#347 - Theory of Constraints

This is the Independent Dealer Podcast, Education by Dealers for Dealers. Now, here are your hosts, Luke Godwin and Jeff Watson.

Hello, and welcome to the Independent Dealer Podcast, brought to you by Buckeye Dealership Consulting. Luke, have you ever built. You ever built a car from scratch?

No. I feel like I have because I've taken cars apart and put them back together, but together about this.

So let me run you through a little exercise, and everybody listening say you are trying to build a car from scratch. Right. I use car because it's the. We can all relate.

We're in the car business. We should be using a car.

Yes. Yeah. You're going to pick a frame, you're going to pick an engine, you're going to pick a drivetrain, you're going to start putting together these systems. Right. And as you start testing these systems and you're putting it on the track or you're putting it out in the hills, whatever the purpose of the systems are, you're kind of testing what's working and what's not working. Right. And if you pair up a, you know, a big block V8 with a little transmission you tore out of a Ford Escape, you're going to have some issues when you go lay on that pedal, right?

Yeah.

And if you don't have a robust enough braking system, you're going to have some. Some issues when you go to, you know, hit the brakes. You know, if you're not built aerodynamic, what's going to happen? Know when you. When you do pair the right engine with the right transmission, you're going to reach a speed that the body just doesn't keep you on the road anymore. Right?

Yeah. Where you going? Where you going with this, Jeff?

The illustration I want to paint for you, Luke, is building a car. And. And running into limitations in the components of that car is the exact same thing we run into with our dealerships. Right?

Yeah.

We built a machine, and sometimes, Luke, we may have put the wrong dang transmission in that machine, and it can't handle the torque that we're throwing at it. Right?

Yeah.

What happens in those situations?

Yeah, it's funny, I feel like I've. I've put the wrong transmission into many of my. Into many of my business opportunities, and. And I feel like every month I'm having to pull one transmission out and, And. And put the other transmission in. And what we're talking about, the way I refer to it, is whack a mole. That's the technical name for solving your business's problem. Yeah. It's whack a mole. And, and I think Tim Lawrence called it maga. M M A G A, I think. And that. Wasn't that his acronym this past week?

Yeah. So Tim Lawrence, we were at least near pay here capital summit, and Tim gave a great keynote on his take on what's called the theory of constraints. Right. So in any system, like it's a car, a dealership, an electrical system, a water system, you may have one component of that system that is just not up to spec. Right. It's not up to par. If you have a tiny, tiny little transmission and you're throwing too much torque at it, you're going to blow that thing out over and over and over or you're going to. It's going to prevent you from reaching your potential. And that's what he talked about with this was when we have those bottlenecks, right, those issues that's going to restrict our dealership from getting to where it needs to be. And he had a great little acronym that the M and then aga.

Map out where your issue is. Maximize the dysfunctioning department. Align the speed of other departments. Grow or improve dysfunctioning.

Department.

Oh, yeah, and assess again. And essentially that's what we do every day. And we've talked about this, that when we get to a point where we're out of cars because our recon department is, it isn't working well, then we don't sell as many cars as we should. Or if we have too many cars and too many sales and our collection department can't keep keep up, then we have a problem in collections. And so it's a, it's a constant chess match or checkers match, whatever you're playing. Some of us are playing. Some of us, not me, are playing 3D chess. Yeah, I'm probably playing pick them up sticks or something to that effect. But, but yeah, I mean, it's so true though, we say this over and over, Jeff, that, that the business we run is about six businesses combined into one new car stores. Dude, if they need a car, they just order it, right? And so they've always got that, that inventory coming in. Well, we have to buy the inventory. We got a recon inventory, then we got to sell the inventory. Well, if you take, if you could just go to the used car factory and buy the cars you need ready to recon, then you, you cut two whole portions of your business out. And so if you can't keep up with the buying, if you can't keep up with the recon, then, then you don't have anything for sale.

