Be careful in your irrational exuberance.

It was as recently as August that the results of the Cost of Doing Business were crowing about an increase in productivity in the Industry. That is terrific news. The trouble is I don’t know what tools and technology allowed us to make this leap in productivity. I haven’t seen any breakthroughs in systems. The same suppliers are in place with the same processes. That doesn’t seem to be reason for the productivity increase. Neither have I seen an increase in training budgets that develop better skills for more people in parts and service. No, that is not happening either. So what gives here?

You know there might just be a rather simple reason that productivity is up. We don’t have enough employees.

Don’t you hate it when that happens? Along comes a curmudgeon raining on our parade. The reason productivity is up is that we haven’t kept pace with the increase in business we are experiencing with an increase in staff levels. Oh, I know I will hear all the tried and true reasons. Good people are hard to find. Unemployment levels here are so low that warm bodies are all that is left to hire. Tough case isn’t it?

You know I have heard this refrain more than 8 times in the 38 or so years I have been in the Industry. And each time we talk ourselves into a slowdown or sometimes worse, a recession. We use the sales per employee measure as gospel. This has been true for a long, long time but particularly true since the 1980’s. When costs rose so dramatically when we were trying to WIN – whip inflation now – interest rates went above 20%. Imagine. And true to form the cost of personnel is clearly the highest cost in a dealership so lower the payroll and we can get through this problem. And the cycle continues.

There is a serious flaw to this thinking. I am sure you know what it is don’t you?

Yes that is right… our service to customers gets so bad that our market share on parts and service is terrible. But don’t worry about it we can’t measure it effectively so no one will catch us. Right.

Our customers catch us. They catch us and then they leave us. Half of your customers leave you every five years in service. Imagine. But that’s okay productivity went up.

Some of you have heard me make the comment that I feel at times like a mule braying in a tin barn; it makes a lot of noise but gets little action. Is anyone out there listening?

It is true that sales per employee is a great metric. It is an important one as well. But it needs to be based on the wages and benefits paid in a department. Takes Parts. What is the average personnel expense in your parts department per employee? That is 7% of what the sales per employee should be. How does that work out at your dealership?

But that is only part of the story. We need to have a much, much higher percentage of our sales activities in the service department. This is the department that has the lowest sales per employee of the dealership. So the more successful we are at getting service business the lower our productivity is going to become. Balderdash. That is just plain wrong headed.

So be careful with measures. Be careful on how giddy we become when something goes up. Normally something else is going down at the same time. The laws of physics don’t just change to become trendy again. Well maybe Pluto should stay a planet.

Equipment sales as a percentage of the total dealership sales in 2005 might have gone up and that might in itself be the reason that we can say productivity is up. So be careful there are many competing issues in play in this business. If it was easy it would already be done. Don’t forget that. Oh and one other thing. It is those wonderful people in parts and service who make your customers keep coming back to you. It is the relationship that they have with the customers that is so important. Don’t over work them. Appreciate them. Train and develop them. Support them with the best tools and information possible. Support them with the best systems possible. If you do all that and true productivity does go up I will be right out front cheering with you. But I am not yet in that crowd.

by Ron Slee
October, 2006
CED Magazine

About CED Magazine

Construction Equipment Distribution is published by Associated Equipment Distributors, a nonprofit trade association founded in 1919, whose membership is primarily comprised of the leading equipment dealerships and rental companies in the U.S. and Canada.

With CED, content is king. No fluff, no advertorials – CED just gives AED members what they want to read: business information, industry and association news, plus fresh, original and useful feature articles that they share with their management teams. Our subjects range from rental, product support, sales strategy and customer service to technology, construction markets and legislation – and much more.