To be profitable, a body shop needs to operate
efficiently.
And many shop owners – when considering how
to obtain optimum efficiency – incorrectly concentrate all their
efforts on revamping their shop layout and design. While these
are important – as is equipment placement – their being overhauled
typically isn’t going to turnaround a struggling shop.
Why? Because, although layout and design can
help to make improvements in a shop’s level of efficiency, most
shops with gross profit deficiencies also have other problems.
In fact, according to Brian Evison – technical director of Bemack
Planning Services, a layout and design planning firm – a poorly
designed shop only moderately affects gross profit.
For example, if a shop’s poor layout and design
are impacting efficiency – which, in turn, affects gross profit
performance – revamping them probably won’t increase efficiency
by more than 10 percentage points (not profitability, but efficiency),
says Evison. And that, in turn, may increase gross profit performance
only by 1 percent, maybe less depending on the situation.
"There’s a misconception about just how
much can be accomplished in a redesign [of a body shop],"
says Evison. "[Body shop owners] who are looking to do more
business are looking to be more efficient, and it seems that layout
and design or adding more equipment is what most shop owners gravitate
toward … when, actually, there’s a lot more to it than that."
Understanding Efficiency
To improve efficiency, you have to understand
what efficiency really is. As defined by Evison, efficiency is
based on labor time; it’s hours produced in relation to the hours
available.
Part of this equation is staffing density,
the ratio of defined work stalls to the number of technicians.
A work stall is anywhere you can put a car and do something to
it, including paint booths, frame machines, etc.
If you divide your total number of work stalls
by your total number of techs, you’ll get your staffing-density
ratio. For example, if you have 18 work stalls in your shop and
nine technicians, then your staffing-density ratio will be
2-to-1. If you’re up to 3-to-1 or 4-to-1,
you’re not using real estate very well.
A 2-to-1 work stall-to-technician ratio is
the minimum acceptable standard for Evison. The ultimate goal,
he says, is a 1 1/2-to-1 or 3-to-2 (three work stalls for every
two technicians) ratio – which is probably the best use of available
space. "But," he admits, "you can’t just jump in
there and change it because you’ll have a revolution on your hands
and technicians walking off onto the street looking for other
jobs."
Why? Because there are a lot of tradition
and cultural issues that relate to this. "We’ve created this
issue ourselves where we’ve provided a technician, oftentimes,
with three or four work stalls in which to work," he says,
"and that’s a killer in terms of [efficiency] … It literally
destroys potential. The argument is, ‘I need to be able to work
on three or four cars at one time,’ when, of course, no one can
work on three or four cars at one time."
Evison’s suggested ultimate goal of a 1 1/2-to-1
or 3-to-2 ratio assumes that you’ve got your work stalls efficiently
arranged in the shop – what you do in the layout and design process.
"You can’t just jam cars up the aisles," he says.
"You try to put as many workstations
as you can in the facility, efficiently organized, because the
whole issue of facility potential and what you can produce out
of any given square footage starts with the premise of how many
work stalls can you arrange in the space, how many technicians
can I put to work in relation to that number of work stalls (staffing
density), how efficient can I expect those techs to be, how many
hours will they turn, how many labor dollars does that relate
to and, therefore, how many total dollars will that relate to."
(This is how Evison calculates facility potential. Obviously,
the more work stalls you have, the more technicians you can have.)
Another part of the efficiency equation is
labor efficiency: Shop owners often incorrectly assume that if
they improve their shops layout and design and buy more equipment,
labor efficiency will improve. However, labor efficiency has about
a dozen facets, according to Evison, that will impact efficiency,
either positively or negatively, and only half of them relate
to facility issues like bricks and mortar and equipment, etc.
Some facets that Evison says affect labor
efficiency include:
Writing a complete estimate. This impacts
efficiency and has nothing to do with the technician, layout and
design, or equipment. If you don’t have the time in the estimate
that you should, you won’t get paid for the appropriate amount
of time for the job.
Supplementary billing procedures. When you
get into a job and find there’s additional work that needs to
be done (this relates to labor time), you need to have good supplementary
billing procedures in place so the extra work is recorded. If
you don’t, it won’t end up on the final invoice – and will ultimately
affect efficiency.
- Type of pay plan. Are there any incentive aspects to it? You’ll
note a difference in efficiency in, let’s say, an hourly shop
as opposed to a flat-rate environment. Hourly has lower efficiency
rates because there’s no incentive associated with it. There will
inevitably be a higher level of efficiency in a shop that has
some sort of incentive. - Management methods and front-office procedures. These relate
to job planning: how well you plan a job before you throw it at
a tech and tell him to execute it.
Typically, if planning isn’t thorough, the tech gets into the
job and finds a damaged, missing or wrong part. Things that should
have been handled in the planning process ultimately stall that
vehicle in production. The tech then has to stop that job and
go work on something else, which promotes a higher staffing density.
And every time a tech stops one job to start another, it chips
away at the little bit of time the tech has available to him.
Therefore, your objective in job planning is always to prepare
and plan a job so that when you assign it to a technician, he
fixes it – he doesn’t half fix it.
Lack of planning also leads to incorrect prioritizing. Example:
Mrs. Smith’s car is due to go home tomorrow, but it’s behind.
You take a few guys off their jobs to gang up on this one, prioritizing
this job and leaving other cars dead in the water. You start moving
people around to the point that when you stop a job and start
another, it’s not a seamless transition: The tech has to think,
"OK, where am I going, what do I have to do? I have to get
these tools out, put my previous tools away … " All this
thinking is, again, chipping away at the amount of time the tech
has available, which is part of efficiency.
- Layout and design. This, as mentioned earlier, impacts efficiency.
- Products and equipment used in the repair process. If a piece
of equipment is inadequate, inferior or unsuitable for the purpose
it’s being used, it will impact efficiency. - Employee morale. Evison says how employees feel about where
they work, who they work for and the environment in which they
work play a huge role in maintaining efficiency. "Probably
the biggest thing that impacts efficiency that I see as I travel
around the country is employee morale," he explains, "but
we look away because we don’t understand it, and we don’t know
what to do about it."
Gross Profit and Efficiency
It’s important for shop owners to understand that there’s a connection
between efficiency and gross profit performance (remember that
labor efficiency is the man hours available in relation to the
amount of hours that actually involve production).
How is gross profit affected by efficiency? It’s relevant to the
labor rate: If the true cost of a tech, including pay and benefits
– usually his hourly rate plus 25 to 30 percent – is $15 an hour
and your posted labor rate is $30 an hour, you’re only making
a 50 percent profit from that tech if he produces an hour’s worth
of work in an hour. However, if he turns 1.25 hours worth of production
in an hour, you make 60 percent gross profit from him.
To figure how efficiency is connected to your gross profit performance,
you need to know your "true cost" of labor. Granted,
this can get a little complex if you have to factor in some of
the complications of a flat-rate pay method but, says Evison
" … there’s got to be a minimal acceptable standard."
Why? Because when true costs are figured in, things may not be
as rosy as they seemed – so shop owners need to strive for a minimal
goal, such as their techs producing 1.25 hours worth of work per
hour.
Bringing It All Together
Many factors affect efficiency, and it’s important to concentrate
on all of them. Focusing on only one or two aspects will fix only
part of the problem.
It may help to think of efficiency as a puzzle with many pieces
that need put in place. If you’re concentrating on only one area,
you’re not getting the whole picture – which will leave you puzzled
and your shop less efficient than it should be.
Writer Eileen Benedict is associate editor of BodyShop Business.
