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Today’s Management Software: On The Right Track
By Brendan Baker
Engine builders may know a lot about building a better engine, but many need help when it comes to managing their businesses. For some, tracking billed hours and reviewing weekly income statements are more like chores than the work they love – building engines.
However, there’s a lot of profit to be gained or lost between the balance sheets, which means carefully analyzing the business data is a necessity. Today there is a variety of choices of software you can purchase to make tracking and forecasting less of a chore and more a vital part of steering your business to the profits your hard-fought reputation deserves.
It’s hard to believe that this even needs mentioned, but market statistics show that there are many shops still without computer systems. According to Engine Builder research, in 2000 only 38 percent of our readers reported using computers to help track and manage their business. In 2002, the numbers increased a modest 7.2 percent, but far too many shops are still doing books the old fashioned way. Computers, though, are inexpensive today and can make you money if implemented correctly.
Shops that we interviewed with a management system said they couldn’t imagine running their businesses without one now. "I think the most valuable thing to us is to have some way to track billed hours," says John DeBates, Auto Machine Inc., St. Charles, IL. He has been running Pluss Corp.’s PTM (Part Time Manager) software for nearly 10 years. "It has worked very well for us – it has what we need to run our business more effectively."
The key, according to Debates, is to find a software system that will look at the whole business, not just a couple of ends like a lot of general accounting software available. Although general accounting software is better than nothing, it will not help you identify profit areas, or areas where you’re losing sales.
"Shops need to be able to divide up their companies and evaluate all the revenue streams. The difference is, if you just use a general accounting package it only gives you two pieces of a one million-piece puzzle," says Darryl Padgett, a management software specialist with Pluss Corp., Columbia Falls, MT.
Padgett, who also writes the regular "Shop Financials" column for Engine Builder, says there are many things specialized software can do that off-the-shelf software just can’t. "One company we dealt with had about 30 employees and offered very diversified services. Overall, the company was not making money and the owner desperately wanted to know what his costs were. So we split the company up into 15 different revenue streams which helped us to pinpoint exactly where he was making money and losing it, too," Padgett explains. "What we found was that his burden costs were $55 an hour, and he was selling labor for $60 an hour! This is an extremely high cost, and we hadn’t even calculated efficiency yet. By looking at just this figure, I could already tell he was losing money!"
According to Padgett, this particular company could make good money because its main labor costs were only $25 an hour. However, there were other areas that had much higher labor costs than $55 – some as high as $85 an hour.
Finding this kind of information without management software would be impossible. Custom or specialized business software enables shop owners or managers to keep a close eye on costs and profit margins. It also can be good to use for evaluating whether implemented changes are working or not.
"The biggest benefit is that, regardless of what type of work you’re doing, you always know how much money you’re making when that product goes out the door and to the customer," says Matt Andrejco, president and CEO of Polaris Information Systems, Greensboro, NC, Polaris’ software is geared for the engine builder and also for the high performance market. Though similarities exist, one of the differences between the two is that high performance usually doesn’t have a need for any core management functions. Andrejco points out that one of the biggest problems engine builders have today is calculating their labor.
When a shop is able to track labor two good things happen, says Andrejco. "Number one, you can identify what you’re making money on. Number two, you know how productive your staff is." Andrejco believes that good management software should allow you to do these essential things, pointing out that there is a difference between using a computer to simply record data and using one to track it. "Recording is not a live process and therefore someone has to enter data into the database after the transaction or event has occurred," he says. "With tracking, you’re able to see where a job is at any given moment in the process. It acts more like another employee. It parallels your business process."
Brian Neal, owner of Automotive Business Management Software Solutions (ABMSS), Arlington, TX, says, "there’s still a ton of shops out there that haven’t quite caught on to the need for a computer system. I tell prospective shops, ‘invite me to your shop and in the first hour I will show you how to make an extra $1,000 a week.’ Usually that gets their attention," Neal laughs. "We’ve taken shops that were failing and restructured their business systems to where they’re now making an extra $20,000 at the end of the month." He says that more shops are starting to see the need for software packages that have marketing capability and warranty tracking among its features, too.
The Engine Rebuilders Association (AERA) has seen the demand for management software increasing over the years, as well. Beginning in April, AERA will make its own management software, "AERA 2000," available to members. This is a full-featured management system geared toward the smaller machine shop, but capable of serving other businesses as well.
Although it is designed for engine builders, explains programmer Scott Groves, AERA 2000 will also work well for many other automotive industries. One function unique to AERA’s system is that it will be able to fully integrate with the PROSIS engine specification software system. The system is designed to do many of the same functions that other management software does but at a cost more affordable to a small shop owner. However, one thing that it doesn’t do is any general accounting.
According to Groves, functionality is being developed that will allow users to export information to Quickbooks or other popular off the shelf accounting programs. "We’re not trying to replace these programs, but rather complement them," says Groves. "We think it is better for us to stay with our core ability and to stay away from the general accounting end."
Microsoft Access is used for the program’s database back end so AERA is able to keep costs down. "Access is very nice because as an MS Office developer you can give all your users the ability to run the program behind the scenes without them having to purchase a copy," Groves says.
According to Auto Machine’s DeBates, being able to print or "screen" income statements on a nightly or weekly basis is the key. DeBates says he reviews two or three reports at least every other night. On a monthly basis, he is looking at between 10-15 different reports.
"I have my whole shop set up in there," says DeBates. "We use a series of labor codes to track this stuff, which is, I think, the most valuable way for us to track billed hours."
These job codes are constantly being added as more jobs come in, Debates explains. Currently Auto Machine has between 3,000 and 4,000 different labor codes. For instance, DeBates says his shop does about 20 six cylinder Jaguar engines per year for a client so he has assigned a labor code for everything that is done to rebuild one of these engines. "When we put the code in it knows what technician did it and how many hours were billed. We can track each job by the hours, the technician or even by the machine."
