Learning to leverage

RON SLEE believes many truck equipment shops take for granted the assets available to them.

He believes that leveraging service assets requires the correct level of supervision, the right training to fill skill gaps, the right tooling, and the right methods and processes.

“The service business is the only business we have left in industrial distribution industries that allows us to differentiate us from our competitors,” he said. “Almost any engine, part, suspension, or trailer can be purchased from somebody else. And the variation on the products or services we provide from one vendor to another and one manufacturer to another is getting narrower and narrower. As technology continues to proliferate, that variability between suppliers will one day disappear. You'll be left with what you do to your customers, how you do things to your customers, and what they think of you, as the only difference that's going to have them coming back to you.”

In his Work Truck Show presentation, “Leveraging Your Service Assets,” Slee — president of R J Slee & Associates — said the service department is a lot more than simply a place where things are repaired and rebuilt. It's a place where people are looked after.

He said that in his service management training sessions, he asks the trainees, “What's the profile of a good mechanic?” The answer deals with a worker who is conscientious, earnest, and hard working. Slee mentions that many are messy and hate paperwork — which is not good, because many of the top technicians are promoted to service manager without ever learning to be organized and careful with paperwork.

And then the service manager is saddled with technology that's outdated.

“Typically when you open up a work order or repair order, you're talking with a customer and you have to ask him, ‘Who are you?’ ” Slee said. “That's not customer friendly, is it? There's now a thing called IP — Internet Protocol — that, when the phone rings, provides information on who's on the phone, parts history, what he bought from you recently, whether it's his birthday or anniversary, and whether they have a repair order open.”

Low pay

He said there is no shortage of technicians. It's just that shops do not pay enough.

“So over the next five to 10 years, get ready for wages to double,” he said. “That means labor efficiency is going to have to get better, and it means insurance rates are going to go up. We can't continue in our industries with the wages we pay and expect young kids coming out of school to want to get into this business as a mechanic. We have to attract that young talent.”

He said that's done with good labor rates, quality work, predictable times, and specialized tooling.

“Everything in there relates to an asset,” he said. “The labor rates are the personnel asset. How do you set your labor rate? We all call around to our competitors. But I want you to look at it in a different way — what's called a wage multiple. It is the number I'm going to use to go from the wage of a mechanic — no benefits, just the bare wage — to the selling price. I want to determine first of all what my costs are going to be. If I know what the costs are, should I also be able to tell you what my selling price is going to be?

“I need to be able to say, ‘I'm going to make 25% net income. My expenses can be 40%, and the gross profit then has to be 65%.’ I don't want to call the guy down the street and find out he's $72 an hour. Then I'm left with, ‘OK, so where do I put my rate? $70 or $74?’ I fall into the trap any time I call around to other truck equipment manufacturers to find out what their rates are. I can't differentiate myself that way, can I?

“Then I have independents, and they can always beat my price. The only battleground I get onto is when I have standard prices or fixed prices: ‘That repair's going to be $1202.’ If I do that to a customer, the first question he'll ask is, ‘What's the labor rate?’ ‘Ah, it's $120 an hour.’ ‘Darn, that's expensive.’ ‘I'm sorry, it's $12 an hour.’

“And the second question he'll ask is, ‘How long is it going to take?’ ‘It doesn't matter. It's $1202.’ ‘Sure, it does. How long?’ ‘120 hours.’ ‘That takes forever.’ ‘No, I'm sorry, I meant 12.’

“They're trying to get you on a field of play they can control. And time and price are pressure points. And you can't defend yourself in either case, because they're always going to say, ‘I can get it cheaper down the road.’ And it's true.”

He said the competition is the customer mechanics, independent shade tree mechanics, specialized repair shops, and the machine owners themselves.

Peanut butter

He said the problem comes with what he calls “Peanut Butter Prices” — shops under-price higher technical work, over-price non-technical work, over-price maintenance services, and under-price highly skilled labor.

“We take a specialist who has been around 20 years and we take his labor and put it in a grinder,” he said. “We take a guy who's just come in as an apprentice and put it in a grinder. We take a guy who has diagnostic skills and put it in a grinder. We take the guy who shows up late drunk two times a week and put it in a grinder. We grind it all up and come up with one price: $72 an hour. And we don't differentiate at all.

“The answer is market-based pricing. Set the prices according to the degree of difficulty of the work, the skills required from the mechanic, the frequency of the type of work, and the tooling required for the work.”

Slee said a shop should give a customer a fixed-price before the work is started — a finish date that “has teeth” and is not just “pie in the sky.”

