Out of the Crisis.Org

[Louis Altazan]

Many, many years ago, I was obsessed with the sport of drag racing. Once I attended the Gator Nationals and in the final round, saw a car run “grenade style” for the first time. In order to gain a tiny edge, the driver removed all but one quart of engine oil and transmission oil. The engine was destroyed, but it was thought by reducing windage, he may gain an edge, for the quarter mile.

Few businesses can afford such outlandish risk. Yet they often make cost cutting decisions that cost far more than they save. The business of business is sustained profit and lower cost is a great help to that aim. However, unless time is also taken into consideration the results may be disastrous. Deming mentions this long-term focus many times. Point one, adopt constancy of purpose, states this quite clearly. So does point four, end the practice of awarding business on price alone. While ethical profit is a measure of success, ethical profit over time is a much truer indication.

A business might stop maintaining its equipment, drop its insurance coverages and start paying employees cash to avoid withholding. Their profits might rise substantially as a result, and in the short term. Eventually the equipment fails, there is an accident and the IRS pays a visit. Now, in return for short-term gain, the business is decimated. The business was running the equivalent of “grenade style.”

To maximize profit and control cost, each purchasing decision is important. Many businesses realize shopping on price alone does not provide the overall lowest cost. Price is the amount paid, cost includes the amount paid, the cost to solve problems associated with the purchase, other cost generated, energy consumption, etc., divided by the life span of the purchase.

For instance, one air compressor might cost $500.00 less than another. Because of less robust and efficient design it also takes 20% more electricity to run and last half as long as the more expensive model. Considering the additional energy cost and repairs made along the way, the savings is nil. Add in the inconvenience and loss business due to down-time and the cheaper model actually cost more. Considering the shortened life expectancy, the cheaper model cost far more, over time.

Overall lowest cost may be the goal but it is rarely reflected in the price. In some cases a less expensive choice is better, all factors considered. Would anyone be interested in posting on overall lowest cost of a few major business expenses, for example insurance and building construction? I would appreciate any comments or contributions.

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Louis Altazan
Owner/Manager AGCO Automotive Corporation
Baton Rouge, LA

[Dave]

The building and surrounding landscaping have more to do with overall cost, for a business, than may be realized. There is the design of the building, the construction materials and the layout of the rest of the property. One reason these are so important is that they have an effect on the overall costs for the entire time the location is being used.

By installing better insulation, the heating and cooling costs are lowered for the life of the building. Lighting is an area that is often over looked, but can play a large part in lowering costs. We know that some lighting is more efficient than others. Over its life cycle it will consume less electricity. But what about its effect on peoples moods? Some types of light is easier to work in than other types. The light needs to be positioned so it shines where needed. Light that is too bright or too dim will slow down production for the entire time the light is used.

Some types of construction materials are high maintenance. They can cost more to maintain, over their life cycle, than the original installation cost. When choosing materials a person needs to consider how the customer will perceive the finished product. Do they find it appealing, will they want to come in? Landscaping plays a huge part in this. A well maintained, clean, pleasant looking business will attract a better class of clients.

There is the design to consider. Are the work areas designed for good traffic flow? Can people and vehicles move around easily? Do the techs have plenty of room to work, or are they stacked in the shop like sardines in a can? Are parts and tools easily accessible for them?

What about the front office, is the service counter large enough for the service writer to do their job? Can the customers easily get from the front door to the service writer? Is there plenty of parking?

If the building was designed well it will help efficiency. If the parking area and front office are hard to get in and out of, people may not want to come. If small commonly used parts are scattered all around the shop so the tech has to do alot of walking to get them, it will hurt productivity.

Saving a few dollars during the construction phase can cost thousands in the long run. The reverse is also true. Spending more up front can result in lower overall cost. It is considerably less expensive to install things during the initial construction of a building than to add them in later. Electrical outlets, phone lines, water lines, and doors come to mind.

Part of the problem is that it is easy to see the large initial cost. It is not so easy to see the smaller monthly fees or savings. It may cost $4000.00 to upgrade the lights in a shop. The additional lighting allows the tech to be more efficient and produce an additional 15 minutes of billable work per day, 1.25 hours a week, or 60 hours in a year. The cost of the additional lighting is paid for in about a year. After that the additional work is mostly additional profit with very little additional expense.

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David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com

[Louis Altazan]

Hi Dave,

WOW! Well thought out and well put. When I built my first building, money was very tight. I cut cost by doing much of the work myself, after hours and on weekends. Fortunately the second building was a different story. I was able to incorporate many of the things you mention.

I learned a building is a one time, tax deductible cost. A poor layout is a daily drain that is hard to overcome and continues to cost. Thanks Dave, that was great.

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Louis Altazan
Owner/Manager AGCO Automotive Corporation
Baton Rouge, LA