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What’s the Goal of any Business? To Make Money

I’ll add a couple of caveats to that.

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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.

What’s the goal of any business? (It’s not a trick question.)

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If you said, “To make money,” you’re correct.

Now I’ll add a couple of caveats to that. I’ll say that it’s to make money in a way that provides good things to the customer, the employees and the community. Otherwise you could rob convenience stores and define that as a successful business.

Now, question 2: Who has this money that we’re trying to get? Well?

It’s the customer, right? It’s the oldest adage in business – find a need and fill it. We want the money, the customers have it, so if we just give them what they want (the need), they’ll give us what we want (the money).

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Why am I making this point? Because the next thing you need to understand in your implementation of a “lean” business process is the “value” you deliver (or the stuff the customer wants from us).
I used to hear smart people in expensive suits say things like, “What value does this or that add?” or describe things as “non-value added.” Frankly, I really didn’t know what the hell they meant, but I wasn’t about to say anything.

What I discovered over time was that they didn’t know what the hell they meant either! “Value added” was one of those buzz words or phrases like “think outside the box.” But if you ask most people to describe the “value-added” items in their business, they’ll describe things that they think are valuable, the things that make their businesses or lives simpler – like a scheduling system that easily identifies available capacity or a new frame rack that reduces setup time.
But are these things really of “value” to the customer?

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There are five fundamental elements of a lean business process, and the first is: “Value must be defined by the final customer of your business.”

So aside from understanding who your customers are, you must understand that only they may determine those activities that are “value-added.”

Why is this important? Go back to the previous paragraph that asks, “What’s the goal?” and “Who has it?” If you’re going to find a need and fill it, then the value-added activities of your business are those for which a customer is willing to pay, those activities that address their “need.”
Ultimately, in building a leaner collision repair business, the objective is to continually work toward creating a process that delivers nothing but “value.”

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Recap of Last Month
In last month’s article, we talked about understanding waste and discussed Toyota’s “7 Types of Waste”: 

  1. Excess people movement. 
  2. Excess product movement. 
  3. Rework. 
  4. Inventory.
  5. Overproduction.
  6. Waiting. 
  7. Excess processing. 

If you haven’t read it yet, go back and take a look (March Lean & Mean, pg. 18).

In removing this “waste” from your business, what remains is this “value.”

What Are Value-Added Activities?
So what “value-added activities” exist in your business today, and how do you identify them? Well, if the customer defines value, then it would be those that you could put as a line item on your final bill and the customer would be willing to pay for.

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For example, if one of the activities you must perform to process a customer through to completion is to fill out a special file folder containing all of the customer’s information, would the customer be willing to pay for this activity if it was charged for on the final invoice? Let’s say, Line 2 – prepare file folder – .5 hours.

Or how about this: One of the activities you must perform is to have a tech tear down a vehicle once it has arrived to identify missed or supplemental damage. And don’t forget the activity of placing and receiving a parts order for any of these supplemental issues. Could you add these activities to the final bill? Would the customer willingly pay for these things? Line 3 – place a parts order, again, for stuff we missed – 1.2 hours. The obvious answer is no!

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So what is the value that we provide? What are the “value-added” activities that we perform?
Well, what do customers want from us? What are they willing to pay for? They pay us to fix their vehicle. That’s it! So it’s only those activities that physically transform a wrecked automobile into a correctly repaired automobile. For example, removing a belt molding – .2 hours or straightening a dent in the fender – 3.0 hours.

Are they willing to pay for these activities? Sure. And this is where we provide value for our customer.

But looking at the big picture, these activities are only a small percentage of all of the tasks we must perform to return a vehicle to the customer correctly. Just look at all of your administrative employees. In reality, are any of the tasks they perform value-added? How many tasks must they perform in comparison to the tasks a technician must perform?

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But it actually gets worse. When we’re talking about the value tasks, we’re only talking about the actual physical transformation stuff. For example, in the “removing the belt molding” task above, the customer is only willing to pay for the actual “hands-on” part – removing of the screws, turning the wrench, removing the fasteners. He’s not willing to pay for getting the tools, pulling in the car, reading the work order or putting the parts somewhere.

It’s frightening when you think about it. How much of what we do is actually adding value? How much of what we do would be considered waste? It’s important that you not get hung up on how much customers are willing to pay or whether or not you believe that they should pay. Those conversations will only take you off the objective. This is a study in reality.

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You Decide: Value or Not
Here’s a list of some random activities that go on in most shops. Take a look and decide whether a customer would be willing to pay for them.

Value   Non-Value
  Wash car for estimate____ ____
  Hold production meeting____ ____
  Write an estimate____ ____
  Remove fender____ ____
  Store new parts in bins____ ____
  Check washer fluid____ ____
  Update rental company____ ____
  Update customer____ ____
  Weld rocker in place____ ____
  Get the welder____ ____
  Sand paint flat and buff____ ____
  Write a supplement____ ____
  Move car while waiting for parts____ ____

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There’s no exactly correct answer to the above list. I’d say there are no more than two value activities (removing the fender and welding the rocker), but that’s my voice as a customer.
It’s hard to be 100% correct on some of the answers because we’re answering for the customer. Some customers would be OK with being charged for an update call; they may see that as a value to them. Others may not; they may just expect that to happen for free, like having salt and pepper on the table at a restaurant. It’s not a black-and-white thing.

