Automotive after-sales: service fulfillment

a true measure of performance?

John S Kiff and David Simons
The LEAP programme has focused on the upstream automotive supply chain. However, work
ongoing at the Lean Enterprise esearch !entre analyses the automotive supply chain
downstream from the factory gates. This chapter looks at the automotive supply chain closest to
the customer, looking at the interaction with the service provider.
This chapter proposes that the consumer re"uirement of the interaction with a service provider, at
its simplest level, is to achieve the return of his or her car within the time that it has #een
e$plicitly promised or is implicitly e$pected% and, that the car has #een fi$ed correctly on the first
visit and that it will therefore not re"uire a return visit. This can #e e$pressed as&
Right first time on time
The a#ility of an after'sales provider to meet this consumer re"uirement will depend on the
interaction of the workshop and the parts supply system. (orking together they should aim to
achieve )right first time on time* for the consumer with the least waste for the system.
+n almost all current after'sales providers the only measurement of whether consumer
re"uirements have #een met is the measurement of the ),ervice Level* of the parts supply system.
This measurement only measures the availa#ility of one part at a certain point in the system
typically delivery from a national warehouse to franchised dealer*s warehouse. Typically it is
"uoted as #eing around -. per cent and is used as a pro$y for the performance of the system in
delivering customer satisfaction.
As this chapter will demonstrate, this measure is inconsistent from one manufacturer*s
system to another inaccurate and actually irrelevant to real consumers* re"uirements. The
significant issue is that for any given consumer interaction with a service provider, more than one
part is needed. +n addition, the ),ervice Level* measurement does not take into account the other
varia#les in the system and the performance of the service provider*s workshop.
The chapter proposes a ),ervice /ulfilment +nde$* for all service operations #ased on the
work of 0iff et al. 12--34 and shows how a lean parts supply system can help to achieve the
highest customer service fulfillment.
+5T678!T+65
The after'market parts supply system in the European motor industry has, until the past ten years,
#een characteri9ed #y infre"uent deliveries of large #atches #etween the various echelons in the
system. +n addition, the level of customer service has #een poor and true demand has #een
o#scured #y promotional activity.
6ver time, manufacturers have increased the num#er of different models in their ranges and
the num#er of variants of each model. !ars themselves have increased feature content and
therefore contain more individual parts. +n addition, the life cycle of a model has reduced
encouraged #y shorter new product development lead times. All this has vastly increased the
num#er of discrete part num#ers that are stocked to serve the demands of the after'market.
To date, #usiness research has concentrated largely on the upstream activities, from design
through to manufacture and from raw materials down the supply chain 1(omack and :ones ;2<4.
,uch research has worked on making the manufacturing and supply systems lean #ut in isolation
of the fact that factories are producing finished goods stock which can #e measured in months of
sales and which hitherto has relief on )push* strategies to sell.
+n the after'sales area of the industry there are also a num#er of distinctions #etween parts that
are in current production and those that are not, which fre"uently results in two different upstream
supply chains. +n addition, the after'market demand for parts for cars that are in current
production has to compete with the re"uirements of the production line itself and often the more
)visi#le* factory demand wins the #attle for scarce component supply.
These issues have #een part of an overall research programme into the car supply, servicing
and repair processes as part of the +nternational !ar 7istri#ution Programme 1+!7P4.
+5TE5AT+65AL !A 7+,T+=8T+65 P6>A??E 1+!7P4
+!7P is the world*s leading cooperative research programme into the future of car distri#ution
and retailing. +!7P was founded as a pilot programme in 2--@. The first full programme #egan in
:anuary 2--A. ,uch was its success that +!7P@ and +!7PB followed in 2--C and 2--3 for two
years and +!7PA is now part way through. +!7P is a non'profit'making organi9ation, funded #y
over B. sponsors ranging from car manufacturers to +T companies. This chapter discusses the
work #egun in +!7P@.
+!7P has a #alanced team of industry e$perts and academics. The European research is
mainly conducted in four markets, /rance, >ermany, +taly and the 80. +n each market there is a
=usiness ,chool at the core of the research effort respectively Pole 8niversitaire Leonard de
Dinci, +nstitut for Automo#ilwirtschaft /achhochschule 5urtingen, 8niversity of Denice and
!ardiff =usiness ,chool, Lean Enterprise esearch !entre.
+!7P@ had si$ research streams ranging from !onsumer e"uirements to Pu#lic Policy. :ohn
0iff at !ardiff led the After',ales stream, which was a two'year study of after'market demand
trends and parts supply systems in four European markets.
