More Than Just Original Parts
After sales is one of the automotive sector's most important fields of business. The Volkswagen Group shows what a contemporary multi-brand strategy looks like.
Selling cars is one thing. But an ever-greater share of car makers' sales falls into the period after new-car contracts are signed. The after sales division can definitely be viewed as a "company within the company," even though the term might not be used. The field includes automotive repairs and the sale of original parts, and ensures that customers can use their vehicles for years after purchasing them. The after sales business therefore has its own supply chain, for example, and is also involved in vehicle development. In addition, its services represent a crucial point of contact for ensuring customer loyalty. After sales plays a key role in advancing the automotive sector's digital transformation with new business models for customers such as connected services, function on demand, and platform models, in addition to back-end processes.
At the same time, the digitalization and electrification-driven transformation of the automotive sector is also changing the after sales itself. Driver assistance systems like adaptive cruise control are leading to fewer accidents, and drivers are visiting car workshops less often. When they do go, however, repairs tend to be more comprehensive. Over the long term, the repair market will decline due to factors such as the elimination of oil changes for electric vehicles. Many OEMs are now asking whether their after sales segments will remain competitive in the future.
The Volkswagen Group has also intensively addressed the question of how after sales can become more efficient, and developed a corresponding guideline for the future entitled "Vision 2025." In 2018, the company's after sales business reported sales of 15.9 billion euros. Currently around 100 million vehicles from Volkswagen Group vehicles are on the road. That shows the dimensions of the company's after sales activities – as well as the market's potential. To transform this vision into successful practice, the Volkswagen Group and its brands have worked with Porsche Consulting to launch the STREAM project, whose name derives from the idea of Streamlined Accountabilities.
The project's underlying idea is as simple as it is effective: a multi-brand group like Volkswagen can maximize market penetration when all its brands act in concert. And Volkswagen Group subsidiaries often do work closely together—but these joint efforts are seldom institutionalized. Prior to the STREAM project, Volkswagen's after sales had developed neither a shared goal nor uniform strategic approaches or implementation plans. Instead, each brand organized the relevant activities itself, with occasional joint projects on selected topics. Significant redundancies made it harder to put these measures into practice on the markets. The STREAM project is designed to break up this silo system, define clear responsibilities, and "act like a catalyst to bring our brands into a community," reports Roman Havlásek, Head of Group After Sales at Volkswagen.
STREAM has four goals. Number one: the project should put the process and organizational synergies identified by the Group and brands into practice, and ensure that both the Group and brands benefit from them. Among other measures taken to achieve this end, after sales will be divided into backbone and front-end processes. Number two: Volkswagen and its brands should make greater use of existing potential on the market, for instance by developing new technologies. Number three: the Group should acquire new business fields to compensate for developments such as a decline in sales of electric cars. Number four: Volkswagen and Porsche Consulting have jointly reworked the methods for measuring customer satisfaction and operative performance. This should enable the data from individual subsidiaries to be compared and reveal where room still exists for improvement.
Porsche Consulting's initial aim was therefore to develop ways to divide after sales activities into backbone and front-end processes. Backbone processes are those that the customer does not see, such as drawing up repair guidelines or supplying original parts. Front-end processes are those with a direct customer interface. These include workshop repairs. STREAM is also designed to eliminate redundancies. "We can save costs on processes if we don't duplicate them but instead jointly determine the best course and apply it across all the brands," says Imelda Labbé, Head of Group After Sales at Volkswagen and STREAM project director.
It was a paradigm shift. The Group is now responsible for the brands' backbone processes and provides the associated services on a centralized basis. That includes the sale of original parts to independent workshops. The project team defined multi-brand standards for developing literature on parts and services, for pricing, and for distribution. The individual brands define the pricing parameters, but the methods remain the same for all. "After just nine months we were already seeing the first quick wins," says Labbé. Parameter planning now shows up to 50 percent greater efficiency compared to the baseline year.
With the support of Porsche Consulting, the STREAM project developed a solution by which each brand's supply chain infrastructure can be used to send original parts from depots as close to the destination as possible instead of all the way across Europe. For example, original parts for one brand will be stored with those of a sister brand at a depot in the Czech Republic and supplied directly to Czech workshops when needed. That saves time and transport costs, and also lowers CO2 emissions.
The multi-brand strategy also benefits departments like claims management and fleet systems. For example, insurance companies should be able to make joint agreements with the Volkswagen Group as a whole in the future. Fleet management for customers with multiple brands should be harmonized and streamlined. The advantage for the Group lies in enabling brand managers to concentrate entirely on their core business and on achieving their sales and revenue targets. The advantage for customers consists of more convenient solutions tailored to their specific needs. "This gives everyone involved the right tools to reach their shared goals," observes Havlásek.
The STREAM project's efforts to set up a uniform multi-brand strategy are also focusing on future-oriented topics such as connectivity and function on demand. Here, too, the Group's full power is combined with that of the brands to provide customers with convenient and streamlined solutions. For instance, uniform IT infrastructures throughout the Group are expected to accelerate processes and simplify the lives of customers, dealers, and the brands themselves.
Before STREAM, each Volkswagen brand had its own reporting standards on major after sales indicators for its logistics and procurement. The project has now developed and implemented new multi-brand KPIs with clear connections to profit-and-loss considerations such as logistics and material cost quotes. They indicate what percentage of a company's revenue goes to e.g., transport or storage, or also to the purchase of original parts. Porsche Consulting has supported a uniform course for the Group on how the brands will measure KPIs from headquarters on down to the target markets. The idea is to make performance indicators comparable across all the Group's brands.
The supply chain was also optimized in the interest of increasing efficiency. In addition, new business fields were identified. For example, many workshops have thus far seen less revenue from electric cars because these vehicles have fewer moving parts and their service packages sell fewer items like oil. Higher levels of electric mobility will therefore mean lower income from after sales. STREAM is designed to help the Volkswagen Group compensate for this type of loss in the future. The team is currently working on matters such as how the high-voltage batteries can be recycled or reused.
The project team turned its attention not least of all to customer loyalty. Each brand at Volkswagen has thus far pursued its own strategy in ascertaining the degree of customer loyalty and the nature of dealership contacts. The many different forms of data have made it nearly impossible to derive a consistent picture. The STREAM project team has therefore developed a multi-brand strategy for this core area as well. As a result, there are now joint measurement and reporting standards and uniform performance targets. Increasing the loyalty of car owners in different age groups is a key lever for raising after sales revenue.
This is important not only for brand reputations. Satisfied customers are a direct driver of sales. As devoted fans they recommend the company to others, thereby attracting new customers—who can then serve as brand ambassadors too. They remain well disposed to the company after signing purchasing contracts, and place their trust more often in licensed workshops. This has an enormous effect. "Every percent increase in customer loyalty leads to hundreds of millions of euros in additional sales," says David Blecher, head of the Service Excellence division at Porsche Consulting.