IT’S NEVER TOO LATE TOO LEARN!
We will be conducting 2 classroom seminars you won’t want to miss in Dallas:
Parts Management – Unit I
What it Looks Like When it is Right
March 19th and 20th, 2012
Service Management – Unit I
What it Looks Like When it is Right
March 21st and 22nd, 2012
For complete information:-
Check out website www.rjslee.com
Or go to www.aednet.org/seminars.
Contact; Pat Novak at 630-468-5135 or pnovak@aednet.org for answers to your questions
IT’S NOT TOO LATE TO GET ABOARD!
We will be presenting 4 webinar topics you won’t want to miss next week:
Service Management
Inspections
March 5, 2012; 11:00 a.m. to 12:00 noon CDT
Work Order Process
March 5, 2012; 2:00 p.m. to 3:00 p.m. CDT
Labor Rates
March 6, 2012; 11:00 a.m. to 12:00 noon CDT
Service Organization
March 6, 2012; 2:00 p.m. to 3:00 p.m. CDT
Go to www.rjslee.com for information under the Learning tab
OR
For complete information on all AED events go to www.aednet.org/seminars.
Contact; Pat Novak at 630-468-5135 or pnovak@aednet.org for answers to your questions
Over the years we have collected labor to apply to work orders in a myriad of manners. We started from an attendance time card which the mechanics completed at the end of the day telling us what times they worked on which jobs. Then we moved to individual job time cards while still retaining an attendance time card for payroll. Then some of the companies got racy and had only one time card which fed work in process but was data entered to the payroll system. Can you imagine? Then we had one card feed both systems – think of that some efficiencies arriving. Finally technology showed up and we had scanning devices either hand held or bar code scanners to record time. A long road travelled over forty years.
The objective is still the same isn’t it? We need to collect time against a job so that we can update standard job times, record time to create an invoice for the customer and provide an entry into the payroll for the technical so they can be paid.
So now we have laptops and tablets and PDA’s. And each of these devices can be used to collect labor information.
So why not take the leap and get labor entered by the technician and give them a device with which they can place their own parts orders? I have no idea why we can’t get this done. So contact your business system supplier and tell them you want the technician to be able to use a laptop or a tablet, an iPad, Galaxy or any Android device or a Thinkpad Tablet, like I use, any of which can be connected to the internet to have access to the electronic parts catalogues and service documentation. They can get that done for you. Then both you and the technicians will be much further ahead than with what you are using today. The time is now.
The first article I wrote for an Industry publication I called “The Only Part That Matters.” This is of course the part that you don’t have available.
I was referencing the fact that too often we are driven by metrics. Off the shelf availability has to be more than 90% of some such number. That is all well and good – but what about the 10% that you are programming yourself to accept?
Early in my career I got a call in the wee hours on a Sunday morning. It was the Vice President of Parts and Service. There was a Department of Defense station in the Arctic that needed a part for their source of power – a Caterpillar Engine. Of course we didn’t have the part. We found the part in Europe. We sent an employee on a plane to go and get it, bring it back, and then we shipped it to the customer. That gentleman’s name was Rod Boileau and although most of you won’t know Rod he is one of the men that I blame for continuing to be in this Industry some 42 years later. He provided a lesson I have never forgotten. He said “if the part you don’t give me keeps my machine down – you have given me zero.” And this simple example made his point. No part – no power – no power death.
Ever since I have been harping on the fact that no matter what you goal is for off the shelf service you are programming yourself to accept to tolerate a level of shortages. That is why my first rule in the parts business is to find every part every day before you go home. No it is not acceptable to place the part on a backorder at a supplier but you need to know that the part is available and can be shipped that day. That is parts availability. The time is now.
Over the years more and more people have realized that maintenance on a piece of capital equipment is one of the more critical activities to conduct to reduce the owning and operating costs of that piece of equipment. This is true for your vehicle or washing machine just as much as for your machine.
There was a sudden recognition some time ago that the “customer” didn’t really appreciate how important maintenance was in extending the useful life of that machine. They felt, in many cases, that maintenance was simply dropping fluids and changing filters. As most of you know it is far more than that. Along with this recognition the various suppliers started to make it easy for the customer to maintain their machinery. They sold maintenance agreements and extended warranties offering the customer piece of mind and a reasonable price. But there still remained one serious stumbling block – Service Management.