/undamental to this research was the investigation of distri#ution structures encompassing all
decision and storage points along the supply chain from ?anufacturer !entral (arehouse to
etail 7ealers. The principal research tools were #enchmarking and simulation for which data
was gained using semi'structured interviews with "uantitative "uestionnaires together with a
mail'out "uestionnaire survey to actors at each echelon in the system.
!65,8?E !H6+!E 6/ ,ED+!E P6D+7E
/or a consumer, #uying or ac"uiring a )new* car is on #alance a positive, if not an e$citing,
e$perience. Having that car maintained 1serviced and repaired4 is in contrast a )distress purchase*.
A consumer will tend to want to minimi9e #oth the cost and the inconvenience of running a car
and carrying out maintenance.
The consumer*s choice of a service'provider for after'sales maintenance will #e #ased on
perceived Dalue in terms of a com#ination of Euality, !ost and 7elivery 1E!74 factors unless the
consumer is contractually #ound #y a leasing agreement or similar. This E!7 com#ination is
unlikely to #e accurately evaluated, #ut will #e #ased on a mi$ture of e$perience, values,
information, hearsay, Fudgement and economic imperatives.
/rom the consumer*s point of view Euality, !ost and 7elivery will mean a com#ination of the
provider*s a#ility to get Fo# done )right first time on time* 1Euality4 and at the right )!ost* #oth
monetary and in terms of convenience. The latter includes the location of the provider relative to
the consumer. This is also part of the )7elivery* element which itself includes the )soft* factors in
the after'sales e$perience i.e. the way the consumer is )looked after*. +n the maFority of cases,
the consumer will #e making trade'offs #etween these factors.
This E!7 concept of customer value is closely related to that e$pressed #y eicheld and
,asser ;@< in which&
esults G Process Euality
!ustomer Dalue H IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
Price G !ustomer Access !osts
The 80 after'sales market is highly competitive and highly fragmented. There are thousands of
service'providers with different consumer offers in terms of E!7. /or vehicle manufacturers*
franchised dealers, the revenue and profita#ility of their after'sales operations is vital to their total
#usiness as the profita#ility of new car sales continues to come under pressure from over'supply
in the market. However, their market is primarily in cars of up to three or four years old and the
ongoing improvements in "uality and relia#ility of cars means that the significant market demand
for maintenance and mechanical repair is moving to older cars. ;B<
This )ageing after'market* means that franchised dealers face a loss of #usiness to
independent garages who have a large share of the market for cars over four years old. To
maintain their vital profit stream, franchised dealers must provide a #etter value proposition to
customers. +n order to do so, they need to measure their current performance% i.e. how well they
are currently satisfying consumers. A critical element of that performance is the performance of
the parts supply system.
6=:E!T+DE, 6/ THE PAT, ,8PPLJ ,J,TE?,
The most important viewpoint from which to e$amine the o#Fectives of the parts supply system is
that of the consumer. However, the consumer has no interest in the performance of the parts
supply system itself. +t is the authors* contention that the consumer is only interested in the
following& the return of his or her car within the time which has #een e$plicitly promised or is
implicitly e$pected, and he or she also re"uire a return visit. +n addition, the consumer is usually
not interested, nor aware in advance of the num#er of parts re"uired to fi$ the car. This contention
forms the core of the conceptual framework for this research ;A<.
+n order to achieve the o#Fective of satisfying every consumer on every visit, it would #e
necessary to ensure that the following had #een achieved as part of the After',ales function&
The parts re"uired are made availa#le to complete the Fo# #y the time promised. To do this
re"uires the correct and complete diagnosis of the Fo# in advance.
K The workshop space and technician*s time is availa#le to complete the Fo# #y the time
promised.
K The technician has the necessary skills and tools to complete the Fo# correctly #y the
time promised.
+n addition, for complete satisfaction, the consumer will e$pect the part1s4 fitted to #e
relia#le in service.
As well as satisfying their own workshop customers, dealers will also wish to
wholesale parts to independent garages. This is generally a secondary consideration, #ut
is one that the Parts ,upply ,ystem has to take into account in terms of demand.
,o, as a primary o#Fective, dealers will wish to satisfy their consumers #ut they will
naturally #e seeking to make a profit from this aspect of their #usiness, while at the same
time minimi9ing the costs they incur from keeping stock. 7ealers will also want to
ensure that the Parts ,upply ,ystem does not allow the workshop to #e idle. Parts and
,ervice La#our are a very important aspect of a dealer*s #usiness. They form, on
average, L. per cent of the gross profita#ility of a typical European dealer.