So it's just.

It's a constant battle when you're in our business, and you have to maximize the departments. You got to fix the departments that are broke.

Yeah, yeah. And some of them are very, very obvious. Right. Like you mentioned some stuff about if your recon department isn't getting cars to the front line. Like, that's. I mean, I think that's everyone's issue. That seems like a constant. I don't know if anyone has that fixed where their mechanics are standing around waiting for someone to buy and bring it to them. But there's also other areas, and that really dawned on me as well is there's some that we don't know aren't maximized because we aren't giving them attention. Right. Like if you're building a car and you don't realize that, you know, your gear ratio is off, you might be not reaching your potential, but you don't even notice it. Right. You're. You're cruising along fine, no problem. But so it thinks, you know, when you talk about many businesses, it's like our reinsurance companies. Right. And that's the Buckeye plug for the week is. It is a business inside of a business. Your reinsurance, your cpi, everything you run through your Buckeye company, It's literally a business. And people need to stop looking at it like it's just a window switch on a car. Like, no, no, no. This is a crucial component, and it can lead to a lot of success and a lot of money if you give it the attention that it really deserves.

I tell you that. And that's a whole. Another ball of wax there. But I noticed when we first started our cpi, oh, things are great.

Right.

And then all of a sudden, you have a claim and you're like, oh, I'm done.

Give me. How do.

How do I operate a claim? So, yeah, it's a whole other business. You got to figure it out. And then you have to start. Start moving the chess pieces there. Well, I've got to go get some body shops that can help me here because I can't do it all on my own. I've got to make sure it gets towed here, gets out of storage there. I got to get the deductible. It's all these things. And we have to make sure that every department we have is running like it's supposed to.

Yeah. And we just give it to, like, someone like, oh, hey, take care of that CPI thing. You know, you have to. Your title clerk or your shop guy or Like, a lot tax. Like, hey, handle that CPI thing. Like, no, no, no, no, no. Treat it like a business in your business, you know, like, what did it cost you? Maybe three grand a month tire Like a proficient, you know, insurance administrator or claims administrator or, you know, and it's that whole argument of like, well, are they going to collect $3,000 more in CPI for you? Because they're giving it attention probably. So they'll pay for themselves within two months. And then on top of that, your customers are happy, your shop manager's not stressed out, your manager's not stressed out, your salesmen aren't pissed because, you know, you didn't get a claim handled in time, and now the customer bought somewhere else. So you really do have to spend the money to make the money, you know, invest the money to make the money, so to speak.

Yeah. So, Jeff, if I go to your dealership right now, what department is not performing well? You should know this, like, and I'm asking everybody out there, but just going to be my guinea pig, Jeff, which, Which department is it?

Our. Well, the first struggle we have, and I'd say our largest constraint, is our recon department. Like, we. We don't have the bays, we don't have the mechanics. We cannot crank out 50 cars a month, including an additional five to 15 to 20 customer, you know, cars. So I need to get 40 to 50 recon done, plus I need another, you know, 10 to 15 customer cars. And I just, I don't have the footprint for it. Can't figure it out. I don't know. What do I do?

