welcome to redline: dealer operations simulation!€¦ · your task is to manage the dealership for...

Case Study Guide - 2

Welcome to Redline: Dealer Operations Simulation! ................................ 3

What is a Simulation? ............................................................................... 3

Objectives ................................................................................................ 4

Leading and Managing Your Dealership ................................................... 4

Marketing Mix ........................................................................................... 6

Staffing and Retail Environment ............................................................... 8

Vehicle Sales ............................................................................................ 9

Inventory Management (Parts & Accessories and General Merchandise)11

Service ................................................................................................... 11

Finance and Insurance ........................................................................... 12

Rentals ................................................................................................... 13

Training and Activities ............................................................................ 14

Proformas and EOP Proforma ................................................................ 15

APPENDIX 1: SITUATION ANALYSIS ................................................... 16

APPENDIX 2: HDCX OPERATIONS GUIDE .......................................... 17

APPENDIX 3: CLIMATE ......................................................................... 17

redline dealer ops case study guide.docx

12/19/17 11:40 AM

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Today is your lucky day. You’ve been selected as a member of the “Dream Team” that will turn around a struggling motorcycle dealership.

Over several simulated decision rounds (each representing six months of time, either March-August or September-February), you will lead and management the dealership by making long-term (strategic) decisions, as well as, shorter-term (tactical) decisions. Your mission is simple: improve customer satisfaction, sales, and profitability.

At the end of each round of analysis and decision-making, you will receive feedback on your performance. Time will reveal who is most successful at turning around their dealership. Best of luck!

Simulations are computer-based models of businesses. The information used to design this simulation was taken from a real dealership. We use this information to create the foundation for the strategic, financial, and operational relationships that you observe on the screen and in your reports.

When we build a simulation, we do our best to incorporate the important dynamics of your particular business; however, simulations are only representations of real organizations operating within a marketplace. Although this simulation has been based upon the dynamics of an actual motorcycle dealership, we do not account for all dynamics. We limit the scope of the dynamics, and thus your decisions, to focus your time and thoughts on issues that are of particular importance.

Why Simulate?

We have found simulations to be useful learning tools for four main reasons:

You learn more because you are engaged.

Being engaged in the learning process means more than simply listening to someone talk to you about topics such as strategy, financial statements, and operational excellence. True engagement involves listening, debating, analyzing, and actively applying the subject matter. Studies have found that when people engage in this manner, retention rates jump from 20% to nearly 80%.

It doesn’t cost anything.

Because you will make decisions that may be new to you, you are bound to need some practice. When you are put into a realistic environment where you can practice making those new decisions, you are getting on-the-job experience without the risk. A real-life dealership will not pay for any mistakes and you will not lose face, or your job, if you make a decision that causes your simulated business to lose money.

You see the results quickly.

In addition to having the opportunity to see dynamics you might not normally be exposed to, you also see the effects of your decisions quickly. You have the opportunity to play out your decisions or to alter them as you go.

See the big picture.

The broader perspective of business dynamics promoted through a simulation will increase your business acumen. You will be better able to assist your organization in improving performance as marketplace dynamics change.


Running a dealership presents you with a complex problem. It is anticipated that by presenting you with this challenge in a controlled environment, you will improve your business acumen and decision-making skills. Specifically, this exercise has been designed to help participants:

Better understand the “whole picture” of dealership operations. By the end of this exercise you should be thinking of the dealership as a coordinated “system” of inter-related processes, each process impacting one another.

Learn business finance and ratios/KPIs (Key Performance Indicators).

Think differently about the importance of long-term positioning (leading versus managing the business).

See the positive business impact that can result from providing great customer experiences.

Work as a team.

Discuss best practices with peers.

By design, this exercise will encourage you to think strategically and tactically about dealership operations. The team that best analyzes themselves, their markets, and their operations will outperform the other teams.

