Your thoughts as business owners and managers are focused on what you can do to increase margins for 2013. While it’s a good idea to maintain your attention on the bigger picture, too often many of us overlook the many recurring small inefficiencies and screw-ups that result in unnecessary expenses. Every company has them.
The question is: Have you stopped to consider just how much those mistakes are costing you? If you did, I’m guessing you would be shocked.
Ron Lester, president of Architerra, Inc., in suburban Chicago has suffered his share of unexpected expenses, just like you, I’m sure. But, he quit viewing them as “normal” expenses. He recognized them as being unnecessary.
When he calculated what they meant to his company, he realized he had to take steps to educate his employees on how much each incident cost his company and how to prevent it from happening again.
For example, one of the company’s equipment operators jumped a curb with a walk-behind mower and damaged the caster. At first glance, the cost of the incident appeared to be the cost of the new caster. Big deal, right?
But when Lester analyzed the real cost of incident he was surprised … and not happy. The expense of that simple mishap included the administrative time logging the incident, lost productivity and revenue, expense of returning to the shop, the technician’s labor and, finally, the cost of getting the new caster from his supplier. All told, that simple mistake added up to costs exceeding $500.
“It would take an additional $1,000 of sales at 50 percent gross profit to recover the caster accident,” says Lester.
Lester explained to his workers exactly how much that relatively small lack of attention by an operator cost the company. Then he implemented procedures to reduce the chances of that happening again. He started by dedicating training time to showing operators how to get over curbs climbing without damaging equipment. But, he went one step farther; he also implemented a procedure to reduce the cost to the company should it (or similar incident) happen again.
“You can’t totally eliminate accidental damage, but you can reduce the overall cost by designing processes that reduce cost when they happen,” says Lester. For instance, rather than the crew driving back to the shop incurring transportation costs, Lester asks the crew leader to call the shop reporting the damage and have a technician bring the replacement part to the job site. This keeps the crew on the job producing work, even without the damaged piece of equipment, and reduces the total downtime to a minimum.
A very expensive mailbox
In another incident, an Architerra crew with a trailer accidentally backed into a mailbox and knocked it down. The mailbox belonged to a property owner adjacent to their customer. The damaged mailbox incident caused a series of events at the company that raised the cost of replacing the mailbox much higher than necessary.
Mike Lowecki, account manager, recalls the flow of events beginning with the actual damage:
* The property owner calls the receptionist at Architerra reporting the damage, saying he can’t get mail due to the mailbox being down.
* The office was abuzz with chatter as news spread about the damaged mailbox.
* Lowecki has to stop his normal routine and visit the property, survey the damage and explain to the property owner that the company would immediately replace the mailbox to their satisfaction. Lowecki’s time managing the incident was three hours.
* The mailbox gets immediately replaced.
* Factor the administrative time, the account manager’s lost time, the actual replacement cost of the mailbox and the labor to install the new mailbox. Total costs approach $2,000; that’s $2,000 off the company’s bottom line.
Lester and Lowecki now train their employees to reduce unnecessary expenses like this. Crew leaders now issue orders for a guide to assist in trailer backups. Maintenance crews are instructed how to handle equipment damage and downtime so that the expense is kept to a minimum. All employees now understand the actual costs, including administrative costs and lost productivity. An electronic bulletin board in the crew room at Architerra broadcasts messages about upcoming jobs, suggestions to reduce unnecessary incidences, safety and other labor-saving ideas.
And while the following procedures might not sound like legitimate expense savers, think again. In the landscape service business time is money.
Lester revised his equipment shop and yard layout so that equipment is available when needed, and crews are required to return the equipment to assigned spots when work is completed. Materials are positioned and labeled in the yard so crews can load materials easily and more efficiently. Larger equipment is staged together so crews can readily get to it and get to jobs faster. Crews are trained to return everything to the exact spot they got it from and report any service or repairs needed to shop management immediately. Labels and instructions are printed in both English and Spanish. Architerra is also a snow and ice service provider, and by revising their equipment shop and yard layout they’ve reduced the time needed to get crews out of the facility and onto their jobs.
Lester is convinced that employees want to do the right thing and by educating them to what extra unnecessary expense means to the company and by helping them become more efficient and productive, Architerra actually builds employee loyalty and improves performance.
Review some of the seemingly small incidents that resulted in extra expenses for your company this past season. Add up what they really cost, and don’t forget the lost administrative and management time. When you calculate the true costs, I’m betting that you’ll implement policies and procedures to reduce their chance of happening again.
Rick Cuddihe is president of Lafayette ConsultingCo., a PLANET Trailblazer, and he works with landscape contractors to improve their businesses. Contact him at email@example.com.