Archive for category: Parts

Business Plans, Business Services, Consulting Services, Customer Service, Marketing, Parts, Personnel, Product Support Selling, Service, Simulation Modelling

A new discussion on market share

Al Wiley, an executive of Xpectmor, sent us a comment on our recent Market Share post. He says that “market share is the definitive measure of customer satisfaction.” Of course he is right. The measure of market share, however, is what causes the dilemma for many of us.

In the equipment market it is reasonably easy to define market share. There are a finite number of transactions and everyone knows what everyone got. For instance, we have five different suppliers in the market with sales last month. Supplier #1 got 4 sales, supplier #2 got 1 sale, supplier #3got 2 sales, supplier #4 got 2 sales and supplier #5 got 1 sale. The market share is a simple matter of arithmetic. Supplier #1 got 40% market share and so on.

With the parts and service business it gets more complicated. The various suppliers into the market don’t know what the other suppliers sold during any particular period. So how can we possibly calculate the market share of any particular supplier? That is why there has not been any real definitive publication for market share.

When I first started in the Industry in the late 1960’s some suppliers used to conduct a personal survey with each and every one of their customers worldwide. Can you imagine the time and cost for such a survey? Well they did them and they published the results within their distribution network. It was not precisely accurate but it was a very good indicator of where you stood as a dealer in parts and service market share.

As more and more machines get GPS equipped and the dealers/distributors, manufacturers and customers become more adept at understanding telematics and their use we have a terrific opportunity. We can calculate what the consumption of parts and service “should” be on a machine.

This is the first problem. The customer doesn’t always follow the recommendations of the manufacturer of the machine for the maintenance intervals nor the maintenance items to be dealt with for a particular service. Similarly when it is obvious that a repair should be made with a “new component” sometimes a repair that I call “bubble gum and band aids” will be performed. You might be wondering why this is important. Well it is due to the fact that all we can do is calculate the “potential” consumption of parts and service for a particular machine in a specific application running a specific number of hours. It is this potential that we have to use to calculate our “market capture” rate. See now we change the word. It is no longer market share it is market capture.

The dealer captures the potential business based on their actual sales of parts and service. Once we have these facts nad have them for a sufficient period of time we can make a clear statement about capture rates are the success and/or failure of the particular strategy that a dealer is following. The time is now.

Business Services, Consulting Services, Parts

Economic Order Quantity

The blog on variable lead times for each part number seems to have struck a chord so with that in mind I thought it appropriate to kick over another sacred cow in parts inventory management – The Economic Order Quantity.

The EOQ has been around since 1905 when Mr. Kerr and Mr. Norton developed the formula to balance the cost of placing an order with the cost of carrying inventory. A worthwhile effort and one that worked for a long time based on the constraints of the day.

Several things have changed in the intervening 100 plus years that have rendered the traditional EOQ to be a significantly less value. Daily stock orders with turnarounds of three to five days have clearly changed things to the degree that the EOQ should be reevaluated. The dramatic reduction in the cost of computing powers, storage media and business software have also provided a reason to reexamine the logic of the cost of placing an order.

The formula for the EOQ is as follows:

EOQ = the square root of 2 times AD/LC

The variables in the formula are:-

The A = Order Cost
The D = Annual Demand
The L = Product Cost
The C = Carrying Charge

If we look more closely at the Order Cost we will see that there are several items to consider.

a) Order Generation
b) Order Preparation and Record Keeping
c) Order Placement
d) Receiving
I) Physical
ii) Clerical
e) Accounts Payable

This cost is per part number so as you go through the calculations you will find the answer tends to zero. And from your earlier arithmetic experiences the square root of a division calculation that has a numerator of zero is also zero. So this pillar of the inventory control world EOQ should be revisited and a new determination made as to the variables and how to handle the determination of the Order Quantity. The time is now.

Business Services, Consulting Services, Customer Service, Parts, Product Support Selling, Service

Market Share

If you had to choose between customer satisfaction and profitability, what would be your choice? I would take customer satisfaction as without satisfied customers the ability to make profit is going to have a short life.

