Incentives

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Incentives

Tonight brings us another guest post from Steve Day. The former Vice President of Tractor and Equipment, Steve is discussing incentives, and how they can drive your growth in your business.

Incentives Can Drive Growth

For the majority of my career, I believed that a paycheck was a pretty good incentive for doing your job. When I worked for a manufacturer, I often got suggestions from my employees that we should offer incentives directly to our distributor employees to direct their activities more in the direction we wanted them heading. I always considered this a gross intrusion into the distributors business. As time went on, I did grow to like the idea of manufacturer incentives to distributor employees (paid through the distributor) to drive distributor employee training in areas of products and systems. Cash, trips, awards, peer recognition, all seemed to have a positive impact on employee capabilities.

When I made the move to distribution, I fell back on my old beliefs that a paycheck was appropriate compensation. I was convinced to try some experiments in incentives by some of my managers and we made some tentative tiny steps in some products. I have always been a big believer in unintended consequences so we put some safeguards in place. The results were both stunning and quite a wakeup call for me. The incentives drove growth, profitability and job satisfaction for the employees who participated.

We started out paying incentives to Parts Counter people and additional incentives to Product Support sales people. We quickly added incentives for other employees and we watched our growth in the incentivized items skyrocket.

Some of the lessons we learned were as follows:

  1. Pick commodity parts for your Counter and Product Support Sales. Your competition is often Walmart and NAPA and this is a real growth area.
  2. If you want to incentivize Service then look to rebuild opportunities and add-ons sold when a project is started.
  3. Incentives will tell you who your best employees are quicker than anything else I can come up with. Measure people on bonuses paid. Make sure you take the size of the market the employee is operating in into account.
  4. Make it easy on the managers and the employees. You have systems that can easily take care of all the administrative work. I have seen paperwork become a roadblock. Manufacturers love to get huge amounts of paperwork for most of their programs and many people opt out because of it.
  5. This will drive your inventory group crazy. You can’t base future sales on history when you offer incentives. Have way more inventory than you think you will need. It won’t be enough. Nothing screws this up like running out of inventory.
  6. Since you are going to be buying more and being a bigger customer- get a better price. Get a much better price. This will fund the incentives and increase profits at the same time.
  7. Let people know where they stand in company sales. Competition is fun and can push people to be very creative in a positive way.
  8. Incentives are a great way to help your employees understand what the company values and it will help them direct their activities in very positive ways.

Incentives that are properly directed will change your company. Your Part’s Department will become very customer service directed and your Counter will become a sales machine. Your Service Department will seek our more profitable work that can be planned. You will inevitably make some personnel changes but this usually ends up with getting people into spots more suited to their skills.  Employees operating at the highest level will make a great living for themselves and their families while they make the company much more profitable. They will also become much more difficult for you competitors to hire.

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Systems

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Systems

Systems

Tonight brings us another guest post from Steve Day. Steve is discussing the importance of the systems we have within our businesses.

This is another topic that could probably take up an entire book and I am going to give it short shrift.  I am really only bringing it up because I think too many people blame their operating system for their inventory problems. I don’t buy the argument.  If your operating system can’t control inventory then you made a really bad investment decision.

I am a lot more optimistic.  Your operating system is probably better than you think.  If you have one of the more popular distributor operating systems that has hundreds of Constructions, Mining, Agriculture or OTR truck distributors using it, it probably does that thing you need it to do but don’t believe it can do.  You just haven’t asked the question correctly yet.

The last operating system I used was not perfect but it was pretty darn good.   We almost always figured out how to get the information out of it we wanted.  I took some evil pleasure in finding out the system would do something when an operational manager told me it would not.  Folks eventually learned to push the system because they grew tired of amusing me.  It was a very solid system.

Because of employee turnover at the systems provider, I have seen cases where they were not even aware of all of their systems capabilities.  Always send your Inventory Control Manager and when possible, the Inventory Control staff, to your systems providers training sessions and to their annual meetings.  It will pay off.

You may want to add on a reporting system like TARGIT if you have not already done so.  Microsoft also offers a system as do other companies.  I am simply more familiar with TARGIT because that is what we used.  It will allow you to have some great automated reports that tell you more than you can stand some times.    It also let us build these reports for our branch operating people on a dashboard that gives them all the reports we looked at but just for their operation.  Most of them updated daily.  I have found that most of my distributor buddies who have these types of reporting capabilities have found a real improvement in their managers understanding of operational imperatives.

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Return It Now!

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Return It Now!

Return It Now!

Steve received a degree in Electrical Engineering and then served in the US Navy. He started with Komatsu America 1978. For the next twelve years Steve worked through various equipment sales positions before becoming the Vice President of Parts, Vice President of Service. During this period Steve sat on the board of a major distributor in the North east US as well as Hensley Industries. After twenty-five years Steve moved from the OEM side of the business to the Distribution side by joining Tractor and Equipment Company in 2003 as Vice President of Product Support.

