What Are We Selling?
In my travels around the world, I always come across body shop managers and owners that focus heavily on the number of hours they sell in a given period of time. It makes logical sense—we get paid by the hour, and therefore we use that as a yardstick to ensure we are hitting our required targets. Or does it make sense?
Let’s look at what an hour is, and understand why it is not only an inaccurate KPI but also why it drives completely the wrong behaviors in our businesses. Apart from paint and parts, we sell time, right? Well, no, not really, because if you look at the most important report your business produces, your P&L sheet, there are no hours on it, just money. Our goal of course is to make more net profit, and this is measured in dollars, not hours. So, why do we have this obsession with measuring hours?
An hour allows us to understand efficiencies. You know, it was a 10-hour job done in 8 hours, therefore 125-percent efficiency was achieved. Therefore, in a given period of time we can, provided utilization is good, sell more hours at a given dollar value.
The labor value of a job is just that, a value, say $500. At 10 hours, that’s $50 per hour, and at 20 hours it’s $25 per hour. What I’m trying to point out is that the $500 bit is the important thing, not the rate per hour, and that measuring hours gives an inaccurate view of throughput. We actually want to sell $500 in the shortest possible time, but as a completed job.
The trouble, of course, all starts at the beginning, because we have to justify how much we charge for a given repair. Our customers want to know that we are being fair, or not overcharging for the work we carry out. We do this using hours at an agreed rate. But we do this with hours that really mean nothing, because they are estimated hours, not real ones.
We use computer systems to generate the time it takes to repair a vehicle. At best these are based upon warranty times, or synthesized calculations, but rarely reflect the real world. You know this yourself, because when you measure the efficiency of staff in different departments, their attained efficiencies vary wildly. Here in the U.K., we see guys and girls that do our teardown and refit who are barely able to reach 100-percent efficiency, whereas painters can soar to 180 percent. What that tells you is not that painters in general work harder than other guys on your shop floor, but the baseline we are measuring from is inaccurate. And we use this for the basis of measurement for our business output! Seems a bit crazy.
We multiply inaccurately forecasted hours by different dollar values and expect to come up with a consistent measuring tool. No chance.
Now let’s look at the behavior measuring hours creates. If we focus on an hourly output, then that changes our behavior as managers in order to maximize the number of hours that we produce. In other words, we cannot stand to see a tech idle, as we believe that we are losing sales. But output is actually determined by the slowest part of your business system—a bottleneck, or constraint as we call it in theory of constraints (TOC). If we produce more hours upstream of the constraint, we end up creating additional work-in-progress (WIP), and this increased WIP is our enemy, because increased WIP costs us a fortune.
It’s very easy for us to ask a tech that has just finished a previous job to drag another one into our shop, which in turn creates additional WIP, more queuing, longer cycle times and substantially more cost to the repair. When the focus changes to maximizing throughput through the constraint, and making sure all other aspects of the business subordinate to it, then greater throughput can be achieved.
The focus must be on “total system” output, not a departmental increase in hours produced, as this just creates too much WIP and extends the cycle. Sometimes it is better to have a tech standing idle than to increase the WIP in the shop. Hard to get your head around, I know, but fundamental to achieving greater systemic throughput.
We always try to mentor body shops into a thinking of “get cars out, not in,” which means that staff need to be more flexible in skill sets, help each other and make the system pull work through, rather than squeeze and push it out.
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.