Business Tech

Developing Customer Ownership for Ashok Leyland Dealers in Parts Business (Leyparts)

Abhilash Mishra Reg No. 07MBA004 VIT Business School Vellore Institute Of Technology Univetrsity Vellore-632014 Mobile- +91-9952113317 Email id- [email protected]

I would like to thank Mr. B. Asokumar Senior Professor, VIT University and Mr. Santosh Kumar Mishra Divisional Manager,Ashok Leyland Limited for their guidance and help to complete this study. 1

ABSTRACT Here the study was conducted to study the steps that can be taken to develop Customer ownership for Ashok Leyland Dealers with special reference to its spare parts business which is performed under the brand name of spare parts. The objective of the study was to increase the spare parts sales by identifying the problems and then narrowing the problems that are faced from different parties of the supply chain starting from the vendors who supply the spares to Leyparts and its ends with the end customer. The study was carried out by identifying some key custotomers in form of fleet owners who have more than 100 Ashok Leyland vehicles and have a own workshop of its own. After the problems were identified then the functions of Leyparts was compared with the functioning of some other companies and all the positive steps were taken up and then the comparison was made and the positive steps were taken up and suggested to Leyparts management after doing a proper study on it which would help Leyparts to increase its market share and then some steps were suggested to reduce the running cost of Leyparts supply chain.

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OVER VIEW Automobile companies are waking up to the fact that consumers do not only buy vehicle but also a package of support services with it. We see that these support services, such as spare parts supply and contract repair and maintenance activities, contribute a significant proportion of business and thus they receive greater attention than before. Leyparts enjoys considerable brand equity in the market place as a genuine and Original Equipment spare part. However, Leyparts has not leveraged the power of the brand effectively so far. In many markets, there is a poor perception of parts availability and price value relationship. The project was to study and cover all aspects of Leyparts business which includes packaging, promotion, advertisement and channel and come up with recommendations for enhanced market acceptance and competitive position. The methodology consisted of understanding all the aspects of improving the Leyparts business and then measuring customer perception. This included initial study of existing system and then more focus on surveying. Target audience- Fleet owners, Dealers Survey area - Chennai, Vellore; Tasks - survey design, data collection and analysis. Leyparts evokes perception of that of market leader. The biggest strength for Leyparts is its very good quality and brand name. However, certain weaknesses such as lack of service level agreement for Ashok Leyland vehicles for the after sale service, poor availability and high prices, were also identified after analyzing. Based upon these inferences certain recommendations have been made at the end of the project report.

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RESEARCH DESIGN The research design for the project consists of following sections: METHODOLOGY As mentioned in the project objective, a very important portion of project consisted understanding the needs of the customers well and surround them with solutions so that the customers will be more interested for Leyparts and hence the sale of Leyparts will increase. This also deals with the study of consumption pattern of Leyparts in case of fleet owners as they form a major part in Leyparts business. To be done through identified key customers whose parameters have been specified. The methodology adopted is illustrated in the following lines:

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Establishing Theoretical Framework

The first and the most crucial step was to gain an overview and a thorough understanding of all aspects related to Leyparts. This was mainly done through interaction and knowledge sharing with the seniors at Ashok Leyland. Also, visits to Ashok Leyland Chennai warehouse and the dealer warehouse of Sundaram Motors gave deep insights about Leyparts. It also helped in defining the relevance besides the scope and the limitations of the research proposal. Visits to the fleet owners identified as the key customers to understand their business well in relation to Leyparts and helped understanding their problems with relation to Ashok Leyland and the dealers of Leyparts. •

Research design This is a exploratory study in which we had to meet people to get their feed back on Leypatys usage and its services so that we can narrow down the problems and suggest appropriate steps for providing them appropriate solutions and in turn to help Leyparts to gain more market share through the improvement of customer service.

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Secondary Data Analysis 4

Secondary research data on consumer decision variables on spare parts purchase as well as their knowledge on perception of and expectations from spare parts company helped in developing an understanding of the product. It also helped in understanding Leyparts as a brand in India, the problems faced as well as the reach of Leyparts. Reading up and understanding automobile industry reports through published studies and various automobile company websites helped in developing insights into the topic.

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Design of the parameters and the information’s to be collected.

