Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Thu Jun 12, 2008 6:32 pm Post subject: Penny Wise and Dollar Foolish
Many year ago, in a financial analysis class, I had the opportunity to review the books of several companies. These were actual businesses, some doing well and others not so well. The teacher pointed out two companies in particular. One had approximately 2% bad debt on their books the other virtually none. Ironically, the company with the bad debt also earned almost 20% more net profit. The teacher explained 2% bad debt was not unusual for this industry. By overly avoiding risk, the owner with no debt was also losing many sales. Their sales per-employee were far below the other company.
Sometimes, in an effort to avoid a negative a company makes themselves very difficult to do business with. This might be seen as treating a special cause like a common cause. One example might be a business that gets a charge-back on a credit card and quits accepting them as a result. Fact is, a very large number of people pay with credit cards. Discontinuing cards because of one bad charge is over-reacting and cost much more than it saves.
With a bit of thought I am sure people can think of many such examples in business. How about listing a few you may have noticed.
Joined: 15 May 2007 Posts: 146 Location: Garden City, KS
Posted: Fri Jun 13, 2008 10:12 pm Post subject:
I may be taking this in the wrong direction, but the one that just jumps out at me is: training.
Shops will skip out on training and invest in information systems such as tech-lines and web-help sites in its stead. Training, we've been told, shown, and warned about, does not readily show up in "the books" as having a return.
I could start in about equipment, but I feel everyone knows my stance on that subject.
Great post, Louis. Later, Matt.
_________________ Matt Fanslow
ASE CMAT/L1
Crag-Technologies, Inc
www.wavehook.com
Joined: 15 May 2007 Posts: 30 Location: Bluefield, WV
Posted: Sat Jun 14, 2008 6:47 am Post subject:
I aint sure but how about this. The place I used to work at did a lot of brake work. One week two cars came back because the master cylinder went out after we did brake work. One was done six months before and the other about 4 months. Both cars had over 100,000 miles on them. The owner decided every car with 100,000 miles or more needed a master cylinder with every brake job. This ran the cost of our brake services up so much that we didn't get hardly any. People would come in for a quote and then go somewhere else and have the work done for two hundred or more dollars less and never have a problem. Anyway I always thought that was over reacting to something that might just happen and our brake work fell to less than half what it was before and never came back up.
Joined: 19 May 2007 Posts: 206 Location: Camp Verde, AZ
Posted: Sat Jun 14, 2008 1:30 pm Post subject:
Louis talked about charge-backs. What about not taking American Express or Discover cards because of the higher rates or not taking out of town checks? Then there are charge accounts. Do shops even have Accounts Receivable any more? My thought is, if someone wants to give me money, I’ll take it any way they want to hand it over.
How about phone trees and phones that block unlisted numbers? Not having enough people to answer the phones. People call when it is convenient for them. They want to set up a time to bring their vehicle to us and then give us some money. Why do we make them jump through so many hoops?
Any time we base policy because of what a few people say. We tend to remember the one person that raked us over the coals for something, but not the hundreds that said thank you.
_________________ David Wittmayer
Owner / Manager
Hansen Enterprises Fleet Repair, LLC
Camp Verde, AZ
www.hefrshop.com
Joined: 15 May 2007 Posts: 146 Location: Garden City, KS
Posted: Sat Jun 14, 2008 2:37 pm Post subject:
Eric J. wrote:
I aint sure but how about this. The place I used to work at did a lot of brake work. One week two cars came back because the master cylinder went out after we did brake work. One was done six months before and the other about 4 months. Both cars had over 100,000 miles on them. The owner decided every car with 100,000 miles or more needed a master cylinder with every brake job. This ran the cost of our brake services up so much that we didn't get hardly any. People would come in for a quote and then go somewhere else and have the work done for two hundred or more dollars less and never have a problem. Anyway I always thought that was over reacting to something that might just happen and our brake work fell to less than half what it was before and never came back up.
I feel the situation you describe would have been a perfect opportunity to do a study. Was it a fluke? Was it a product issue? Was it a procedural issue? Just a thought. Thanks for the post, Eric. Later, Matt.
_________________ Matt Fanslow
ASE CMAT/L1
Crag-Technologies, Inc
www.wavehook.com
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Fri Jun 20, 2008 1:57 pm Post subject:
MattFMN wrote:
I may be taking this in the wrong direction, but the one that just jumps out at me is: training.
Shops will skip out on training and invest in information systems such as tech-lines and web-help sites in its stead. Training, we've been told, shown, and warned about, does not readily show up in "the books" as having a return.
I could start in about equipment, but I feel everyone knows my stance on that subject.
Great post, Louis. Later, Matt.
Hi Matt,
Good point, Dr. Deming said over and again, the most important things we must manage have no figures. He stated, we must be guided by theory. Seldom more true than in your example. The theory is, if I effectively train my people, I will earn more profit. I perform the training and profits rise. I cannot count the non-occurrence, so cannot produce figures to demonstrate the gain. Yet profits have risen, which was the aim. This is being guided by theory.
Another theory might be treating clients with respect will result in more profit. Hard to prove with figures . . .
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Fri Jun 20, 2008 2:03 pm Post subject:
Eric J. wrote:
I aint sure but how about this. The place I used to work at did a lot of brake work. One week two cars came back because the master cylinder went out after we did brake work. One was done six months before and the other about 4 months. Both cars had over 100,000 miles on them. The owner decided every car with 100,000 miles or more needed a master cylinder with every brake job. This ran the cost of our brake services up so much that we didn't get hardly any. People would come in for a quote and then go somewhere else and have the work done for two hundred or more dollars less and never have a problem. Anyway I always thought that was over reacting to something that might just happen and our brake work fell to less than half what it was before and never came back up.
Hi Eric,
This is a great example!! Such action might be called "superstitious management," acting from impulse with no theory or facts. Such a problem points to a need for a better inspection method, not blanket replacement of every cylinder. I think the cost of replacing the two cylinders would be much less than the cost of a 50% drop in sales? Thanks Eric, I appreciate the reply.
Joined: 15 May 2007 Posts: 774 Location: Baton Rouge, LA
Posted: Fri Jun 20, 2008 2:07 pm Post subject:
Dave wrote:
Louis talked about charge-backs. What about not taking American Express or Discover cards because of the higher rates or not taking out of town checks? Then there are charge accounts. Do shops even have Accounts Receivable any more? My thought is, if someone wants to give me money, I’ll take it any way they want to hand it over.
How about phone trees and phones that block unlisted numbers? Not having enough people to answer the phones. People call when it is convenient for them. They want to set up a time to bring their vehicle to us and then give us some money. Why do we make them jump through so many hoops?
Any time we base policy because of what a few people say. We tend to remember the one person that raked us over the coals for something, but not the hundreds that said thank you.
Hi Dave,
I have noticed when I try to protect against the 2% who might take advantage, I tend to abuse the 98% that wish to do profitable business with me. You make very good points, thanks for the reply.
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