?anufacturers will also share the dealers* desire to satisfy the consumer. They will
also #e seeking to return a profit on their part of the parts supplied #usiness. They will
also want to minimi9e their stock 1although the manufacturers recogni9e that they are the
ultimate holders of certain types of Parts especially those that are no longer in
production4.
?anufacturers will, to some e$tent, also recogni9e that the dealers need to make a
profit from the parts supply system and that these profits are a critical part of the overall
profita#ility and health of the distri#ution network.
,ED+!E LEDEL
This measurement is the one most used in the Parts After'?arket to descri#e the
performance of the system in satisfying customers* needs for parts. +t can #e applied to
the dealer*s a#ility to satisfy the workshop customer, or, more usually, it can #e applied
to the 5ational ,ales !ompany 15,!4 warehouse*s a#ility to supply the dealer with a
part. The averages of the figures "uoted #y dealers and 5,!*s in each market to the
research team are shown in /igure 2.
The ,ervice Level represents the a#ility of the system to supply any O! part'line
1part'num#er4 from one echelon to another. +n view of the fact that the maFority of the
Fo#s in a workshop re"uire more than one part'line 1if a part is needed at all4, this
immediately makes the ),ervice Level* an inade"uate measurement as far as customer
satisfaction is concerned.
"igure # The oft'"uoted ),ervice Level* )Everyone defines it in a different wayM*.
+n addition to this, there are a multitude of measurement methodsM 5o two
manufacturers* systems measure ,ervice Level in the same way. ,ome manufacturers
state that only if the full order'line is sent will it count towards achievement of service
level, while others count it even if some parts were missing. Ta#le 2 illustrates some of
the measurement issues.
+n the authors* opinion ),ervice Level* is a meaningless comparison and worse still it
does not measure true service levelM +t serves no purpose from the consumer*s point of
view since he or she is only interested in the return of his or her car within the promised
time and it serves no purpose as an inter'franchise comparison, since the measurement
criteria are different.
$a%le # ?easurement issues
&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&&
,ome count if NN. 6thers count if NN.
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
/ull order'line sent Part order'line sent
All arrive on time ,ome arrive #y some time
All come from 5,! ,ome come from elsewhere
They are original orders They are #ack orders
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
,ED+!E /8L/+L?E5T +57EO
Ta#le @ illustrates the concept of the Service "ulfilment 'nde(, taking as an e$ample
the current situation in a parts supply system of a volume manufacturer. +t is calculated,
in a relatively conservative way, as follows&
The chance of any one part #eing in stock is taken as #eing the )first time pick* level or
)service level* in this e$ample, this is taken as -.P at the dealer parts store.
$a%le ) ,ervice /ulfilment +nde$ current
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
!hance of part #eing in stock -.P
5o. of parts re"uired *
/irst time pick of parts #asket QBP
!hance of Fo# completed on time 1where all parts availa#le4 -BP
,u#'total C3P
!hance of these Fo#s #eing done right -@P
Service "ulfilment 'nde( +*,
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
The average num#er of parts re"uired for all workshop Fo#s is B. This is derived from
the research team*s e$amination of A.. service invoices. /or all Fo#s that re"uire
parts, the average is A, #ut the more conservative position has #een taken here for
illustrative purposes.
+f the chance of any one part #eing in stock is -.P, the chance of all three parts
re"uired #eing in stock is -.P $ -.P $ -.P. This amounts to -*,.
The chance of a Fo# #eing completed on time is taken as -BP. 1The view of volume
dealers was that only QP of Fo#s were not completed on time.4
This reduces the chance of the consumers e$pectations #eing fulfilled to +/, 1QBP $
-BP4.
The chance of a Fo# #eing completed correctl0 is taken as -@P. 1The view of dealers
was that only 3P of service and repair Fo# customers returned to the dealership.4
This gives a Service "ulfilment 'nde( of +*, 1C3P $ -@P4
+t is the principle of the +nde$ rather than the a#solute accuracy of the figures that is
important. +t illustrates clearly the e$tent to which consumers are #eing inconvenienced
or dissatisfied at the moment and why ),ervice Level* as a measure of the performance
of parts supply systems is misleading.
+t is accepted that many of the fast'moving parts may have much higher first'time
pick rates and therefore the likelihood of picking the re"uired #asket of parts for more
straightforward Fo#s will #e much higher. However, the research team did not come
across any franchise that measured the variation in first'time pick for the different
movement rates of parts.
