As a shop owner, you’ve got two options: Create a monster of your own or prepare to be dinner.
As shop owners streamline their operations and improve their cycle times, their shops’ appetite for wrecked cars increases because it takes more cars to keep it “full.” To “feed” this monster they’ve created, they’re going to need more and more wrecked vehicles to repair.
Where will these additional wrecked vehicles come from? Most likely from the less efficient shops that can’t keep up.
During the past few years, insurance companies have begun measuring shop cycle time and demanding its improvement, while collision industry leaders have begun stressing its importance.
What’s all the fuss about?
In the past, insurance companies have used various methods to improve their bottom line at the expense of collision shops. Today, however, using cycle time as a tool to improve the repair process is positive for the vehicle owner and both industries – at the expense of neither.
Can that be possible? Isn’t this a zero-sum situation? Doesn’t someone always have to suffer?
Not necessarily. Only those who choose to ignore the importance of cycle time will suffer. Just don’t be one of them.
What’s So Darn Important About Cycle Time?
The collision industry is maturing, something all industries do. In the early stages of an industry, the selling price of a commodity or service is determined by calculating its expenses and then adding the desired profit margin to that cost. If production costs go up, the selling price is increased.
But this simplistic approach is becoming more difficult in today’s marketplace, as you well know.
As an industry matures, competition becomes more intense and price increases are restrained, forcing businesses to determine cost targets by subtracting required margins from the selling price. In simpler terms, when a business can’t raise prices due to market conditions, it must reduce expenses to meet profit objectives. This is called the minus-cost principle.
Though the number of collision claims has decreased over the past few years, the rising average cost per claim hasn’t been offset by the reduction in claims frequency. During this time, regulators and market pressures have caused insurance premiums to be reduced. Future predictions say claim frequency will level off, but the average cost per claim will keep rising.
While collision repairers often become frustrated when competition and industry practices don’t seem to allow for a reasonable profit, they don’t understand that insurance companies face the same dilemma. Attaining new insurance policy business is important – but expensive. On average, new insurance policies are unprofitable for the first four or five years.
This is why it’s so critical for the insurance industry to retain its existing policyholders in today’s business environment. And this is why insurers have started looking at cycle time. Studies indicate the amount of time taken for the completion of the entire repair process (cycle time) has an immense influence on customer satisfaction. And customer satisfaction has a tremendous impact on policy renewal. And policy renewal has a tremendous effect on profitability.
The length of time a claim file remains open also has an operational expense impact on the insurance company. Reducing the cycle time of the claims-handling process reduces expenses and helps achieve customer satisfaction. This same logic applies to the collision repair shop.
The days of passing along labor and material price increases are quickly ending in the collision repair industry. Determining how to reduce costs in the repair process while maintaining the highest possible quality levels will help assure the success for some organizations. Maintaining the status quo will help establish the downfall of others.
Recently, McKinsey and Company – a well-respected research and consulting firm – conducted an efficiency study of the collision industry. McKinsey’s findings concluded that the collision repair industry has tremendous opportunity for efficiency improvement.
The following are some important points of the study:
1. The industry uses a retail rather than a manufacturing approach to conduct business.
2. The industry has an inconsistent loading of production inventory (collision-damaged vehicles).
3. The industry is plagued with multiple interruptions of the production repair process.
Let’s explore each of these in more detail.
1. Retail vs. manufacturing approach
Retailers and manufacturers both have an investment in a facility and equipment, but their approach to profitability is different. Traditional retailers are open on specific days for a certain number of hours. Some retail companies are open 24 hours a day, seven days a week. They do this to maintain their overall customer base, knowing they’ll always operate at a loss during certain times of the day or night.
A pure manufacturing mentality would maximize the return on investment by remaining open only for as many hours and as many days as necessary, based on market demand. The manufacturing mentality strives to constantly increase market demand and adjust its hours accordingly, trying to make each hour’s operations profitable.
The McKinsey study concluded that collision shops more closely resemble the traditional retail approach. Collision shops are normally open for a set number of business hours, five days per week, regardless of volume. With the increase of parts replacement, the need to process (cycle) more inventory (wrecked vehicles) in a shorter amount of time is critical to profitability. To satisfy the customer’s desire for a speedy repair and maintain profitability, shops will need to develop a manufacturing (re-manufacturing) mentality
Using models from other industries, the collision re-manufacturing process could be defined as mixed-model production. This process allows for efficient utilization of resources while providing rapid response to marketplace demands. Mixed-model production is the capability to produce a variety of products that differ in material and labor content on the same production line.
2. Inconsistent loading of production inventory
This is a key area that negatively affects cycle time and efficiency. Most shops use the “in-Monday-out-Friday” (IMOF) scheduling system. But in a re-manufacturing environment, you consistently process work through each phase of production without interruption. If IMOF scheduling is used, however, each department is overloaded during specific time frames, creating inefficiency, poor labor management, quality defects and low employee morale.
The industry has evolved from the IMOF system. In the past, a shop owner was like a landlord, providing compressed air and a working facility for tradesmen who were independent contractors. Each week the shop was loaded with work, vehicles were repaired and the earnings were split between proprietor and worker at the end of the week.
