Automotive distribution is the set of activities and functions related with the pre-sales of vehicles. It includes all the processes from vehicle acquisition (demand forecasting, purchasing planning, price/volume negotiation, import procedures), marketing (strategy, campaigns, brand management) to the management of transportation, warehouse management and stock returns management. Other relevant activities are also the dealer management (de fine agreement, standard, processes) and warranty management.
Traditional distributor approach is characterized by transactional, on-off relation, with limited use of technology, on-line channels and data collection. Demand forecasting is based on past history and very often there are big stock levels and long lead times. Such approach is getting old-fashioned as breakthrough changes in the automotive distribution market are coming, originating from increasing competition and digital transformation. Buying decision is moving from the purchase phase into the pre-purchase phase: digital channels, online interaction & social media influencers are triggering the buying intentions and 75% of buying time is spent online. Online buying experience is gaining more and more weight.
Building a customer centric vision that creates long term relationships and brand advocacy is a must to survive in the changing automotive distribution market. Companies’ strategy should enable a seamless brand experience, from streamlining retail networks to developing market-specific mixes of physical and digital presence along with new distribution models. In order to adapt to the evolving market conditions and consumers’ needs, distribution strategies must be oriented to improving flexibility through new formats, such as: direct selling, mobile stores, test drive centers, boutique stores, mega dealers outside city centers and online platforms. Investing in technology improvement is fundamental for attracting the customer: on-line vehicle configuration, on-line financing approval, on-line video support with product geniuses, stock availability verification, chat-bot powered by artificial intelligence, social media mining and customer preference collection.
Lean methodologies are the best way to support distributor’s organization in such high-impact transition, focusing the resources on value-added activities, cutting wastes, thus boosting overall efficiency and productivity while increasing both customer satisfaction and retention.
Fast changing market dynamics, increasing digitization and customer expectations are putting competitive pressure at the highest levels. Along with traditional off-line touch-points, now different alternative on-line touch-points are available, and company must develop structures to intercept customers across all possible channels, being able to track and process efficiently all the relevant information. Only this way will be possible to fulfill the need for increasing service quality, customer satisfaction and brand power/awareness, while reducing as much as possible sales process lead time and logistics cost. Five challenges have to be faced effectively in order to position the brand as top-of-mind for buyer.
ANY COMPANY OPERATING IN THE AUTOMOTIVE DISTRIBUTION INDUSTRY HAS TO BE ABLE TO COPE WITH FIVE IMPORTANT CHALLENGES:
MISALIGNED SALES STRATEGIES BETWEEN DEALERS AND DISTRIBUTORS
Optimized sales process and customer/dealer journey enable to focus on customer and reduce sales lead time.
POOR PURCHASING PLANNING
Poor purchasing planning by distributors, usually, are the result of suboptimal coordination between dealers and distributors. An effective purchase planning is fundamental for achieving operational excellence within automotive distribution industry.
LIMITED MARKETING & TECHNICAL SUPPORT / COORDINATION
Marketing campaigns definition and management process have a direct influence on campaign effectiveness, lead time and cost for dealer compensation.
LACK OF VEHICLE CUSTOMIZATION BY THE MANUFACTURER
There is a trade-off between increasing expectations from the customer/dealer and lack of vehicle customization offered by manufacturer and this puts immense pressure on distributor.
LONG MANUFACTURING & DELIVERY LEAD TIMES
Customer experience is negatively impacted by long delivery lead times and distributors, who are in the middle between customer and manufacturer, have to manage such criticality.
Waste in automotive distribution processes can be identified, classified and minimized in the same way as waste in manufacturing. They also have tremendous potential for savings. Lean principles, Kaizen methods, and re-engineering approaches can be applied in a distributor environment for improving information flow, supply chain integration, increasing brand power, and in general, for achieving excellence in non-manufacturing areas.
AREAS OF WASTE OFTEN IDENTIFIED IN AUTOMOTIVE DISTRIBUTION:
Unnecessary transports that result in added cost and lower productivity such as poorly scheduled delivery from distributor to dealer or poor management of vehicle stock and dispatch from warehouse to branch.
Excess vehicle inventory due to poor visibility or inaccurate information, batch ordering of cars and spare parts, batch processing of sales reports. Poor inventory management affects working capital utilization and increase the frozen assets in the company.
Unnecessary movement of people due to either inefficient layouts, lack of resources or lack of standards (e.g. looking for items/documents because they do not have a defined place).
WAITING / DELAYS
People, systems and material delays due to badly integrated processes, such as poor communication between dealer and distributor. Waiting for customer on quotes, waiting for deliveries, approvals, waiting for data, materials or services to arrive.
OVER-PRODUCTION / OVER-PROCESSING
Any duplicated effort that may be caused by poorly defined processes or responsibilities between the distributor and the dealer. Writing proposals before they are required, scheduling unnecessary sales calls/meeting. Unnecessary processing (e.g. relying on inspections, using multiple forms, generating unused reports).
Work that contains errors, information that is not efficiently received or processed, information that is wrong or does not have the quality it should have. Some examples: incorrect documentation, missing or wrong standards, data entry errors, invoice errors, extreme sales forecast inaccuracy.
Any use of space that is less than optimal, such as inefficient warehouse management or use of warehouse space.
Applying Lean solutions to automotive distribution eliminates wasted time and resources, enhancing customer/dealer journey, building brand advocacy and improving information flow across the whole supply chain. New distribution models (such as direct selling, mobile stores, test drive centers, boutique stores, mega dealers outside city centers and online platforms), efficient collection and processing of data, management and salesman skill matrix, trainings and incentives, upgrade of showroom layout, and pull system implementation are fundamental for breaking silos across the organization while bringing positive disruption with great impact on sales and profit growth.
BY APPROACHING THE WASTE FOCUS AREAS MENTIONED ABOVE WITH LEAN SOLUTIONS, SOME OF THE OPPORTUNITIES FOR IMPROVEMENT AND BENEFITS IN AUTOMOTIVE DISTRIBUTION INCLUDE:
- Reduced total lead time of end-to-end vehicle acquisition
- Reduced logistics and warehousing costing
- Increased warehouse utilization
- Increased forecast accuracy
- Improved stock health
- Increased effectiveness and efficiency of marketing campaigns
- Reduced cost for dealer compensation
- Increased level of process automation
- Increased amount of data sharing with dealer
- Increased sales
We implement Lean Solutions in automotive distribution in a similar way to other supply chain solutions, decreasing lead-time and significantly reducing costs and meeting the challenges without sacrificing quality.
- Introduction of Lean concepts lead to 30% delivery lead time of vehicles from hubs to showrooms
- Optimized handling approaches and Lean ERP systems decreased the delivery mistakes rate by more than 45% while enhancing the value-adding perception of the customer by 25%
- Implementing pull upstream from the showrooms, the amount of carry-over vehicle inventory was reduced by 40%