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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 and requires the capital to buy more cars and absorb more marketing expenses. Want a quicker path to increased profitability? In past articles, I have discussed pay for performance for sales people, inventory people, parts pullers and order fulfillers, dismantlers and delivery drivers.

You can get back to the level of profitability that you once enjoyed by lowering your costs. The beauty of increasing profits by cutting expenses is that it can be done immediately and that it often produces better cash flow and profit numbers within weeks. Having achieved better cash flow and profits, you can then use the surplus to buy more cars and get the inventory to drive higher sales.

In this article, I will discuss how you can implement pay for performance for cradle-to-grave dismantling.

This concept is very simple. It should be implemented at the same time that you start to pay dismantlers by the vehicle. Most yards have different people moving cars in and out, cleaning parts, tagging and stocking parts, as well as having dismantlers. Parts get handled many times by different people. Parts frequently get misplaced in one of the steps or damaged, and no one knows who damaged the parts or how it happened.

Yards I have worked with combine all of these functions into a cradle-to-grave dismantler. Head count drops significantly, but productivity increases and less time is lost hunting for parts or trying to figure out who damaged them. Dismantlers do it all.

Expect about 2 cars per day and expect to pay about $75 per car. Your best dismantlers will never leave because they will work fast enough to earn about $1,000 per week. Your labor cost per vehicle will drop like a rock.

I’ve heard all the excuses some owners make for not trying cradle-to-grave dismantling and pay for performance. Some yard owners say it won’t work. However, I know that their best run competitors are doing it and that it does work.

These more aggressive yards are using the extra money they earn from switching to cradle-to-grave dismantling and pay for performance to buy more cars and grow.

By the way, one key to making it work is to have enough forklifts. Dismantlers should never wait for more than 15 minutes for a forklift. Forklifts are cheap, they don’t take lunch breaks, and they never complain, so buy one when your dismantlers ask if wait times justify the purchase.

How much more productive are cradle-to-grave dismantling yards? Expect a 50 percent lift in productivity when you switch to pay for performance and cradle-to-grave dismantling.

If your dismantlers get finished early, let them go home early, or issue them a P.O. for other work in an amount that seems fair. Be sure they know that you are calculating their hourly wage based upon what they earn dismantling, so the faster they are, the more they will get for any other hourly work. Even their vacation pay should be calculated based upon their last eight weeks’ average hourly earnings. When these incentives are in place, stand back. Your dismantlers will hustle like you’ve never seen.

On the very rare occasions when we did not have cars to dismantle, we usually gave our people other work or had them sweep the warehouse. Our people made more money, some went home earlier, and our warehouses were always spotless.

You can’t afford to put off this move; your most successful competitors have already lowered their labor costs. The benchmark – your labor expenses should be at or below 20 percent of your total parts sales.

Make the move to pay for performance this year and become more efficient, more productive, and more profitable.

Published in the June 2014 Edition of American Recycler News