SOP – The (often ignored) key to profitability

“Those who have knowledge, don’t predict.  Those who predict, don’t have knowledge.”                                                                                                – Lao Tzu, 6th Century B.C. Chinese Poet

If your fiscal year runs concurrent with the calendar (Jan-Dec), then this is usually the time of year when the management team begins to put together the battle plan for the upcoming year.  This is can be a painstaking and arduous process and in many cases, can start as early as September, depending on how much data needs to be collected, and how many people will be involved in the goal setting process.

Nobody I know in our business enjoys forecasting. The reason is simple.  Uncertainty.  Who likes to guess?  We don’t know what 2018 will bring.  With the state of the geopolitical chaos that only seems to get worse with each passing day, how can we depend on the tried and true economic indicators that have served us so well in the past?  We can’t.  So……it’s a guess.

 Back in March, April and May of this year, I published columns in MHW magazine that detailed the process of:

  1. Measuring your market position and defining your market offerings.
  2. Performing a quality SWOT analysis, both departmentally, and for the overall company.
  3. Setting measurable growth goals that were CONSISTENT with the capabilities, manpower and value proposition of the dealership.

It may be helpful for you to have a look at these articles as you prepare for the 2018 forecasting process. I have included a link to the archive issues if you care to review them. If you follow the steps of proper assessment, and targeted goal setting it will result in a much more meaningful and realistic forecast.  If not, you will more than likely end up adding 5% to your annualized 2017 totals and then “hoping something good happens”.  It pays to remember that hope is not a strategy.

This post however is less about the numbers your company generates, and more about the “process” with which they are generated.  My observation as I visit with clients across the in country is that they spend a great deal of time and energy “crunching numbers”, and almost NO time or energy investigating how changes in operating procedures might make them more efficient.  Auditing your processes can uncover redundancies and illuminate opportunities that nobody ever knew about…. because NOBODY ASKED! 

It may surprise you to know that many times the reason we tolerate inefficient processes, is simply because the people doing the work are comfortable with the current procedure.  Change is hard.  There seems to be a measure of comfort in consistency.  Because of this people may resist a change in procedure EVEN IF IT IMPROVES THEIR EFFICIENCY

I’ve heard every excuse in the book for not improving SOP (Standard Operating Procedure).

  •  Our computer system won’t allow us to do that.
    • Actually, many times it will let you do that, but we only know enough about the computer system to do it the current way.


  • The manager must sign off on everything before we can send the paperwork to accounting.
    • If your new SOP was properly understood, executed and trusted, your staff could approve the paperwork themselves, and your manager could devote his time to growing your business instead of piling through paperwork.


  • We need a “double check” system to eliminate errors.
    • Hire and train competent employees. Hold them accountable to a properly communicated SOP and errors will be eliminated.  And by the way, how many errors make it past the second safety net anyway?  Usually more than we’d like to admit.


  • If it’s not broke don’t fix it.
    • If a clock loses 5 minutes per hour, is it broken? You can argue that is operational, but is it useful?   So, Yes, it is broken!  Let’s fix it!


  • It’s the way we have always done it.
    • The 8 most dangerous words in business. How many times have you heard that “past performance is no guarantee of future results”?  Business evolves, technology changes, and when it does, your competition becomes more efficient than you, but it’s OK, because “that’s the way we’ve always done it”. 

 If you don’t have written SOP’s now is the time to start crafting them.  If you do have them in place, now is the time to review and refine them.  There are three keys to success when changing or establishing SOP to improve efficiency. 

  1. Write it down.

 The most efficient process in the world is only good for a short time if it isn’t well documented, and understood.  One of the chief reasons why companies cannot maintain their standards, is that the only source of training in the company is another employee.  This employee may be well intentioned, but without a written standard to refer to, the trainer will either omit items important to the procedure, or the new employee will adopt “work arounds” in the procedure because the person doing the training has already deviated from the agreed standard. 

Creating written standards is a daunting task.  Think of the hundreds of procedures that take place in your company every day.  Without a written standard, people will naturally be drawn to do it in the way that is most comfortable for THEM.  This may or may not be efficient.  The WRITTEN standard is the only way to ensure the procedure is properly taught, and the only way to hold people accountable when the train goes off the track.

2. Vet the new SOP by DOING.

In a world of checks and balances, it’s natural to want to develop “fool-proof” processes, designed to capture and contain any and all deviations.   Doing so makes the plan cumbersome and so incredibly difficult that the creators of the system even have trouble working the controls.  Making it fool proof, begs the question “who’s the fool”? 

John Seely Brown was the chief scientist at Xerox many years ago, when copy machines were the newest gadget around.  He coined a phrase that goes nicely here. “Processes don’t work.  People work”.   I think this is the key to escaping the flow charts, and getting to the heart of the issue.  Planning is necessary in any venture, but when the plan tries to accommodate too many eventualities, you must seek a measure of simplicity in the final version.

This can be done most effectively by working the SOP yourself.  Take the time and check in some freight at the receiving door.  Sit down at the administrator’s desk and put some service contracts in the system.  Follow the procedure, and see what obstacles naturally occur.  Then solve those problems so that your employees won’t feel the need to create a “work around” that circumvents the processes you worked so hard to define.  Managers love to write great recipes, but they seldom eat their own cookies!


  1. Diligently enforce compliance

No, it’s not OK to let them do it their own way.  Either you execute your process by SOP or not.  If there is something wrong with the SOP, then fix it so that everyone can follow it.  If the SOP is valid, then hold your employees to account.

 Many years ago, I had a salesman that when given explicit instruction told me “well, that’s “A” way to do it”.  He resisted the proven practices that created sales success for our business.  He didn’t last long.  This illustrates that there are those high-spirited horses that will want to create a work of “original art” with every task.  Know where you can allow them to run free and where you must demand compliance with the standard.  Any procedure that is important enough for a written SOP should be governed by that SOP.  Don’t allow exceptions.  It’s a slippery slope.

Vetting new processes can be an even more intimidating task than forecasting sales for the new year.  Done properly however it can yield a very favorable return on the time invested.  Once you have an initial SOP policy manual, the assessment and fine-tuning process each year will get progressively easier.  New employees that are hired will learn the most efficient methods, not work arounds and short cuts that erode efficiency.  The best advantage however is seeing profitability increase because mistakes are held to a minimum. 

Standard Operating Procedure is just that…. a STANDARD.  Performance by PEOPLE is measured against this standard.  If in your measurement you can make 80% to 90% of what happens follow the procedure……you’ve got a pretty good process in place. 

My advice to dealers who want to make SOP creation a part of their annual assessment and goal setting process, is to start with ONE process at a time.  Finish and test the processes one by one before moving to the next task.  Begin with items that represent the starting point of a string of processes.

 For instance, in a parts department, I would start with generating a properly completed purchase order, THEN go to your parts receiving process, then document matching and invoice review, then accounts payable.  All of these processes are interdependent, but they are also linear.  If you start with an improperly issued PO, the other processes are compromised before they even begin. 

In many cases, after establishing or updating SOP’s a company will find that efficiency may increase to the point where profit objectives can actually be achieved with fewer sales.  What would that mean to your bottom line?

Having written SOP’s is REQUISITE to following consistent best practices in your company.  SOP creation and review should be an ACTIVE part of forecasting for the coming year.  If you would like to engage me on the subject, I would be happy to help you get started.


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