Denso Corporation is the second largest automotive supplier in the world. Joseph Mejaly, senior vice president operations, sales, strategic planning, and marketing, defines what the company is and shares his thoughts on growing the company’s heavy-duty business, e-commerce, and the future
HDT: What do you want people to know about Denso that they don’t already know?
Mejaly: I don’t think a lot of people realize that Denso is a company that had $40.2 billion in sales in fiscal year 2015 and that $9.9 billion of that was North American revenue. But even more than that, we invest $3.5 billion globally in research and development leading the industry. We employ more than 151,000 people worldwide with more than 22,500 in North America. Our product lines fall into five categories: automotive OE and aftermarket, heavy-duty OE and aftermarket, portable A/C, automatic data capture, and robotics.
HDT: Tell us about the Denso’s commercial and heavy-duty business.
Mejaly: Globally that segment had $2.4 billion in sales in fiscal year 2015. We have 15 aftermarket commercial and heavy-duty product lines in the areas of powertrain, electrical and thermal. In the heavy-duty aftermarket we also have starters and alternators and DPF filters.
HDT: You joined the company about 13 months ago; what were some of your early observations?
Mejaly: Denso had done a good job of building an aftermarket network for its light-duty business, but heavy-duty was not growing as well. I wondered why and determined we needed a more clearly defined strategy for growth. We had some key pillars in place like our partnership with CDTI (Clean Diesel Technologies Inc.) for DPFs (diesel particulate filters) and DOCs (diesel oxidation catalysts). Another was the quality of our products. That stands for itself.
HDT: Talk about some of what you have done to grow the heavy-duty business since you’ve joined the company?
Mejaly: We are working on a better operational excellence to make sure customers can be very comfortable in our lead-time performance and our fill-rate performance. It should not be a guessing game in terms of when the product is going to arrive at your door and to what degree the order will be filled. We are also working on an e-commerce solution to make the order entry process, the warranty process, and obviously the cataloging process much more efficient and streamlined for the customer to use. Those are all critical to being able to provide better levels of service. And the third critical piece for us was to establish our remanufacturing business. Up to this point, remanufacturing was more of a product line and now with the appointment of a general manager we are starting to build that into a business model that will be much more beneficial to providing more productive core management and assembly, and delivery and reverse logistics for the cores.
HDT: How do you see the difference between a reman product line and a reman business model?
Mejaly: When it is simply a product line, it is managed by part number, pricing, and cataloging. Then the production controls are a separate measure. In any remanufacturing business, your lifeblood is your cores, your reverse logistics, your Kanban system, which allows for production efficiency, measuring your new parts used and then managing the engineering aspect to continue to drive efficiency. I found at my previous jobs that having all that under one person’s responsibility is a much more cohesive model then having it be separated.
HDT: Talk a little more about your e-commerce efforts.
Mejaly: There are not many people these days that don’t use the Internet for some service so your e-commerce solution has to evolve to provide a broader range of services than the old system, which is primarily catalog, look up, competitive cross-referencing, maybe an order entry screen. We are trying to take that a little bit farther in terms of return goods authorization processes, warranty processes, etc. These are all additional offline elements that we want to bring into our e-commerce. UPS orders, the expedited service, all the elements that if you went to your customer service center and asked why do customers call us, would be the issues that they are talking about.
We are not there yet, but it is our vision. The goal is to be paperless. We are looking at ways to lower transaction costs.
HDT: What about pricing?
Mejaly: I think from a pricing standpoint we can be competitive. The market is getting uncomfortable with the level of quality of some products currently on the market and is looking for a supplier who understands the requirement of heavy-duty and has a higher expectation of quality.
HDT: Looking to the future, how do you describe Denso?
Mejaly: We are a company with an appetite for the future and want to make sure the future is not a surprise. Customers do not want problems to be diagnosed after the fact. They want to be signaled about a problem before it occurs. We are looking at the sensoring capabilities of automotive and asking can we leverage that for heavy-duty.
HDT: Talk about your plans for the future for Denso’s heavy-duty aftermarket business, both short term and long term.
Mejaly: There is really so much value that Denso brings to the heavy-duty side. Number one is its size and resources. When you are a $40 billion entity that spends $3.5 billion a year in engineering and development work, you have a tremendous amount of resources at your fingertips to use for the right types of programming. The light-duty aftermarket is a very demanding market in terms of its rigid lead times and its fill-rate requirement. We have built an operational model around that and we believe that those two components migrated over to heavy-duty — the R&D capabilities and the operational model that has already been built — provide great value for heavy-duty.
