Thursday, February 27, 2014

Outbound Transportation Costs: Why Are My Bills So High?

Outbound Transportation Costs: Why Are My Bills So High?

Our Carlisle supply chain benchmarks tell us, among other things, that for most OEMs, transportation accounts for roughly half of total supply chain costs, and that those costs keep rising every year. It’s impossible to be in the motor vehicle business without delivering parts to your customers quickly and reliably. In fact, transportation is a key enabler to customer satisfaction.

If transportation is essential to our business, it’s essential that you closely monitor transportation costs. There may be very valid strategic reasons to spend a significant amount on transportation, but managers should always be on the lookout for wasteful spending. Our experience working on transportation-related projects, as well as feedback from our OEM clients during conferences and roundtables, shows that there is often plenty of waste to cut out. That’s why you might want to ask yourself the following questions.

What Are Your Transportation Costs Compared to the Industry? Carlisle Supply Chain benchmarks collect and report transportation costs (without attribution, of course), providing an easy way to compare your own costs to those of your industry peers. By showing costs across the industry, benchmarks also provide you with a way to judge how much money you could be saving. Even if you’re on the good side of the cost spectrum, there are still ways to perform better. Keep in mind that Carlisle’s Focus Days provide a forum for learning how to do just that.

Are Your Transportation Modes Aligned With Your Terms & Conditions (T&Cs)? T&Cs should be the main driver in your choice of transportation mode. A stock order rarely requires air transportation, but you’d be surprised how often an ashtray is sent by air freight. At the very least, the people who choose how to send parts should follow a clear decision matrix. Ideally, they should have an automated tool that makes the choice for them. That would ensure consistency across orders. OEMs must also consider how critical the part is. I mean, who really needs an ashtray overnight? We hear folklore of ashtrays being critical to smokers and kingdoms being lost for want of a horseshoe. Are we questioning this folklore about criticality? Hmm… a lot of that sounds like excuses not to dig deep and understand what’s really going on.

What About Consolidation? What happens when a customer places two orders on the same day? Do you send these orders separately or consolidate them? The latter avoids superfluous costs. What about sharing freight between stock orders and emergency orders? You might even discover opportunities to share trucks with another OEM and switch from LTL to TL (or DDS). And if you are already using TL most of the time, do you know if your trucks are full? Are you only footing out or also cubing out? If your trucks are ‘full’ but transporting a lot of air, it could be worth investigating how stacking can be improved. In that case, does the ease of transporting stackable cages make up for their cost? Or maybe your trucks are too big. Or maybe there are simply too many routes.

Are You Checking Your Freight Bills? Don’t you hate it when you have to dispute bogus charges on your cell phone bill? Well, guess what: it also happens with your carrier invoices! For instance, we see too often that the pay weight of the parcel is determined by the driver when the truck is loaded (even if the OEM is weighing and providing weight data). Surprise: that often means the weight will be overestimated, and the OEM will pay more than it should. Every transportation department should perform this recurring analysis: review the past data on the cost of every parcel, and compare it to the actual rate you negotiated with the carrier.

Compare your own costs to the above charts. If yours are close to the graph on the left, then you’re in good shape. If you find out that the cost of each parcel is above the rates negotiated with the carrier, you should pay more attention to how each parcel’s pay weight is determined, and find ways to lower the costs (e.g. re-negotiate the pay weight conversion factors). Additionally, our project work has shown that the shape of the curve itself can vary significantly across different OEMs for the exact same level of service. What this means is that transportation management and negotiation skills are essential in this area; release your vigilance and you may be invoiced more than you should.

Are You Seeking Regular Bids for Your Most Important or Costly Transportation Routes? Every year or two, you should assess what carriers can offer you on select transportation routes. If nothing else, it will provide you with meaningful information about where your existing arrangement currently stands. And don’t forget to track the performance of your carriers (e.g., on-time delivery); that will help you come negotiation time. It is also worth considering that the lowest cost carrier is not always the best provider, just like potential quality and supply chain issues can offset the financial benefit of outsourcing your production to a low-cost country. Capabilities, performance, and stability of the service level also have a value. Moreover, providers can usually smell that you are seeking bids out of interest (as opposed to genuinely looking for a new provider) and will submit a low bid on purpose: they don’t really expect you to accept it. If you do, they may come knocking at your door in a few months requesting a contract renegotiation.

