Kia Motors America: Lemon Aid
When Korean car manufacturer Kia Motors arrived on the North American automotive scene in 1995, it promised to make Japanese-quality vehicles at Korean prices. Buyers got the discount prices, but Kia failed to match the quality.
In fact, until 2002 Kia was ranked at the bottom of J.D. Power and Associates’ annual initial-quality survey, which is based on responses of new vehicle owners after 90 days of ownership. In 1997, when the average North American car had 1.1 defects per vehicle, Kia had 2.75. Five years later, in 2002, Kia had improved its defect record to 2.12 defects per vehicle, but the industry average was 1.33—still a long drive away (see “Treading a New Course,” p. 71).
“In general, they have managed to improve the quality of their vehicles pretty dramatically,” says Chance Parker, an executive director with Westlake Village, Calif.-based J.D. Power. “But it takes time to improve public perception, and as long as they’re below average, that [quality] stigma will be there.”
Kia Motors America CEO Peter Butterfield has vowed to change that. Speaking at the North American International Auto Show in Detroit in January, Butterfield said the company’s goal is to steer even with the industry average by 2007, and by the end of the decade to be on par with the top-ranked Japanese manufacturers.
It has been the one missing element in an otherwise great introduction story, according to Butterfield. “Just a decade ago, this company only sold 12,000 cars [in North America],” he noted. “Last year, we sold over 270,000 cars.”
A key plank in the company’s efforts to achieve its quality goals is a new system deployed in the fall of 2003 to track warranty claims, field reports and customer complaints across the dealership, parts and consumer affairs networks.
Like all manufacturers of vehicles sold in North America, Kia faced a deadline of Dec. 1, 2003, to create a system to report any defects, accidents or injuries involving its vehicles to the National Highway Traffic Safety Administration. The requirement was created under the Transportation Recall Enhancement, Accountability and Documentation (TREAD) Act, passed by Congress in 2000 in response to a series of fatalities involving Firestone tires. The agency’s investigation determined that faulty tires, primarily on Ford Explorers, were linked to at least 271 traffic deaths and more than 700 injuries.
Kia faced a number of challenges in meeting the federal deadline. Information that was supposed to be reported had been stored in at least seven separate computer systems. Most notably, its warranty, parts, legal and consumer affairs departments operated on different, non-integrated computer platforms, such as Clarify for consumer affairs and AS/400 applications for warranties and parts. However, each system contained information that had to be reported under the federal rule. In consumer affairs, for example, if a customer called to complain about a brake problem, that information had to be recorded and reported to the government.
Getting the information right and reporting it on time is critical. Under the law, senior executives of vehicle manufacturers must sign off on the quarterly reports; if they fail to accurately report or attempt to hide defects, they risk jail time.
Kia could have created a series of workarounds to push the required information out of its various computer systems and collate it manually, but realized that would be a missed opportunity. Instead, it decided to create the equivalent of a defect early warning system. The idea, says Ed Lease, Kia’s warranty administration manager, was to create a system that could identify potential problems, such as faulty air conditioning systems or brake parts, by combining incoming parts orders, warranty claims, field reports and consumer complaints to spot trends as early as possible.
“The problem with having information in silos is that you never get a complete picture,” Lease says. A car owner might, for example, have his vehicle’s faulty air conditioning system repaired two or three times before calling the company’s consumer affairs line. By that point, the owner is probably angry, and in danger of not buying another Kia. If the problem is related to a manufacturing defect, that consumer may be just one of hundreds or thousands of frustrated owners.
“If you introduce a new car model, or a new air conditioning system, you need to be able to combine data from all sources if you want an accurate read,” Lease explains. “And when you have a fast-growing company like this, staying on top of quality issues can be that much more difficult.”
Infogain, a software consulting firm based in Los Gatos, Calif., was brought in during late 2002 to deal with the difficulties. Subhash Solanki, Infogain’s director of solutions, says the company essentially created an engine that could go into each of Kia’s reporting systems and automatically break down and categorize reports around individual components, such as steering assemblies or headlights.
Infogain used Microsoft’s Data Transformation Services technology to tap into each of the applications associated with TREAD and perform a daily download. The information from each of the applications is stored in a Microsoft SQL server database. The integration involved accessing six AS/400 applications for areas such as warranty claims, parts sales, vehicle identification number master storage files, and vehicle inventories. It also set up a connection to a Clarify customer relationship management system that handles consumer complaints and compiles field reports.
