Monday, August 3, 2015

Carlisle Body Shop Survey – OK, How Well Are We Doing With Our Most Important Wholesale Customer Segment? – Carlisle Scrapbook
by David P. Carlisle

A few weeks ago, we finalized our first national Body Shop survey. We conducted this survey as part of our Summer Associate Program to better understand the role of genuine parts in the collision repair process and to support and validate qualitative research results.

The objectives of this survey were four-fold:
  • Understand the perception of genuine parts vs. independent aftermarket (IAM) parts
  • Understand the parts selection process and major factors influencing the parts buying decision
  • Understand OEM discount and direct repair programs (DRP) and their impact on the body shops’ parts buying behavior
  • Assess how OEM and IAM parts suppliers are currently communicating with body shops
Overall, 249 body shops completed the survey. Let’s talk about some interesting findings.

We need to know four things about the dealer collision wholesale parts business:
  1. It is very important to dealers and OEMs.
  2. Everybody knows that the aftermarket is generally regarded as the low cost spread.
  3. Insurance companies exert a huge amount of control on parts sourcing.
  4. Hands down, body shops prefer to use genuine parts.
Price is incredibly important in this segment – low aftermarket prices drive insurance company behaviors, and impact market shares. So, it seems easy – all the OEMs need to do is match aftermarket prices and they win, right???

It is not so easy. Price matching is like stepping on a bubble under the rug; you can never quite stamp it out. That’s why OEMs create wholesale discount programs to get closer to aftermarket. Getting within 15% seems to be the sweet spot. The above “Price Difference Perception” chart shows how far body shops perceive the OEMs to be from aftermarket prices (by monthly shop revenue). About half of the body shops think that OEM genuine parts are in “spitting” range of the aftermarket.

The good news is that roughly 70% of shops indicated that they participate in at least one OEM discount program. The bad news is that the actual OEM-specific penetration rate is still fairly low. If you look at the chart “Participation in Discount Programs by OEM” you can see huge variability, across OEMs, in program participation. I only show GM because it was the clear leader in the survey … and I did not want to embarrass any of the others with bars not so tall.

Bottom line: The key issue here is “participation”, not how low the price is. It’s not matching a ridiculous price for a “comparable” junk car part or just junky part. For a program to be effective it must be embraced by its target audience, and it must get at the core of the problem: price.

Friday, July 24, 2015

Lets Talk Facing Fill – Carlisle Scrapbook
by David P. Carlisle

Parts people can be very focused on “parts availability” as a key metric. The big issue is: what does availability mean to a smart dealer parts manager?

Every year, we survey thousands of dealer parts managers, and occasionally we’ll follow up the survey with individual interviews. Recently, we conducted a few such interviews with parts managers from leading OEMs to ask them this question on availability, and what they told us matches insights from our previous data analyses and what we have heard from some OEMs. What follows is based on one interview that is representative of the parts manager interview group.

OK, this seems simple enough. But really, it’s not. Here’s what we found:
  • When we asked what does “availability” mean? The response was: “What I can get from my warehouse in a timely manner. Or, whether I can get the part at all.”
  • The parts manager reported that their facing fill was at 94-94.5%, and said he’s very happy with this; said they haven’t been in this good of a position in years. He says network fill is something like 98%.
  • He is very satisfied with his facing fill rate and thinks there are more important issues that the OEM could focus on to improve his business.
  • Unless a customer specifically asks for something else, he will always order a genuine part. Essentially, only if the customer says they cannot afford the genuine part will he go aftermarket – he will try to convince the customer that genuine is better than aftermarket (better quality, fit, performance, and warranty).
  • How loyal was this parts manager? He indicated that substantially more than 90% of his parts come from the OEM.
Like a Talmudic Scholar, I’ve put a lot of thought into the 164 words in these notes. What do they really mean? You can see how I marked it up, parsed the words, linked the clues, and squeezed out the essence of what the parts manager said.

At its essence, “availability” is about the level of backorders: “whether I can get the part at all.”

Toyota got it right decades ago when they adopted a goal of 95% facing fill. Back then, I asked Toyota Motor Sales all-stars Bill Bucher and Ace Yeam where the 95% came from. They had been Korean War supply sergeants in the Marines and said that’s what they aimed for in the military. But, a lot has changed since the 1980’s. Facing fill was simple back then – it was the percent of “perfect” lines filled on all dealer orders. By “perfect,” I mean completely filled order lines – if a dealer ordered 100 washers and the parts warehouse could only fill 99, this order line was deemed “unfilled.”

Now, facing fill is not so simple. The order might be sourced from multiple warehouses and supply points – bulky fenders might come from a high-cube center, while expensive, small-tech parts might come from a central, low-cube facility; slow moving parts might come from a slow moving warehouse or Vintage, and other parts might come from ship-direct suppliers.

So, what is facing fill? It is the percent of order lines that arrive at the dealer inside the expected order delivery time. It should be about 95%.

Because of the incredible evolution in the parts supply chain, “facing fill” might not be all that important any more, other than as statistical evidence of appropriate parts availability. It’s like runs, balls, and strikes in baseball. There are a lot of different ways to make a run, to hit a ball, and to throw a strike. But, who really cares? When you turn over the picture of a baseball card, it’s all about simple numbers: runs, balls, and strikes. There is also a lot of ways to achieve what a dealer interprets as 95% facing fill, and all that really matters is that 95% of the parts are there when they expect them to be there.

Bottom Line: So, what really is availability? To a dealer, it’s not so much about what’s available as it is about what isn’t available. The best representation of this, it seems, is backorders.

Friday, July 17, 2015

Why Old People Are Good For Us – Carlisle Scrapbook
by David P. Carlisle

The 2016 Customer Sentiment Survey** looked at Net Promoter Scores (NPS)1 across a bunch of different criteria. We found out something that we pretty much knew already – older dealer service customers are more bullish than younger dealer service customers on their brands and their dealers. Millennials (18-34 years old in the chart) have a NPS brand score of 36.9% and NPS dealer score of 24.4%. Boomer NPS scores are nearly twice as high. See, old people are good for us.

We really need those old people, because when we look at Net Promoter Scores by type of service, we see a pretty sharp falloff when service customers only go to dealers for “repairs.”

I think it is logical to conclude that since boomers, who are older than millennials, are stronger “promoters” of their brands and their dealers, they will hate their dealer less after they go for repairs.

This is important, because dealers have been losing out to the aftermarket for years on non-warranty customer-pay maintenance and scheduled service work. What’s left in the “tube of toothpaste” is tough-to-do, expensive, repair work.
Timeout: Given that 1) boomers tend to have a more favorable opinion of dealers and brands, and 2) maintenance visits result in higher dealer/brand NPS scores than repair visits, one might be inclined to think that boomers simply have a higher tendency than millennials to use the dealer for maintenance. However, our data suggests that there is no difference between age groups regarding the proportion of dealer visits for maintenance vs. repair work.
Bottom line: We are losing our millennials. Dealer service can be corrosive to a customer relationship, especially with young customers. All of our plans won’t change this … maybe some of the reason for plan failure is that they are typically developed by older boomers who have brilliant insights concerning what they can really accomplish inside their company and with their dealers. That’s why everybody loves Elon Musk and Tesla. He takes giant steps.

NPS’s for service customers covered by a pre-paid maintenance plan show that they are stronger “promoters” of their dealership and their brand. This makes sense, because the pre-paid maintenance plan foots the bill for the work done and nicely sidesteps the service customer’s top problem with dealer service … that it costs too much. Here’s a baby step for you. OK, it might not be a baby step, but pre-paid maintenance is pretty much all upside. Push it. This is certainly less corrosive than the status quo.

Might be worth a try. Well, do you feel lucky?

