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6 When reading the continual complaints regarding

17th August 2000, Page 44
17th August 2000
Page 44
Page 44, 17th August 2000 — 6 When reading the continual complaints regarding
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Which of the following most accurately describes the problem?

taxation levels, we sympathise with all those who feel they are not playing on a level field. We are also most concerned that the government appears to be giving away potential tax revenues by encouraging British companies to register overseas, and by giving foreign companies profitable opportunities to operate in Britain. We also understand that it is not easy to raise rates.

So what action is left for British companies to increase their profitability?

All businessmen know that, in its simplest form, profit equals sales minus the cost of sales.

When visiting operators and dealers, we are frequently surprised by how much waste there is in the company, of both time and materials. I summarise below a couple of examples we have encountered of unnecessary waste. Each might seem insignificant until you calculate how many times a year they happen.

The problem is not just insufficient management time to monitor the situation, but management's familiarity with actions which have become accepted practices and are therefore not "seen".

One example is of a dealership which holds two franchises. One highly qualified technician good at diagnosing electronic faults on vehicles is employed. The average retail labour rate is about £50 an hour, and there is a long waiting list of customers' vehicles requiring attention; some are even going elsewhere to avoid the delay.

Because of cutbacks a maintenance man is no longer employed, so every month the technician has the additional duty of checking all light bulbs on the premises and replacing them as required, which takes about half a day. To hire an electrician would cost money, but since the service department technician is on hand it's thought he is free. But he is not free—and the company is losing three opportunities: • A labour income of £200 a month (four hours at 150 an hour); • The parts sales associated with that additional labour revenue; • A potential loss of loyal customers (this is difficult to quantify). The question to ask is whether it would be cheaper to employ a local domestic electrician.

The second example is a company with a workshop in a congested area with restricted parking. As a result, vehicles are parked three deep and crammed into any available space. The technician frequently wastes time trying to find the vehicle needing work, and has to move many other vehicles to get to the one he requires. He then has to find the keys of all those needing to be moved and get help to move them out of the way and back again to avoid blocking the street.

On one occasion this took nine technicians more than half an hour—five hours wasted. Could a system have been found to reduce this aggravation without increasing the overall space available? Yes—and it has given the operation a net revenue increase on labour o150,000 a year. Since this represents incremental business, about 90% of the increased revenue goes directly to the bottom line.

Examples like these do not arise out of incompetent or negligent management, but because situations have developed to this stage over time for a variety of reasons.

The moral is, look at costs over which you have greater control than taxes, because they can be cut more quickly and effectively.

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