When you experience a fire, you have many choices for recovery. Eco Green Auto Parts took a business approach to recovering from an all-consuming fire.
By Carlos Barboza
In 2012 I took over a new challenge, a small salvage yard located in Orlando, Florida. Eco Green Auto Parts was focusing on what a regular salvage yard must do: inventory, dismantle and sell recycled original equipment auto parts in good condition every single day.
In 2015 everything changed. A huge fire destroyed 90 percent of the buildings and 75 percent of the entire inventory. Everything that I have done in three years was gone in three hours. In short terms, from the cradle to the grave in a bad way.
Fire is the Last Thing You Want to Hear
On Thursday, September 3, 2015, at around 12:50 p.m., everything changed at Eco Green Auto Parts. A subcontractor dismantler I hired was dismantling a vehicle because my yard is quite small (2.5 acres) and I had more than 400 cars when normal capacity should be no more than 350. The dismantler followed the normal procedure to process a vehicle (remove battery, drain fluids, pull the engine, and so forth).
You know there are two standard methods to remove the vehicle from the lift: one is you pick the vehicle underneath with the loader or use the forks of the loader going through the windshield of the processed car. We always used the second choice. While the vehicle was being held by the loader, a spark came up in the air and a fire started up in the operational area.
We could control the fire in the operational area because I had some fire extinguishers and floor dry available. Still, the subcontractor dismantler didn’t know much about this type of emergency. Unfortunately, he grabbed two gas buckets to try to get away from the fire, but he ran close to the fire and instead of running to the front area, he ran into the warehouse (keep in mind the old warehouse was mainly made of wood, and that building had more than 20 years on it, so you can imagine how flammable that wood would be.)
Insurance is Always Questionable
You know that all insurance coverage has small print letters. In this case, during the fire I called my insurance broker and she told me that nothing would be covered because I paid for a cheap policy (imagine hearing that news while you are watching your business burn down).
I was devastated because all my savings were in my yard.
Still, I didn't give up and I read the policy again and I discovered there was a fire policy that would cover up to $100,000. What really happened was the insurance broker was reading the 2014 policy and not the 2015 policy. Always make sure they have your current information when making a claim!
Still, that $100,000 only would cover part of the building and no new inventory. I really lost more than $500,000 for the building and inventory. Keep in mind that by September 2015 scrap metal prices were also significantly dropping, as well.
What would I have done differently? Get a good insurance policy.
I suggest to all auto recyclers, read your policy and ask all the details about what is covered and what is not prior to any “it can’t happen to me” emergency.
Luckily the DVR of the camera’s surveillance was intact. The only area that didn’t get burned completely was my office. I’m telling you this because the video showed that the fire was an accident and not fraud. All our data was lost, and I didn’t care because 90 percent of my inventory was also gone. So, I had to completely start over.
Reopening is Risky Business
To be honest, I had no choice but to rebuild the business, otherwise I could have lost more money. So I cut my losses; getting out was not an option. I gave my best effort to rebuild the business and learn from this experience. It took me 2-1/2 months to reopen the business full time.
Prior to the fire I had nine employees. Post-fire, I only could keep two employees, one seller and one-part puller – plus myself. To keep the business open, I had to assemble an office at my salesperson’s home so he could take calls and print orders, meanwhile the dismantler had to pull parts with no power and water. I delivered the parts.
On top of this, I also had to take care of all the issues that arose from detective inquiries, insurance, investigations, fire marshal, and the Florida Department of Environmental Protection (FDEP). I also dealt with the issue of an injured dismantler and the owner of the property who wanted to do a foreclosure if I couldn't pay his monthly payments (so I paid them out of my pocket).
With the $100,000 insurance payout, I only had $30,000 remaining to buy inventory, so I had two choices: 1) Buy 50 junk cars to keep doing scrap or 2) Buy 15-20 late model cars and risk if I can sell them or not with my business partially open. I chose option 2.
When we opened, I only had 15 cars to start. It was one of the best decisions of my life. After whatever money I took in, I reinvested, reinvested and reinvested again. Fast forward to today, we have returned to a more proficient team of nine employees.
OUR BUSINESS APPROACH FOR SMALL SALVAGE YARDS
The plan below is what we did to make a better business – literally from the ground up. It took me one week to re-organize everything “on paper” and then I worked to find a good crew who were better than we had before in each area (sales, inventory, dismantling, delivery). I’m still working on how to improve and innovate my facility. I also made sure that all of my employees are multidisciplinary, that helps for everybody to understand what each of us do in the yard.
1 – NEVER WASTE TO CRISIS
Although the fire devastated the buildings and inventory, I had to keep up the Eco Green Auto Parts name. The best solution was to re-engineer all my processes of how I should operate the yard, that would allow me to start up from scratch to achieve a drastic change in the organization's performance.