The next thing we had to do was build a network of salespeople to service our product. We are building that now with a combination of Denso employees and stronger but select manufacturers reps. Our ‘foot soldiers’ will increase by six times in the next four or five months.
The next thing we needed to do was build the pillars that we are going to build our product portfolios on. One of those products that we announced at HDAW was the DPF. The filtration system is one of the growing aftermarket segments in the heavy-duty market and our relationship with CDTI is one that we are very, very excited about.
The second one is industrial spark plugs. As you know, CNG engines are becoming more and more popular particularly inner city and bus applications. We also have a very high performance in industrial applications, off-highway applications, industrial pumps and things like that.
The third pillar is our starter and alternator product line. We have an infrastructure, we have a plan, we have reverse logistics, we have engineering and research capabilities, and we have an existing product called Power Edge high amp, which is a new alternator with high-performance characteristics and a much smaller package than the existing competitors. We have a product we can build upon, we have an infrastructure we can build with, and we will have a sales organization that will be able to sell our products. Denso has for years been a major player in starters and alternators on the light-duty side. We have upwards of 30% of market share on the light-duty OEM side and we have built this heavy-duty starter and alternator business as well. We have a right to play. We have a high-quality reputation, the brand speaks for itself, and now we are going to use our research and engineering to grow the portfolio and bring a broader product line to market.
Those are the three key products that will be supported by an expanded sales organization and an operational infrastructure that is already built for the light-duty segment. So that is our game plan.
HDT: What are your longer-term plans?
Mejaly: My mantra has always been to continue to find ways to be simple to do business with. One of the key components in our ability to provide value to our customers is how easy is it to do business with us. Whether you are talking e-commerce, fill rates, short and quick lead times, electronic interchange, our ultimate objective is to be simple.
And longer term we will grow our product lines, enhance our remanufacturing capabilities, and continue to expand our distribution points. We also believe that we have to continue to expand our warehousing. Our business has grown quickly over the last few years and we are now working on a much larger footprint for our distribution. We are always challenged to keep up our pace, which is a good problem to have, and one that we embrace.
HDT: Tell us about your background prior to joining Denso.
Mejaly: Denso is my third company in my 30+ year career. The bulk of my career has been in the aftermarket. In my early years with Meritor, I learned the aftermarket because my career evolution was primarily with that company and it was primarily in the commercial space. When I went on to Axle Tech, I had an operational or a production role as well as aftermarket, but that aftermarket role gave me access to the off-highway and military aftermarket. As I came over to Denso one of the things that was intriguing to me was that this gave me access to the automotive aftermarket and it also allowed me the opportunity to take my commercial and off-highway experience and apply it to a growing heavy-duty segment that they have here.
More specifically, my career started with Meritor back in 1985. I was probably one office next to the mailroom. Coming out of Western Michigan University, I did a little stint for about a year and a half selling industrial machinery and cutting tools.
At Meritor, I grew up learning the aftermarket from the ground floor, from the basic fundamentals of market research to marketing plans to product management to account management, both on the distributor and OE side, to managing marketing departments to managing sales departments and to ultimately managing North America and then managing global operations as Meritor’s president of aftermarket and trailer business. I grew up in the industry.
From there, I went over to join Axle Tech, which at that time was owned by General Dynamics. My role at Axle Tech was to re-energize the business from a military focus to commercial, build an executive team, put a business strategy together, and work on a divestiture plan for General Dynamics. That gave me production experience both in North America and in Europe; it gave me access to the military and off-highway businesses in Asia, Europe, and North America.
In between, I did some really interesting consulting work both in the off-highway and military area as well as the commercial space and then came across the Denso opportunity, which I started in December of 2015. It has really been interesting for me to learn the light-duty aftermarket and to look at the opportunities in the heavy-duty business.
One thing we have not talked about is that here at Denso we also have what we call our Commercial and Industrial Sales Group (CIS). We sell a line of 4-, 5-, and 6-axis robots to the industrial and consumer markets. We are the world’s largest user of single assembly robots. We also sell a line of industrial heat management products called MovinCool, which is probably the market leader in portable industrial cooling solutions. You will find our products at construction sites, in manufacturing settings, server rooms, and even on professional football sidelines.
HDT: What are the responsibilities of your current position?
Mejaly: In my role as senior vice president for Denso, I am responsible for all of sales, all of marketing, all of strategic planning and M&A, all of the operation which is our warehousing, our purchasing, our logistics, our internal planning department, and also the remanufacturing business.
HDT: What are some of the challenges you face in this position? And how can you overcome them?
