Repair Pal for Repair Costing


Transparency Improved by Repair Pal

On many occasions in this blog we have have decried the lack of transparency in service parts and service repair operations. Recently we found an interesting web site which addresses this for the automotive repair market. It is called Repair Pal. It provides both repair costing – estimation, as well as repair locations that can provide the intended service.

We performed a search for our Honda Accord for a repair we had performed several years ago. This is what the report looks like.


As you can see, it differentiates between dealers and independent shops, with the dealers being more expensive. It also breaks down the labor vs. part cost.

After receiving a “quote” one can look towards the right side of the screen where possible locations are listed to have the work done.


All we can say is, what a great service. We think this is Repair Pal is the first place to check before getting any repair done. Try it out for yourself at the link below.

http://www.repairpal.com Further Capabilities Repair pal allows you to search specifically for the service you need. It also provides a range. We recently needed to find timing belt replacement for our Honda. You can perform a search…


..or you can select.


Advice

RepairPal also provides advice as to when to perform repairs. Our car is 12 years old, yet it does not have enough miles to justify a timing belt replacement. However, RepairPal recommends the belt be replaced every 6 years, which is a great insight and shows that we are completely due for a replacement.


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The Saturn Service Parts System

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In the article Why Auto Service Parts Networks are a Mess…

http://www.scmfocus.com/servicepartsplanning/2009/05/16/auto-service-part-networks-are-a-mess/

I describe why automotive service parts networks are in such a terrible state. However, I was recently forwarded an article that described one service part network that appeared to be functional. It is with an auto company that was willing to try new ways of business, something that many other auto manufacturers and dealers have not been willing to do. As described in the article at Knowledge at Wharton..

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2366

GM dealers have always had to compete not just with other brands like Ford or Toyota, but also with one another. The competition created a boiler-room environment of price-haggling, which turned off many customers but thrilled others. Saturn, on the other hand, had a “no haggling” policy that it backed up with what may have been its most significant innovation: exclusive market areas for dealers. “That was the huge difference,” says Lokey. In a Saturn store, the sticker price was the final price. And Saturn retailers could confidently adhere to the policy because they knew the customer wasn’t going to find the same new car for $100 less a few blocks or miles away. The exclusive market areas combined with the efficient parts supply chain also allowed Saturn dealers to pay the same price for repair parts. Other GM dealers had to compete with one another to keep their supply bins full, and they often had to buy parts from their rivals. At Saturn, the bins were almost always stocked thanks to a computerized system that automatically sent orders to a distribution center. What this indicates is that beyond creating a multi-echelon system (where stocking decisions are shared using true multi-echelon software) a number of other factors such as how dealers are placed into competition with one another is also important. However, the system relied upon inventory pooling between dealers and the automotive company regional warehouse. This lead to a service part turn-over of on average more than 7 times year (which is quite high for service parts).

The design of the system is explained below from the article in the Sloan Management Review

Saturn’s Supply Chain Innovation: High Value in After Sales Service

Retailers review Saturn target level recommendations at the end of each day, then Saturn automatically replenishes to the agreed on target level. Replenishment orders are received at the central distribution center and are shipped out according to the delivery schedule, leading to a three a shorter response time if the ordered part is in stock at the DC. Otherwise the part is either put on back order or sourced from the production inventory stock. Note that a pull system such as Saturn’s is based on target levels. Using one for one replenishment means that Saturn does not position inventory in advance based upon forecast consumption. The shipped part also is replaced automatically within 3 days (assuming availability at the DC). Saturn essentially tells retailers what to stock. If a part does not sell after nine months, Saturn takes it back and repays the retailer. Each retailer (dealer) inventory system is linked directly to Saturn management system. What is happening here is what few automotive companies use, a centralized service parts planning system. However as described by this article from Sloan Management. Although central inventory resources can be shared, companies often make planning decisions for retail locations independently, looking at forecasts of local demand and lead times from the central depot orsuppliers. Unfortunately, this parts system, which was recommended by Morris Cohen and Hau Lee, is at risk as Saturn is looking for a buyer, and their possible arrangement with Penske has fallen through.

Saturn owners will now be serviced by GM dealerships, which is definitely not what Saturn owners bargained for when they purchased a Saturn. They will now have to work with a considerably lower capability service network. It unfortunate because the Saturn system, if it persisted, could be extensively studied and perhaps copied. Currently, this is not very much written on the Saturn system, and if Saturn dies or dissipates, there will be less opportunity to gain insight into what they did that made them so different.

Postscript:

After this article was written Saturn did in fact go out of business. It is unfortunate that one of the best service parts systems went away with Saturn ceasing to exist. It does not appear as if GM took any of the key learnings from the work described above, as GM still scores poorly in service parts management. Saturn is now only an aftermarket business which will continue until Saturn cars fall out of use.

References

http://knowledge.wharton.upenn.edu/article.cfm?articleid=2366 http://sloanreview.mit.edu/the-magazine/articles/2000/summer/4147/saturns-supplychain-innovation-high-value-in-aftersales-service/


Service Parts Management by Halliburton in Iraq Beyond Belief

IOS

A License to Steal

The story behind Halliburton is well known and has been documented in many articles, books and movies as a company that constantly defrauds the US government. The behavior of Halliburton regarding service management and planning, as documented in the move Iraq for Sale, in Iraq is absolutely shocking.

[tube]6cJlJudDtVE[/tube]

This movie shows Halliburton and KBR deliberately not repairing items in order to charge the government for purchasing new items. This is because of how the contract with the government is structured. It is “cost-plus,” and therefore, Halliburton and KBR have every incentive to increase the cost, as their profits increase in a linear fashion. Secondly, neither Halliburton nor KBR appear to have any business ethics, and therefore, they are doing what they can to increase the costs as much as possible. There are many examples of this, but one that really resonates is the fact that Halliburton will have semi-tractor trucks that break down on the side of the road in Iraq because they either do not change the oil, or check the tires, or even order or stock spare tires. When this happens, Halliburton simply sets fire to the truck, destroying them (so the insurgents can’t use it.) They then charge the government for a new truck, plus their cost-plus margin. They are motivated to not repair even the most expensive items because they make more money this way.