** The Customer Sentiment Survey (CSS) has been around since 2007; its objective is to better understand service customer needs and opinions. From 2007-2014, the survey was predominately cross-industry in its focus. In 2015 the survey started deep drills on brands. The CSS is not a beauty contest survey; its primary purpose is to better understand service customers so that OEMs can better give them what they want and need. Further information is available by contacting Thomas Neumann at Carlisle & Company

1Net Promoter Score is a customer loyalty metric developed by (and a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix

Thursday, July 9, 2015

What Good Are Net Promoter Scores? Carlisle Scrapbook
by David P. Carlisle

Various online publication sources provide NPS scores for top-of-mind brands. Clustered close together are Acer, Audi, BMW, Amazon, and Apple.

What do all these brands have in common? A Net Promoter Score (NPS)1 , which is a measurement of the loyalty that exists between a provider and a customer. It is based on a simple question:

How likely is it that you would recommend our company/ product/ service to a friend or colleague?

The scoring is based on a 0-10 scale, where the 0-6 respondents are considered “detractors”, 7-8 respondents are considered “neutrals”, and 9-10 respondents are “promoters”. The Net Promoter Score is the percentage of promoters minus the percentage of detractors.

So, you are at a barbecue and you ask, “Hey, what do you think of Amazon?” Your friend replies, “I think you should try it …” Your friend is an Amazon promoter. Next you ask, “What do you think of your BMW?” He responds, “I love it, you should get one.” Now, he’s a BMW promoter. The answer to the question assumes some sort of familiarity with the product.

OK, now you ask, “What do you think of McDonald’s?” The friend replies, “Not a fan, I do not recommend it … you should try Five Guys.” He is a McDonald’s “detractor.” We have jumped from the web market, to cars, to quarter pounders. Can there possibly be a linkage between these three?

I think so.

Specifically, the linkage is all about word of mouth reputation. The friend recommends (stands behind) Amazon and BMW, but not McDonald’s.

I, for one, am convinced that this linkage is relevant.

The next question is how relevant are the NPS scores? The gray chart shows some NPS scores that are easy to get from the internet – Here we see the lineup of some familiar automakers … and Amazon, McDonald’s, and Facebook.

The naive read of this chart is:
  1. Tesla has more promoters than Amazon; an inference that is easy for me to accept.
  2. Harley and Honda have more promoters than mainstream automotive brands. Again, easy to accept.
  3. McDonald’s has fewer promoters than Amazon and the auto companies. Makes sense to me.
  4. Facebook has even fewer promoters than McDonald’s. Interesting.
So, I can accept the simple inference of the numbers and how various brands line up. But, what do they mean in an absolute sense? We need to go to the ultimate spaghetti western for this – The Good, the Bad, and the Ugly. Amazon is a “good” benchmark for NPS – it sits at around 64%. McDonald’s is at negative 8% (-8%) and that’s pretty “bad.” Facebook is the poster child for “ugly” at a NPS of negative 21% (-21%).

Using these benchmarks, we see that the auto brand NPS scores are neither “bad” nor “ugly.” Facebook and McDonald’s are doing pretty well and neither seems to be on the brink of disaster. So, what do bad and ugly NPS scores mean?
Time Out: For established brands, I think of a bad/ugly NPS as a form of corrosion. Something’s bothering customers. If left unremedied, they will ultimately flee. This is easy to imagine with both McDonald’s and Facebook.
Bottom line: Net Promoter Scores are here to stay – they make sense … and it makes abundant sense to compare one brand with another and have a common, transcendent, measure of word of mouth. Yes, we need NPS benchmarks so that we can take the pulse of brands, products, and services and determine if they are healthy or in cardiac arrest. We need to be able to look at NPS scores and get some idea of “corrosion” that may be present. We need to look at different slices of the market that have different levels of corrosion so that we know where the problems are.

Let me leave you with a vivid example. Budweiser’s NPS taken from the same web source in the bar chart is 29%. Not great, but not bad or ugly yet. I encourage you to visit a large store that sells beer in the United States. Go to any one of them. You will find the aisles jammed with hundreds of different craft beer products – squeezing Bud’s shelf space. I suspect that if you could find a NPS survey that asked respondents if they would recommend craft beer, you’d find a NPS score much higher than 29%. The score, possibly, could be as high as Tesla’s.

From burgers, to beers, to Tesla. Hmmm. They might not be all that different. In the next blog we’ll take a look at NPS scores for dealers and OEMs in relation to the customer maintenance/repair experience.


1Net Promoter Score is a customer loyalty metric developed by (and a registered trademark of) Fred Reichheld, Bain & Company, and Satmetrix

Tuesday, June 23, 2015

Why Ford Is Brilliant – Carlisle Scrapbook
by David P. Carlisle

Thirteen years ago, in 2002, Ford announced Daily Parts Advantage (DPA) to the world. Back then, it seemed simply brilliant. Now, more than a decade later, it seems even more brilliant.
DPA was an integrated strategy of revised stock order cycle times (“daily”), revised terms and conditions, and revised network structure. Perhaps the cleverest aspect of DPA was looking at parts very differently than anyone ever had previously. Ford concluded that parts were of three different types : (1) parts that needed to be close to dealers for a 24-hour cycle time and 24-hour order response time (ORT), (2) small parts that could be easily shipped by a parcel carrier and beat a 24-hour ORT, and (3) large bulky parts, typically used in collision repairs, that required a sparser network and could easily flourish with a 48-hour ORT.

Seems obvious. But, it sparked a lot of debate … particularly concerning the large bulky parts. Did dealers need them in 24 hours, or was 48 hours sufficient? Would collision market share suffer with longer ORTs? Would insurance companies react to longer ORTs that could ripple over to longer rental contracts for the insured? After thirteen years, the answers are in:
  • Nah
  • Nah
  • Nope
Collision market research that we are currently conducting confirms all this, and more. Ford was right and kudos to their team of innovators: Don Johnson, Kent O’Hara, Frederiek Toney, Anu Goel, Joe Kory, John Sullivan, Helmut Nittman, Brad Wallis, and many many more. Cisco Codena headed up aftersales at the time and his leadership (call it courage) deserves mentioning.

The collision research we are doing spans a wide area – the primary objective is to refine our estimate of the impact driverless vehicles and collision avoidance technologies will have on collision parts sales. However, one work stream involves process mapping typical current-state collision repair facilities. So far, we’ve seen three things that are interesting:
  1. Price. Because the insurance industry largely controls what goes on in a collision repair shop, the advantage always goes to the low price option. This explains why non-genuine parts dominate repair orders for “unprotected” vehicles. In some states, laws protect some owners from repairs using non-genuine parts. However, these laws typically only cover only newer cars and not all specify “genuine.” States with significant “genuine parts” protective legislation cover only about 22% of the population. Outside that, it’s the wild, wild west.
  2. Price. Order lead-time differences between genuine and aftermarket (AM) parts are not much of a deciding factor when sourcing a collision part. For “competitive” parts, OE order lead-times are generally competitive with aftermarket parts. However, aftermarket return rates are ~30%; almost six times the return rates of OEs. Factoring in this return rate differential (in order to receive a correct part) the expected cycle time difference between an AM and OE nearly vanishes. Problems arise with “non-competitive,” slower moving, genuine parts that have erratic lead-times. Since they are “non-competitive,” this is not much of an issue . I suspect that there’s never been a successful aftermarket company that decided to invest in tooling simply because they thought that having inventory and quicker-than-OE lead-times would make a difference. No, the decision is always made on volume and price.
  3. Price. OEs’ aggressive collision parts “price matching” programs might not cut it. In a case study of one collision shop, the owner took advantage of every price matching program offered by OEM dealers. Most of the OEM parts were bought at either an extended 11% discount off the already reduced OE part list price or a 30% discount off the independent aftermarket part list price. At the end of the eight months, the shop analyzed the results: labor profits increased 3 points, while whole parts profits decreased 12 points due to the price matching programs. The part profit impact is a pure, measurable loss, while the labor gain isn’t even necessarily absorbed by the shop. Overall, shop profits dropped by 5%. So, while collision shops readily admit OE fit makes for timelier repairs, the benefits do not drop to the bottom line.
So, yes, Ford was brilliant. Carving out separate supply chain strategies for different classes of parts saved money … and worked well in an integrated
strategy that led to huge improvements in dealer and end-customer service.
(Most of these customer benefits were encapsulated in Ford’s move to a daily stock order.) Our research, so far, seems rock-solid in supporting what Ford did with their bulk parts centers – because the big issues in the collision market are price, price, price. Marginal advantages in lead-times have about the same lasting market impact that larger tail fins did on late 50’s sedans.