Yes, in many cases, the Service Managers are in the way. You see they are very busy people. They don’t have enough people in their organization to support the current service workload. This service organization is a subject of one of our webinars next week. Check at www.rjslee.com under the learning tab for more information.
I am struck by the fact that everyone knows how to run a parts department or a service department except of course the people that actually do run the parts departments and service departments. This is one of the major challenges facing management in equipment dealers. How do we get professional management into parts and service when we don’t have sufficient respect for the work that is being done in these departments?
Al Wiley, an executive of Xpectmor, sent us a comment on our recent Market Share post. He says that “market share is the definitive measure of customer satisfaction.” Of course he is right. The measure of market share, however, is what causes the dilemma for many of us.
In the equipment market it is reasonably easy to define market share. There are a finite number of transactions and everyone knows what everyone got. For instance, we have five different suppliers in the market with sales last month. Supplier #1 got 4 sales, supplier #2 got 1 sale, supplier #3got 2 sales, supplier #4 got 2 sales and supplier #5 got 1 sale. The market share is a simple matter of arithmetic. Supplier #1 got 40% market share and so on.
With the parts and service business it gets more complicated. The various suppliers into the market don’t know what the other suppliers sold during any particular period. So how can we possibly calculate the market share of any particular supplier? That is why there has not been any real definitive publication for market share.
When I first started in the Industry in the late 1960’s some suppliers used to conduct a personal survey with each and every one of their customers worldwide. Can you imagine the time and cost for such a survey? Well they did them and they published the results within their distribution network. It was not precisely accurate but it was a very good indicator of where you stood as a dealer in parts and service market share.
As more and more machines get GPS equipped and the dealers/distributors, manufacturers and customers become more adept at understanding telematics and their use we have a terrific opportunity. We can calculate what the consumption of parts and service “should” be on a machine.
This is the first problem. The customer doesn’t always follow the recommendations of the manufacturer of the machine for the maintenance intervals nor the maintenance items to be dealt with for a particular service. Similarly when it is obvious that a repair should be made with a “new component” sometimes a repair that I call “bubble gum and band aids” will be performed. You might be wondering why this is important. Well it is due to the fact that all we can do is calculate the “potential” consumption of parts and service for a particular machine in a specific application running a specific number of hours. It is this potential that we have to use to calculate our “market capture” rate. See now we change the word. It is no longer market share it is market capture.
The dealer captures the potential business based on their actual sales of parts and service. Once we have these facts nad have them for a sufficient period of time we can make a clear statement about capture rates are the success and/or failure of the particular strategy that a dealer is following. The time is now.
The blog on variable lead times for each part number seems to have struck a chord so with that in mind I thought it appropriate to kick over another sacred cow in parts inventory management – The Economic Order Quantity.
The EOQ has been around since 1905 when Mr. Kerr and Mr. Norton developed the formula to balance the cost of placing an order with the cost of carrying inventory. A worthwhile effort and one that worked for a long time based on the constraints of the day.
Several things have changed in the intervening 100 plus years that have rendered the traditional EOQ to be a significantly less value. Daily stock orders with turnarounds of three to five days have clearly changed things to the degree that the EOQ should be reevaluated. The dramatic reduction in the cost of computing powers, storage media and business software have also provided a reason to reexamine the logic of the cost of placing an order.
The formula for the EOQ is as follows:
EOQ = the square root of 2 times AD/LC
The variables in the formula are:-
If we look more closely at the Order Cost we will see that there are several items to consider.
This cost is per part number so as you go through the calculations you will find the answer tends to zero. And from your earlier arithmetic experiences the square root of a division calculation that has a numerator of zero is also zero. So this pillar of the inventory control world EOQ should be revisited and a new determination made as to the variables and how to handle the determination of the Order Quantity. The time is now.
In the 1990’s, three professors, Sasser, Hesketh and Schlesinger from Harvard Business School wrote a book called “The Service Profit Chain.” It was for me the definitive book on customer retention.
They posited that in the Industrial Distribution world if you increased customer retention by 5% you would increase the profitability of the business by 45%. That is very impressive.