Throughout his career Steve has learned the Industry from the ground up. This allowed him to have a very clear view of what was needed to support customers, employees and owners in their pursuit of excellence. Working at high levels in both the Manufacturing and the Distribution side of the business gave Steve some great learning opportunities and chances to develop insights.  Steve retired in January of 2020.  After spending 40 plus years in an industry we are very pleased to be able to share some of Steve’s insights with you and honored to consider Steve a friend.

Most manufacturers have several categories of parts in relation to their return classification.  It usually goes something like returnable, non-returnable and order-on-demand.  For our purposes we are only worried about non-returnable parts.  We can return the returnable parts and suppliers won’t take back order-on-demand parts if you threaten them with a gun.  Non-returnable parts usually have a loophole.  You can usually return them on an ordered-in-error claim with most manufacturers if you do it within their specified time window.  This is completely legitimate.  There might be a restock charge but you can return them.  Manufacturers want parts returned quickly so they have them for resale.

This is where I am going to suggest you need a hard, never to be broken rule.  You are going to return those parts every time and do it in the window.  No exceptions.  You will get lots of excuses and I am going to suggest you accept none of them. 

Your problem of non-compliance usually happens because of a lack of cooperation with the service department or poor management from the parts department.  Having reports will let you stay on top of this.

Service managers are usually only worried about getting parts when they need them.  They are not too concerned about getting them back within a specific window.  This is actually understandable.  They fight fires everyday and returning parts falls pretty low on their emergency scale.  They like to tell a parts manager that they are going to need this part anyway in a few weeks so go ahead and put it into stock.  That has actually probably been true at least three times in the history of the business.  The rest of the time you got stuck with a part that will never move.  Your money is not sitting idle.  It is gone and you have just not acknowledged the fact yet.

We need to track the parts, warn the parties about an approaching deadline (let the report provide the warning) and if the service department fails to return it, we charge it to them.  There is an account that lets us track that issue.  We talk about that account.

There is really no good excuse for a parts manager not getting a part in their will- call bin legitimately billed to a customer and delivered.  One of my really great branch parts managers would call customers after a week to make sure they still needed it.  If the customer said yes, they asked when they could expect them to get it.  He gave the customer a date he had to return the part.  Nobody got mad.  It worked.  If you have a branch parts manager that can’t get this right then you need to look for somebody that can manage the branch inventory investment properly.  Once again, have an account that these parts are charged to for branch parts generated issues.

Parts managers usually were trained to avoid restocking charges at all costs.  At least that is my experience.  This can be a hard habit to break.  I put it on a white board for them.  I have a $100 non-returnable part that I return and it has a 25% restock fee.  I get a $75 credit which I reinvest in my good inventory that turns 8 times a year and has a 30% gross margin.  I get that fee back the second time I turn the money.

If I leave it in stock, I will lose the return opportunity.   In 3 or 4 years I will scrap it and get nothing and write off the total value of the part.  I will also have a lost opportunity cost of not turning the money over its time in inventory.  Today interest rates are very low but who know what the future holds.

Always send the part back when you can.  Track non-returnable parts every week and figure out how they got into your inventory.  Close off all the possible ways this can happen.  Controlling the cancer of a growing non-moving inventory will help your operations in all kinds of positive ways.  Make this a top priority.  Put up signs, get tattoos, talk about it every time you meet a branch parts manager.

Embarrassed Not to Have Parts

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Embarrassed not to have Parts (ENTH)

Goals and Targets

Clearly these are the parts you are embarrassed not to have when your customer comes calling.  They include: filters, fluids, hardware, o-rings, GET for machines you sold, hoses (a subject of its own), keys, and any part for a machine you sold that your customer can get today at Walmart, NAPA or the local farm store.  If you don’t have a part that he can get TODAY from somebody local, you have probably lost that customer for that part forever.  Think automobile dealers.

Virtually every machine we sell has lots of hydraulics and thus lots of hoses.  You can’t stock all the hoses for a machine.  They age poorly and have very erratic sales.  Most manufacturers make hoses non-returnable.  When a customer blows a hose, it is the kind of repair he can do quickly.  He is not going to wait three days for a hose.  I like hose shops in my branches.  It requires lots of management focus to pull off effectively since you will be competing with people who do this type of thing exclusively.  It is worth it if you can devote the time.  Throw away your turn criteria here for fittings.  Your perceived availability will go way up in the customers’ mind.  This is very hard to pull off without lots of top management focus.

I include new product introduction parts in the ENTH category.  Make sure that your branches, central inventory control and equipment sales are communicating.  You don’t want to have somebody who just purchased a machine from you to come in and you don’t have his GET or filter.

