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Making Segments that Work

Alright, you have run the reports, established the different levels of purchases, obtained accurate machine populations for the customers and have put this market segmentation code into the name and address record on your computer. Well now you have 64 market segments. I submit to you that this is too many segments to determine a strategy for each segment and have everyone understand. What next.

How about we take all of the Fleet (F) and Large (L) machine population segments that are also either A or B in either of Parts and Service purchases and make them one marketing segment? And let’s take the Medium (M) machine population and all of the C purchases for either of the Parts and Service and make them another marketing segment. Then we will have three segments. What I will call High Potential, Medium Potential and Low Potential.

The High Potential segment customers are the ones that should have a product support sales representatives call of them. The Medium Potential segment customers should be “touched” but perhaps you don’t have the budget to assign a product support representative. What are you to do? Assign and Instore Sales Representative and touch them on the telephone.

Did you know that in America Corporations fail at implementing their strategy 90% of the time? Typically that is because their employees don’t understand the strategy. In order to be able to lead people to conduct themselves in a manner that will allow successful implementation of strategy they have to first of all understand the strategy. Second they have to accept that the strategy is a good one. Finally then they can commit to making it happen.

  • Understanding
  • Acceptance
  • Commitment

We are at the portal of our market coverage strategy. Are you ready? The time is now.

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The Beginning of Marketing

The starting point for market segmentation is the information necessary to determine the potential of each client in the market place to be covered. To determine that in the equipment world we have to obtain a complete and accurate working machine population. This is the usual starting point for any good marketing information in the equipment world. To expand on that we truly have to state that if you don’t have an accurate and complete working machine population you really don’t know your business.

The machine population information required is the make, model, serial number, configuration, year built, annual hours of work, and current hour meter reading. From this information we can make a determination of the market potential for parts and service.

The machine population is normally split up into four categories.

  • Small                       1 – 3 machines
  • Medium                  4 – 12 machines
  • Large                     13 – 24 machines
  • Fleet                      25 + machines

In many cases these categories codes can be split into the same identifiers based on the total machines for all brands owned by the customer as well as the number of machines of the dealer supported brands – this might become an important distinction in some dealerships.

The next levels to consider in market coverage are the relationships that exist between the dealership and the customer. This we can determine by the level of purchases that the customer makes at the dealership for parts and service.

These purchase levels are the old fashioned A, B, C, and D.

  • A             the top 10% of purchases
  • B             the next 15% of purchases
  • C             the next 25% of purchases
  • D             the bottom 50% of purchases

These levels are obtained by providing a descending purchases report for parts and another for service. From these reports you can apply the A, B, C, D categorization to each customer – one for the parts purchases and the other for service purchases. This is the beginning of marketing. This is the starting point for market coverage. Are you ready? The time is now.

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Points to Ponder v1.1

One of the advantages there is to travel is the ability to have time to read. In my cross country voyage yesterday I had a good chance to catch up on some of my late reading. One point came out that I really enjoyed.

“Social Cohesion at the risk of Truth” this is a quote from Jeff Bezos of Amazon fame.

I think it is amazing in its clarity. Ignoring the world around you, not implementing changes necessary, risks the truth. For some time, in my consulting life, there has is a constant. People are anxious, nervous, or just downright stubborn, when it comes to making the changes necessary. These changes might be required to improve customer service. They might be necessary to “save” the Company financially. They might be necessary for a whole host of solid rational sound reasons. Yet they are often approached with less than an excited mien. The status quo is much safer. This social cohesion – the comfort of everyone involved in many cases outweighs the needs to make change. The time is now.

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Points to Ponder v1.0

When I was a little person we had an elder from the church that we went to by the name of Tony Doxsey. He took an interest in my family and was a wonderful man. He was sophisticated, incredibly well-mannered and an entrepreneur. He owned and operated an Interior Decorating/Design business. So you can imagine the impeccable taste he must have had.

He used to tell me all kinds of things – little words of wisdom. One year he gave me a little pamphlet called “The Ten Commandments of Business.” I would like to share just one of them with you today.

“Be happy in your work…or…. work and be happy. You have no choice you MUST work.

I have remembered that for over fifty years now and it has become a habit. I feel good when I work hard and it makes me happy. And I am truly blessed because I am happy in my work. I hope the same is true for you. The time is now.

