Internet Searching for Parts Excellence

Lets start off by discussing what we originally intended to do in this post. We thought we would do some Internet research and easily find some of the best service parts management companies and describe what they were doing that set them apart. However, because of the lack of data we were not able to do this. Thus we have another topic to discuss; namely, where are the listings for service parts management or at least service management?

History of Business Ratings

Lets discuss the history of business ratings. The concept of rating a business’s performance in a formalized manner is while not that new, still not all that widely practiced. The pre-eminent rater of products in the US is Consumer Union, which publishes Consumer Reports.

Consumer Reports provides initial ratings or reviews of products and services. This in itself is not that rare except for the fact that Consumer Reports has set itself apart from other rating companies (such as Epinions and JD Power and Associates) for buffering itself form company influence. The way this is done is by being subscriber supported and not accepting advertising or allowing the use of Consumer Reports results to be used in advertising. Another thing that is relatively unique to Consumer Reports is their tracking of long term reliability of automobiles and the brand reliability of things like washers and dryers and computers. These ratings influence purchases and were and continue to be critical of lower quality products. Before this rating system existed every car company could claim to make a high quality product, but the ratings showed otherwise. The Consumer Reports rating system in addition to word of mouth was instrumental in bringing down the US car industry, which was and continues to make inferior products, and promoting the Japanese car industry for the opposite reason.

The Consumer Reports reliability rating for a Saab.

Service Ratings

Manufacturing ratings are relatively common, as any search on Google will demonstrate. IndustryWeek maintains a prominent one here..

http://www.industryweek.com/articles/the_iw_50_best_manufacturing_companies_corporate_gold_mines_16355.aspx?SectionID=42

However, we did not find a rating for excellent service parts firms. Recently JD Power and Associates has begun tracking excellent service organizations, a list of which was recently published in Business Week. However, if you look at the list, only seven are manufacturing operations.

• Cadillac
• Toyota
• Porche
• Apple
• Lexus
• Buick
• Lincoln

The majority are services (i.e. banking, hotels) which do not have service parts operations. And of the top list in customer service, Buick, Porsche and Cadillac do not make reliable cars according to Consumer Reports, so the rating must be for the customer experience in sales and service. Alternatively, these three care makers may excel at service parts management. However, because the rating is so broad, it is difficult to tell. This is not to say the ratings looks illegitimate. In fact, we have had personal experience with many of the companies on the list and the ratings check out with our personal experiences. One final point is that the ratings are all consumer brands, however what about industrial brands like John Deere, we see no industrial brands on the list. Industrial brands should be pitted head to head against consumer brands. In our optimal rating system, Raytheon would be on the same list, and competing against Acura.

A Service Parts Management Rating Index

What is really needed is a service management index, which would include service parts. Tracking this would go a long way towards bringing more focus on the topic. Things like initial price are easy to compare, but without a service management rating, products with a low initial cost, but high long -term maintenance cost can become more popular. This gives companies less of an incentive to build serviceable items, and to invest in their service infrastructure. This is the present situation that many US firms find themselves. One of the great positives of the Japanese culture is that it focuses on quality and assumes good things will flow from this. US culture is different. We will produce quality if we believe we can earn an ROI on it. This is a very different approach.

Measuring ROI From Quality

However, measuring ROI on quality is not something that is a very well developed capability. However, this brings up a topic that we can’t resist discussing, although it is a slight digression. In the 1980’s Japanese manufacturing was all the rage, and a number of books came out and consultants supported the notion that conventional inventory management formulas were incorrect. This was because, they said, the benefits of inventory decreases did not show in the numbers. Therefore inventory should essentially be slashed willy-nilly and then good things would follow. This proved to be completely false, yet companies to this day are obsessed with inventory reduction.  However, the formulas for inventory management were correct and company after company that we see carries too little inventory, which negatively affects their service fill and their manufacturing efficiency. However, the relationship between quality and ROI exists, it is difficult to measure. This is because of the existence of monopoly power. Microsoft has terrible software quality. However, their monopoly position protects them from the effects of poor quality. What is interesting is the message that was really taken from Japan was its low inventory levels (also a consequence of having manufacturers and suppliers close to one another, which is not the case in the US) even though there was zero evidence the inventory formulas were calculating excess inventory. However, this message was appealing because it meant less investment – at least in the short term, which is what executives want to hear. Quality requires more investment up-front, and provides long term benefits which executives are less interested in because of how US executives are compensated with stock options. What this case study indicates is that some messages, while false, become popular, because they dovetail with organizational and personal incentives. Other messages, which while true, fall on deaf ears, because they do not dovetail with incentives.

When selling concepts to US executives, the truthfulness of a course of action takes a back seat to the personal incentives of the individual.

Benefits of a Ranking System

So US industry needs to be put on the spot – or exposed through a ranking system – in order to have the proper incentive to invest in service. There is an old saying that goes something to the effect of “there is no reason to improve something if no one is measuring it.”