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Improving Automobile Product Offerings and Inventory Management

Making the complex more simple


Abstract

The company needed to identify profitable opportunities and improve high inventory levels and slow-moving products. Deloitte helped identify potential cost savings worth several million dollars, while reducing orderable configurations by 66 percent. The North America division ended 2007 with a 4.5 percent volume increase over 2006.

The Challenge

The company had difficulty managing its complex product offering, due to the vast number of options and feature combinations available for most products. Also, the company did not understand the benefits and costs of that broad offering. A lack of integrated financial data, inadequate competitor and market knowledge, divisions operating in silos, and minimal understanding of what truly mattered to the customer and what products sold well/quickly and which did not (sales velocity) all combined to hinder the company’s ability to develop a market-driven product portfolio. Specific issues included:

  • High vehicle inventory levels (of specific configurations)
  • Lack of customer intelligence on the value of the diverse product portfolio
  • Margin erosion driven by clogged distribution network, missed sales due to low availability and unnecessary use of incentives at year end
  • Little communication between the OEM and the dealer network on the dynamics of the vehicle “close” process
  • Lost profit due to slow-moving products, missed sales, and unnecessary incentive spending

How We Helped

Deloitte was asked to help the client with their efforts to quantify the costs and benefits of their complex product line-up based on a market/customer-oriented view and to derive an orderable configuration strategy that increased sales and marketing profit on an ongoing basis for its vehicles in the United States. With Deloitte’s assistance, the company:

  • Assessed market positioning and strength (vis-à-vis competitors) of each model
  • Conducted competitor analysis to understand product offerings down to specific option combinations and competitive practices, high level price/feature points and differences in product strategy (i.e., regionalized offerings)
  • Surveyed 25,000 client and competitive buyers to understand customer preferences and approximate responses to potential changes in orderable configurations
  • Developed revised product offering for all vehicles (price, configuration and distribution strategy) that improved marginal profit
  • Generated configuration-by-configuration metrics including sales volume, contribution margin, sales velocity, and availability percentage
  • Developed framework to determine the cost-benefit tradeoff of complexity, including incremental sales, higher per unit marginal profit and reduced operating and inventory holding costs
  • Generated recommendations that quantified the savings and additional profit associated with specific reductions in complexity

Solution

After uncovering a competitor strategy that uses a regionalized product offering, the team determined that the same strategy would allow the client to better address the specific needs of each region while drastically reducing complexity by region. The team identified potential cost savings of several million dollars while reducing orderable configurations by 66 percent. In addition, a framework developed to manage complexity allowed the client to quantify relative values of different orderable configurations, improve sales velocity and lower inventory levels.

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