Bike

Show

Customi-

zation

Show

Gear

Show

Service

Show

Fulfillment

Show

Dealer

Performance

Customer

Satisfaction

Staffing,

Retail,

Training,

Activities

Figure 1. A dealership is more than just the sum of its parts; it is a complex system that creates a greater “whole”.

To begin the exercise, you will run a dealership that has had its share of problems. The dealership has been operated with no real direction or focus. You will be competing against other dealerships during this exercise. Although each dealership is located in its own distinct geographic market, it is possible for dealerships in adjacent markets to “steal” some customers if you terribly mismanage your business.


Your task is to manage the dealership for several decision rounds (each round representing 6 months). During each round, you will:

Assess dealership strengths, weaknesses, and performance.

Analyze opportunities and threats.

Set direction and strategy.

Execute your strategy by making decisions regarding:

Vehicle Sales – New and used pricing, margins, demand, supply, cross-sales, and incentives.

Parts and Accessories and General Merchandise – Inventory management, inventory accuracy, lost sales, turns, discounting, margins, and incentives.

Finance and Insurance – Pricing, acceptance, finance profit per vehicle (PPV), and incentives.

Rentals – Staffing, location, pricing, advertising, and utilization.

Service – Technician scheduling, parts-to-labor ratio, shop rate, proficiency, servicing capacity (service bays), and environment.

Training and Activities – Time-blocking (where and how much time should be spent on various activities), and training and development.

Staffing and Retail Environment – Hiring and firing, overtime management, compensation, store hours, floor space (including allocation), and showroom environment.

Marketing Mix – Customer segment analysis, potential demand/opportunity by segment, marketing budget, marketing allocation, and segment targeting.

Decision time for each round will be between one and three hours. After you perform a Final Save at the end of a round, the facilitator will collect and process your decisions. The actual results of your decisions will be distributed back to you for analysis through a variety of reports. Some of these reports are available for no charge; however, other reports must be purchased. Prior to beginning the next round, the instructor and all teams will discuss the results. Teams will then return to their decision areas to make another set of decisions for the upcoming decision round. The management team that runs the “best” dealership wins.

Figure 2. The Business Simulation process.


Customers in your market are concerned about the same things as customers in the real world. That is, customers have requirements and expectations regarding price, product, and the dealership experience.

Not all customers have the same expectations, however. Customers of any product or service typically have unique requirements with respect to those products and the non-product features they deem important. For example, in the automotive market, luxury car buyers tend to be more sensitive to the styling and quality attributes of the car than to the price of the car. In your dealership’s marketplace, customers also have unique needs.

Studies have shown that firms that segment their markets have higher returns than those that do not. Customer segments are simply groups of like-minded consumers that have similar needs and requirements and that share product and service expectations. Firms that recognize this like-mindedness between consumers can specialize and tailor their offerings to better differentiate themselves from their competitors. Firms that choose not to segment their markets tend to have a mass-market approach in which each customer is treated and sold-to like every other customer.

Market segmentation for the dealership has already been completed for you. There are five customer segments. The customer segment names may be different depending upon the version of the simulation you are running.

Your challenge is to determine which segments you will target. This is one of the key strategic questions you should address with your team. It takes time to build awareness with any of the customer segments.

Firms that segment their markets tend to

have higher returns than those that do not.

Segmented

Market

Approach

• Two or more segments

• Product differences exist

• Product differences appeal differently to

market segments

• Differences make better use of firm

capabilities and are more profitable.

•No segments

•No essential product difference

•Too expensive to satisfy all

Recognition of market segments

Recognition of need differences

Recognition of market mix

Source: Portable MBA

“Dividing the total market for the product into homogeneous groups on the

basis of needs, characteristics or behavior (resulting in a) group of

consumers who will respond in a similar way to a given marketing mix.”

Mass Market

Approach

Figure 3. Firms that recognize groups of like-minded customers can tailor

their products and services to better connect with their customers.

Marketing decisions are critical to dealership success. You will establish a marketing budget and determine how that budget is allocated. You also have the option to target specific customers segments that you feel represent the best growth opportunities.