Bottom Line: Transportation is essential to our business, but it’s also a significant cost bucket and will likely remain so until this ‘teleportation’ thing becomes real or 3D printing takes off. However, there are many opportunities to cut waste and reduce the total amount of the envelope; better transportation management essentially pays for itself. As much as we would like, there are no silver bullets here. Most actions involve blocking and tackling; no magic required. Unfortunately, not all OEMs do it properly. If you feel like we could help or care to have a deeper discussion on the topic, feel free to contact us.

Friday, February 21, 2014

Looking Under the Hood of

Three of us mystery shopped a startup service called Openbay over the last few weeks. Openbay is a website/mobile application designed to help vehicle owners compare prices and amenities when they need maintenance. We didn’t know much more than that when we undertook the research. So we’ll take you through the experience from the beginning and share the strengths and weakness of Openbay. This blog is written from the point of view of one reviewer, and it includes anecdotes from our other mystery shoppers.

When one of my coworkers told me about Openbay, I figured I was in the perfect position to mystery shop. My wife’s vehicle (a 2005 Toyota Prius) needed a 75,000 mile service, but not urgently. It was a simple service to perform, so I wasn’t concerned about using an unfamiliar provider.

I created an account on by entering my email address and a password, and clicking on a confirmation link that I received through an email a moment later. Then I added my vehicles to my Openbay profile. I was impressed that Openbay asked for my VIN – I imagine this might make estimates more accurate, but I didn’t have my VIN handy so I went on without it.

Strength: Openbay allows users to quickly add their vehicle information and accepts that users may not have all available information. Users only have to do this once, rather than explain it to every service provider they call for a quote.

Once I had the Prius on my vehicle profile, I clicked to request service to the vehicle. The site asked me to search for the service I needed. I typed in “75,000 m” and the site actually auto-populated with the rest of the text – “75,000 mile service”.

Strength: By auto-filling, Openbay gives unfamiliar users the perception that it’s experienced – almost like a service advisor is on the phone saying “Oh, you want the 75,000 mile service.” This raised my level of comfort, and I imagine it would do the same for others who may not be familiar with some of the terms of vehicle repair.

Openbay also let me select amenities I wanted the shop to have, so I selected “loaner car” because I was curious about what would happen.

Strength: By allowing users to select amenities, Openbay saves its users a great deal of time.

I pressed the “Submit Your Request” button (somewhere along the way I gave Openbay my credit card info) and almost immediately I received an offer. Openbay is so new that I wasn’t sure I’d receive any offers, so I certainly didn’t expect to see one so soon. And it was a great offer. I figured I’d wait a bit to see what else came in, but knew I’d take that first offer if it’s all I saw. That’s when I started getting bombarded with emails from Openbay.

Weakness: If dealer customers think dealers are pushy, Openbay is bound to be a shock. Openbay sent me 11 emails the day I signed up and a handful over the next few days. They even called me to see if I wanted to schedule service. If the price wasn’t right, I would have unsubscribed; the emails were too much.

At least one of the emails Openbay users receive holds additional offers from service providers on their requested service. For the most part, this works. I received quite a few reasonable prices on an air conditioning service I requested, and one of our other mystery shoppers received good offers on a tire rotation and filter change.

But when the automatic offer email system doesn’t work, it really doesn’t work. Our third mystery shopper received an email with offers ranging from $0.00 to $100.94. This range included offers for $0.06 and $6.00. And on the 75,000 mile Prius service I requested, I only received one timely offer.

Weakness: When new users see outrageous prices – either high or low – it makes it tough to trust the Openbay service. And if users don’t get many offers, this is also an issue. What’s the purpose of using a price comparison tool if there’s nothing to compare?

I eventually accepted the offer on the Prius service (at an independent, non-dealer repair facility). I was expecting an appointment scheduling process, but…that never happened either. I had received (another) email saying that I could come in whenever I wanted. But the Openbay person who called me previously said he’d call back to set an appointment once I made a decision. This eventually happened, but I’m not sure why I couldn’t make the appointment online.

Weakness: I still ended up on the phone at someone else’s convenience to set up an appointment.

I chose the first available appointment on a Monday. I never got an appointment confirmation. I tried to use Openbay’s chat function, but no one responded, which was surprising because I’d chatted with them before and it worked fine.

