1 Introduction
1.1 Background
I will start this report by introducing the reader to how this topic “Reliability and Durability of Heavy-Duty Trucks – Implications for American and Western European Manufacturers” was chosen. It puts the contents of the thesis into context and also raises some ideas on future research which will be elaborated in the discussion section.
The idea for this thesis originates from a concern at Volvo Powertrain Corporation in Gothenburg, Sweden. There was a need for further knowledge in the area of product durability. More specifically, the company wanted to know more about how product durability affects the business economically, through aspects such as customer satisfaction, company image and the aftermarket business. The actual impact of changes in product durability on the aftermarket is not clear and needs to be analysed and further explored. On one hand, one can argue that with more durable trucks there is more time to sell spare parts and provide repair services. On the other hand it might be so that more durable trucks are generally more reliable and there would thus be fewer repairs needed.
There are many characteristics of the truck industry that make this kind of studies complex.
For instance, in some markets the sales of original spare parts end long before the trucks stop being useful, due to the presence of unauthorized workshop services and non-original parts that are competitive in price. Furthermore, a large share of the trucks are sold to large fleets and they tend to keep trucks only for a few years, while the reliability is very high, causing them not to notice an improved durability. It soon becomes clear that these issues are very hard to penetrate. Although the great complexity of this area, my supervisors and I decided that I should proceed with the task, although not attempting to provide a complete picture. A brief overview of the subject with some new understanding would provide great value for the organization, while the current knowledge is very limited.
However, it became clear after a while, that many of the analyses were impossible to carry out.
Not because the knowledge and data was not located at one single place, but rather because it did not exist anywhere in the corporation. Therefore the focus on durability moved to
2
reliability, an area in which the data is much more accessible. My focus on the driveline also had to broaden so that I whenever necessary look at the complete vehicle instead of only the driveline.
The next step was to make a brief pre-study on customer satisfaction and reliability and the connection between them. It soon became evident that the commercial customer surveys that are purchased by the organisation are a great resource and provide studies on many relevant factors with relatively large samples. Therefore, there is a relatively large focus on these studies and the new conclusions that they can facilitate. In order to gain some more qualitative and rich knowledge through this thesis, I have also performed a set of interviews with fleet managers with the objective of getting input about how customers might reason about reliability and durability and how knowledge and impressions on the topic are utilised and diffused within the industry
3 1.2 Objectives
We know that the quality dimension reliability is important for the overall satisfaction of customers and for their loyalty to brands. However, there is much yet to find out about how customers reason and how strong their reactions might be to changes in reliability. The objective of this thesis is to create some quantitative base for the sensitivity of customers to changes in reliability and what factors we should look at when we try to measure it through surveys. Besides this, we will try to get a more nuanced picture of how customers reason regarding the reliability and durability of trucks. The thesis will analyse some features of reliability and more closely look at how changes in reliability might affect customer satisfaction and image. The research can be described more concretely by the following research questions:
Research question 1
What market research measures of reliability available to the Volvo Group have the largest explanatory power for the customer satisfaction with reliability?
Research question 2
How clearly are changes in product reliability on US and Western European markets reflected in customer satisfaction with reliability? Is there a difference between improved and worsened reliability?
Research question 3
Different customers have different images of the ability of truck manufacturers to provide reliable trucks. How are these images affected by changes in truck reliability?
Is there a difference between reliability improvements and reliability deteriorations concerning the size of the effects that they have on image?
Research question 4
Can good1 service compensate for poor reliability?
1 With good service, we mean service that makes customers satisfied. The service satisfaction is in this thesis measured through a sum of several service ratings. This is further explained in section 3.1.4.
4 Research question 5
How is knowledge about the reliability and durability of truck models generated and diffused among truck customers? What importance does it have when making decisions about replacements of trucks?
Research question 6
What are possible economical effects for Volvo of a changed durability of driveline components?
1.3 Motivation
Reliability is a quality dimension that has large importance in most industries. The heavy-duty truck industry is one where its importance almost can not be overestimated. Reliability is in a major European customer satisfaction survey listed as the most important factor for customer retention, both as stated by customers and as a result of correlation studies between customer repurchase intentions and satisfaction with different factors2. Furthermore poor reliability is often mentioned as the main reason not to repurchase a truck of the same brand. Also in studies of the US market, the importance of reliability is emphasized. For instance, reliability has a large share of the customer satisfaction index constructed by JD Power and Associates, which is based on customer statements. According to Brian Etchells, senior research manager in the commercial vehicle group at J.D. Power and Associates3 “Performance and quality account for 65 percent of total product satisfaction, so it’s easy to see how problems quickly erode owner satisfaction”. He elaborates “Time is money in the trucking business, and when a truck is in for service, it impacts the fleet’s bottom line,”
In line with the great importance of reliability for a truck manufacturer, there are a lot of efforts in Volvo as well as its competitors to keep a good reliability that will make the customers satisfied and make them loyal to their brands. However, there are many and large areas in which the knowledge can be further extended.