Mejaly: Anytime you are in a corporate setting it is important to keep the customer’s voice in mind when you are doing your day-to-day chores. In a small entrepreneurial business that is not an issue, but in the corporate world sometimes corporate requirements and processes that are in place make us forget why we are here. In the corporate world, one of the bigger challenges is to make sure the voice of the customer is as strong in this building as it would be in an entrepreneurial setting.
I would also say that you are blessed by being a strong OEM manufacturer and in some ways, you are cursed a little bit by being a strong OEM manufacturer. We have to find the right balance between the two in terms of our support, our investments, and our product development. These are not new challenges, these are challenges that many corporate environments face and just some of the areas that Denso needs to make sure we stay focused on as well.
HDT: What do you do to make sure you keep close to the customer and make sure you hear them?
Mejaly: One of the key entry points is your call center. Unfortunately, many times the call center doesn’t get face time in the corporate environment. At Denso, our call center manager now has time every month in our monthly reviews because we want to understand what the customers are calling about. What are the top calls that are coming in every month and why are they calling us? How long does it take us to respond? We want to understand what the voice is telling us in this building and we are giving it the audience it needs for the rest of the functional groups to listen to.
The other thing that we have instituted this year is a survey. It is done anonymously and we are setting baselines on how the customer perceives us vs. other suppliers in this space. We are taking that data and determining how best to improve ourselves on a daily basis.
Those are two methods that constantly can bring the message into the building. You cannot question it. It is not somebody else’s interpretation. It is not a salesman’s interpretation. It is direct feedback from the customer.
HDT: How can you leverage lessons learned earlier in your career to help Denso grow?
Mejaly: You probably learn more from the ideas that didn’t work than from the ideas that did. So when you have 30+ years in the industry, there are a lot of areas where you have learned. It is the little things, the little details in a relationship with a customer or the operational delivery models or the cataloging or the product development process. When you have grown up in an industry, you have many areas where you have missed something and then you learn from it. I think that is probably what I call upon the most is the things that didn’t go well that I learned from.
There are, however, fundamental models and principles that I have learned that are important regardless of commercial markets, military markets, or off-highway markets or light-duty markets. Strong product lines, strong brands, operational excellence, electronic commerce, and a philosophy of being easy to do business with are all fundamental principles that any consumer wants to experience when they are buying something.
HDT: Talk more about your partnership with CDTI and how you think that helps strengthen Denso? Do you see any other partnerships in the future?
Mejaly: I think the partnership with CDTI is one where we found a very high-quality product, produced by a company that has a really strong background in research and technology, founded by light-duty and migrated to the heavy-duty market. It is one where we provided a value to them with our distribution and aftermarket capabilities for their product.
I believe that we will probably continue to look for CDTI-like companies where our distribution model will provide value to their products and we can find strong combinations.
There are many companies out there smaller in nature that have strong products that want to use Denso as a partner/resource to distribute and market and sell for them. We believe that CDTI is not the last one; it is just the first one.
HDT: What are the biggest trends you see that will impact the heavy-duty aftermarket?
Mejaly: The vehicle is changing rapidly and in some degrees much of the evolution starts in the automotive or the European market and migrates to North America, especially electronics. Let’s go back five years ago when the discussion of autonomous vehicles was a dream and today they are on the road. Let’s go back a couple of more years and talk about battery powered vehicles and today those vehicles are getting charges upward of 200 to 250 miles.
Change is happening at a pace we have never seen before and it is happening in the commercial vehicle market as well. Right now it favors our OEM customers and the question is how quickly will the distributor business adapt to that? Given the ebb and flow of our marketplace, the entrepreneur always finds solutions and I believe that will happen again.
The other thing that will happen is the supply base will change. New types of suppliers will come to the marketplace with solutions for electronic vehicles, ECUs or remanufacturing that we don’t know about today. Distributors have to adapt to a new technology and potentially even a new supply base. How quickly they get on board will determine their success in the next five to ten years. It is going to be an exciting ride for the next few years in our industry and the dynamics are going to be significant.
HDT: Focus that on the fleet. What position does that put the fleet owner in? How will it change his relationship with suppliers?
Mejaly: Mechanics have an expertise, they have oil in their fingernails, and they can look at a part or listen to a part and determine if there is a problem. But now we are talking about electronics and it is a different mindset and a different skill set. The suppliers with the ability to train and provide resources and to provide diagnostics tools for the fleet will be the suppliers that carry a significant advantage.
HDT: Anything else, Joe?
Mejaly: Heavy-duty is something that gets in your blood. It is an area of our business where personal relationships mean something. I really cherish the relationships I have built over 30 years in this industry.