Are things getting better yet? Are you loaded with profitable work and great insurer relationships? Is it all just starting to click?

Probably not.

I’ve spoken with so many great shop owners over the last few months who have shared their experiences, and the overwhelming outlook remains difficult at best. Insurance companies are beginning to develop new repair programs with fewer collision shops and more control. Fuel surcharges have been passed along to many shops with no possible recourse. Paint manufacturers have increased their prices. Rental car costs are even more tightly controlled.

Many shops today realize that surviving these industry changes will require a wholesale change in the way we do business.

More than six years ago, we started working toward developing these solutions by applying “lean” business concepts to collision repair. In our attempt to create a better awareness, we’ve been sharing these principles with you each month. So if you’re up for it, let’s move on to the next step: learning to see the waste.

Recap of Last Month
It has been said that the biggest difference between process-centered and traditional business is the way the organizations think. This is why it’s critical to discuss the basics behind a “lean” system before you tackle the transformation.

Last month, we defined “process” efficiency. Hopefully you’ve gotten a chance to read the article. If not, here’s a quick summary: We said that more important than the efficiency or cost of a single component of your business is how the components work together — i.e. how estimating works to feed parts, how parts work to deliver to body, how body works to deliver to paint … and to reassembly … and so on. The reason being, the only time we provide value to our customer or they pay us for that value is when we complete all the work. What really counts is how well we complete all the steps together to deliver correct work.

So the important thing to do now is to build a business process where all the steps required to take a customer from crash to complete are performed properly, in the proper sequence. To create uninterrupted flow within steps of your business, literally, so you have the ability to see, measure and improve the relationship between them.

But before we get into building the new process, there are a few other things you must understand.

What Is Waste?
The overall objective of a process-centered enterprise is to eliminate the business’s “waste.” In doing so, you can deliver to customers the things they want from you more effectively, as well as reduce your costs. Because the tricky part is recognizing what “waste” really is, I’m going to take the time to make sure you thoroughly understand.
If you asked 10 shop owners what waste exists in their businesses today, you’d likely get common responses — things like throwing away half-used sheets of sandpaper, baking just a bumper cover in the booth or matching a field estimate. All are accurate observations from a traditional cost perspective but might not be identified as “waste” in a process.
Examples of waste in a business process (the operative word being “process”) are things that keep a process’s “value” from flowing. By “value” I mean the activities that a customer is willing to pay you for. But if you’re not used to flowing work, it’s not easy to identify what this “waste” might be.

Thankfully, more than 50 years ago, Taiichi Ohno — the father of the Toyota Production System — created a list of “The 7 Types of Waste” in a business:

1. People movement.
2. Product movement.
3. Inventory.
4. Rework.
5. Waiting.
6. Over-production.
7. Over-processing.

This comprehensive list should be used as a filter or auditing tool for the tasks you perform. But before you can build your new system, you have to have an intimate understanding of these definitions. We’ll examine them one at a time.

1. People Movement

Are there activities in your business that require an excessive amount of movement by people to perform? Any excess movement is considered waste.

Why? The short answer is that much of it would be considered a “non-value-added activity.” What I mean is that, in most cases, a customer isn’t willing to pay you for this “walking around.”

For example, if one of the steps a tech must go through to repair a vehicle is walk to the parts room and retrieve parts every time he receives a new job, could you put this activity as a line item on the invoice and would the customer be OK with paying for it? Could you charge .2 hours for “parts retrieval”?

What else about people movement is waste? Well, if people have to walk around inside your business, they’re not producing “value.” They’re not “transforming raw materials into finished goods.”

The only tasks a customer will pay us for are those related to having our “hands on the product.”

Now you may not think that this “people movement” is a big deal, but I can tell you otherwise. In fact, you’d be shocked by the amount that actually goes on. We’ve measured technicians walking as much as four miles per repair! Now multiply that per tech per car per day.

By the way, people aren’t walking around because they want to. It’s because they have to. The movement is built into your business process today. It’s required.

But how much of your people’s ability to produce value is being lost by this movement?

How much time is lost every day?

How can you eliminate this? Look at other activities.

How much “people movement” do you see when you do a home project? How many times do you wind up at Home Depot or in the tool shed?

How about McDonalds? How much movement do you see going on there? Pay attention.

Waste will need to be eliminated as you design your new system.

2. Product Movement
Why is this waste? Well, it’s fairly simple. First, there’s usually a person attached to the product, so the previous people movement rules apply. Secondly, it opens the door for potential damage to the product or rework. It also can create a need for inventory, which we’ll define as waste next.

In a nutshell, moving the product any farther than the bare minimum required to fix it creates lost productive time, unpaid (reimbursed) activities, the potential for damage and extended repair time. Again, it may not seem like a lot, but we’ve measured vehicles, on average, moving more than two miles inside a 15k-square-foot shop. Multiply that by every car, every day.

