10 Steps To Transform Your Recon Operation
Turn Your Most Costly Silo Into A Profit Machine
If your recon team is still using a spreadsheet or whiteboard to track and manage units in reconditioning, it’s time to pull the curtain back on inefficient processes that are cannibalizing gross profits and used car sales.
Karla Guleserian, MSEC
#1 – Acknowledge A Silo Exists.
The first step to transformation is to acknowledge that a recon silo exists in your dealership.
Over the past decade, digital technologies have radically transformed automotive sales, service, and finance processes. Digital has also revolutionized the way people buy cars and the ownership experience. Very little in the car business is the same as it was ten years ago.
SO, why does AUTO RECON continue to fly under the radar of digital detection and change?
When a dealership is turning used cars at a healthy rate, the parts and service departments account for the lion’s share of profitability and absorb upwards to 100% of the dealership’s adjusted overhead expenses. On the flip side, reconditioning can be one of the largest profit killers for the dealership.
Knowing this, why would you ignore the dysfunctionality that takes place every day in recon? It’s not as if the problems are not glaring – redundant work, lack of communication and collaboration between departments, misaligned priorities across teams, task duplication, lost cars, cost overages, cars taking weeks to get through recon, high expenses – we could go on and on and on.
The fact that recon is not a customer-facing function has allowed it to evade change more easily than otherwise. Additionally, because the recon workflow typically involves people and groups across different departments and, sometimes, off-site vendors – it can be more difficult to implement process standardization.
Take F&I, for example – this function must comply with finance regulations and is customer-touching, so the ramifications of not adapting to change would be too costly for the dealership. Or the sales department, which faces enormous pressure directly from consumers to follow streamlined processes and deliver an excellent customer experience.
The reality is that in many dealerships, there is a shroud that conceals the entire recon workflow from process inspection and individual accountability. There is no real tracking of performance in each of the steps, nor are individuals held accountable for costly delays even though this prevents the dealership from performing at 100% and chips away at bottom line profits every minute of the day.
Ask Yourself Two Questions…
1. Do I really know how long it takes to get a car from acquisition to the frontline?
2. Do I have true metrics that prove that my recon time assumption is accurate?
A highly efficient recon operation moves units through the entire process in 2-5 days max. And software is needed to accurately track recon progress, measure the time within each step, calculate idle time, and to generate reporting for assessment and decision-making.
#2 – Pull Back The Curtain & Bring In Technology.
The second step to transformation is to implement recon workflow management software so those involved in recon have the tools they need to achieve the dealership’s performance goals.
Your entire recon workflow is made up of individuals functioning in many capacities and may include offsite buyers, transporters, technicians, detailers, picture-takers, porters, sublet vendors, the body shop, and more. The first essential tactic to building efficiency across these functions is to encourage and facilitate communication and collaboration. To achieve this requires technology.
The fact that there are bottlenecks in your recon operation, finger-pointing among departments, confusion, chaos, high expenses, and so forth – is a direct result of a lack of technology. It is simply not possible for humans to accurately keep track of tens or hundreds of cars and tasks, in the domain of multiple employees, departments, and vendors – and to communicate in real-time without technology.
Recon stakeholders need process tools, automations, inventory visibility, real-time notifications, and systematic tracking and reporting to be able to monitor their own performance and to keep their work on track toward the dealership’s goals – this cannot be accomplished with spreadsheets, note pads, or whiteboards.
Enter Recon Workflow Management Software…
Recon management software is a technology platform that tracks each vehicle in recon as it moves through each step of the process. It replaces antiquated methods of tracking and gives you complete visibility across the entire recon workflow along with transparency into each step of the process so that you can see how long each vehicle stays within each recon step. This visibility exposes costly bottlenecks and enables you to take swift corrective action when necessary.
Real-time app notifications and @mentions delivered across the mobile recon application facilitate cross-department communications and work collaboration. Reporting is automatically generated from the systematic tracking, which gives you true metrics to gauge performance.
#3 – Establish Individual & Team Performance Benchmarks.
The third step to transformation is to build a team mindset across recon, while holding individuals and vendors accountable for performance.
Because your recon operation has been functioning without scrutiny for many years and, in some cases, decades – you can expect confusion, complaining, and resistance when making changes to the processes involved. The reality is that people simply do not like to be held accountable, and it is going to take time for them to adjust to a new way of doing things.
Start the process of change with a set of goals that are communicated clearly to everyone involved – including vendors. Remember, vendors should be held to the same standard of performance as your employees – after all, you are their customer, right?
Set an initial goal for your average total recon time – that is, from the time a unit is brought onto the lot for recon until the time that it is Retail-Ready, which includes having a full set of photos online for merchandising.
