Let's continue our discussion focusing on the parts department and the balanced scorecard developed by Keith Ely of Dixon Hughes Dealership Consulting Group.
As discussed last month, there are four key areas in the balanced scorecard:
Last month, we covered the concepts of the scorecard along with “financial,” the first of the four key areas. Now let's cover the other three areas.
Customers visit the parts department because of a failure with or the need to purchase a part. They are not necessarily there because they choose to be. Level of service, delivery time, convenience, professionalism, and hospitality are important to the customer. The measures of performance could include:
- Level of service from inventory
- Delivery time to customer from placement of order
- Special order parts management
- Customer retention %
- Cleanliness of department
- Standards of excellence performance (manufacturer provided or internal)
Customer measures can predict possible decreasing sales or gross profits, aging inventory problems or customers leaving for the competition. Departments should benchmark customer delivery times, level of service, management of special order parts, and hospitality goals.
Internal measures are the best immediate predictors of performance for the department. If internal measures fall, lower sales, smaller profits, higher expenses and poor inventory performance will follow.
Measures for this area should stem from the processes that have the greatest impact on the customer and financial performance of the department. These include:
- Stock order performance
- Lost sales management
- Daily bin counts
- Monthly reconciliation of physical inventory value vs. general ledger value
- Manual adjustments to inventory
- Ordering methods of the department
- Special orders
- Employee productivity
- Delivery time/fill rate from vendors
- Phone calls/personal sales calls made per day to customers
These measures indicate how well the department utilizes assets as well as how effective it markets to customers.
Innovation and Learning
Innovation and learning measure staffers' ability to provide better services to the customer. That separates the department from its competition. Possible measures are:
- Implementing technology-based solutions to improve customer service (direct link with customer to order parts, Internet ordering, parts management technology, systems in the department, etc.)
- Utilizing the current Dealer Management System (Is there full utilization of the parts ordering system, special order system and core management system?)
- Measuring employee satisfaction/turnover and improving both
- Developing and implementing a recruiting and training program for department employees
- Developing and implementing methods to improve delivery time to the customer
Once the measures for the department are chosen, performance benchmarks need to be established. These are established based on industry standards, past and projected dealership performance and performance forecasts.
Tie the pay plan of the department manager and personnel to the achievement of the scorecard's benchmarks. Success will only occur if the personnel are held accountable, from both a responsibility and reward point of view.
If developed and implemented along with a supportive compensation plan, the balanced scorecard provides a system to help the department achieve its long and short-term profit, cash flow, and market share goals.
Don E. Ray is a CPA with the Dixon Hughes Dealer Services Group. He's at 901-684-5643 and [email protected].