Customer Segment Research

In your market customers differ in terms of their sensitivities to price and experience (i.e., experience refers to the non-price attributes of your business: product knowledge, environment, selling processes, employee attitude, etc.). Each segment’s sensitivity will be reported to you on a scale of 1 to 10, where 10 indicates that a customer is very sensitive to that item. In addition, the Research report will provide you with potential demand, cross-sell opportunity, and preferred bikes.

Experience Impacts

While customers may have widely different needs and wants that drive their expectations of your dealership, there are 3 “Experience Impacts” that shape their base-level impressions. Customers want you to provide an experience that is Trusted, Personalized, and Social:

Trusted – A successful dealership will be trusted in every aspect of the customer’s experience. “Trusted” is driven by customers’ perception of the sales experience, pricing, your staff’s skills, etc.

Personalized – To create customers-for-life, you will be expected to understand their specific needs as individuals. “Personalized” is driven by sales experience, brand messaging, attrition and turnover of staff, etc.

Social – The “community” aspect of the dealership experience cements the relationship so that it endures. “Social” is driven by experiential marketing/events, store hours, quality of the environment, etc.

In the simulation, you will be provided with real-time feedback as to how well you are delivering on these Experience Impacts. A score of 100% means that you are doing a “good” job, greater than 100% means that you are exceeding customer expectations, and less than 100% means you are not meeting customer expectations. Better scores will lead to better customer experiences (as indicated by higher CXI scores) and hence better dealership performance.

Customer Experience Indicator (CXI)

The Customer Experience Indicator (CXI) is how customers provide feedback on their experience at a dealership. CXI is comprised of online customer surveys and a real-time reporting website. The customer surveys include the In-Moment, Motorcycle Purchase and Service Experience. The real-time reporting website is where all the customer surveys and results will be available for dealers to review. CXI helps dealers to easily identify unhappy customer through alerts and follow up with the customer about their issue.

In this simulation CXI scores range from 1 – 10 with 10 being best. Dealership Staff are the #1 driver of CXI.

Marketing Allocation

After you have set an overall marketing budget, you will be able to allocate a percentage of the budget to each of the 3 types of marketing approaches described below. The allocation you choose will impact the awareness that your customers have of your dealership, and thus can impact sales. In addition, your choices will affect the Experience Impacts to different degrees depending upon the segments you target. For example, “Experiential” marketing and “Marketing Communication/Advertising” will have a greater impact on the “Personalized” and the “Social” elements of the customer experience than would “Promotions”.

Experiential – Events that directly engage a customer one-on-one. For example: demo rides, Jumpstart, authorized rentals, workshops, etc.

Marketing Communication/Advertising (including Social Media) – Communications and messaging that aims for broader reach and scale and encourages consumers to take another step forward in their path and journey as they engage with the brand.


Promotions – Programs that provide a reason to buy or engage right now. The goal is to change a customer’s behavior or reinforce a desired purchasing behavior. Examples of promotions include:

Value-Added Promotions – Premiums, providing a gift with each purchase, sweepstakes, contests, sponsorships, etc.

Price Incentive Promotions – Rebates and refunds, vouchers and coupons, “bonus paks”, etc.

What stops you from running the “best” dealership? What is your most valuable resource? If you said cash or capital, you’re only half correct. In today’s environment, your most critical resource is your people; specifically their time and knowledge capital.

To run any business, management must ensure that it has the right number of people with the right skills performing the right set of activities. To make sure you have the correct number of people in the dealership, refer to the Staffing and Retail Environment decision screen. To make sure these individuals have the right skills and are working on the right activities, refer to the Training and Activities screen.

Staffing Decisions

Managing your people is one key to optimizing your performance:

Managing Attrition

Attrition is driven by overtime and compensation. Although an FTE has only 18 days per month to perform their activities, most FTEs are willing to work some overtime to be successful. Working FTEs too hard, however, will make them overly cranky and could lead to high turnover (attrition). Turnover will not occur until the end of the decision round.

