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by RON STURGEON, AutoSalvageConsultant.com

One of a continuing series of articles on increasing profits and cash flow.

Increasing sales often takes months. To do it, you need money to buy more cars and do more marketing. Want a shortcut to higher profitability? Think about cutting your costs. The beauty of increasing profits by cutting costs is that it can be done now.

Smart cost cutting often produces better cash flow and profit numbers within weeks. Having achieved better cash flow and profits, you can then use the extra money to buy more cars and get the inventory that will produce higher sales.

In past articles, I have discussed pay for performance for sales people. In this article, I will discuss how to do pay for performance for dismantlers.
It’s easy to start pay for performance in your yard’s dismantling department.

•First, gather your metrics. The number of cars dismantled per day per dismantler will vary depending on what your people do (move the vehicle in and out, dismantling, checking engines, verifying parts, cleaning, tagging and stocking parts). Solidly managed yards using pay for performance should achieve well over two vehicles per day when the dismantler moves his car in and out and checks and pulls all parts.
•Second, make certain you have well trained dismantlers, standardized procedures, adequate forklifts, and good storage devices, carts, etc.
•Third, apply your metrics to your current rates of pay and figure out what your top performers, average performers, and laggards are doing so that you can set the right performance benchmarks. The price you will end up paying for the dismantling described above will vary, but you should expect to pay a minimum of $75 per car.
•Fourth, implement the program and keep tracking your KPIs.

Expect at least a 50 percent lift in productivity. In dismantling, a good pay for performance program should double output. It has in the dozens of yards where I have helped put it in place.

When I first switched my yards to pay for performance, sometimes dismantlers finished all the cars I had on hand. When they did, I gave them the option of going home early or doing extra side work at their dismantling hourly rate.

Whatever the side job was, I issued them a purchase order for the number of hours we agreed at their dismantling rate. My dismantlers hustled because the more productive they were, the more they earned for any side work.

Realistically, you should not run out of cars to dismantle very often, but you also need to make sure that you don’t get too large a backlog. I tried to never have more than two weeks’ worth of cars waiting for dismantlers. For every four weeks of standing dismantled cars, you will need an extra parts puller, a drain on payroll forever.

Part of your pay for performance program should be communicating a change in how vacation pay works. I paid vacation pay based upon the average weekly earnings of the dismantler over the previous eight weeks. My guys always hustled dismantling to make their vacation checks as big as they could be.

Your best dismantlers will earn over $1,000 a week. They will never leave, and you will be glad to pay them because they will be doing twice the work of you got from them when they were hourly.

Your most successful competitors have already lowered their labor expenses by switching their dismantlers to pay for performance. It’s time for you to make the jump.

Are your labor costs above 20 percent of total parts sales? The easiest way to bring them back in line and make this year your best ever is a good pay-for-performance compensation program.

Published in the May 2014 Edition of American Recycler News