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Bold Idea No. 3 – Cutting expenses: A store-wide endeavor

July 12, 2010
Filed under Features

CYCLE WORLD

Location: Houma, La.

New units sold in 2009: 760

Brands sold: Honda, Kawasaki, Yamaha

Staff size: 3 sales, 6 service, 4 parts and accessories, 1 F&I, 3 other

At the end of 2008, Glenn Diedrich, owner of Cycle World, saw the economy was headed south. So in his annual “State of the Union” address to employees, rather than just talking about the industry and the store, he tried something different.

The dealership needed to cut expenses, but Diedrich didn’t want to leave the store unable to take care of customers. He told his staff, “We don’t want to cut people, we want to cut things.” Then he gave them a list of all the store’s 2008 expenses and asked them what they could do without. And to get a different perspective, he also asked what they thought other departments could do without.

“They were challenged to reduce expenses, not just waste, but how can we operate and spend less without the customer feeling it,” Diedrich said. “It was explained to them how these operating expenses affected the net profit and that each time we reduced these expenses, we added profit for the company.”

The result was a long and creative list of cuts, all generated by the employees themselves. The store started implementing the cuts in the first month of 2009.

Instead of a company-paid water cooler, people offered to bring their own water. Coffee drinkers decided to chip in for coffee. The Christmas party was scaled back to a casual potluck at Diedrich’s home. Regular company breakfasts were cut.

Diedrich said he was amazed at how all the small things started to add up, but not all of the suggestions were small things.

“They came up with the idea of cutting their hours and rotating schedules,” Diedrich said, “which was a pretty big savings.”

Other big money savers included eliminating janitorial services, with each department responsible for its own area. Some employee insurances were scaled back. Pest control went from monthly to quarterly. A service that cleaned air conditioning filters went from monthly to semi-annually.

By asking for input and showing people the actual cost of expenses, rather than using a top-down approach, Deidrich said employees became more engaged with the process.

“People look at the thermostat, they make sure computers are turned off at night,” he said. “When you make them aware of how much the office supplies cost, they begin to understand how it makes a difference. They start to ask, ‘Do I need to order more paper?’”

Not only that, there were also no complaints about any of the cuts because people understood that they were saving jobs, Diedrich said.

In the end, Diedrich estimates operating expenses were reduced by 23-25 percent. The company also made a return to profitability last year despite the fact that sales declined by a third.

“When business is good, you say ‘yes’ quite often,” Diedrich said. “It’s more difficult to say ‘no’ when cash is low.”

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