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