good job. Combine this with the confirmation that the sales figures are higher for this entire subset of parts, and you now have solid evidence. The last step is to verify that your actual profit for this subset of parts actually went up.

Of course, the cutoffs for both price and volume changes will vary depending on your business. Increase granularity of the analysis by adding sub-categories (strong volume increase, etc.). In the end, the idea is still: how many parts generated more revenue vs. how many parts generated less revenue? Did it translate to an increase in profits?

Finally, it is worth mentioning that, beyond sales and profit numbers, the success of a re-pricing campaign can be measured through dealer, field and customer feedback. With this aspect in mind, our Carlisle surveys include a dimension of measuring the dealers’ pricing satisfaction.

Bottom Line: Assessing the success of a re-pricing operation is a task in itself. Overall numbers are not enough to explain what really happened. To compute useable “success ratios”, carry out the analysis on smaller subsets of comparable parts.

Monday, August 5, 2013

David Sergeant – A Remembrance
David P. Carlisle

David Sergeant passed away last week. He was a very good friend. When I met Dave in 1988, he was a strategic planner working at General Motors’ New Center One building. I was 37 years old, and had just received an RFQ stating that General Motors wanted to benchmark its service parts operations; David was the initial gate-keeper. I traveled to Detroit to meet with him. We talked a lot, I listened a little. My position was that GM only needed to look at Toyota. They were the best, and I had lots of ancillary evidence to prove it. Dave did not fight me, in fact, he encouraged me to talk more and more. In a few weeks I was invited back to meet Dave’s boss, Stu Wagner.

Well, I did not land that one. But, I got something far more valuable: Dave Sergeant as a friend, and, eventually, Stu. We started talking regularly, sometimes about work. Mostly we talked about life, politics, religion, current events, and morality. Early on I realized that Dave was brilliant, and I love smart people.

Fast forward to 1992. Dave, being a planner, suspected that GM service parts operations could learn from an open benchmarking forum. He encouraged me to contact Toyota, Volvo, International (now Navistar), Deere, Ford, and Chrysler to form a well-rounded benchmark group. Working with Stu, he secured GM’s participation – which turned out to be critical in convincing Ford and Chrysler to join. The rest is history. The group now includes dozens of OEMs on four continents. GM moved from worst-in-class to best-in-class in more areas than productivity. Over the next 20 years, untold millions more dollars flowed to General Motors’ bottom line.

Not a bad track record for a planner. There are many more companies other than GM that have reason to thank Dave Sergeant. He was at the pivot point in making the NAPB/NASPC happen. Seen your productivity increase along with your quality? Whisper “thanks” to Dave.

Frequently, I am asked what I really think of General Motors. I respond not by describing their assets, products, or policies. I talk about their people. GM has some stunners. It is all about the people, and, believe me, it always has been. Those of you who knew Dave Sergeant recall that he was an idiosyncratic strategic planner who seemed unaware of corporate politics, who spoke his mind with conviction, who could articulate change and its implications far outside the safety zone, and who could support his positions with brilliant analytical insights. Dave did not tell you what you wanted to hear, but focused on what you needed to hear. He did not give up. He became a pest for issues that were critical to GM, and had years of patience. You could not wear him down. Dave was the least superficial person I’ve ever met. He did his job with little thought about what was in it for him. He was all about General Motors, and his loyalties were emblazoned on his sleeve. By the way, this speaks a lot for GM, too.

For some, planning is a punch-your-ticket assignment. For Dave, it was a candy store. I must admit, I love working with strategic planners and I cannot help but compare all I meet with Dave. Can they see as clearly as he saw? Can they figure it out? Do they know who can figure it out? Can they see change through to the end, and tolerate small failures along the way? Do they have the courage to do what is right for their company, not what’s convenient for them? Or, do they just look good in a suit?

Dave deeply loved his wife, Michele, and was very proud of her. In a magical photo of her in his office she looked as if she were on a Paris runway. Michele’s melodious voice on the answering machine was the consolation prize for calling the house when nobody was home. She still is our all-knowing “cat whisperer.” I followed the growth of his children, Carine and Craig, through his stories. He loved them dearly and was very proud of each.

I’m talking too much. For years I spoke with Dave every day and it was rarely about GM’s business. He simply dazzled me. And I will sorely miss him.

Dave’s obituary is at, go to the Rutland Herald link. Memorial contributions may be made to Dana-Farber Cancer Institute, PO Box 849168, Boston, MA 02284-9168.

Saturday, August 3, 2013

Same-Day Delivery

Remember Kozmo? A dot-com bust over a decade ago, Kozmo delivered low cost items like books, magazines, and DVDs to consumers in under an hour, without delivery fees. It failed because it had a terrible underlying cost structure (low margins and high logistics costs), but it served our desire for instant gratification through same-day delivery. For better or worse, that desire didn’t go away when the dot-com bubble burst.

What, you ask, does that have to do with motor vehicle service parts?

Same-day delivery is back on the radar. This time it’s being pursued by companies with patience and track records of success. eBay Now and Google Shopping Express essentially provide a delivery service that links established retailers with consumers. Amazon Local Express Delivery simply extends Amazon’s business to same-day delivery. None of these services are widespread, so it’s too early to judge their success. Still, their existence will affect you. Here’s why.

First, these services raise your customers’ expectations. We know customers value same-day repair, but it becomes a table-stakes offering in a world where everything is always available. “What do you mean I have to wait ‘til tomorrow for the parts to show up?”

Second, we have yet another rival. Sure, established, highly capable competitors like Worldpac offer quick, same-day deliveries to dealers and independent repairers, but now additional distribution networks can serve DIY customers and, potentially, independent repairers. eBay Now, for example, already includes parts from Autozone.

For the DIY segment, I am concerned with the evolution of Amazon’s automotive offerings. Amazon already lets customers maintain a “garage” on their website, and their user interface and parts finder (which determines which parts can fit on which vehicles) seem to improve every time I visit the site.

Amazon does not currently sell huge volumes of service parts and accessories, as evidenced by their top 100 automotive products (mostly car care and lower-end accessories); but, Amazon is patient. They could be a formidable competitor in the B2C, and possibly B2B, service parts space if they combine their improving interface and parts catalog with same-day delivery.

For now, Worldpac is a much bigger worry. If these same-day retail services succeed long-term, they will set the bar for customer expectations and could potentially serve as direct competitors.

Bottom Line: In the short and long term, we need to improve same-day delivery capabilities. Dealers may be fairly good at same-day availability, and are very good at next-day delivery, thanks to FedEx and dedicated delivery carriers, but there is one key question. How are you addressing your customers’ increasing expectation of local, same-day availability for tens of thousands of service parts?