After implementing the Pilot survey in the form of a scripted interview, a excel was prepared consisting of both open as well as closed ended questions based on the inputs of people who took part in the Pilot Survey. There were different tabs to be filled up during the whole review process stating the information’s that should be collected and the informations to be gathered from different sources and the updations to be done . The informations to be collected had to be on the per vehicle parts consumption and the share of Leyparts in that consumption along with Leyparts aspects of branding, customer perception and the various parameters for overall satisfaction. There was an attempt to have detailed discussion with every respondent so as to gather as much information and their attitude towards Leyparts, as possible.

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Data Preparation and Analysis

Post final survey data which had been compiled in the form of interactions with different dealers and the fleet owners identified as key customers was further prepared in the following way. Responses to answer research problems have been quantified for respective research problems in MSexcel. Since responses to various questions have been obtained to solve a particular research problem, weights have been assigned as per degree of importance attached to a question. Hence after analyzing the questions, respective research problems have been solved. Customer responses have also been considered from the survey for recommendations from the project. 5

Based upon the analysis, various inferences were drawn which were used further for recommendations and suggestions. •

Limitations in the study:

The first of the type was the language problem as many of the dealers workers and some of the fleet owner workers were not well versed with Hindi and English and were comfortable with Tamil which was a problem in the study. The other limitation was the time factor as the study was on in the month of February and march which is a busy time for all the dealers and the fleet owners as they have to meet their yearly target and then decide upon their next year targets so there was a problem in getting appointments. The limitation of getting the Leyparts usage vehicle wise data as there was no data available with the fleet owners. And some fleet owners were not interested to give the data without any sort of help from Ashok Leyland

Project:

Developing Customer Ownership for Ashok Leyland Dealers in Parts Business

Objective: To study Leypatys usage and its services so that we can narrow down the problems and suggest appropriate steps for providing them appropriate solutions and in turn to help Leyparts to gain more market share through the improvement of customer service.

What is Customer Ownership? Customer Ownership means surrounding the customer with solutions. It is developing a feeling in the minds of the customer that you are really caring for him and trying to help him in whatever ways. It is all understanding what the customer expects from you and trying to give him the best possible service. 6

It is to develop a felling in peoples mind that Ashok Leyland really cares for his customers and is able to give a solution to any of their problems whenever it is needed. With schemes like AMC, VISHWAS, MITR Ashok Leyland is trying to move near to its customers so that the needs and the expectations of customers so that more customer satisfaction is resulted by helping them to get solutions to their problems and as a result gaining more response from the customers and helping to improve his business. Here the customer is the centre of all the activities.

Some of the problems Identified in the Leyparts business: •

Discriminating customers by size

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Loosely framed commitments

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Only promotion is MITR program & incentive by AL; absence of any efforts by Dealers

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Inefficient study of consumptions and forecasting; dependence on VOR and emergency arrangements

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No study of competitions and opportunities

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Lacking integration of efforts (example: TVS - ECG, partSmart: AML – Accident repair, MSR; AL –

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Lacking Solidarity with customers (Communication, advertisements, business soliciting, complain

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Inefficient info systems (responsiveness, response efficacy).

Estimate: Scope or potential for parts sourced for AL vehicles: estimated to be Rs.31000/year for beyond warranty vehicles. (This is the amount that Leyparts estimates as the yearly parts consumption for an Ashok Leyland vehicle after it has passed its warranty period on an average of mindboggling models for an average running cycle.)

Problems with dealers: 7

A retailer in Chennai does a business of around one lakh per month with AL. But it says that it is capable of doing a business of double this amount, provided they get supply of parts as and when required. Dealer SM has different problems - simply because SM is not an exclusive Leyparts dealer, and there are other complementary brands for similar parts that it can supply. Thus, there is no loss to SM as such. Moreover, SM being the only dealer and the only channel through which parts enter the market, it is enjoying a monopoly of situation. It is seen that SM stocks Leyparts, as well as some other agency lines, of which Demm, Autolec, SKF, Sundaram Clayton, Sundaram Fasteners are major ones.. This is a point where Leyparts sales for these items suffer. SM basically is reluctant to stock Leyparts for those items which are also supplied by its sister concerns. So, when a customer orders for Leyparts, and finds that this part is not in stock, he will obviously switch over to a similar part supplied by SM. This, ultimately will lead to non-availability and lost sales for Leyparts. This is a very critical issue, as with the dealerships, AL’s brand is in direct competition with the dealer’s own brand. Unless we address this issue, AL is going to suffer, at least with the sale of these items. These issues of parts unavailability leads to retailers’ dissatisfaction. They cannot afford loss in sales due to unavailability. So, they will attempt to push similar parts from other brands to customers, in case Leyparts brand is unavailable. Retailers I interviewed were only concerned about parts unavailability, and basically wanted to be a part of a system where their orders get serviced directly by AL, without the intervention of a dealer like SM. Summing up all such issues that are there with the dealers in the current system, we see that: •

Leyparts sales constitute just a fraction of total business for a dealer like SM.

