KPI Book Sample PDF
KPI Book Sample PDF
KPI Book Sample PDF
The
KPI
Book
Second Edition
Published by:
Insight Training & Development Limited
P. O. Box 1234
Stourbridge
England
DY8 2GE
ISBN: 978-0-9540259-5-3
EAN: 9780954025953
iii
Companion books in this series, written by Jeff Smith
iv
Coming in 2017…
v
vi
Dedicated to my three girls.
Sharon, Sophie and Lara
vii
ABOUT THE AUTHOR
Email: [email protected]
viii
A NOTE FROM THE AUTHOR
ix
performance in the workplace. These are the people who
come up with creative new ideas, devise new paradigms
and often become the paradigm shifters themselves.
x
“Understanding the operational structure as well as
the financial structure of your business
is inseparable from your ability
to influence its profitability”
- Jeff Smith
xi
Contents
Introduction 14
Acknowledgements 348
The days have long since gone where you could simply
increase your prices to increase your profitability.
Nowadays, if you want to achieve better results in your
business you are really saying that you want achieve
different results in your business and this means
changing the way you work in some areas. The amount
of change you embrace is directly proportional to the
different results you desire. Looking to the past and what
you used to do will not always give you the answers you
need for the road ahead; you can’t drive your car looking
through the rear view mirror.
It’s important to understand the past, but it’s more
important to be focussed on the future and sometimes
you will need to walk new paths and lay new roads to
arrive at your desired destinations.
Understanding Baselines
The term baseline is used when you want to express a
starting point for a given area of performance; this is a
minimum expectation.
- Michelangelo
Do all KPI have benchmarks or baselines?
No, this is not the case. There are many key performance
indicators within the automotive industry and not all of
them are created for the same reasons. If you can imagine
going back in time to a place where the first key
performance indicators were discovered, they were
probably created by dealers and isolated to operational
performance. In the case of understanding operational
performance in the workplace, then the answer would be
yes, each of these types of key performance indicators
will have benchmarks or baselines. However, when we
move forward in time and become more sophisticated,
we created the desire to compare performance across
regions and also across the world and so we saw the birth
of the composite reports; a collection of dealer
information which is then averaged across the group.
figure 1:
20
15
10
5
0
-5
-10
A few of the more common KPI that fit into this criteria
have been included within this book, but not all of them
because the main focus of the book is on understanding
and delivering operational performance in the workplace.
Where these additional composite average key
performance indicators have been included, no
benchmarks or baselines will be given and instead the
instruction will read with the following statement:
- Jeff Smith
% Value of Stock Over 90 days
Example:
A) Value of Stock Over 90 Days = £174,859
B) Value of Total Stock = £2,019,154
C) % of Funds Over 90 days = 8.66% (A ÷ B x100)
Example:
A) Money Spent on Advertising = £169,000
B) Units Sold = 960
C) £ Advertising per Unit Sold = £176.04 (A ÷ B)
Firstly, the units sold should relate only to retail units and
ideally, you should have a separate KPI for new and used
vehicles.
Example:
A) Invoice value of vehicles sold = £20,409,600
B) Number of units sold = 960
C) Average Selling Price = £21,260 (A ÷ B)
Baseline: > 8
This KPI very cleverly asks how many times the capital
investment at an operational level in new vehicles is
being used in 1 year to generate the turnover. The higher
the number the better because it demonstrates the Sales
Manager’s ability to optimise the funds available.
Example:
A) New Vehicle Stock Value = £2,373,209
B) New Vehicle Debtors = £170,080
C) New Vehicle Creditors = £529,734
D) New Vehicle Turnover = £20,409,600
E) Operational Investment = £2,013,555 (A + B - C)
F) New Vehicle COOI = 10.14 (D ÷ E)
Example:
A) Annualised used Retail vehicle sales = 1,462
B) Number of units in used stock = 152
C) Annual Stock Turn = 9.62 (A ÷ B)
Quite simply, the faster you turn your used vehicle stock,
the less money you need to invest. The baseline of 8
times per year is an urban myth and represents mere
survival. You want to achieve closer to 10 times per year;
the top achievers deliver 12 times per year or more.