NOTE: Fortunately, for the purposes of this game, managers cannot quit. However if dissatisfied for any reason, they can create a miserable environment for other employees and can cause attrition to skyrocket!

Staffing Levels: Hiring/Firing and Planning for Growth

Hiring/firing decisions happen immediately. However, it takes about 2 months for most employees to become minimally trained and effective in their positions after they are hired. The exceptions are Service Technicians who require 2, 4, and 6 months to recruit, respectively, depending upon their level of experience. The amount of time to recruit a Service technician can be reduced with higher compensation and a better service environment (including a commitment to training).

NOTE: There is a charge of $500 to cover the administrative and hiring costs of each new hire.

• A Full-Time Equivalent

• Example 1:

⁻ You employ 1 full-time business manager

and have a clerk support that manager

30 hours per week.

⁻ That equates to 1.75 FTEs in the F&I

department (1 full-time, plus 1 at 75% time)

• Example 2:

⁻ You employ 1 full-time parts runner and have 2 other people who

work half time doing the same task

⁻ That equates to 2 FTEs (1 full-time, plus 2 at 50% time)

Figure 4. Examples of Full-time equivalents (FTE)


Retail Environment Decisions

Showroom Hours

You can adjust the days and hours per week that the Showroom is open (including Sunday since it is permitted by your State’s laws). As you increase the Showroom hours you will improve accessibility for customers. This in turn may increase sales and the Customer Experience Indicator (CXI). However, make sure you pay attention to the additional costs required to keep the showroom open longer (e.g., additional staffing).

Changing store hours is a “big decision” that should probably be made early in the execution of your Plan as it can cause a ripple-effect across the dealership and impact many departments.

NOTE: It takes 3 months for a change in store hours to have any noticeable improvement in performance. Your Showroom Hours decision will not impact the Service Department’s hours; the Service Department will stay open as long as needed regardless of the showroom hours.

Showroom Space and Allocation

Customers are less likely to buy products they can’t see out in the open. Make sure you have an adequate showroom in terms of size and how space is allocated to products. In particular, General Merchandise (and to some extent P&A) is very dependent upon showroom displays to drive sales.

Increasing the size of your showroom takes 6 months (i.e. one round of competition). Once the expansion is completed, any extra space you don’t specifically allocate to Motorcycles, P&A, etc. will be automatically assigned to General Merchandise. Therefore, after an expansion project is complete, make sure to re-adjust all your floor space allocations.

NOTE: Expanding the size of your showroom has no impact on the Service Department’s size.

Environment

The quality of the showroom environment is indicated by a score of 1 to 10, with 10 being the best. This score is impacted by the amount of time spent merchandising in each department as well as investing to improve the showroom through fixture and facility upgrades. A quality showroom creates a more appealing buying experience for customers, and may increase sales with experience-sensitive customers.

As with most dealerships, the majority of your sales revenue comes from selling new and used motorcycles. When managing the Sales Department of the dealership, you need to ensure that you have enough motorcycle supply to meet demand.

Vehicle Supply

New Supply

Each round you will be given the opportunity to place an order for new bikes that will arrive at the beginning of the next round (6 months out). Therefore you need to anticipate your needs for the next round and place an order in the current round.

There is a maximum number of new units that you can order for the upcoming 6 months, and there are two types of orders: the RG (regular) order, and the SA (supplemental) order. The RG order maximum is dependent upon your retail forecast, the size of your showroom, your prior customer satisfaction (CXI), and other dealership performance metrics. You will need to take the entire RG order before an SA order can be placed. Failure to take the maximum RG order will result in a reduction of your VIP (holdback dollars that are credited to your Dealership P&L and that reduce Cost of Goods sold, or COGS). There are no ordering expectations for the SA order.


