How CRM saved Hunter Holden
case study What a customer wants and what a customer gets can be two very different things. To get more in tune with customer preferences, Hunter Holden implemented a new dealer management system, taking customer relationship management (CRM) right back to the manufacturing floor.
Next time you see a yellow car whizzing round the streets, don't assume for a single moment that the driver actually wanted it in yellow. According to Gordon Towell, CEO of e-business supply chain management software provider IDS, the reason this character is driving a yellow car could be due to a fundamental error in the manufacturing of durable goods -- the inability for manufacturers to get access to data about what customers want.
The manufacturer normally only gets to see what the customer buys, and the two can be worlds apart, says Towell.
A car-buying punter usually walks into a showroom with a list of features it desires, be it alloy wheels, a sun roof, or silver paintwork. But Towell claims that 90 percent of people drive out of a showroom in a car that doesn't match those original specifications because dealers don't always have the exact match and sell a different model at a discounted price.
So, the customer speeds off in a yellow vehicle and a little way down the line the manufacturer receives a quarterly report from the dealership stating that 100,000 yellow cars were sold. So what does it do? It manufactures 100,000 more yellow cars for the next quarter, when really it should be manufacturing 100,000 silver cars.
The question is: if a customer walks into a dealership wanting a silver car, and is instead offered and accepts a yellow car at a discount price, aside from the loss of a decent margin, is the simple fact that a silver car was the preferred choice also lost forever?
It is based on the concept of demand chain management (DCM), the lesser known relation of supply chain management and enables a customer to enter a showroom and find out instantly whether the perfect vehicle exists in the dealer network, within the logistics chain, is in transit or is being assembled at the manufacturer.
-What we're talking about is full integration from factory to retail, allowing the customer to request what he or she wants and the manufacturer to deliver it. DCM is not new but the technology to make it happen hasn't really existed before," says Towell.
Page II: What a customer wants and what a customer gets can be two very different things. To get more in tune with customer preferences, Hunter Holden implemented a new dealer management system, taking CRM right back to the manufacturing floor.
Hunter Holden had been using a dealer management system from automotive software vendor Reynolds and Reynolds for sixteen years. -Our existing system was a completely closed architecture which I could not hang any of my own modules on. It has practical shortcomings, and I ended up employing people to run the computer system rather than the other way round," says Adam Kaplan, managing director of Hunter Holden.
IDS approached MG Rover distribution with its idea of developing a new DMS solution, written in Java 2 Enterprise Edition (J2EE), which would include real-time business intelligence and reporting tools for tracking trends, leads and margins. MG Rover were unable take IDS up on its offer, so referred the company to Kaplan, who it knew was disgruntled with his current system.
For between six to 12 months, Kaplan agreed to give his intellectual property free of charge.
-We are working together to process engineer everything we do at Hunter Holden, as oppose to them giving me a system for me to design my business around," says Kaplan.
According to Kaplan, who is piloting the Java-based software due to go live in March, dealers and manufacturers now have the potential to bridge the gap between what the customer wants, what the dealer sells them and what it delivered to the customer -- not even two, but three different things.
-A customer might want a black Astra, but finds out that he or she cannot afford it, so buys a silver Barina, but we might not be able to get those in stock so end up delivering them a yellow Barina. Existing systems only record that the customer got a yellow Barina, which is then fed back to manufacturers," says Kaplan.
-But even then, using current DMS systems it can be up to eight months before a manufacturer even knows what you have delivered to the customer," he adds.
If the vehicle the customer specifies, be it pink, black, green or yellow, is not ready, the new software allows an order to be placed so that the customer gets an exact delivery date. Parts and finished goods are not left clogging up the retailer's premises.
-In an ideal world there will be just one car in the showroom and whatever else the customer wants can be ordered. The manufacturer then gets a record of what is being demanded for future planning," says Kaplan.
Page III: What a customer wants and what a customer gets can be two very different things. To get more in tune with customer preferences, Hunter Holden implemented a new dealer management system, taking CRM right back to the manufacturing floor.
According to IDS' Towell, the software is Web-based but unlike early Web applications, it's not about vapourware, where someone has to re-enter the information manually at the back end. MotoV8 links directly into the back office.
-The dealer accesses the system via a web browser to find out if the customer's preferred car is available in the dealership, from another dealership or at the wholesaler, whether it is in a boat in the middle of the ocean or in a factory in Stuttgart or Detroit.
"If it is none of these, and the customer still wants it, at a press of a button the order will be placed for that configuration online, via an automotive management system, involving no paperwork at all," says Towell.
The information is continually updated, registering the models that customers are asking for. If the customer does not want to wait for a silver car with a sunroof and is instead going to settle for the yellow car with steel wheels, a record of that fact is retained and locked in against the vehicle that was eventually purchased.
The retailer has a record of what was sold and what should have been sold at full price. In other words, the customer's preferred configuration of silver paintwork and a sun roof will be recorded within the CRM system.
-Over time, you end up with a lot less unwanted stock in the supply chain. At the moment, tens of thousands of cars are being produced in the blind hope that that's what people want," says Towell.
The same problem applies to most durable goods industries, says Towell. -Panasonic are in a similar situation, building high value goods, and they need to know if they are building the right product, so we are working with them on a similar system," says Towell.
So what can manufacturers do to get tapped into these systems?
