Time To Get Back To Basics

Maximize Service Department Profitability

In current economic conditions, dealers are watching revenues shrink and profit margins plummet. It is critical that companies return to their core practices that made them successful in the first place. It is time to “Get Back to Basics”.

Service departments today are tasked with a much larger financial burden than ever before. The current model is looking for service to contribute 78% of the overall profit margin for today’s office equipment dealer, a daunting task to say the least. In order to come close to obtaining this goal, it is more critical than ever that the Service Management Team has a true understanding of all of the cost factors in their area of responsibilities and ensure that everything is being done to maximize profit opportunities while minimizing their expense.

Manage Your Manpower

First look at manpower. The cost of your labor force is the single biggest expense and not getting maximum productivity here is a real profit killer. Everything else can be dead on the numbers and you still won’t hit the mark. Manpower inefficiency can kill your P&L statement. Maximize your technicians’ time in the field by managing the biggest manpower killer, start and finish times. Every dealer I have worked with is an 8 to 5 proposition. You expect your in-house employees to start their day at 8:00am, and it is only reasonable that field technicians be expected to be at their first call at or about 8:00am. A dealer’s practice of having their technicians starting the day in the office is a huge, unnecessary expense. In this scenario, technicians aren’t leaving the office until 9:00am and arriving at their first call at 9:30am or later. You have just lost one call of productivity for each technician every day you allow this to happen. If your company has 5 technicians and this is the normal operating procedure, you are losing 25 calls a week of productivity, which means you are carrying one technician on staff you don’t need simply because they are not starting their day in the field. The same holds true with end of day and lunchtime. Extremely long lunches and leaving before 5:00pm can have a devastating effect on labor cost.

If your company hasn’t made the leap to real time GPS, then as a manger you have to “Get Back to Basics”; you must inspect what you expect. Make random phone calls at 8:05am to see if your technician is where he claims to be. Meet them at their first call unannounced. Believe me, the message is loud and clear when that technician walks in at 8:20am and you are already elbow deep into his machine. No one likes to play policeman, but as managers it is our job to make sure the company is getting what it is paying for. Don’t be shy about it; I told my team upfront what the expectations were, how I was going to monitor this, and the consequences involved for anyone not where they said they were. You can also delegate this task; supervisors and dispatchers can make these calls. At the end of the day, do the same thing— call the account at 4:30pm if the technician still shows dispatched or go by to help him finish the call when practical. One day I walked into an account at 4:00pm to help a technician finish a call. The reason I was in his area was because he had been buried all week with calls. I discovered he had left at 3:20pm and was currently at home with his feet up having a cold one. Needless to say, it became clear why he was having such a tough time managing his territory. The next morning, he emptied his trunk and picked up his last check.

The bottom line: in this industry the average technician is working 5 to 6 hours per day, which appears to have become the accepted norm. At 6 hours a day, you are getting 126 hours of productivity from a technician from an average business month of 168 hours of work time. With this scenario the loss averages out to 42 hours per month per technician, which is a week for every technician each month. The current accepted benchmark for productivity time is 140 -145 hours per month per technician. If you are not pushing this point with your team and inspecting the results, your department is leaving money on the table every month.

Improve First Call Efficiency (FCE)

Once you have checks and balances in place regarding your technicians, the next thing a successful manager is going to do is make sure the team has everything they need to do a quality service call the first trip in. Over the past few years the industry has begun to look at technician performance in terms of First Call Efficiency (FCE). This number represents the technician’s ability to fix the machine right on the first call. Any return trip due to either a call back from the customer or parts holds will increase your cost per copy for that machine, decrease your FCE and ultimately minimize profits.

Ways to improve FCE include written service call procedure, companioned with a comprehensive inspection program that mirrors the service call procedure. With a group of tenured technicians it can be difficult to convince them that they need a written checklist. Their thinking is “I have done this for 25 years and I know how to do a call. I don’t need a checklist”. Ask them if they have ever watched a pilot getting ready for takeoff on a commercial airliner. While you are boarding the plane, guess what that pilot is doing. He is running down the checklist and physically marking things off as they are completed or verified. Pilots have done this for many, many years even though they take off and land a countless number of times every month. The reason they do this is because they are professionals, and as professionals they are using every resource available to ensure they do it right every time. Your technicians are professionals; if they have been doing this for 25 years this is their chosen profession. As professionals they should use every tool available to them to do their best work.

