How to Fine-Tune and Improve Performance in Your Service Department
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1 How to Fine-Tune and Improve Performance in Your Service Department How Dealers, GMs, would-be GMs and Controllers - as well as Service Managers themselves - can measure Service Department Performance to highlight areas of weakness and to formulate action plans for improvement With Don Tipton of DTC Retail Consulting Moderated by Mike Bowers of DealersEdge
2 Don Tipton - President, DTC Retail Consulting Don began in the automotive business, working for his dad around the age of 8. There was no such thing as daycare in those days, so most of Don's free time was spent with Dad, a Parts and Service Manager at the local Chevrolet store. Since no one got a free ride in his family, went to work in the shop. As he got older he took on more meaningful responsibilities in both the Service and Parts Departments. He was the third generation of his family to have worked in this dealership facility. Over the years he's held management positions in both small single point stores and large multi-dealer operations at the corporate level. He also spent a number of years with what was the largest automotive fixed operations consulting firm in the country, conducting training seminars and in-dealership consulting. In Don's view, his most valuable experience comes from his early days in the business. He's checked in the parts orders, driven the delivery truck, worked the lube rack, undercoated vehicles, worked the parts counter, built wholesale parts operations, written repair orders and dispatched all the work...and the list goes on. All of these experiences have made him a better fixed operations consultant. He knows what the profits should be and understand what it takes to make it happen. He's passionate about this business and the success of the dealers he works with.
3 How To Fine-Tune And Improve Performance In Your Service Department Don Tipton
4 Don s Hometown Motors Service & Sales We Service Everything and Sell New & Used Cars 4
5 How To Fine-Tune And Improve Performance In Your Service Department Don Tipton Don is a Speaker, Trainer & Consultant with over 35 years of automotive experience. He began as a pre-teen working for his Dad at the local Chevrolet dealership. His Dad and Grandfather were both involved in the Fixed Operations and Don was actually third generation in the same facility. Don held many support and management positions in retail along the way before setting his sights and ambitions on assisting other managers in becoming a success. Don has conducted training workshops for many state and local dealer associations, addressing topics in both the Service and Parts operations. He often is an invited speaker for Dealer 20- groups and has presented at seven International Parts & Service Summits, several Tele- Conferences and Webinars sponsored by DealersEdge. He has performed factory sponsored training seminars as well as on-site implementation. Don has authored numerous articles for industry & trade publications. As a Consultant, Don has worked with hundreds of Dealerships from large multi-store groups to small single point stores and because of his approach and style enjoys long-term relationships with many of his clients. Word of mouth endorsements from Dealers and Managers keeps Don in demand. Don s time off the road is spent enjoying boating and motorcycles. Copyright All Rights Reserved. Reproduction For Any Reason Is Prohibited.
6 The Service Department from the Dealer/General Manager s perspective: Service can be a strange and foreign world However, it all looks pretty simple. A customer comes in with a broken automobile. We fix it, collect the money and move on to the next customer. Simple right? Besides the New & Used Car Departments feed them a steady flow of work. I know Sales. I like Sales. Sales I understand Sales, that s where I want to spend my time Besides, there s always a bunch of people back there that appear to be unhappy, like they re being inconvenienced and just don t want to be here. They seem to arrive with low expectations as to how it s going to go today.. and then you have the customers. 6
7 From the Service Manager s perspective: Used Car Manager says: Service can t get my cars done New Car Manager says: Service can t get my cars done Body Shop Manager says: Service can t get my cars done Parts Manager says: Service can t get my special order parts installed Used Car Manager says: Service charges too much and wants to rebuild the car Service didn t repair that during the inspection they should have to eat it Technician says: You have to wait too long to get an approval from the Used Car Manager and then they never want to fix anything Factory says: Service warranty numbers are high, be prepared for an audit Technicians say: I m quitting. Can t make enough money. Too much warranty work. 20-Group says: Service gross profit is low. You re paying your Technicians too much. Factory says: Your CSI is low. Can t properly wait on the customer. Need more staff. 20-Group says: Your Service personnel expense is too high. Too much support staff. 7
