Through the first step, every dealer will be assessed under three core criteria:
- multifactor bankruptcy prediction (e.g. Altman-Z or Ohlson O-Score)
- historical financial KPIs
- payment history assessment.
These will be combined via a national weighting and represent the financial fitness.
The Altman-Z score predicts with ~70% correctness the risk for a default of the dealership and can be assessed fairly easily.
However, to improve accuracy, we suggest utilizing the Ohlson O-Score for our work, which can predict bankruptcy risks with up to 90%. The relevant data sources for both calculations are part of a common balance sheet and may alternatively be acquired through detailed surveys with the retailers.
Our first assessment will be supported by reviewing common indicators tracking profitability and business liquidity such as debt and cash flow ratio and ROS. For these scores to be assessed in a matrix, dedicated ranges must be defined which will then be weighted and form the second part of the status-quo financial assessment.
A third building block to our financial scoring, the payment history must be evaluated. Whereby relevant KPIs such as overdraft measurements will be assessed over a pre-defined scale to compute a singular score.
To combine the performed assessments and to compute a reliable financial strength relevant to a marketplace, individual weightage factors need to be defined to calculate one single score.
The full assessment is shown in the following illustration.
The view on strategical importance will help to compliment a financial performance and add the strategic network perspective. This step also enforces a strategic thinking across manufacturers as well as importers/ NSCs, whereby a strategic assessment requires a clear directive towards the network. Strategical importance encompasses:
- Positioning
- Replaceability
- Size
and thereby laying the ground for further KPI assessments.
Positioning defines a general attractiveness of a sales area allocated to the dealership. It is therefore required to assess the detailed network plan of the area. The network plan should include size and growth rates as well as distribution models if they differ across the network (e.g. dealers and sub dealers). A further important component is competitiveness, which measures the number of dealers in the region as well as market shares and competition.
Measuring dealer size refers to basic performance indicators such as sales volumes across the business under evaluation. Dealer size indicates a generic contribution of volume or revenue to the area the business is located in a selected network, end therefore is a good indicator for business concentration.
Replaceability is an important indicator defining alternative scenarios and measuring internal cannibalization and the capitalization on the existing “own” vehicle population. Replaceability defines the dependencies of an OEM/ importer or NSC of a certain operator. Generally, an importer would aim for a network which does not relay on single dealership to deliver the broad volumes and therefore to drive a certain degree of replaceability within its network.
To measure the strategical importance with a single KPI, weightings and scales must be defined which will then be used to analyse the individual areas.
Having analyzed financials as well as strategic positioning of each operator, a network map, plotting each operator needs to be prepared.
Dealerships showing high financial strengths should be analyzed regarding best practice examples, as they are typically outstanding operators regardless of their strategical importance. All measures allocated or selected for these dealer groups, need to aim on improving the status quo whilst leveraging on their individual strengths. Cooperating with these dealers requires a very in depth understanding of the operation and environment of these operators.
Regardless of actions taken, a detailed sharing of expertise of these dealers needs to take place, this is particularly important for operators sharing the same market space.
Dealers showing low strategical importance and low financial strengths could be taken aside of further development, as any improvement actions would require significant investment from the network management teams as well as OEM/ NSC and import side, whilst having a minimal impact on strategic success of the network. Nevertheless, a strategy of volume compensation must be prepared for eventual drops through these operators.
Similarity, operators with medium financial strength and low strategic value, improvement actions would require a significant impact. These retailers should be evaluated separately to define potential uplifts whilst a backup strategy for volume dependencies and possible countermeasures needs to be prepared.
Dealers with medium performance but high strategical importance need to be assessed in detail to ensure an improvement in performance. Nevertheless, these operators should be financially capable to weather a general market decline due to the financial stability. A detailed monitoring of these operators needs to be implemented moving forward. Additionally, a clear action plan needs to be pre-defined in case their financial strength shows weakening.
Dealers under high strategical importance but weak financial performance are the most critical to receive immediate attention. These operators bear the highest risk for volatility in sales performance due to a high strategic focus and a low financial performance. For these, an immediate follow up and a close management needs to be instituted.
An increasing focus in network management has been to supplement our assessment with an in-depth analysis of DEA efficiency matrixes.