Yeah, that is most people's problems. If you talk to any dealer out there. A guy walked up to me. I was at Fiada on Monday before this, this storm rol in, and I just wanted to give a shout out to all you Florida dealers. You're in the midst of the. Of the crap right now, and we're. We're praying for you. We're pulling for you. If you need anything, reach out to Jeff. Not just kidding. Reach out to both of us. Anything we can do to help you, we will. We'll try. And also, the folks in North Carolina are still dealing with that. That garbage up there and their lack of government. Anyway, a guy walks up to me. So, Luke, how many, how many cars are you getting ready a month? I said, well, our goal is, you know, anywhere from 40 to 45, because that's where we're aiming to sell, but we'll move that up in the next little bit. He's like, well, how many texts you got? So I walk through and he goes, man, I just got a problem. I can't get my cars done. He said, I'll get 20 done one month and the next month it'll be 10. And so we start walking through it, you know, and it's, it's everybody's problem and this. And Jeff, you bring up a super important point. You can staff up to get recon hit, right? And you can hit the recon numbers. But as soon as you have three warranty claims in one month that are, that are large warranty claims, it throws a cog in the system because you drop everything to get to that warranty claim. And, and so it's a real bear. And so right now, what I'm dealing with when you talk about recon is our recon is finished. And guess what? We haven't had a lot of warranty claims this month. So guess what happened to production of my shop? It's zero. I mean, it is, it is ground to a halt. So I pay, I'm paying people to stand around, but I'm okay with that. I'm okay with people being paid to stand around. So what we're doing is we're cleaning the shop where any projects that we have left over, we're going to get those knocked out. Because I know as soon as these hurricanes wash out of Florida and I wait about two or three more weeks, so hopefully those washed out cars get, get out of Florida to dry out, get ready, wait for the dry out, then we'll start buying hard again. But we're in a. I'm going to be at a month or I'm going to lose money in the service department. But, but I'm okay with it because I know that if I, if I reduce my staff right now, come, come November, December, January, February, March, April, I'm gonna be out of luck and I'm not gonna be able to produce what I need.

That's a wild problem to have. I can tell you. In 15 years I've never not had two weeks, almost three weeks worth of shop work backed up. Maybe during COVID for a small time, we got down to like two weeks. But I've never, That's just, that would be such a good feeling to be honest with you, to have mechanics show up on a Thursday or Friday and just be like, you guys are done for the week, let's clean the shop, let's do some other stuff. Let's, you know, that would be wild.

We're on a weekend, we're on a week and a half of the last time we had it was March of 2020.

Yeah, that's, that's insane to me. It's good, it's good because that means you're, you're good on your turn time. You're buying the right amount, right amount of cars you can recondition that you get to the front line and keep and it should be a really tight cycle. Right. I mean I should never have two months worth of work sitting back there for my mechanics. Like that's just a waste of money. I know that.

And so just in time inventory and you know the one clog I do have right now is in detail but we're fixing that.

But.

And Jeff, if you asked me the same question right now and it's probably everybody's feeling this right now. It's collections. Collections. My, my collection department typically is really good. And the last month and a half it's just been our main metric. Cash collected to percentage of projected and promised to pays. Our promise paid percentages for the last 60 days has run about 8% lower than it normally has. And it's just been a, been a bear. It's been a real bear. And, and I finally yesterday called in my, my HR manager and we kind of sat there and we talked about it and we, we noticed that one thing I was expecting my head hardcore collectors to do, they had stopped doing. So it was really on me. And so by having that meeting with, with my HR and I let her talk to the, to the collections girls because I don't speak to them probably in the best way, sometimes I come across a little harsh. Why the hell aren't you doing this? Yeah, exactly. And they'll tell me why the hell they aren't doing it is because. Well, you didn't tell me to do that. You told this other person to do that. And so having communication that flows down the right direction, I'm able to say hey, can you just let them know this is what they should be doing to make sure those promised pays actually convert and they need to be converted at this goal. We all know this, but we have been doing it. So hopefully that'll fix my problem.

Yeah. And as a side note, if anyone out there has access collector capacity and specializes in idms, give me a holler. I would love to. You know, I have one full time collector and I'm at the size where I probably need another part time to help them out. But I don't want to hire someone. I don't want to train Them. In fact, I might just love to outsource my entire collections department to somebody in frickin Mexico or Thailand that just specializes in idms. That would be amazing. Solve all of our problems, right?

It would.

Bonus if they handle blitz pay, you know, to find.

Gotta have blitz pay to get that money.