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Parts Management – Unit I March 19th – 20th, 2012

The “New” Quest Parts Management – Unit I

What it looks like when it is Right

 A more professional, productive and profitable Parts Operation is necessary for the distributors in the Capitals Goods Industries to be successful. To assist in the development of this Parts Management team we have designed a new series of training courses aimed at enhancing the skills of those charged with this responsibility. The “New Quest Parts Management Unit I” consists of 4 elements presented during a two day seminar.

The Principles of Management

The Basic Principles of Management – what we call the Pursuit of Performance: Planning, Organizing and Control; Job Descriptions and Responsibilities, Performance Standards and Targets – what it looks like when it is right; Employee counseling with praise and constructive criticism in Personnel Management; Time Management to set yourself free; The Business of Change and how to overcome resistance to change; How to survive in spite of ourselves.

Introduction to Accounting & Finance for Parts Personnel

Understand Financial Statements from the Parts Department Perspective.  Clear and understandable definitions of the main financial terminology a supervisor/manager must have. Learn the Dealership Financial Fitness Model; and Profitability Pyramid. Asset Management and the value of Return On Assets. Pricing and Return on Capital Employed (ROCE) Discover new truths about the famous “Discount” and the consequences of it on the customer and the business.

The Operational and Process Foundation

Balancing Inventory Requirements with Customer Service: The impossible made understandable. Order Points and Order Quantities; Lead Times and the EOQ; Order Cost and Carrying Cost. Unleash your true power of knowledge by learning the theory of Inventory Control in all its glory. In physical distribution – the job everyone thinks they can do is easy but no one wants to do: Storage systems, transportation logistics; Shipping & Receiving; Parts Office, Sales Counter and Instore Merchandising Design and Layout that makes sense.

It’s All about Customers

Satisfying everyone’s requirements and developing relationships: “Up Selling”, Product knowledge, Features & Benefits selling, and effective telephone techniques. How you should use price as a marketing tool. Instore displays and merchandising; Value added selling; and the value of Customer Retention. Surveys to develop satisfied customers for life: Customer Profiles and all the background required to make customers your apostles.

This “New Quest Parts Management Unit I” provides a broad base introduction to Parts Management for the 21st Century. It is intended for Parts Lead hands, Instore Sales Lead hands, Supervisors, Managers and Executives. The material covers all of the management and operational disciplines required of a Professional Parts Manager.

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Updating the Add to stock blog from yesterday

Yesterday we had difficulty in format for the table of probabilities. With this update we hope we can clear up any misunderstandings. The first column is the time between the last two calls of a part number. The second column is the probability of a sale in the coming twelve month period of time.

  • Time between Calls        Probability of 1 Call
  • 3 Mths                                  98%
  • 4 Mths                                  95%
  • 5 Mths                                  91%
  • 6 Mths                                  87%
  • 7 Mths                                  82%
  • 8 Mths                                  78%
  • 9 Mths                                  74%
  • 10 Mths                                70%
  • 11 Mths                                66%
  • 12 Mths                                64%
  • 15 Mths                                56%
  • 18 Mths                                49%

The above percentages represent the probability of AT LEAST one call in the coming twelve months. This should give you more help in determining when to add a part to stock. The time is now.

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Adding Parts to Inventory

Since we started this blog we have written on inventory management three times. Once on variable lead times, once on economic order quantities and once on the only part that matters. They have each received a lot of reads.  Thank you.

Let me introduce a fourth line of attack on managing the inventory – when do you add a part to stock. For years if not decades we have added parts on the basis on two calls in six months or three calls in a year add the part to your stocking inventory. This has been the “norm” since I entered the Industry in 1969. It hasn’t really changed at all. How about we use probability theory in determining when to add a part to stock and yes when to drop a part out of the stock inventory.

  • Time Between Calls        # Calls Last 12 Months                                    Probability of 1 Call
  •                                  0             1             2             3             4             5+
  • 3 Mths                  2%          7%          14%        19%        20%        38%        98%
  • 4 Mths                  5%          15%        22%        22%        17%        19%        95%
  • 5 Mths                  9%          21%        26%        21%        13%        10%        91%
  • 6 Mths                  13%        27%        27%        18%          9%          6%        87%
  • 7 Mths                  18%        31%        26%        15%          6%          4%        82%
  • 8 Mths                  22%        33%        25%        13%          5%          2%        78%
  • 9 Mths                  26%        35%        24%        11%          4%          0%        74%
  • 10 Mths                30%        36%        22%          9%          3%          0%        70%
  • 11 Mths                34%        37%        20%          7%          2%          0%        66%
  • 12 Mths                36%        37%        19%          6%          2%          0%        64%
  • 15 Mths                44%        36%        15%          4%          1%          0%        56%
  • 18 Mths                51%        34%        12%          3%          0%          0%        49%

