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Shop Gone Bad

Good shops utilize their facilities and technicians efficiently. Bad shops don’t. Surprisingly, profitable shops are often the worst

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As a management consultant specializing in
body shops, I’ve encountered a large number of "bad shops"
in my more than 25 years of industry experience. Everyone has
a different opinion of what a "bad shop" is, but I define
a bad shop two ways:

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No. 1 – a nice facility that’s grossly underutilized.

No. 2 – a shop that has a sufficient number
of technicians, but for various reasons, isn’t producing up to
its potential.

Both of these situations are bad, and both
result in sales performance way below a shop’s potential.

Just this week, I was working with an eight-technician
body shop in Texas that lost $200,000 worth of potential revenue
in seven months because of low technician proficiency. In this
shop’s case, this was the difference between a 13 percent net
profit year to date (YTD) and the potential for a 17 percent net
profit YTD.

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As this example shows, a shop with above-average
profits can still be a bad shop. As a matter of fact, I find that
more profitable shops are bad than unprofitable shops!

Why?

Because unprofitable shops usually lose money
as a result of financial structuring; profitable shops, on the
other hand, usually lose money as a result of poor facility utilization
or unproductive technicians – fitting to a "T" my above
definition of a bad shop.

Figuring Facility Utilization

Facility utilization is the measurement of
the number of hours a facility can potentially produce versus
the number of hours of actual production. To measure facility
potential, divide the number of stalls in the shop by two. This
provides two stalls for each technician, and it tells us how many
technicians the facility could potentially employ.

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I count every stall, including the ones in
which the body shop owner is storing boats, RVs, antiques, furniture,
you name it! Then, take the number of stalls divided by two, and
multiply this number by the number of hours each technician works
every day.

Next, we multiply that number by the average
proficiency of our top-performing clients. Currently, our top-performing
shop techs are at 170 percent proficiency. Multiply that result
by the number of days the body shop is open per year (normally
260). Next, multiply the total potential annual hours by the shop’s
labor rate, which tells us the potential labor sales a shop could
produce.

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The formula for a 16-stall shop with a $30-an-hour
labor rate looks like this:

8 technicians


x 8 hours per day


_________________


= 64 hours per day


x 170% proficiency


_________________


= 108.8 potential hours per day


x 260 total annual days


_________________


= 28,288 potential annual hours


x $30 hourly labor rate


_________________


= $848,640 potential annual labor
sales.

Now, all we have to do to measure facility
utilization is to divide actual labor sales by potential labor
sales, and we get percentage of utilization. For example:

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Actual labor sales $620,000


______________________


Potential sales of $848,640


= 73% utilization.


Seventy-three percent sounds pretty good to
most people, but in this shop’s case, it means $228,640 in lost
labor sales.

Causes of Poor Facility Utilization

What are the primary causes of poor facility
utilization? Let’s look at my Top 4 List:

1. Too many stalls assigned to technicians.
Technicians are very similar to body shop owners: When a body
shop owner starts out, he puts his office in a small corner of
the shop, and as the business grows, so does the size of his office;
likewise, technicians who produce huge numbers can, and usually
do, demand more and more stalls.

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Heck, if you give me five stalls, I could
flag 100 hours a week, too! What shop owners tend to forget is
that two technicians in five stalls could product 136 hours per
week.

2. Using stalls for storage space. (Time doesn’t
permit me to list all the things I’ve seen stored in body shop
stalls over the years!) The next time you store your hot rod project
car in the shop, think about how much that storage space is costing
you. For example:

8 hours per day


x 170% proficiency


________________


= 13.6 potential hours per day


x 260 days annually


________________


= 3,536 hours annually


x $30 per hour


________________


= $106,080 potential annual sales.


I think you can find storage space for a lot
less than $106,00 per year, don’t you?
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3. Poorly laid out facility. How can someone
spend weeks, even months, putting together a deal to purchase
a new frame machine, then spend less than five minutes figuring
out where to install it? I helped a shop owner expand his technician
staff from three technicians to five by simply moving the shop’s
two frame machines. The machines were arranged so poorly, they
occupied space for six productive stalls.

4. Excessive or unproductive equipment. Shop
owners, especially those who were former technicians, are equipment
nuts. They can’t sleep at night unless they have the latest and
greatest equipment in their shops. Pretty soon, there’s a frame
machine in every stall and a paint booth for every paint prepper.

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Having good equipment is important, but having
too much can cost you much more than the price of the equipment.
So why don’t shop owners get rid of unproductive equipment? One
of my clients had a bead blasting machine that hadn’t been turned
on in more than two years. It took up two stalls worth – more
than $200,000 annually – and the owner was holding out on selling
it until a buyer could be found who would pay $20,000.

