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Building a Case for Industrialization

When your competition industrializes their operations, their production efficiency will improve dramatically – possibly 37 to 50 percent in a single shift. With such fierce competition, can you afford to continue doing something because “that’s the way we’ve always done it”?

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If you want to lose your competitive edge – and possibly your business – then don’t read this article.

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It’s true. Industrialization is a serious topic, and serious repercussions may result for those who choose to ignore industrialization – hoping it’ll just go away. It won’t.

Whether you want to believe this or not, you’re going to have to streamline your operation in the coming years to remain competitive. If you don’t, you won’t be able to generate and maintain the profits necessary to stay in business – the competition will be too strong.

This may seem like a “doom and gloom” prediction, but all indications point in this direction. For those of you in smaller market areas with populations under 70,000 and 50 to 60 miles from a large population mass, you may get a temporary reprieve – industrialization won’t be a major threat immediately. But regardless of where your shop is located, industrialization will affect how you do business because the standards (benchmarks) will be set by the most productive shops, and the statistics will clearly show a difference. This, in turn, will affect – and increase – the expectations of both insurers and customers.

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It’s Not Business as Usual

Why is industrialization a threat to those of you who continue with business as usual?

1. When your competition industrializes, they’ll be more efficient – lowering their cost of doing business and putting them in a better position for pricing.

When your competition implements proven industrialization systems into their operations, their production efficiency improves dramatically. Many say this could mean a 37 to 50 percent gain in a single shift operation – and I agree this is very possible. And multiple shifts improve efficiency even more.

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Keep in mind your facility is probably closed more often than it’s open. Just look at a typical production day. Doors open at 8 a.m. They close at 6 p.m. Are you open on Saturdays? Even if you are, there are more non-production hours than production ones. Count them.

Once your competition implements these systems, their cost of doing business – their cost per unit produced – is much lower than yours. Why? Because every production hour added allows distribution of their overhead costs over a larger number of units. This puts them in a favorable position for pricing.

They can drop their prices below what you can afford to do, capture the market and run you out of business – all before you can say Wal-Mart. But this isn’t likely at first, since they don’t have to drop their prices that low. For now, they actually want you in business since you represent normal market prices. This allows them to charge similar higher prices and recover their investment costs more quickly. They’ll likely lower their prices just slightly below yours, but their profit margin dollars are much higher. But they always have the flexibility to lower prices as needed to gain market share. And you can’t win a price war.

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For example, let’s say you pay $100 for the main product you buy for re-sale, while your competitors pay $200. Now imagine the general market retail price is $300. You can, if desired, discount your retail price to $233 – knowing your competitor can’t cover the overhead at that price level – and still make a substantial profit. But you don’t do that, since you want the pricing to remain as high as possible so you make considerably more profit. This allows you to include a lifetime warranty, free replacement during service, better marketing, etc. And this increases your market share, since the customer begins to expect these value-added offerings. What was once a bonus is now commonplace. This then places a great deal of pressure on your competition, and unless they can get the same pricing, will cause their demise.

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2. Your industrialized competition can offer more value-added services than you.

These value-added services can include car rentals/loaners, complete detailing, free 30-day inspections, oil changes, etc. With their increased profit margins – secured by keeping their prices close to the normal market prices – your competition can easily include such value-added services. This sort of conditioning will lead to customers expecting these services – even from you.

I’ve heard shop owners – and even insurers – say they don’t see how people can offer car rentals as loaners or other value-added services at no cost, so they must be accomplishing it through fraud, overpricing, etc. This mindset is a prime example of why our industry needs better schooling in business management, marketing and financial understanding. These offerings can be built legitimately into a pricing model without causing a price increase to the customer or insurer. It’s basic business.

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It’s Happening Now
Shop layout changes, equipment updates and new products will help shops industrialize, but they’re only a small piece of the puzzle. Human resource management, training and production management changes will be the real challenges.

This complete management philosophy is fairly new to our industry – though it’s been introduced piecemeal in our industry for years and as a complete system in many other industries worldwide with dramatic results. Many different systems apply these principles, are called by many different names and have been championed by many different industrial leaders. Because I only get so much space for this article, the system I’ll focus on here is the Toyota Production System.