Weakness: Right when it was time to finally convert a user into a customer, Openbay dropped communication.

When I showed up for my appointment, I was greeted by the service manager; he said “You must be the Openbay customer.” That was a nice touch, but I can’t give credit for that to Openbay. This service manager was one of the good ones (and he came from a Ford dealer).

The shop did indeed have a loaner car for me (from the local Enterprise). I went to work, and came back after the service manager texted to let me know the car was ready. When I walked back into the shop, the service manager had my keys ready, and all I had to do to complete the transaction was give him a six-digit code that Openbay had sent me after I paid online.

Strength: Dropoff and checkout at the shop was extremely easy – easier than I’ve ever experienced. Openbay did a great job of sending my information to the shop.

Before leaving, I had a conversation with the service manager about his experience with Openbay. He mentioned his shop had gotten a few customers a month from the service. He also told me something important: he said they “lowball” their prices on Openbay in the hopes of attracting new customers. This is so critical I’ll go straight to the bottom line.

Bottom Line: I’m keeping an eye on Openbay, but I’m not overly concerned just yet. Setting appointments quickly and conveniently is an important driver of customer satisfaction, and it’s also one where non-dealers win. Openbay makes it easier for customers to get quotes and schedule appointments – and dealers aren’t playing. We know (based on very limited data) that the aftermarket is using a combination of Openbay and price discounts as tools to convert customers. The rise of this service (and its inevitable imitators) presents a risk to dealers who are neither using Openbay nor submitting quotes for service next to their price-conscious aftermarket competitors.

Why am I not more concerned? The service still has some critical bugs that may cause some users to write it off as spam. But mainly, it’s that “lowballing” comment I heard. As a customer, I don’t want to be surprised by the price the second time I walk into an Openbay shop. This service manager’s comment tells me that convenience (which Openbay surely provides) may matter, but we know price is still king when trying to retain customers. And that’s just what we see on our Consumer Sentiment Survey.

Friday, February 14, 2014

Service Advisors Must be Plugged Into the Connected Car Customer

The connected car is the new reality. If you don’t believe it, have a look at this year’s Consumer Electronics Show headlines: “Autos Morph Into iPhones as Buyers Want Wi-Fi With Wheels” (Bloomberg News). In fact, the car could soon become the ultimate mobile device. Consumers expect their cars to provide infotainment, but they also want their cars to diagnose themselves and help facilitate the process of getting fixed… a fully connected service experience.

The question we’re asking is: Where does the connected car leave the service advisor? Does it mean that the day you buy your car will be the last time you’ll see a human being at the dealership?

There’s no doubt that the connected car will disrupt the traditional service advisor role.

In the pre-connected world, service advisors (SA) drove the customer relationship through all steps of the service process, from initiating service to follow-up. They managed systems, identified upsell potential, and kept records. Connectivity is changing this dynamic. It’s really the car that will own the relationship with the customer. The service advisor will simply facilitate the process and, potentially, have limited customer contact.

In fact, our recent focus group suggests that drivers trust their vehicles more than dealership personnel to provide service advice, particularly on regular maintenance items (click here to see some early footage from that focus group). Drivers are receptive to detailed service-related diagnostic information coming directly from their cars, and take it as the honest truth; they are willing to schedule appointments based on detailed vehicle diagnostic notifications alone. The technology is believable because so much in our lives today is successfully connected and self-diagnosing (think computer error messages and antivirus software). One OEM client revealed that car-initiated interactions (e.g. appointments) have much higher close rates than those made through the traditional channels, suggesting that these service jobs are deemed more necessary by the customer.

Big data will automate service decision-making.

Today’s vehicles are advanced computing machines. The sensors that provide detailed information about the health and status of the vehicles, combined with other OEM data, extend the dealer-owner relationship beyond the point of sale; all without the interaction of a service advisor. Cars are increasingly ‘talking’ to the dealer.

Where does that leave the service advisor?