Page IV: What a customer wants and what a customer gets can be two very different things. To get more in tune with customer preferences, Hunter Holden implemented a new dealer management system, taking CRM right back to the manufacturing floor.
According to Towell, a major barrier is the huge disconnect between manufacturers, wholesale distributors and retailers. -Often the wholesale distributor is not owned by the manufacturer. Add to that the independent retailers, each with its own system and own way of doing business, there is real grief in trying to manufacture what people want," he says.
For manufacturers it can be a big project to overhaul existing systems to make the most of new technologies like this. -Manufacturers have an enormous investment in mainframe and legacy systems, so we have developed this software so that it can be used independently, fully integrated or as a stand alone module. For example, just the parts distribution could be implemented," says Towell.
-Our system, which is hardware and database independent, interfaces with the legacy management systems -- those that have been developed by the manufacturer themselves or the likes of JD Edwards -- so that the cost of entry is as low as possible, and to help manufacturers protect their investment," he adds.
For a retailer, investment is not that significant because the system can run on an ASP model or computer-on-demand model. -It can run as happily on a standalone PC in Wagga Wagga as on a large multi-franchise dealership in Sydney," says Towell.
An investment would range from around $300,000 for a dealership to several million dollars for a large wholesaler, he adds.
For manufacturers, Towell believes it's a case of sink or swim, as manufactures struggle with the rising cost of warranties.
"Goods are cheaper than they ever were, but the cost of service and warranty has gone up as labour costs continue to rise, and warranties are being extended," he says.
Some cars have five year warranties now, so the cost of this is growing exponentially, which is a worrying trend for manufacturers which don't want to be manufacturing large inventories of parts and finished goods and need to ensure that they are absolutely what people want.
"Up until now there has been the belief that manufacturers are building things in clever ways, but the reality is they have no idea and are taking a punt without any understanding after the event why those products did or did not sell, or what the customer wanted," says Towell.
Page V: What a customer wants and what a customer gets can be two very different things. To get more in tune with customer preferences, Hunter Holden implemented a new dealer management system, taking CRM right back to the manufacturing floor.
-Manufacturers are realising that if you manufacture the wrong product, it sits on the shelves longer, which results in it being discounted, so consequently you get less money for it, and warranties become more expensive," Towell adds.
But it is not the manufacturers fault, he says. Retailers generally do not want the manufacturer to have access to their customer database, terrified in case the manufacturer uses it to sell direct.
-This is something we've been seeing in the IT industry for years with Dell, which has an enormous database of computer users," says Towell. Whilst a product like MotoV8 provides dealer-friendly functionality, such as full integrated sales and warranty modules, there is a debate about how much information dealers are willing to share, and with multi-franchise dealerships it is even more complex, he explains.
-Although the debate has been going on for years, it has never been pushed into the limelight because the technology to integrate 300 dealerships all the way back to the factory has never been there before," he says.
It is unusual for manufacturers to have such a degree of visibility with current systems, he adds. -Porsche has a good centralised database of all of its customers because it is a boutique manufacturer and has been doing this for years, but most car manufacturers have no visibility of whether a car was the customer's first choice which makes it hard to forecast what to put next onto the production line," says Towell.
Towell says that if one manufacturer breaks ranks, and demands that its dealers share this information, the rest will have no choice. -Potentially this could save millions of dollars as inventories are reduced," he says.
Through frustration at some dealer's reluctance to play ball with manufacturers on this, some have been forced to buy their dealerships in order to gain access to this information. -This tends to reduce the entrepreneurial spirit of their retail outlets. For instance, Ford tried it in Australia but has pulled back and is looking to sell its share in dealerships," says Towell.
-Manufacturers will find a way forward. There is already speculation that a major manufacturer in Europe is introducing an accreditation system for its dealers which stipulates that they must share this information, which does not surprise me at all. All it takes is one major manufacturer to break ranks and all hell will break loose," he adds.
Kristian Steenstrup, Gartner's research vice president, business applications, on why partner relationship management (PRM) is key.
The problem of capturing information about customer wishes rather than sales is a vexing one that people have tried to solve in many different ways. The issue is that manufacturers are working at odds with retailers because the only thing the dealer is interested in is closing the deal using the products they've got available. The dealer does not want to even have the conversation about what the customer wants.
If a customer wants a green car -- but if the dealer would have to wait three months to deliver it -- the dealer will say 'Green? No you want silver" and sell the customer the silver car they do have. The issue is one of Partner Relationship Management (PRN), a subset of CRM.
Most of what CRM has done for people in the past centred around a direct supplier to consumer relationship, where the provider, be it a car dealer, telco or financial services company, has the customer information at their fingertips.
Manufacturers have been left out because they have no direct relationship with the customer. PRN is an attempt to solve this problem, and we are beginning to see some progress towards that with specialised demand chain management systems.
Take a look at Volvo in the US. A few years back no one was buying green Volvos so a smart dealer decided to offer his old stock by repainting the green cars in the colour the customer wanted. This suited customer requirements, green Volvos were sold, which was fed back to the manufacturer, and it triggered increased demand for a product that wasn't wanted.
But manufacturers are beginning to benefit from new technology now.
PRM means leveraging CRM across distributors, wholesalers, resellers and dealers, and means technology to support the extended customer relationship between manufacturer and customer as opposed to direct customer relationships.