Incentives for Office Staff
Developing a bonus system for technicians is a great way to improve productivity and increase throughput.
But they aren’t the only ones who might perform better with an incentive.
You could ask, why incentivise nonproduction staff? After all, they aren’t the people that directly earn you money. They just cost, don’t they?
Not in my book! According to throughput accounting, we need more throughput. The more of the same resource we can get through a shop in the shortest possible time, the more money we will earn—far more than we can ever save through cost cutting, because most of the gross product goes to the bottom line on additional throughput ($500 to $750 per job).
In the body shop world, we achieve more throughput, greater productivity and less work-in-progress from reducing cycle time. The key-to-key time, or production time, is only one part of the complete cycle. In essence, there is the lead time (from first notification of loss to production start) and there is delivery time (production finish to payment).
Our nonproduction people have huge influence over lead and delivery times, therefore it makes complete sense, once you understand throughput accounting, to provide an incentive to reduce this time. So how do you do it? Well, here’s an example:
Let’s take our typical job of 15 hours with a sale value of, say, $1500. In most busy body shops, the cycle time will be somewhere between 10 and 30 days. Let’s assume it is 15 days for argument’s sake.
Throughput accounting, using dollars per day, would have us divide $1,500 by 15 days. Therefore the throughput dollars per day is $100. If we want to improve the cycle time, then we can base our bonus on the throughput dollar amount.
In other words, if we wanted to reduce our cycle time to (say) five days, our $1,500 job’s throughput per day would be $300. Now we have a benchmark. Structure your bonus for all nonproduction staff when they achieve over your benchmark of $300 per day. Clearly you need to understand where you are now and look to where you want to be in the future in order to set the levels correctly, not to pay too much for the same outcome, and to provide a bonus that follows the goals of your business.
If all of your nonproduction people are incentivised this way, imagine how much effort will go into reducing cycle time and waste. Processes will improve, customer contact will be more cohesive, the scheduling of jobs will be more intelligently executed, and deliveries will be more timely. Plus, parts will be more accurately assessed and ordered, deliveries will be tracked, and estimates carried out with more precision.
Ultimately, throughput will increase, and for most body shops, a 30 percent to 50 percent increase is quite achievable. Reliability also increases, because the job is only finished, and throughput can only be calculated, once the vehicle has been successfully delivered and signed off by the customer. If a rework is required, cycle time increases, throughput per day decreases and a bonus is lost. In this system, the focus of the business changes, and the upside is absolutely positive for the body shop, customers and the supply chain alike.
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.