Shop Management Software
A trip to the recent AERA International Expo proved that companies have a wide assortment of "things" available to make the rebuilding part of your business operation easier
By Doug Kaufman
Reality TV puts ordinary people into difficult, often dangerous situations with the sole purpose of providing entertainment to millions of people.
Except for the "entertainment" and "millions of people" part of the equation, that also sounds like just another business day. How often do you as a machine shop owner or engine rebuilder feel that you've been left stranded, with every hope for your business survival dependent upon the whims and actions of everyone else? The good news is, you're not alone. Most, if not all, of your contemporaries either have or do feel the same way. The better news is, there are survival tools out there, if you're ready to take advantage of them.
From the simplest hand tools to the latest machining, cleaning, installation and testing equipment, a trip to the recent AERA International Expo proved that companies have a wide assortment of "things" available to make the rebuilding part of your business operation easier.
However, making the "business" side of your rebuilding operation run more smoothly is often overlooked, even in today's extremely tough environment. "Each engine builder, no matter how small the shop, faces the same kind of business issues," says John Goodman, president of the Engine Rebuilders Association (AERA). "Guys are so busy getting work in and out the door that they often view the 'business side' of what they do as a secondary, nuisance-type operation."
Industry insiders say the options available to help engine rebuilders and remanufacturers better manage work flow and profitability these days are astounding. Shop management software programs can take most of the drudgery and difficulty out of the process, giving easy-to-understand information that can help you make immediate changes.
The question is, why aren't more engine builders taking advantage of them?
According to the latest data available, 51 percent of Engine Builder readers say that they use a computer to help track and manage their shop operations and another 10 percent say they are in the process of computerizing the shop. While this number has increased dramatically since 2000 (when the number was 38 percent "yes"), it is still an indicator that much of this industry either fails to see the value in computers - or simply wants to fail.
"It's interesting to see what engine builders do, compared with other industry groups," says Darryl Padgett of Pluss Corp., Columbia Falls, MT. "Compare them, for example, to an electrician. A rebuilder invests half a million dollars in various equipment and tooling, for which he'll need extremely talented people to operate. The electrician, on the other hand has an investment of a few hundred bucks and can wear his tools on his belt."
Nonetheless, says Padgett, the electrician will charge $75 an hour and make you feel grateful he's available while the engine builder apologizes for charging $50 an hour. "The investment difference alone is night and day - the situation makes no sense."
Padgett says it's almost understandable that many shops are struggling because too many times they don't have a clue about their true business costs, or what they need to do to be successful. "They know they need help, but first they need to see where they are right now - and that's not always a pretty sight.
Padgett says he asks shop owners to honestly rate where they feel their business is on a "success" scale of 1 to 10, and where they want to go. "They may feel they're at an 8 and they want to get to a 10," he says. The reality is, they're at a 2. Suddenly all they see ahead of them is change - and that's really intimidating."
According to all of the experts we spoke with, the biggest hindrance to business success is a reluctance to change. "It's basic human nature to resist change," says the AERA's Goodman, "but it's becoming more important as our shops are coming under even more pressure."
Matt Andrejco, of Polaris Systems, Greensboro, NC, says that adaptation to new business methods and tools isn't an option, it's a requirement if shops intend to continue offering machine shop services. And implementation of a shop management software package is one of those survival tools.
"Especially for engine builders, industry-specific software is tremendously important, because there are things that this industry requires in order for businesses to survive - yes, literally survive - that general accounting packages don't track," says Andrejco.
He says labor costing and core management are the key factors shop owners and managers need to be intimately aware of. "I've seen shops go out of business because they thought their costs were something when they were a completely different amount. Or they thought they had 'x-number' of cores to rebuild when they really didn't."
In short, says Andrejco, if you don't know what your costs are and you don't keep track of what you have to rebuild, you're not going to make it.
"It boils down to knowing where your inefficiencies are," agrees Goodman. "You may have some intuitive knowledge or feeling about why you're not making as much profit, but rather than just blaming the industry that there isn't enough profitable work out there, let's find out exactly where the volume of your work is going and how profitable it is."
