Let the Cloud Wars Begin

Oracle and Intel have recently joined forces by setting up data centers to test out Oracle servers powered by Intel chips. Oracle also announced that it would convince its current database customers to replace their IBM servers with Oracle-Intel ones instead.  This spells bad news for IBM who caused Warren Buffet’s Berkshire Hathaway a loss of value of 1 billion last year and 700 million this year. The joining of Oracle and Intel to dominate “cloud computing” matches the two tech warriors directly against IBM which sells mid and high-end servers and mainframes to companies like DealerTrack which has their DMS on IBM servers.  IBM, with over 20 billion in revenue, is a pricey solution for those who want their applications hosted on IBM servers.  They have dominated this server market for many years.  In fact, I invested in IBM stock long ago when I saw how much their servers cost my EDS and DealerTrack/Arkona consulting clients back in the early 1990s.  A war is starting in cloud computing.

You might ask, “What is Cloud Computing?”  In the simplest terms, cloud computing means storing and accessing data and programs over the Internet instead of your computer’s hard drive or network server. The cloud is just another name for the Internet. The term “cloud” goes back to those old proposals and bids you got from ADP and R+R that included a diagram showing your dealership connecting to the factory and other 3rd parties.  They used a puffy cloud to illustrate the Internet and often a lightning bolt to show receiving and sending information from various data centers in a cloud as it floats above us.

What cloud computing is not about is hardware in your dealership or corporate offices. It is a struggle to find all your old Office, ADP Reflection, or EraLink CDs when you buy a new PC. Every few years the DMS giants want a fee to upgrade their server when they “sunset” it out to their new version or require you to upgrade your PCs. When you store data or run programs from your hard drive or server, that’s called local or client/server computing. Some say this is better than having to always connect to the Internet; but what happened when your server or hard drive crashed or laptop got stolen?  Most DMS and CRM software is not truly cloud-based.  They merely took control of your server from your dealership – hosted it at their data center and you connect through the Internet with their proprietary software.  They now control your access and speed.  Some even add other dealerships to that same server and you share server space, thus reducing your access speed.

For a DMS to be considered “cloud computing,” you need to access your data or your programs over the Internet with any device or browser (like an iPad, Tablet or Smartphone.) The final test is the same: with an online connection, cloud computing can be done anywhere, anytime.  On the other side of the “lightning bolt” is a big puffy cloud; the data center that hosts your application.  This is where the mystery begins.  I spent quite a bit of time selecting data centers for the DealerStar DMS and studied their “uptime” reports, backup plans, connection methods, and of course security measures. It is best to have one center host the main DealerStar DMS in one part of the country and their backup data center with another company and connection. That way if one of the major Internet paths or the data center is gone with a disaster, they can flip to the other data center.  Let’s hope that California, Ohio, and Atlanta don’t go down at the same time!  Where is your DMS, CRM or other technology in the cloud?  Are they using one of the data hosting giants that are about to go to war or is it more of a “do it yourself” type of situation?  Yes, they might be a big company, but do they have the same people developing and managing their data center that wrote the code for the old “green screens?”  You might want to add this to the hundreds of questions that you are asking when considering any technology that has control over your valuable customer and financial data.

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Does Toilet Paper have a Part Number? Purchasing

Recently at a seminar I was teaching, one of the attendees complained about the accounts payable system of the older legacy DMS system he had.  He said that when he orders non-part supplies like printer paper, toilet paper, pens, or light bulbs, there is no receiving process for those items.  Compare this to the process in your parts department.  When they order parts, they issue a purchase order and then order each part number and quantity.  When the parts arrive, there is a shipment list, which the clerk compares to the physical parts being received and circles the quantity – or uploads for validation. Next the invoice arrives and that shipment list is matched to the invoice. The parts are received in the DMS and thus approved electronically.  The cost is verified and the person who approves the invoice indicates how much to charge to parts inventory and how much goes to freight expense. If they bought the parts at an amount over or under the factory “tape cost,” then the person indicates the account that should credited or debited for the premium or discount received.   In some DMS systems like DealerStar, if the source is setup to use average costing instead of “tape cost,” then the user can “allocate” those amounts over the cost of each part using a weighted cost method. It is a complicated process to ensure that we don’t pay for parts we didn’t receive and have the correct cost entered.  What happens when we ordered 10 cases of paper, but they only shipped us 5 cases, yet charged us for the full amount?