We’ve also measured a simple file folder moving a mile and a half on average and parts moving more than two miles in some operations.

How can you avoid excessive product movement? Can your new process be built so that the product only needs to move a few feet to be processed?

Recognize product movement as waste.

3. Inventory
This one is huge but generally goes unnoticed. If you think about it, inventory is considered an asset for businesses. In fact, inventory shows up on your balance sheet as an asset. So why is it waste?

Well, first, any vehicles on your lot that aren’t being worked on are inventory so, generally, any number of vehicles greater than the number of technicians you have is inventory. And this inventory has a great cost to your business.

You have to purchase parts for all these vehicles that aren’t being worked on. You then have to put them somewhere. That means a bigger lot, a bigger building, heat, light, security, etc.

Second, you have to manage this inventory — you have to employ someone on the administrative side to keep track of these cars, communicate the status of these cars to the vehicle owner, the insurer, the rental car company. You need to pay someone to move these vehicles around, check up on them.

This inventory also slows the speed of the overall process. It creates a pool of “waiting to be worked on” vehicles. And if the inventory is designed into your process, then every car must go through this waiting pool.

Inventory slows the process, extending your cycle time — something the customer doesn’t want. Inventory drives excess people movement, product movement and waiting. Inventory simply adds cost and slows your process.

However, inventory has become the lubricant that keeps a bad machine running. You can’t just go in and remove it without serious consequences. Your business requires it today to keep running. But inventory simply covers up the inefficiencies in your business.

Inventory has long gone unnoticed because the focus of most businesses is on improving the efficiency of the people or equipment. How do we keep our techs busy? How do I get the most out of my spraybooth? If I paint more cars per hour, doesn’t it improve the cost of my spraybooth? If my techs stay busy and produce more hours per week, isn’t that a good thing?

The answer, at best, is maybe — because if improving the efficiency of one step creates inventory (increasing your overhead cost and slowing the overall process), you might wind up making less money and delivering poorer service to your customers. So any time you see inventory in any business, recognize that it’s there to cover up some inefficiency in the process and you’re probably going to pay for it.

How can you eliminate inventory when building your new system? Can your new process be designed so that large inventories are not needed? Recognize it as waste.

4. Rework
This one seems fairly self-ex-planatory. Things like redoing a plastic repair or repainting a car for poor color match are obviously bad things. Anyone can feel the pain associated with these and intuitively understand that it’s bad.

But if you really think about rework, doesn’t it apply to more than just the repair? Think about the other things you do. How many of the administrative steps are rework? How many times do you write down the customer’s name, address and phone number on a form or file? Isn’t that rework?

How about updating a rental car company’s Web site with the vehicle status, then answering a phone call from them asking the same information? Rework?

Here’s a touchy one: How about writing an estimate? How many times do you have to go back and write a supplement? Almost every time? Isn’t that the same thing as redoing a plastic repair to fill some pinholes? Isn’t a supplement really a comeback?

How about placing a second parts order for the same job? Receiving the order … posting the invoice … This list can go on for quite some time. All of it is rework, and all of it greatly increases your cost.

How much of this rework happens because it’s designed into how we do business? Too often you’ll find that we just accept the rework as “the way we’ve always done things.”

Why else is rework waste? Well, by stopping or reversing in the process, the rework instantly becomes inventory and inventory is waste. Rework also keeps your people from working on the paying tasks and reduces the amount of time they have to perform other tasks properly. How much work gets missed when people are trying to catch up?

You must be able to identify rework in your business and know that it’s waste. How can you design your process so that rework can be eliminated?

5. Waiting
What is waiting? Define it as, “any time your product stops anywhere along the process.”
Why is waiting waste? When a product has to wait between steps to be processed by the next step, it instantly becomes inventory and all the waste characteristics of inventory apply. Your overhead costs increase. You slow down the rate or speed of all the vehicles throughout the process, increasing your cycle time. You most likely add people movement and product movement.

Just think about all the stopping and starting your people continually go through each day. How significant is this on your process’s ability to deliver value to the customer?
Just watch a technician when he can no longer continue on a repair. He has to go find someone to process his supplement, move the vehicle out of the bay, clean up the parts and tools, find someone to give him another job, go find that car and the parts, pull it in, review the work order, check the parts, get the tools, think through how he’s going to make the repairs and finally dig into it.

Then measure the amount of time it takes a tech to start working once everything is ready and in his bay. It’s at least 15 minutes per vehicle, and it doesn’t matter if it’s a new job or one he stopped on previously.

Now imagine this happening to every tech, on every car, every day. How much productivity is lost on this alone? How much waste is created by waiting? What could you do if every tech had all the parts, tools and information for every car every day? What if every technician never had to stop on a repair?