Yeah. And that's what we do. And that's one of the biggest things is you don't want to have a constraint on your customer. Right. If it's hard for them to make their payment, they won't make their payment. Right. If it's difficult, you know, we just got launched with our cash network so I'm really excited to see how that pans out. I'm doing some test accounts first to make sure that, you know, I fully trust it and I know the cycle of money. But to be able to let my remote customers pay cash in their neighborhood, in their community, not have to come all the way back to my dealership, that's going to be huge for my Latino market. Right. Because so many are cash payers and they have to come all the way to my dealership and make their payment. That's hard for them. They don't have that kind of time when I'm open. Right. So in this situation, they can take a quick lunch break, run over to the Dollar General or the Dollar Store or Walmart and make a cash payment directly into my account. So it's a cool deal. I'll update you guys once I get that fully up and running with Blitzpay. But Luke, let's transition. So we've identified the issue. Mine is recon, yours is collections. Now what acronym in Tim's little chart there was the. It was focus. Right. And that's where us as the dealers we know. And you mentioned it in your. What you just talked about, Luke, you know what that collector should be doing. You thought they were doing it. You stopped focusing on the issue. It got off track. And now you have to go back in and laser focus on that issue. Retrain, figure out what process is broken, figure out what software provider you have that isn't working, figure out which one you have that they're just not working it right. And maybe you've got some major decisions to be made that unfortunately those your employees can't go buy a new vendor, they can't go get a new software, they can't reinvent the wheel. In fact, you don't want them to. So they're going to work on this wheel. That's not a good one until you go in there and say, whoa, whoa, whoa, guys, who didn't tell me that this was a completely broken process. Let's fix this. So it's on us, the dealers, to get in there, right?

Yeah. It was as simple as this, Jeff. We had hired another dealership assistant, and that dealership assistant was put in charge of making sure that they, they were reaching out to the promised pays to convert those. And that person was only texting them. And the rule is this. You text them once in the morning, you text them once at 2:00'.

Clock.

And then who still hasn't converted? The head collector gets on the phone for the rest of the day and gets those collected. We forgot to do that last part. She thought that because she had somebody who was assisting her that she could just put it on them. Well, we all know that that's not enough. And, and now she was using that time to catch up on some other work she had. But now she understands that, you know, after two or after three o', clock, she's picking up the phone and calling.

Yeah, that's a high priority. And that's what, you know, I put my nose back in the shop and I said, guys, you know, we can't get more cars out because we're not building more tickets. Like, I, I only see two cars worth of parts here. Like, what are these guys supposed to be doing if they only got two cars with buckets of parts waiting for them? Like, we got to build more tickets and we have to use more overflow shops. Right? It's okay. Like, we can use some overflow shops. It's what we have to do because we're constrained with size. I'm okay with that. Why are we not? Oh, well, you know, these guys want to charge too much and these guys are backed up and these guys just buy new ones, you know? Yeah, buy new ones. They want to charge US$100 an hour. That's fine. Just do it. Right. So they needed me to come in and kind of open their eyes and say, hey, I know you thought that this is what we were supposed to be doing, or you've decided that there's some constraint. But I'm saying no constraints. Here's the ultimate goal. Let's get this done.

Yeah. Yeah, for sure.

Yeah, guys, hopefully this was helpful for you. It's super. It's. It's the such so basic. Like Luke said, it's whack a mole. I mean, duh, we all know that it's whack a mole, right? But actually get in and tactically, handle it because we're the owners, and we know that's the best thing for us to do. That's the hard part, right? It means you got to get in the weeds. You got to understand the process, figure out where it's broken, reinvent it, retrain on it. Hopefully, you're putting it all in your policies and procedures manual so it doesn't just revert back to bad habits, but getting in there and really assessing it.

Yeah, it's frustrating, Jeff. Um, you know, you have. You have a business, and you just want to set it and forget it. That's not what we're here for, guys. Read your books, get knowledgeable, get inside every department you have, and fix it.

Talk to you guys next week.

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