,o from this analysis, we can see that unsatisfied customers are of the order of BQ
per cent. esearch on customers re"uiring repeat repairs indicates a figure of @- per
cent. The difference #etween the two may #e e$plained as follows&
some customers may wait 1after the promised or e$pected time4 for their repairs to #e
completed.
some customers may #e offered a courtesy car and may not perceive that they have
had to )return* for repeat repairs, while
other customers may never return to the dealership and have their remedial work
done elsewhere.
!learly, there are many pro#lems of definition in this area, #ut the principles are evident
and the industry needs to provide itself with a tool to measure true customer satisfaction
for the after'sales process.
This measurement inde$ is analogous to the Lean Production method of measuring
6verall E"uipment Effectiveness, which takes into account machine downtime and
"uality etc.
,ED+!E /8L/+L?E5T +57EO /8T8E, LEA5 ,TATE
+n order to improve the ,ervice /ulfilment +nde$ it is necessary to improve&
2. the logistics of supplying the correct parts to the workshop, and
@. the workshop time and skillRe$perience scheduling.
The former can #e improved #y changing the !ontrol, !entrali9ation 1of ordering4 Time and
,tructure elements of the Parts ,upply ,ystem 10iff et al., 2--Q4 ;A<% ,imons and 0iff, 2--3 ;L<4.
The latter can #e improved #y significantly increasing the pre-diagnosis of the Fo#s coming
into the workshop. This is done #y contacting consumers in advance and ensuring that, in so far
as is possi#le, the work re"uired is understood in order that the correct parts are delivered #y the
system in advance and made availa#le so that the Fo# can #e completed #y the time the consumer
e$pects.
8sing this method, the num#er of une$pected parts shortages will #e minimi9ed, #ut even
with a high level of pre'diagnosis, in a few cases it will not #e possi#le to have full0 diagnosed
the re"uirements of Fo#. +n such circumstances, the revised, leaner structure of the supply chain
will #e a#le to deliver the vast maFority of the parts re"uired within the day from a local
distri#ution center where a much larger range of parts 1say @L,... lines covering over -L per cent
of all needs4 will #e availa#le.
8sing the computer simulation model developed #y ,imons as part of this research
programme, it is possi#le to simulate the ,ervice /ulfilment +nde$ of a Lean parts supply system
in which pre'diagnosis of Fo#s plays a maFor role.
The results of the simulation are shown in Ta#le B.
$a%le * ,ervice /ulfilment +nde$ fugure
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
!hance of part #eing in stock -3P
5o. of parts re"uired *
/irst time pick of parts #asket -AP
!hance of Fo# completed on time 1where all parts availa#le4 -CP
,u#'total -.P
!hance of these Fo#s #eing done right -AP
Service "ulfilment 'nde( /1,
IIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIIII
!65!L8,+65,
The current after'sales activity within franchised car dealers is clearly unsatisfactory in
terms of customer satisfaction performance. The current measures of system
performance do not measure what is important to the customer. +t raises the "uestion&
how many other systems are not truly measuring what is important to customers in terms
of Euality, !ost and 7elivery, yet are continuing to use inappropriate measuresS 8sing a
,ervice /ulfilment +nde$ at every dealer for every customer would allow improvement
activity to #e targeted much more accurately than at present. Although dealers could
institute #etter pre'diagnosis activities and ,/+ measurement immediately, it is
incum#ent on the manufacturer to institute improvements to the Parts ,upply ,ystem to
make it leaner.
A!056(LE7>E?E5T,
The authors e$press their acknowledgements and thanks to Professor 7an :ones of
LE! for his conceptual input into this research and his advice and encouragement.
E/EE5!E,
124 (omack, :. and :ones, 7. 12--C4, Lean Thinking How to =anish (aste and !reate (ealth
in Jour !orporation, 5ew Jork& ,imon T ,chuster.
1@4 eicheld, /./. and ,asser, (.E. 12--.4, Uero 7efections& Euality !omes to ,ervices,
Harvard =usiness eview, ,ept'6ct.
1B4 0iff, :.,. and !hieu$, T. 12--34, The +mpact of Technology, Euality and elia#ility on
After',ales 6perations, +nternational !ar 7istri#ution Programme esearch eport. :une
2--3.
1A4 0iff, :.,., !hieu$, T. and ,imons, 7. 12--34, Parts ,upply ,ystems in the /ranchise After'
?arket in /rance, >ermany, +taly, 8.0., +nternational !ar 7istri#ution Programme esearch
eport QR-3.
1L4 ,imons, 7. and 0iff, :.,. 12--34, Automotive After',ales 7istri#ution Analysed (ithin a
!onceptual /ramework /or ,upply !hain +mprovement, Proceedings of the @
nd
Annual
Logistics esearch 5etwork !onference, !ranfield 8niversity.