How to measure customer satisfaction becomes the challenge. Some people define it as repeat business; others measure the change in sales from one period to another; still others use surveys. What is your choice? How satisfied are your customers? One of my favorite indicators of customer satisfaction is the market capture rate. How much of the parts and service business that is available do you in fact receive on the machines that you sell and service? What is your parts market capture rate? What is your service market capture rate? I will put parts at around 35% – 40% and service in the range of 15% – 25%, which by nearly any measure is not very good. The interesting thing about the parts and service business is that management has been held harmless as there is no precise authoritative measurement by which this is reported. It is an opinion. That means that we don’t have a high standard of market capture rate against which we are measuring the performance of the parts and service departments. That is about to change. With the advent of machine telematics some years ago we can now track the hours of each machine and start to evaluate parts and service consumption rates across machine models and applications. This will be a great advance as we will finally know on which machines we are losing the product support business and on which type of products and services. This will be a tremendous change and opportunity for everyone in the parts and service business. I look forward to his type of challenge, shouldn’t you? The time is now.

Business Services, Consulting Services, Customer Service, Parts

Lead Times in Inventory Management

With JIT (Just in Time) supply chains we really have come to a point where customer service is in jeopardy. The problem is our cavalier approach to the lead time component of order points.

The lead time is the total elapsed time between when a part reaches the order point in the warehouse location and on the computer and when the warehouse location and the computer system have been updated with the receipt. This time is broken down into several component parts.

Order Lag Time
Order Review Time
Placing the Order
Supplier Processing Time
Shipping and Transportation Time
Physical Receiving Time
Record Updating Time

Each of these elements has a discrete time consumed in their execution. Yet even with good information on each of these elements we still have a problem with the lead time.

We use ONLY one lead time for each vendor in our business systems. You might be saying to yourself “so what.” Well we can have parts that are regularly available and have a stock replenishment time that is consistently within a week. At the same time we will have parts that are in short supply, for whatever reason, and the replenishment time can be a month or two. With only one lead time per vendor we will either have too much of the readily available parts or too little of the parts that have supply irregularities. There is, however, a simple solution.

Calculate the lead time for each and every part not just for the vendor. This means that you will match the supply chain performance with your performance and can accommodate variations of delivery so that you can supply good availability to your customers. Think about it.

There have been substantial changes in inventory management software and tools yet we have lagged behind with this one simple item. Calculate the lead time for EACH part and not just for each vendor. You will be pleasantly surprised by the results. The time is now…

Business Services, Consulting Services, Customer Service, Parts, Personnel, Product Support Selling, Service

Can we make a difference

The transition to team management while still encouraging curiosity is struggling as management doesn’t know how to encourage risk taking without contradicting the work of the team.

The story of the ages is that people will take risks when they have less to lose and be risk averse when they have a lot to lose. How to break through this paradigm will be a challenge.

To lower parts inventories while improving customer availability.

To guarantee completion dates on repairs while embracing employee satisfaction.

To retain customers while payment patterns change.

All of these challenges exist because we have been rather timid over the past years to tackle changes necessary in a meaningful manner. Now is the time.

Consulting Services, Customer Service, Marketing, Parts, Product Support Selling, Service

Here we are…

Welcome to our blog. We will be involved in discussions and debates on all subjects relating to the operational aspects of equipment dealers and distributors in the Capital Goods Industries. Parts, Service, Product Support Selling, Marketing and Customer Service will be our focus here. But we don’t want to limit your repsonses or thinking to those topics alone. We hope you enjoy and will learn without having to incur the scars on various parts of your body or mind.

Keep involved and participate as we communicate with you on a weekly basis. Thanks for your interest.

The time is now…

TESTIMONIALS

Slow to Hire, Quick to Fire… BS.

This post is a reprint of the article by the same name by Rich Cruz.

Antiquated Hiring Philosophy May Hamper Growth

Recently, I applied and interviewed for an open executive position at a well-established company in the construction industry. Despite its success and expansion, my experience with their hiring process raised serious concerns. After nearly two months of waiting for my first interview and being told the hiring decision wouldn’t be made for at least two more months in the future, I underwent three interviews and was asked to produce a detailed 30, 60, and 90-day plan. Excited to move to the next level, I submitted a high-level outline of a plan via email, explaining that I cannot deliver a full plan without knowing more about the company through examining and analyzing data. The hiring manager insisted on a full PowerPoint presentation, and he coupled his request with the statement, “I am slow to hire and quick to fire.” This led me to withdraw from the process. This phrase, often touted in business owner coaching or peer-group circles, prompted me to delve into why it might have some fundamental flaws.