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After World War II, Japan was devastated economically and was willing to take advice from anyone who would help them recover. This is when W. Edward Deming introduced Japan to statistical quality-control methods and the importance of building quality control into the process – not simply into final inspections. Later, Joseph M. Juran also introduced quality management concepts. These concepts assisted Toyota in developing their own system. Mr. Toyoda (this was the original spelling of his name, before it was changed for marketing reasons) mandated his managers follow many of these manufacturing requirements – requirements that were thought impossible at the time. Toyoda expected his managers to introduce innovation … and they did.

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From this came the Toyota Production System (TPS), Zero Quality Management and Single Minute Exchange Die Systems. By adapting proven TPS manufacturing principles to the body shop environment, the Toyota On Time Collision Repair System also was developed – and recently became available to Toyota Certified Collision Centers nationwide. (One pilot dealer of the program has reported gains up to 40 percent in overall productivity.)

Credited for TPS are Shingeo Shingo and Taiichi Ohno – a teacher and a front-line manager team – who introduced, trained, improved and re-introduced these concepts for decades in the Toyota manufacturing process. They also introduced other innovations that directly relate to manufacturing – but not to our industry.

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TPS strives to constantly reduce non-value-adding items and waste from every process involved in producing a product. Don’t accept what’s running OK today but ask what can be improved to make it better tomorrow. TPS recognizes that the total product cycle (cycle time as it relates to our industry) can’t be any faster than the slowest process. This may sound simplistic, but compared to how manufacturing is commonly performed – even today – it’s revolutionary.

In our industry, we allow inventory to build up in all areas. We have schedule backlogs, vehicles waiting in our lots, vehicles torn down in production stalls waiting for something and metal departments producing large inventories only to have vehicles waiting in line until the paint department can get to them. These are all waste factors that TPS addresses to remove.

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I know what you’re thinking. We assume that since every collision is unique, attempting to design an assembly line process isn’t possible. But you’re wrong. TPS has proven time and time again in many industries that it can work – and does.

How Does It Work?

In the TPS model, operations and tasks are broken down logically to achieve the best total time completion and equipment/staffing utilization. Cross training is necessary to meet fluctuating customer demands and product mix. Training and shop/equipment maintenance are also high priorities for continuous operations.

The key formula to remember is:
Present Capacity = Percentage of Work + Percentage of Waste

True efficiency is reached when we reach zero percentage of waste and 100 percent of work. The key targeted areas of waste are:

  • Waste of Overproduction
  • Waste of Time on Hand (Waiting)
  • Waste of Transportation
  • Waste of Processing Itself
  • Waste of Stock on Hand
  • Waste of Movement
  • Waste of Making Defective Products

Eliminating these wastes completely can improve your operating efficiency by a large margin. This then forces you to place equipment and products and utilize staff in the most logical manner and location to complete the product/service at the specified time. This may mean having a staff member assist another staff member when a product won’t otherwise meet the time requirement (in our case, target date and time of any operation).

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Many tools are used in TPS to accomplish these strategies. I can’t explain them all here, but for more specific information on Toyota’s On Time Collision Repair System (an adaptation of TPS), see the article “Two Lines, Faster Times” on page 48.

Besides the tools used in TPS, this system also places responsibility on management to properly manage and be actively involved. The system continually looks to reduce and eliminate waste and non-value-adding tasks to any operation. It requires teamwork and a philosophy that Japanese refer to as Kaizen.

Kaizen … a Lesson to Live By
The glue that holds TPS together is a philosophy known as “Kaizen.” “Kai” is Japanese for change, and “Zen” is Japanese for good. Kaizen is translated to mean either improvement or continuous improvement.

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This is the concept that holds together all the pieces of the production puzzle and makes such dramatic results possible. The Kaizen principles rely on teamwork, reduction of errors, reduction of waste and the ability of workers and management to communicate effectively. Sounds like a typical U.S. collision facility, right? Yeah, right.

Implementing this philosophy is the hard part for our industry to grasp. Why? Because the culture in the Western World is much more independent and individualized than the Far East culture. Even though this independence has allowed the United States to be a leader in innovation, it’s a major stumbling block in the collision industry. I’ve discussed Kaizen and TPS principles with many clients, consolidators and collision industry leaders. The key to success for implementing this industrialized process is directly related to how the staff will accept the change to teamwork.