Most non-parts purchase orders are for a single item.  For example, we order new tires for a certain stock number and the manager authorizes that for $700.  The invoice comes in and the manager checks to make sure the tires are on the vehicle and at the price he agreed upon and then signs and approves the invoice by signing it.  When we have a sublet tow bill, the same thing happens; a manager or advisor signs the invoice and then puts the amount onto a repair order.  What happens when we have office supplies, license plate frames, key tags, balloons and toilet paper?  Who “receipts” those supplies and verifies the quantity and price?

More dealerships are starting to consider their parts departments as a full purchasing department.  Larger corporations have purchasing and receiving departments for anything that is purchased.  If your parts department has the space, why not have them take over all supply ordering?  I never understood why as an office manager, I had the all important job of ordering, issuing, and locking up supplies – especially when our department used the least amount of those supplies.  I really didn’t have the space or time to adequately control these supplies and they normally arrived when I was busy in a manager’s meeting or involved in some other task, so nobody checked to see if the right amount arrived. They had to be quickly put on the shelves to keep from tripping over them because we didn’t have a receiving area.  If instead, we had the supplies come into the parts department, they could verify the quantity and “receive” them as parts.  A separate parts source would be setup to hold these non-part supplies and they could sell them to the various departments on a single monthly parts ticket for each that is normally open anyway.  If they don’t want these to be in the parts inventory, then the purchases could go to Prepaid Assets and a monthly valuation list could be printed of that source and the account adjusted.  I like the idea of single parts ticket each month for each department because instead entering hundreds of invoices each month and distributing to each department, a single entry could be made to Prepaid Assets for each invoice and then the parts ticket would distribute to each department.  The employee that took the box of pens, could be entered in the memo field and each department could see their actually consumption of pens and other supplies at the end of the month instead and arbitrary distribution based on percentages.  There would actually be a part number for toilet paper, and the parts inventory record could hold wonderful data like how much we pay for it and our default vendor of where to buy it.  It is a very efficient process and should provide better internal control and if you want, let the parts department mark up the supplies a small amount to justify the cost of receiving, protecting, storing, and selling the supplies.

Has the Tide Turned for DMS Security?

During the past few years, the big DMS providers have been tightening security and limiting outside access to DMS data.  Recently, CDK (ADP) announced their SecurityFirst program that includes the new Dealer Data Exchange.  According to CDK’s website, “DDX is an innovative, easy-to-use suite of integration tools that allows dealers to monitor and manage data access on their DMS. Designed to give dealers more visibility of their data exchange with OEMs and third-party vendors, DDX is the first comprehensive data integration application offered by a leading DMS provider. “ DealerTrack DMS was one of the first DMS providers to provide this type of “self service” 3rd party access tool on their Data Exchange menu which expanded to be called “OpenTrack.”  What does this mean for dealers?  With the recent changes in DMS ownership and the pressure for profit, most DMS providers are looking for ways to increase revenue.  I can remember the days when DMS providers charged dealers for each page that came out of a printer.  Is it possible that the dreaded “click” charges will apply to sending and receiving data?  Many web hosting sites and cell phone providers charge based on how much data is sent and received.  Will data access be a new revenue source for the huge profit hungry DMS providers?

With today’s sophisticated hackers, everyone is terrified of a security breach.  I just bought a card that goes in my wallet to mask the data being sent out by the new chip-enabled credit cards.  Fortunately for dealers, the data in a DMS is not as desirable as data held by other retailers like Target and Home Depot.  Some of the largest security breaches have involved credit card data.  I don’t know any DMS system that holds credit card information and you should make sure your cashiers do not collect this data.  If cashiers do take a credit card number over the phone, they should enter it into the reader while the customer is on the phone and do not write it down or enter into the DMS.  Other past security breaches had an objective of gathering non-public information for identity theft.  DMS systems can hold social security numbers of customers and employees, so that should be encrypted.  Two of the larger insurance company breaches were minimized because the social security numbers were encrypted.  Make sure your DMS system provides this feature.  I still haven’t heard about a dealership’s DMS being hacked, but the best time to start thinking about what data your DMS holds is before it happens.  According to Warren Buffet, “Only when the tide goes out do you discover who’s been swimming naked.”

What will these new DMS security measures mean for dealers?  There might be a new liability shift.  If a dealer’s data does get hacked, we’ll have a lot of finger pointing of who is responsible.  When a dealer agrees to a program like CDK’s SecurityFirst and limits access to their data to only approved vendors, does this mean that CDK will provide dealers with liability protection in the event the data sent to a 3rd party is hacked or used in identity theft?  Does their approval of a vendor mean that the vendor is safe for the dealer to use?  No matter what, these new measures and certifications will probably mean that all 3rd party integrations will cost dealers more money per month or per customer.

