Pitching in: Reducing waste to increase profits

By Bob Clements

As my team of consultants and I work with dealers, we take a multi-faceted approach toward improving their profitability by focusing on increasing sales, improving margins, re-directing marketing efforts, and reducing waste. In this article, I want to focus on how to reduce waste, thereby creating more value in what you deliver to the paying customer.

When we first talk to dealers about reducing “waste,” they often think of “waste” being limited to “trash” such as the old equipment that customers drop off to be repaired and never pick up, or trade in and never gets fixed; wood crates for shipping wholegoods; old catalogs; and other “treasures” collected over the years. While all “trash” in a dealership can be considered “waste,” not all “waste” in a dealership is “trash.”

“Waste” is anything you do in your business that doesn’t add value for the customer. In your dealership, this can take on several forms:

Inventory – wholegoods or parts (too much or not enough)
Waiting – for parts, for customers to pick up equipment, for answers from a manager
Comebacks – on equipment that has been serviced but still doesn’t work or on parts that have been ordered wrong
Pickup and delivery – poor scheduling
Paperwork – warranties not submitted or submitted late
Motion – moving equipment around, tracking down customer equipment, hunting down an owner or manager to get an answer
Trash – any paper, boxes, crating, old parts or equipment that takes up space that could be used in a better way to generate profit

There are other types of waste in your dealership, but these seven should rank at the top of your list. Waste is any activity in your dealership that doesn’t create value for which a customer would be willing to pay.

During the past month, we have been working with Lawrence and Sarah Levering, owners of Grone’s Outdoor Power Inc. in Grand Island, Neb. Lawrence and Sarah believe that to maintain a competitive edge and be profitable this season that they have to look at every aspect of their dealership and identify anything that they are doing that doesn’t add value to their customers. Working side by side with their managers, they are committed to eliminating waste from their dealership, improving their profitability, and focusing on “building their business” instead of “working in their business.”

Lawrence and Sarah have discovered that working harder in their business doesn’t necessarily lead to the profit they are working to achieve. Like many business owners, they show up early every day and focus on getting the work done. They spend time putting out fires, dealing with employee and customer issues, paying bills, and handling vendor situations, and then go home and start all over again the next day. Sound familiar? As I met with Lawrence and Sarah, I encouraged them to change the way they looked at their dealership by shifting their focus from “doing business” to “building a business.”

I would encourage you to do the same thing. What if you made the decision to come to your dealership tomorrow with a focus on building a better business? How would that change the way you went through your day? What if all of your employees came in tomorrow with the same focus? How would they do their jobs differently? How would they react to the issues that they face on a daily basis?

By making a simple change in how you think, you can change the complete dynamics of your dealership and build a strong, competitive, profitable business.

With Lawrence and Sarah, we began by creating standard operating procedures for every aspect of their dealership from service to parts to hiring to wholegoods. When we are eventually finished, everything that goes on at Grone’s Outdoor Power will have a procedure and every employee of the dealership will understand their role in helping the business to be profitable. Lawrence and Sarah understand that their employees are part of their improvement process, not just workers; they are partners in finding ways to improve each aspect of their dealership.

Think how powerful it would be in your dealership if each person would focus on how they can do — what they do — better to bring more value to the customer, and thereby improve your profitability and their income.

Transforming your dealership

As an owner/manager, your task is to provide employees with the necessary tools to improve their performance. Your goal is to change your employees from thinking about just performing a task to thinking about ways to improve how they do it. How much more exciting would it be for your employees knowing that every day their goal was to improve what they do with the opportunity to make more money?

To make this happen, you need to have a few things in place. First, you must have a standard way to do each aspect of the job your employees perform. You can’t improve something if there is not a set way of first doing the task.

With Lawrence and Sarah, we are working to help them break down each aspect of their service and parts departments, and create standard operating procedures on how work and parts flow through both. Once they have the standard processes in place, the goal for both Scott Snider, the service manager, and Don Bloedorn, the parts manager, is to work individually and collectively to improve their processes by focusing on eliminating anything that doesn’t add value to their customers.