The set-up team that implements your new recon software will map out each step of your recon process. You will need to define time goals for each interval and document exactly who is responsible for meeting those time goals.
For example, if you want a unit inspected within three hours of trading it or it arriving from the auction, you need to document this and identify the individual(s) responsible for getting the car back into service, the advisor who will handle the RO, and the technician who will perform the inspection. Since work approvals is nearly always a bottleneck in recon – be sure to set a goal for approving or denying recommendations through your recon mobile app, such as within 15 minutes of the RO being priced out.
Your software tool will be programmed to send alerts when time intervals are approaching the threshold or when they have gone over. Each member of your team, including vendors, will have access to the mobile app so that they can track units moving through the process, monitor incoming assignments, and complete their assigned tasks which trigger notifications to those next in the chain.
Mobile communications are key to your progress and should be easily adapted by everyone involved, since most are already comfortable with app notifications. Assigned tasks can be monitored, managed, and reported using the mobile app from anywhere, anytime.
Individual & Team Accountability
Every individual involved in the recon chain must understand how their work output affects other individuals’ performance and deadlines. If goals are met, everyone is rewarded; if not, the team needs to identify problems and make necessary adjustments for improvement.
#4 – Continually Train & Communicate.
The fourth step to transformation is to create a plan for daily team communications and weekly training sessions.
It is essential that your recon software provider offer onsite training for your people and vendors. You must be certain that individuals know how to use your new software, what is required of them, and that they have support when they encounter issues or have questions.
Following implementation, when you assess employee and vendor utilization and you find individuals who are not using the software, its critical to know if it is a “knowing problem” or a “doing problem”. Make sure that individuals have been given adequate training on both desktop and mobile versions and that they understand how to interpret and complete tasks that are assigned to them.
There are times when you may find that some individuals do not have the skillset to use the software – or that some are simply resisting. In these cases, unfortunately, it may be necessary to shift individuals into new positions or to make staff changes. If vendors refuse or neglect to use your recon application, just the same, it may be time to make a change or add new vendors to your mix. Additionally, if vendors are causing your recon workflow to bottleneck due to being backlogged on their end, you can no longer allow this to eat away at your gross profit – so you need to address the issue immediately with the vendor.
At the end of the day, the recon team needs to understand that using the recon software is not an option and that continuous improvements need to be made. Individuals need to know who to reach out to with questions, such as software support representatives or performance coaches.
Daily Communications & Weekly Training
Initially, daily huddles should take place to address issues, assess usage, and facilitate open communications across departments. No different than the sales team meeting in the morning for a kick-off session, the recon team should meet to look at yesterday’s progress.
Additionally, a plan should be implemented for weekly training for both employees and vendor reps. These sessions do not have to be very long in length. The manager should review step time progress, look for potential bottlenecks, and figure out why the slowdown is occurring and how to fix it before it becomes a bigger issue. By tackling issues on a weekly basis, it will allow managers to take corrective action before more costly delays occur.
Transitioning to software from a spreadsheet or whiteboard can lead to the need for adjustments to the initial set-up completed by the software provider. Automated tracking and reporting often reveals logistical problems that may need to be addressed, for example. Furthermore, by being proactive, managers can prevent employees from forming new bad habits and keep recon on track.
#5 – Use Data-Driven Metrics To Determine Actual Performance.
The fifth step to transformation is use data-driven metrics to assess your performance across each step of your recon workflow.
Your recon software will replace many day-to-day manual processes with automation. By doing so, it will save everyone time, make peoples’ jobs easier, and eliminate many human errors. Without software, employees spend a lot of time on repetitive, routine tasks and lose track of getting “real work” done. Freeing up their time, allows recon stakeholders to focus their efforts on accomplishing the work that moves units to the next step.
It takes a couple of weeks following the implementation of a recon management tool to get meaningful data for decision making, especially when you consider that some users may adapt to using the system at a slower pace than others. Regardless, at least within 30-days, you should have enough insight into where your serious bottlenecks occur.
To illustrate, I recently reviewed the data of a small group that had launched recon software a few weeks ago. I noticed two “inspection” steps set up in their process, so I questioned one of the managers who pointed out that the first inspection phase was for determining whether vehicles needed body work or to be detailed before initial photos could be taken. The average time of 130+ vehicles in this step was 19+ hours.
I asked the manager why it took so long to walk around a vehicle to inspect it for body damage and to decide if photos could be taken immediately, who could not provide a valid explanation. In fact, the data revealed that it took longer for this process than the time it took to get a unit into service and fully inspected.
The Holy Grail of Recon Software
The Holy Grail of recon software is that it systematically tracks and reports on the time that each vehicle in recon stays within each step of the process. Advanced solutions also track idle time between steps, which gives even greater insight into delays that prolong the overall process.
