September 10, 2001 20:31:26
Read & Implement Series:
Read this article and get a FREE Service/Collision Shop Manager Reference Guide.
Carl S. Tremblay
Proficiency, Efficiency, Productivity, Unapplied Time and Lost Capacity . . . Do I really need to know this stuff?
Absolutely! This stuff is very important for Service and Collision Shop professionals to understand. Due to the nature of your business, such measurements help you determine how successful you are at utilizing, managing and selling your inventory – TIME! Unlike the Sales or Parts departments, Service and Body Shop do not carry a physical inventory. Its' inventory is non-tangible, continually being depleted and never recoverable. Therefore, having an accurate and effective method of managing your inventory is crucial. Every second of your TIME inventory not sold is lost revenue. Would your General Manager keep an unsold vehicle on the lot forever? How long would he/she keep it before replacing it with a more attractive model? Would your parts manager keep a part on the shelf forever? Although many do, the answer is NO! How long would he/she keep obsolete parts on the shelves before replacing them with faster moving parts? Conversely, do Service Managers and/or Collision Shop Managers have excess labor capacity? Do they track unsold inventory? As a matter of fact, do they track sold inventory? Believe it or not, most Service departments and Business Offices cannot tell you how many flat rate hours were sold today, this week, last week, three weeks ago, six months ago, etc. Go ahead! Test me! Go to your accounting department and ask them how many total flat rate hours were billed during the period March 2000 to July 2000. Did they have the data for you? I'll bet you they didn't. They probably told you that the system does not track that far back! Imagine that. Not able to track your department's most important element - its' INVENTORY. How much money does your dealership spend in systems, accounting and personnel to accurately track vehicles and parts? How much money does the dealership spend to track time in the Service and Collision shops? Even when systems can track your inventory accurately, many Service and Body Shop managers chose not to. You're probably thinking, “How dare you insinuate that I do not track my time inventory? I know what my Productivity is. I also know my Proficiency.” Well, maybe you do but ask yourself this: How much excess capacity do you carry? How much unapplied time goes into the books every day? What is unapplied time? What is your lost capacity? How much is it worth? What is your shop's Efficiency? How do you accurately measure shop Efficiency? Do you have all the tools to accurately measure shop Efficiency? If you cannot answer all of these questions with confidence, you must READ ON!
Before further assessing the relevance of the measurements discussed above, I believe I must first provide a precise definition. Let me start with their formulas. Unless you know the mathematical formula for each of these measurements, you cannot truly understand them. Their mathematical formulas are their definition!
Click here for the formulas
When looking closely at the formulas, one realizes that Proficiency, the most commonly used time measurement formula in the industry, is made up of the numerator in the Efficiency formula and the denominator in the productivity formula. That is of particular significance because it is a mixture of both Efficiency and Productivity. Mathematically speaking, it is a ratio. Thus the other name for Proficiency: P/E Ratio or Productivity / Efficiency Ratio.
Although Proficiency is the most commonly used formula, it certainly is not the best one to use. The problem with the Proficiency measurement lies in the fact that it mixes together two very important aspects of your Service and/or Collision Shop inventory. Essentially, it mixes Productivity and Efficiency together. Thus, when you determine that your Proficiency is too low, you have no way of knowing where the problem lies unless you separately track Efficiency and Productivity. It is important to realize this because a Productivity problem requires a much different solution than an Efficiency problem. A Productivity problem requires you to step up merchandising/marketing and sales efforts and is the responsibility of management and the Service Advisors. On the other hand, an Efficiency problem is process related and is mainly the responsibility of Technicians. Even though Proficiency is not the best time measurement tool to use in Service and Collision Shops, most dealerships use it because tracking Efficiency and Productivity is considered too time consuming. Why? Because either your dealership system provider does not have software that can accurately track Productivity and Efficiency, or your Technicians are unwilling to take a few extra minutes during the day to clock themselves on and off repair orders. Everybody's excuse is that it is too time consuming. Imagine your Parts personnel not wanting to conduct an annual physical inventory and a daily perpetual inventory because it is too time consuming. Better yet, imagine your accounting department not wanting to calculate the depreciated value of a vehicle in inventory for more than a year because it is too time consuming. Such mismanagement is rarely seen in other industries. However, it is observed every day in Service and Collision Shops. Why? Because neither management nor ownership sufficiently understand its significance to want to make the effort!
You may be asking yourself, “Why should I make such an effort?” Well, take the next two measurements: unapplied time and lost capacity. If you calculated them and determined their value daily, you would very easily be able to justify the effort because in most dealerships, the value is HUGE! It usually represents hundreds of thousands of dollars per year in lost revenue. Have you calculated yet how much that would add to your paycheck if you could recuperate 35% of that revenue? Well, do it and tell me if it is worth the effort.
Do not miss the READ & IMPLEMENT SERIES next month. I will discuss Efficiency and Productivity problems and their solutions in more detail.
EXPECT More! is an Atlanta-based automotive consulting firm specializing in fixed operations growth, management consulting and training. EXPECT's mission is: “To deliver such unambiguous and substantial results that all our clients will EXPECT More! for life.” If you would like to further discuss this weeks article or wish to get more information about EXPECT's consulting services, call Mr. Carl S. Tremblay at (770) 356-5338 or send an e-mail to firstname.lastname@example.org.