Shop Operations: Setting Up a P&L Statement for Your Auto Body Shop
Lean is about a process of continually ‘getting it’ because you never stop trying to get there. But you must begin with understanding where you’re going and why you’re going there.
Over the last two years, the number of
vendors, insurers and collision repairers discussing process efficiency as a solution to the industry’s problems has grown at an unbelievable rate. Two years ago, I would’ve said that less than five percent of the industry had even heard about this different method. Today, you can’t seem to get away from it. Nearly everyone has at least thought about redesigning fundamental collision repair processes, things like “blueprinting” repairs up front to ensure estimate and parts order accuracy and “segmenting” work through the shop by breaking out lower skill tasks and assigning them to lower-skilled techs. These improvements in process efficiency seem to be a viable solution in a time when not many others are offered.
But with the good comes the bad, particularly the more frequent use of words like “lean,” “six sigma” and “T.O.C.” in the industry. “Lean” seems to have become a buzzword, and many in the industry are scrambling to jump on the bandwagon. For me, this is a cause for great concern. Why? Because the history of things that have become buzzwords in our industry hasn’t been very good.
For awhile, the word “consolidators” was in vogue, and while more and more repairs are performed by fewer and fewer repairers, the overwhelming truth is that consolidation hasn’t taken over as expected. I just don’t want “lean” to be the next victim. There are many organizations offering lean solutions for shops, without the experience to successfully see it through. I know that we’ll begin to hear horror stories of how “That s*#t doesn’t work” or “We tried it awhile ago and it was a waste of time.” So before you casually jump into it, I want to take a moment to make sure you know where you’re heading.
The statistics of companies that successfully become lean organizations are impressive. Many see a 300, 400 or 500 percent increase in productivity; some even greater. That improvement in productivity results in an even larger jump in net profitability. Most organizations reduce their “lead time” (our cycle time) by two-thirds or greater and wind up producing more work in much less space, sometimes just a fraction of what it used to be. Most see a dramatic reduction in inventory or “work on hand” required, which leads to dramatic reductions in overhead cost.
But the dark side of lean is that most companies don’t make it through the transformation. Some will try it for several months, never truly understand why they’re doing it and, after much frustration, simply go back to the old way. Some will see value in the “tools” lean practitioners use, things like visual management systems or bits of work flowing through production or kaizen (continuous improvement) activities. These are all good tools, and may even improve some outcomes, but often many companies will stop here and never progress further into creating true lean organizations. The danger is that these half-hearted attempts may quickly be touted as “reality,” and real “lean” value will never truly be able to flow to the consumer. Insurers and other consumers may move to different solutions and develop little or no interest in supporting these lean efforts. As a witness to the true value this type of thinking can bring to our industry, I can say that this kind of outcome would be a shame.
So what should you know before you jump in? There are a couple of key things to consider:
•“Lean” isn’t something you can simply purchase and install. It’s not a management system. For example, you may have worked with consultants in the past who’ve examined your business and recommended several techniques to implement for better results, i.e., adjust your compensation system to ensure greater tech efficiency by reserving a large percent of hours until work is completed (or something like that). Lean will not give you something to turn on or off immediately. It will not give you something to install on top of your current platform. It will simply show you things that’ve been there all along but that you haven’t been able to see before. It recommends no changes, it just presents you with opportunities.
•Lean is a process of discovery, just as putting popcorn kernels in the microwave and pushing the correct buttons is the process of making popcorn (the outcome of which is a bag of delicious popcorn). By implementing certain lean tools and techniques, you end up with a delicious bag of discovery. Doing all the lean things you learn will result in your discovering better ways of doing things that lead to better results for all parties involved. So understand that lean is not about a better way to fix cars, but about a better way of developing your business.
•Lean is not a different way to do the same old thing; it’s a different thing altogether. If you’re planning on doing basically the same thing, you better stop, return the book and get your money back. What I mean is that if you’re a lean organization, you’re solely in the business of improvement – not the auto body business, parts manufacturing business or construction business. The real outcome you deliver each day is an improved process, even if that process is only improved just a little bit. Improvement is the objective, it’s not the repaired car or water pump or pole barn. Those things are only the “vehicle” (no pun intended) you use to deliver the improvement. You’re in the “great process” business. You make “great process.” This is a fundamental difference in thinking that must be grasped if you’re ever really going to make it happen.
•Lean is so easy that it becomes way too difficult for most. You’ll learn everything you need to know about lean in just a couple of days, but it’ll take you years to internalize it. It, by no means, involves complex thinking – it’s all common-sense stuff. But this becomes a problem for many. For example, most businesses have a simple operating model. If you had to explain what it is for collision repair shops, you’d say we:
- Write the estimate
- Get the parts
- Start the repairs
- Get the hidden stuff
- Finish the repairs
- Do the billing
- Get paid.