Example:
A) Used Vehicles in Stock = 152
B) Days in 1 year = 365
C) Used Retail Sales = 1,462
D) Stock Turn Days = 37.94 days (A x B ÷ C)
- Jeff Smith
Jeff Smith’s Law of The Service Department
Figure 1:
Sector A
Sector B Sector C
Figure 2:
Sector A
÷ ÷
Sector B Sector C
Example:
A) Hours Sold = 28,563.13
B) Hours Worked = 24,691.50
C) Efficiency = 115.68% (A B x 100)
Example:
A) Hours Worked = 24,691.50
B) Hours Attended = 27,000
C) Labour Utilisation = 91.45% (A B x 100)
- Jeff Smith
Debtor Days
Example:
A) Service Debtors = £102,129
B) Service Daily Credit Turnover* = £2,360.28
C) Debtor Days = 43.27 (A ÷ B)
Note:
In order to calculate the Service Daily Credit Turnover,
you will need to take the annualised Service Turnover
which is sold on credit and divide that figure by 365 to
arrive at a Service Daily Credit Turnover.
Example:*
A) Annual Turnover On Credit = £861,500.53
B) Days in 1 year = 365
C) Service Daily Credit Turnover = £2,360.28 (A ÷ B)
Example:
A) Contribution = £1,842,607.25
B) Department Turnover = £4,786,114.08
C) Contribution % = 38.50% (A ÷ B x 100)
J F M A M J J A S O N D
Example:
A) Variable Expenses = £115,640.05
B) Semi-Fixed Expenses = £1,884,898.00
C) Department Expenses = £2,000,538.05 (A + B)
D) Department Turnover = £4,786,114.08
E) Department Expense % = 41.80% (C D x 100)
Example:
A) Hours Attended = 27,000
B) Hours Worked = 24,691.50
C) Hours Diverted = 2,308.50 (A - B)
D) Average labour Cost = £22.50
E) Cost of Diverted Time = £51,941.25 (C x D)
Baseline: >2.5:1
Example:
A) Retail Hours Sold = 19,994.19
B) Internal Hours Sold = 5,712.63
C) Retail : Internal Ratio = 3.5:1 (A B)
- Jeff Smith
Average Buying Margin %
Example:
A) Retail price of purchases = £8,134,545
B) Cost of parts purchases = £5,541,157
C) Average buying margin = £2,593,388 (A – B)
D) Average Buying Margin % = 31.88% (C ÷ A x 100)
Baseline: > 8
This KPI very cleverly asks how many times the capital
investment at an operational level in the Parts
Department is being utilised in 1 year in order to generate
the turnover. The higher the number the better because it
demonstrates the Parts Manager’s ability to optimise the
funds in use.
Example:
A) Parts Stock Value = £745,690
B) Parts Debtors = £229,384
C) Parts Creditors = £269,886
D) Parts Dept. Turnover = £7,486,728.73
E) Operational Investment = £705,188 (A + B - C)
F) Parts Department COOI = 10.62 (D ÷ E)
Baseline: > 8
This KPI is similar to Stock Turn and uses the same kind
of thinking, but instead of using Sales at cost price, it
uses sales at invoice value. It’s asking how much stock is
required to generate the turnover.
Example:
A) Parts Turnover = £7,486,728.73
B) Parts Stock Value = £745,690
C) Circulation of Parts Stock = 10.04 (A ÷ B)
Example:
A) Emergency Orders = £759,739
B) Total of parts purchases = £5,541,157
C) Emergency Order % = 13.71% (A ÷ B x 100)
There are no hard and fast rules for writing off parts
stock, but Best Practice in Europe and the US seems to
be around 2 years. After the first year, 50% is written off
and after the second year the remainder is written off and
the parts are then discarded. The amount of write off
should not be greater than 1% of your turnover each
month. If it’s higher, then you have too much stock, or
even worse, too much of the wrong stock.