Bottom Line: That was the good news. The collision market is steadily becoming even more price driven, and Ford got ahead of the curve here. The bad news is that the insurance companies have been busy and have effectively commoditized the market during the past few decades. Price is more important than ever, and the squeeze will continue to tighten. Most of the genuine collision parts are used in the newer car parc, which is still continuing to recover from the 2008/9 recession. This makes for pretty nice year-over-year sales gains in this segment. However, when we finally achieve a steady state that resembles pre-recession conditions, we are bound to see that the OE segment of the collision market has shrunk. Big time. Then, when we lay on the anticipated market-melting impacts from collision avoidance technology and driverless vehicles … as my grandmother in-law would say, “oy veh!”

Tuesday, June 9, 2015

“Small Data” and Dynamic Scripting – Carlisle Research Scrapbook

“Big Data” is a big thing in aftersales service support – it will make our lives better in inventory management, sales forecasting, parts and service pricing, … and, ultimately, in better serving the needs of service customers. But, it’s going to take awhile.

Sorting through blizzards of data, big data is a valuable predictive tool. But, when the sightlines are fairly clear, we don’t have to put a lot of time and effort into fancy models and monster analyses. Effective service processes and simple surveys can capture the data directly from the customer - sample size of one - and be 100% accurate.

We might start with some recently available “small data.” We are about to release the syndicated 2015 Consumer Sentiment Survey – Dealer Customer Wave. Let’s take a peek.

#1. Some people will wait a long time, others won’t wait at all, yet others (more than a third) will wait an hour. Knowing the customer’s urgency is important information when prioritizing service, offering substitute transportation, and dispatching jobs to the service bays.

#2. Some people want to be greeted at their vehicle; others prefer to be greeted at a more traditional service advisor’s desk. Knowing this is important in designing dealer service lane processes – but again, “small data” shows us that even within a single dealership; there is no one size fits all.

#3. Not every service customer has the same preferences regarding how they are contacted for status updates. Less than 40% prefer “modern” methods – about the same as those who prefer phone calls. Again, different people are different.

These simple insights come from “Small Data” – a few thousand surveys of individual brand-service customers. The insights here show us that there isn’t one right answer that fits all – the data steers us into looking at customers within discrete segments, each segment having discrete preferences. We all know this is true.

So, why do we treat each service customer the same way when they schedule/arrive for a service appointment? It makes no sense.

Bottom Line: The technologists who are designing the tablets for Service Advisors should rely on some “small data” to accommodate service customer segment preferences. The service experience should be dynamically scripted to maximize accommodation of consumer preferences, which should then maximize consumer satisfaction.

To be perfectly clear, if I know Mary-Joe’s preferences are that: (1) she will wait up to 1.5 hours, (2) likes to be greeted at her car, and (3) wants texts to keep her up to date with her service, then I can…
  1. Prioritize my workload to make sure her car is finished inside 1.5 hours and not have to give her a loaner,
  2. Give her a priority customer card and shift her to a desk-less service lane, and
  3. Set up a texting schedule that keeps her apprised of progress.
We can accomplish results more readily than with big data by doing simple things like capturing customer profiles at first appointment, at service handoff, at scheduling, or at the owner portal. These can be done up front and occasionally refreshed. This removes the margin of error of big data, because we know we are right. And it’s a lot cheaper.

And, most importantly, we can deliver to Mary-Joe a flawless, repeatable service experience.

Wednesday, June 3, 2015

The Connected Vehicle First Needs To Be Connected – Carlisle Research “Scrapbook"

We do a lot of research about what goes on in the dealer service lane. Sometimes it is interesting to connect the dots between disparate sources of data and see if it better explains life, or what life promises. Here are three pictures from our scrapbook and some simple messages. What do you see in the scrapbook?
  1. According to dealers, not many repair orders are scheduled online.
  2. According to customers, many prefer to schedule online (more than those actually doing so, as shown above), while many others prefer to just call in and schedule their service.
  3. It seems that most customers would prefer to connect from their vehicle to schedule service.
Bottom Line: It seems that we have a problem with the tools we provide customers to schedule service today. Many are interested in doing it electronically, but less are actually doing so. Either dealers are slow to adopt or the current set of web-based service schedulers are flawed and not liked much by customers or dealers. Beyond this, customers want the convenience of scheduling from their vehicle, but we still have some work to do here.

Thursday, May 21, 2015

Why Driverless Vehicles Are Inevitable, and Why We Care About This
by David P. Carlisle

For quite a while, driverless vehicles have been in the news almost daily. Now we hear that Google has perfected its self-driving car, and that driverless vehicles will be commonplace inside the next five years. This is very important to everybody in our industry, as well as to consumers. Safety and cost are the two big benefits to vehicle owners and drivers. Driverless vehicles will crash less, which means fewer injuries and fatalities, and, inevitably, lower insurance premiums.

For the industry, fewer totaled vehicles will take a bite out of vehicle replacement sales. Lower collision rates will take a bite out of collision parts and labor sales. The driverless car will profoundly change the industry. So, yes, we care about it.

In fact, this innovative “product” is almost fully baked and ready to go. As a successful prototype, we already “have” it. But, do we “want” it??? Is our nation’s legal and regulatory apparatus ready and willing to accommodate this new technology ?

I think those changes will be made. Here are six good reasons why the driverless vehicle is inevitable.
  1. It’s not that big of a deal for our highways to accommodate driverless vehicles. In the U.S. we have approximately 4 million miles of roads. About 3% of those lane miles are devoted to interstates/freeways/expressways, but that 3% also carries about 30% of all vehicle miles traveled. We predict driverless vehicles will probably be using these high-capacity roadways.
  2. We are running out of highway capacity. Our current population of 325 million has grown 14% since 2000, and will grow another 4% by 2020. But, our highways certainly haven’t grown 14% since 2000. In other words an increasing population is being serviced by a highly constricted highway system now operating over capacity. That’s a big problem.
  3. Furthermore, a highway’s carrying capacity is not a smooth linear progression. We’ve all experienced this. You are traveling steadily down a busy interstate, and suddenly see a police car on the side of the road flashing like a Christmas tree. Everybody slows down, rubber-necks, and what was OK traffic becomes a parking lot. This chain reaction – slow human response time coupled with the human capacity for distraction – screws things up. Let the machine drive and the humans gawk, as is their nature. The driverless car would have a very significant, positive, impact on highway capacity.
  4. Boomers are aging. Right now Baby Boomers, the 50 and 60-somethings, represent a tad more than 27% of the U.S. population. By 2020 Boomers will still account for around 20% of the population, but they’ll be slower and their reaction times more retarded. The adverse impact on highway capacity and safety won’t be trivial. Instead of a bunch of young NASCAR drivers, we will have 14% more older drivers with typical declines in vision, judgment, and response time . Yuk. Hmm… if a Toyota can parallel park itself better than a 20-something can, who knows how much a machine can improve on the driving of a 70-year-old Boomer?
  5. Driverless is more green. The energy crisis has melded into an environmental global warming crisis, and it is environmentally irresponsible not to try to reduce fossil fuel consumption. Driverless vehicles, especially in trucking, can take a huge chunk out of fuel consumption through platooning and by taking advantage of vehicular drafting. This works for cars, too. Here, again, machine beats man.
  6. Truck “Platooning” saves lots of money. Imagine a convoy of seven trucks. Typical cost of operation is a little more than $1 a mile for a long-haul vehicle – so this convoy costs about $7 a mile to operate. Around 20% of that cost is for fuel, but fuel consumption can benefit from drafting – maybe we can save 20% of the fuel cost with this. ($1.40 per mile in fuel cost for the seven trucks goes down by $0.28 – a 4% drop in total operating cost.) Labor is about 30% of the operating cost. Typically, labor would account for a bit more than $2.10 of the $7 a mile. But, if we “platoon”, we only need one driver in the lead. So, we save $1.80 of the $2.10 truck driver expense, or another 26% of the total cost. This is serious, compelling, money.
Bottom line: It is a very safe bet that we will see driverless vehicles somewhere on the road inside the next five years.