When ordering new bike inventory, be sure to take into account the carry-over percentage of old bike inventory when going into a new model-year. New model-year bikes will become available in September. Thus, when you place an order in the March-August period, you are ordering new model-year units; when ordering in the September-February period, you are ordering current model-year units. If you have too much inventory carry-over (greater than about 15% of your entire inventory), it will negatively impact your allocation for future rounds and your sales in the current round. If your percentage of old bikes becomes too high, consider sales incentives, additional prospecting, or even promotions to get rid of excess old-model inventory.

Used Supply

Supply of used motorcycles is primarily driven by your dealership’s overall aggressiveness in acquiring used motorcycles. Your dealership can be aggressive in terms of effort (having sales associates spend time searching for used motorcycles; e.g., calling, placing ads) or in terms of your trade-in price offered.

Any used motorcycles acquired will need to be refurbished in the next round before they can be sold. If you decide to increase the level of used bike sales, make sure you have the servicing capacity to refurbish the acquired units in the following round.

NOTE: Used motorcycles acquired during a decision-round will not arrive and be ready to sell until the next round. In addition, as you spend more time searching for used motorcycles (e.g., more effort by sales associates), the motorcycles that you acquire may need more refurbishment hours. As refurbishment cost increases, you may find used bike profits dropping significantly. If you offer more money to purchase used motorcycles, you’ll likely acquire motorcycles that need less refurbishment.

Vehicle Demand

Customers purchase from your dealership for a number of different reasons. The primary criteria used by consumers when deciding to purchase from your store include:

Dealer reputation (CXI).

Sales experience.

The quality of the sales experience is determined by:

Sales staff selling skills and selling process (which can be influenced by incentives offered to the sales staff).

Showroom environment including hours of operation, displays, visibility of motorcycles, etc.

Dealership promotion and advertising.

Price.

NOTE: Over time, customers may become more sensitive to market pricing tactics. Dealerships that consistently price above MSRP (Manufacturer’s Suggested Retail Price) may find that sales demand drops off in later years.

Cross-Selling and Coordination

Given that a sales associate is the primary point of contact for many customers coming into the store, sales associates have significant influence on the cross-selling of products and services in other departments. Establishing incentives for cross-sales and ensuring that the selling process includes inter-department coordination will maximize your dealership’s performance in all departments.

NOTE: If you decide to sell your motorcycles for more than MSRP, your customers will not be able to purchase as many “other” items with the motorcycle (i.e., the cross-sell: parts, accessories, clothing, etc.).


When managing the P&A and GM departments, your primary objective is to maximize profitable sales with as little inventory investment as possible. You accomplish this through adequate inventory management. This includes:

Merchandising

A good sales environment, adequate display items, and well maintained displays will create a “buying” atmosphere.

Cross-Selling and Coordination

You can maximize sales by ensuring that all departments are coordinating each customer’s experience throughout the dealership.

Sales incentives

Inventory accuracy

Inventory accuracy is achieved through training, cycle counts, and by conducting a physical inventory. In addition, consider the positive impact of offering incentives for achieving accuracy benchmarks.

NOTE: Inaccurate inventory causes stockouts and lost sales, which in turn can harm customer satisfaction.

Pricing

You always have the option of discounting to ensure adequate sales volumes and inventory turns, but be sure to pay attention to your margins.

NOTE: If you enter a price discount of exactly -80%, the department will attempt to liquidate all inventory.

Promotion and Scheduling

The number of service hours demanded by customers is a function of many things (motorcycles in operation, used motorcycle refurbishment, new motorcycle sales, seasonality, promotion, service, and pricing/shop rate).

One of your primary tasks in managing the Service Department is to schedule technicians to perform the required work. When doing this, make sure to match each technician’s level of skill to appropriate jobs (otherwise Efficiency will be negatively impacted; i.e. it will take them longer to do the jobs than what the customer is willing to pay). Failure to adequately schedule technicians will result in long wait times that will in turn lead to lower CXI scores.

