Evaluating Lean Practices
It was a manic year-end for me, trying to squeeze in a last-minute dash around the U.S. and Canada, with just a week to go before the Christmas holidays.
My colleague and I visited five Canadian and U.S. cities in four days, primarily to tie loose ends on orders for our new gas catalytic drying robots and go over processes with some shops that had wanted to verbally place orders. This entails us carrying out a technical site survey as well as understanding the business that we are going to be working with.
What’s really interesting is that once you start to dig slightly below the surface and to study numbers (the right numbers generally don’t lie), you find really how effective a collision shop is at putting though vehicles. One such shop I visited was a complete showcase of lean production. I have to say, I was very impressed with its cleanliness and adoption of 5S, Kaizen, Heijunka, Kanban and takt time. This was lean to the button—a complete adoption of the rules by which to apply lean principles to a shop.
The only problem was the numbers. Without wishing to get into it here—or break any confidentiality—despite the rigorous application of lean principles, in about 20,000 square feet, the output was approximately 20 vehicles per week with 13 productive staff. That’s 1,000 square feet per car per week and 1.5 vehicles per tech. The great thing is the business made good money, so clearly that puts them at the top of their game, but this shop would have been bankrupt years ago if it were in the U.K.
I’ll try to explain. Because the commercial pressure is so great—high costs, lots of free services and low door rates, in the U.K., most shops don’t make money. Even the very efficient traditional shops of the reasonably large MSOs still only turn 1 percent or 2 percent net profit. Typically, these shops will churn about four vehicles per tech per week and get a car out of about 500 square feet of workspace. But even this isn’t enough for the business to survive, to thrive and to reinvest.
And that’s where lean principles, in my view, are not ideally applied to the high variance and low volumes of collision repair. These lean systems try to make the shop operate like a production line—to get everything moving around to a specific time (takt) to ensure that bottlenecks are identified, and resources can be allocated to work areas that are falling behind. We have seen the same thing in Toyota shops in the Middle East, and although they appear impressive, in my view, they are not nearly as successful as they could be.
For me, the only toolset to use is TOC (Theory of Constraint). Instead of fire fighting and continually looking for the bottlenecks, TOC, using something called Drum-Buffer-Rope (DBR), actually manages all of those bottlenecks in a serial type production system by applying Critical Chain Project Management (CCPM), among other theories, to work in a more concurrent fashion.
I’m not going to explain it all here as it would take 200 pages, but the potential results of adhering to these theories speak for themselves: 5.5 vehicles per week per tech from just 180 square feet of workshop space. Not only is this a significant throughput increase, but it also operates out of a much lower cost base. For the record, I’ve mentioned “vehicles” and these would typically have about 15 hours estimated time on them, so they are reasonably typical of normal collision repair worldwide.
I think what this has done for me, is to open my eyes to the enormous profit opportunity there is for collision centers in both the United States and Canada, because if money can be made running at today’s relatively low efficiencies, the opportunity to massively increase this with the adoption (which by the way isn’t easy; otherwise everyone would be doing it) of TOC/DBR/CCPM-based methodologies, could accelerate net profits considerably.
Finally, this is by no means any sort of criticism of how people operate their shops, nor the adoption of better work methodologies. It is merely an observation that in an industry where many think it is tough, there is still opportunity. There needs to be opportunity, because claims numbers and collisions will reduce. And I would predict that in the next 10 years, the number of stores could probably halve, following the trend in other countries.
If I could offer any advice, having seen other world collision markets significantly decline, I would be seriously looking at becoming the most efficient player in your area, demonstrating it and shouting about it off your rooftop.
Jon Parker is managing director of the Byteback Group, a U.K.-based information technology and services company aimed at advancing the collision repair industry. Parker can be reached at firstname.lastname@example.org.