Thursday, May 14, 2015

Why General Motors No Longer Has Parts Warehouses; They Have “Distribution Plants”
by David P. Carlisle

(“I … agree … about the need to do away with the term “warehouse”. To me, the word brings up the image of the last scene in “Raiders of the Lost Ark”…. massive storage of items that rarely move. The whole point of a Parts Distribution Center is to distribute, not store.” Cheryl LeMieux, General Motors)

If you put together a few facts about parts distribution you have to ask an obvious question. Fact #1: General Motors has had the highest parts distribution center network productivity in the industry since 2010. Five straight years of leadership is not a blip. Fact #2: at the same time, they have been in the top 2-4 OEMs in terms of quality – they actually take more pride in quality leadership than productivity leadership. The question: How do they do it?

If you walk through a GM parts “warehouse” and pretend that you know absolutely nothing about parts “warehouses,” you’d swear that you are in a state-of-the-art assembly plant. A really good one at that. Material flows into the “plant” at a near just-in-time rate. The material is processed and staged – we call this “binning”. Ultimately, the material is assembled into custom orders and shipped out to dealers. Just like assembly plants that make vehicles.

This is not a radical process; for the past 20-or-so years Toyota has leveraged the Toyota Production System in its parts facilities. Many other OEMs have codified their manufacturing process strategies and lent this lean toolkit to service parts distribution.

Toyota is justifiably credited with putting “lean” inside the warehouse. They adapted their manufacturing practices to the parts warehouse – key among these was the elimination of “muda” – waste. These adaptations are what I term “Vertical”; that is, lean manufacturing techniques that apply outside a manufacturing plant. This represents a different way of thinking that can have profound results.

Take, for instance, “kaizen” – practice of continuous improvement – another “Vertical” that profoundly changed our industry. Toyota is the undisputed master of lean Verticals.
Time-out: Six Sigma is a good example of an “extreme” lean Vertical. The term "six sigma process" comes from the notion that if one has six standard deviations between the process mean and the nearest specification limit, practically no items will fail to meet specifications. This very simple concept has a cult following. Typically, outside of Toyota, activists/gurus of various individual lean Verticals are messianic in their advocacy, where all else is diminished inside the micro-nuances of process and technique.

Moving through and mastering a complex set of rules, new gurus are coronated with black belts once they make it to the promised land. Novices look upon these extreme Verticals and become dazed and confused. But, they can’t show their confusion, because they’re expected to understand; they are drilled on the utter simplicity of what is, sometimes, a process of Rube Goldberg complexity. When talking with some Six Sigma shops, I’ve identified what seem to be three groups of followers: those who have others do, those who do, and those who just don’t get it. The focus is typically on the individual Six Sigma efforts and not the consolidated total result. Sometimes, it appears that the whole is less than the sum of the parts. Maybe it’s just me.
It is easy to find lean warehousing practices outside Toyota, where you will encounter a broad cross-section of Vertical approaches. Many of these facilities are managed by warehouse managers who have been heavily influenced by Toyota, or that are run at a network level by supply chain executives … who, also, have been heavily influenced by Toyota.

Typically, we see lean Vertical principals applied, independently, at each facility. The logic behind this makes sense, because at the heart of most lean strategies is Kaizen. Continuous improvement begins at the home, and each home is different.

These warehouses generally look clean, uncluttered, simple, no-tech, bright, and efficient. These are very common impressions. However, most of us non-insiders cannot fully grasp the material flow inside an hour’s tour. That’s because the common Vertical lean practices and touch points look different from one facility to another.

But, GM is very different. Instead of borrowing and adapting lean practices from the manufacturing group, GM runs their service parts supply chain like a string of production plants. Charlie Hyndman is the vice president, who grew up in manufacturing (, and has been at the helm of GM’s aftersales supply chain for more than a decade. His entire team performs like a world-class manufacturing team.
This is an important point: because GM runs its parts supply chain like a manufacturing operation, and not as a “borrower” of lean manufacturing Verticals, it is, by definition, more effective. Why? For the same reason that an endless stream of copies of copies inevitably degrades the information. Only the original provides the clarity of the “original” ideas.
GM strips away the mystique, making their lean approaches easier to grasp … and grow. It makes more sense to explain by example.

All of GM’s “template” parts facilities are cookie cutter designs. They have long, wide aisles devoted to the fastest moving parts (approximately 40% of the volume and associated labor). For years the picking path within a bay resembled a typewriter – moved along the top shelf and picked, came back and picked the next shelf down, and finally came back and picked parts from the bottom shelf.

Like all facilities, workers at the GM Chicago facility are trained in continuous improvement. Inevitably, they figured out that this method of picking parts was inefficient. If you picked parts up and down, you would save steps and time.

They were correct – moving to the new picking path saved 1,000 steps each shift per worker, and 14 miles of steps per shift across all pickers. This continuous improvement philosophy (call it Kaizen) is deeply embedded in GM’s workforce culture; they do not need ornamentations, or coronations, to internally merchandise this sort of concept.

In isolation this plant would not be remarkable – it’s the result of a typical lean Vertical – Kaizen. What is remarkable is that each of GM’s template parts facilities is “massively parallel.” Each has the same fast-pick aisle configuration, and each employs up-and-down picking. This has enabled GM to replicate the results in the Chicago facility across the entire network. Inside of five weeks.

Perhaps what’s even more remarkable is that GM’s Chicago facility is the 15th most productive parts “warehouse” out of 192 motor vehicle parts warehouses in the Carlisle benchmark database (productivity for just hourly labor; looking at “all in” labor, it is 5th ). GM’s Chicago facility is firmly entrenched in the first quintile – top 20% of all warehouses – where you might not expect there was much more room for improvement.

It took me more than a decade to understand what GM was doing. At the center of my confusion was the term “template warehouses” that they used to label their new parts facilities. I heard this and thought of nouns (things), not verbs (processes). What GM has done is standardize their process “templates” across all of their facilities. They wrap all this inside their “Global Manufacturing System” (GMS).

Time-out: GM’s Global Manufacturing System (GMS) has driven dramatic improvements in safety, quality, productivity, and cost. At its heart is a dynamic, best-practice based approach to manufacturing that engages every level of the organization. As such, the GMS umbrella is used to design comprehensive training programs to teach “lean” to the shop floor: Standardized Operating Sheets (SOS), Job Element Sheets (JES),
and Job Instruction Training (JIT) are the backbone of continuous improvement and sustainability. In the example here of a Job Element Sheet it is easy to see a comprehensive approach to measuring out job steps.
This is critical, because GM designs training programs around shop-floor processes. Process compliance – “management” – is covered by audits. The audits can be either comprehensive or short: ten-minutes.