With that said everyone in America should be trying to increase customer retention. In fact the Japanese taught us that with their – Customers for Life philosophy. Carl Sewell the renowned “automotive dealer” in Dallas, TX wrote a famous book with a Yale co-author called Customers for Life which still holds a lot of sway in the customer service world, and rightfully so.
The trick is it isn’t that easy to increase customer retention. We should be using the traditional tools of an “exit” interview as we do with employees. Talk to customers who have defected from you and find out where they went and what they like about that supplier. That will tell you what you need to do. Don’t ask them what you did wrong they will never tell you. Ask them what they like about doing business with the new supplier and they will gladly tell you that.
One last hint – don’t start asking questions like this unless you intend to start changing things. Better not to raise expectations that you have no intention of meeting. The time is now.
Yesterday I went on a rant about education. After 24 hours I am somewhat calmer now but I would reference you to our website www.rjslee.com and under the articles tab please check August 2010 under Construction Equipment Digest. That was my take on education a number of years ago.
“The notion that a four year degree is essential for real success is being challenged by a growing number of economists, policy analysts and academics. They say more Americans should choose other options such as technical training or two year schools which have been embraced in Europe for decades.
Wow, what an earth moving change in thinking is finally upon us. Could it be that we are flooding the struggling job market with over qualified degree holders. Now don’t get me wrong a University education is a good thing. After all I made my living teaching at University for a time in my career. I believe in education. But there are gaps in our skills in the current workforce and coming generations. We can see severe shortages in many technical disciplines. Not the least of which is technicians.
Most parents today want their children to go to University. But they will clam up when asked what it is that these children should take at University or why they should go to University. They point to unemployment rates, perhaps, where University graduates have an unemployment rate of 4.9% versus 10.8% for high school graduates. But that doesn’t measure University against a Technical School education or a two year Junior College does it? They will point to the fact that a University Graduate will make $1,000,000 more in earnings over their lifetimes than a High School Graduate. Again the same problem exists; how does that compare to Technical School or a Junior College. And what about those growing student loans; they are now averaging, yes that is right averaging, over $25,000 per college graduate. That is a lot of money when it is paid back with net income dollars.
Perhaps we are getting to be asking the right questions at long last. Rather than propose that everyone should go to University let’s review the premise. What educational skills are appropriate for a new member to the work force? The era of a general Liberal Arts degree being sufficient for the work force is passé today isn’t it? Ohio University Economics Professor Richard Vedder blames the cultural notion of “credential inflation” for the stream of unqualified students into the four year colleges, a common complaint from Universities across the country. :
Martin Scaglione, President and Chief Operating Officer of Work Force Development for ACT, the Iowa based not-for-profit best known for its’ college entrance exam, suggested nothing short of a new definition for educational success. He advocates “certification as the new education currency – documentation of skills as opposed to mastering curriculum.” As a former University educator I couldn’t agree more. We are focused too heavily on mastering curriculum at all levels of learning prior to post graduate degrees. It would be a wonderful change if we started maintaining an “inventory of skills”, certified skills.”
I am sure this needs to be updated somewhat but the premise is still there. We are in a changing world in many areas but also in education. How you attract and retain skilled workers is the challenge. The time is now.
If you had to choose between customer satisfaction and profitability, what would be your choice? I would take customer satisfaction as without satisfied customers the ability to make profit is going to have a short life.
How to measure customer satisfaction becomes the challenge. Some people define it as repeat business; others measure the change in sales from one period to another; still others use surveys. What is your choice? How satisfied are your customers? One of my favorite indicators of customer satisfaction is the market capture rate. How much of the parts and service business that is available do you in fact receive on the machines that you sell and service? What is your parts market capture rate? What is your service market capture rate? I will put parts at around 35% – 40% and service in the range of 15% – 25%, which by nearly any measure is not very good. The interesting thing about the parts and service business is that management has been held harmless as there is no precise authoritative measurement by which this is reported. It is an opinion. That means that we don’t have a high standard of market capture rate against which we are measuring the performance of the parts and service departments. That is about to change. With the advent of machine telematics some years ago we can now track the hours of each machine and start to evaluate parts and service consumption rates across machine models and applications. This will be a great advance as we will finally know on which machines we are losing the product support business and on which type of products and services. This will be a tremendous change and opportunity for everyone in the parts and service business. I look forward to his type of challenge, shouldn’t you? The time is now.