These reports are created when a Kia owner encounters a stubborn problem with a vehicle. If a dealership has tried three times to fix a suspension problem, for example, and still can’t find the answer, Kia may send out an engineer to investigate. The investigator will file a report in Clarify.
Consumer affairs presented a particular challenge for Infogain. Customer service agents answer consumer concerns or complaints received by phone, e-mail or postal mail. When a complaint is received, a case is opened, recorded and managed through the company’s Clarify reporting system. Under the new federal requirement, each complaint would also have to be reviewed to see if it had to be reported to the NHTSA. This threatened to essentially double the agent’s workload, according to Michelle Cameron, Kia’s national consumer affairs manager.
Instead, Infogain created an engine that could search through reports each time a case is created or updated in Clarify to look for keywords that might require further investigation and reporting.
For example, anytime a customer uses words such as “fire,” “burn,” “spark,” “combustion” or “smolder,” the software prompts the agent to check on whether a report needs to be made; if so, the application assists in submitting the report. Some human vetting is still required. A customer may have simply registered his dissatisfaction with a salesperson, saying Kia should “fire” that person. In this case, the company may want to investigate the matter, but a TREAD report is not required.
Cameron says the company has about 50 employees at its main call center in Irvine, Calif., and at regional offices. With the automated reporting software, Kia was able to meet its reporting requirements without adding staff.
Once pulled into the SQL database, the information can be sliced and diced using Crystal Analysis data mining software. (Business Objects acquired the software in 2003 with its acquisition of Crystal Decisions.) Infogain created a series of automated reports to look for events such as sudden increases in parts orders, spikes in warranty claims related to a particular vehicle model, or a rise in accidents that result in death or serious injuries. The results are displayed on an early warning dashboard.
Managers can drill down into individual items, such as steering assemblies, to find out how many warranty claims were made, how many parts were sold and how many complaints were received.
For the first time, Lease says, managers are able to look across departments by daily, weekly or quarterly reporting periods, and by specific car models, model years and components.
While the system has only been live for a little more than a year, the company has already gained insights it can put to use. A key finding: Parts sales are a critical leading indicator of defects.
Typically, when a Kia owner has a problem, he takes the vehicle to a dealership for repairs. The dealership orders the necessary parts and, hopefully, the problem is fixed. At the end of the month, the dealership sends in its warranty claims. If the Kia owner’s problem has not been solved, the owner will usually return to the dealership to have the vehicle looked at again, and perhaps make a third visit if the problem persists. After that, the owner will likely call or contact Cameron’s office to register a complaint.
Parts sales are the first indicator of a defect, warranty claims the second, and consumer complaints the lagging but most damaging indicator. Defect early warning parameters are set by individual department managers based on historical averages. If, for instance, Kia normally receives 2,000 parts orders a month for brakes, an alert can be triggered if incoming orders are 15% greater than the monthly average. Similar parameters can be set for warranty claims; Kia processes about 120,000 a month.
But looking at parts sales doesn’t always provide the correct answer. A sudden increase in brake pad orders indicates there is a problem with a particular pad. Normally, Kia would contact its supplier and instruct it to fix the problem, or find a new supplier. By looking at warranty claims, however, Kia might discover that brake pads were being ordered only for four-wheel-drive versions of one of its vehicles, and not for the two-wheel-drive models. The problem, in that case, might be excessive vibration caused by the design of the vehicle, not the brake pads.
That’s why, Lease says, having the complete picture is important.
While it is still digesting the information that can be gained from this system, Lease says that Kia can now begin to perform detailed return-on-investment calculations. What percentage of its vehicles is likely to be affected by a problem such as battery defects in extreme heat? Should all vehicles be recalled to fix the problem, or can efforts be limited to Southern states? Battery connectors are just one of an average of 60,000 parts in a vehicle; by using such hard dollar calculations, Kia can calculate potential liabilities and also prioritize fixes and recalls.
Kia declined to disclose the cost of the Infogain system. However, Lease says the company’s two initial goals—meeting the TREAD deadline, and limiting the need to hire more agents to handle customer complaints—have been met.
The larger goal of increasing vehicle quality also appears to be on track. In its latest initial-quality rankings, released May 18, J.D. Power said Kia improved its performance from 1.53 problems per vehicle for the 2004 model year to 1.40 problems per vehicle for the 2005 model year. The Kia Spectra finished second for quality in the compact-car category, behind the Toyota Prius and ahead of the Honda Civic and Toyota Corolla, which tied for third.
Copyright © 2005 Ziff Davis Media Inc. All Rights Reserved. Originally appearing in Baseline.