What is under your hood?

I once worked at a Mack Truck dealership where buyers were encouraged order a “Gold Bulldog” Mack. A Mack truck with a gold-plated bulldog means that the entire truck is made of Mack components.  According to my experts, having the strong Mack engine makes all the difference in the truck’s performance.

The database is the “engine” underneath your DMS.  It is the major factor for optimum performance and stability.  Almost every function must access the database dozens of times.  When you write a new repair order, the DMS gets the customer and vehicle info from two big tables.  Next it gathers past service history, current operation codes and labor times from other tables.  It looks up in the tech and employee tables for skill levels and cost rates and then retrieves the part information, cost, and on hand quantity.  The repair order function needs setup tables to determine labor rates, shop supplies, customer pricing matrixes, and taxing.  A typical repair order opens up over 20 database tables before the job is done.  If your DMS is slow, most likely the database is the problem.

Many dealers have no idea what type of “engine” or database is under the hood of their DMS.  Many older DMS providers like ADP and R+R use PICK that is a less “relational” database with multi-value fields that make designing a query difficult.   DealerTrack Arkona uses an IBM DB2 database developed in 1983 and older tier 2 and 3 providers use databases most of you have never heard of – or ones that are being discontinued like Visual Fox Pro.  Some providers use Microsoft SQL, that comes at cost in speed and price. One of the most popular newer databases is MySQL, which has been gaining market share in overall database usage by developers in the past two years.  Current users include; City of NY, State of Illinois, Dun & Bradstreet, University of Texas, Sears, Walmart, Macy’s, AT&T, and Cisco. Why do technology companies switch from Microsoft SQL, Oracle, SAP and IBM to MySQL?  MySQL is budget friendly. Companies can save over 90% of their database costs by choosing MySQL over Microsoft SQL Server.  It is also easy to manage; MySQL doesn’t require high cost specialized skills to manage. Like a Mack engine, MySQL is high-performance, scalable and reliable; 9 out of 10 of the most trafficked web sites in the world choose MySQL to power their business critical properties. Facebook manages 1 billion users with MySQL; so it can easily handle 90,000 parts or 150,000 customers in your databases. Because guarding your data is the number one job of the database, MySQL offers exceptional security features that ensure absolute data protection. In terms of database authentication, MySQL provides powerful mechanisms for ensuring only authorized users have entry to the database server, with the ability to block users down to the client machine level being possible. SSH and SSL support are also provided to ensure safe and secure connections. A granular object privilege framework is present so that users only see the data they should, and powerful data encryption and decryption functions ensure that sensitive data is protected from unauthorized viewing. Finally, backup and recovery utilities provided through MySQL and third party software vendors allow for complete logical and physical backup as well as full and point-in-time recovery.  DealerStar is a newer DMS that uses MySQL and they currently perform four automatic backups during the day for clients that don’t have a mirror server.  In over 3 years of providing dealers with a DMS, they have never had to restore from the backups. What database does your DMS use?  This should be one of the first questions you should ask after “how much does it cost?”

At the tractor/engine show with my Dad.

At the tractor/engine show with my Dad.

A Sense of Urgency

One of my favorite Warren Buffet quotes is; “No matter how great the talent or efforts, some things just take time. You can’t produce a baby in one month by getting nine women pregnant.”  The same is true with many of the processes in a dealership; hiring more techs or office staff might not be the answer to getting the books closed quicker or cars through the shop faster.  Sometimes you need ways to do things better. Has your dealership been trying to get nine women pregnant by purchasing more and more technology in an attempt to do things faster?  Simple processes have become complicated as we spend hours or days trying to reconcile one technology’s report with another and entering customer info in various databases.  What is the answer?  Consolidate your technology based on processes.  The goal in the future is for a customer to enter their name, address, and other information and then select a vehicle and purchase. Shop, Click & Drive is a new concept from GM and AutoNation is promoting their Express purchase feature.  How is your DMS preparing for this new way of buying? Is your DMS considered a “fully integrated DMS?”  How many of your technologies overlap the features already in your core DMS?  Have you considered switching to a single solution provider?  A single solution provider is not a company that has various software products that they try to interface; rather it is a DMS that has a goal to provide a fully integrated single solution by improving their DMS software.