If everybody is a “black belt” on the shop floor, and nobody can break a stiff 2x4 in half with a leg thrust, then you probably don’t need any nifty labels. That’s what I see in GMS … and what makes it very difficult for others to emulate. GMS has coupled two key lean Verticals (continuous improvement and short lead time) with one organizational principal (people involvement), a centuries- old manufacturing principal (standardization), and a singular driving customer objective (built-in quality). GMS is incredibly logical and simple; possibly too much so to be taken seriously by others struggling to improve, and sustain any gains.
Bottom Line: GMS has no fancy pyramid scheme to coddle the gurus.
It is simple and incredibly easy to understand. Maybe that’s why it works so well in a parts distribution environment. Most firms use a handful of Vertical lean processes to get lagging quintile warehouses to toe the line. That only gets you so far. GMS is focused on standardization, documentation, training and auditing … across all global facilities … with the objective to minimize network variability.

It works. That’s why GM is at the top of the heap in parts distribution … and likely to stay there.

Wednesday, March 11, 2015

Wholesaling With Wormholes
by Brian Steinmetz

Well, they’re not the same wormholes you saw in Interstellar, but these wormholes provide nearly instantaneous direct paths from your parts counter to the customers you are trying to reach. I’m talking about targeted digital wholesale marketing – sending customized email messages directly to the parts purchasing decision-makers at a dealership’s wholesale customers.

For years, automotive dealerships have used targeted digital marketing to reach out to their retail customers (“We were glad to have you in for an oil change last month! Come back for 10% off your next one!”). With some small adjustments, this technique can also serve dealerships that are contacting their wholesale customers (fleets, independent garages, or body shops). Unlike retail customers, individual wholesale customers purchase large volumes of parts, which means wholesale targeted marketing can yield significant returns.

But it needs to be done right. How do you create your strategy?

An effective targeted digital marketing strategy is typically part of a larger customer relationship management (CRM) initiative. However, the digital marketing provides a unique feature: the ability to directly track impact. This tracking takes the form of monitoring delivery rates, open rates, and click-through rates for your marketing initiative as a whole, as well as for each individual customer. Knowing which customers are actually opening the marketing messages will produce a list of hot leads for a counter salesperson to follow up on.

Electronic delivery also allows you to customize messages for different recipients. Your active customers could receive one message, thanking them for their continued business with a 5% discount on product line ABC, while inactive customers that you’re trying to recapture could receive different messages, like a 10% discount on another product line.

“Sounds great. But does it actually work?” Yes, it does. One automotive OEM that employs this wholesale direct digital marketing strategy consistently sees positive outcomes. For every month that these messages have gone out, roughly 7% of their “inactive” wholesale customer base (those that had not purchased parts in 90 days) came back to the dealership for their first parts purchase in a while. Active customers who received these marketing messages became inactive at a lower rate than others. Taking a larger view of the situation and evaluating the OEM’s entire wholesale customer base, the customers who received the messages purchased more parts year-over-year than customers who didn’t receive messages.

Bottom Line: Targeted direct digital marketing to wholesale customers has the potential to yield huge returns on investment, when paired with a well-planned CRM strategy. The ability to deliver to your wholesale customers a tailored message cheaply, quickly, and easily is one that we all can access; we just need to build a plan and then send a ship through the wormhole.

Tuesday, March 3, 2015

Service Lane Technology: Up Close or Impersonal? What Do Consumers Really Want?
by Meredith Collins

Do consumers really want Service Lane Technology? We examined this important question as part of a recent focus day on Service Lane Technology (SLT) solutions. During the day, OEMs and SLT providers discussed where the technology is headed. While researching this topic, we also held a focus group with customers who had been exposed to service lane technology, in order to gauge their perception of it. The general sentiment of this group – which consisted of people in their late thirties and older – was that SLT could be a good thing, but only if the dealership uses it properly. That is, these customers still want their interactions to be personal; they expect a certain level of human connection.

After watching the footage from the focus group many, many times, I realized that these people shared a common idea of what a service experience should be like, and how technology can help provide it. I understood their feelings – yet their concerns didn’t reflect at all how I feel about Service Lane Technology.

For example, they want their Service Advisor to know their name; to know their children’s names. I don’t care if my Service Advisor remembers me. They want hand-written MPIs, as this demonstrates a “personal touch” and “extra attention”. I want an MPI that I can easily read, preferably one printed from a computer and emailed to me. They think it’s rude when their Service Advisor fails to make eye contact, and instead focuses on entering information into his tablet. I don’t care if he’s paying attention to me; I want him to be paying attention to my car.

So, what is driving the difference between my expectations of the service lane and the focus groups’? Why is my view of technology and customer experience so different from theirs? The answer: a generation gap.

Millennials – which I’m going to define as anyone under the age of 30 – have come to view the customer experience very differently from the generations before them.

I think there are two key points here:
  1. Millennials don’t need, or even want, to have a personal connection while in the service lane. We aren’t necessarily looking for the MyGuy experience. Rather, we want our service or repair to be efficient and quick, causing minimal disruption to our lives.
  2. We are also significantly more comfortable with the use of technology. We grew up with it; we don’t remember a time when it didn’t play a significant role in our lives.
With this in mind, I think that SLT is the key to providing millennials with efficient, streamlined service. Think about it: I rely on my smart phone to complete several important tasks every day. I trust it to do my banking, pay my utility bills, order an Uber, repay friends for splitting an Uber, navigate around Boston, etc. These apps aren’t particularly new or revolutionary, but the point is that I actually use them. In fact, I am completely reliant on them. People in earlier generations, however, are less likely to trust the technology to make such important transactions.

This may explain the disconnect between reactions of different groups of consumers in the service lane. Millennials are more comfortable having technology replace old processes. So, not only will millennials trust SLT, we’ll be turned off by the failure to use it.

Our research into SLT has determined that it is undoubtedly the way of the future. Not long from now, every service lane will have some form technology, and the entire service process will flow smoothly from scheduling to check-in, to write-up, through the service itself, and finally post-service. The biggest unknown is how quickly dealers will adopt SLT.

Up to this point, they’ve been slow to make changes, as there is pushback from service departments that are comfortable with the way things are. I argue, however, that SLT adoption needs to be a priority for dealers. More and more millennials are becoming car owners and are choosing where to service their cars. Even though the older customer base may hesitate to trust technology in the service lane, an increasing customer population will expect it.

Bottom Line: The next generation of customers is here. We want dealers to have technology solutions in the service lane to make the time we spend there more streamlined and efficient. Lack of technology may mean lack of our business.

Tuesday, February 24, 2015

Is Driving Becoming “Passengering”?
by Ilia Gorelov

In-vehicle infotainment systems, autonomous vehicles, and Uber: What do these all have in common? They’re technologies and trends that are converging, slowly turning driving into “passengering”. What’s “passengering”? Well, it’s being a passenger: going from point A to point B, but not piloting yourself. We’re all slowly becoming passengers.

There are three elements contributing to this trend:
  1. The human need to remain “connected”, now being facilitated by our vehicles and making driving an inconvenience
  2. Our vehicles’ increasing ability to take over basic driver inputs like braking and steering, diminishing the role of the driver
  3. The rapid growth of on-demand taxi and ride-sharing services from providers like Uber which are providing increasingly cost-effective substitutes for driving
Let’s explore #1. People, with the help of technology, are slowly overcoming a challenge that has existed since the dawn of civilization: boredom (Link Here). We increasingly feel the need to remain connected and consume information. Waiting for a ride? Check your Facebook. On a boring conference call? Read your email. On a bad date? Tweet about it while he/she is in the bathroom. Multi-tasking has taken on a whole new meaning. Why not multi-task in the car?