Whilst the detailed methodology is explained in a separate white paper, it constitutes an important assessment under this framework and helps to further segregate these operators.
Our DEA approach will assess the operators on two different levels:
- Financial efficiency
- Resource efficiency
To define financial efficiency, relevant inputs must be defined and may include purchases or investments as well as operative costs or overheads.
Resource efficiency is determined through relevant KPIs such as manpower, through puts, work bays vehicle parc.
The output factors should remain stable and may be defined as revenue, margins, or earnings.
The efficiency assessment may be used to further detail individual dealers within the mapping or serve as base to refine best practices among the dealers. We have also utilized efficiency assessments throughout commercial policies to define the level of bonus or commercial support being allocated to markets to balance scale efficiencies and general market size or traditional measurements such as market share.
In order to utilize the DEA score as another layer for a network mapping, it may be compared to strategic importance or individual scores within the financial assessment. The DEA assessment can also be conducted on an individual retailer for a more granular assessment and therefore be allocated at a later stage of the process.
Utilizing the DEA score in context with further measures provides a great tool assessing implications among assessments and can help driving and effectively influencing operator performance.
Through a financial and strategical assessment, a focus area can be defined which through efficiency analysis may be further quantified and qualified.
The next necessary step to align the market for potential changes as well as to improve the overall performance is the performance of a dynamic analysis.
A dynamic assessment is crucial, as only through it would it be possible to determine whether and how market conditions will impact the network and thereby effecting manufacturers and importers sales volumes.
Through this definition, it will be possible to determine a timeline as to when a dealer intervention needs to take place and at what cost. Understanding a timeline of the impact on volume loss due to bankruptcy or capacity constraints, helps prioritising network interventions.
Static assessment indicates the extend of volume losses and dynamic assessment shows its timeline under given scenarios.
To conduct a dynamic assessment, a set of assumptions must be defined, which describe the changes in the market structure, the performance, and its implications on the financial situation of each operator.
The analysis can be focusing on, revenues or volumes whilst cash flow of the business being most crucial to define future capabilities and risk to the manufacturer.
To efficiently assess market implications, through this document, we utilize the indirect method of cash-flow calculations. Thereby, starting with the cash and deposits, to which net profits, non-cash expenses and future financing will be added, subsequently working capital requirements, cash guarantee requirements will be deducted to derive the future liquidity.
If the result of future liquidity at the end of the period remains positive, the dealer has a surplus of cash and will remain profitable within the assessed period, whereas a negative result would indicate a bankruptcy.
This analysis will be conducted for each prioritized dealer and must be conducted over a set timeframe e.g., one year on a monthly base.
Once the periods are calculated, the flow needs to be plotted for visualization. Whenever the line crosses the x-axes showing the analysed timeframe, it indicates the time a dealer will be in financial trouble and at risk of bankruptcy.
Now, the network has a solid understanding about dealers and therefore volumes at risk over a certain period of time. This information may again be placed on a timeframe to understand the total volume at risk and the financial support required to maintain selected dealers afloat.
To create suitable strategies for developing the market and avoiding potential shortfalls, a quantitative assessment for each (Focus) retailer needs to be performed. Otherwise, OEMs and their network risk their position in the marketplace as a driver and developer and will fall back into a reactive role trying to catch-up.
To avoid this negative scenario, an assessment of performance as well as processes needs to be conducted.
Through the definition of a range of focus dealers, the network can be grouped into stages of development and support need.
In the first step, the dealer assessment needs to focus on a KPI relevant development over several periods. This will support a detailed understanding of the dealers’ issues and provide a good understanding to explain the financial situation and its dynamic.
Based upon the KPI assessment, a first step of improvement plan can be derived.
Assessment of historic and present KPI’s ensures a holistic understanding of the business and its historic performance. Through granular assessment of core business KPIs, concrete working areas can be defined, to ensure a sustainable business.
KPI’s are filtered and aggregated through a matrix approach where performance will be weighed against a pre-defined scale in relation to the results in static and dynamic assessment as well as the individual need of the market.
