Retail Management 12th Edition by Barry Berman ,Joel Evans

Exercise 12

Case 1: Ernie's Auto Body: Utilizing the Key Choice Collision Center Network
John Magowan, owner of Ernie's Auto Body Care, is a founding member of the Key Choice Collision Center. Key Choice is a retail cooperative of 15 noncompeting body shops located in the Upper Midwest. Unlike other cooperatives, group purchasing is just the initial step used by Key Choice members in an overall strategy to reduce total costs.
Through Key Choice, participating retailers seek to identify the best practices used by each member and then adapt them for use by other members. These best practices have been applied to such issues as estimating repair costs, office procedures, and even shop techniques. As a result, Key Choice members have standardized about 85 percent of their repair and restoration processes. Members not only use a common brand of paint products to reduce costs (through quantity discounts and better bargaining power), but also standardize paint-spray-gun settings.
Key Choice cooperative members stress the need for continuous improvement. According to Magowan: "If a shop or a person says they're lean [very cost efficient], they're far from it. You'll never be 100 percent lean. It's about constant, continual improvement." This improvement often results in higher customer satisfaction index scores.
Members also share personnel in emergency situations, such as when a severe hail storm generates demand that cannot be planned for or satisfied. As an example, two cooperative members recently flew to another member's location to help write up estimates for hail damage and spent four full days (from dawn to dusk).
Cooperative members benefit from sharing financial data and from comparing their shops' performance against national and group averages. This enables an individual shop to determine whether its material cost is too high or whether its labor utilization is as productive as a "best practice" body shop. Based on this data, members are encouraged to develop specific goals related to shop size, market area, and individual circumstances. Members further benefit from social contacts that are based on friendships and common experiences associated with work and business ownership.
Ernie's Auto Body shop is in Hayward, Wisconsin, a town with 1,800 people. Because Hayward is rural, the shop draws customers from a 50- to 75-mile range. Customers include both local residents and tourists attracted by the area's fishing, snowmobiling, cross-country skiing, and golf attractions.
Two particular challenges that John Magowan faces are high seasonality and finding skilled labor. His business can be very strong in key seasons, but very slow during off-seasons. High seasonality leads to problems relating to capacity usage, staffing, and customer waiting time. While the area is very scenic, it has been difficult hiring qualified technicians to work there. As a result, Magowan has had to hire staff from as far as 600 miles away. Since Magowan feels that his sales have approached a peak level, he has devoted much effort to reducing costs by streamlining car repair and restoration processes. As Magowan says: "If you can't grow sales, you have to focus on net improvement, or it'll shrink because of inflation."
1. What additional cost savings and opportunities exist for Key Choice Collision members that have not been discussed in this case
2. Explain the differences and similarities between franchising and cooperatives from a retailer's perspective.
3. Discuss the pros and cons of a cooperative member comparing its financial performance against national and group averages.
4. How can Key Choice members better manage the inherent seasonality in their business Look at both demand and supply-related issues.