Think of this scenario. The vehicle triggers a detailed factory maintenance light, based on actual vehicle mileage. At the same time, an OEM system knows that it’s time for that vehicle’s 50K maintenance and sends a maintenance flier to the customer’s mailbox/email. The consumer makes the appointment (by phone, email, or via the in-vehicle appointment system) and is given an accurate estimate of timing and price. Immediately after scheduling, the shop management system obtains the necessary parts and schedules the technician. When the customer arrives, the service advisor has in hand a write-up and history (created by the system). The vehicle goes in for the service, which the customer can monitor via a smartphone, the owner’s portal, or greeter boards. Finally, the customer picks up the vehicle, as well as a report containing the multi-point inspection and future/deferred services (with up-to-date prices that will be honored by the dealer). The service advisor’s job is to handle any exceptions that arise. In other words, the SA facilitates a transaction that has already been guided by the decision support system.

The Ultimate-Service Genius Bar

That doesn’t mean the SA is obsolete. In a different scenario, the service advisor becomes key to customer satisfaction. Relieved of clerical tasks by the technology, the advisor can really focus on the customer’s needs and concerns, and provide the human factor that also builds trust.

What skills will these “connected” service advisors need? Clearly, strong people skills and a knack for problem solving. An ability to maintain composure and focus while solving customer issues is critical. They should be able to acquire new skills in car technology and be eager to learn. They should have excellent time management skills and be able to make decisions quickly.

Perhaps it’s time that dealerships take a page from Apple’s playbook and create a service “genius bar” of sorts. With help from the OEM, dealers could develop “service delivery specialists” charged with holding the hands of customers during the service process.

These geniuses would know everything about the customer and the history of the vehicle. Naturally, they will be equipped with tablets to help explain service and repairs to customers, to answer any questions, and resolve all the gripes that sometimes leave customers fuming. They would have the training and knowledge to explain service issues and could provide car technology guidance to vehicle owners.

The concept isn’t new to the automotive industry; both BMW and Lexus have deployed product geniuses. Of course, implementing service geniuses won’t be easy, but if done right, the rewards can be enormous. Just look at the success of Apple’s tech support stations.

Bottom Line: Connectivity is definitely changing the game. The ability of automakers and dealers to make a vehicle “easy to own” will drive owner loyalty. The service advisor needs to play a role in this by becoming more customer-focused and more customer-centric. More importantly, connectivity will allow dealer representatives to build a broader, better relationship with customers, one that will extend far beyond the point of sale.

Friday, February 7, 2014

7 Mistakes To Avoid In Parts Pricing

What’s the hardest thing for OEM pricing managers to admit? It’s probably that their department isn’t in order. Admitting problems can be seen as weakness – or worse, it can initiate finger pointing and blame. Yet, parts pricing is one area in aftersales where a renovation can yield powerful results: dramatically improved profits and increased customer satisfaction at the same time. Dynamic pricing managers with can-do attitudes are brushing shame aside and taking on this challenge of reforming operations.

The fact is, many OEMs struggle with the complexities of parts pricing, which requires multiple correct decisions on strategy, process and policy. What can go wrong? In over 20 years of pricing experience, Carlisle has encountered seven common mistakes.

