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CASE
CASE 7.1 SUPERAUTO SPARE PARTS SERVICES
When Peng Zhang accepted the task from Yun
Li, he thought it would be simple—apparently all parties
China. Three years ago, he led a project to outsource involved in the outsourcing arrangement were better off.
spare parts management to DailyFreight Ltd., a third- He followed the routine procedure of conducting a ran-
party logistics provider. Outsourcing is the practice of dom survey among all the stakeholders involved by phone.
transferring specific processes from in-house to a third However, he was shocked as he spoke to some vehicle
party. It involves a change of process ownership. In owners: they were very angry about their dealer experienc-
Peng Zhang’s project, the outsourced processes included es. They complained that their local authorized dealer had
spare parts inventory management, receiving spare parts asked them to replace expensive components that were
orders from dealers, and dispatching orders to dealers. still in a good condition, just to make more profit. When
Yun Li, the vice president of customer services, recently asked how they had discovered the dishonesty of a dealer,
asked Zhang to assess the impact of the outsourcing ar- some vehicle owners said that their view was based on
rangement on customer service quality. In the service their experience and knowledge. A few vehicle owners had

an availability rate of 95% of spare parts orders. Dai- agency, where the dishonesty was proved. These angry ve-

cover the inventory financing, transportation, and ad- authorized dealer again, nor would they consider buying
ministrative costs.
The demand for spare parts is sporadic and urgent. Peng Zhang, although the problem that surfaced did not
- fall within the scope of the task assigned to him by Yun Li.
When Zhang started to ring dealers, he got a mixed
response. For the frequently used spare parts, all dealers
acknowledged the benefits of faster delivery and reduced
next day using a courier service. The courier has a delivery freight cost. However, dealers complained that DailyFreight
lead time of one day to major cities and two days to the often ran out of stock of some slow-moving items. Con-
sequently, the dealers had to wait many more days, which
across the country. It was a huge administrative burden for delayed the fixing of vehicles. Also, some dealers com-
- plained that DailyFreight was not professional in handling
ders, which were highly unpredictable. Dealers complained
that the courier service sometimes cost more than the parcel on a working desk in a rush, without even speaking
spare parts shipped. to or informing anybody at a dealer’s premises. Zhang tried
In the outsourcing arrangement, DailyFreight orders to probe into the possibility of deceitful diagnosis by the
dealers for unnecessary replacement of expensive compo-
at its seven regional warehouses at strategic locations in nents. However, all the surveyed dealers denied this.
China. Dealers order spare parts from DailyFreight and Lastly, Zhang called the account manager at Dai-
expect a next-day delivery from DailyFreight’s regional
warehouse. Immediately after the implementation of out- dealers. He did not give a direct answer when asked wheth-
sourcing, many dealers praised the service model as they er DailyFreight was not keeping a sufficient stock of slow-
got spare parts faster and paid a lower freight rate due to a moving spare parts. He was confident that DailyFreight
-
partment was also very happy with the ease of processing -
bulk purchase orders in the outsourcing arrangement. Be- ed by Zhang, he complained about the cost of financing
spare parts inventories and proposed that the price mark-
decided to discontinue its annual dealers’ refresher training up be increased from 10% to 20%.
on spare parts services, given that it was no longer directly Zhang reported his findings to Li. A day later, Li
supplying spare parts to dealers. called him to join a meeting with Fei Wang, the dealer
(continued )
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EXHIBIT 7. A Spare Parts Services Feedback Form

vEHICLE OWnEr DETAILS

Name*

Email*

Telephone*

Mailing Address

City & Province

Zip Code

vEHICLE DETAILS

Model Number*

Year of purchase*

SErvICE DETAILS

Dealer Name*

Cause of the Service*

Rate the Service on a scale of 1-5 (1-Very Dissatisfied; 5-Very Satisfied)*

Other Feedback

*Mandatory Field

relationship manager, and Yu Chen, the logistics manager. “I’m terribly sorry, sir,” said Fei Wang, turning his
Fei Wang looked very upset. He asked Zhang, “Could you eyes away from Li. “Nobody has ever told us. . . . Perhaps
provide me with a list of dishonest dealers? I am going to we shouldn’t have stopped our annual dealers’ refresher
be very tough with them!” training. We used to emphasize our zero tolerance of dis-
honesty in the training.”
only give you the names of the few dealers said to be “No excuses, please,” said Li, proceeding to give in-
dishonest by the vehicle owners I surveyed. My telephone structions: “You three, please find out which dealers are
survey was not meant to investigate into the integrity of dishonest. You also need to come up with an effective pro-
dealers. I randomly rang just 30 vehicle owners. We have cedure to continuously monitor and manage other dealers
over 300,000 customers!” to ensure that they act with integrity in serving vehicle
“It is not enough to be just tough with them—we
need to fire them! How can we still trust these people? Freight to see if any revisions are necessary.”
They have caused a huge damage to our reputation. I wish After Li left the meeting room, Wang, Zhang, and
I had the time to take them to court!” said a furious Yun Li. Chen discussed how to conduct a large-scale survey of
“Fei Wang, why did you have no idea about such a serious vehicle owners to identify possible dishonest dealers.
problem?” Chen showed the others an old spare parts services survey
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form (Exhibit 7). The form had been used ten years ago 4.
for a mail survey. what possible revisions should be made to the outsourcing

5. What revisions may be made to the old spare parts services

QUESTIOnS -
1. tion for continuously monitoring and managing the perfor-
why not? mance of dealers in the future? Why?
2. Based on the reports of some vehicle owners, it is apparent 6.
vehicle owners who were cheated by dishonest dealers? Why
Auto not been aware of the issue? or why not?
3. Does the spare parts outsourcing arrangement have any 7.
negative implications for the quality of spare parts services managing customer service quality in outsourcing?
offered to vehicle owners? If yes, why?