The next solution is to create an overall sense of urgency in a dealership.  You don’t want to rush the important things that take time; working with a sales customer, listening to a service customer’s complaints and up selling, taking a wholesale parts order, getting the right part that a technician needs and fixing a car right the first time.  You need technology that enables those “babies” to get delivered properly and in the exact amount of time required.  A fully integrated DMS can be the solution because during service write-up an advisor can see if the part is in stock, a technician is notified when a part arrives, and the sales department sees vehicles in transit, pending trades-ins, open repair orders or knows that a vehicle has other quotes pending.

The areas that need a sense of urgency are the non-productive processes.  During my years working in dealerships as a parts inventory clerk, office bookkeeper, system administrator, F&I manager, and eventually a CFO,  the thing I loved the most was the fast pace.  I never looked up at the clock – other than to notice, “Oh no, I only have a few hours left to get this done!”  I felt sorry for the grocery clerks that watch the clock, hoping that their shift is almost over.  When I was promoted to controller, I worked hard to develop a 3-day close that created a sense of urgency to get the books closed faster and the office back to normal.  Although internal control is an important issue, there is nothing to control if the operational departments are not making money.  One of my rules was that salespeople were always greeted with a “how can we help you?” when entering my accounting office.  This had a dual purpose; first it let the salesperson know that we were there to help and secondly that they needed to have a purpose before entering our busy accounting office. This greeting generated a sense of urgency to help a salesperson get back to selling cars as quickly as possible.  Can you find any processes in your dealership that lack a sense of urgency or has overlapping technology?

Do you Really need a DMS?

When I speak to dealers, I often get asked why a dealership must have an expensive DMS like R+R or ADP.  I am quick to respond that are other lower cost options like DealerTrack, DPC, DealerStar or DDS.  But what a dealer really wants to know is, “I know other companies that run their businesses with Quickbook, SAP, or Microsft-GP; why can’t I use one of these to manage my dealership?”  The answer to this question is in the last words; “manage my dealership.”  There are hundreds of accounting packages available that can keep your books or even help you run your business, but a DMS – Dealership Management System does just that – it helps you manage your dealership.  How is a DMS different than a standard accounting package or ERP?  During the next few issues, I’ll discuss many of the items that set a DMS apart and how you can determine if these are features you must have.  I’ll also define what is part of a core DMS and what we consider as an Add-on item.  To explain this further, let’s start with Service Appointment Scheduling as an example.  I consider this item both a core DMS feature and an Add-on item.  Appointment Scheduling has two elements; the ability for the customer to schedule a service appointment online and then transmit that appointment to your personnel and your DMS.  This portion is an Add-on item because it does not “manage your dealership.”  It is similar to many portions of your CRM software that helps you make more money by selling more vehicles and increasing service and parts sales.  The other element of Appointment Scheduling shows you how many appointments you have tomorrow by each advisor and technician.  This does help you manage your business because if you don’t have enough service appointments to keep everyone busy tomorrow, then you can make management decisions like sending used vehicles through the shop for reconditioning, getting new vehicle PDIs completed, or calling customers and making appointments.  You might ask, “How many of these items are missing from a standard ERP program and which ones help me manage a dealership?”   If I had to guess, I’d say hundreds.  In fact, it is the amount of these items that separate the various DMS systems into Tier 1, Tier 2, and Tier 3.  Let’s start out with something simple but a huge difference between standard accounting and ERP software and a DMS; Schedules and Control numbers.  A DMS uses a complicated method of subsidiary ledgers called “schedules.”  Most standard accounting packages have just two types; accounts receivable (people who owe us money) and payable (people we owe.)  They might also have an inventory and fixed assets ledger.  Because most of the amounts owed and due involve around a car deal, repair order, or parts ticket these schedules must be “controlled” by various fields like RO#, Stock#, CustID, etc.  They must also have different behaviors like clearing when the balance is zero (detail forward,) or clearing when the reference matches (open item.)  The DMS system must know when to require a control number from the user or when to automatically get the control number based on setups.  You might think that a schedule is merely a complicated report of accounting detail, but one of the failed conversions of a standard ERP, Microsoft Dynamics, required that schedules could only run at night – the demand on the database was too great during the day to run these complicated reports.  This might not make a difference to you, but for another dealership that depends on “schedules on the fly” during the day – it would be a deal breaker in considering that DMS or trying to use a standard ERP.  For some dealers they need Add-on Appointment Scheduling because their tech savvy customers are demanding the ability to make online appointments.  For others, they might only need it to manage their business and want it as part of their core DMS to maximize shop productivity.