The KPI assessments should be following the four core areas for the dealership operation and contain relevant KPIs describing the customer satisfaction-, operation-, marketing- and financial universe. The chosen KPIs need to be comparable across the network and be available on a historical base.
It is understood that the core important KPI is set to be measuring customer satisfaction. Through our expertise, we can strongly suggest that the performance across all other objectives in a value chain follows the performance of customer satisfaction and its execution within the organization as well as its focus in the strategic objectives. With the initially explained changes in customer expectations and groups, a KPI must be supplemented through actual customer feedbacks to assess and more importantly plan future developments. Measuring customer service performance gives access to some of the most important leading KPI indicators. These, in turn, will go on to influence sales and customer retention. Additionally, it will help to manage the customer service team more efficiently, potentially reducing cost and driving increased job satisfaction.
We have identified three key areas where customer centric KPIs will have the biggest impact on the success of an operation. These are, customer satisfaction, operational efficiency, and business value KPIs, additionally, we believe an efficient and well-structured marketing approach is essential to communicate the products benefits as well as its values towards customers. Therefore, we are focusing on a meaningful inclusion of these pillars into our assessment.
The above illustrates a selection of KPIs within the evaluation process. However, where concrete KPIs are not measured, or data is inconsistent, a separate questionnaire is to be developed, on which base, a broad set of interviews must be conducted.
Once the relevant KPIs are selected, a scale for each must be developed upon which a rating has to be performed to calculate a singular value for each KPI. Singular scores will subsequently be weighted to define sub scores per category (Customer care, operation, marketing and financial), which will in the last step be weighed against each other to define a singular score for each dealership.
This assessment will clearly highlight relationship between performance of outlets and their statical and dynamical assessment results. Moreover, through this assessment, a deep dive into the individual reasons for under or over performance can be established and an action plan can be solidified through the process audit. Whilst the selection of KPIs must be individually defined, the underlying structure should remain unchanged. It is crucial for this step to achieve a necessary selection to picture
the business in its core structure and hence to reflect relevant KPIs which are repetitive across the network.
A detailed assessment of current and expected/ standard procedures will provide the last insight needed to define a comprehensive action plan per operator.
The benefits of conducting process assessments are twofold. On the one hand, they serve as a tool to ensure that retailers are complying with pre-established agreements on product placement, pricing, and promotion. On the other hand, they allow to accurately measure and define gaps and improvement areas in the retail environment.
For this case, we suggest conducting a full audit of the premises to understand the degree of deviation against the set standards. This already will provide a first level of GAP analysis required for further processing.
For this purpose, an audit checklist must be aligned covering not only the traditional scope of CI and or standard processes (e.g., service process), but need to be supplemented by the results of the static and dynamic assessment, as well as the KPI assessment. An integration of these additional steps is necessary, as throughout the underlying assessments, first conclusions had been drawn which have to be calibrated and confirmed through the process assessment.
For example, if customer satisfaction KPIs had been low, a detailed assessment into the questionnaire, the way feedback is gathered as well as the feedback and reply to queries must be assessed to understand the underlying reasons for a non-performance.
Likewise, if turnover performance lacks behind expectation or plan, a detailed assessment in capacity, marketing, service processes, stocking, job orders and cross selling must be performed. The conduction of the audit will follow a prepared template based upon the agreed items and a scaling system allowing for individual scores per item. These individual scores will then be weighted to compute a group score per category, and these will be weighted to define the audit score.
In addition to the audit, the consulting team should spend enough time within each operation to assess the actual execution of each procedure to verify “real life” implications and possible deviations from an audit scenario. Throughout the audit process, it is recommended to also conduct key customer roundtables to assess possible outliers and more importantly to allow the operation to tailor procedures to a local need.
In addition to the audit, the consulting team should spend enough time within each operation to assess the actual execution of each procedure to verify “real life” implications and possible deviations from an audit scenario.
As explained initially, customer expectations are changing rapidly, this requires a fundamental shift in customer facing procedures to allow for tailored experiences. This is relevant for actual processes as well as the way feedback is gathered and should be assessed throughout the process assessment.
Further, a close correlation between the core perspectives (Customer, Process, Reporting and marketing) needs to be established as the procedures as well as the results are closely corelated amongst each other and therefore, the audit must be linked.