The above table shows the probabilities of future events based on the time between the last two events.  Take the first line “3 MONTHS”. The columns as headed 0, 1, 2, 3, 4, 5+. That is the number of calls in the coming twelve months. So under 0 is 2%, 7% under 1, 14% under 3 etc. Those represent the probability of the number of calls in the coming twelve months. Si there is a 7% probability that there will be 1 sale in the coming twelve months- or a 20% probability of 4 sales in the coming twelve months.

This is quite a good barometer to use for determining when to add a part to stock. If the last two calls are three months apart there is a 98% probability that you will sell at least one part in the coming year – 87% probability of at least one sale if the last two sales were 6 months apart etc… Don’t you think you should use this type of statistical truth in establishing when you want to add a part to your inventory? The time is now.

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A Customer Service Tool

VoIP – voice over internet protocol. What a name. Well what it does is quite remarkable. This is where your computer drives your phone system. A call comes into your Company and the computer directs the call to the appropriate extension while at the same time it paints your computer screen with the pertinent information from your name and address on the customer. Not only that, it can delivery almost whatever information you want.

“Hello Dave, how are you? Wow, we haven’t spoken since last October, where have you been?”

“Hi Dave, congratulations on your anniversary, how many years has it been?”

“Dave I have been meaning to call you, congratulations on your recent purchase of our “xx” machine.”

I am sure you can imagine various pieces of information that you would like to have displayed before picking up the telephone. There is a machine in the shop, or there is backorder outstanding – pretty critical information that would help you in your discussion with the customer.This is similar to the “Vonage” service that runs through your cable. Contact your dealer business system provider or your telephone system provider and ask what is necessary for you to obtain this type of tool. It will give you a terrific tool for customer service. The time is now.

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Facts are awfully stubborn things

This is a most interesting time, isn’t it? I listened to Jimmy Rogers on CNBC the other night. He was pointing out there is an election this year in the United States, there is one in France. Germany has an election next year. In fact there are 40 governments that will face elections this year. There will be a lot of money spent by the politicians. Yes, they spend our money to get themselves reelected. Sorry to be so cynical.

But 2012 is going to be a good year – one way or another. If we have to show unemployment going down well let’s not look so closely at the shrinking size of the work force;  If the deficits get too large let’s blame it on the recession or the conflicting arguments between one view of the economist Keynes and the rigors of the Austrian school followed by the later Milton Friedman. Politicians will be in the feel good best this political season

The total unit sales in the United States are still less than 50% of what they were at their peak. The customer fleets and rental houses are almost at the complement of units now. So where is the boom going to be coming from in the US? It sure won’t be housing will it? And as long as housing operated with depressed prices the pent up work force movement will not be released.

The only answer is that the market is what the market is and get over it. Get one with it and make the best of it. The happiest people normally DON’T HAVE the best of everything but they do MAKE THE BEST of everything. The time is now.

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The Most Important Part

The first article I wrote for an Industry publication I called “The Only Part That Matters.” This is of course the part that you don’t have available.

I was referencing the fact that too often we are driven by metrics. Off the shelf availability has to be more than 90% of some such number. That is all well and good – but what about the 10% that you are programming yourself to accept?

Early in my career I got a call in the wee hours on a Sunday morning. It was the Vice President of Parts and Service. There was a Department of Defense station in the Arctic that needed a part for their source of power – a Caterpillar Engine. Of course we didn’t have the part. We found the part in Europe. We sent an employee on a plane to go and get it, bring it back, and then we shipped it to the customer. That gentleman’s name was Rod Boileau and although most of you won’t know Rod he is one of the men that I blame for continuing to be in this Industry some 42 years later. He provided a lesson I have never forgotten. He said “if the part you don’t give me keeps my machine down – you have given me zero.” And this simple example made his point. No part – no power – no power death.

Ever since I have been harping on the fact that no matter what you goal is for off the shelf service you are programming yourself to accept to tolerate a level of shortages. That is why my first rule in the parts business is to find every part every day before you go home. No it is not acceptable to place the part on a backorder at a supplier but you need to know that the part is available and can be shipped that day. That is parts availability. The time is now.