Socrates Says

A Personal Thought

I am in Hawaii this month for some down time and reflection. This is always a good thing for me to do. As I do this I ran across a wonderful slideshow with some pithy comments. I thought you might enjoy.

The person who considers himself too old to learn something has probably always been that way.

The good side of aging, as old as one might be, is that one is always younger than he will ever be.

There are four great periods in the life of a man; the one where he believes in Santa Claus, the one where he no longer believes in Santa Claus, the one where he is Santa Claus, and finally the one where he looks more and more like Santa Claus.

As one grows old, one generally rids himself of his shortcomings because they no longer serve any useful purpose.

If someone declares that he is able to do everything at sixty that he was able to do at twenty, then he was not doing very much when he was twenty.

It is by growing old that one learns to remain young.

The entire life of a human being depends upon ”yes” and “no” uttered two or three times between the ages of sixteen and twenty-five.

So long as one continues to be amazed, one can delay growing old.

The time is now…..

TESTIMONIALS

Why is calculating Absorption Rate so important for Equipment dealers?

Guest writer Tom Montgomery writes about absorption rates as a measurement tool in this week's blog post, "Why is calculating Absorption Rate so important for Equipment dealers?"

Absorption Rate Calculation has been a measurement tool used by equipment dealers since the 1960's. It is still a valuable measurement today.

In my work with equipment dealers all over the world I have found that the dealers that I consider to be on "the leading edge" measure their absorption rate every month.

This measurement tool is driven by the senior management of the dealership - it is not to be taken lightly. When senior management finds that the rate falls below their standards they immediate action to improve it.

Absorption Rate Calculation - here is the definition!

It is the percentage of dealership expenses absorbed by the gross profit generated from Parts and Service sales.

Sounds easy doesn't it!?

Not so fast!

Dealer's accounting methods vary greatly.

One example is the way the cost of goods sold is calculated in the Parts department. There are some dealers that include the cost of freight in the cost of goods sold to determine gross profit in the Parts department.

Is this the correct method? Many dealer principals insist on including all costs associated with running a Parts department. I believe it is the dealer’s choice. Most importantly, the dealer should be consistent in their measurements.

Another accounting variance among dealers is the calculation of Service gross profit. There are dealers that include all “benefits costs” in the calculation of cost of goods sold.

Again, if that is the choice made by the dealership then remain consistent every month.

Other dealers chose to account for this as an expense. What is the correct method?

The answer to that is found in another question.

What is the dealer trying to measure by calculating absorption rate?

The answer is, "Will the gross profit coming for the Parts and Service departments pay the expenses for the dealership"?

Some dealers might ask, "Are there any expenses that should be excluded in the calculation or is it all dealer expenses?"

Great question!

How should "interest expense" and "allocated expense" and "administration expenses" be treated"?

The dealer must be certain that interest, allocated and administration expenses are reasonable, controllable, and justifiable?

What does that mean?

Interest rate should be associated with accounts receivable and accounts payable (but exclude interest on mortgages).

Allocated and administration expenses should not exceed 10% of sales.

So, what is the target for Absorption Rates?

Is it 80%, 90% or 100%?

The answer is 100%!

Why 100%?

The dealers should want all expenses to be “absorbed” by the Parts and Service departments.

What advantage does the dealership gain if absorption rates are at 100% or greater?

It allows the Sales department to be more competitive in the marketplace.

There are numerous ways for a dealership to increase absorption percentage. The first thing that dealer principals may rely on to increase service absorption is to write more repair orders for higher amounts — sell more service.

Tweaking pay plans, training service writers, changing processes, and focusing on recalls make sense, but a great way to get a jump in absorption is to focus on your used equipment inventory.

Everyone in the equipment business already knows that used equipment sales generate more gross profit than new equipment sales, but sometimes they forget that the used equipment department should be the service department’s top customer.

That will start a sales cycle that will grow labor and parts sales and allow the sale of service contracts that increase future service absorption.

Lastly, loyal service customers is a constant producer of labor hours and parts sales for the used equipment department.

It’s important to support the service department through your used equipment; it will make the equipment more saleable, road-ready, and at the end of the day, the extra money will not affect the gross profit but will affect the bottom line for the service department.