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Apart from Leyparts, there are more than 30 other product lines that the dealer handles. 8

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Where will the focus for sale of Leyparts come from? No dedicated Leyparts sales force at the dealers end, who thus act order pickers rather than order generators.

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Leave apart sale of competitors brands, today some of dealers own brand are in direct competition with Leyparts, as seen above.

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In the current system, we have given the dealers a bit too many options, and too much flexibility.

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He can use the parts for his workshop requirements, and enjoy full margin

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He can sell it at MRP over the counter, and again enjoy the entire of 23% margin

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He can supply to retailers.

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On ordering side, he can place COS order, and get higher margin, he can place a general order to have higher margin and delayed supply, and VOR’s with lesser margins but immediate supply, which is why we saw the issue in the case study stated about.

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All this creates confusion for a not so smart dealer, and creates opportunities to take advantage of loop holes in the system for a smart and intelligent dealer.

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Moreover, with such variety of options available, and such variety of businesses that a dealer like SM is into, the focus towards Leyparts sales will definitely drop.

Apart from all this, it leads to lack of efforts from Dealer’s end, as, AL anyway is there to worry about supporting vehicles or increasing sales and other issues. Whatever be the case, the dealer will get his share.

Ashok Leyland a case study This is the case of a customer, whose vehicle met with an accident. The customer placed an order for a side-member at SM. But, SM irrespective of the knowledge that this is a case of a customer’s vehicle lying off-road placed a general order at AL instead of VOR order. The reason behind this is quite logical. Side-member being an expensive part, the margin difference of 12 percent in case of a general order in place of VOR order will 9

amount to something significant. Only because of this, SM placed a general order at AL to avail the full margin of 23 percent. The idea behind this was that the customer being not that a crucial one to AL, he might just wait for sometime silently and there won’t be that high a risk to AL from this customer. And in the process, SM will also retain higher margin once the item is serviced. But, for 45 days the customer waited, and there had been no supply from SM. Rightly so, because, against a general order, AL is supposed to service in 90 days. But finally the customer erupted. He called up area office and threatened to go to a consumer court to file a case against AL. Thus in all this, it is AL that is the only looser. The entire fault lies with SM, but the risk completely is born by AL. This again shows the kind of monopoly and reluctance with which the dealers are currently operating. Now that the matter has been brought to area office directly by the customer, people at the office need to do something immediately to service this highly dissatisfied customer. Immediate order was made to Hosur unit to supply the part as soon as possible. But again, the process here is a bit too lengthy, just to add to the delay and to customer frustration. The side-member will go from the Hosur unit to the Hosur warehouse, from there to the Bangalore warehouse as the transport solution provider friendly is meant to shift materials only within AL, not to end consumer, and then to the final customer after arranging for an external transporter, bill being made on SM, as AL directly doesn’t sell parts to end customers. Thus, SM finally also gets its share of the pie, even after putting AL into this desperate situation. And also the length of the flow chain is something that needs to be looked at, atleast in case of emergencies like this one. This is just one case where a dealer tries to avoid a VOR just to have better margins. Why is it that he is not worrying about customer satisfaction, which is why AL has this policy of VOR’s? Why is it that dealers are not that committed towards brand Leyparts as they are actually supposed to be? There are other issues as well that will add to this confusion. This is just an outline of the present distribution setup, and the kind of issues that can be there in the present setup.

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How to go on to this projects:  Warehouse visits  Interviews with dealers  Interviews with key customers identified 

Next step was to know in detail about the practices in industry/Tata. 

Look into the distribution practices in Pharma companies 

Comparative analysis, and addressing the bottlenecks in Leyparts set up. With

nearly 20000 different part types, making required spares available at the right

place at the right time is a big challenge Good spare parts support in the market is necessary to have a good after sales service which is a key to sale of commercial vehicles At present, the satisfaction level in the market with respect to availability of Leyparts is poor.

Bottlenecks that affect product distribution and service levels First bottleneck- from vendor’s side and parts availability side Second bottleneck- from AL’s supply side (Warehouse) Third Bottleneck- From Dealer to retailer and so on

Details of AL’s National Distribution Setup Majority of the current Leyparts business happen through the Vehicle Dealers. 11

Parts Distributors contributed only 11 percent of the total Leyparts business in replacement segment.