NOTE: Depending upon the specific version of the Dealer Operations Simulation you are running in the class, you may have the option to automatically schedule the technician’s work schedules. This option will produce a rough schedule that you will need to further adjust and modify to optimize performance.

Service PTL Ratio

A significant portion of the revenues from the Service Department comes from parts sales. The metric that indicates how well the department is selling parts in relation to its service sales is the Service Parts-To-Labor ratio.


The success of parts sales within the Service Department tends to be somewhat seasonal and dependent upon the dealership’s parts pricing and availability. However, a Service Manager can boost parts sales by making sure the customers work with a trained Service Consultant who takes the time to understand their needs and who provides suggestions for additional customization work. In addition, the type of work the Service Department targets can influence the department’s PTL ratio (e.g., heavy repairs require more parts than general service).

Proficiency

The overall effectiveness of a technician is measured by proficiency. Besides adequate scheduling, other items that can significantly impact proficiency include:

Technician skills

Proficiency incentive – This is a department-level incentive and will only be paid out once the department as a whole is run at the target proficiency level. Enter the percentage of Sales Revenue that you will pay to the technicians if they achieve 85% Proficiency.

Parts availability – Impacted by parts inventory accuracy.

Support staff levels (Service Consultants and Porters) – That allow technicians to focus as much as possible on servicing motorcycles.

Service environment – Cleanliness, lighting, tools, fixtures, bay utilization, etc.

NOTE: A poor service environment can also impact technician attrition.

Servicing Capacity

Your dealership’s capacity to service customers is a function of the number of technicians employed as well as the number of service bays in your shop. Service bays can be used up to 200% utilization (i.e., 16 hours per day). However, the higher the utilization, the less efficient the technicians will become. In addition, over-utilization of bays will lead to technician unhappiness since work hours become too high. Be sure that you have enough servicing capacity in terms of technicians and bays.

NOTE: It takes 3 months before new service bays are up and running; and once opened they cannot be closed.

Customers purchasing new motorcycles may decide to finance their purchases through the dealership and purchase additional insurance products. Your success in selling Finance and Insurance (F&I) products is referred to as “acceptance” (the percentage of motorcycles sold that have been financed through the dealership).

Customers may decide to purchase F&I products through your dealership for a number of different reasons including pricing and sales experience.

Pricing

Your acceptance is dependent not only on your pricing, but also on the strength of your processes. In addition, be aware that high pricing of the Retail Installment Financing product can lead to early cancellation (prepayment) of the loan and thus higher charge-back expenses (expenses that dealerships must pay if their finance customers do not hold the loan long enough).

Sales Experience

The quality of the customer’s F&I sales experience is determined by:


The selling process and the seamlessness of coordination with other departments (particularly Vehicle Sales).

Product knowledge and skill of the person selling the product:

A customer is more likely to purchase a product when it has been adequately explained to them.

If the person selling F&I is not familiar with the products being offered, it is unlikely they will be able to properly communicate the value of the products to the customers.

The more incented the sales person, the more likely they are to ensure the customer has a favorable purchasing experience.

Products

There are several F&I products available to sell including Gap Insurance, Extended Service Plan, and Planned Maintenance.

Rentals can significantly enhance the customer experience and can lead to follow-on sales. Your rental fleet consists of several motorcycles that are retired to Used Motorcycle inventory after 2 rounds (i.e. every 12 months). At the end of a bike’s useful rental life, new rental bikes will automatically arrive and the old fleet bikes will be moved into Used Motorcycle inventory to be sold to customers.

There are fixed and variable (per-vehicle) costs associated with your rental fleet. Rentals’ monthly fixed costs include the initial setup of the motorcycle, advertising and salary. Variable costs includes insurance, maintenance, interest, etc.

Utilization

Utilization is the metric that indicates the percentage of time that a motorcycle is being rented. The utilization of rentals is driven by multiple factors:

Awareness/Visibility – Driven by advertising, having an adequate showroom size/signage, and by the number of hours your showroom is open.

Sales Process (who’s responsible) – A dedicated Rentals associate may be more effective than someone handling Rentals part-time.

