Proficiency, efficiency, productivity, unapplied time and lost capacity…

Do you really need to know this stuff? Absolutely! It is very important that service shop and collision shop professionals understand this “stuff.” Due to the nature of your business, such measurements can help you determine how successful you are at utilizing, managing, and selling your inventory - time!

Unlike the sales or parts departments, neither the service shop nor the body shop departments carry a physical inventory. Their inventory is nontangible, continually being depleted, and never recoverable. Therefore, maintaining an accurate and effective method for managing your perishable inventory is crucial. Every second of your time inventory that is not sold is lost revenue.

Would your general manager keep an unsold vehicle on the lot forever? How long would it be kept 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 obsolete parts be kept on the shelves before replacing them with faster-moving parts?

Do service managers and/or collision shop managers have excess labor capacity? Do they track unsold inventory? do they track sold inventory?

Our experience indicates that most service departments and business offices cannot tell you the number of flat-rate hours that were sold today, this week, last week, three weeks ago, six months ago, etc. Ask your accounting department how many total flat-rate hours were billed during the period March 2004 to July 2004. Do they have the data for you? likely not. They will probably tell you that the system does not track that far back. Imagine that: the system is not able to track your department’s most important element - its inventory.

How much money does your dealership spend on 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 often choose not to.

You’re probably thinking, “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 necessary tools to accurately measure shop efficiency? If you cannot answer all of these questions with confidence, then read on.

Before further assessing the relevance of the measurements discussed above, let us first provide a precise definition. Let’s start with the formulas. Unless you know the mathematical formula for each of these measurements, you cannot truly understand them. Their mathematical formulas are their definition.

When looking closely at the above formulas, one realizes that proficiency, the most commonly used time measurement formula in the industry, consists of the efficiency formula’s numerator 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: 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 shop inventory. Essentially, it mixes together productivity and efficiency. 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 that you 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 available for use in service and collision shops, most dealerships use it, because tracking efficiency and productivity is considered too time-consuming.

Why is this so? Because either your dealership system provider does not have software to 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 of 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 reconcile schedules because it is “too time-consuming.”  Such blatant mismanagement is rarely observed in other industries; however, it is observed every day in service and collision shops.

Why? because neither the managers nor the owners sufficiently understand its significance in order to want to make the effort.

You may be asking yourself, “Why should I make such an effort?” take the next two measurements: unapplied time and lost capacity. If you calculate and determine their daily value, you would very easily be able to justify the effort; because in most dealerships, this value is HUGE! It usually represents hundreds of thousands of dollars per year in lost revenue. Have you calculated the dollar amount that would add to your paycheck if you could reclaim 35% of that revenue?

Please contact your local Wipfli dealership expert for assistance or for more information.