That Halliburton is simply destroying large capital equipment items is amazing, but it is supported by multiple sources. Another form of fraud is related to how equipment is leased, but that gets into a divergent area of malfeasance, and I want to keep this article focused on service topics.

Service Parts and Maintenance: Making the Effort in Service

Organizations and service parts management are in a poor state in the US. The official explanation for this is the philosophy of neglect. The standard The line of reasoning goes something like this:

“Companies want to improve in service parts planning because its good for their customers, the only issue is an issue of education.”

For some time, we personally believed this. However, the Halliburton example demonstrates this is not always the case, and not the only explanation. Other examples of service incapability are stretching the credibility of the lack of education argument.

The Math of Destruction

If Halliburton can charge the government $90,000 + its cost-plus contract for a new truck, they would rather do that then charge the government for a new tire plus the margin. When will this change? No time soon. The Pentagon is now highly dependent upon Halliburton and KBR for all types of essential functions. Secondly, Halliburton continues to contribute mighty to the political process and have hired a number of influential ex-Pentagon officials, that mean Halliburton will continue to get contracts into the foreseeable future no matter what they do and how much fraud they commit, they have a blank check to rip of the government.

Incentives

This is an example of two companies that operate in this manner. However, there are more. The assumption that every company cares about service parts needs to questioned in light of their institutional incentives. If a company can make more forcing a customer to buy a new product, they may prefer this over servicing an old item. Automotive repair shops are known to replace parts that are not necessary to replace. If service management is to be understood then its underlying assumptions must be questioned. It also helps determine what companies and areas to focus upon. For instance, if I were a consulting or service software company I would not bother offering consulting or software services to Halliburton in Iraq. Lets just say, they prefer to buy new….or in fact for the taxpayer to buy new. The whole movie may be seen here. It’s a few years old now, but not much has changed, so it is still quite valid.

http://video.google.com/videoplay?docid=-6621486727392146155

References

http://www.publicintegrity.org/projects/entry/297/bio.aspx

Why OEMs Should Stop Controlling Service

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The desire to control is not an attractive feature in individuals or companies. Too many OEMs follow a control model for their service parts and maintenance information which is anti-market, and it should be understood and opposed.

A Trend Observed

It has come to our attention after reviewing several of our previous articles that the less control OEMs (original equipment manufacturers = companies like Ford, Apple, Cisco, etc..) and service organizations have, the better it is for consumers.

Automotive Service Restrictions to Competition

In our article, Why Automotive Parts Networks Area a Mess, I cover how automotive dealers are retarding the development of service parts businesses through their monopoly over many “dealer only parts.” These parts are not even made by the manufacturers, but instead by the manufacturer’s supplier base (on average 70% of a car is not made by the name on the car). The only reason this situation exists is because OEMs compel parts manufacturers to sign exclusive contracts with the OEM that restricts the selling of parts to the OEM or to the dealer network. This is bad for consumers in a couple of different ways.

  • Dealers lack the competence or interest to create service part websites, and thus most dealer parts cannot be purchased online in any way.
  • Consumers have to pay a significant premium for their parts because of the control exerted by dealers and their antiquated supply chain and inventory systems.

Unprincipled Tying Agreements

There is something ethically wrong with these type of agreements. If a company is not making an item, its hard to see how they have the right to determine how that item is sold and distributed. Not only is the item not made by the OEM, but the technical knowledge and intellectual property is not theirs either, that also resides with the parts supplier. There are laws in the US against what is referred to as “tying agreements.” It is typically applied to an OEM pressuring a retailer to sell one of the OEM’s new or less popular items in exchange for gaining access to the right to sell another more established item. I don’t see why the tying arrangement law could not be applied by the Federal Trade Commission to break up exclusive OEM distribution arrangements with their parts suppliers.

Wouldn’t This Be Anti-Market?

This is a very common concern brought up people when exposed to this idea. There is a severe misunderstanding generally about what makes an dynamic and innovative economy…and it have very little to do with moving interest rates around or bailing out Wells Fargo. It has much more to do with structuring the rules of the economy so they provide the right incentives to business to operate openly and transparently. If we really want the dynamic and innovative economy, that according to the business publications we say we want, then we need to collectively show some backbone and begin standing against uncompetitive and regressive legal contracts that enrich non-value added actors at the expense of consumers and market efficiency. There are already all types of laws on the books that break up trusts and uncompetitive, anti-consumer activities. It’s time to start using them again.

Video Repair Guides and Information Exchange

In our article, Using Online Videos for Service and Repair, I discuss how, in the case of repair guides and repair information, OEMs have historically restricted information to users, and how it is the user community that is actually doing the OEM’s work for them by making repair videos available on YouTube.

OEMs have done remarkably little innovating, and placed little effort towards creating quality instructional material for the servicing of their items. Their manuals are belabored, sleep inducing to read and unnecessarily expensive to produce compared to the benefit obtained by consumers. OEMs may find this topic incidental or a non-issue but it is wasting a lot of consumer time. If a regulatory body appeared and placed a label which listed the average number of hours required to assemble or repair items right on product packaging, OEMs would start taking this issue of repair information a lot more seriously. Again, many would call this an unnecessary restriction of the market. However, they would be basing this on a flawed understanding of what makes an efficient market. A market cannot develop without information. Here is an example.

Market Information Example

Lets say a consumer is looking at two items in a store. They have identical features and both from reputable manufacturers, but one is $15 less. It would make economic sense for the consumer to buy the lower cost item correct? Not necessarily. What if the lower priced item, because of a bad manual or bad design takes an hour longer to assemble, and 2 more hours to maintain over the life of the item. Furthermore let us say the consumer values his time at $20 per hour. In this example, the buyer would be in actuality paying $45 more by buying the less expensive item ($15 – (3 x $ 20 / hour) = $45. However, if the consumer is not made aware of this information, they will not be able to make a rational choice. Thus the current information model – which is no information about long term service costs promotes manufacturers to complete on price, to not invest in designing effective instructional material and to make less serviceable items. This results in a less efficient market.