“Tell them, ‘Pick up your truck at noon, and if it ‘s not ready, I'll give you $100 for every hour you have to wait,’ ” he said. “You want to call the guy three days after the job and say, ‘How did it go? Everything good? Did I do everything in the time that I said I was going to do, at the price I said?’ Customer service has gotten so bad that people don't complain anymore. They just go away.”

He said the price should be set so that the shop can make money — something that is necessary and expected.

“If you're not making 25% net income, you're not trying,” he said. “If you're in a flat-rate shop, if it's a standard-time shop, and you manage it well, that's a 40% net income business — and that's still having extremely competitive rates.”

Slee said a service manager has responsibility for only two things — labor efficiency and quality — and the best way to improve both is through supervision and management.

“So I want you to emulate the Roman Empire and have one supervisor for every eight to 12 mechanics,” he said. “I want him in the middle of them, spending 15 minutes in the morning and 15 in the afternoon talking to each one. What do you think is going to happen to quality? Up. What do you think is going to happen to labor efficiency? Up. Roman Empire, year zero: 10 centurions, one boss. US Army, 2006: 10 GIs, one supervisor. It works.

“Intuitively in your belly and intellectually in your head, you're saying, ‘That's going to cost too much money.’ Who said you can't charge for it?”

He said each hour of rework or service-warranty work is a lost hour to sell. He said rework should not be more than 15 hours per technician per year — or 75 minutes per month. He said somebody else should inspect the work, and if it doesn't pass, a personal performance review should be scheduled.

Achieving improvement

How can this goal be achieved?

The correct level of supervision. “That's typically where we fail.”

The right training to fill skill gaps. “I need to have a skill set. I need to know what every technician is good at and not good at.”

The right tooling. “This should be an asset you crow about. As technology becomes more important, that tooling can set you apart.”

The right methods and processes.

Slee said businesses should leverage their quality by extending the warranties and offering special rewards.

“The warranty shouldn't be any less than one year,” he said. “You should say, “If you find something wrong within the first 30 days, I'll give you $50 off the next repair.' Think any independents are doing that? If I have good quality, go up to a year.

“I want you to go to a standard price on labor, because the customer wants predictability and consistency. If they're anything like you, they don't want a surprise on a bill. That's why the medical community is in such a fix.

“Let's leverage our knowledge, because many manufacturers are giving us standard times, we have more repeat work on our equipment than anyone else, we have specifically trained technicians, and we have specialized tooling. So let's take advantage of that and implement a flat-rate pricing system using market-based prices that provide higher sustainable value.

“The Peanut Butter Approach to labor rates hurts us. If I have a man who's a wonderful mechanic and I've got another fellow who's just starting out, and I give them both a job that should take six hours, the young guy in all likelihood will take eight hours and the senior guy will take four hours. And if you want to try a test, give them eight hours of standard-time work to do at the beginning of every day and tell them when they're finished, they can go home. You want to watch how quickly some of the senior guys get that job done? Now, put a caveat on it: ‘The reworks are on you,’ so they don't just rush through it and make mistakes.”

He said that even though it sounds silly, he recommends that every manager make a list of the shop's specialized tooling and put a price beside each item and total everything.

“Every time you buy a tool, add to the total and put a big sign on the wall with it, right beside the DONE RIGHT FIRST TIME guarantee,” he said. “You're trying to set up a difference between yourself and the customer mechanic, the independent mechanic, because they don't have these things.

“If you don't talk about it, who will? If you don't flaunt it, who's going to? You have things you take for granted. It's called The Curse of Knowledge. You walk by things every day and take it for granted. The way the shop is laid out gives you an advantage. Hopefully, it's been designed to give you an advantage. Hopefully, it's been designed for labor efficiency and quality. If your competitors are as well-equipped as you are, how do you combat that? With your internal knowledge and standard times. You have something you can differentiate yourselves with. Check the competition, and if you have others the same as you are, focus on them. The rest you can beat up.”

Slee, a native Canadian, said his homeland has two national sports: ice hockey and lacrosse, both of which have a penalty box for those who are caught doing something wrong.

He suggests a similar thing for the shop.

“If a service manager has too much repeat work and it's been accepted for too long, you need something dramatic to change the landscape,” he said. “Tell the service manager, ‘I want you to come to me to get your next paycheck. And the next time, I want you to give me the excuse for every single redo since the last paycheck. And if there are too many, then the next time I want not one failure.’ You have to change the view for that service manager. “

Slee said the time to do this is now.

“If not now,” he said, “then when?”

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