Example:
A) Parts Stock Value = £745,690
B) Parts Debtors = £229,384
C) Parts Creditors = £269,886
D) Parts Department Profit = £1,207,063.41
E) Operational Investment = £705,188 (A + B - C)
F) ROOI = 171.17% (D ÷ E x 100)
Example:
A) Annualised Stock Order Purchases = £3,876,292
B) Annualised VOR. Purchases = £759,739
C) Annualised Other Purchases = £905,126
D) Current Stock Value = £745,690
E) True Parts Stock Turn = 5.20 (A ÷ D)
Example:
A) Hours Sold = 27,636.80
B) Hours Attended = 21,600
C) Bodyshop Efficiency = 127.95% (A B x 100)
Example:
A) Hours Sold = 27,636.80
B) Hours Worked = 20,234.88
C) Productive Efficiency = 136.58% (A B x 100)
- Jeff Smith
Cycle Time
1) FNOL to Invoice
2) Vehicle receipt to invoice
3) Vehicle receipt to vehicle handover
This KPI assesses how many jobs you have gained from
the estimates that you have given.
Example:
A) No of jobs from estimates = 1,404
B) No of estimates given = 1,654
C) Estimate Conversion Ratio = 0.85:1 (A ÷ B)
Example:
A) No of jobs from estimates = 1404
B) No of estimates given = 1,654
C) Estimate Conversion % = 84.89% (A ÷ B x 100)
Example:
A) Retail Charge Out Rate = £65 per hour
B) Hours Sold = 27,636.80
C) Labour Sales without discount = £1,796,392 (A x B)
D) Actual Labour Sales = £1,394,511.71
E) Recovery Rate = £50.46 (D ÷ B)
This example shows the charge out rate is £65 per hour,
but after discount, the amount recovered is £50.46 per
hour. This means there’s an average discount of £14.54
being given on every hour sold. Apart from controlling
the discount levels, there are two main issues here:
“Turnover is vanity,
profit is sanity,
cash is reality.”
- unknown
Absorption (Basic Version)
Example:
A) Direct Profit from Aftersales = £3,804,329
B) Company Overheads = £4,590,595
C) Overhead Absorption = 82.87% (ABx100)
Baseline:
6 times per annum (if property is on the balance sheet)
12 times per annum (if property is not on the balance sheet)
Example:
A) Company Turnover = £62,914,213
B) Investment = £9,387,385
C) COI = 6.70 times p/a (A ÷ B)
Example:
A) Current Assets = £5,883,860
B) Current Liabilities = £4,561,132
C) Current Ratio = 1.29:1 (A ÷ B)
Debtors ÷ Creditors
Example:
A) Debtors (Accounts Receivable) = £712,006
B) Creditors (Accounts Payable) = £1,027,228
C) Debtor Creditor Ratio = 0.69:1 (A ÷ B)
As you can see from the example above, on one hand you
are loaning money to other companies (Debtors) and on
the other hand you are borrowing money from other
companies (Creditors).
Example:
A) Net Profit = £2,178,099
B) Company Turnover = £62,914,213
C) Return On Sales % = 3.46% (A ÷ B x 100)
Baseline: >35%
Example:
A) Direct Profit from Aftersales = £3,804,329
B) Company Overheads = £4,590,595
C) Sales Dept. Semi-Fixed = £687,101
D) Total Overheads = £5,277,696 (B + C)
E) Total Absorption = 72.08% (AD x 100)
F) Absorption Shortfall = £1,473,367 (D - A)
G) Sales Dept. Variable GP = £3,664,168
H) Resorption = 40.21% (FG x 100)
I ) Profit After Breakeven = £2,190,801 (G - F)
J) Sales Retention Index = 59.79% (IG x 100)
Example:
A) Direct Profit from Aftersales = £3,804,329
B) Company Overheads = £4,590,595
C) Service Absorption = 82.87% (A B x 100)
Example:
A) Current Assets = £5,883,860
B) Current Liabilities = £4,561,132
C) Working Capital = £1,322,728.31 (A - B)
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