Revisit Your Use of Resources, All of ThemBy P.E. MacAllister
Article Date: 01-01-2011
Copyright(C) 2011 Associated Equipment Distributors. All Rights Reserved.
In the pursuit for profitability – and frugality – this year, engage and equip every mind on the team. The results are astounding.
AED's survey for business prospects in 2011, alas, see no overwhelming or immediate market improvement, meaning more grinding away. That being the case, how then does the astute, pragmatic dealer respond? Surely he or she has exhausted all measures to improve volume or margins and trim expense, ergo, what options are left? How about two suggestions from a curb-stoner? First: Look some more. But have somebody else examine the scenario. A different perspective might reveal newer options. If we can't find more business, can we do better what we do now?
Example: Our Service Department has a given mechanic on a special assignment rebuilding big engines for a customer – a solid owner; four rebuilds annually; good profits; why change anything? Because, suddenly he wants three more, using the same mechanic. Crunch time! So we assigned a study group to examine options. They found our guy was using 600 feet of shop area; that he laid out all his parts in apple-pie order on the floor; took 60 days to rebuild and test each unit. Weeks later, we arrive at three recommendations: (1.) Get the parts off the floor but in sequential order, on tiered shelves, freeing up half the space; (2.) Add an apprentice to help tear down the engine, wash and clean parts; saving time and costs ($12 per hour versus $26 for senior mechanic); and (3.) Buy a pneumatic wrench to unbutton the engine and then to torque the jillion bolts he was doing manually (saved 16 hours).
Our rebuilder concurred. Result: He is now overhauling seven engines annually, which represents a 75 percent increase in volume; and, with the aforementioned improvements, he surrendered enough new shop space to create another bay generating $193,000 worth of repairs per year. All this using the same shop, same people, same function.
The issue of flat rate pricing for service work is an ongoing crap shoot, though essential in a contemporary shop. We relied on past experience, and if clear on pricing, were fuzzy about profit. The manufacturer's estimates are too low unless we have air-conditioned buildings, parts at hand, and people who have done it for years. Our flat rate pricing never measured mechanic competence or set limits. So, another team; more months studying hours and jobs to rebuild several test units. This experience gave us costs through proven records, so we can now say to the mechanic, "You have 34 hours to rebuild this transmission and "X" number of parts." What this does is set up a target and checkpoints, instead of random pace and potluck results. After three days, for example, our rebuilder should have used 70 percent of his time. He has a yardstick to measure how much time he has left. The clarity of an assignment has everything to do with employee performance – a mundane observation, which leads to my second suggestion in seeking for new competencies.
Let's grant that title or position does not bring an infallible prescience to the equation. In operating a given department, the attitude and response of people performing the elemental functions are what brings fruition and success. Those working day after day on given assignments understand far better than a manager any existing weaknesses and shortcomings. It is self-defeating to ignore their practical wisdom. If we are to generate a pride in achievement and build high morale, keeping people in the loop pays dividends.
Corporate cultures differ, so this idea won't fly with a lot of companies. (Wouldn't work here if my Dad were still running our company.) Today's enlightened owners recognize we are all on the same team, each member clear on what is expected in terms of performance. Each knows, too, how he is doing, so each contributes to the company's character, it's "essence."
Illustration: I asked Ray, our top parts-counter guy, what kind of day he had. "It was only so-so," he replied and then added, "But we've had a good month so far. We are ahead in sales volume and will make November's budget." This guy isn't just taking parts orders and counseling customers; he knows where we are and is scrambling to produce the sales we had budgeted. The company's budget is Ray's budget.
When I visit branch rental stores, I ask "What's utilization today?" The counter guy in Lafayette last visit said, "It's at 81 percent." I said, "Can't be too high." He said normally I would be right, but he had just rented some high lifts and his were out. "But our Indianapolis truck is delivering them from their inventory. We can make this figure because we help each other out." Unsolicited testimonial. He then told me, "Corporate rental utilization today now is 73 percent." He is aware daily of how his store and the whole rental department is faring. When we have people thinking about "How can I make something happen to keep the percentage up," we have created a "self-generation," whose players are responding intuitively to generate volume.
It's good to have people across the board know how their contribution adds to – or impairs – total volume figures. Data is available on the computer so our machine sales manager knows volume done, marketshare year-to-date, and profit. The product support manager knows how far he is ahead or behind in sales, gross profit, expenses and bottom-line results. Only when we know how the operation is faring can he move or respond.
The shareholder may own the operation, but the people who work here make it good, bad or indifferent. Who wants to work for a bush-league dealership?
This is not the only way to operate. Our earlier way – and a current way for some – is by top-down management. Forty years ago the objective was to get the product out and the parts and service business belonged to us. A cake walk! The economy was strong; margins were good; customers were making money, and business was simple. In doing our first budgeting, I visited peer dealers to see how they did things: What were normal margins, warranty costs, ratio of parts, service and sales volumes, and departmental profit? Got no help. Managers did not get the figures. There was no budget. But why worry, we could "sense" or "feel" or estimate how things were going. I can't imagine running a dealership today without critical information and can't see how a department manager can achieve excellence without accurate data and relate "how we're doing" down the line.
Employees in the ranks constitute and arbitrate the nature of the support they provide. They ought to know how they are performing.
P.E. MacAllister is Chairman of the Board at MacAllister Machinery, the Caterpillar dealer for the state of Indiana, headquartered in Indianapolis. He was President of AED in 1972.
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