Vehicles are becoming cogs in an ever-connected world, linking drivers to their cellphones. In many vehicles, we can now use voice commands to read and respond to emails/text messages, make calls, pull up directions, manage and play music, and get other information like news, weather, or traffic conditions. These features are useful and conveniently accessed through our vehicles – and they’re a safer alternative to using a phone while driving. But what’s the impact on the actual act of driving? Well, it’s almost becoming a secondary function. It’s an inconvenience. Why drive, or be bored, when you can spend this time doing other productive things? What if we didn’t have to drive?

This brings us to point #2. Autonomous cars are slowly becoming a reality. Many new vehicles now come equipped with features that can manage basic driving inputs: adaptive cruise control, radar-based brake assist, and intelligent parking systems, to name a few. Autonomous test cars have already been “piloted” on public roads in the U.S. and Europe. Further, in 2014 the U.S. Department of Transportation announced that it will begin taking steps to enable vehicle-to-vehicle (V2V) communication technology for light vehicles. V2V communication can help take today’s autonomous vehicle technology to the next level. Though we’re still years, if not decades, away from a world in which autonomous vehicles rule the road, we’re seeing that slowly but surely, the role of the driver is being diminished. Just take one look at the airline industry to see where we might be heading.

Finally, let’s look at point #3. There’s this new thing called the “sharing economy” in which “regular” people provide services or rent property to other “regular” people. If you’re going on vacation, you no longer have to stay in a hotel – you can rent someone’s apartment on Airbnb. If you don’t have time to run some errands, hire a TaskRabbit to do them for you. Need a ride? Call an Uber. Ride/car sharing is the fastest growing segment of this new economy. There are just so many vehicles on the road and they spend most of their lives parked somewhere.

So what the heck does Uber have to do with driving becoming passengering? Well, for one, services like Uber (UberX, specifically) provide a real, cost-effective alternative to car ownership, especially in urban areas. I own a car in Boston, but frequently use UberX to avoid the inconvenience of getting stuck behind the wheel in traffic, looking for parking, etc. When I look at the blue Uber coverage map of Boston, I begin to question whether utilizing UberX could actually be financially advantageous to owning my own car (after all, coverage extends well beyond Carlisle’s Concord offices). In fact, imagine that blue area expanding out from Uber’s 250+ cities across the world. How far can we really go in an Uber? Could I visit family in New Jersey by simply hopping in various Ubers across the eastern seaboard? Could I go cross-country? Sounds like an interesting idea for a documentary.

So how do these 3 trends tie together? Well, imagine a world in which a fleet of connected, autonomous “Ubers”, immediately available upon request, take you anywhere you want to go. As soon as you get in, your phone and personal preferences are synced with the connected vehicle and you’re alerted to the weather, traffic conditions, breaking news, incoming emails, schedule for the day, etc. You only pay for the time/distance travelled, or maybe you buy a “family travel plan”. Even as a self-proclaimed car guy, this sounds pretty convenient, efficient, and appealing. Maybe passengering isn’t so bad. Maybe I don’t even need to own a car. Well, maybe a Z06 for some weekend fun…

Bottom Line: As vehicles become more connected and autonomous, driving is taking a back-seat (literally) and the role of the driver is diminishing. Further, readily available and cost-effective ride sharing services are providing real substitutes to driving. Combine all of these trends and one day we’ll all be passengers.

Thursday, February 19, 2015

Managing Customer Service Satisfaction Is Easy: Make Them an Offer They Can’t Refuse
by David P. Carlisle

Customer service satisfaction is a subject with which we are all very familiar. So familiar, in fact, that we tend not to pay any attention to it, because we’ve seen it all. There’s nothing new.

Well, maybe we are wrong.

I, too, was a jaded been-there-done-that kind of guy until a few weeks ago, when I received a letter from my pickup truck dealer.

I had previously dinged this dealer in a survey when they tried to sell me an air filter double-netted to around $135 retail. The service manager called me up at 7:00 in the morning with hurt in his voice. He apologized, and we remained friends. That was over a year ago.

About a month ago, my daughter took the pickup in for routine service. The service advisor sold her a radiator flush – she accepted, because she trusts this dealership. Then, a few days after the service, I got a barrage of service satisfaction emails. I gave my dealer perfect scores and checked the box that it was OK to share with my dealer, but I commented on my dissatisfaction with the radiator flush. I was honest in saying that I was not satisfied, but knew that the imperfect scores I should have given would have proven overly traumatic to my dealer.

I never heard anything back from the OEM or dealer about my dissatisfaction. Hey, I gave it a shot.

Then, a few weeks ago, I received an offer that I could not refuse: my dealer paid for compliance. They sent me a $25 gift card as a token of appreciation for my “complete” satisfaction.

Let’s Take a Step Back:

I am used to:
  • “Stamps” on my repair order asking me for perfect scores.
  • My service advisor begging for perfect scores and telling me that his income would significantly suffer if they were to get anything but perfect scores.
  • An elderly woman calling me after my service appointment, reading from a script, and asking me if I was less than completely satisfied.
  • The letter from my service manager asking me to call him if I was not completely satisfied.
  • Filling out the dealers’ separate satisfaction survey that seemed designed to encourage score perfection.
  • Finally, getting a manufacturers survey at the end of all this.
  • And, of course, being positive that all this interference simply spoils the soup, rendering the satisfaction survey stupid.
However, I am not used to getting a gift card for $25 in appreciation of my deceit.
To me, the gift card was spot on. I do not have to be bribed to come back to my servicing dealer, but the $25 tells me that he is trying—really hard—to make the factory happy. My dealer’s service manager also wants me to be happy with his operation – he takes great pride in it, but he knows that he really cannot sustain perfection. The $25 is his way of “winking,” and thanking me for “perfect scores.” And, it has nothing at all to do with actual perfect satisfaction.

Bottom Line: The lesson here is that the millions of dollars OEMs spend on what seems to be completely bogus satisfaction surveys actually can make a difference. It is not about the scores themselves — we all know these are useless; it is about things like my dealer’s incredible act of creativity. My dealer chose to thank me for playing the game, rather than simply urging me to lie. Through this interaction, we winked back at one another. As a result of this, our relationship has been humanized, and I am still loyal. Well done.

Wednesday, February 11, 2015

Luxury Owners; No, They Just Seem To Be Difficult
by David P. Carlisle

We conduct a lot of owner survey research where people tell us about themselves by checking certain boxes. “How satisfied are you with Brand-X’s dealer experience?” They check one of five boxes, ranging from “Very Dissatisfied” to “Very Satisfied.” “Why are you dissatisfied?” They check one to three things off a list. We tabulate the results and profile cluster of dealers. But, still we wonder. Toyota teaches the “Five Why’s” as part of their Lean training. Ask “why” five times and you will usually get at what’s really going on. You can’t do that in a static survey. That’s why we have a focus group facility in our offices.

I recently moderated two very different customer groups. One was a group of typical Volvo owners. The other group was from BMW, Mercedes-Benz, Lexus, and Audi. Day and night. The Volvo group was composed of people who had made fairly clear lifestyle choices with safety as their core value.
  1. Why do you own a Volvo? I like it.
  2. Why do you like it? It drives well.
  3. What about it “drives well"? You know, it is the whole experience.
  4. Is there any part of the experience that sets Volvo apart? Sure.
  5. What is it? It is the safest car on the road and I value myself and my family.
Ok, it doesn’t come out exactly like that. But, you always will get to “safety” within the Five Why’s.

With “safety” as a unique core value, Volvo owners are pretty much OK with what’s offered up in the ownership experience. Do they mind waiting for service in the waiting room? No problem. Do they expect a loaner car or alternative transportation? Well, that stuff would be nice (and they do receive it), but they don’t sit and stew over it if it isn’t perfect. They chose Volvo. They get pretty much everything other luxury vehicle owners get, but they do not have the same feeling of entitlement or value dissonance.

That was “day.”