The Place of Regulation in Maintaining Markets

This misunderstood feature is primarily because it has been heavily lobbied against by business through extensive public relations campaigns and influencing educational curriculum and economics research with money. An efficient market requires regulation, just as a fair football game requires officiating. If anyone doubts this, simply try a little test. For one week in the NFL, have all the games played with no officiating, and see what happens to the quality of the game. Thus, regulations that increase transparency and information enhance the market, not the other way around.

*This is the nice thing about blogging, if I worked at a university, I would probably get a lot of pressure from corporate donors for writing this, and our head of department would be angry at us for reducing the department’s fund raising opportunities. (businesses only fund business friendly research) However, since I do not report to any institution, I can present what is well known, but which is career limiting in academics to discuss or publish.


Dumping Manuals

The ineffectiveness of manuals is well researched. The vast majority of users never read them. They also lack effectiveness because, unlike a video, they cannot show the manipulation of items in a 3 dimensional space. Several YouTube videos for each product could probably replace most of the instruction manuals for products that are sold. More complex products would require more videos, which is fine. They are cheap to produce and take less skill to produce than written manuals. To write a good manual, one has to be a good writer in addition to reproducing technical knowledge. However, to make a good instructional video one only needs to know very basic video filming, and simply perform the activity on camera. Videos can show an entire assembly and dis-assembly of an item, providing maximum reproducibility.

Unapproved Uses

Service organization and OEMs are losing control over the information of their products. While they controlled this information in the past, this information was never theirs to begin with. In a free society, anyone can publish whatever they like about whatever product or service they use. History shows that users will come up with many shortcuts and extra uses that OEMs never thought of. In a way, this is similar to the benefits of open source software.

While threats like “voiding warranties” have been used to limit the user’s customization of products, a person has a right to do whatever they like to products that they buy. Users are posting videos for doing unapproved things (such as replacing iMac hard drives) to their items. What has changed is that users now have the distribution mechanism – YouTube specifically, but the web more generally, to provide their own content. Much of this content is of very good quality, and this demonstrates that content like this is not that difficult to produce, and of great benefit to users.

Conclusion

The trend here is clear, the less control OEMs have over the servicing of their items, the better that market will be for consumers and the more dynamic the overall market will be generally. OEMs seem to have little interest in investing in innovation, IT or service generally, so it makes sense to open them up and allow user communities to do the work they don’t want to do, so they can just work on new product design and marketing.

Forward looking OEMs will embrace this and even support the growth of online user communities on their websites. These developments can be incorporated into their own service organizations.

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Reference

After researching this area, I found it goes back further than I thought. This excerpt is from the book The Waster Makers published way back in 1960. Manufacturers often failed to provide in provide information that would facilitate repairs. Recently The Boston Globe protested that appliance manufacturers were getting so “cozy” with service manuals that customers seeking them got the impression they were “censored as if they contained obscene material.” The Electric Appliance Service News likewise expressed indignation on behalf of servicemen, or at least independent servicemen. It said, “Our mail is loaded with gripes daily from servicemen throughout the country lamenting their inability to obtain service manuals from certain manufacturers.” Often this coziness has sprung from the desire of the manufacturer to keep the repair business to itself and out f the hands of independents. The News charged that “some manufacturers do not make service manuals available to all independent repairmen and therefore it is almost impossible to make repairs easily and properly—and at a time-saving expense.


Items Becoming Less Serviceable


A Story of Un-Serviceability and the iMac

There is not much I own that I like better than our 24 inch iMac, but my sudden understanding of its basic un-serviceability has been a real disappointment. iMacs are not the only things getting less serviceable.

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What You Learn When Your iMac Goes Down

We recently had the hard drive in our iMac go out.

Drive Reliability

See this link for a very interesting article on drive reliability

http://www.pcworld.com/article/129558/studyharddrivefailureratesmuchhigherthanmakers_estimate.html

This article reinforces what we have experienced first hand — the MTBF numbers produced by drive manufacturers are false. Carnegie Mellon’s lack of differentiation among vendors in this study indicates their research was likely polluted by vendor pressure and or contributions.

What we learned is that iMacs are not designed to be serviced by users. The design of the iMac looks great, but has a very strange assembly that makes it even more difficult to work on than a laptop. The iMac has not screws or other fasteners on the case (except on the bottom for memory replacement). A hard drive is a major sub-component in a computer and tends to be one of the more problematic. It is something that not only should be designed to be easily replaced but should be designed to be swappable. As with media like CDs, there is no reason a door could not be added to any computer, and different hard drives could be added and removed to give the user maximum flexibility in booting to different drives. With a spare drive, this would mean that no computer could be brought down due to drive failure.

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“Swappable” drives have been used in servers for some time, and are now available for home disk centers (which allow for RAID configurations) such as the Acer model above.

However, while no personal computer actually makes it as easy as we think it should be, Apple has designed a case with no entry through the back, so the user or service technician must actually pull off the glass cover with a suction cup and remove the display (delicately) to expose display. Next the display must be removed to reveal the hard drive. Several specialized tools are required for the task. Waiting for tools to arrive from eBay, as well as the Apple Store’s $420 quote for the work, is why our iMac is sitting unused at the time of the writing of this article.

Long Term Trend

This is part of a long-term trend in consumer items to hide the fasteners in order to increase the “coolness factor.” This trend extends to a number of different categories. If one looks back to the cars of the 1930s, one can see that they were more modular, and the rivets, pins, screws and other fasteners were more apparent. What this meant was that cars were more serviceable.

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The Bentley Speed Six was a very serviceable car. The engine was easy to get to, the fenders were easily replaceable, and the exposed fasteners allowed the replacement of many parts by shade tree mechanics.

By the 1950s, almost all cars had moved to integrate the trunk and fenders into the body, and fasteners were no longer observable from the outside. This resulted in a smoother look, but also in a more complicated design and more expensive automobile to work on.

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The 1950s Cadillac Series 62 was representative of cars from this era, in that it had an integrated body and hidden fasteners. Bodywork on this type of car is more time-consuming and expensive and must be done by professionals. However, since then, cars have become far more complex and as a result less serviceable still.