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Kaizen philosophy is built upon some very basic, but important, foundation values. These core values must be present, or the system has little likelihood of success. (These are further explained in “Kaizen Strategies for Winning Through People,” Shelia Cane, Pitman Publishing 1996.) The core values include:

“Trust and respect for every individual and the organizational belief that:

“Each individual should value and respect every other individual, not just people in their own department, their own specialization or their own level.

“Every individual should be able to openly admit any mistakes he made or any failings that exist in his job and try to do better job the next time. Progress is impossible without the ability to admit mistakes.”

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These core values develop an employee who pays attention to detail, is receptive to constructive advice, is willing to take responsibility, takes pride in his work and organization, has a forward-looking approach and is willing to cooperate.

I was chairman of a project to introduce an apprenticeship program in my home state of Indiana in the mid-1980s. From this project, we surveyed current collision shop owners as to what skills they felt were needed by students entering the apprenticeship program. This was very important to me since at the time, I was a secondary vocational instructor for collision repair. To our surprise, the first 14 items that overwhelming came out of the survey had nothing to do with the technical aspect of the career. Instead, they had to do with what we termed, “employability skills.” All of the above listed core values were there. There’s still truth in the saying, “You hire for attitude. Train for skills.”

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Kaizen relies on the input of the front-line staff – the people who know what’s going on and normally have the best ideas for improvement. The key is to get your staff involved.

Kaizen promotes the organization being focused on continual improvement. No matter where you begin, the goal is to not accept what is now, but to keep improving it. This requires a major change in our present thinking. And it won’t happen overnight.

Change … or Be Left Behind
Change isn’t easy. Unfortunately, many in this industry will elect not to change until it’s required. This creates an opportunity for others if they look “outside the box” before you do.

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I honestly believe that within the next two years, shops in metro areas will be under pressure to industrialize. But innovation is when something is done today that was thought to be impossible yesterday. And it’s done before you have to do it.

What about those of you out there who refuse to change at all? You may be your own worse enemy. I suggest you locate more information and learn how these principles will be used and how to accomplish them yourself.

And when you catch yourself doing something because “that’s the way we’ve always done it,” remind yourself of this: Our industry will continue to change … with or without you.

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Hopefully you’ll decide to be part of it.


Contributing Editor Tony Passwater is president of AEII, a consulting, training and system-development company. He’s been a collision repair shop owner, vocational educator and I-CAR international Instructor; and has taught seminars across North America, Korea and China. He can be contacted at (317) 290-0611, ext. 101, or at ([email protected]).

We Need a Better Pay Plan

Frederick Taylor has been credited by many as the industrialist who introduced “incentives” for production output to the manufacturing world. We can then credit him indirectly for the concept of our flat rate or commission systems we use today.

Having been raised on this flat rate/commission system all my life, I – like many of you – have defended it much too long. It’s simply a lazy man’s way of managing the business. It’s thought to be a way to protect the owner from “non-productive” production staffing costs because pay is only received based on the worker’s production output. These systems deter teamwork and promote individual performances. This I’m sure most of you can relate to.

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Flat rate or commission systems also don’t reduce the risk of poor profitability. Your costs of doing business continue whether hundreds of hours – or none – are produced in a technician’s work stall.

But unless our industry changes to a different pay plan – one that rewards for something other than individual performance – we won’t be able to implement a teamwork approach. What should the rewards be? It’s too early to know, but I suspect they’ll revolve around CSI levels, comeback ratios, training taken and passed, process improvement ideas, etc. They won’t be tied directly to quantity produced, but rather, process performed. If we introduce the correct process, the quantity should be there.

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A good friend of mine, Ron Kuehn, had an article in November 2000 BSB, “Is Your Paint Shop Profitable?” His experience has shown similar traits in top shops and similar traits in unsuccessful shops. “Implying a shop owner can’t be successful because he pays his technicians on a percentage of labor isn’t accurate,” says Kuehn. “However, the most successful shops operating with the highest efficiencies and profitability don’t [pay on a percentage of labor].”

10 Reasons to Industrialize
1. Eliminate employee shortages.
2. Improve quality.
3. Improve your Customer Satisfaction Index.
4. Improve your Employee Satisfaction Index.
5. Standardize processes.
6. Address accountability.
7. Improve pay plans and benefits.
8. Encourage team building.
9. Produce much larger volumes of work with an error ratio of almost zero.
10. Increase profits.

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