Almost all ENTH parts have very good turns so don’t be afraid to have a little safety stock here.  Run reports on these parts to make sure you are hitting your target.  I think anything less than 99.9% availability is unacceptable here.

Your customer doesn’t really expect you to be stocking an engine or sheet metal and certainly not at the branch level.  He fully expects you to have ENTH parts.  He will be mad and disappointed if you fail in this area.  He won’t forget.  He will tell his friends.  Your Inventory group should spend lots of time getting this right.

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Goals and Targets

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Goals and Targets

Goals and Targets

Today marks another guest post from Steve Day. Steve received a degree in Electrical Engineering and then served in the US Navy. He started with Komatsu America 1978. For the next twelve years Steve worked through various equipment sales positions before becoming the Vice President of Parts, Vice President of Service. During this period Steve sat on the board of a major distributor in the North east US as well as Hensley Industries. After twenty-five years Steve moved from the OEM side of the business to the Distribution side by joining Tractor and Equipment Company in 2003 as Vice President of Product Support. In this piece he is walking us through goals and targets.

Throughout his career Steve has learned the Industry from the ground up. This allowed him to have a very clear view of what was needed to support customers, employees and owners in their pursuit of excellence. Working at high levels in both the Manufacturing and the Distribution side of the business gave Steve some great learning opportunities and chances to develop insights.  Steve retired in January of 2020.  After spending 40 plus years in an industry we are very pleased to be able to share some of Steve’s insights with you and honored to consider Steve a friend.

Here are the areas that I think a manager should focus on and continually question his inventory management about.

“Goals and Targets”

I like to have Companywide and branch targets for the following:

  • Over the Counter fill rate for each branch and for the company for stocking parts by manufacturer.
  • You want to see your fill rate on parts you stock and your total fill.
  • You are going to want to see this monthly.
  • Turns by manufacturer. You can measure this by annual turns or weeks on hand.
  • This is how you will know how your money is working. This is a big issue with me.
  • If you have a smaller manufacturer with low turns and low parts margins then you better be making lots of money when you sell the machine. Otherwise I would rethink the relationship.  Time is money and I don’t like spending time unproductively when I can allocate time and money to more productive areas.  That sounds cold doesn’t it.
  • Monthly
  • Emergency and Critical order charges by part number.
  • Weekly (otherwise it is too hard to get your arms around). This is helpful in deciding if you need to add some parts to stock and also gives you an idea of some problems your manufacturer might be having with availability.  It lets you act early.
  • Parts being expedited.
  • You want this daily. Set a target for you inventory group to be expediting parts that you don’t have an acceptable delivery date on each day.  Split it between customer orders and service department orders.  If you get this right, it will change your company.
  • Your goal (this is a “Ron Sleeism’s”) is to have an answer on every part being expedited every day. Like many goals it is probably impossible to achieve most days but it will drive far better customer support.
  • Stock order parts being expedited.
  • If you lose track of how your stock orders, special marketing orders and other specialty categories are being fulfilled you set yourself up for some trouble down the road.
  • Don’t ever assume that suppliers are going to hit their lead times. If you don’t track stock order fulfillment you can easily run out of fast movers and kill your availability. Run this report at least weekly and you will save lots of heartburn.
  • Reports on specific manufacturer marketing programs.
  • There are real opportunities to make money if you manage your inventory and utilize manufacturers marketing programs. Take advantage of discounts.  You won’t know what you are missing unless you track it.
  • Additionally, manufacturers look at how well you utilize programs.
  • If the program doesn’t work for you, talk to them about it. Often, they will modify it to fit your needs.  If you ignore them, they will think you don’t care.
  • Non-stocking parts by part number.
  • I will talk about this in detail later but you should have a list of every non-stocking part in your inventory and another report showing every non-stocking part that has been on a non-invoiced customer ticket for more than a week and on a work order for more than two weeks. This is a critical report.  You want to constantly question these parts.  Call the branch service manager or parts manager and ask them why the part has not been invoiced.  Keep the pressure on with these parts.

The Woes of Unfocused Training

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The Woes of Unfocused Training

This week, we continue with a guest post from Steve Day, in which he discusses with us the woes of unfocused training. Steve received a degree in Electrical Engineering and then served in the US Navy. He started with Komatsu America 1978. For the next twelve years Steve worked through various equipment sales positions before becoming the Vice President of Parts, Vice President of Service. During this period Steve sat on the board of a major distributor in the North east US as well as Hensley Industries. After twenty-five years Steve moved from the OEM side of the business to the Distribution side by joining Tractor and Equipment Company in 2003 as Vice President of Product Support.