Learning Curve – The longer your dealership offers rentals the better it becomes. Over time, this improved skill will lead to more rental contracts.

Seasonality – Riding and Non-Riding seasons are dictated by weather. During good riding seasons, rental utilization will be higher.

Multi-day Discounts – You have the option of offering multi-day discounts to improve rental utilization.

Price

Benefits

Rentals can also have other positive impacts in your dealership:

New Bike Purchases – By allowing customers to experience the motorcycle, Rentals can help customers make the final decision to buy a new or used bike.

Cross-sales – Of General Merchandise and Insurance.


Future Service Demand – Rentals can increase bike sales which in turn can drive future service demand.

Used Inventory – After 12 months, rental bikes are retired and become used bikes in great condition that can be sold to customers.

When managing your dealership, you need to provide direction to your staff as to where they should be spending their available time. This is referred to as “time-blocking”. Time-blocks will vary by each department.

Vehicle Sales Time-blocks

For the purposes of this exercise, Sales Associates can spend their time performing any of the following:

Prospecting – Time spent looking for new customers.

Needs Analysis/Selling – Time spent with a customer to understand their needs and to sell them a motorcycle.

Coordinating/Cross-Sell – Time spent walking customers around the dealership and introducing them to the other departments and products.

Transacting – Time spent closing the sale and completing the paperwork. NOTE: If the dealership employs an F&I manager, Sales Associates will not need to spend any significant time in the transaction other than passing the customer along to F&I.

Merchandising – Time spent creating and maintaining a pleasant sales environment.

Acquiring Used Vehicles – Time spent seeking out used motorcycles for purchase. The more time your Sales Associates spend acquiring used motorcycles, the better their skills become.

Training – Time spent training.

Slack – “Down time”. Not all slack time is bad, some is needed for breaks, discussions, reflection, etc. Slack below 5% will burn out your people more quickly. Too much above 5% indicates that your employees may not be as productive as possible.

P&A/GM Time-blocks

For the purposes of this exercise, P&A/GM Sales Associates can spend their time performing any of the following:

Selling – Time spent working with customers to find the products they desire.

Coordinating/Cross-Sell – Time spent coordinating with other departments in the dealership.

Merchandising – Time spent creating and maintaining a pleasant sales environment.

Transacting – Time spent fulfilling the sale.

Training & Inventory – Time spent training and conducting physical inventory and cycle counts.

Slack – See description above.


Training

Each FTE’s skills are assessed and rated on a scale from 1 to 10, with 10 being best. You can improve an FTE’s skills through training. Training takes one round to complete and takes time away from the job. Employees with higher skills are more effective at their jobs and therefore tend to please customers more than employees with lesser skills (positive CXI impact).

The cost for each training session, and the days per training session, will vary depending upon the skill-level of the person attending training. Improving skills from a 1 to a 2, for example, will cost less and require less time than improving skills from an 8 to a 9. The range of costs and training session duration will be displayed along with the total training cost that will be incurred in the period.

NOTE: Highly skilled service technicians are sought after by customers in the market. Therefore, service hour demands will be higher for dealerships with well-skilled technicians.

During each round, teams will have access to End-of-Period (EOP) Proforma financials. These Proformas are a forecast of financial results and customer satisfaction (CXI) for the round. If ALL your assumptions about the business for the year are correct, then the Proforma will give you your results for the next decision round. While all of your assumptions will never actually be 100% accurate due to market dynamics outside your control, the Proformas should give you a pretty good idea of where you’ll end up at the end of the round.

If your Proforma results forecast a negative ending cash position (e.g., you’re out of cash!), then you will be declared bankrupt. If this happens, you will not be able to save your decisions until you take out a short-term or long-term loan in order to stay liquid (a positive cash position). NOTE: Long-term debt is less expensive than short-term debt, however it cannot be retired or paid back during this competition.

