This is an article from the August 2006 issue of DM Review's Extended Edition. Click on this link for more information on DMR Extended Edition or to download this entire issue in a PDF format.Car dealers perform a series of activities with the ultimate purpose of selling vehicles and services to customers. Automotive manufacturers face many challenges when evaluating and optimizing the performance of their dealership channel. Because the manufacturer does not own its franchise-based sales channel, it often lacks direct visibility into the day-to-day activities of an automotive dealership and cannot apply the same management controls used to improve the performance of corporate operations.

How well can a manufacturer measure dealer behavior, discover and communicate problems, and coordinate solutions? How effectively can manufacturers and dealers use this information? The automotive manufacturer can identify low- and high-performing dealers by their bottom line, but gaining insight into why dealers perform as they do and increasing their performance proves to be more difficult.

Historically, the automotive industry has focused its effort on improving manufacturing efficiency from both a financial and operational perspective. As a result of this focus, auto manufacturers have implemented more sophisticated systems to evaluate plant-level and internal corporate activities. An automotive manufacturer may evaluate dealerships for certification purposes but may struggle to maximize the effectiveness of these programs.

A Web-based dealer scorecard can track metrics, such as first fixed visit (FFV) or customer satisfaction index (CSI), and provide more visibility into dealership activities. A competently implemented dealer scorecard provides many well-known technology-based benefits. For example, the scorecard provides a single version of truth, in which both the dealer and manufacturer obtain a valid picture of where the dealership stands in terms of the key metrics. Any scorecard application must provide these basic benefits.

A transformational scorecard, however, provides more than operating efficiency. It creates better alignment between dealership activities and the manufacturer's corporate business objectives. To be transformational, a dealer scorecard must operate in the context of a comprehensive performance improvement plan that:

  • Identifies the key process variables that affect performance;
  • Identifies the cause-and-effect relationships among process variables and between process variables and business results; and
  • Fosters greater cooperation between the manufacturer and dealer.

A transformational scorecard must make data that is timely, accurate (technology-based benefits) and correlated to performance (information-based benefits) easily available.

Timely, Accurate Data


At the most basic level, the scorecard must provide accurate data that can be easily accessed and reflects the most current performance of the dealerships. If assembling information is too cumbersome and time-consuming and the data is outdated or not even correct, the dealer scorecard cannot enhance decision-making for the manufacturer or the dealer.

One of the primary challenges when launching or overhauling a dealer scorecard application is the migration of a diverse range of existing data sources into an integrated solution. Data feeds, often in a flat file format, may be processed on different systems, including those of third-party vendors. Creating reports and correcting mistakes can be difficult, often involving many people exchanging flat files. In addition, unlike a balanced scorecard used solely by corporate managers, security and other technical or political requirements may dictate that dealership and corporate staff access data through different systems. A dealer scorecard must be able to handle multiple access modalities to accommodate multiple groups of users.

The manufacturer can migrate data to a corporate data warehouse. All data owners can update this consolidated data source, which can be used by the scorecard as well as other corporate and dealership applications. Therefore, a dealer scorecard data mart can provide a unified data access point for corporate and dealer systems. A data mart's flexibility in supporting ad hoc query requests provides for sophisticated information retrieval in time to meet pressing business requirements. Extract, transform and load (ETL) tools can create monthly updates with minimal human involvement.

Consolidating and automating the manufacturer's business data reduces sources of error and ensures that accurate and up-to-date information can be shared more extensively with a minimal degree of administrative effort. Reporting flexibility and intuitive user interfaces are also key to making the data easily accessible. Intelligent use of reporting tools can ensure that dealers and corporate users see the same report. In addition, the scorecard's interface can be designed according to group metrics in distinct categories and provide an easy-to-use drill-down capability that allows dealers to identify areas requiring improvement or attention and restricts access to sensitive data, depending on the user's access.

Key Process Variables, Cause-and-Effect Relationships


Merely declaring that the purpose of the scorecard is to help dealers improve does not mean that it actually helps dealers improve. Some universal performance metrics, including revenue, profit, supply costs, staffing and certifications, appear in scorecards for organizations across all industries. Typical measurements for dealer scorecards include FFV, CSI, parts and accessories purchases, warranty payments, customer, parts and service profitability, and certification. These metrics are addressed in one way or another by most dealer scorecards. An understanding of how they interact with one another and how they impact business goals is missing.

Tracking performance results without an understanding of cause-and-effect relationships does not accurately portray high-performing dealerships. For example, good or bad sales may be the result of general economic conditions or another external factor. A dealership that shows good sales numbers will get good scores even if its activities are deficient. Tracking results does not evaluate how well a dealership is performing activities, only the effects. The discrepancy between the metrics tracked by the scorecard and the information that actually helps dealers improve their business results can be distressing.