Some of the problems identified with dealers: Leyparts sales constitute just a fraction of total business for a dealer like SM. Apart from Leyparts, there are more than 30 other product lines that the dealer handles. No dedicated Leyparts sales force at dealers end who act as order pickers rather than order generators. Leave apart sale of competitive brands some dealers direct direct brands are in direct competition with Leyparts. In the current system, we have given the dealers a bit too many options, and too much flexibility. •

 He can use the parts for his workshop requirements, and enjoy full margin

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 He can sell it at MRP over the counter, and again enjoy the entire of 23% margin

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 He can supply to retailers

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 On ordering side, he can place COS order, and get higher margin, he can place

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a general order to have higher margin and delayed supply, and VOR’s with lesser margins but immediate supply.

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All this creates confusion for a not so smart dealer, and creates opportunities to take advantage of loopholes in the system for a smart and intelligent dealer.

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Moreover, with such variety of options available and such variety of businesses that a dealer like SM is into, the focus towards Leyparts sales will definitely drop.

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Study Of parts consumption by Key customers: Scope of the Project: To Study the ley parts business with relation to key customers. To study does ashok Leyland serve his vehicles owners well to create a satisfied customer who will purchase or recommend Ashok Leyland. To see to it if current Leyparts service level have significant impact on the decision of recommending Leyparts. To realize parts volume opportunities to the full potential. To study the per vechile consumption of spare parts for Ashok Leyland vechiles and ley parts share in it. To examine all possible means of marketing success-Ashok Leyland role and dealers role to improve the business. Terms of Reference: To understand the current goals in relation building in key customer. To understand and participate in key customer initiatives which includes Leyparts share and the initiative. Total parts sourced for AL vehicles: collect actual exp. Of last 12 month period and match with estimate by no. of beyond warranty vehicles* Rs 31000 Itemised break-up of parts: collect actual exp. Of last 12 month period - Part no, Desc, Qty, Avg. price Most preferred source for Leyparts Leyparts sourced (with break-up of how much from local dealer and how much from market)

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Choose customer groups who can be taken up for immediate intervention to improve Leyparts shares and target those customers. To study customers in incident locations To note parts consumption and ley parts share To suggests strategies for Leyparts

Comparision with TATA’S Set Up with that of Leyparts setup: Unlike AL, in case of Tata’s distribution setup, distributors have got a greater role to play. Out of a total spares business of around 650 crores, the business happening through distributors is around 300 crores, and this figure through distributors, is growing at the rate of 50 percent every year. Efforts are being made from Tata’s side to encourage product supply in the market through distributors, and to have dealers primarily as consumption points rather than distribution centers. The reason behind Tata’s stress on the distributors as better channel members than the dealers are many:  A dealer has got a number of other concerns apart from focusing on sale of Leyparts. This is one reason why a company’s control on the dealer is not very high. Moreover, the kind of monopoly the dealers are enjoying in case of AL, they lack the right kind of motivation towards Leyparts sales.  If we look at a distributor, things are very different in his case. His only business is to deal with the distribution on spare parts, and this is the only way he earns his livelihood. So, he remains focused, and does his best to increase his sales, thereby increasing company’s business as well.  The typical role of a distributor in case of Tata is to create a demand by involving a dedicated sales force, and then to service as per the demand in the best possible way. Tata’s ob thus is just to manage the system and provide back end help and support. 14

Comparision With Pharma Industry Set up: Given the kind of different varieties of medicines that a pharma company manufactures, and given the kind of competition that is there in case of pharma companies, their business can be considered as analogous to the auto spares business. Just like for a particular problem in any vehicle, we require a particular kind of part, for every disease there is a particular medicine that a customer demands. For these reasons, it makes sense to look into the distribution practices in case of some pharma companies. But there is one major difference between the auto-spares business and the pharma business. In case of auto spares, if a particular spare of a particular brand is not available at the retailers end, without any thought he will suggest alternatives to the customers. This is not the case in case of pharma companies. Once the customer comes with a prescription, the retailer must service that particular medicine only. The distribution practices adopted by most Pharma companies are almost the same. There are different channel members and the roles and responsibilities of each of these are very well defined. The typical flow of materials in case of Pharma companies is as follows.

