Distributor Management Consulting
This distributor case study focuses on a Cogent Analytics client, a full-service commercial truck dealership in the southeastern United States, with total revenues of $100-$200 million annually. The dealership was founded in the 1930s and has grown to be one of the largest commercial truck dealerships in its region. The client employs over 100 people, who support six business areas: New and used vehicle sales, fleet vehicle sales, vehicle rental/leasing, service, parts, and body shop.
Business Status and Initial Challenges
The client is a family-owned business and is in the process of handing off management and ownership of the company from the 2nd generation to the 3rd generation. As with many family-owned businesses that transfer between generations, the 3rd generation was talented and enthusiastic about taking on the challenge but lacked the experience, force of personality, and operational “sixth sense” to effectively lead and manage such a large organization in the same way that the 2nd generation had.
Additionally, several departments leaders who had held their positions for many years were nearing retirement, and succession planning had not yet begun. The absence of standard operating procedures, performance-based job descriptions, and key performance indicators had hampered the client’s ability to begin succession planning at the management level, and leadership’s ability to really understand how each of the separate business units operates, both individually and holistically. Even though the company was staffed with highly competent and loyal personnel, the new leaders felt like they were flying blind, managing reactively by addressing issues as they arose, rather than proactively leading toward a defined set of strategic priorities.
Financially, flagging demand had already put significant pressures on margins since at least 2018. The COVID-19 pandemic added to the company’s troubles, and losses were posted in 2018 and 2020, essentially breaking even in 2019. In 2021, while demand was rebounding, a new set of challenges arose around the unavailability of vehicles and parts from OEM and third-party suppliers, as global shortages of raw materials, computer chips, and labor impacted global supply chains.
Management Consulting Solutions
Cogent Analytics partnered with this client across three management consulting, primary areas of focus: Business Leadership, Organizational Engineering, and Reporting Systems.
Business Leadership: Management Coaching and Development
Cogent Analytics participated in all leadership and operational meetings. After observing these meetings, Cogent provided leadership with critical feedback around meeting structure, agendas, participants, and set expectations with other meeting participants to stay on topic. Real-time coaching was provided throughout the engagement as the meetings evolved from a rambling, unstructured format focused on issues to productive, structured discussions around departmental performance, cross-departmental synergies and initiatives, and progress against strategic goals.
Based on observations of the client’s needs, Cogent also organized and facilitated several high-value and engaging workshops designed to build leadership and management skills for the executives. Specifically, workshops around the following topics were delivered:
- Executive presence
- The Golden Circle (understanding a company’s “why” and Mission Statement development)
- Reading and understanding financial statements and ratios
- Confrontation and difficult discussions
- 5S (principles of lean operations and Kaizen management techniques)
- Management styles and personality assessments
- Employee engagement and feedback
Following each workshop, Cogent assisted the client in developing initiatives that required demonstration of the skills/principles learned in the workshop. Cogent Analytics held the executive team accountable for pushing on these projects and ensuring that the skills/principles were implemented on a daily basis within the company.
Organizational Engineering: Structure and performance-based job descriptions
Cogent Analytics worked with the client to build a formal organizational chart, which defined the structure of the organization and formalized roles and reporting lines. In conjunction with this, detailed performance-based job descriptions were developed for every role in the company, from the President and CEO down to warehouse staff and delivery drivers. These job descriptions specified expectations and performance standards for everyone in the company, prescribed specific KPIs each individual would be responsible for achieving, and identified performance tiers necessary to be eligible for bonuses.
The implementation of these tools at the client significantly improved the sense of accountability for employees throughout the organization, while also enabling managers and supervisors to hold employees accountable for meeting expectations. It enabled department managers to provide more pointed and relevant feedback for employees and the clear communication of expectations empowered employees to own their careers.
Reporting Systems: Operational and financial key performance indicators (KPIs)
Cogent Analytics’ management consultant spent time with the new leadership team to help them to understand their financials. SQL-enabled dashboards that enabled real-time views of their liquidity, operational efficiency, and cash flow management metrics were built. Dashboards also included graphs that showed how each metric had changed over time. Methods of calculating these metrics were customized based on the client’s specific business needs, and data was pulled data directly from their existing Dealer Management System (DMS). Specifically, financial dashboards included the following metrics:
- Days cash on hand
- Quick ratio
- Current ratio
- Cash conversion cycle
- Day’s inventory outstanding (Parts Dept.)
- Inventory turns (Parts Dept.)
- Floor plan ratio
- Dealership absorption
- Days work in progress outstanding (Service and Body Shop Depts.)
- Day’s payables outstanding
- Day’s sales outstanding
In addition to the financial ratios listed above, operational dashboards were also built to enable better visibility into the performance of the Service and Body Shop Departments. Although the client’s DMS does generate several canned reports, these are very limited in scope/value and difficult to customize. Cogent Analytics worked with the existing data already in the DMS to develop real-time SQL reporting to generate dashboards that provide visibility into multiple bottom-up performance metrics:
- Technician efficiency, productivity, and proficiency by OEM and type of work (both at the departmental and the individual technician level)
- Hourly rate realization
- Warranty vs. non-warranty technician performance and rate realization
- Turnaround metrics (e.g., time to first punch, tech dwell time, administrative dwell time, etc.)
- Technician productivity leader board (real-time metrics displayed via TV monitor in the service area, ranking all technicians from highest to lowest)
The client’s partnership with Cogent Analytics resulted in many significant improvements across the business from both a financial and quality-of-life perspective.
Financially, the company realized almost immediate improvements in profitability from Service Department, as KPIs that allowed visibility into in-place pricing practices and technician productivity spurred immediate procedural changes that improved performance. As an example, the net billed hourly rate realized per technician increased nearly 20% immediately upon installation of the KPI dashboards and the resulting updates to departmental policies and procedures.
Based on this and other improvements installed due to the partnership with Cogent Analytics, the dealership overall is expecting a 2.5x improvement in net profit for the 12-month period following the conclusion of the management consulting project.
Perhaps more importantly, this partnership with Cogent Analytics resulted in the 3rd generation gaining business leadership experience, an understanding of their company’s core operations, and getting the opportunity to develop and utilize the tools and skills necessary to successfully drive and grow the business of the next 20-30 years. They have the technology and processes to empower their management team and hold them accountable for achieving their goals. This new generation of leadership gained tremendous confidence in their ability to lead and focus on proactively improving the business instead of reactively putting out the latest fire.
The success of this initiative also enabled the 2nd generation to spend far less time in the business and more time on vacation and focusing on local charitable causes.