Automotive: Identifying Drivers of Margins

Burk's Portfolio Management Solutions enabled this leading European automaker to clearly identify where and how to improve margins, ultimately delivering a two percent increase in return on sales.

In the automotive industry today, better insights into transaction margins are crucial to drive much-needed profit growth. The automotive industry has traditionally been all about volume. Shift the units and you'll reap the profits. But today's market is different. Not just because market conditions are tough, which they are: in Europe, unit sales fell 1% a year from 2000-2010. It's also because the industry has become more complex. Large, global players now dominate, raising the level of organizational complexity. And the dizzying array of models, options, and accessories - that mean pretty much any modern car can be a one-off - blurs the profitability picture. The auto industry's multi-level sales model - from OEM to country sales organization to dealer and, finally, customer - adds yet another layer of complexity.

With this in mind, it's no surprise that margins are under pressure - eroding 0.4% per year from 2000-2010. At the heart of this trend is a lack of transparency into revenue. Put another way: amidst this complexity, how is it possible to see what the drivers of  margin are? Automaker sees 2% uplift in ROS with Periscope Performance Vision for B2B

Details

Client: European Automaker

Location: Europe, US, China

What we did: Implementation, training, best-practice capture, 24/7 software and export

Implementation timeframe: 20 weeks to first market, global rollout in 12 months

Results: 2% increase in ROS

In Search of a Granular View

It was this question that led a major European OEM to work with Burk and Company. This large player, which produces and sells cars through a network of independent dealers, was feeling the impact of industry challenges and also basing their decisions on inadequate, time-lagged data. With each country managing margins differently and with limited systems integration, they had only aggregate data by model available and had to wait a month for each data update. And they allocated variable marketing budgets and discounts based on assumed, rather than actual, performance with no capability to track impact at a granular level.

A Fact-based Debate on Performance

So after our client saw the potential during a production improvement program, we began to implement the business solution in a staged process, starting with pilots on three continents before rolling it out globally over 12 months. This is much more than a performance management implementation, though. As part of the rollout, we are also building our client's capability, training everyone from senior managers to sales agents, and coaching executives on how to use this newfound transparency to improve margins. And as the implementation progresses, we have been able to collect best practices and disseminate them across other countries. The result? This organization is now able to have a true, fact-based debate on performance, anywhere in the world.

Already, the company is seeing the effects filter through to the bottom line, attributing a 2% increase in ROS to the granular view that performance management makes possible. This number has been driven by an increase in bundled sales and an optimized model and variant mix, which, in turn, results from a better understanding of customers and consistent application of best practice.

Impact Insights

The real difference, however, is that performance management has changed the way the client's frontline people think. With the Solution, employees can use data in communication with customers. It is very simple and graphical and leads to insights as soon as you switch it on. And as people become more familiar with performance management, so they uncover more opportunities. Throughout the organization, the Solution is creating a common language for managing revenue and margins, focusing the company on the issue. It is the driver for a weekly performance dialog that pinpoints actionable, manageable opportunities. And the rollout continues with more than 200 users across 14 markets currently targeted for training.

What of the future? One thing's for sure, the optimization story doesn't end here. There is more potential in this automaker's performance management implementation to understand and prove the value of best practices within a region, then apply it across all their markets. It could help them steer revenue management from the center more accurately. And they could take the margin management philosophy and approach to the dealers, enabling them to sell more profitably too. In a challenging and complex auto market, revenue transparency is proving indispensable to this company in finding crucial extra margin