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There’s also a third category not listed here: a Required Non-Value-Added activity (RNVA). These are the things you know add no value for the customer, but you just don’t know how to get rid of. For example, you may be required to write an estimate and receive the initial parts order. Someone, somewhere, saw value in this because, mathematically, it looked like it would speed up repair time (and reduce rental cost).

But the reality is that if the estimate isn’t complete and doesn’t identify all the parts, you’re not going to have everything necessary to complete the job and you actually increase repair time, as well as the amount of non-value-added activity (re-write the estimate, re-order the parts, wait for the parts, get the car back in for repairs).

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Tasks that you tag as RNVA should be redesigned so that they require the least amount of effort to produce, and ultimately, should be eliminated.

Value Stream Mapping
You’ll need to take a hard look at your business in regard to the value being produced. In fact, the second fundamental element of creating a lean business is to thoroughly map out and understand all of the tasks required to take your customer from the sales process to delivering and receiving payment for a correct, complete product.

I’ve been through this mapping process many times, and the results are shocking. When it comes to the value-added activities related to collision repair, value stream mapping typically reveals that approximately only 12% of the time we spend working with a vehicle are we actually producing value for the customer! It looks something like this:

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Open for business (available capacity) — 8 hours a day, 480 minutes.
Average # of days car in shop — 14 days, 6,720 minutes.
Average # of minutes tech has hands on car — 780 minutes.
This comes out to 11.6% value!

Even if the mapping process were inaccurate by 100%, we’re still talking about only 24% of what we do as being “value added”! This means that 75% of tasks we perform are non-value-added activities.
Typically there are dozens, if not hundreds, of individual steps we perform on every vehicle that are non-value added. So why do we continue to do these things? In many cases, it’s just because we’ve always done it that way.

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But I think that the greater issue is that we have taken a once simple business process and, over time, added more and more complexity to it. What I mean is that over the years – as market conditions changed, as insurers have asked us to do more, as vehicle owners’ needs have increased, as vehicle technology has improved – we have had to figure out a way to deal with these new complexities.

For the most part, we’ve simply added patch after patch to a once good process, and what’s left today is an incredibly complex, unreliable and expensive business model that delivers very little value.

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Why Add Value?
Here’s a good question: If you could get your process to deliver “value” just 30% of the day, what would happen to your revenue?

Answer: If you had the cars, you could more than double the amount of work produced with the same amount of resources (same cost). Or how about the same amount of work with half the resources (cost).

What happens to profitability? It’s more than doubled, right? It would be a multiple. Imagine what you could do producing around 70% value?

Here’s another question: If today there are only (roughly) 780 minutes of hands-on time to repair a car and you could add value just 50% of the day, how many minutes would it take to fix a car? How about 1,560 minutes? That’s less than four days for all cars.

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It’s pretty amazing stuff to look at.

Start Identifying Value Today
So how much value does your business deliver today? Can you learn to see the “value” that exists in your business today? Can you teach yourself to see the “waste”? This is truly something that needs to be learned. If you could already see it, then you would have already been removing it.

As demands upon us increase and profits continue to decline, shops utilizing traditional collision repair business models will continue to find results more and more disappointing. In many regions of the country, we’re in an overcapacity situation. It’s a buyers market. So only those who can remove the waste and develop a more efficient business process by focusing on the value will succeed.

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I predict that, in the very near future, collision repair shops will look like pure value-producing machines, where vehicles arrive and are underway immediately, where all parts are identified instantly and arrive within a day. Vehicles will flow through clean, organized systems in very small buildings. Technicians will not only make the repairs, but perform most of the administrative tasks. Friction between shops and insurers will be non-existent. These relationships will be real partnerships, where all parties involved win. Cycle times will look more like a brake job, and repair quality won’t diminish a vehicle’s value – in fact, it may even enhance it.

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The only real question is who will own these shops? Can big bureaucratic corporations work within themselves and overcome their own paralysis to dominate the industry? Will it be a consolidator with the vision, knowledge and cash? Is it you? Is it me?

There’s no question that dramatic change is required to achieve dramatic improvement. And this improvement is required right now! So go find the “value” in what you do, and learn to see the value and waste in your business. Force yourself to lose the “that’s just how it’s done” mentality. Go look at someone else’s business for practice. It’s always easier to see value when you’re the customer.

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In the meantime, we’ll continue to provide you with monthly information on how you can make your business a more efficient, value-producing machine. However, it’s important that you understand the concepts we’ve discussed before you start to make the transformation:

  1. The only process that matters is the overall process, how every step required to take a customer from crash to cash interacts with each other, not how efficient they are independently. 
  2. Waste in a business process are those things that keep your product from flowing efficiently from step to step, not how well or efficiently the things are used. 
  3. Value is determined by the customer, and we must know what value is and how much we actually produce.  

Stayed tuned for more. As always, feel free to call or e-mail with any questions.

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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]

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