Private Equity Operational Due Diligence + Value Creation
TBM Consulting helps online auto reseller achieve an annualized reconditioning cost savings of $10.8 million. Download Case Study
Supported by investors with deep pockets, the competition among online-only vehicle resellers is intense. Their goal is to transform the used car shopping experience by offering high quality, refurbished pre-owned vehicles, simplified transactions and exceptional customer service. Our client acquires vehicles, reconditions them and uploads detailed profiles to its website. Once the vehicle is purchased, they deliver it to their customers across the US.
The private equity-backed company’s original operating model was to clean, take photographs and post vehicles for sale before reconditioning was complete. This approach sped up the sales cycle but it sometimes forced buyers to wait weeks until the vehicles were actually ready for delivery.
Actual throughput (vehicles per day) was 40% less than perceived because of high quality reject rates during the reconditioning process.
Challenge: Recondition many different vehicle makes and models to high quality standards with significant variations in volume.
When we started working with them, the reconditioning process was taking 21 days on average, and first pass yields (zero defects at the end of the reconditioning process) were around 40%. After helping to stabilize existing operations, TBM worked with the company to “flip” its sales model. It now reconditions the vehicles first, then photographs and offers them for sale.
To make this switch without a massive increase in inventory required much shorter reconditioning times. Those times were slashed to just 5 days. Coupled with other changes, TBM helped the company lower overall inventory levels, maintain capital requirements, improve margins and cut order-to-delivery times in half.
Solution: A comprehensive lean manufacturing transformation, starting with standard processes to improve quality, work cell design, overall flow improvements, more visual factory design and daily management methods to sustain forward progress.
Our first task was to standardize the initial inspection process and how the reconditioning work for each car was being specified and planned. After identifying the leading culprits for the low first-pass yield rates, we helped establish more rigorous quality standards and processes, and simultaneously pushed more quality responsibility back to each repair department.
Workflow changes in the paint area, which had been a major bottleneck, included workplace reorganization, a new scheduling process and standard work. All of these improvements reduced the paint backlog by 80%.
Our objectives included:
- Improve profitability
- Improve quality
- Increase vehicle reconditioning capacity
- Double daily output
- Reduce reconditioning labor costs by 25%
- Deliver more than 97% of orders within two weeks
Results: Realized a total annualized reconditioning cost savings of $10.8 million
To maintain forward progress TBM worked with the company to expand some existing programs and launch a number of new initiatives. Performance boards give employees and supervisors an instant view of how they’re doing on any given day.
Sustainment efforts are being supported by problem solving training for associates, supervisors, production managers and site leaders. The collaborative and team-based techniques are learned within the context of the real problems that they face every day, including a clear escalation and help-chain process.
Overall, we were able to:
- Reduce reconditioning lead-time from 21 to 5 days
- Decrease labor costs per unit by 30%
- $600,000 reduction in rework costs
- First time quality improvement from 50% to 87%
- Total annualized reconditioning cost savings of $10.8 million ($24.5 million when company reaches target sales level)
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