2 Correlation between factors does not imply a cause-and-effect relationship, but it can support such hypotheses based on other arguments such as, in this case, statements by customers. A discussion about the use of
correlation studies to show importance can be found in Section 5.1.
3 Press Release: Class 8 Truck Quality Declines Due to More Problems with Low-Emission Engines (16 August 2006). Available: <http://www.jdpower.com/press-releases/pressrelease.aspx?id=2006136> (2007-08-17)
5
Reliability and even more so durability are areas that need to be evaluated during a relatively long period of time and therefore they are not as well analysed as are features that can be evaluated more or less instantly, such as aesthetics or user-friendliness. Any added knowledge in these areas is therefore valuable, even if it might be on a seemingly basic level. During the warranty period, the monitoring of reliability is usually good, however, after this period the knowledge is limited. Also, there are still opportunities for improvements when it comes to connecting the reliability to the reactions of the customers. This thesis can provide benefits to Volvo, in terms of some added understanding of how customers respond to product reliability.
Being more specific, I will explain why I believe that the listed research questions are interesting. We know that reliability is a very important feature for trucks customers. The reliability of trucks has, when looking a few decades back improved tremendously. It is clear that technical progress can improve reliability in the long run. However, in the short run, it is commonly so that technical innovations can lead to deteriorated reliability due to new concepts and components being introduced. New technology causes uncertainties in both the development and in the production. When the root causes of the problems have been found, they can generally be solved and after a while the production becomes more stable, yielding more reliable products.
So we have a situation where technical development is generally positive for the reliability in the long run but often negative in the short run. Some innovations and improvements are necessary in order to be competitive at all, some might be necessary only if one wants to provide state-of-the-art technology. How innovative one chooses to be has an impact on reliability in both the short and the long run, and it would be interesting to know the impact better. One important aspect is whether the deteriorated reliability early after a new technology introduction can be compensated for with improved reliability later. The more specific question that we ask is if there is a difference in the size of the reactions in customer satisfaction from reliability changes between deteriorations and improvements (Research question 2). If there is no such difference, we can reason that even though our technological advances might have a negative effect on reliability in the short run, the satisfaction will recover when the better reliability as a result of the innovation is seen. If the reliability deteriorations have a much bigger effect on the satisfaction than the improvements do, then we might need to be careful with having a reliability that jumps up and down.
6
It is also interesting to look at the same question for the image, which is done through research question 3. Do deteriorations and improvements have the same power in affecting image? One major difference between image and customer satisfaction is that only those who own a truck of a certain brand can be satisfied or dissatisfied with it, but everyone who has heard of a make can have their own image of it. Therefore, while looking also at image, it would be relevant to know how customers acquire information about other trucks than their own and how they discuss the reliability of trucks with others (Research question 5).
The first research question is necessary to facilitate research questions 2 and 3, where we need to have the best measure of reliability for which we study the effects in satisfaction. RQ1 also has relevance in itself. The commercial surveys that many manufacturers buy provide several measures of the product reliability. In many cases there is a relatively large correlation between these measures, but sometimes they give completely different pictures. It is then valuable to know which of these measures that generally best describe reliability in the sense that it has a high correlation with the satisfaction with reliability stated by the customers.
Research question 4 came up as something we wanted to test after hearing from one customer after another in our interviews that problems happen to everyone, the important thing is how they are solved. We interpreted this as if they were saying that quite a few problems can be acceptable as well as they are solved well and fast. It would be very interesting to test this hypothesis on a large sample.
7 1.4 Delimitations
Due to methodological reasons we make several delimitations concerning geographical coverage. Research questions 1-4 are all concerned with quantitative analysis of secondary data from commercial customer satisfaction surveys. Such studies available to the Volvo Group provide a good picture of the Western European and US markets, which together comprise about 70% of the sales of Volvo Trucks. In other markets, the sales are substantially lower and the coverage of detailed customer satisfaction surveys is limited. Therefore, we limit ourselves to the US and Western Europe. For research questions 3 and 4 we have furthermore excluded the US market, leaving only Western Europe. For RQ3, the reason is that there are no questions about image in the survey of the US market that could access and in the case of RQ4, there was a need to access the responses on an individual level rather than at a brand or model level as was the case for the data available to me for the US market. The time periods on which quantitative analyses have been made are 2000-2007 for Western Europe and 2002-2006 for the US. Research question 5 has been investigated through face-to-face interviews. Therefore we chose to limit ourselves to the Swedish market to satisfy the time constraint present.
The countries that in this thesis represent what we refer to as Western Europe are Germany, the United Kingdom, the Netherlands, Belgium, France, Spain and Italy. This list of countries is based on the scope of the customer survey that we have used for secondary data analysis and we have not had any possibility to affect it, except for the option to exclude countries. We believe that these countries give a fair representation of Western Europe.