Serviceability Trend

The long-term is to decrease the serviceability in items. While this may be good for company profits, it is actually bad for consumer and bad for the environment. The more difficult and expensive it is for items to be repaired, the more quickly they are simply replaced by new items. The problem is that companies do not seem to have an incentive to build long-lasting and easily serviced items. The finance area of the company seems to think it reduces sales of new items (which it does), and new product design and marketing seem to think it reduces the “coolness” factor of products. Marketing and finance have come to dominate US corporations, so it is no surprise that their values have become the values of American business. This is not going unnoticed. According to industrial designer Victor J. Papanek, the following holds.

That while American products once set industrial standards for quality, consumers of other nations now avoid them due to shoddy American workmanship, quick obsolescense and poor value.

Historical View

There is this common impression which is reinforced by advertising that this year’s model is better than last year’s, and that in general we are on a continual upward slope. This is not actually the case. There are many business practices and products that were “better” – better for the consumer and better for the environment — in the past. In addition to serviceability, many products were simply designed to last longer half a century ago. As an example, there is a lively market for classic toasters from the 1950s on eBay. These 50+ year old toaster still work, because they were built to last. The concept of a 50+ year old item is unheard of today.

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This 1950s SubBeam is still working, and adjusted for inflation, is probably selling for more on eBay than it did back when it was purchased in a store in the 1950s. Why can’t more items be built to last and be built to be serviceable?

Noticing Changes

I suppose the question to ask is what has changed? How did American business go from offering many durable and serviceable products to offering products designed to be thrown away? Secondly, how did both American and international consumers become habituated to this new consumption pattern? Thirdly, does anyone think that this trend can actually be reversed by “the market?” Actually, it would appear that on broader goals such as environmentalism (which the life-span of products are a contributing factor towards) that the market will drive product development in the opposite direction, towards planned obsolecense. People generally need to have a better understanding of the relationship between product service-ability and sustainability. It is difficult to see companies making a focus of product service-ability without more pressure from consumers. However, consumers have become so habituated to disposable products, that most don’t know where to begin to ask for this level of build quality.

References

One question I have is if purchasing specialized drives, such as surveillance drives — which are designed for high usage video applications are more reliable than normal consumer drives. Seagate makes a very price attractive model.

http://www.provantage.com/seagate-st3320410sv~7SEGS1UN.htm

This is an interesting article on planned obsolecense in hard drives. We quote from it below.

http://www.driveservice.com/bestwrst.htm

For a long time, I was a big supporter of IBM drives and recommended them at every turn, but now not so. They too have had enormous numbers of drives returned to them recently, and I am sure that is what spawned the Hitachi buyout. I have noticed over the last couple of years that manufacturers have stopped putting little mini in-line fuses on the electronics of the drives. I often asked myself why they were doing this, as the fuses could not cost 1/2 cent each. I have since found out! This is a little known fact that is not limited to hard drives alone unfortunately, but also incorporated into cars, electronics of all sorts, and everyday things that we the consumer use. This little known fact is called “built-in obsolescence”! This is a very little discussed problem in today’s society, but we all face it at some point or another.

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The is an excellent excerpt on this exact point in the book Waster Makers, published back in 1960. We have copied it below. This relates to deliberate changes that made items less serviceable.

Excerpt:

Beyond all these factors of quality debasement and by repairmen there were several objective factors about modern appliances that helped make them expensive to maintain and that helped increase the business volume of servicing agencies or replacement-parts manufacturers, and, in some cases, the manufacturers hoping to sell new replacement units. There were more things to go wrong. Those added luxury accessories that so delight copy writers were adding to the problems of products to break down. The rush to add extras on washing-machines in the form of cycle control, additive injectors, increased the number of things that can develop ailments. The Wall Street Journal wrote: “Parts and accessory dealers naturally are pleased with the added extras put on new cars.” They should be. I have two neighbors who bought station wagons in 1958. One bought a model with power steering, power brakes, automatic shifting, and power windows. The other—a curmudgeon type who doesn’t think that shifting gears and raising windows by hand are too much of a strain—bought a car without any of the extras. His years of ownership of the car have been relatively trouble-free. (And by spurring the extras he saved several hundred dollars at the outset.) The other neighbor who bought the car with all the extras moans that he got a “lemon.” His car, he states, has been laid up at the garage seven times, usually because of malfunctioning of the optional equipment. Replacement parts were costing more. The gizmoed motorcar was a good case in point. A creased fender that in earlier years could be straightened for a few dollars was now, with integral paneling” and high-styled sculpturing, likely to cost I $100 to correct. The wrap-around windshield was likely to last three to five times as much to replace as the unbent/ windshields that motorcars had before the fifties. Ailing parts were increasingly inaccessible. In their pre occupation with gadgetry and production short cuts, and perhaps obsolescence creation—manufacturers often gave little thought to the problem of repairing their products (or alternatively made them hard to repair.) Sales Management dominated and demanded that“products are not designed for service.”It was of steam iron that could be repaired only by breaking it apart and taking out the screws. Some toasters were riveted together such that a repairman had to spend nearly an hour just getting to the right part. This is to replace a fifteen-cent or a ten-cent spring. Product analysts at Consumers Union told me that air-conditioning units in automobiles were often cluttering up the engine compartment so badly that it took an hour or two to remove a rear spark plug. Built-in appliances—which were being hailed as the wave of the future had to be disengaged from the wall before repair work could begin. Many of these built-ins were simply standard.

Facilitating Repairs

Manufacturers often failed to provide in provide information that would facilitate repairs. Recently The Boston Globe protested that appliance manufacturers were getting so “cozy” with service manuals that customers seeking them got the impression they were “censored as if they contained obscene material.” The Electric Appliance Service News likewise expressed indignation on behalf of servicemen, or at least independent servicemen. It said, “Our mail is loaded with gripes daily from servicemen throughout the country lamenting their inability to obtain service manuals from certain manufacturers.” Often this coziness has sprung from the desire of the manufacturer to keep the repair business to itself and out f the hands of independents. The News charged that “some manufacturers do not make service manuals available to all independent repairmen and therefore it is almost impossible to make repairs easily and properly—and at a time-saving expense.

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This exerpt is from the book The Break Through Illusion and is related ho how R&D was changed to be less integrated and more specialized, and how service-ability as well as manufacturability were reduced.