This isn’t rocket science. But this simple process of repairing cars is difficult to execute, right? Lots of different things go wrong each day, and there’s lots of running around to deal with all the crazy things that pop up. For example, a customer walks in with a wind noise, someone runs to look at it, wrong parts show up for a car that has to go today, someone is sent to deal with it, on and on. So what happens is that those who work in or manage these chaotic businesses get used to the chaos. In fact, they’re rewarded for their ability to deal with the chaos. Over time, it becomes their job to become the “chaos control experts” and they become invaluable to your operation. You panic when they go on vacation. In fact, they aren’t allowed to.
Now, move to a lean organization where you’ve created a process for collision repair. That means there’s a specific time and place for activities, a sequence in which to perform them, a standard way where everyone knows what to do and when to do it. Basically an organized, evenly paced, calm environment where things just plug along.
Now, enter Captain Chaos, this person who once found personal satisfaction in solving an incredible variety of problems, who could just find a way to make cars leave and complained about it but secretly loved the rush. Place this traditional Master of Disaster in the middle of this new lovefest and what do you think happens? First, that old sense of reward is gone, and this gets uncomfortable. Next, the need to think through complex problems and create ad hoc solutions is gone. But what remains is this person’s genetic predisposition to complexity. The result is that everything suddenly becomes over-thought, the “it can’t be this simple” syndrome. It’s the never ending question of, “What do I do when this happens,” the constant barrage of exceptions that can derail even the leanest of thinkers. There’s a lingering desire to douse fires that don’t exist, so much so that at some point, this person actually begins to set the fires himself.
This is a reality you’ll have to deal with. It’s really as simple as it all sounds when you’re first taught. The problem is that you can only learn how simple it is by doing it. The learning curve can be long here, but it’s up to you. You must begin by “just doing,” or you won’t learn. Be prepared for simplicity – you’ll need help to keep things simple. We’ve been complex for way too long.
I’m not delivering this message to discredit anyone’s efforts or dissuade you from pursuing a lean business model. In fact, I encourage everyone to learn more about what’s being delivered by some of the lean body shops out there. I only raise these issues due to the high level of interest in lean when compared to the high level of difficulty in its execution. There’s way too much value being produced by this group of lean collision repairers out there for lean to go unrecognized or meet its demise through the curse of the buzzword.
So what’s being delivered by some
of these shops? How about seeing cycle times drop to four or five days on average – on all vehicles, real calendar days, keys to keys – in an industry that still averages a dozen or so? How about shops of just 5,000 to 7,000 square feet producing $2.5 million-plus in sales? How about net margins four or five times that of the industry average? How about doing all this at a severity that’s competitive with the market averages? Some even charge less, just because they can.
What’s even more impressive is that every truly lean organization is beyond the satisfaction these results bring; they’re already working on moving the needles again. Can you image what the industry would look like if these results spread? The synergy that could be created between collision repairers, insurers, vendors, suppliers and vehicle owners would be awesome.
It’s a win-win-win situation. Customers win through reduced cycle times, higher quality and predictable service, even lower claims costs. Insurers win with reduced costs with rental expenses and the reduced severity available from the higher margins shops achieve. Vendors and suppliers win through more organized supply chains and predictable demand, and even a reduction of current pricing pressure. Lastly, and most of all, collision repair shops win in so many ways. Great profits are realized, relationships with insurers quickly become mutually profitable partnerships, customers love you for the right reasons, your employees’ stress levels drop, work becomes exciting for everyone, you bring stability to the organization and futures
A Very Different Way
If you’re considering “lean” as a solution to your situation, please remember that this is a very different way. Not a difficult or complex way, just a different way. In fact, it’s just a way itself. Lean happens during the journey, not at some final destination. The improvement comes through trying to get to someplace new that you didn’t realize you needed to go. It’s in attempting to reach this never-before realized level of performance that you quickly become better than you were. A little better plus a little better plus a little better will always equal a whole lot better, and better is better.
There’s no final destination for lean. No one can ever tell you how long it took, because you never stop trying to get there. All anyone can tell you is how long it took before they understood a certain concept or saw the real value in a tool. It’s a process of continually “getting it” because you never stop learning more about it. But at the end of the day, it’s a matter of starting. This must begin with understanding where you’re going and why you’re going there.
If you think it’s for you, then start by getting your head wrapped around the idea. If you can’t see yourself continually seeking to improve or rethinking the business you’re in, then don’t do it.
Contributing editor John Sweigart is a principal partner in The Body Shop @
(www.thebodyshop-at.com). Along with his business partner, Brad Sullivan, they own and operate collision repair shops inside new car dealerships, as well as consult to the industry. Sweigart has spent 21 years in the collision repair industry and has done everything from being an independent shop owner to a dealership shop manager to a store, regional and, ultimately, national director of operations for Sterling Collision Centers. Both Sweigart and Sullivan have worked closely with former manufacturing executives from Federal-Mogul, Morton Thiokol and Pratt & Whitney in understanding and implementing the principles of the Toyota Production System. You can e-mail Sweigart at [email protected]