Throughout his career Steve has learned the Industry from the ground up. This allowed him to have a very clear view of what was needed to support customers, employees and owners in their pursuit of excellence. Working at high levels in both the Manufacturing and the Distribution side of the business gave Steve some great learning opportunities and chances to develop insights.  Steve retired in January of 2020.  After spending 40 plus years in an industry we are very pleased to be able to share some of Steve’s insights with you and honored to consider Steve a friend.

Unfocused training is a waste of time and a huge waste of money!

This may not be immediately obvious but I believe that a lot of the training we give our people is unfocused.

A manufacturer tells us that they want our people to attend certain classes at the manufacturer training center or they want our trainers to be able to teach the classes.  We then usually use a very scientific method of choosing who should attend.  We call up our branch service managers and ask them who they want to send.

The day that our chosen attendee is to leave, something comes up and the manager sends somebody else.  The thing that usually comes up is that things got busy and the service manager didn’t want to send the original technician because he is too important to the branch.  The person we end up sending doesn’t learn much because they didn’t have the basic knowledge to get the most out of the class.

But, something just “came up.”

We waste money. We damage our reputation with the manufacturer and we don’t do much for the self-esteem of the tech we sent off to fail.  We also disappointed the good tech that we didn’t train. This happens more than you can imagine.

If you want to ruin your day I strongly suggest you do the following:  Go to your Training department or your HR department and ask them to give you the training record of each of your Technicians and any of your Parts people that work with customers or the Service department.

Tell them you would also like to see this year an updated copy of each of those employee’s skills assessment and this year’s training plan for each of those employees.  I only know about five distributors that won’t be disappointed.

I will continue with these reflections next week.

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Training Is Important!

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Training Is Important!

Steve received a degree in Electrical Engineering and then served in the US Navy. He started with Komatsu America 1978. For the next twelve years Steve worked through various equipment sales positions before becoming the Vice President of Parts, Vice President of Service. During this period Steve sat on the board of a major distributor in the North east US as well as Hensley Industries. After twenty-five years Steve moved from the OEM side of the business to the Distribution side by joining Tractor and Equipment Company in 2003 as Vice President of Product Support.

Throughout his career Steve has learned the Industry from the ground up. This allowed him to have a very clear view of what was needed to support customers, employees and owners in their pursuit of excellence. Working at high levels in both the Manufacturing and the Distribution side of the business gave Steve some great learning opportunities and chances to develop insights.  Steve retired in January of 2020.  After spending 40 plus years in an industry we are very pleased to be able to share some of Steve’s insights with you and honored to consider Steve a friend.

Training Is Important!

This week, we continue with Steve’s guest blogging.

Training is important!

This is one of those obvious things.

Our manufacturers tell us that our technicians must attain certain levels of expertise.  In fact, I believe that most manufacturers will eventually base warranty compensation on the level of proven training expertise the performing mechanic has received.

Our customers will not pay for on the job training.  We often have to cut hours of billable labor off of a job that took too long.  We all have customers that will request a specific technician that they consider competent.

Poorly trained technicians tend to over or under order the parts that they will need and create inventory issues.  They also create expensive redo.

Poorly trained parts counter employees frustrate customers and miss sales opportunities.

Good employees expect ongoing training to help them improve their skills.  They consider this a perquisite of the job.  Good employees are very receptive to training and are great judges of whether training is worthwhile or worthless.  We all want good employees.

We will be continuing with Steve’s series here next Friday, as he continues to reflect on a career well-spent.

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Thoughts from an Industry Leader

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Thoughts from an Industry Leader.

Today’s post is a from a guest blogger, Steve Day. Each Friday, you will see a new post here from our guest blogger. He will be offering his thoughts and ideas for four weeks. We are thrilled to have his reflections here.

Experience is invaluable. The Thoughts of a Respected Leader in the Industry.

Four years ago, I decided that I would officially retire on January 1, 2020.  I immediately began my planning for a successful transition to my successor.  That went quite well.  My successor is definitely an upgrade and that is how it should be.  I also started planning for a fun and exciting first year of retirement in 2020 which would include quite a bit of travel.  As the Yiddish saying goes, “Man plans, God laughs”.

My good friend, Ron Slee, has become worried that my brain will turn to mush in the time of Covid-19. Unless, of course, I keep active, and so he has asked me to write an article for his blog.  It’s really for my own good. Hopefully my experience will be invaluable to you.

I thought that I might write about something important that I did not focus on enough until way too late in my career.  Training is at, or near, the top of my list of things I knew were important but did not focus on early enough.  Some of the things I am going to talk about in the coming weeks are probably obvious and some of them require effort and assets that we are often unwilling to allocate.  I think training is a particularly appropriate topic right now because it might be getting ignored a bit now during the time of Covid-19 budgeting.

This brief post serves to introduce you all to Steve Day. Please look for his wisdom every Friday.

For more information about training, please visit our website at learningwithoutscars.org