Technician Proficiency

Utilizing your facility is important – and
so is getting the maximum proficiency out of your technicians.

Most shop owners tend to rely on the flat-rate
system of paying technicians as their primary motivational tool.
They say, "Hey, the more hours they turn, the more money
they’ll make." Well, if this were true, why doesn’t every
technician produce at 200 percent proficiency every week? I believe
that the number of hours technicians produce is directly proportional
to how well they’re managed.

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In order to get the maximum output from your
technicians, management must consider four key items:

1. Maximize estimate sales and write good
estimates. Whenever I encounter a shop that works directly off
the estimate from the customer, I can predict low proficiency
for its technicians because that estimate may not be comprehensive
enough to cover all necessary repairs. (We’ve sent a vehicle to
five different shops, and the prices differed by up to $400. An
estimate is really an opinion of the person estimating the job.)
Also, I can make the same predictions when I encounter shops that
don’t track and measure every opportunity to write an estimate.
Loading the shop with as many hours as it can possibly produce
is where you must begin to get maximum proficiency.

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2. Poor scheduling methods are a huge problem.
Who’s the genius who told us to tell people to bring in their
vehicles on Monday and then promise them back on Friday? Everyone
I talk to in this business agrees that this is bad, but very few
people actually do anything about it. When vehicles are scheduled
for Monday arrival and Friday completion, the office staff spends
these two days writing repair orders and closing jobs – likely
not having enough time to do either efficiently – and coasts from
Tuesday through Thursday. In turn, technicians are forced to do
the office work of verifying estimates and parts, thereby reducing
their labor hours. With this schedule, there’s also a tendency
to accept customer estimates because there’s not enough time for
the shop to assess the vehicles. Quality control can also suffer
because of the rush to get vehicles delivered. The solution is
to schedule light jobs, i.e. those less than $700, on Monday and
Tuesday, with delivery that week. Schedule heavier jobs for Wednesday
and Thursday, with delivery the next week. This smooths out the
schedule and enables the office staff to write five jobs a day
instead of writing 20 in one.

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Taking into consideration what you schedule
for Monday also makes the technicians happy. When I was a technician,
the last thing in the world I wanted to see was a heavy hit on
Monday morning. Give me one of those $500 gravy jobs if you want
to get my week started off on the right foot.

3. Having the right parts in the right place
at the right time is essential. Believe it or not, I’ve encountered
many shops over the years that don’t order any parts until after
the technician tears down the vehicle. Just imagine the time lost
getting tools out, putting them back up, starting another job,
then having to do it all over again when the needed parts arrive.

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We’ve been able to increase a tech’s flag
hours by as much as 30 percent by focusing on ordering the right
parts, getting them cut in and having them sitting beside the
damaged vehicle when the tech is ready to install them.

4. Follow up on jobs in progress. This can
be as simple as walking through the shop three times each day
or as complicated as holding a 30-minute production meeting with
every tech every morning to ask what jobs are scheduled for the
day. How much does a daily 30-minute production meeting cost you
in lost labor and parts sales? Too much.

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A good production scheduling system is a must
if you want to maximize technician proficiency. The scheduling
system we’ve developed loads the shop based on the number of hours
available to sell in each category: dismantle, frame, metal, paint,
mechanical and detail. Our scheduling system also schedules jobs
based on parts availability and total shop capacity.

Good production scheduling, loading and job
dispatching should be done all day, every day. You need a system
that accomplishes all of the items discussed and one in which
everyone involved can find the status of any vehicle in progress
quickly and easily.

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Good Shop, Bad Shop

Lets review: A good shop gets the maximum
hours available out of the facility and the technicians. More
specifically, a good shop operates at a level between 90 and 100
percent facility utilization and achieves 170 percent overall
technician proficiency.

Having one technician in every two stalls
is of no value if the technicians are producing 100 percent proficiency
(eight flag hours per day) instead of our standard of 170 percent
(13.6 flag hours per day). Conversely, having a technician who
can produce at 200 percent proficiency is of no value if you utilize
only 50 percent of your shop’s capacity.

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Learn to use what you’ve got, and, in return,
you’ll get maximum efficiency, proficiency and profits.

Writer Larry Edwards is a certified management
consultant who is president of Edwards & Associates Consulting,
Inc. in Charlotte, N.C. Edwards & Associates is the exclusive
consulting provider for the ICI Autocolor Partnership Plus

Program. Larry can be reached at (800)
979-9904.

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