Andrejco explains it this way: "We call it the 'Double 80/20' rule, and it's no joke. The average shop will find that it will make a phenomenal amount of money on just 20 percent of the work it does. Then, there will be another 20 percent of the jobs on which the shop will either just break even or actually lose money on. The remaining 60 percent of the work will give just a normal amount of profit. A shop management software program allows you to track those jobs and determine where your profits are coming from.
The software programs and computer network services available from Pluss Corporation, Polaris Systems and AERA, among others, offer a wide variety of options to shops of all sizes. Business owners can see as much or as little of the information as they choose to keep track of the raw data regarding their businesses. And the programs provide accuracy and stability to your financial picture.
"Regardless of size, a shop software system is very important," explains Andrejco. "It's how small shops become big ones. If you're doing things on paper or keeping track of things in your head, it's extremely difficult to manage a business properly. Back in the 'simple times' maybe it could be done that way. But now, it's next to impossible. You need specifics and all sorts of information to keep an edge over your competition."
Getting the results you need means doing some work up front is required. "People need to realize that our programs are available and not be too afraid of it," says Goodman. "Sure, the front end will be a challenge because you'll have to input a lot of data, but that will be true of any program you look at. Even with the SMS system (offered as a members-only benefit through AERA), which we've tried to make as easy as possible by adding shortcuts and prepopulating all of the codes and labor times for the work our members do, it still comes down to a good week or two of inputting data."
Goodman says it just takes discipline, "It doesn't take much, just a willingness to do it, so that as all the business flows through, all the data goes into the proper place. The result is a very simple view of the business and how it's doing. If there are numbers that don't look right, if profitability is suffering, you can go back and discover why."
Once you've entered your shop's information into the program, you should be able to adjust the software to meet your needs, suggests Andrejco. "Flexibility is an extremely important part of our system - it allows the user to define his own terminology within the software.
"The number one fallacy I see in any business is that people buy software with the preconceived notion that they need to adapt their business to the software. What they really need is a software system that parallels their business processes - you shouldn't have to change your business processes because of the limitations of the computer. Unfortunately, with most general accounting programs that's exactly what engine rebuilders are forced to do," Andrejco says.
"Our software has 20 years of input from people in the industry who say 'we want a system that does this…'And they want flexibility, so that in the future if their business does change, the software will change with them," he says.
But simply installing a software program won't make the difference, caution all three experts. "That's just the beginning," says Padgett. "We can smother you in tools, whatever you're willing to accept. But software systems are only part of the process and they take dedication. If you think that a software system alone will solve your problems, it won't - as a manager, you'll still need to have a clear focus or vision on where you want to go."
Padgett explains: "As an owner, you'll still be wearing a hundred hats, but the reports the software will generate should give you the major points you need to focus on. We provide the key things you need to look at every day, the things you need to make money."
The question is, how interested ARE you in making money? Shop management software will prove to you what your numbers should be to be a successful business. Unfortunately, not everyone wants to know that.
"It's the fundamental problem we as an association see when it comes to business management," explains Goodman. "Too often, shops look externally and price their products and labor on what competitors charge when, really, they need to be looking internally."
Successful shop owners aren't concerned with what their neighbor is doing, they worry about what they themselves are doing, Goodman says. "A shop owner needs to answer this question of himself: 'Yes, I'm willing to be a profitable shop, now what do I need to do?' It's easy to say you agree with that philosophy but it's very difficult and scary to do it."
Here's the alternative, as Goodman sees it: shops continue to bump along making wages and staying in debt or they go out of business slowly.
"We're not necessarily in the business of being machine shops - we're in the business of being profit centers. Until shops realize that, it's going to be tough to be what they want," says Goodman.
"No matter what size your business is, it's your own focus - your own vision- that allows you to reach your goals," concludes Padgett. "And whatever level you want to reach, there are plenty of software tools out there that will help you."