8 From the Service Manager s perspective: Factory says: You must increase your Quick Service and Tire Business 20-Group says: Your effective rate and hours per repair order are low Factory says: You must perform an Inspection on EVERY vehicle Customer says: You charge too much and always try to sell me something Technician says: I should get paid to do that inspection Customer says: I just had it in here, why didn t you tell me I needed it then? Customer says: I always have to wait too long, I need a loaner General Managers says: Your policy account is too high Industry Expert says: You must be at 3.0 hours per repair order Your effective rate has to be higher than your warranty rate Your pay plans are all wrong 8
9 From the Service Manager s perspective: Service Manager looks like: 9
10 To pull it all off the Service Manager must be a: Coach Controller Visionary Counselor Diplomat Marketer Organizer Administrator Leader Inventory Manager* Planner* Statistician* 10
11 Today we ll focus on the last three Inventory Manager The Service Inventory Planner What It Takes Statistician Measurement 11
12 Service Inventory The Service Manager is responsible for managing the most precious, fragile and perishable inventory in the store This inventory can generate more gross profit with less investment from the company than ANY other inventory in the dealership! This inventory will not age or become obsolete You can not write this inventory down or sell if off to a wholesaler You can not return this inventory to the manufacturer (although sometimes you wish you could) You can not see it or touch it, yet it s real and it s delivered fresh daily You can sell more than you have.everyday! Unfortunately, unsold inventory is lost at the end of every work day and the chance to sell it is lost forever What is this inventory? TIME 12
13 Let s compare the Service Inventory to another inventory Used Cars Assumptions Used Vehicle Inventory Investment $950, Inventory available to sell 50 $19, average cost Average monthly sales-retail 22.3 units Gross profit per unit $3, ($2, front, $1, back ) (not including wholesale loss) Total monthly gross profit $80,
14 Let s compare the Service Inventory to another inventory Service Inventory Assumptions Service Inventory Investment Minimal (with flat rate Technicians) Inventory available to sell 2,016 billable hours 12 Techs x 8.0 x 21w/d x 100% Gross profit per unit $76.50 per flat rate hour billed $75.00 ELR, 70% GP Labor, $1.00-$0.80 Parts/Labor and 40% GP Parts Total monthly gross profit $154, Almost double the gross profit nowhere near the investment 14
15 The Service Inventory How to determine available inventory # Technicians X Clock Hours Scheduled X Proficiency equals the Inventory available for the day times the number of working days for the month gives you the monthly inventory. Of course you must factor in training days, vacation and scheduled time off. You can use an attendance factor of.93 to allow for Technician time off. Important Note: this available inventory assumes that all Technicians have the same skill level. To accurately determine available inventory, skill categories should be established. 15
16 Some definitions to understand Schedule Efficiency Technician scheduled time versus actual time clocked in and ready to work Productivity Technician time on the clock versus the time Technician is actually working on something Efficiency Technician time actually spent working on something versus the flat rate time billed Proficiency* Technician time on the clock versus the flat rate time billed *Proficiency is the easiest to track and measure and is often referred to as productivity It s not always about not having enough to work on it s about not working enough on what we have 16
17 The numbers can be deceptive Examples 1. Schedule Efficiency: 8.0 schedule versus 7.5 actual time clocked = 93.7% 2. Productivity: 7.5 clock hours versus 6.5 hours working = 86.6% 3. Efficiency: 6.5 hours working versus 7.0 flat rate hours = 107.7% 4. Proficiency: 8.0 clock hours versus 7.0 flat rate hours = 87.5% See opportunity here? Let s take a look.. Schedule Efficiency improvement:.5 day x 21 working days x 12 months = 126 hours now available to sell Productivity improvement: 1.0 day x 21 working days x 12 months = 252 hours now available to sell Example: Improving the hours available to sell hours x $75.00 x 70.0% x 12 Technicians = $79, hours x $75.00 x 70.0% x 12 Technicians = $158,
18 Controllable Inventory Components Schedule Efficiency Maximize the clock time available each day. Inspect Technicians time cards for adherence to the schedule; time in, time out for lunch, time in from lunch and time out for the day. Efficiency Training to improve diagnostic skills Dispatch, right job to the right Technician Share TSB s Technical Service Bulletins Organize & stay in control of special tools AND Productivity Let s look at a few areas that create non-productive time 18