The Myth of “Slow to Hire, Quick to Fire”

The phrase “slow to hire, quick to fire” has its roots in the belief that thorough hiring processes ensure better employee fit and swift terminations minimize the impact of poor hires. Proponents argue that this approach leads to a more productive and harmonious workplace. Indeed, some literature supports this philosophy, such as articles from Harvard Business Review and Forbes. However, from an Industrial-Organizational Psychology perspective, this approach can pose a detrimental threat to both individual and organizational performance. While hiring for fit for a position with a company should involve rigor, too many assessments, interviews, work samples, or other forms of evaluation can reduce the pool of candidates and pose risks to the organization.

The Downside of “Slow to Hire”

An unbalanced approach that does not emphasize timely and efficient hiring processes can create detriments for both employees and organizations. Some drawbacks include:

Talent Drain: Lengthy hiring processes can lead to the loss of top talent. High-caliber candidates often have multiple opportunities and may not wait months for a decision. As Peter Drucker famously noted, “The best way to predict the future is to create it.” Creating a future with top talent requires swift, decisive action.

Increased Costs: Prolonged vacancies can result in significant costs in terms of lost productivity and the expenses associated with extended recruitment efforts. According to Kouzes and Posner, effective leadership creates a vision and rallies people around it. Delays in hiring disrupt this vision and impede progress.

Negative Candidate Experience: A cumbersome hiring process can damage an organization’s reputation. Candidates talk, and word spreads quickly about companies with inefficient recruitment practices. This can lead to a tarnished employer brand, making it harder to attract top talent in the future.

The Pitfalls of “Quick to Fire”

Similarly, organizations that fail to invest in their employees and nurture organizational citizenship behaviors (OCBs) with on-the-job training, coaching, rewards, and other reinforcement can suffer consequences such as:

Cultural Impact: Frequent terminations can create a culture of fear and uncertainty. Locke and Latham’s Goal Setting Theory emphasizes the importance of clear, attainable goals for employee motivation. A “quick to fire” approach undermines this by fostering instability and mistrust.

Loss of Investment: Hiring and onboarding can cost as much as 1.5 times a worker’s salary. Quick terminations mean the organization loses its recruitment, training, and development investment. Additionally, the constant churn can disrupt team dynamics and hinder long-term projects.

Erosion of Employee Morale: The psychological contract between employer and employee has its foundation in mutual trust and respect. When employees see their peers seemingly indiscriminately terminated, it can lead to decreased morale, engagement, and loyalty. Positive Organizational Behavior (POB) framework – which highlights the importance of hope, confidence, and resilience in fostering a productive workforce – supports the consequences of broken psychological contracts.

Evidence from Experts

The literature from scholarly resources and best-selling authors offers insight into better ways to attract and retain top talent.

Peter Drucker: Drucker emphasized the importance of nurturing talent and creating a culture of continuous improvement. His writings suggest that a balanced approach to hiring and firing, focusing on development and fit, provides a more sustainable workplace than extreme practices.

Kouzes and Posner: In their works on leadership, Kouzes and Posner highlight the significance of fostering an inclusive, supportive environment. Leaders should focus on building relationships and empowering employees rather than relying on punitive measures.

Locke and Latham: Their Goal Setting Theory underscores the need for achievable goals for individuals and work groups tied to organizational objectives. A hasty firing approach disrupts goal alignment and diminishes the sense of purpose within the organization.

Angela Duckworth and Carol Dweck: Their research on grit and growth mindset, respectively, points to the importance of perseverance and learning from mistakes. Quick terminations deprive both the employee and the organization of the opportunity to grow and improve.

While “slow to hire, quick to fire” might appear as a catchy mantra, it falls short when scrutinized through the lens of Industrial-Organizational Psychology and leadership theory. A more balanced approach, emphasizing timely yet thorough hiring processes and supportive, development-focused retention strategies, is key to fostering a thriving organizational culture. My recent experience underscores the importance of evaluating not just the processes but potential employers’ underlying values and culture. Ultimately, businesses that invest in their people by balancing rigor with empathy possess a better chance to succeed in the long run.

References

Harvard Business Review Article on “Hire Slow, Fire Fast”

Forbes Article on “Hire Slow and Fire Fast”

Forbes Contributor on “Hire Slow, Fire Fast: Possibly the Worst Advice Ever Given”

Academy Leadership Article

LinkedIn Pulse Article

Fast Company Article

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August 14, 2024

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May 30, 2012