R&D was also separated from other corporate activities such as product development and manufacturing. In 1925 Bell Labs was organizationally separated from Western Electric “to permit more effective specialization in research and development. “R&D now became the first step in a specialized assembly-line process of innovation. According to the historian George Wise: “At subsequent workstations long that assembly line, operations labeled applied research, invention, development, engineering, and marketing transform that scientific idea into an innovation.”

As this process moved along, projects and products would simply passed over the transom from R&D to product development, from product development to pilot production, and from pilot production to manufacturing Once a project was handed on, the receiving group vas confronted with a fait accompli, their freedom of operation constrained by earlier decisions. For example, engineers working on the body of a car might design it in such a way as to make proper placement of the engine and steering difficult. The engineers assigned to steering and motor development would then change the design based on their needs. By the end of this process would be expensive and difficult to manufacture. Typically, this yielded results that were expensive and frequently of low quality, for example, the Ford Pinto and the Chevrolet Vega, cars that were designed as lemons.“

Conclusion

The consequences of all this were both profound and disastrous. The connections between R&D and production were irrevocably severed. New ideas and inventions were stranded in a “twilight zone” between R&D and production. American industry went from a system in which innovation and production were closely linked to one in which it became increasingly difficult to produce the research labs’ developments economically. Some companies, like DuPont, responded to the growing gulf between the R&D and manufacturing by creating internal “venture” divisions designed to turn promising R&D into new products or in cases into new businesses. But few of these new venture visions proved successful. For example, none of DuPont’s major new internal ventures or spin-off companies amounted to much. The reason for this was basic: new venture divisions simply added another intermediate level to an already overblown and unwieldy R&D bureaucracy. Here again; large corporations showed that they were oblivious to the need for more fundamental kinds of restructuring.

Post-Script

It’s interesting how little changes. The article below describes how Apple decided to use glass on the back of the iPhone 4 in a decision prioritizes style over durability. I don’t know how many people care about the back of their phones, but I would venture to guess not much. Glass has no other property that you would want to put in the palm in that it is not a good insulator (so the heat will come through the back of the phone), and it is a low friction surface, meaning the phone will be more prone to slip out of one’s hand.


Another case of Apple choosing style over durability.

http://theappleblog.com/2010/06/30/the-iphone-4-missteps/

On a second very popular Apple product, much was written about how much better the iPad 2 was than the iPad 1. People were amazed by how thin it was and how it now had tapered edges which felt great in the hand. However, little was written about how this would affect serviceability. It turns out quite negatively. ZDNet disassembled the iPad and essentially recommended that users never try to open the iPad 2. They gave the product a serviceability score of 4 out of 10. In addition to reduced serviceability, the durability of the iPad 2 was reduced over the iPad 1, with a much greater likelihood of the glass cracking than in the iPad 1. If publications continue to lightly cover aspects of durability and serviceability, companies like Apple will have the incentive to continue to not emphasize these aspects in their design.

http://www.zdnet.com/blog/hardware/ipad-2-the-teardown/11846


Automotive Subassembly Outsourcing and Who Really Made Your Car

Automotive

New Information

In a previous post we wrote about the inefficiency of automotive service parts networks.

http://www.scmfocus.com/servicepartsplanning/2009/05/15/auto-service-part-networks-are-a-mess/

The line of reasoning of the article was that manufacturers were unnecessarily outsourcing the management of service parts too low in the supply chain – at the dealer level and the auto service parts could be greatly improved in their management through a national and regional system of service parts management. Furthermore, that dealers were incapable of creating effective service parts websites and that this function should be centralized as well.

Structure of Auto Industry

What we learned from the book Who Really Made Your Car, by Thomas H Klier and James Rubenstein, is the following:

  • 70% of the parts of automobiles are made by suppliers
  • Manufacturers are actually now primarily assemblers
  • Much of the intellectual property and complex component manufacturing is owned and provided by the supplier / component manufacturers

Who

Suppliers Actually “Make” the Car

Suppliers are producing most of the car and providing many different manufacturers with similar items. This is explained in the graphic below which provides a great insight into the many different places that the car’s major components are coming from. The sourcing pattern seems identical to, although far more complex than that of laptop manufacturers. (although laptop manufacturing is even more outsourced, with contract manufacturers producing HP and a number of other major brands out of the same factory and sometimes the same production line.

Camery

From Automotive Weekly

We took the example of one vendor called Dura. A visit to their website demonstrates that they make numerous automotive components, which they sell to many different manufacturers.

Dura

Dura’s Part Distribution Model

Dura does not sell parts directly to retail customers, but they do to dealers and independent shops. (however, dealers do have a stranglehold on the industry, and many parts are carried only by dealers) This is one of a number of areas where business are opposed to “free markets,” and instead select tying agreements and monopolistic competition.

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eBay

Why Doesn’t eBay Own the Auto Aftermarket?

eBay is the largest service parts database in the world. However, for some reason, eBay is not prominent in automotive service parts. The fact that automotive service parts are expensive, yet only a modest service part market has developed on eBay is an indication that there are significant restrictions to who can get access to parts, and that there are in all likely strong restrictions on part suppliers, as part of their agreements with manufacturers as to who they may sell parts to in the aftermarket. No such restriction exists for computer components, where anything can be found and purchased on eBay.

eBay

Even the most esoteric service parts for computers are available at low cost on eBay. For more on eBay and their success in service parts see the link below.

http://www.scmfocus.com/servicepartsplanning/2007/07/22/parts-databases-and-ebay/

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What This Means For Service Parts Network Design

What this means is that the dealer system for distribution is even less efficient then we originally thought. People are going to dealers to get parts they think are made by manufacturers (Honda, Toyota, etc.), that are actually made by suppliers. All of these middlemen could be eliminated from the system and actually should be. These suppliers are the creators of these components and they should not be controlled by manufacturers, much less have to go through dealers – so dealers or independent repair shops can add an extra markup with no value add – to service parts.

References

Who Really Made Your Car,Thomas H Klier and James Rubenstein, W. E. Upj0hn Institute, 2008

Why Service Parts are Good for the Environment

ServicePartsforTheEnvironment.jpg

Where Are Service Parts in the Environmental Discussion?

