Is there a distribution system more poorly designed for efficiency than the one used by car manufacturers and dealers? In the present system, car prices are priced up by locked-in labor and operational costs. Manufacturers pit dealers against other nearby dealers. Dealers are pressured to accept more vehicles than they can sell, unable to make money from new cars; and turn to service and trade-ins to squeeze out margins.
At the bottom of the food chain are customers trapped in high-pressure negotiations for a car that isn't the exact model they want and usually turned off by the whole process. They are also confused by too many prices, discounts, incentives, rebates etc, etc. Is there any wonder why they are always looking for a better price? The system has conditioned them to do so.
Why do we think the consumers have embraced the Internet so closely, it is a solution to a sick process. They feel it is a way to circumvent the standard sales process where they have been lied to and pushed in ways they do not like. This is especially true now with so many women in the market place.
For the most part channels are constructed from the supplier/OEM down, rather than from the customer to the OEM. The product or service is designed first and it is only then that the supplier thinks about ways to get the product/service out to the customer. If the company achieves its sales goals, it lulls the company into the assumption that the channels must be right. For all we know an alternate channel might have achieved even better results.
The more common issue is that the chosen channel is an expedient short-term solution, often not well suited to sustain sales and profitability in the long run. Once a channel is up and running it is very hard to shut it down and construct a new one. The solution is the channel is temporarily repaired, a "band-aid" is approach, and the selling process moves on.
Toyota's channel strategy is unique. A Toyota dealer sells an average of over 1,000 cars per year compared to a dealer at the Chevrolet division of GM, which sells much less than 1,000. The Japanese company has about 1,500 distributorships in the United States; Chevrolet has about 6,000 plus. No wonder the dealers are killing each other as well as beating up clients to sell a car.
Toyota has a selective number of dealers who face much less competition, have a much larger market area, and sell more cars per outlet. Their dealers should be more profitable, and therefore more satisfied. There is also more demand on the dealers to be customer friendly and service orientated, if there are complaints and Toyota learns of them there is a team approach to work with the dealer to resolve the issues and place process in place to correct the problem.
Dr. W. Edwards Deming was teaching Quality Management in Japan, the Total Quality Management (TQM). Demming’s photo is in the lobby of Toyota’s headquarters, bigger than the photo of founder Toyoda Sakichi. Demming didn’t find an audience in the US after WW II, because managers at the time thought that poor quality was caused by people who just didn’t want to do a good job. They didn’t think there was much managers could do to improve quality except exhort employees to do a better job.
Mr. Demming’s basic message was that quality is a management responsibility, and poor quality was almost always the result of systems imposed on workers which thwarted people’s desire to do high quality work. He taught the Japanese managers how to empower production workers to investigate problems and systematically improve processes. He taught that teamwork and long term, trust-based relationships with suppliers were far better than adversarial relationships. He emphasized a culture of continuous improvement of both processes and products.
The Internet is a great complement to the industry; the technology provides the possibility of transforming a channel that can seamlessly connect the customers, channel partners, and suppliers. The Internet is the facilitator for change in the system that needs to be changed for the good of the industry.
Lucky we are part of this change.