As I work with both managers, we focus on delivering the level of service that the customers want. Our goal is to move equipment repair from three weeks out to no more than 10 days at peak season this year. For some dealers, it sounds impossible. But for dealers with whom we work, they will tell you that ultimately you can get your service down from 10 days to less than seven days when everyone works together to improve the process.

Again, the key to making improvements is having a process in place that moves you toward a goal. Think about your parts department. As a dealer, you will find that four turns per year is considered good, yet we have dealers that consistently do better. How do they do it? They have a parts manager who looks at every aspect of what happens in the parts department and then works toward eliminating anything that stands in the way of achieving that goal. They have a process for everything that goes on and then work to improve it.

Do you have processes in place for your parts manager to determine when to make a part a “stocking part” and for getting parts returned for credit from your vendors? When you have parts in inventory that customers don’t need, you have waste.

Your parts manager is responsible for eliminating that waste and turning those dollars into cash that you can reinvest in your business — areas that will add value to customers and generate revenue. Once your parts manager has a clearly defined process and you have determined that you expect a better inventory turn, it’s just a matter of time for a good parts manager to get you there.

To make this work in your dealership, you must know who your true customers are and what they want and are willing to buy, and then you and your employees must stop doing anything that doesn’t serve your customers’ needs. Remember, anything that you do that doesn’t generate revenue is waste and is costing you money.

Let’s take a look at a specific example of how you can do this in your dealership. It starts with documenting a process. Let’s use something as simple as the process of checking in a piece of equipment to be serviced.

Starting from the moment a customer walks into your dealership, what are the steps you take to get the equipment from the customer to the point it is ready to be introduced into the service process? Mentally walk through the process for your dealership. Take a moment to write down the steps and employees involved in the process. What happens first? What’s the second thing that happens? What’s third? Keep thinking through the process until the equipment is staged to be serviced. How many steps are there in your process? Did you leave out any steps?

Once you have walked through the process in your mind and jotted it down on paper, take a moment and watch it actually occur in your dealership as your employees check in equipment from a customer. Does the process work the same way that you outlined it? If not, what was different? Did the difference affect the result of getting the equipment serviced for the customer in either a positive or a negative way? Take the time to adjust your written process and then share your findings with your employees. You have now created a standard operating procedure for that process and will have uncovered some problems that exist in the current process.

At this point, your goal is to focus your employees on improving the process by breaking down each of the steps and consider options on how the steps could be improved and waste eliminated. Your employees are now “waste removal specialists” or “process improvement experts.”

In almost all cases, the best people to document and then improve the processes in your business are the people you are paying to do the work right now. Who is better than your delivery people to document your delivery process and then work to make the process better by eliminating wasted time, fuel and energy? Who is better to document and improve the way you file and track your warranties than the person who does your warranties?

So why do we find ourselves continually dealing with issues that keep us from working on and building our business? The answer is simple: We ask our employees to help us repair equipment, file warranties, or sell parts — not to help us build a better business. The very experts who could help us create something incredible are merely asked to do a job — not to find ways to improve what we do, eliminate waste, and increase our profitability.

I challenge you to get your employees involved in eliminating the “waste” from your dealership this year. Work with them to document the processes that take place in each aspect of your dealership, and send them on the path of finding ways to improve them. If each employee found a way to remove just 10 percent of the “waste” out of a process, think of the impact it would make on your bottom line and your ability to make the 2009 season one of your most profitable.

Bob Clements is the president of Bob Clements International, Inc.,
a consulting firm that specializes in the development of high-performance
dealerships. His organization works hands on with dealerships throughout
North America, helping them attain the personal freedom and financial wealth
all owners strive to achieve. For more information, contact Bob Clements
at (800) 480-0737 or bob@bobclements.com or visit his Web site at www.bobclements.com.