This is an interesting article written by George Keen in 2008. Click Forklift Equipment Rental to download the Article in PDF format.
Currie Management Consultants, Inc. would like to extend a heartfelt thank you to all of our clients, friends and partners who supported our annual Autism Awareness event. The event was this past Sunday and was a huge success. Matt Hicks and his team, Cameron’s Voice was the leading fundraiser.
Kudos to our dedicated employees Jerry Collins and Cathy Friedman, along with her family who participated in the 5K Race for Autism Awareness that morning. Jerry ranked first place for his division and Cathy, Phil and Tyler Friedman did an outstanding job.
Click to see some of the Currie kids at the event.
George Keen was on the job with his camera so we will be adding more photos soon.
Thanks again to everyone!
There was an interesting speech made by Jeff Immelt, Chairman and CEO of GE. Click to read Renewing American Leadership.
We are excited to announce the recent opening of our offices in Brazil, headed by Claudio Trincanato. Click here to view the press release: CMC Brazil.
As many of our clients and friends are aware, Currie Management Consultants, Inc. is committed to support the vitally important Autism research that is occuring here in this country. Our local research center has been extremely valuable in providing support and assistance to those families affected by Autism, which includes our own. Once again we will be sponsoring and participating in the Annual Walk/Run for Autism Awareness. Please visit our team page, Cameron’s Voice, and find out how you can help. This year’s event is on Sunday, April 25 in Worcester Massachusetts.
Recently Michelle was asked for her insights on Coaching and Professional Development.
Follow the link to listen to Bob’s insight on business and the economy as we begin 2010.
Now that we have defined the big buckets on the financial statement, let’s get back to uncovering whether you have a service operating expense issue or a gross profit issue. The biggest challenge I come across in performing the reviews with dealers/distributors is in how they are accounting for Service Recovery Items. These items are what you are charging your customers for service vehicles, shop supplies, hazardous materials disposal, etc. Let’s look at the example below.
|Service Labor Revenue||$ 1,050||100.0%|
|Cost of Goods Sold||$ 375||35.7%|
|Gross Profit||$ 675||64.3%|
|Personnel Expense||$ 215||20.5%|
|Operating Expense||$ 160||15.2%|
|Occupancy Expense||$ 55||5.2%|
|Total Dept. Expense||$ 430||41.0%|
|Department Profit||$ 245||23.3%|
At first glance you would conclude that there is a major issue with Operating Expense due to the fact that is over 5% out of line with the CMC model. Other areas of the department such as Gross Profit is less than 1% off model. This is not very uncommon to see in many of our Best Practice Groups.
But when we dig further you discover that $50 of Service Labor Revenue is actually revenue associated with charges such as mileage, zone charge, EPA, shop supplies, etc. that are common in most distribution companies. The CMC model would place those items not in Revenue but as a contra expense account under Operating Expenses. Now let’s look at what that does to the financial statement.
|Service Labor Revenue||$ 1,000||100.0%|
|Cost of Goods Sold||$ 375||37.5%|
|Gross Profit||$ 625||62.5%|
|Personnel Expense||$ 215||21.5%|
|Operating Expense||$ 110||11.0%|
|Occupancy Expense||$ 55||5.5%|
|Total Dept. Expense||$ 380||38.0%|
|Department Profit||$ 245||24.5%|
The bottom line figure of $245 did not change but we are now much closer to identifying the bigger issue. Operating Expense went from being off 5.2% down to 1%. Occupancy Expense stayed relatively the same but Personnel Expense jumped up 1%. But the biggest jump occurred in Gross Profit. It went from being off model by 0.7% to being off 2.5%. We have a bigger revenue and productivity issue and less of an expense recovery issue.
This happens in other departments as well. Think about the same exercise when it comes to Parts Freight Expense & Recovery. If you put the Recovery under Parts Revenue and the cost under Parts Operating Expense, you think you are doing well in margin but it is inflated.
So if you are wrestling over what you think is a Service Operating Expense issue, make sure you are accounting for the recovery items correctly. Place them down as contra accounts and match them up with the actual expense.
Service Department: Operating Expense Problem? Or is it really Gross Profit?
In completing dozens of expense reviews for our dealer/distributor clients, I came across this issue on almost every occasion. When interviewing key managers, more often than not both the service managers and the controller were in agreement that they had an Operating Expense issue in the Service Department. They also were in agreement that they had no idea how to solve the problem. What I discovered on most of the reviews was the issue was not in expense control but was really a service gross profit challenge. Before we get too far down the road let’s define what we mean when we say Operating Expenses and Gross Profit.
As our clients will tell you, Currie has developed a financial model for distribution companies through our research and development projects with manufacturers. From there we have refined the financial model over the years through our experiences with the Currie Best Practices Groups. The Service Department Financial Model is as follows:
|Service Labor Revenue||$ 1,000||100.0%|
|Cost of Goods Sold||$ 350||35.0%|
|Gross Profit||$ 650||65.0%|
|Personnel Expense||$ 200||20.0%|
|Operating Expense||$ 100||10.0%|
|Occupancy Expense||$ 50||5.0%|
|Total Dept. Expense||$ 350||35.0%|
|Department Profit||$ 300||30.0%|
- Service Labor Revenue is pretty self explanatory. It is the labor charged to customers, whether it is internal, external, contract, warranty, etc.
