Management Article – June 2006 Part Two of Three
Tools You Must Consider to Control Profits in 2006 – And Beyond
This is a three part article, check last month’s issue for part one. Last month we talked about systems. This month we will discuss Purchasing and Performance Pay.
Purchasing – You need a yard management system with a bid pad or you need a yard management system and a stand-alone bid pad to purchase by requested customer demand. Our best estimate of what customers will ask us for the near future, is what they have been asking for in the recent past. This system will allow you to easily track your stock levels, purchases, and projected sales. Lots of yard owners ask me questions like: Why can’t I get sales up to $50,000 per month? When I look at the purchases they made and the projected sales from those purchases in the last three months, it looks something like this: ($30,000 + $28,500 + $34,000). If I average those last three months projected sales we get $30,833.33. The $30,833 is all they have the opportunity to sell this month because that is all they purchased. They may not even sell that, or they may sell a little more from purchases prior to the last three months, but most often that is all they will sell this month.
Performance Pay – Pay for performance allows you to operate with fewer employees. It is only human nature to “watch what you are paid for.” If you are paid by the hour then you naturally watch the clock and track your time. If you don’t believe this, then just try and pay an employee for three or four hours less than they actually worked and see if they notice. I assure you they will be asking why their check is short. Employees know how many hours they need to work to pay their bills and live comfortably. If they have to take off three hours during the week, they will try to come in early or stay late to make up the time if possible. Some will also slow down the work to increase time on the clock. However, time on the clock does not increase the company’s profit level. We need to change what employee’s watch. We need them to watch the amount of sales, deliveries, vehicles dismantled and parts pulled. In other words the quality and quantity of work performed. So, if we pay them by the quality and quantity of work performed, then that is what they will watch. When you change to pay for performance, production will increase by 20% immediately. If five dismantlers each increase production by 20%, you will have one too many dismantlers for the amount of work. The strongest and best four dismantlers will get the amount of work they need to insure the amount of pay they want, and the weakest one will not. The weakest dismantler will look for work at another company.
Remember, only you can make BUSINESS GREAT!
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Remember, only you can make BUSINESS GREAT!
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