As software tracks your recon units through each step, it provides total transparency for all individuals involved into the entire workflow. So, rather than manually searching for stock numbers in the Inventory Management System (IMS) or a spreadsheet, you can see every vehicle in each step and drill down to view the status of each.
Without this level of systematic tracking, work falls through the cracks, vehicles go missing, and finger-pointing abounds.
As your data reveals problems and opportunities, communicate these with team members so that everyone understands where to find specific data, how to interpret it, and how their performance affected the end results – good or bad.
#6 – Hold Individuals & The Entire Recon Team Accountable.
The sixth step to transformation is to hold individuals and the team accountable for real-work and achieving the dealership’s goals.
Accountability can be painful, especially when your people have been doing things “their way” for a long time. Because software sheds light on what your people are doing, they may feel as though they are suddenly being micromanaged or nit-picked. Regardless, working through this is essential to developing new habits and processes. Unfortunately, some employees may not make it through –but others will embrace change and look forward to being rewarded for performing at higher levels.
Transitioning from managing recon with antiquated tools to using technology will evolve your recon operation from a “working group” to a “high-performing team” – and there is a huge difference between the two. The focus shifts from the “my work” mentality to “our work”, as team members begin to commit to each other’s success. As weekly performance sessions reveal small wins and milestones achieved, individuals will become not only more confident in themselves but in the entire team and the long-term vision.
Build Team Performance & Do Real Work
Your recon team is made up of people on or near the front lines who are responsible for doing real work that affects the dealership’s profitability. The manager who leads this team should be energized and committed to realizing a 2-5-day Retail-Ready time. He or she needs to be the champion user of your new recon software, be able to understand and communicate key metrics and reporting, and know how to experiment with process changes needed to keep the team on track to achieve the defined goals.
There are many opportunities throughout the recon workflow to give recognition of stellar individual work performance, which will power the engine for team performance. Positive reinforcement will encourage individuals to strive for even greater performance contributions.
All recon stakeholders should contribute equal amounts of real work, while aiming to achieve targeted time thresholds within each step of the process. This collective accountability will enable the team to construct a working approach that gets the results it is after.
#7 – Start Selling On The Day Of Acquisition.
The seventh step to transformation is to start the sales process the same day that a used vehicle is acquired.
Two tactics to increase a dealership’s inventory turn is to decrease the average Retail-Ready time and to simultaneously increase the number of selling days available to sell each unit. Prospecting for buyers on the day of acquisition and getting units ready for sale in 2-5 days also leads to increased gross profits for the dealership. It makes no sense to wait days before you try to start selling a car when it depreciates every day on the lot and costs you money.
By beginning the sales process on the day of acquisition, dealers add days – on average 10-days – to the available selling time of each used car. Consider that the dealership has a treasure trove of potential buyers lying in wait in the DMS and CRM. You should start communicating with potential buyers about a vehicle that they might be interested in purchasing as soon as it comes into inventory.
By waiting for the reconditioning process to be complete to start identifying potential buyers for recon units, you will burn the most critical selling days available.
Maximize The # Of Selling Days For Each Unit
Streamlined reconditioning processes get fueled by in-recon prospecting and sales which gives even more velocity to the inventory turn. So, how do you get this process started?
Advanced recon software uses data intelligence to identify potential buyers within the dealership’s CRM and DMS so that the sales process can begin immediately. As these buyers are “matched” to recon units, leads are generated, which can be pushed to the CRM for management by salespeople or BDC agents.
Additionally, as prospects demonstrate interest in a particular unit, it can be given priority status in the recon workflow using a “tagging” mechanism in your recon management software. Doing so, flags a vehicle in the recon workflow for everyone to see – so it is understood that there are potentially interested buyers waiting for the recon on the unit to be complete.
As soon as a unit comes into inventory, begin marketing it with multiple vehicle photos (not stock photos) and a quality description of what the vehicle will be like once recon is complete. Make sure that new units are included in outgoing feeds to the website, third-party sites, and classified listings.
Be sure that all salespeople and BDC agents are aware of each new vehicle that comes into inventory. Make sure that everyone speaks the same language to customers inquiring about vehicles that are actively in recon – that they are available!
#8 – Increase Productivity & Reward Performance.
The eighth step to transformation is to find ways to increase individual employee productivity and reward team performance.
As you begin to undercover areas that need improvement in your recon workflow, look for ways to increase individual productivity. At times, you may find an employee needs more training. Other times, you may discover equipment needs to be updated or that you have the wrong employee running the equipment.
When is the last time that you followed a vehicle through your entire recon workflow? Or watched a unit go through the detail process? There are times when you may find employees working around obstacles that cause delays because they either don’t have the resources they need to remove the obstacle or they need someone that is empowered to do it for them.