Not sufficiently discussed is why service parts effectiveness is good for the environment. The same family that dutifully recycles, may also be the same family that trades in a car after 3 years for a newer model. Many electronics items are designed never to be serviced, or to be very difficult or expensive to service. One example of a popular consumer item that could be easily improved is iPods and iPhones, both of which lack a replaceable battery. This combined with a replacement program where the iPods must be shipped to Apple or independent service shop, encourages people to simply go and buy new devices.

iphone.png 



Apple has some of the best consumer electronics engineers on the planet. So why can’t they standardize around easily replaceable batteries for the very popular iPhones and iPods? Currently these models must be sent in and it costs between $25 to $60 to have the battery replaced. The consumer will of course compare this with the cost of a new iPod, which has more features. iPods and iPhones are small compared to cars, so cars and houses are a better place to start in terms of improving serviceability, however, Apple is used here as an example of a lack of service priority by a company that could easily make a difference.

Things Are Changing

The US in many ways created and leads the world in the disposable culture concept, and we are responsible for both tremendous waste, in addition to exporting this wasteful concept to other countries through both our example and our international marketing programs that promote “the good life.” However, this concept has run into the limits of environmental constraints and throwing away will have to be replaced by both recycling and keeping things longer. There are two ways to keep things longer before they even leave the factory:

  1. Build items to last
  2. Build items to be serviced

Both of these concepts run head first into the influence of marketing, which is focused on selling more units and sees design for serviceability to be both a waste of resources as well as a possible deterrent to future sales (i.e. planned obsolescence)

Improved Service In Addition to Improved Serviceability

Many things could be done to make items last longer, as there are many things that could be done to decrease the cost of servicing (including improving the availability and ease of accessing service parts). Many of these opportunities are being completely wasted because business places service parts and sustainability very low on its priority totem pole. In the case of automotive parts, subservience to an anachronistic dealer system has thoroughly undermined a more logical approach to service parts networks. See this post on how wasteful and badly the US automotive part system is managed.

http://www.scmfocus.com/servicepartsplanning/2009/05/15/auto-service-part-networks-are-a-mess/

The movie Yank Tanks is a documentary on how, due to the US embargo of Cuba, the Cubans were required to keep their stock of 1950 and 1960 American cars operating with no service parts except those which they fabricated themselves.

yank-tanks.jpg 



Not originally intended to be a movie about service parts and service management, there are actually important lessons about these topics as well as insights on how to live in a more environmentally friendly way.

Let’s Be Cuban?

If the Cubans, who started with little domestic part manufacturing industry, and with no access to the original service parts, could keep circa 1950 and 1960 Chevrolets and Cadillacs working properly up to the present day, why can’t we extend the life of our Hondas and Toyotas a bit longer than 10-12 years? Clearly, it is not ability or opportunity, but comes down to priorities. If we understood and internalized how close we are to maxing out non-renewable resources we would re-arrange our priorities, focus less on style and status and more on sustainability.

Conclusion

Service parts and service maintenance are critical factors in reducing our environmental footprint. The longer items are manufactured to exist, the more they are designed to be serviced, and the better they are serviced, the less they have to be replaced and the less recycling (which also takes energy by the way) has to be done. The example of automobiles and iPods are only a few examples that have been used in this post but the same theme extends to everything from housing construction and servicing to a wide variety of consumer items. There is almost nothing that could not be designed to last longer and be better serviced.

Footnotes

Its understood that cars on Cuba do not get the type of miles that cars in the US do, and we are not necessarily proposing that people keep their cars for 40 years. However, the life of cars could be certainly extended from 10 to 12 years to 20 years with several adjustments that would not at all be onerous.

As a continuation of the concept serviceability and environmentalism running headfirst into marketing, it is clear that serviceability and environmentalism runs headfirst into stock price driven capitalism more generally. There has been a lot of talk about making capitalism more green. Its important not to pretend you can optimize two things that contradict each other. In the article above, increasing the serviceability of items means that fewer new units are sold per year. There is no way around that. No number of environmental commercials produced by Exxon showing spinning dolphins, and promising both growth and environmental health, will change this. It’s a question of priorities, continued growth in aggregate sales of manufactured items can only come at the cost of a greatly degraded environment, which is losing its ability to support humans at their present level of population, much less the population growth that is coming.


Automotive Dealers Mostly Useless

Money for Nothing

The degree to which dealers are “taking it easy” is evident in the latest Consumer Reports survey where despite the overwhelming advantages of being part of a dealer network, dealers on average provide a customer experience that is 7% lower than that of independent maintenance shops. However it gets a lot worse when actual repairs are needed. For those that required repairs, only 57% of customers were satisfied with dealers vs. 75% who were satisfied with independents.


The consumer reports survey is a stark condemnation of automotive dealers.

Why Do Dealers Perform So Badly?

So the natural question is why are dealers performing so badly. The traditional concept is that dealers provide better, although more expensive service, and that they provide better service because of the following:

  • They are trained by the manufacturer
  • They have information available from the manufacturer
  • They are more expensive
  • They know the cars better because they work on the same make over and over again.

Clearly the outcome (service performance) does not match the bullet points above, and in fact, a number of the bullet points above are dated. For instance, Honda stopped sending its mechanics to its own internal training program several years ago, which by most accounts was excellent, and has instead outsourced its mechanic training to a trade school in Arizona, which is nowhere near as good, and which does not specialize in Honda. Knowing little beyond basic repair, mechanics are now increasingly reliant upon Honda’s remote service technicians that are available by phone out of Honda’s Southern California main office. Honda at one time had a sterling reputation in service maintenance, and it now no longer does. If you bring your Honda into a dealer now, you can expect a technician trained by a generic trade school which was a low cost bidder to Honda.

The Monopoly Explanation

Most likely, automotive dealers are not better because they do not need to be to survive. This is the best explanation, when everything else is tilted in the dealer’s favor, and they still cannot perform in a manner competitive with companies with far fewer advantages. Of course, this does not even include the costs that dealers charge, which is widely known to be exorbitant and far more than independent stops.

Service Parts Website Incompetence

I first found how bad dealers performance was when we tried to find service parts on their website for online purchase.