Mistake 1: Applying a series of “Band-Aid” patches, rather than rebuilding in one bold sweep
  • When your pricing department is a pain point, don’t think that a series of patches will solve the problem. They simply can’t. This is equivalent to caulking the windows of your house when the entire foundation is rotten.
  • What will help is a comprehensive, broad sweep. That is, sweep away the legacy of errors and start with a solid new foundation. Fortune favors the bold.
Mistake 2: Chasing textbook concepts that don’t apply to motor-vehicle aftersales
  • The recent interest in pricing has generated many new books on the subject. Those written by university professors, in particular, seem to capture the imagination of corporate top management in a way that nuts-and-bolts books on inventory management never do.
  • Professors often drift off into heady concepts such as pricing elasticity, yield pricing and economic value added. They are excited by ideas like customer lifetime value, penetration pricing, and lifecycle pricing.
  • Dozens of these concepts may be intellectually interesting, but that doesn’t mean they apply to aftersales parts pricing.
  • Don’t get pushed off course by calls to implement all sorts of fancy concepts.
  • Be brutally honest. Ask yourself if the proposed methods apply and, if so, how they can be implemented in your parts world.
Mistake 3: Assuming that a pricing system comes pre-loaded with a strategy and a process
  • Unfortunately, OEMs often start at the wrong place. They choose pricing software before determining the pricing strategy and the processes needed.
  • Of course, software is useful. But even smart top managers have made the mistake of assuming that pricing software comes pre-loaded with the strategy and process that will solve their problems.
  • Pricing software is more like a spreadsheet package. What do you see when you start Microsoft Excel? A blank page with empty rows and columns. Excel needs data. You must program it before you can use it. Excel is incredibly powerful, but without inputs and methods it is useless.
  • The same is true with pricing software. When you install it, the implementation team will ask you what processes and strategies to embed.
  • That’s why you should determine your strategy and processes before you choose pricing software.
Mistake 4: Pricing without proper competitive data
  • Proper market data is the fuel that drives good pricing. This is particularly true for competitive market research. The better the research aspect is handled, the more effective your resulting pricing actions can be.
  • If your pricing activity were a vehicle, then competitive data would be the fuel that drives it. Higher octane fuel delivers higher performance. Many OEMs are running on low grade fuel today, or even on an empty gas tank.
  • However, to get the process of competitive price research right on a global scale is not trivial; it’s almost akin to chemically refining oil to make gasoline.
  • Cracking the code for this is hard… because each country has a different market structure, different competitors, and a different legal framework for what can be researched.
  • Do your research properly and you will get high-grade information in the most cost effective way. Do it wrongly and you may end up with a wasted budget or even lawsuits.
Mistake 5: Pricing without visual guidance
  • This is one of the simplest mistakes you can make, and one of the most widespread. Charts, graphs and diagrams are powerful ways to show what is going on.
  • Many OEMs, and even software packages, don’t use visuals to illustrate pricing issues or solutions. That means you’re setting prices and margins using only the numbers on the page, without even a graph to illustrate the concept behind the numbers.
  • Unless you possess exceptional mental gifts, you simply cannot digest a page full of numbers.
  • A chart or visualization, however, is a powerful way to diagnose what is going on.
  • We strongly recommend making every part of the pricing process visual.
  • Until artificial intelligence arrives for real, the most powerful supercomputer is the human brain. Harness the power of your pricing analysts by displaying data in a way that everyone can comprehend.
  • It’s not about simply having charts; it’s about having the right charts. What’s on the axes of your graph can make a world of a difference.
Mistake 6: Spending money on a software system that doesn’t have the functionality you actually need
  • We all know that buying enterprise software is annoying and expensive; implementations are even worse, as they are dreadfully boring (*yawn*).
  • In the grey and dreary process of software selection and implementation, we folks at OEMs desperately latch on to anything to spice up the process – cool-sounding features, colorful graphs, enthusiastic salespeople, big dollar signs
  • Unfortunately, the cool features can cloud out our interest in looking for the basic functionalities. For example, does our software package come standard with the basic things we need like real algorithms for pricing competitive parts, multiple countries and currencies, supplier cost management, sales allowance handling, etc.?
  • If it doesn’t come standard with these, one of two things can happen. You’ll either be forced to change your strategy and processes to adapt to what the software can actually do or you can spend more money on customization.
  • Yes, customization is fine. Pretty much anything can be customized and re-programmed in software. But, the price tag is high. Not just the money you spend, but typically you lose the elegance and simplicity by making patchwork changes to systems (see ‘Band-Aid’ mistake 1 above).
Mistake 7: Lack of proper organizational design, roles, and responsibilities
  • Here’s another mistake to avoid. This time it’s about letting the pricing organization drive the marketing strategy in the absence of inputs (“shadow marketers”).
  • Carlisle has visited several OEMs where the spare parts pricing team makes decisions on behalf of other departments like sales, marketing, finance, and purchasing.
  • Why on earth would this happen and why do other functions ever allow this?
  • Well, when determining the price of a part you need to access many aspects of the marketing mix (for example what’s the strategy, what is the role of the list price, who is the relevant competition, what’s the price position, what profits are acceptable, etc.).
  • In a normal world these critical inputs are available and delivered by other departments. Where they are not communicated (bad) or do not exist (even worse), some decisions are still required in order to move on and set a price.
  • We’ve heard countless pricing departments say that, absent any firm statements from other departments, they will make their own decisions on such topics.
  • What this means for managers is that parts pricing is making decisions for other departments far outside of the responsibility of parts pricing (i.e. the decision vacuum is often filled by the pricing team, which becomes a “shadow marketing team”).
Bottom Line: The opportunity in parts pricing is enormous, but there are plenty of pitfalls. Keep these seven mistakes in mind when you next review your parts pricing. Or simply call us; we’ll help you navigate these and other pitfalls.