2 – MANAGEMENT APPROACHES
Luckily, before running a facility I had a very good business management education. Therefore, I started to apply a modern management method that is useful for improving or transforming a business. The biggest contribution to re-engineer from the beginning was the business model CANVAS. It is a simple and organized scheme to create or improve the mechanisms of a business, integrating them and make them competitive. This model is easy to understand and participatory, as it requires the intervention of key company personnel, like me or you as an owner.
The Pareto Chart, or what is called the “80-20 rule,” is a simple statistical and amazing tool, which we use for analysis of sales and revenue history. For the monitoring of results and corrective actions of objectives and strategies, we use strategic planning as a management tool.
3 –HOW WE IMPLEMENTED MANAGEMENT APPROACHES
• We focus on European, Luxury, Hybrid and Electric cars. In order for a regular salvage yard to perform its day-to-day operations (inventory, storage, and operations) properly, it should have about eight acres and up to run smoothly. My business only has 2.5 acres of property,
so wasted space is a luxury I can’t afford. Using your space with good and rare inventory will optimize your business and increase your income too.
• Define your customer, and your policy to attract and retain them. We build databases of our frequent customers, volumes and frequencies of purchases, follow up calls, quick delivery of the product, personalized attention between client and seller, and know their satisfaction expectation.
• Specify your value proposal to your customers: Quality parts, right inventory, low prices, fast delivery and follow up calls.
• The most important business processes are studied and defined individually, then we integrate all processes. All business processes are linked: Dismantling, quality inspection, inventory and storage are interdependent processes. Every day you need to improve your processes and think “out of the box” to optimize your time and costs.
• Love the Earth. Environmental regulations are not only a matter of strict compliance, they are also part of our ecological responsibility, and as a salvage yard we must be proud that we create a positive impact to our country.
• The more you describe your inventory; the less curb return you’ll have. Adding a part in your inventory is not enough, take your time for photos, price, condition, and talk to the customer before sending the part. The average percentage of returns in our industry is around 20 percent, ours is eight percent.
• Image sells. We look into appearance and quality of each part. The way you clean, package and deliver your part means a lot to your customers.
• Communicate with your customer. We make sure that the customer is buying the correct part and do not overpromise a delivery part if you can’t make it. For those customers who have a regular return habit, we talk to them to find out how to improve our performance.
• We focus on parts that make the greatest benefits without neglecting the rest of them. From our statistical analysis of sales history, I detected that of all parts we’ve sold in the last eight years, 15 percent of them make 80 percent of the income (Pareto Rule). The larger auto salvage facilitates generally take out 45 pieces from each car, we take out the ones that matter the most, no more than 20. This method reduces the storage volume, increases the speed of processing the cars and simplifies the work for inventory department.
The rest of the parts are included in the inventory and remain in the vehicle. We have found that it is not profitable to save so many parts in the warehouse. I’m not saying don’t hold your old inventory, but sometimes there are parts that just don’t sell. Remember, cash flow is King.
• Our work team has special skills, and they are multifunctional, too. This serves a dual role as a cost strategy and always having your team busy and learning new skills, too.
• Incentivize your staff by production. Commissions by production and sales goals increases the efficiency of the company, the sense of belonging, and motivation of each employee.
• Don’t keep cars for too long in your yard. Once the vehicle meets a certain time period or has already met the profit goal, send it to the crushed pile and buy new cars. In my case, I don’t keep any car more than 45 days.
• Online platforms and information systems are essential. Digital platforms such as Hollander, Car-Part, eBay, Facebook Marketplace, Craigslist, and social medial are fundamental tools of the company. Utilize them.
• Innovation. Each business must find ways to innovate its processes. Here are just some examples we are working to improve our skills: batteries for electric cars, Takata airbag recalls, dismantling of vehicles, disposal of fluids, how to package a truck bed to arrive in good condition to California, and so forth.
• Once the business is optimized, we look for new related businesses. Once you are good at what you are doing, you will be ready for new projects. Our future projects include creating new business units, taking advantage of the synergy of operations, such as a mechanical workshop for integral services, export, remanufactured engines and transmissions to add more value to base products.
Our current sales are three times higher than pre-fire sales. We have new buildings, equipment, specialized staff, committed and oriented to customer service, defined business processes, an environmentally clean business with sustained and profitable growth.
Final Words of Advice
Watch every day what each employee does, follow up the procedure and rules (I have learned a lot from Automotive Recycling magazine about prevention), keep in each employee’s mind that their workplace is their second home so everybody must be diligent and care about the business.
I also suggest that any auto recycler separate all your departments as far as possible. Even though my facility is small, I separate all departments. For instance, I have an office trailer for sales, one main warehouse for engines, another building for small parts, and the operational area where vehicles are dismantled are totally separated from the office trailer and warehouse.
Carlos Barboza is the owner of Eco Green Auto Parts, Orlando FL. Their website is https://ecogautoparts.com and they can be found on Facebook @ecogreenautoparts.