See this link for the full article:

http://www.scmfocus.com/servicepartsplanning/2009/05/15/auto-service-part-networks-are-a-mess/

As I recount in the article, I had a devil of a time finding a very simple part (the right interior door handle cover to a 97 Honda Accord), and after visiting many sites for hours, I can state with confidence that dealers have no idea how to put together a service parts transaction website. Furthermore, I question the logic of having manufacturer’s outsource their parts management to dealers, when manufacturers are much more capable of doing themselves or outsourcing it to companies that actually know how to manage large service parts inventories, (Amazon.com is extremely capable of creating a service parts shopping site.) Is this a strategy designed around enhancing the customer service, or a compromise thrown out to the dealers to enhance dealer profits?

A Better Model

Additionally, since cars should be built to order items, and ordered online, out of small showrooms that just stock test models, combined with the fact that dealers can neither maintain websites nor provide service superior to independent shops, the dealers value-add to the car buying and maintenance cycle is not apparent.

honda_dealership_800x532
Dealerships typically have very nice buildings. However, aside from architectural flair, dealers are not a value added part of the purchasing or service chain. Wise automobile manufacturers of the future will offer their cars direct from their website (or from a small retail outlet with test models) – saving tremendous money in reduced inventory (not having cars sitting around on lots), and allow independent shops to flourish though both providing a top-notch service parts website (for both dealers and customers), and through offering extensive service documentation with the creation of a service parts portal which publishes and builds on maintenance information by allowing mechanics in the field to contribute to its content. (see the example of just such a portal below)

http://www.servicepartsportal.com/

The New Dealer-less Model

Any car company that were to operate under the dealer-less model, would be extremely cost competitive with the current manufacturers running the cost heavy and inefficient dealer model that have to base many of their decisions not on what is right for the customer but what makes dealer happy. In fact, they could not be effectively competed against on the basis of either cost or service parts management or overall service level.

Conclusion

Dealers appear to be cruising on their monopoly position and the fact that customers come to them without considering all of the alternatives. The evidence for this is their very poor showing in terms of customer satisfaction for repairs, and in their inability to create or maintain service parts websites. Given the technological development of the web, dealerships are no longer necessary and should be done away with. However, it is going to take a car company that brings a novel disruptive approach to the industry to make this happen. Currently, the auto industry completes on things like quality and style, however, there are numerous other aspects that can also be competed upon. One is the service supply chain, and another is a remote dealer model. A company which got these aspects right would be at a serious advantage in terms of both customer experience and costs.

References

This is actually a very good blog on automotive dealers. However, this article is symptomatic of the problem in terms of thinking about dealers.

http://wardsdealer.com/ar/autowhoopeebankrupt/

In it the author, who seems to know a good deal about dealers bemoans the closing of dealerships by the large American automotive manufacturers. However, the analysis seems misplaced. While the author is focusing on the number of lost jobs, what he is not focusing on is how little value the existing dealer structure adds to the process and to the consumer. Jobs that do not add value in an economy do not deserve to be saved (of course this applies to those with degrees from Harvard and Wharton who work on Wall Street over people that work for dealers of course). Still, why is there no mention in these articles of the atrocious behavior on the part of dealers, and how dealers perform far worse than independent repair facilities, or how their inventory heavy push model of distribution is completely archaic? For us the question is not why the current dealers being closed are being closed but rather other dealers are even in business.


Why Auto Parts Distribution is So Inefficient



Big Problems in Automotive Service Parts Networks

In our previous post we discussed the problems with how automotive service parts websites are dominated by dealers. We also discussed how this is inefficient and why these web sites should be centralized and either managed by the manufacturer, or simply outsourced to a company that has this as a focus.

http://www.scmfocus.com/servicepartsplanning/2009/05/14/auto-service-parts-websites-a-problem/

However, after further research it turns out automotive service networks have even bigger problems than this. This quote is from the HBR article called Winning in the Aftermarket:

Some years ago, when we studied the after sales network of one of America’s biggest automobile manufacturers, we found little coordination between the company’s spare parts warehouses and its dealers. Roughly 50% of consumers with problems faced unnecessary delays in getting vehicles repaired because dealers didn’t have the right parts to fix them. Although original equipment manufacturers carry, on average 10% of annual sales as spares, most don’t get the best out of those assets. People and facilities are often idle, inventory turns of just one to two times annually are common and a whopping 23% of parts become obsolete every year. – HBR

Improper Parts Planning

When consultants for service parts planning software company MCA Solutions goes into an account and uses its SPO software to perform inventory re-balancing, they often find that parts are kept too low in the supply network. This is often because fill rates are only being locally managed and local managers are attempting to move parts to where they will eventually be consumed. The problem with this is that transferring parts from a forward location to another forward location is less efficient than moving parts from the parts depot to the forward location. Secondly, there is no reason to move a part to a forward location unless there is a high probability of consumption, or unless transportation lead times are particularly long. This analysis of where parts in the field should be located goes by a number of names including multi-echelon inventory optimization, redistribution and inventory re-balancing.

See the diagram below.



See these posts for more on part redistribution.

http://www.scmfocus.com/servicepartsplanning/2008/04/23/drp-vs-multiechelon-planning/

http://www.scmfocus.com/sapplanning/2009/04/23/inventory-balancing-in-spp/

Generally, the independent dealer model continues to work against rational inventory pooling. AMR Research (now part of Gartner) does have a good point when they bring up this point in their paper Service Parts Planning and Optimization.

During the course of this research, we found SPP applications tended to be very tacticalin nature, solving specific inventory, fill rate, or service-level goals. Oftentimes service is still being viewed as a cost center, and SPP applications are not necessarily viewed as the keys to a greater world of service nirvana.
One explanation is that the buyers of SPP software tend to be planning managers ordirector-level planners who have no jurisdiction over service and repair or other areas of the SLM model. Other reasons include outsourcing, where OEMs have outsourced the service process but retain the planning aspects, or the fact that the company was never in charge of service in the first place—think of an auto OEM and the dealers that actually provide the service.

