GETTING ON THE RIGHT TRACK AT GENERAL MOTORS
"Our data tells us that the vehicle owners that don't have a satisfactory dealership repair experience are only half as likely to buy that model car again." Think about the ramifications of that statement. If a vehicle owner has a poor experience with something as simple as an oil change, that person is only half as likely to spend $30,000 or more on that model of car again. That is quite the return on investment (ROI) for providing a good experience for an oil change that costs about $50. Bryan Burkhardt, global director of retail inventory management for General Motors (GM) service and parts operations, made the above statement. Bryan very clearly understands the relationship between after-sales and service and retaining the loyalty of a customer.
Unfortunately, left to their own devices, most parts managers at any of GM's 7,000 North American dealerships overstock too many of the more commonly sold parts and seldom have those on hand that are infrequently purchased. As Bryan explains, there is "not enough breadth of parts, but way too much depth on the ones they do have." That "not enough breadth of parts" means that GM repair shops have been providing customers with a satisfactory repair experience only 67 percent of the time. Bryan and his team set out to change that and implemented a new inventory management system, upping the satisfactory repair experience to 96 percent of the time. The new inventory management system is a centralized, Web-based system that tracks inventory levels in real time.
If the quantity-on-hand for any part ever falls below 5, the system notifies the parts manager and automatically routes an order for parts replenishment to one of 16 national parts distribution centers. The system can even accommodate regional differences and keep more of certain parts on hand for dealerships in a given region of the United States, such as more windshield wipers for dealerships in the northwest during the spring.
All told, the system tracks over 500,000 GM parts from 4,000 different suppliers. One of the biggest challenges facing Bryan and his team is that each of the dealerships is allowed to choose its own dealership management system, resulting in the use of 28 different systems. So far, the new centralized inventory management system has been certified to work with only 6 of those systems. Because of the increase in productivity and inventory efficiencies, GM is working with the new inventory management system to provide certification for more of the dealershipcentric systems in the hope that all systems will be certified and all dealerships converted to the new inventory management system by the end of 2007.
As the new inventory management system is certified to work with another dealership management system, GM pilots the system with a few of the dealerships interested in making the conversion. When the system is determined to work correctly, the remaining dealerships are encouraged to make the conversion. The new inventory management system is yielding both efficiency and effectiveness. From an efficiency point of view, the new system improves inventory turnover by about 11 percent. It also reduces the time parts managers spend on reviewing inventory and ordering parts from 90 minutes per day to just 10 to 15 minutes per day.
But the most important results are being realized in the area of effectiveness, that is, customer-centric measures such as satisfaction. As Bryan explains it, "At heart, it's about enhancing the ownership experience." After all, providing a satisfactory repair experience doubles the chances that the automobile owner will buy that same model again. In short, customer retention is key.
Questions
1. In implementing the new inventory management system and converting existing users (dealerships) to it, what sort of implementation method is GM using? In your opinion, why is this the most appropriate method? If you had to choose a different implementation method, what would it be and why?
2. Why do you believe that General Motors has allowed its 7,000 North American dealerships to choose different dealership management systems? What are the advantages to allowing this freedom of choice? What are the disadvantages to such an approach?
3. The new inventory management system provides a satisfactory repair experience 96 percent of the time, up from 67 percent. While that increase is both strong and good, is 96 percent really that good? Why or why not? What quantitative approach would you use to justify system enhancements to improve the 96 percent to 98 percent? To 100 percent?
4. If you refer back to Chapter 4 and decision support systems, how would you characterize the decision-making process of determining how many parts to keep on hand? Is that mainly a recurring decision or a nonrecurring decision? Is that mainly a structured decision or a nonstructured decision? For both the latter questions, justify your answers.
5. The new inventory management system reduces the overall costs of parts inventory and, at the same time, increases customer satisfaction. How is this an example of a bottom-line initiative? How is this an example of a top-line initiative?