Look at the rest of your business. Where else does the product have to wait? How about the administrative side, waiting for work authorization, approvals, invoices to be posted? Any waiting in a process must be recognized as waste.

Any time you can identify it, you must work to eliminate it. How can you design your new system so that the product doesn’t have to wait to move to the next step?

6. Over-Production
Over-production occurs any time one step of your process produces more work than the other steps can handle.

For example, your body shop consistently sends completed body work to the paint shop at a rate greater than the paint shop can paint. Another example would be your scheduling process bringing in more cars than the shop can start repairing on any given day. It’s not uncommon to see a shop bring in most of the work on Monday and Tuesday and nothing on Friday.

Why is this over-production waste? First, because it creates excess inventory and all the bad things that go along with that. It also instantly creates wait time. But one of the worst byproducts of over-production is the disruption and chaos it brings.

Here’s an example: Because technician efficiency has long been the dominant measure of performance, let’s say you’ve put bonus compensation plans in place to increase production in your hourly shop. The plan works in your body department, where the techs go from 60 estimate hours per week to 80. The bad news is that it doesn’t work in the paint shop — so you’ve paid the body shop bonus money to “over-produce” work that you can’t deliver.

Let’s say instead of just letting the work sit there, you decide to pay the paint shop overtime to get the work out the door. So now you’ve paid a bonus to the body techs and overtime to the paint techs. You got the work out the door, but you lost money on the overall transaction. You’ve added complexity and chaos to your
business.

Here’s another one: Because your technicians work somewhat independently to complete all their work by the end of the week, you wind up needing to bring in a lot of work early in the week, which tends to leave late in the week. Now that you have this excess administrative activity, the front office staff is in chaos Mondays and Fridays. Things start falling through the cracks, and you realize that you need to add more people. But the reality is that most of the administrative people don’t have much work to do Tuesday through Thursday.

In both cases, you’ve raised your overhead costs just to deal with the spikes caused by overproduction.

What if you could eliminate the spikes? Couldn’t you find ways to reduce your cost?

There’s no value in having one area produce more work than the rest of the business can complete. There’s no “getting ahead.” Ultimately, you’ll pay more to complete the over-production, or those who produced it at some point will just have to stop working to let the rest of the business catch up.

Over-production simply adds cost and chaos. It doesn’t reduce the overall process time. You’re better served letting those available resources move elsewhere in your business to assist in the areas that aren’t producing.

Learn to recognize overproduction. Eliminate the possibility for any of it in your new process.

7. Excess Processing
Excess processing refers to any task where outdated or previously accepted rules are applied — when the reason for those rules disappeared a long time ago. You could simply call it extra unneeded work that doesn’t add value for the customer and is usually done just because we’ve always done it that way.

For example, we’ve always written estimates for customers. Now we know these estimates are incorrect 90-plus percent of the time and only lead to creating more wrong in our business (they drive bad parts orders and returns, and they create all the administrative work that goes along with them), but we still write estimates anyway.

The customers don’t really care about the estimate; they just want to feel comfortable that they’ve chosen the right repair shop. Yet, we still waste money, resources and everyone’s time writing them. It’s just the way we’ve always done it. But does it really need to be done this way?

Here’s another example: Although the paint manufacturer recommends a quick scuff, your painter DAs all the e-coat primer off a new hood panel because he doesn’t believe that any other way works. Does he need to do that?

The majority of tasks that would be considered excess processing are usually those that no one has looked at how they’re being performed in a very long time — or we’ve never documented how they should be performed. The obvious waste here lies in the extra work that’s not needed or wanted.

A good look at your system will open your eyes to the amount of over-production that exists in your business. How can you design your new process so that excess processing is eliminated? If you were to examine and document how all tasks should be performed, couldn’t you eliminate it?

Learn to recognize excess processing as waste.

Eliminate the Waste
It’s important that you begin to internalize these rules. Take a look at your business today. How many tasks in your current process could you recognize as waste? How much waste could you find within five minutes?

Look at other businesses. How much waste can you see there?

You’ve got to be able to see the waste. It’s the only way you’ll be able to create a pure “value”-producing process.

Get started by utilizing the “7 Types of Waste.” This a nearly perfect tool — Toyota hasn’t altered it since its creation more than 50 years ago. These are the principles that still guide Toyota today, and this is the type of thinking that has turned them into the industry leaders they are.

You can take your business there, too. Write down the seven types of waste. Start looking at what you do. You must learn to see through a leaner set of eyes. You must be prepared to let go of a lot of what you held sacred in the past.

Dramatic improvement requires dramatic change.

Next time, we’ll examine the “value” that remains once the waste is gone. As always, feel free to contact us if you’d like to discuss any of these topics. Good luck, until next month …

Writer 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].