During the course of this research, we found SPP applications tended to be very tactical in nature, solving specifc inventory, fill rate, or service-level goals. Oftentimes service is still being viewed as a cost center, and SPP applications are not necessarily viewed as the keys to a greater world of service nirvana.One explanation is that the buyers of SPP software tend to be planning managers or director-level planners who have no jurisdiction over service and repair or other areas of the SLM model. Other reasons include outsourcing, where OEMs have outsourced the service process but retain the planning aspects, or the fact that the company was never in charge of service in the first place—think of an auto OEM and the dealers that actually provide the service. – AMR Research

Better Service Parts Planning Begins with Cooperative Planning

Rather than having every dealer attempt to manage its inventory, a much more rational and effective setup is for the dealers to pool their parts at a local depot and for the depot to manage the parts for them. Daily local “milk runs” would ensure part flow to the dealers, and would reduce the poor inventory turn of parts at the dealer location. A series of these depots can then be large enough to be electronically connected and to have their inventory represented in a web order fulfillment system that can better match supply and demand than can a series of disconnected dealers all trying to manage a smaller amount of inventory locally. Honda (for instance) could manage this themselves, or instead could outsource the management to a company like Amazon.com, that really knows how to produce transactional web sites and knows how to match supply and demand. This solution would be vastly superior to the current one where small dealers attempt to manage their own service parts websites (and where it took us 2 hours searching various dealer sites to find that we would have to call in to order a part)

Rick_Wagoner_GM_Looking_Sad
What is happening in the dealerships is a disinterest in making changes or becoming more flexible in order to adopt new technologies. Companies can make a lot of money in the short-term by simply living off of monopoly power. GM was the poster child for inept management, inward thinking, abusive supplier relations and unresponsiveness to customers. A good catchphrase for management consultants could be “Don’t be Like GM.” While Honda quality is much better than GM’s ever was, Honda’s dealer network with respect to their service parts management is not all that much different. In fact most manufacturers seem to employ the same inefficient system. This demonstrates the restrictive influence of the dealership system that no matter how good the car company, the dealer system remains anachronistic.

It seems often that the large American car companies have little interest in their service operations. Instead they prefer to spend their money on advertising. They have lost the battle for the aftermarket, and this reflects in their new sales, although they are unable to make the connection.

To quote again from the HBR article Winning in the Aftermarket:

In the automobile industry, for example, there’s a distinct correlation between the quality of after sales service and customer intent to repurchase. Brands like Lexus and Saturn inspire repeat purchases by providing superior service, and, consequently, they have overtaken well established rivals like Ford and Chrysler. – HBR

Conclusion

The current dealer centric automotive service distribution system is an anachronism and is probably one of the reasons that dealerships have such high costs. Instead of attempting to reduce these costs, dealers are simply passing on their inefficiency to the consumer. However, dealers should be wary. While they have used political finagling to prevent web-based car purchases, this will eventually come to pass. The only thing that the dealers are really necessary for is for providing local service. They should do what they can to make their service operations, which includes service parts planning and management as efficient as it can be. A big part of the answer to this is to begin cooperatively or centrally planning and pooling inventory.

Parts Hub

The parts hub concept has also been proposed by John Snow, at Enigma, which is a software company focused on parts procurement decision support. The post on this topic can be found here.

http://www.uptimeblog.com/aftermarket/how-fewer-dealers-can-sell-more-parts/2009/05/

Reference

Service Parts Planning and Optimization, ARM Research 2007

Post-Reference

After this post was published, we found that auto dealers have a considerably poorer track record on customer service for repairs than independent shops. This promoted us to write this article that questions the validity of dealerships generally and proposes a dealer-less model.

http://www.scmfocus.com/servicepartsplanning/2009/05/18/automotive-dealers-mostly-useles/

John Snow has some interesting things to say about this concept at the link below.

http://www.uptimeblog.com/electronic-parts-catalogs/simplifying-parts-sales-make-it-easy-for-the-customer/2009/05/


Why Auto Parts Websites Are a Problem


Caught in a Time Warp

It is always amazing to come upon a technology that is so amazingly underutilized. This would be the case for service parts online databases.

The Story

We needed a door handle assembly part for a 1997 Honda Accord. First we started with eBay, which really had a pretty small inventory. We could only find the door handle assembly for a four door, not for a two door. This was a dealer only item. The trouble began when we started looking through dealer websites for the item. The experience began to get us thinking that the dealer value-add is seriously in question. Dealers are not necessary to buy cars (they could be bought online, but tested at a manufacturer sponsored center in a mall that had just a few models). The care could then be either transshipped from a different location, or simply build to order. However, instead of this we have this medieval auto dealer system that holds massive amounts of inventory so buyers will make impulse purchases “that day.”

Service Databases

When looking through the websites of dealers, it was absolutely maddening to try to navigate them. Most the sites are caught in a time warp and exhibit the worst of web navigation and design. Some of them ask for contact information so they can treat the desire to purchase parts as a “lead.”

SFHonda
San Francisco Honda, like 99% of the dealerships, seem to seriously misunderstand what the web can do, and how it can help automate transactions. Now we will be calling to the dealer, just like we would have back in 1940.

Why Has Online Parts Supply Demand Matching Been Decentralized to Dealers?

Why does Honda allow dealers, who lack the interest or size to develop competent transactional websites to sell auto-parts on-line? Why are Honda, and other major manufacturers, not managing this with a single website and a national network. It appears as if the dealer network (a way for manufacturers to sell franchises and not have to worry about retail, is interfering with the new realities and efficiencies of the web. Automobiles may have to be serviced locally, but there is no reason, with our fast shipping network, for parts to be managed at dealer locations. And especially when a customer wants to order a part, there is absolutely no reason they should have to a dealer to do so.

Its does not have to be this way. The fulfillment could be performed by dealers, but Honda could manage the front-end, much like Amazon.com.

Learning from Amazon.com

The lesson from Amazon is that the web based supply demand matching no longer needs to be performed by the same organization that performs fulfillment. See this article on Amazon.com and how they serve as a supply demand matcher.

http://www.scmfocus.com/sapplanning/2009/05/07/gatp-atp-trees-and-amazon-com/

IT and Monitoring Competence and Fourth Party Logistics Providers

The concept of multi-partner coordination enabled by monitoring tools is a concept in logistics called fourth party logistics and is covered in this post.

http://www.scmfocus.com/fourthpartylogistics/2009/05/23/fourth-party-logistics-providers/

It’s a sad fact that there is simply not a lot of thinking going on in the management of service parts.