Don’t accept mediocre performance; find out what is causing a slowdown issue and look for ways to remedy it.
Employees Will Work Their Pay Plans
One of the main reasons that employees come to work in the dealership or anywhere is to get a paycheck. And just about everyone wants as much of a paycheck as they can possibly get. While most positions in the dealership have performance-based pay plans, the recon team typically does not have a pay plan designed to achieve cost, speed, and quality benchmarks. Rather, team players work on pay models that benefit the individual rather than the whole team.
It makes sense that since delays in recon erode profit margins and affects many peoples’ paycheck, that the entire team should be rewarded (or not) when performance goals are not met. Consider productivity bonuses for your recon team for hitting every step threshold in a unit’s recon workflow. Or, a team bonus for having 25 or 50 or 75 units fall within the targeted step threshold throughout the full recon process. Do the math to determine the amount of gross profit that will be saved and make the bonus make sense.
There are certainly other ways to incentivize and reward employees, such as paid sick days, gift cards, career training, advancement, team lunches, designated parking spots, tickets to sporting events, and so forth. Take the time to learn about what motivates your people and use that information to come up with ways to reward their individual productivity and team performance.
#9 – Strive For Continuous Improvement.
The ninth step to transformation is to review lessons learned and make process adjustments for continuous improvement over time.
Achieving a 2-to-5-day Retail-Ready time is not going to happen overnight. But by instituting individual accountability and by having verifiable performance metrics, you can make continuous process improvements that will get you there. Your team will quickly be able to see that recon software helps them work “smarter” rather than necessarily requiring them to work “harder” – although non-productive paid employee time will steadily decrease over time.
Daily huddles and weekly training will enable employees and vendors to optimize the part of the recon workflow where they have accountability. Get rid of as much manual data entry as possible by continually encouraging (and requiring) employees to do away with separate tracking tools such as notepads or whiteboards. Get full migration to the recon management workflow tool – and over time, your people will learn to trust it and depend on it.
By starting with the end goal in mind, getting everyone involved that will be doing recon work, and by increasing individual real work – recon processes will become more consistent and therefore more efficient.
Constantly Look For Improvement Opportunities
In your weekly review sessions, team members will no doubt be able to identify process redundancies and figure out ways to eliminate them. It’s important to keep communications open, making sure that you listen to input from all employees responsible for work within each step.
Your recon solution provider should support your team with a performance coach who will be able to offer objective insight into issues that may be slowing down your operation. It’s a good idea to include this individual on a monthly team call, as he or she may be able to provide input from a unique perspective.
Use your recon tool to own every minute of the clock for each vehicle in the workflow. By eliminating idle time and implementing smarter recon practices, you will be able to drive your team toward continuous process improvements that will increase productivity while reducing recon costs – leading to more gross profits for the dealership.
#10 – Pencil The Financial Impact.
The tenth step to transformation is to calculate the financial impact of your transformed recon workflow and share the results with your team.
Getting used cars Retail-Ready faster and more efficiently has huge financial ramifications. You can expect to sell more used cars at higher gross profits with lower expenses which has a positive impact on the dealership’s bottom line and your employees’ paychecks.
Each day that a vehicle sits on the lot, it depreciates, which is called Vehicle Value Erosion. Vehicle Value Erosion chips away at your gross profit one-minute-at-a-time. Another profit-depleting culprit is your Daily Carrying or Holding Cost, which is made up of operating overhead, floorplan expenses, interest rates, and so forth – and varies by dealership.
By speeding up the recon process, you reduce depreciation and carrying costs on each unit, and free up cash through an increased inventory turn.
To illustrate the financial impact of reduced carrying costs, let’s assume that your average daily carrying cost is $40 and that you cut 8 days of recon off 100 units – this is a savings of $32,000 a month, $384,000 a year!
Calculate The Financial Impact Of Your Newly Transformed Recon Operation
A financially sound dealership means that everyone gets to keep their job and get paid. Performance-based pay plans mean that employees have some level of control over how much they earn. It’s important to share the financial results of your improved recon workflow so that employees understand how their work contributes to the bottom line and see how their productivity and performance affects their earnings.
Within 60-days of implementing your recon software solution, calculate the dealership’s holding cost and put a pencil to the gross profits retained from a more speedy, efficient process. Perform the same financial assessment each month, and then tally the increased gross profits for the year. It is highly beneficial for managers to see how their incomes have been impacted by bringing in change and holding individuals accountable for higher levels of performance.
Over time, everyone involved in recon will have adapted new habits and behaviors and the new norm will be efficiency driven by technology and human productivity – which is a win, win for everyone.
By Karla Guleserian, MSEC
Velocity Automotive Solutions