The dealership’s goal should be to recondition more equipment in less time, because getting the equipment in the dealer’s inventory sooner will increase sales and profit for all three departments (Parts, Sales and Service).

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April 11, 2023

Internet Learning

Over the past ninety days the planet has been suffering under a serious virus. Nearly everyone has been affected. Some of the results to the economy and societies are starting to come in with analysis on the longer-term impacts.

The Congressional Budget Office forecasts that the US will see $7.9 Trillion in lost economic growth through the rest of the decade.

The World Bank predicts global domestic growth will shrink by 5.2% in 2020.

The World Bank expects 70 – 100 million people will be pushed to extreme poverty.

There are many statistics and forecasts being made now about the longer-term impact of this virus and shutting down the world’s economy.

And then we come to education.

There will be a wide variety of forecasts and statistics made here as there are some serious competing self-interests at play. Research conducted by McKinsey & Company shows that the shift to remote learning could set the average student back seven months academically. I suspect there are many reasons for that conclusion and many ways to overcome that difference.

Students and teachers alike struggled with the switch to remote learning after schools were shut down. By their midlife, people who graduate during a recession are also less likely to be married, more likely to be childless and face a higher chance of death than those who did not.

However, what this indicates is that we have to develop better tools for this new wave virtual teaching and schooling – from pre-school to high school. The Khan Academy programs, processes and courses are a good model to consider. They have provided free world-class education to 90 million learners since 2008.

Similarly, EdX, a non-profit created by Harvard and MIT, offers MOOC’s (massive open online courses) and interactive classes in law, history, science, engineering, business, social sciences, computer science, public health, and artificial intelligence. During this economic shutdown “Every faculty member is going to be delivering education online. Every student is going to be receiving education on line. And the resistance to online education is going to go away as a practical matter.” James N Bradley, chief information officer at Texas’s Trinity University. Goldie Blumenstyk, from “The Chronicle of Higher Education” suggests this is more than a Black Swan moment it is “more of a catalyst for online education and other ed-tech tools than decades of punditry and self-serving corporate exhortations.” Going further she says “It seems safe to say that this will be not only enormously disruptive but also paradigm changing. The “Black Swan”, that unforeseen event that changes everything is upon us.

Unfortunately, this will not all be good news. A lot of professors will simply video-conference lectures supplemented by emailed assessments. In truth it will be some time before we can draw any conclusions on what forms of learning the education elite will adopt. Will this rapid disruption produce better results? Only time will tell.

In the Industries, I serve dealers who have not been strong advocates of employee development. They have typically believed that they hired the skills and that was all that was needed. That ship has sailed. With the rapid advances in all aspects of engineering and manufacturing, of materials and ceramics, and computerization and telematics it has become very evident that the skills required to stay current have expanded and changed rapidly. That means adult education is something that equipment dealers are going to have to embrace going forward. The Associated Equipment Distributors Foundation published a goal for the Industry of 80 hours of training for each employee each year. Very few dealers meet that goal. I believe it should be 160 hours.

In an earlier blog, I wrote about how to assign your time each day at work. I started from a position put forward by Dirk Beveridge, he was presented to a sales meeting at a client of mine and he got my attention in simplifying my life in how I manage time. Time was, is now and will be forever, the enemy. The older I get the more this becomes true.

I look at time in blocks – to be precise five blocks.

Review Results

Working with people to improve performance

Communications

Process reviews

Personal growth.

The personal growth item is the one that I have to fight with every day. There is always something that I view to be more important that self-improvement. It is not that I don’t need improvement, I really do, it is that that other thing always seems more important. It is like exercise. How many of us actually invest our daily time on our health and self-improvement? We all know the answer. So, what are you going to do about it? This “shutdown” has allowed a lot more introspection than normal times. I hope this is a subject that you are thinking about. Your employees need the same push to improve themselves. That is where Learning Without Scars fits in to the employee’s life. It is at the time of their choosing, it can take as little as two and a half hours, and you can measure the improvement in their skills. And on top of that it is $125.00/course or assessment. If you don’t invest in your own personal development and you don’t encourage your employees to improve theirs, how long do you think it will take before your customers notice.

The Time is Now. If not now when?

July 3, 2020

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