A tough opening statement for sure, but one that, as an owner or manager you need to be familiar with. I’m getting ahead of myself, let’s start from the beginning.
I have been working with this particular client for a couple years and as such have become very familiar with his operations and personnel. During my visit last month I discovered a HUGE discrepancy in Cost of Goods, specifically Parts in the P&L’s versus the Point of Sale (POS) system. The P&L’s showed a MUCH higher cost for the first 6 months of the year than did the POS system. After much research I was able to verify that we had indeed spent almost $7600.00 a month more than our POS system indicated we had! No increase in inventory, and minimal “owner” vehicles being worked on without the proper paperwork occurring. After accounting for the above mentioned owner work we still had $7300 plus per month when averaged over the last 6 months.
OK, so the next thought was……a very bad word in any industry……theft. Was an employee out right stealing parts from the company and working on cars on the side? Knowing the employees as I did and understanding basic armchair psychology this scenario simply didn’t make sense. And how could this many parts walk out without anyone noticing (hold that thought for later)? None of this added up, so I asked what had changed in the parts purchase process because when I last checked this specific area, everything added up. So what had changed since then?
The answer was simple after the owner thought about it for a minute. We had hired a new Service Manager a year or so ago and after a couple months of being there he had decided that neither he, nor the Office Manager needed to order everything the techs needed for parts. Sure they ordered the majority of them, but for the techs it became, “if you need something right away, just order it” and the decision/process was put into place. By the way, the new Service Manager gave notice after 8 months or so and left, but the facility never went back to the original process that they had of “Service Manager/Owner or the Office Manager ONLY ordering parts”…..and here’s the big key, making sure they got on the R/O.
So, upon realizing that parts were indeed leaving without being paid for regardless as to whether they were walking out the back door, or the front door (yes, still theft at some level, just not how we originally thought) we instituted a policy during an immediate company meeting. This policy was that ALL parts will ONLY be ordered by either the Service or Office Managers……..period! Additionally, no parts were dropped off without one of their signatures and anything ordered required a P/O number (usually the R/O number), we decided that this was the only way to control what was happening. Once in place I bid the owner good bye and told him that we would see how things looked next month.
When I arrived next month the first thing that I noticed, as did the owner was that the “NET” numbers for the month were up substantially from any month in the previous almost 18 months! This wasn’t because of exceptional sales, but more about exceptional gross profit in parts, something that the owner and I had gone rounds about for a very long time. I went through all the numbers and when I looked at the now difference between the P&L and the POS system, there was an approx. $41,000.00 for the year in difference! So, not only had the bleeding stopped it was reversing, and reversing VERY quickly. Whereas if not caught we could have been around a $51,000.00 difference, it had actually gone the other way, almost a $10,000.00 swing! That’s a BIG swing in one month and certainly some of it is conjecture based on the historical data available, but it was a big number regardless!! We will see what the next month brings, but I did suggest that the owner once again call a meeting to let everyone know what had happened and what the actual results were, so they are aware we are aware.
The short version is simply this; we may have fired a good employee for outright stealing, when the more likely probability is that because of a policy change that took away accountability, a lot of parts were leaving without being charged for. Probably not out of malice mind you, but more out of asking the wrong people (Technicians) to keep tabs on items that they should never have been involved with. This is another case of asking the wrong employees to do a job they shouldn’t be doing, they are Technicians, not parts people! And although this may not be the entire story as it is still unfolding there is a lesson to be learned from it;
- Have the Technical Staff work on cars, ask them to list all the parts they need and used, but ultimately it is the Service or Office Staff that is responsible for getting those parts on the R/O’s.
- Watch the Key Performance Indicator (KPI) numbers of your business. Ultimately the owner is the one who loses when these types of issues occur, so he/she needs to watch closely.
- Hire someone to help you with your numbers that has “the outside looking in” advantage. Trust is great, but numbers don’t lie!
- Be diligent in creating and implementing policies and procedures that work for the business, not an individual.
Could or should this have been found sooner? Maybe, but until and unless you as an owner share everything including policy changes with us, the consultants and Trainers, it may take longer to find than it should!
If you need help with your business and want to see and feel the successes you expected when you opened your doors, give us a call at:
The ACT Group, 805-444-2598 or visit our website for more information www.automotivecoachingandtraining.com