Phibbs says that a service department—unlike a parts department—is like a block of ice that must be chipped away each day

NTDA 2015 Convention Coverage

TO get to the heart of service department productivity, Allen Phibbs believes you should think of your shop as a block of ice.

“The minute you open up the door, the ice starts melting,” said Phibbs, director of academy programs for the National Automobile Dealers Association (NADA) who has over 15 years’ experience working exclusively with commercial dealerships and manufacturers. 

“The job is to chip away that ice and sell as much of that ice before it all melts away, because when it melts away, it’s gone. If this was in your parts department and you don’t sell it today, you can sell it tomorrow. If you waste eight hours of time in a stall of a service department, you can’t sell that tomorrow.”

In his presentation, “Using the NTDA Service Labor Hours Guide to Increase Efficiency,” he said that everything that’s done should be measured.

Allen Phibbs, Director of Academy Programs, National Automobile Dealers Association

“British scientist Lord Kelvin said, ‘You cannot improve what you cannot or do not measure,’ ” Phibbs said. “The more frequently you measure and report performance, the bigger the impact on sustained improvement. Most organizations measure results in the form of a financial statement, not the activities that drive results. If you measure what drives the results, the financial results take care of themselves.”

Phibbs said 85 NTDA dealer members participated in a survey based on a time study of dealer members’ trailer repair and installation experiences, and the survey revealed that only 67% of them track labor gain/lost.

He said there is a difference between the amount of time a technician spends working in his stall as compared to the amount of time he is present for work or on the clock. An example would be a tech who had 40 actual hours clocked in (present). He billed 32 hours (and it doesn’t matter whether it’s retail, new and used, or warranty). That’s 80% productivity.

“The goal is 100% productivity,” Phibbs said. “You want them working on revenue-producing jobs the whole time they’re in the stall. What happened to the eight hours?  Waiting for parts, correcting notes, walking the floor to get parts, talking to other technicians.

“How can productivity measured? The total hours technicians reported to work and total hours billed. You can probably measure it all the way down to an RO. The more you drill that 40 hours down to a day and take that day down to a particular RO, you’ll find that you see improvement.”

He said 90% of survey respondents pay a straight hourly wage.

“Technicians are motivated to ‘show up’—your biggest worry—only slightly more that they show up on time and stay the full shift,” he said. “Most employees do not know what they are supposed to do. Imagine a sporting event without a scoreboard. How would participants describe it?  Chaos, boring, meaningless. Does this describe your service department? If it does, perhaps it just may be because the players do not know if the service department is ‘winning’ and each player does not know what they have to do for the team to win.”

He said productivity can be increased by bringing the work in and using proper scheduling; having the right number of technicians and the right “body” of technicians to meet demand; keeping them working on billable repairs (retail, new and used, warranty); improving the  quality and decreasing rework; and productivity tracking (ERP system).

He said a technician is not responsible for productivity or bringing in work. The shop manager is. Is your shop scheduling/staffing designed for the convenience of your customers or your employees? The shop manager should know the hours available to sell every day.

“Are you maximizing your facility utilization?” he asked. “Keeping them in the bay? How? When it comes to parts, 10 minutes per RO is wasted. If you are paying hourly, what accountability is there to the technician for rework?”

What is the service opportunity? He said that according to industry analyst Stu MacKay, here is the breakdown of 76 million trailer service hours at $75/hour: paint/body, 29%, $1.65 billion; preventive maintenance, 28%, $1.6 billion; brakes, 19%, $1.1 billion; electrical, 10%, $570 million; suspension, 5%, $285 million; seals and bearings, 3%, $171 million; and all others, 6%, $342 million.

How much is your share? Do you know your market potential? Do you know your market share? Your manufacturer(s)? All makes? How would you determine market potential? How would you determine market share? Are you only servicing you own manufacturer? Do you service all makes?

He provided MacKay’s numbers for service outsourcing: paint/body, 32 miles/55 minutes; preventive maintenance, 18 miles/24 minutes; brakes, 31 miles/39 minutes; electrical, 35 miles/44 minutes; springs, 35 miles/43 minutes; seals and bearings, 35 miles/43 minutes.

He defined technician efficiency as “how quick the technician is at completing the work. Number of billed hours charged to the customer (retail, new and used, warranty) divided by the actual technician hours worked.

Efficiency can be increased by always preparing an estimate. Give the total job, starting with diagnostic. Always use an SRT times chart (NTDA/OEM/supplier).