Today, although much is different, the loading of the shop is primarily unchanged. Friday is a living hell for most technicians, managers, adjusters and rental car providers.
Many managers and industry consultants have addressed the IMOF issue and identified solutions to the problem. The result is the proper loading of inventory and the proper assignment of workers and equipment. This creates a smooth, “balanced” production flow that allows for maximum utilization of time, including overlap of operations where practical. Shop owners and managers who’ve adopted these solutions create cost savings for their shops and the insurance companies.
3. Multiple interruptions of the production repair process
The old adage, “failing to plan is planning to fail” reflects today’s collision repair process. Aside from repairing the vehicle, many shops have technicians disassemble vehicles for one of two reasons:
- To give the appearance a vehicle is in production.
- To identify additional damage and create a supplement.
In both cases, the system is unproductive.
Creating the illusion a vehicle is in process is poor production management and a dishonest practice to boot. Not only do the customer and insurance companies suffer, but so does your organization.
Too often, the only identified supplement items are those required to get the vehicle into the refinishing department. Additional items are “discovered” during the re-assembly process. It’s staggering if you measure the amount of time spent on phones, on hold, in meetings, locating someone on the premises or for the follow-up, and the stress created by the common “tear down” process to create each supplement.
Identifying additional damage to create a supplement isn’t a bad practice if organized correctly, but the process should be recognized as a pre-production step to create a complete blueprint for the repair.
In the emergency medical profession, a patient goes through a course of action called triage. Triage is a process of assessment and of assigning priorities for treatment. The triage process creates a treatment plan.
If each vehicle in a collision repair facility went through triage and a complete repair plan (blueprint) was created before beginning the repair process, imagine how smoothly the repair process would go.
During the triage and blueprint process, every necessary step of the repair is identified and documented, regardless of a labor charge for the task. After triage and creating a complete repair blueprint for the vehicle, “hold” the vehicle from production until supplement authorizations and parts procurement are satisfied. If the planning and preparation efforts are complete and accurate, the vehicle should flow smoothly through the production process without interruption.
Why You Want to Create a Monster
In the popular Harry Potter book series, Hagrid, the gamekeeper, decides to raise a baby dragon. The more the dragon eats, the bigger it gets. The bigger the dragon gets, the more it eats. Improving cycle time can have a similar effect on a collision business.
When you improve your shop’s cycle time, your shop’s sales capacity increases. When sales capacity increases, you’ll need more wrecked vehicles to attain new sales goals. And the faster your shop repairs vehicles, the more vehicles that are needed to keep your shop running at maximum efficiency.
Often, collision organizations make great strides in refining their repair processes, only to have the structure crumble when a slowdown in available wrecked vehicles occurs. What’s the answer? Constant marketing and sales pressure are paramount to “feed” the monster you’ve created.
But the monster – and its demand for more vehicles – is even more dangerous to your less efficient competitors. Why? Because as the number of claims continues to decrease and as more efficient operations like yours require more and more wrecked vehicles, the work done by less efficient competition becomes the target.
The future of collision repair shops is obvious: The efficient will survive. Will you be one of the efficient shops – or will you be one falling victim to the monster?
Writer Ron Kuehn is the director of Business Development for Sherwin-Williams Automotive Finishes Corp. His e-mail address is ([email protected]).
|Ten Collison Re-Manufacturing Commandments
Recently, Bayrock Press published Ten Commandments of Manufacturing Excellence. With some modifications to make the list industry specific, the following is an excellent guideline to follow when adopting a re-manufacturing approach to improving cycle time in a collision repair facility.
The 10 Commandments of Collision Re-Manufacturing Excellence
2. REPAIR and DELIVER rapidly to improve re-manufacturing productivity, rather than storing and moving parts and vehicles.
3. SQUEEZE TIME out of the cycle from receiving the vehicle through its delivery to the customer by eliminating redundant tasks and responsibilities that don’t contribute directly to output or quality.
4. IMPROVE the repair blueprint to enhance re-manufacturability and improve increased vehicle repair quality and reliability for the customer.
5. REDUCE per-unit consumption of purchased supplies, paint and materials.
6. REFINE the production process to promote simplicity and decrease resource consumption.
7. IDENTIFY and ELIMINATE re-manufacturing errors at point-of-performed task.
8. SIMPLIFY information and control systems; integrate them efficiently with blueprinting and production.
9. COOPERATE and COORDINATE with suppliers and service providers to share knowledge and increase joint effectiveness.
10. STRIVE continually for incremental improvements in all activities involved within the repair blueprint and delivery of the repaired vehicle to the customer.
Cycle time is the period of time within which a series of tasks or events takes place. Cycle time in our industry has many variations of measurement. The beginning and ending point of cycle time measurement varies, depending on what’s important to the individual or organization attempting to meet performance demands. An insurer’s file handler may consider cycle time from the claim file opening to the file closing. A shop owner or manager may measure “keys to keys” or “curb to curb” – the time a repair job takes from when the vehicle is received to when it’s delivered. If collision shops are to meet cycle time expectations, the starting and finishing points of measurement need defined and agreed upon by all parties involved in the repair process.