The auto industry in recent years has done a remarkable job for the consumer. Transaction prices for vehicles of a given specification have been falling, and the capabilities and variety of products on offer is remarkable.
Equally striking, product quality -- measured both in defects in newly delivered products and after several years of use -- has been improving steadily. Indeed, as the number of defects in the average new vehicle heads below one, quality will no longer be the competitive differentiator it has been for a generation.
So what's the next competitive dimension in the auto industry? We believe it's reducing the time and hassle customers expend buying, maintaining, repairing, upgrading and recycling their vehicles.
In other words, it's not about the vehicle itself, but how the consumer incorporates the vehicle into daily life without hassle, excessive out-of-pocket cost or wasted time. And here, both car companies and auto dealers have had a lot to learn.
As we set out several years ago to write Lean Solutions, we thought it would be easy to find at least one car dealer in North America or Europe who had incorporated the principles of lean thinking into selling and servicing cars.
But we soon discovered that even Toyota dealers had shown little interest in lean concepts. We then realized we would need to help invent a lean car dealer.
Fortunately, a candidate soon emerged. Pedro Simao, the second-generation owner of the Portuguese dealer group GFS, attended a conference organized by the International Car Distribution Programme (ICDP), which Dan Jones helped found.
It featured a presentation by ICDP researchers John Kiff and Dave Brunt on how to translate lean thinking from the world of the factory to the realities of automotive service and repair. They used an example of an auto body shop doing crash repairs to show that standard lean techniques such as value-stream analysis, flow and pull can be introduced into this different environment.
Simao was intrigued, perhaps because he had an unusual background for a dealer. He had been trained as a mechanical engineer with a strong interest in manufacturing and would probably have gone into a manufacturing company for a career except for the relative lack of major manufacturers in Portugal.
Instead, he wound up taking over the family car business. He wondered why standard dealership practices were so chaotic and inefficient.
At the end of the ICDP seminar, Simao arranged a meeting with Kiff and Brunt to learn more about what they were proposing. They walked him through the complete concept of the lean dealer that Kiff had summarized in his ICDP paper "From Hunting to Farming."
He explained that dealers need to move beyond their current "hunting" of customers for one-time transactions based on price. Instead, to grow their business and their margins, they need to develop continuing relationships ("farming") based on continually solving customer problems through the life cycles of multiple vehicles.
Kiff argued that the place to begin was in vehicle service, where most dealerships lose their customers as soon as vehicles are out of warranty.
A few months later, Simao called back to ask Brunt to provide specific advice on a lean conversion of his business. He asked Brunt to look at the body shop for crash repairs in one of his 17 dealerships.
Upon arriving in Oporto, Portugal, Brunt followed standard lean practice and suggested that they simply walk together through the repair process from beginning to end. As they walked, Brunt began picking up rolls of masking tape on the floor or left in cars as they were prepared for painting -- 10 in all.
This simple gesture showed the process was out of control. There was no place to store things. Tools, parts and materials were lying everywhere.
"It was just a typical body shop," Brunt remembers. "There were 'dead' cars everywhere, just sitting there waiting for parts or technicians.
"Every activity was taking place in an isolated island, with no flow and no sense of whether jobs were ahead or behind schedule," he said. "Meanwhile, managers were scurrying through the shop resequencing jobs in response to customer, planning or parts issues."
Brunt showed the GFS team how to draw a map of the current provision process, as well as a future-state map of how the process would work if lean principles could be applied. To get to the future state, he made a number of suggestions:
He placed special emphasis on carefully measuring "customer fulfillment." This meant precisely tracking whether vehicles were being delivered to customers on time, with everything done right the first time.
Then, whenever there was a "failure to fulfill," it was critical to find the root cause and permanently remove it, so the provision stream could be shortened and smoothed further.
As he went away, Brunt didn't expect to come back. "Almost all dealers I had met at that point (in 2000) were hunters," he said. "I wondered if Pedro could really learn to be a farmer."
To Brunt's and Kiff's surprise, after about a year, Simao and his GFS improvement team began to report substantial progress. Brunt got an e-mail message with a large batch of photos that documented remarkable changes at all 17 dealerships -- and not just in the body shop. This convinced Brunt that he needed to return.