Time Out

Well, the Volvo Focus Group looked pretty good, … but it did not foot to the numbers. We expected higher-than-normal levels of customer retention from Volvo, based on what we heard in the Focus Groups. So, we decided to listen to a different “luxury” owner group that just consisted of BMW, Mercedes, and Audi owners.

Now to “night.”

I sat down with the other “luxury” owner group and frankly expected more from them. Each had spent a lot of money for their brand choice, and brand statement. They were entitled, and nobody’s fools. The following isn’t a direct transcription, but it captures the essence of this group.
  1. What are your expectations for alternative transportation? Just get me out of there as fast as possible. I am too busy to hang around the waiting room of my dealer.
  2. What are your expectations for the waiting room at the dealer? I don’t care about it; I never want to be stuck there.
  3. What do you think about going to your dealer for service outside warranty? You think I’m nuts? I never go back because their charges are exorbitant. I take my car to “my guy” in my town and I trust him.
  4. Why do you think the costs are exorbitant? Just look all around you at one of those ‘palaces.’ You know who’s paying for it? Me! Well, not “me” because I would never consider using them outside warranty.
  5. But, what if you were treated differently? What if the service advisor was also the technician and there was no handoff? I don’t care about that. Hmm. OK, it would be better. But, I’m not going to pay for those palaces!
Time Out

What’s the logic that connects happy Volvo owners with lower service retention to unhappy upper-luxury owners with higher service retention? I suspect that the logic tether that connects all this together is affordability. Volvo owners might stretch more to purchase their vehicles, justifying the stretch not as a brand statement, but as a precious investment in safety. Money is precious to this group and they tend to shop more outside the dealer to stretch their service dollar. Upper-luxury owners, especially those where the volume is at the bottom of the brand chain, love to talk about how much they pay for service, how it is simply outrageous, and how they won’t stand for it after warranty. Those at the top of the brand-chain simply don’t talk much about this sort of stuff … and are not likely candidates for a focus group. But, for all of them, time is more valuable than money. So, they tend to go back more often to their dealer for service simply because it is easiest and quickest.

Bottom Line

If one had struggled to create a beautiful architectural service solution, struggled to hire professional staff, struggled to have a perfect waiting area, and struggled to offer brilliant alternative transportation, … maybe even struggled to go beyond what you expect is expected … and all you heard was this whining … what would you conclude? You might conclude that these customers were difficult. Brats. And, you would be wrong. They just don’t value much the stuff you think they value, and are offering. For them, increasing service retention takes a different kind of currency. For Volvo customers, the “currency” for this barter arrangement seems to be perceived “affordability.” For the upper-luxury customer the realm’s coin seems to be “time.” It might just be that simple.

One Last Thought

I do not think it is uncommon to build a world that customers don’t want to live in. Ex-K-Mart shoppers don’t think much about all the work that went into their K-Mart shopping experience. They just don’t value it or like it. So, they go to Wal-Mart or Target where they get what they value. Lesson? Understand what your customers value and give it to them. Don’t dress up what you value and think it represents a fundamental truth.

Tuesday, January 27, 2015

Lean Inside a Parts Warehouse: Different Paths to Success Or Failure
by David P. Carlisle

For decades now, I have been fascinated with the Field of Dreams “build it and they will come” metaphor. I first heard it, obviously, in the movie where it sorta made sense in the context of fantasy. Next, Carl Sloane mentioned it as a reinvigoration strategy to motivate his partners in Temple, Barker, & Sloane (now Oliver Wyman) to grow the business. He majestically said, “Build it …. and they will come.” Carl was a god-like figure and that was all the Kool-Aid I needed to do his bidding.

To me, “build it and they will come” always recalls the phrase’s roots in a fantasy movie about a baseball game. This makes it a perfect metaphor when discussing business strategies. Some strategies are based in fantasy. Others are not.

That brings us to “lean”. Lean warehousing started at Toyota, and had no ties to fantasy. It combined Toyota’s approach to manufacturing with shop floor realities – largely interpreted by Tony Gomes (who now manages Honda’s NA warehouse operations).
Tony is the real thing – he talks with passion about the three lean building-blocks: process, tools & technology, and culture. Tony stresses culture.

I have argued with Tony for more than a decade, pretty much all in my head. Tony stresses each and every bullet in the culture box. With passion. I am not a purist and tend to stress the subset of bullets that work within each culture.

OK, back to the metaphor, “build it and they will come.” It is all about “it” – just what is “it”? I think Tony and I would agree on this: “it” is a combination of methods and tools that constantly evolves as a consequence of an organization’s culture.” “It”, too, reflects the organization’s culture, and “it”, too, evolves. “It” would be markedly different from culture to culture, reflecting different goals, values, constraints, and attitudes. I suspect that Honda warehouses, under Tony, look very different from the Toyota warehouses where Tony grew up.

Case in point, GM’s lean journey focused on productivity and quality, where they trudged a two-decade path from worst to best. You can see a plot of their progress in "The Story of GM’s 19-Year Ascent to Best-in-Class Warehouse Productivity.”

Looking inside a lean GM parts warehouse is very different from the inside of a Toyota, … or Volkswagen warehouse. VW made the climb up with a much faster pace than GM – the story is told in “Digging Deeper Into Lean at Volkswagen Group of America.”

Toyota, GM, VW, and, I suspect, Honda are all slaves to CI – continuous improvement. The only thing they might have in common is a touchstone lean graphic talking about methods, tools & technology, and culture.

Another approach to that lean field of dreams is to sloganize it. This left-most path in the above graphic is a corruption that can get all of our heads nodding and saying, “yeah, yeah, yeah.”

First, set your sightline on “lean” and announce that it is your strategy – “announce it and they will build it.” It is easy to imagine this as a top-down strategy of the George Patton variety. The marketing folks participate in a staff meeting, hear the new direction, and do what they do best: merchandise it.

Billboards everywhere. Electronic displays on the shop floor. Banners. Pages and pages on their web site. Slogans on business cards. And, pamphlets to be distributed to customers. These efforts usually stop short of specially printed books of matches.

This sort of lean strategy makes me feel uncomfortable. It reminds me of visiting a house where most of the art on the wall is of big-eyed children. What can you say?

Really, nothing. It is simply too embarrassing. And, that’s why it typically does not work. It is hard to criticize a soup label if you can’t taste the soup, or if the can is empty.

Bottom Line: If you’ve been staring at big-eyed children for a while, you might not be able to see very clearly, or assess where you are in the journey to lean. Here’s what you need to do:
  1. Look at your productivity and quality metrics versus a relevant benchmark group and assess if you are in the top (best) quintile or not. If you are in one of the bottom three quintiles, you probably are not a lean shop.
  2. If your people tell you that the benchmark metrics are irrelevant, then you probably are not a lean shop.
  3. If you suspect that you are in one of those bottom three quintiles and you see a lot of “big-eyed children” posters, slogans, and web-razzle-dazzle, then you probably are not a lean shop.
At this point, you have discovered that you are either on the journey to lean, or not. If you are not, get rid of the big-eyed children poster and merchandising. Then, get your head around the idea that lean is all about the nature and boundaries of your company culture, using appropriate methods and tools. “It” will not look exactly like anybody else’s lean derivation. In time, “it” will evolve to be your own statement of culture.

Tuesday, January 20, 2015

Outsourcing? Well, It’s Not So Easy Anymore
by David P. Carlisle

In 2015, we will be probing deeply into third party logistics (3PL), based on NAPB and EPB steering committee desires. We will be launching two 3PL surveys to the OEMs, conducting two different sessions at the conferences, and looking into the future with the Crystal Ball. Here’s a glimpse at some fundamental issues.