NOTE: If your Proforma results forecast a significant positive cash position, then consider rewarding the Dealer Principal with a dividend/distribution.

Customer satisfaction metrics will also be available in your Proformas:

Customer CXI – A measure of customer satisfaction for one round only, CXI is impacted by employee skills, attitude, merchandise availability, service waits, environment, pricing, and ancillary services (e.g., rentals). Customer satisfaction levels also ultimately drive the “Net Promoter Score”, which is composed of 2 parts: the percentage of customers who would recommend the motorcycle brand; and the percentage of customers who would recommend your specific dealership.

LTV (Life-Time Value) – A cumulative assessment of customer satisfaction, and hence profitability, over the long-term.

Income Statement

The Proforma Income Statement, or Profit and Loss Statement (P&L), is given in a standard Income Statement format. An Income Statement compares revenue (income) from the sale of products less all expenses and costs associated with making, selling, and operating the business during a given round. The difference between revenues and expenses and costs is then calculated to reflect the business’ net profit (or loss) for that round. The terms profit, earnings, and net income are often used interchangeably.

Exactly what a business can recognize as “revenue” and “expense/cost” can get a bit tricky. For example, money that you borrow from a bank to fund the business is not revenue. Neither is money that you take as a customer deposit. In addition, when you make a long-term investment to expand the showroom or purchase new technology for the Service Department, all of the money spent on that investment may not be recognized as an expense at one time – it may need to be spread out over a longer period of time (depreciated).


Financial statements will be discussed in detail during the course, but for now be aware that you will want to maximize your dealership’s profitability as reported on the Income Statement.

A simplified Income Statement follows the format:

Income Statement

Revenue

- Expenses

Net Profit

It would be wise to perform a situation analysis prior to making decisions for your dealership. This analysis will increase your understanding of the dealership and the market it serves. By performing a situation analysis, you can gain a better understanding of the current dealership environment. This is also known as an “As-Is” analysis.

Once you have completed an “As-Is” analysis, you will be in a better position to define your long-term objectives for the dealership (i.e., the “To-Be” for your dealership) and identify the gaps that exist and that should be addressed to achieve your objectives.

It is recommended that you and your team walk through each of the screens of the simulation as you conduct your As-Is analysis. At the end of this activity, your team will have a greater understanding of the dealership and marketplace. Feel free to document the results of your analysis in a format that your team has agreed upon (e.g., the SWOT matrix below).

SWOT Analysis

The acronym SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT framework is commonly used as part of an organization’s planning activities (in your case a planning activity for your dealership). SWOT is used to identify key elements in:

An organization’s capabilities (an internal assessment) – What are the things that the organization does well? What are the things the organization does not do well? These are the organization’s strengths and weaknesses.

An organization’s environment (an external assessment) – What are the conditions in the external environment that favor the organization’s strengths? What are the conditions in the external environment that are unrelated to existing strengths? These are the environmental opportunities and threats.

“To-Be”Objectives & Goals

(WIGS)

Strengths, Weaknesses,

Opportunities, Threats

Figure 5. Consistently evaluate past and present data to identify forces that may act on your dealership. This will help you define the appropriate strategies for your

business.


The identification of these factors can often help an organization develop specific goals and strategies that fit the realities of the current situation.

Figure 6. Despite its simplicity, the SWOT framework can be a powerful tool to assess

your dealership and to inform your strategic decision-making.

The HDCX Operations Guide will help dealers deliver Kick-Ass Customer Experiences through efficient processes and peer-to-peer learning that will drive a positive business impact. They are processes that have been built by dealers for dealers and have been localized for markets around the globe.

You can access these online through H-DNet by adding the HDCX Operations Guide to your Toolbox.

For more information, contact Erin Siemandel either by email at [email protected] or by phone at (414) 343-4133.

Temperature

Average Annual 67.5 Average Annual Rainfall 55.8”

January Average 50.8 Total Annual Snowfall 1.8”

July Average 82.1

Source: National Oceanic and Atmospheric Administration

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