CASE STUDY #1
Minor Service Department Re-Org Produces 30%+ Fixed NPI
Several years ago, when I was employed by NCM Associates as their Senior Retail Operations Consultant, I was fortunate to secure an engagement with a very pro-active dealership in the Midwest for a Fixed Operations Net Profit Improvement (NPI) project. In line with my policy of client confidentiality, I will refer to this store as Central City Imports, as I share this case study with you.
Although the Service and Parts Departments were relatively profitable and experiencing healthy increases in sales and gross, both the GM and Service Manager believed that significant opportunities existed in both transactional quantity and transactional quality. Since they weren’t sure where or how to begin addressing these perceived opportunities, I was asked to perform a needs analysis and convey my thoughts about a plan for improvement.
During our first conference call, I began to believe that a department re-organization would be necessary. Additionally, during this call, I recognized an unusual talent level and commitment from both of these managers. So, as I have sometimes successfully accomplished, I offered to provide my services on an off-site basis, and provide the highest quality communications possible via telephone, email, and overnight delivery service. (This usually saves the client a significant amount on his potential consulting investment.) The client-dealer agreed to the suggested terms of my engagement and the budget range established during the initial phone conference, and the Service Manager immediately began assembling a data package to send me.
Once I’d received the client data, I tried to accurately depict the current “State of the Department” using the organizational display format shown in the following, Chart 1, which focuses in detail on headcount, productivity, and compensation for the management, sales, and technician staff. I immediately emailed the chart to the Service Manager, with this accompanying message.
“This is the way it looks to me! Do you agree? If so, there is lots of opportunity! As they said in the movie, Top Gun, this is a target-rich environment! However, I believe a minor re-organization is necessary.”
He agreed that the chart was a clear and accurate rendition of the data he provided, and he wanted to hear about the costs and financial benefits of the re-organization that I was proposing.
I then proceeded to develop further information, summarized in the following, Chart 2, which displayed “where they were today (financially)” and “where they would be (financially) after the re-organization.” This chart show the results of their “New Reality”, and following are the high-lights of the minimum improvement level that I predicted: 1) 12.50% increase in Customer Transactions, 2) 15.79% increase in Total Service Hours Billed, 3) 6.42% increase in Labor Gross Profit Margin, 4) 15.07% increase in Parts-to-Labor Ratio, 5) 9.6% increase in Parts Gross Profit Margin, and 6) a $48,475 (or 31.06%) increase in Monthly Variable Net Profit.
“WOW”, said the Dealer, the GM, and the Service Manager! “But, what does the re-organization look like,” they asked, and “How do we make these numbers happen?”
You’re probably not surprised to learn that I already had the following, Chart 3, already built. But I didn’t want to show it to them until they understood the financial results of the “New Reality”. Just like Chart 1, this last chart focuses in detail on headcount, productivity, and compensation for the management, sales, and technician staff. You may wish to copy and enlarge this chart to make it more legible. Here are the highlights of the re-organization plan: 1) From the existing technician staff, break out a separate service “team” dedicated to Express Service, 2) Employ or promote an Advisor dedicated to Express Service, and 3) Employ a Service Sales Manager. The re-organization only requires the addition of one productive associate (Express Service Advisor) and one non-productive associate (Service Sales Manager).
Although most of the transitional change…to benefit…to result becomes obvious when comparing Chart 1 side-by-side with Chart 3, here are the principle highlights: 1)The additional advisor and the breakout of the Express Service platform enables us to a) handle more quick-service customers more efficiently and b) better spread the remaining customer count among the advisors, thereby c) providing the advisors more quality time with each customer, and thereby d) providing the advisors with enhanced sales opportunities and assuring far better transactional quality (Hours per R.O. and GPMs). 2) The addition of the Service Sales Manager provides a) closer advisor supervision, b) the opportunity for improved advisor training, c) better advisor daily activities-management, and d) much greater accountability management.
Both “the Plan” and the “the Implementation and Execution” of the re-organization turned out to be “Win-Win” for all concerned. The personnel shown on Chart 1 didn’t have to work as hard and enjoyed a far less stressful environment, without having to experience a reduction in total compensation (even though some minor pay plan changes were required within the re-organization).
I hope this case study, together with the charts, helps demonstrate my qualifications as a Subject Matter Expert (SME) in Organizational Lifecycle Management (OLF). Among numerous other professional services, OLF includes structuring dealership departmental organizations, personnel (headcount) levels, and management, sales, and administrative compensation. If you would like to further discuss the above Service Department Improvement project, please contact me at or 561-339-0043.
Sound processes that become disciplined habits produce consistent, predictable results.