19 The Lost-Time Factor Examples of Technician Lost Time in a Typical Day Waiting for that first job of the day.2 Coffee, snacks, breaks, socializing.5 Tool truck guy Uniform guy.1 Parts.5 Dispatch.2 Special tools.1 Approvals, additional repair instructions.3 Finding keys finding vehicle.2 Technical Assistance.1 Pricing jobs/quotes.3 Total 2.5 HOURS!!! *Be careful of what you take for granted *Of course you cannot eliminate all lost-time *Good procedures and planning can help Don t like my numbers, plug in your own 19
20 Managing The Service Inventory Determine daily available inventory Daily inventory by skill Scheduling Customer arrival day & time Allow for quality time with the customer Loading the Shop Maximum of 70% of available inventory leave room to up-sell Adjust as necessary for carry-overs, heavy drop-off days Tracking sold inventory Simple Time Bank or Electronic Dispatch Review at Record & track carry-overs daily Parts related carry-overs Over scheduling Improve the value per repair order Less of everything; dispatch, finding & moving vehicles, trips to Parts Same (or more) hours produced while touching fewer vehicles Reduce the Lost-Time Factor 20
21 What It Takes To Structure For A Profit Now that you know all about the Service Inventory you need to know what it takes to hit that profit objective you ve been aiming at. Do you have enough Technicians? Do you have enough stall space? How about the Service Advisor s pay plan, is it a win-win? Data required to determine: Average month total expense Total labor gross profit % Overall effective labor rate Average month total shop production Current hours sold per customer repair order Customer pay repair order count average month 21
22 Current Case Study Hometown Motors Profit Objective Break-even Expense: $79, Gross Profit % 68.16% O.E.L.R. $82.80 Hours CP-RO 2.0 Production CP RO Technician (8.0 X 21 w/d X.93 = 156.2) What It Takes $79,751 divided by.6816 = $117,005 sales to breakeven $117,005 divided by $82.80 = FRH to breakeven 1413,1 divided by = 9.0 Technicians required less = additional flat rate hours required a month Which means.8 improvement per customer repair order required or additional customer repair orders a month (@ 2.0) or.5 improvement per customer repair order and 40 additional customer repair orders will get you there 22
23 What It Takes Performance Based Service Advisor Compensation MUST: Be simple to understand Controllable by the Advisor (able to work it) Easy to see-it and measure it Target a objective (like flat rate hours) Set a budget 15% of department gross profit for total Service Advisor income Suggestion 50/30/20 plan: No salary - over time? 50% on individual flat rate hours sold 30% on total shop flat rate hours sold 20% on CSI Pay all (except CSI) every pay cycle, clean the slate! 23
24 Measurement Traditional Key Performance Indicators to be careful of: Customer Effective Labor Rate Hours sold per customer repair order Customer pay labor gross profit % Parts to Labor ratio The Numbers Can Be Deceptive You MUST know what is in the numbers!!! Quick service operations Tire sales Work mix - maintenance versus repair Specials discounts, coupons Over charging Potential results of a pay plan based on the Traditional Performance Indicators Avoiding jobs that have a negative impact on the numbers; oil changes, tires, brakes, etc. Metering work flow comfort level Reduced customer pay traffic 24
25 Measurement Focus on the C.P.A. Critical Performance Areas Customer pay repair order count growing? New vehicle service retention 5 years & 1 visit year Used vehicle service retention 3 years & 2 visits year Total shop production versus forecast Total shop proficiency Shop Schedule Efficiency Customer hours sold per repair order by Technician Open repair orders that do not reflect work in process Unapplied labor time (adjustment to cost of labor) Competitive operation code hits Factory CSI Warranty receivables Shop supplies (especially the last week of the month) Shop policy (especially the last week of the month) Net profit to Gross profit (20%+ net to gross) 25
26 Final Thoughts The Plan The 5 Daily Must-Do s 1. MBWA, process inspection & coaching 2. Felt tip repair order review 3. Inspect the schedule shop load 4. Open repair orders carryovers 5. Exception/Override report - DMS The 5 Weekly Must-Do s 1. Actual production versus forecast 2. Customer effective labor rate by Service Advisor 3. Technician schedule efficiency 4. Special order parts 5. Personally contact a few Service customers The 5-Monthly Must-Do s 1. CPA - Critical Performance Areas 2. Follow Up Programs declined services & missing 3. Marketing/Advertising effectiveness 4. CSI detail 5. Customer repair order count vs. last two years 6. Quarterly Service Advisor review 26
27 P.O.B Jacksonville Beach, FL
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