Skilled and Knowledgeable Employees Pay for Themselves.
During this difficult time, the ability to restrict discretionary expenses has been quite easy. Stop it. Go back to 2019 and you will also find an attitude of restricting the investment in employee development other than for technicians. We forget that skilled & knowledgeable employees pay for themselves. This with many OEMs is encouraged as they affect the reimbursement of warranty expenses. What about all of the other employees in the company? Do their jobs stay the same from year to year? Do what customer’s need and want remain static or do they also evolve?
As a general rule that might be a reasonable choice. It was clearly the truth at most dealerships. Technicians yes everyone else we should hire the skills and that is that.
There could be nothing worse in my opinion.
I will explore inventory management as an example. The traditional world looks at inventory from the perspective of parts availability and asset turnover. I agree. The standards we teach have asset turnover greater than 5 times a year with parts availability greater than 98% for stock items. How do you stack up to those standards?
Today with stock order replenishment for the major OEMs less than a week the turnover should exceed 12 times a year and still hold 98% availability.
Do you know how to do that?
There is a financial measure called Return on Capital Employed (ROCE). If we look at that financial measure from a gross profit perspective then the calculation is gross profit times parts inventory turnover.
Start with a turnover of 5.0 and a gross margin of 35%. The ROCE is 175%. That is a very good number. You receive back in a year 175% of the capital you employed. Now take the turnover to 10.0 and hold the gross margin at 35%, The ROCE is 350%. Or look at it another way a gross margin of 17.5% delivers a ROCE of 175%. Let’s think about this from a different direction – your parts pricing can be influenced by your asset turnover. Lower the fast movers parts pricing from a 35% gross margin to 20% gross margin. Will that give you the opportunity to increase market share of the fast-moving parts. Of course, it will.
The time is now.