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Since
the recession of the early 1980s, dealership service departments
have been obsessed with operating statement key measures.
As a result,
sales-per-employee, gross-profit-per-sales rep and the like
drive most service operations, and "soft" measures like customer
service don't get the attention they deserve.
It's time
to review what the numbers are really telling us.
Does your
dealership measure profitability by customer, supplier or
process? Sure, many of you review some of this from a gross-profit
perspective. But what about net income?
For the
past decade, universities have promoted various methods for
managing the operations of businesses. New tools include everything
from a balanced scorecard to activity-based costing to economic
value-added.
Activity-based
costing is probably the important development for parts and
service operations. Used correctly, it reveals the big difference
between customer delivery system costs and support levels.
While
parts departments offer a range of services, most have not
spent enough time studying the impacts that each service has
on the department's operational costs. For instance:
- Walk-in
business
- Phone-in
business
- Fax
and mail-in business
- Direct
entry from a customer on a terminal connected to your computer
system
- E-commerce
While
each of these options presents different cost structures,
most dealership financial systems don't reflect the details.
Even though accounting systems have evolved during the past
50 years, they still don't provide the tools necessary to
bore down into specific details about specific functions.
Walk-in
business is a dealership's highest-cost and most time-consuming
parts process. It's also been handled strangely over the years.
When the phone rings, most parts counter employees leave the
counter customer and serve the phone customer.
The result?
Customers who come to the store learn that they're lower on
the priority list than if they'd just called the dealership.
While phone-in business is a lower-cost operation, that's
not why we leave the counter customer.
To save
money on fulfilling parts orders, make it easy for the customer
to order online. E-commerce significantly reduces the amount
of time it takes to process an order.
Customers
won't risk interacting with an employee whose skills or manner
are less than stellar. And the dealership will save some 40
percent in personnel costs.
The service
department has similar opportunities to monitor--and thus
explore ways of reducing--costs. For instance:
- Machine
preparation
- Rental
check-in/check-out
- Maintenance
services
- Shop
repairs
- Field
repairs
- Specialization
shops rebuilding components
- Track
shops
Activity-based
costing methods enable dealerships to learn how much profit
is in each of these operations. Yet most use a "bucket of
water" approach to costing: all operating costs are applied
to the department as a whole-not to the specific activities
that are performed.
Dealerships
that apply activity-based costing principles soon learn that
a one-shift shop loses money.
The same
holds for maintenance services. When we apply specific costs
and utilize specific skills of people, we can perform maintenance
services at a significantly lower charge rate. Customers have
known this for years, which is why they've chosen more competitive
providers for maintenance needs. Now dealerships are playing
catch-up.
This is
not meant to slam either the accounting staffs or financial
systems dealerships employ. In fact, dealerships need them
now more than ever. They should scrutinize everything the
company does.
But they
must do this using the most current tools available. Only
then can the business become the lowest-cost provider of the
highest-value products and services.
It's time
for dealerships to get more specific and tune up their approach.
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