Some of the Suggestions: The Wal-Mart Way: Proper and latest IT tools is again one of the key areas in distribution and SCM. Wal-Mart have shown this and many have gained competitive advantage just by implementing newer and better IT tools. With the system of bar coding on every item, and with the common and integrated IT platform at each level, the moment an item is consumed by any outlet, the information goes to each member of the supply chain. When the stock at any area falls

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below a certain level, AL automatically get signal and accordingly ship their materials on time to the hub, from where they go to the respective outlets…… With such high quality IT tools in place, Inventory replenishment is to happens twice per week (industry average is once in 2 weeks). Directly materials are to be dispatched to Dealer warehouses and immediately then to the respective stores, just because, beforehands the partners at each level like have access to data all the time, according to which they are capable of planning in advance, thereby enabling Just in time supply, lowest inventory holding costs and lowest stock-out chances. We can then take this to the next level, which is the Vendor managed inventory, wherein there will be automatic stock replenishments at each level. The DMS at all the dealers and ALASC’s, and then with forward integration, is a must, as this will improve their ease of operation, and also with proper information available , service levels and unnecessary delays can be eliminated.

Talks with the Insurance agencies and Educating People: •

Educating the customers on choosing an insurance policy that assures use of OEM parts, (which General Motors did), to do something against the Fake auto spares market.

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The next step is to talk to insurance agencies about the ill-effects of using fake auto spares on Vehicle life and performance. We can try convincing them to include a statement in their policy document for deduction in claims in case the cause of an accident is found to be the failure of a fake spare part.

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In case the insurance agencies are not willing to do this, we can even get it done legally by convincing Government on this, as revenue loss to Government on account of these counterfeit spares at around Rs 3,600 crores annually .

Discussion with the Dealers to extend credit Facilities:

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Leyparts offers a credit facility of 30 days to its dealers but Sundaram Motors do not extend any credit facilities to its customers especially the fleet owners who have a good amount of business with SM as a result of which the fleet owners are forced to buy the Leyparts from the retailers with no discount only because the retailers offer them a credit facility or sometimes get the parts from any local company which costs him less. To make the credit facility scheme successful Leyparts can hold talks with its dealers and make arrangement for any bank guarantee so that the fleet owners have some amount deposited in the bank and it can take the Leyparts on credit basis up to a certain amount for which the bank will hold the guarantee. Doing this the sale of Leyparts will increase surely.

Steps for the retailers: As the retailers have to pay the bill at the end of 30 days which has been allotted as the credit limit to the retailers and the customer sometimes delay the payment to the retailers so the retailers in order to get the amount to be paid for Leyparts sometimes pushes other local made parts instead of Leyparts as the profit gained by him on the local made parts is huge and by doing that he can recover the money that he has been pending for him for the Leyparts payment. This practice should be stopped as this is a huge loss to Leyparts if due to this reason it loses a major amount of market share.

Conclusion: Its confirm that Leyparts enjoys considerable brand equity in the market place as a genuine and Original Equipment spare part. However, Leyparts has not leveraged the power of the brand effectively so far. In many markets, there is a poor perception of parts availability and price value relationship. Discriminating customers by size, Loosely framed commitments, Only promotion is MITR program & incentive by AL; absence of any efforts by Dealers, Inefficient study of consumptions and forecasting; dependence on VOR and emergency arrangements, No study 17

of competitions and opportunities, The in effective supply chain and sometimes monopoly in case of the dealer. But if we consider and compare the set up of TATA motors and WALMART then there are many steps which can be incorporated by Leyparts so that they can improve its business. The problem of the credit facilities are being shorted out with the help of talks with the dealers and Ashok Leyland in which Ashok Leyland is trying its best to extend a credit facility to the retailers and the fleet owners by which they can gain more market share. It all depends on the service quality as customer ownership means to Customer Ownership means surrounding the customer with solutions. It is developing a feeling in the minds of the customer that you are really caring for him and trying to help him in whatever ways. It is all understanding what the customer expects from you and trying to give him the best possible service. So doing this Leyparts will surely be on the top of the list with reference to vehicle parts business.

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References: Website www.ashokleyland.com Website www.leyparts.com Website www.google.com Website www.tatamotors.com Website www.walmart.com Website www.wikipedia.com Keller K.L. and Kotler P. (2006), Marketing Management, Pearson Education, Inc, Dorling Kindesely (India) Pvt Ltd, New Delhi, India Malhotra, K. Naresh (2006), Marketing Research, Pearson Education, Inc, Dorling Kindesely (India) Pvt Ltd, New Delhi, India Annual Report, Ashok Leyland, 2006-07, 2007-08 Share Holders Meeting, Meetings, 2006-2007,2007-08

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