As I mentioned in the first part of this article, there are many DMS systems to select from and you might wonder if it is time for you to start saving money by moving down to a Tier 2 or Tier 3 system like DDS, DPC, or AutoSoft – or if you already tried that and are missing too many valuable DMS features; move back up to a Tier 1 system like ADP, R+R or DealerStar.  At the 18th Digital Dealer Conference in Tampa, April 21- 23, I’ll be giving a workshop called “Changing DMS Systems – Five Things to Consider before You Change Systems.”  Please attend my session and find out if your dealership should get a lower-priced DMS, return to a more traditional DMS like ADP or R+R, or consider a newer DMS that might have the features you need at a price that could save you money.

Inventory-Maximizing Gross Profit

Jim Sinegal, the co-founder of Costco once said, “We want to turn our inventory faster than our people.”  There can be two meanings to this quote, the first being, “we hope that our employees will be with us a long time” and the second, “we hope that we turn inventory faster than our employees turn it by stealing.” In your DMS system, you have three different inventories; vehicle, labor, and parts.  I’ve been writing articles lately about what makes a DMS system different than a standard accounting or ERP and separate inventories are huge factors.   Over the years at Sandi Jerome Computer Consulting, we’ve done hundreds of DMS conversions of data. When we converted a Microsoft Dynamics system into the DealerStar DMS – the Microsoft Dynamics system only had one Inventory table.  The vehicles, labor, and parts were all in the same module and table.  In a true DMS, they are separated for three reasons; security, pricing, and ordering.  Let’s get back to Jim’s quote and look at security first.  One of the few areas that are locked in a dealership is the parts department.   CPAs will tell you that theft is usually found by mistake, but I like to say, “Feelings.”  A controller once contacted me because she felt they had too many returns in the parts department.   I emailed her how to run a report of returns and sure enough, they not only had too many returns, but often of the same part twice.  When the facts came out, a parts employee stole small-sized parts worth hundreds, like a sensor.  Then he would buy the same parts and with a valid receipt he’d return each – but TWICE!  To fool everyone, he returned the parts months apart. This dealership had an older legacy DMS system that not only allowed the On Hand quantity to be changed to cover up the first theft, but also didn’t have a link to the original parts ticket on returns.  This parts employee had security access to the parts department and parts inventory in the DMS.  What if the next generation DMS you’re considering has only one inventory system and most employees will have security access to parts, labor, and vehicle inventory?  If this happens, you better make sure you keep that parts door locked and the keys and titles to vehicle secure!

Pricing is the next issue with an off the shelf or modified single inventory ERP system.  In Service, the labor inventory can be priced by the sales type, rate, and hours and if your DMS has the features; by a labor grid amount or menu package.  Even certain labor operations can have a fixed sales price. Being flexible with labor pricing helps your dealership beat out the competition and increase labor gross profit. Your parts department can have hundreds of pricing matrixes based on the customers, cost of the part, factory, or source – or even escalate the price of a small part.  Depending on the DMS, the parts can be priced differently for a customer if the part is sold on a repair order or parts ticket and based on a mark-up of the cost, or discounted from trade or list price.  In the Sales department, we use rollback logic and have 2-3 types of “packs” or flat amounts added to the Sales price based on the model or dealership. You may want to pack a water pump in the parts department by a flat $1,500 – but I don’t think you’d be in the parts business for long.   Pricing logic must be different in these 3 very different types of inventory to optimize gross profit.

Ordering vehicles is much different than ordering parts.  The parts department uses either the import of a factory order system like GM’s RIM or a complicated ordering logic based on how many sales in how many months, minimum/maximum quantity and depending on the features of your DMS, it can escalate the ordered quantity if the cost of the part is small.  This is nothing worse than a transmission job held up because a $2.00 gasket was not in stock because you didn’t have a DMS that has economic ordering escalation features.  In the vehicle inventory module, ordering the right new and used vehicles can be helped by knowing which vehicle models and years sold in the least amount of time at the highest gross profit.   Some dealers use third party software but some newer DMS systems like DealerStar have a pricing and ordering tool that enables you to sort by the number sold, gross profit and number of days – or a combination of these three and then see the pricing and drill down to the deals to see other factors.  You can then update the sales and Internet price on multiple vehicles to be competitive.  For many years dealers thought of their DMS as a required expense, but it might be time to start looking at some of profit enhancing features of a newer fully integrated DMS system.