- Cost of Goods Sold in our model is the wages of the technicians only. In other words, their W2 wages at the end of the year. Included in this should be their pay for vacation, holidays, sick time, etc. as those are true wages.
- Personnel Expense includes the benefits of the technicians (health insurance, taxes, workers compensation, etc.) Do not include vacation, holiday, sick pay, or other wages that are included in COGS. Also in here should be all the wages and benefits of the service overhead staff (managers, dispatchers, warranty clerks, aftermarket sales reps, etc.).
- Operating Expense includes all the expenses that are not either people related or building related. The largest of these expenses include service vehicles, liability insurance, supplies, telephones, etc.
- Occupancy Expense includes all the costs associated with the building/facility of the dealership or branch. Things such as rent/lease, property taxes, property insurance, heat, light, power and other utilities are the major expense items.
This excerpt is Part One of a Two Part series.
One theme that consistently arises at all of our dealer/distributor group meetings is how to develop leaders. At times, the future leader of your company is your identified successor(s) of your dealer/distributorships, or it might be one or more of your current managers that have leadership potential. Many times the answer to developing these individuals is to bring them to dealer or distributor group meetings. What can happen is they become lost, or worse, frustrated with this environment. They lack the fundamental business knowledge or confidence to take part in the process or are afraid to broach subject matters that may seem trivial to the principals in the room.
Currie Management Consultants, Inc. looks at the development of a dealer/distributor leader on two levels. The first level of development is basic business knowledge. This knowledge is specific to your industry and to dealerships/distributorships which includes knowing the Currie Financial Model with all the details. The second level of development centers on the leadership behaviors that drive the execution of the Currie Financial Model. The leadership behaviors that are taught are the building blocks of great leadership. They are: mental agility, interpersonal finesse, change mastery, and goal orientation. The Currie process combines the knowledge of the Financial Model with leadership behaviors in an environment where they can safely begin to develop.
Our response to client demand for developing leaders is a forum by which we educate and coach these leaders through a series of meetings (two per year for two years) and monthly coaching calls. We are happy to report that over 50 managers/leaders have completed the Currie Management Consultants, Inc. Leadership Development series.
Currie Management Consultants, Inc. Leadership Development School
The goal of the Currie leadership school is to help educate and prepare the next series of dealer/distributor leaders. We operate on a forum by which they can hone their skills in the following areas that are critical to their future success.
I. The Business of a Successful Dealership or Distributorship Here we present the Currie Financial Model as a strategic initiative. We then focus on each department individually as well as their interdependency and “how to” achieve benchmark performance. Attendees will also better understand the use and interrelationship of each of the three critical financial statements: 1) Balance Sheet; 2) Income Statement; and 3) Cash Flow Statement.
II. Leadership Skills
- This portion of the program focuses on the traits and skills that are associated with excellence in leadership. There are four broad categories: mental agility, interpersonal finesse, change mastery, and goal orientation. Assessments will be utilized before each workshop session and the results of these assessments are used during the workshop as well as on the monthly coaching calls.
- Specific skills development will revolve around emotional intelligence, assertiveness, situational leadership, team effectiveness, time management, and communication.
1. Two-day workshop #1 “Overview of a Successful Dealership/Distributorship & Emotional Intelligence”
i. Participants will be introduced to the Currie Financial Model and leave with a strong knowledge of the business model and how it fits within the global marketplace.
ii. Pre-assessments in MBTI and Emotional Intelligence. Participants will be able to identify their strengths and challenges as leaders. Participants will leave with specific behavioral goals.
iii. Participants will have a time management philosophy that they can translate into practice at work.
2. Two-day workshop #2 “Account Management & Assertive Dialogue”
i. Using case studies and lecture, participants will learn the what, how, and why of Account Management and the Sales Department.
ii. Pre-assessments in Communication Effectiveness and Assertiveness. Participants will have a deeper understanding of their communication and assertiveness styles and leave with techniques to improve assertive communication at work
3. Two-day workshop #3 “Aftermarket Management & Teambuilding”
i. Participants will have a detailed knowledge of the Aftermarket departments including parts, service, and rental. Lecture and case studies will be utilized.
ii. Participants will know how they rate on their team effectiveness and create a development plan to improve their team building behaviors.
iii. Participants will be exposed to the concept of “Enterprise Thinking”.
4. Two-day workshop #4 “Buying or Selling a Business, the Balance Sheet & Leadership Theories”
i. Participants will understand the factors that affect the value of a business and they will understand the different ways of valuing a dealership or distributorship.
ii. Participants will work case studies to increase their knowledge of the balance sheet and how it impacts the effectiveness of a dealership/distributorship.
iii. Participants will be exposed to several different Leadership Theories.
Providing this type of forum will allow your future leaders to better understand the business world they are in while honing their leadership skills. At the same time they will be surrounded by their peers from their own industry as well as several others, therefore widening their understanding of the overall industrial distribution market.