The trucks that the secondary data, and thereby also my analysis is confined to is, for the US, Heavy Duty Trucks, more specifically Class 8 vehicles, i.e. less than five-axle tractor4/single trailer for medium-haul delivery5 The vehicle are of model year two years prior to the year that the survey is carried out. For Western Europe, the trucks are Heavy Duty Trucks with a
4 See Appendix 1: Abbreviations and Key for a verbal description of a tractor truck and Appendix 3: Basic types of trucks and trailers for a picture.
5 US Department of Transportation. FHWA Vehicle Classes (Electronic).
Available: <http://tmip.fhwa.dot.gov/clearinghouse/docs/accounting/appendix_e.stm> (2007-11-18)
8
Gross Vehicle Weight6 of 16 tons or more that have been delivered during the last 6 - 24 months when survey is carried out.
1.5 Organisational presentation
“The Volvo Group is one of the world’s leading manufacturers of trucks, buses and construction equipment, drive systems for marine and industrial applications, aerospace components and services”7.
The group has approximately 82,000 employees and its net sales in 2005 amounted to 23 billion Euro8. Volvo Powertrain is a business unit in the Volvo Group and has about 8000 employees. They provide integrated powertrain systems comprising diesel engines, transmissions and drive shafts for the end products of the Volvo Group. In the 9–18 liter classes, Volvo Powertrain is the world’s largest producer of heavy diesel engines9.
Figure 1: The business areas and business units of the Volvo Group10
6 “The maximum loaded weight (including the vehicle itself, passengers, and cargo) for which a vehicle is
designed, as specified by the manufacturer. Often used as a criterion of vehicle size for the purpose of legislation;
the exact definition may vary depending on the jurisdiction”.
DieselNet, Glossary (Electronic). Available: <http://www.dieselnet.com/gl-e.html> (2007-11-18)
7 Volvo Homepage (2007)
8 Ibid.
9 Uniform Power (2006). Information leaflet. Available:
<http://www3.volvo.com/investors/finrep/ar06/eng/volvopowertrain/pops/printable/16_volvo_powertrain.pdf>
(2007-07-03)
10 Volvo Group (2006)
9
The business areas are the divisions that provide products and services to external customers.
Volvo Powertrain, as indicated in Figure , providing driveline components for the four truck brands: Mack Trucks, Renault Trucks, Volvo Trucks and Nissan Diesel. It further delivers components to buses, construction equipment and marine applications through Volvo Penta.
10
2 Theoretical Framework
2.1 Quality
Most companies of today recognise the importance of quality, whether they are providing products, services or both. However, what quality actually means is in many cases a matter of interpretation biased by the objectives of the observer. For instance, a common situation according to Garvin (1984) is that marketing departments focus on quality to satisfy customers and thereby increase sales. Manufacturing departments on the other hand, see the main benefits of quality as lowering costs of scrap and rework. We need to be aware that there are different views and that this affects our business. Garvin (1984) has identified five main approaches to quality, some with their own objectives.
The transcendent approach
Quality is ”innate excellence”. This view implies that there is no precise definition and Garvin draws parallels between the transcendent approach to quality and Plato’s discussion of beauty, where Plato says that one can understand beauty only by being exposed to a series of objects that have the characteristic.
The product-based approach
In this view quality reflects the quantity of some desirable ingredient. This view could for instance imply that a digital camera with many pixels is of higher quality than one with fewer pixels.
A problem with the product based approach is that one must know the desired ingredients that in many cases can differ greatly between different users. It is also common that an increased quantity of an ingredient can have a positive effect on the performance of a product only within some interval, and that it outside the interval have no effect at all or even a negative effect. A consequence of the product based approach is that increasing the quantity of some desirable ingredient is often costly and it therefore implies that quality improvements need to be costly.
The user-based approach
11
There are many definitions of quality that fall into this category. One of them is that of Bergman & Klefsjö (2003). “The quality of a product is its ability to satisfy, or preferably exceed, the needs and expectations of the customers”. In this view quality is subjective. An important feature of this view is that quality can be improved by better understanding the needs and wants of the customers and it therefore does not necessarily have to be costly. If considering the potential for increased sales that a better understanding of the customers will yield, there is of course no cost at all; rather, quality improvements are sources of increased profitability.
The manufacturing-based approach
With this approach, the measure of quality is conformance to specifications. High quality products are those that are produced as specified and for which the variation between individual units are low. This view takes the customer into account to some extent, while it is assumed that products outside specifications generally perform less good than those within and that variation in itself can have a negative effect on customer satisfaction. The main focus, however is reducing costs of scrap and rework by doing things right the first time.
The value-based approach
The unique characteristic of this approach is that it takes price into account. A high quality product is one that performs well at an acceptable price. A problem with this view is that we equate quality with the extent to which it is worth its price. It makes practical considerations
The unique characteristic of this approach is that it takes price into account. A high quality product is one that performs well at an acceptable price. A problem with this view is that we equate quality with the extent to which it is worth its price. It makes practical considerations