He was amazed at the new practices.
"What I found was a terrific process to create a place for every tool and kit of parts," he said. "There was a progress control board clearly showing the exact status of every job. Parts were now being delivered in kits -- containing every item needed for every job -- from a centralized GFS warehouse serving the body shops in all his dealerships. And each work area was going to the previous work area to get its next job.
"Meanwhile, no new jobs could be started unless the next downstream area signaled that it was time," Brunt said. "As a result, jobs were being completed faster and customers had a shorter wait for their vehicles."
Simao also had started to transfer lean provision concepts to the service shops of all of his dealerships, which were separate from the crash repair operations. Soon Simao had lean provision practices in place across every service area in his $400 million business with 900 employees.
Today, GFS diagnoses every car over the phone before it arrives at the dealership, so parts can be ordered in advance. (For example, 30,000-mile service requires a standard kit of parts.) However, not all repair needs can be determined over the phone, so Simao has created a diagnosis bay at the front of each repair shop.
Upon arrival, the customer drives the vehicle directly into the bay and onto a lift. The technician and customer then agree on all of the work to be done, the exact cost and the precise completion time. This eliminates the need for callbacks to the customer during the day and any unwelcome surprises about the cost and time required for repairs.
A key advantage of diagnosing the vehicle the instant it is brought in is that in many cases, the repair can be done within the time the customer is willing to wait -- typically an hour or less. This saves customer time on the total repair process because it eliminates the trip back to the dealership to pick up the vehicle.
And it saves the dealership money, because multiple movements of the vehicle and storage at the dealership are eliminated, along with the need for a loaner vehicle. To save more time, Simao is introducing a "pit stop" method in which several technicians work on the vehicle at the same time as soon as it is diagnosed, to get it back to the customer faster.
Once the nature of the repair is specified, the technician places an order for all of the parts needed. These arrive before the repair is scheduled to start, in a kit from the central parts department delivered on periodic "milk runs" to many dealerships.
The application of lean principles also has permitted Simao to create a profitable new business: preparing used vehicles for placement with new customers. By lining up all of the steps in the preparation process in a tight sequence, standardizing the work, ordering parts in a kit, and maintaining a steady work pace, the cost of vehicle preparation has been reduced by half, and the time needed has been reduced by 70 percent. As a result, Simao now is performing this task for many leasing firms that are not part of GFS.
Simao is hardly finished with his lean journey. But the company already has cut in half the time expended by the average customer in getting his or her car fixed, while reducing the cost of the average service to GFS by 30 percent.
The dramatic decline in vehicles coming back because they are fixed right the first time has been a big contributor to cost savings, along with the 75 percent reduction in the number of loaner cars needed. Equally important, the fraction of service technicians' time spent on creating value has nearly doubled because parts, tools and work instructions are readily at hand.
Other savings result from the central parts department, which reclaimed all of the parts previously lying around the dealerships, reduced the total stocks held by GFS and raised parts availability by ordering frequently in small amounts from suppliers.
At the same time, the likelihood of being able to fix vehicles correctly on the first visit and to deliver them at exactly the time guaranteed has increased from about 60 percent -- the service industry average in North America and Europe -- to more than 80 percent.
Simao recognizes there is still a long way to go -- applying the same lean techniques to his sales and finance activities, for example. But as a result of progress to date, GFS has climbed to the top of automakers' customer service rankings for many of its brands. It has dramatically increased its share of the service business during the life cycles of the vehicles it sells.
By saving everyone's time and reducing hassle while saving GFS costs, Simao is achieving a lean success for customers, employees and the owner.
GFS has been a lonely pioneer along the path to lean consumption. However, Toyota recently has turned its attention to this new dimension of competition. We believe that other companies soon will be forced to pay attention.
Great motor vehicles are wonderful. But consumers will soon grasp that a great experience in obtaining and using great vehicles is even better, as the auto industry tackles the next competitive challenge.
Next week: Another excerpt from Lean Solutions will apply lean thinking to the automotive customer's desire to get precisely the vehicle he or she wants, precisely when he or she wants it.