One dealership study contained a detailed analysis of an evaluation system used by an automotive manufacturer to measure dealer compliance to the manufacturer's standards. Independent of the compliance scores, the study obtained eight dealer performance measures, including unit sales, part sales, market share for two different vehicles and customer satisfaction with the sales, parts and service departments. Out of more than 107 items used in the manufacturer's dealer evaluation system, only 17 showed consistent relationships with business results. This analysis provides an example of a disconnect between assessment instruments and the dealer performance measures they are purported to improve.

Medical diagnosis offers a compelling example of the link between test results and critical behaviors. Physicians study the signs and symptoms revealed by medical tests and prescribe medicines, diets, surgical procedures or exercise programs to their patients. Taking the medicines in the prescribed dosages, following the recommended diet and practicing the exercises are the critical behaviors that help patients improve their health. If the medical tests were faulty, the signs and symptoms would be wrong and the doctors would be unable to make proper recommendations.

In medicine, the skill to properly read the signs and symptoms uncovered by tests and other diagnostic tools is called semiotics. The tests work because they embody scientific theories of human anatomy and physiology that explain biological interdependencies. We do not have the semiotics of dealerships because the interdependencies of all the relevant variables in the life of the dealership have not been studied. A good theory of the dealership that would identify the critical variables in all areas of interest and how those variables impact business goals is lacking.

See Figure 1 for how a portion of this theory of the dealership may look. The figure shows how several different underlying dealership variables might have an effect on the FFV metric tracked by a scorecard. For a dealership, if a vehicle is repaired correctly the first time (does not require multiple visits to dealership to correct the same problem), the FFV metric is increased.

Figure 1: Dealership Variables


The dealership variables affecting FFV include attributes of the dealership itself (size, recognition) as well as attributes about the service manager (training, satisfaction) and about the dealership's infrastructure (number of service advisers, whether technical training is available). A complete theory of the dealership would take the cause-effect relationships one step further and determine whether high or low FFVs had any impact, either directly or indirectly by affecting another metric, on business results such as market share, unit sales or revenue.

In automotive manufacturing, final inspection was the dominant model for quality control until it was demonstrated that it made more sense to focus on the processes. It is easier to locate the true cause of a failure, or potential failure, in the process rather than in the final product. Similarly, a theory of dealership helps rationalize what metrics to measure. By selecting those measurements that the manufacturer and dealership can use to make valid inferences about the effectiveness of activities, they can know where to improve and how to allocate resources and effort.

For example, suppose that FFV has a significant positive effect on CSI, which, in turn, is found to be highly correlated to dealership revenue and the auto manufacturer's market share. The scorecard shows that the dealership's CSI is average when compared to other dealerships in its region, but its

FFV is much lower. From the scorecard, the dealership has determined that the best way it can affect CSI is to increase the FFV metric. Again, the scorecard, through a drill-down interface, may show the different activities the dealership can engage in to increase FFV. If the dealership does not currently provide specialized training to its service managers and the scorecard indicates that this training has the greatest impact on FFV, the dealership may require that its service managers take specialized training.

Fosters Cooperation


Dealers and manufacturers have compatible albeit not identical interests. Both are interested in selling cars and parts, the former at the retail level and the latter wholesale. Both are interested in satisfied and loyal customers. It makes sense, then, to expect that dealers and manufactures would cooperate in efforts to improve and sustain the end customer experience in order to increase satisfaction, loyalty and profits.

It is unfortunate that in many instances, the relationships between dealers and manufacturers have been tense, even antagonistic. The antagonism is manifested in lawsuits, reward/punishment programs and conflicting priorities. For the wholesaler, given the magnitude of its operation, the key driver is volume. For the retailer, given the relatively high cost of doing business, the key driver is profit. Higher profit at the retail level threatens volume, more so if strong competition from other manufacturers colors the business landscape. We find evidence of antagonism in warranty systems. A recent study published by the Center for Automotive Research notes that many warranty systems are designed to monitor dealer claims and deter fraud despite the fact that only a miniscule percent of dealers would try to commit fraud. The real culprits of warranty problems are product quality and the inadequacy of systems to report root causes of warranty claims.1

If the relative priorities of the auto manufacturer and dealers are different, even antagonistic, the scorecard will be perceived as an enforcing tool by the manufacturer and as a threat by the dealers. Conversely, if both manufacturer and dealership agree that customer satisfaction and loyalty are their most important priorities, they will likely decide to co-create value for the customer at the dealership. In that case, the scorecard can become an effective and efficient tool that helps dealers identify areas of improvement and make decisions that contribute to meeting local and strategic performance objectives.

Reference:

  1. "The Warranty Process Flow within the Automotive Industry." Center for Automotive Research, August 2005.

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