Communicate with the customer, who always wants to know two things: “How much time? When will it be done?” Do not talk rate and hours.

“So if you were quoting full brakes/two axles, using $100 per hour and assuming 1:1 parts-to-labor ratio and 4.7 hours of labor, it would be $940,” he said. “You may have a shop or supplies charges and taxes that would need to be included in the quote. Do not say, ‘Well, that will take 4.7 hours at our door rate plus parts … ‘

“Look for and implement ways to reduce wasted time. You could have an increase in major body work repair, which usually commands a higher price. Jobs with higher hours equal greater efficiency. Don’t take in jobs you aren’t equipped to do. A variable labor rate depends on the complexity of the job.”

“Time wasters are clutter and finding tools and obtaining parts. Also, cell phones, food truck, tool truck, waiting for customer approval—external/internal/warranty. Do you think this has anything to do with quotes up front? Higher skilled jobs command more hours and increase productivity and efficiency.”

Phibbs defined Effective Labor Rate (ELR) as “the actual dollars per hour a shop is paid for its labor billed. It’s total dollars billed (retail, new and used, warranty) divided by number of hours billed.”

Example: a shop sold $100,000 in labor, with 1600 hours billed. The ELR is $62.50 per hour ($100,000 divided by 1600). ELR can be measured by customer pay, internal and warranty. Customer pay can be further measured by competitive, maintenance, and repair.

He defined Gross Effective Labor Rate (GELR) as “the actual dollars per hour a shop is paid for their labor billed.  It’s total dollars billed (retail, new and used, warranty) divided by number of hours technicians worked.”

Example: a shop sold $100,000 in labor, with 2000 hours billed. ELR is $50 per hour ($100,000 divided by 2000).

Phibbs said it’s important to know what you are measuring. What is the difference between OELR and GELR?  Efficiency.

“How can this be measured?” he said. “Shop, individual technician, individual RO, and individual ‘estimator.’ “

He said Variable Labor Rates (VLR) are important  because of profit opportunities—discounting, intentional and unintentional, along with competitive pricing and proprietary pricing—and the OEM relationship on warranty rate.”

He said VLR immediately impacts ELR and gross profit dollars.

“Historically, we see an increase of 3% to 6% in revenue/gross profit with VLR, without a decrease in RO count,” he said. “Intentional discounting is a pre-determined price given to a customer. Unintentional discounting is dealership personnel giving a discount to a customer without ‘permission’—discounting hours and rate. 

“The impact of both process and personnel is almost always directly related to quoting a total job upfront—it is usually diagnostic that suffers. Competitive pricing is intentional discounting to compete in the market.  It is not the lowest or same price, but it means being competitive on price. Proprietary pricing is based on what you are good at—the only game in town.”

How can you increase ELR?

“Increase productivity and efficiency, especially by estimating with proper SRT times, scheduling, improving quality by doing less rework, incentivizing technicians for efficiency, implementing solid metrics, managing the people and processes, and minimizing waste,” he said.

“Keep score—the ‘game’ and the ‘player statistics.’ It’s about accountability.”

The data in the NTDA Service Department Labor Hours Guide can be used in establishing baseline installation times for dealership operations, enabling service departments to take stock of their current production levels and pinpoint potential areas of improvement. 

The Guide offers the following:

• Average completion times for various procedures on dry vans, flatbeds and refrigerated trailers. Limited dump trailer information is also included.

• Expected completion times for various equipment installations, including but not limited to: liftgates; floors; doors; hardware; electrical/lighting; wheels, tires and hubs; bumpers; brake controls and air systems; and others.

• Average times for painting and touching up certain parts and equipment.

• Employee compensation.

• Potential opportunities to enhance operational efficiency.

The Guide contains a breakdown of the tabulated installation times for 22 types of trailer components and equipment, showing average times in terms of hours. It also features key information about respondents’ operations, including data about personnel, shop financial metrics, mobile service, and more.

The 2015 Service Department Labor Hours Guide is available free of charge in a .pdf format to NTDA members. Printed copies of the Guide are available to members for $49. Nonmembers may purchase the Guide for $149. To order a printed copy of the Guide, contact NTDA Executive Director Gwen Brown toll-free at 1-800-800-4552, direct dial (810) 229-5960, or e-mail [email protected]. ♦

Find the NTDA Show Report archive with articles from 2012 to present

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