Twenty years ago, or so, was the heyday of parts outsourcing. Originally, an OEM’s most compelling reason for outsourcing was to support entry into new markets – e.g., Chrysler into Europe and Asia in the early 1990s. New markets were quickly eclipsed by new costs. Many who outsourced did so to reduce costs; variable labor cost reductions, headcount reductions, fixed facility cost reductions, technology investment reductions, and transportation cost reductions. If you started with bloated and inefficient warehouse operations, then it was easy to sit at a desk, and make outsourcing pencil. The big decision for OEMs was – “who” to outsource to.

The “outsourcers” (3PLs) were great marketers, but mostly had middling facilities and/or know-how. Greatness wasn’t essential for them to succeed back then; it was more about the razzle-dazzle. Mediocre warehouse operations could outperform the client’s operations and make the critical, original business case work. Once the parts operations had transitioned to the 3PL, it was essential for 3PLs to erase all the ways their clients could make comparisons. The 3PLs did not want to be held up to established standards. Razzle-dazzle.

  A lot has changed since then. First off, OEMs quite often found that life after outsourcing was not better. In a recent survey, only 46% of OEMs felt that costs were “better”; only 23% felt service was better. In fact, 31% felt service was worse. Well, that will wake you up in the morning.

OEMs found that continuous improvement of their own operations, as well as what they could see of the entire industry, was better. This is demonstrated in the 2004-2013 bar charts showing productivity and quality for over 100 OEM parts warehouses (insourced operations and outsourced). Over time, new methods, new technology, and new culture resulted in very significant improvements in productivity and cost. In many cases, the performance resulting from these improvements was better than the cost and productivity of 3PL operations.

Examining benchmark productivity for Europe, the numbers suggest that 3PLs have actually been losing ground in productivity; compare 2009-2014 to 2003-2013. In North America, outsourcing productivity gains seems to be on par with that of insourced operations. But, that’s not good enough. The real issues have to do with the rapidity of evolution, and the “big delta” one should get from outsourcing. OEMs are asking themselves, “Why bother?”

Decade-long 3PL contracts started to feel like the early days of a bad marriage.

Worse yet, the quality of internal operations has vastly improved, leaving 3PLs as high cost … and low quality.

Bottom Line: The razzle-dazzle doesn’t work anymore. Something else has to change. Over the past two decades, the OEMs have made plenty of changes … to such an extent that 3PLs and outsourcing simply do not pencil any more. The change needs to come from the 3PLs, if they are to survive. They need to leapfrog the evolution in practices adopted and experienced by their customers and potential customers. They need to offer “upper first quintile” cost performance and quality. They need to be measured, and measure up. They need to structure contracts that are unambiguous. They need to razzle-dazzle themselves for a change.

Friday, January 16, 2015

The Missing Piece of Dealer Service Marketing
by Nate Chenenko

I recently bought a certified pre-owned vehicle, and not long thereafter I received this email from the selling dealer. Looks good, right? It tells me what I need to know – my vehicle needs its 50,000-mile service. And it’s actionable – there are links right in the email to schedule an appointment and to get directions.

There’s only one problem: my car doesn’t have 49,223 miles. In fact, I received this email about a month after I bought the car, and when I got the email my car had fewer than 37,000 miles on it. We know that inaccurate mileage estimates are a problem in these service reminders, but, in this case, both the dealer and the OEM knew the actual mileage of the car.

This example shows that we have problems on two levels.
  • On a micro level, the problem is that we’ve got the wrong mileage estimate
  • On a macro level, the problem is that our service marketing isn’t as effective as it could be.
Leveraging a telematics system can help OEMs address both points. On the micro-level point, telematics provides the necessary mileage data to the OEM. No more estimation is required – OEMs now know the exact mileage of each vehicle. The macro-level point is far more important. Telematics nullifies the need for email service reminders in their current form.

Think about the process necessary for a customer to take action on an email service reminder:
  1. Open email program/website
  2. Click on dealer email, which likely looks like spam
  3. Read the entire email to see that service is required – and check that the email has the correct estimated mileage for the vehicle
  4. Click or call to schedule an appointment
  5. Go through appointment scheduling process
Whereas, if a telematics system is fully leveraged for service initiation, the process looks like this:
  1. See a service reminder pop up inside the vehicle
  2. Use the in-vehicle appointment scheduling feature/tool to set up an appointment
This shorter process with more targeted information (better mileage estimates; more local dealer recommendations) is more likely to drive customers to the dealer for service. There are still pros to the old email approach – you can actually look at your calendar, at your convenience, before settling on an appointment date and time. Some owners may opt out of the telematics system entirely. But the improvements telematics can make to the service reminder concept will result in higher service retention.

Bottom Line: In addition to its other benefits, telematics will solve some existing service marketing issues by targeting regular service reminders to those who really need them, and by making those reminders more accurate.

Friday, January 9, 2015

Parts Manager Satisfaction: The Industry Continues To Move The Needle
by Harry Hollenberg

In 2014, Carlisle & Company conducted the 13th annual North American Parts Manager Satisfaction Survey. Supported by 40 automotive brands/OEMs across North America, this industry-syndicated survey solicited responses from over 9,500 parts managers. Response rates continued to hover around 66% for the industry, with 20 unique brand/countries achieving > 90% response rate.

U.S. brands led in terms of Overall Satisfaction, with an average of 55% top-box satisfaction – up four points from last year. Mexican brands showed the biggest gain, jumping from an average top-box satisfaction of 29% in 2013 to 49% in 2014. Finally, Canadian brands stayed constant at an average 41% top-box satisfaction.

Year-over-year increases outweighed decreases on a roughly 3:1 basis, with the biggest improvements exhibited by two Mexican brands – each gaining over 30 points in Overall Satisfaction. In the U.S., the biggest gainers benefited from a “return to normalcy” as they managed to straighten out their supply chain systems.

  This chart looks at 2014 Overall Satisfaction across the individual categories, with the candlesticks representing industry high, low, and average. U.S. brands represent 13 of the best-in-class scores, Mexican brands represent three, while Canadian brands represent the remaining two.

Similar to previous years, Parts Representative, Order Processing Phone Support, and Order Processing Systems have the highest average satisfaction, in the 60%-70% range. Also like previous years, Pricing and Accessories have the lowest average satisfaction, right around the 30%-40% mark.

It is interesting to note that the company with the most “best-in-class” ratings also has the highest satisfaction with Pricing. As discussed in our November 14th blog, we consistently see that parts managers are relatively more satisfied with pricing (relative to the rest of the industry) when they are satisfied with the rest of the areas in which the OEM supports them. Dealerships don’t usually like paying OEM parts prices, but it is easier to accept when they feel the OEM is doing a good job of supporting their needs.

So, what were some of the key process/people/policy changes that the biggest “movers and shakers” made over the last year? Some of these (which were documented in more depth with the participating OEMs) included:
  • Reducing minimum piece prices for allowable parts returns
  • Streamlining communications describing material return process and policies
  • Improving fill levels by leveraging offerings of inventory management system, including conducting simulations and modifying stocking parameters
  • Focusing on back order reduction by intense monitoring (e.g., detailed daily B/O reports), heightened focus on expediting, better planning for inventory needs (especially for accessories and promotional parts), and increased sharing of status (with brands, customer care, etc.)
  • Offering faster order response time to smaller/remote dealers
  • Upgrading speed and reliability of electronic parts catalog system
  • Redesigning order hotline to assure each call/request is closely monitored and dealers are provided frequent updates on progress
  • Most notably, one OEM opened a Canadian PDC, rather than supporting their Canadian dealers out of the U.S. This OEM experienced a 30+ point gain in satisfaction after this decision.
In fact, the industry continues to make dramatic strides across all facets of parts manager satisfaction. As shown on this last chart, OEMs with best-in-class improvements saw gains ranging from 12 to 45 points across the entire spectrum of parts manager support. Clearly, there are still improvement opportunities available, and information gleaned from Carlisle’s surveys will help OEMs focus their limited resources on the right initiatives.