A technician logs in to a job whenever he’s working on it and logs off when he moves to something else or has breaks. And when the job moves to a different department or machine, the status of that job is instantly updated. Shop managers and owners no longer have to venture out into the shop to chase down a job’s status – a real time killer for many. When a customer calls, the manager can tell exactly what is happening with that particular job.
"Just by entering the information one time, I can pull the data out and look at if from many perspectives," says DeBates. "Therefore, I can plan and determine where I’m making money and where I’m not."
Through analyzing this specific data, shop owners and managers are better able to see the big picture. "Say, for instance, we’re doing X number of valve jobs a week. Maybe by looking at this data we’ll want to get some more equipment in that department to enable the workflow to be more efficient," DeBates adds.
"Our industry is very process driven," explains Polaris’ Andrejco. "There are specific processes that every business has and has been doing them for years. For business management software to be successful you have to have one that parallels the business process." Polaris recommends using its system almost like an additional employee. The system has the flexibility to be able to keep time in the shop (for labor tracking). If you don’t want to keep time you can configure the system to use punch cards, but then someone has to manually enter the information after the fact. Of course, this doesn’t allow you to monitor information in real-time.
Andrejco recalls a shop that was using an off-the-shelf accounting software package, writing the order out on a piece of paper and then fulfilling the order. After they were done, someone would take the piece of paper and enter it into the system to print out an invoice, essentially defeating the whole purpose of automation. "There are a lot of people who look at a computer in that manner," says Andrejco. "They’re using the computer as a recorder, not as a tool."
Richard Hartmann, Hartmann Bros. Inc., Abilene, TX, has used a software system as an integrated part of his company for the past nine years. Hartmann’s technicians all use touch pads to enter the system so he can monitor progress as it’s happening.
"Our technicians are logging on and off the system all day," says Hartmann. "It’s just part of their work process. I have a separate pay log for when they started their shift, went to lunch and then ended the day. This is what I use to track payroll. The system computes it automatically for each employee, and breaks it down even further to the point of productive hours, non-productive hours, and unpaid hours, e.g., lunch. I give each technician a copy of the report with his paycheck each week."
The Polaris system is Hartman’s third computer system and the most full featured he’s had yet, he says. What he likes best about the system echoes what others have said about their systems, "It gives me a complete picture of my business. I run several reports every morning to track parts and labor and overall profit," he notes. Before he had the system he uses now, it was not possible to split parts costs from labor costs; it was just one item.
Hartmann’s shop has 14 employees and this system has been very good at keeping paperwork and bookkeeping efficient, he says.
Although some large remanufacturers use this type of software, others choose to develop their own. According to Joe Polich, immediate past executive vice president of the Production Engine Remanufacturers Association (PERA), because PERA member companies are typically larger businesses, they have a different set of needs for their management systems. "One of the problems you have with our group is everyone tends to do business differently," says Polich. "And some of our members are large enough companies that they have their own IT staff develop packages based on their own specific needs."
Polich explains that there’s a feeling that off-the-shelf software can’t meet the needs of PERA members. "Other than some accounting packages for smaller to mid-sized companies, there’s very little out there," says Polich. "As far as scheduling, core management, etc., our guys tend to develop the software to fit their own needs."
Many software manufacturers offer packages that are scalable to any size organization. But it depends on how the company is set up whether or not they choose to use an outside vendor to supply this type of management system.
Max Wilbanks, sales VP, Management Feedback Systems, Glendale, CA, says his company’s software package, dubbed Super FRED (which stands for Fantastic Ridiculous Electronic Device), is used in shops as big as a 25 location rebuilder to a one-man shop. He says the system is scalable to all sizes of shops because it is what he calls a "modular" system. Shops can choose to buy the base package, which includes many features a machine shop needs, or a more robust, customized package.
According to Wilbanks, one of the features unique to Super FRED is the ability to calculate profitability on each ticket as the company is doing it. "It’ll actually show the profit or loss as you are doing the invoice," says Wilbanks.
"And it will automatically monitor and maintain profit margins. It will cross-reference your vendor’s invoice for any price increases, raising the price on the work order automatically if your costs go up. This gradual price creep of costs is a major problem throughout the industry," Wilbanks adds. "It needs to be monitored closely."
Computer management systems have evolved in the past few years in part because more shop owners are relying on them to help steer their businesses. Machine shop owners are finding more ways to use the systems to track not just profit and loss, but employee production and machine maintenance. Touch screens offer an option that will help ease the integration of computer systems into today’s shops. Soon, direct e-mail communication with your customers will be available on some systems, giving machine shop owners even more time to look at ways to make more money.
During the AERA Expo, savvy shop owners look for ways to improve their business productivity. So if you are looking to update any of your shop’s equipment, don’t forget to add a management software system to the list.
Software Buying Tips
Don’t Buy On Price
You should not evaluate software solely on what it costs. This can go in both directions. Simply because software is expensive doesn’t mean it’s the best for your company. Experts say you should look at what you want the system to do and look at long-term costs. Don’t buy more than you can afford but look at several that are in the range that you think you can afford.
Try A Demo First
Before you buy anything, get a demo copy of the programs you wish to evaluate. Have key people in your organization try them as well and give you feedback. Also, look for fully functional demo copies whenever possible. Screenshot demos are too vague and don’t offer enough interaction with the software to make a purchasing decision.
Look At History
Although a fresh approach can be invigorating and exciting, a software company that has just entered the market may not have enough experience to have found all the problems yet. Look to see how long the company has been in the field. If they’re new to the industry or new to software publishing, be careful. These companies may not be around for the long haul when you need their support 5 years down the road.