Give them some authorship. Most companies have some outdated forms— dig them out and have your senior technicians get involved in the updating process. If you give them some ownership, it helps come implementation time. After you have gone through all the effort of updating, distributing and discussing this procedure, you must do the second part: random quality audits. Create a form that mirrors the items listed on the checklist and have routine equipment evaluations performed by you, field supervisors or team leaders. Have the supervisors sit down with the technicians and review the follow up procedures. Have the technicians sign this document to indicate it was presented and discussed. Distributed copies go to the technician, service managers, and dealer principals. This approach of inspecting what you expect has been very successful for a long time and is still a very valuable tool to ensure your service department maintains the level of quality you expect.

Manage Car Stock And Auto Restocking

In conjunction with the technician performance level improvements, car stock management is crucial to maintaining an effective FCE. Parts costs are the second biggest expense in service and the current model suggests that about 16% of your revenue is spent on parts. Managing that inventory, having it in the technicians’ hands when they need it and maximizing any warranty opportunities are key to driving First Call Efficiency and maximizing profits. Reducing the number of return trips by better management of the technician’s car stock and auto restocking procedures of technicians can have a profound impact on improving FCE. Every time a technician has to go back to a machine, your company is incurring a cost against the revenue stream that machines produces. The fewer trips you can make, the more profitable a machine will become.

Car stock management needs to have an “all hands on deck approach”. Service management, technicians, parts room personnel, and dispatchers all need to be involved to help with this process. First, you have to have reliable reporting; in most dealerships all of the people listed above have a hand in making sure the data is correct. If you are working from flawed information, the chances of being successful at managing parts inventory becomes less likely. You need to develop policies and procedures to validate what is transferred in and out of EVERY inventory location. Make sure to include in this procedure a process of how to correct any mistakes made when they occur, and it is also important to put a time limit on those corrections. You don’t want a situation where half of your staff is digging through three months of service tickets to find a board or a drum that was not properly handled through the inventory process. I would suggest that every car stock location be audited a minimum of once a week. Technicians should be given reports that show everything transferred into and out of their inventory location in that timeframe. If they find a mistake and bring it to the attention of management, it will be corrected “No Harm - No Foul”. However, if the technician doesn’t catch the error or doesn’t make an attempt to correct it, then it is their mistake and it will have a negative impact come inventory and review time. Don’t confuse an audit with an inventory; an audit should take a technician 20 to 30 minutes a week, tops. For an inventory, they need to bring everything into the parts room and go through every item with either a field service manager or a member of the parts room staff. I would recommend doing inventories quarterly.

The other key to successful inventory management is the auto restocking of a technician’s car stock. This requires time and communication, and it is critical that parts personnel and field technicians are communicating about what parts and in what quantities need to be restocked. One of the best tools to help with this process is the Parts Usage Report. Having the correct information from the get-go is crucial. These reports need to be generated at least once a month and copies should be distributed to both technicians and parts staff. By understanding usage trends, both parties can make better decisions about how and when to restock the technician’s inventory. As the manager, you need to set limits and maintain some control. You don’t want to find out a technician is carrying over $20,000.00 in car stock— dollar limits are a MUST. If a technician is working only Black and White machines, about $2000.00 is a good parts price benchmark. If he works high-end, high volume Black and White machines you may need to stretch that to $3000.00 - $3500.00, and a full time production color technician will be close to the $5000.00 mark. As long as you are doing regular inventories and they are correct because the technicians are doing weekly audits and ensuring everything is in the system correctly, ownership should be comfortable with the numbers. However, if you are experiencing large variances at inventory time the dealer principal will become apprehensive about all the dollars out there in technicians’ cars; that is when service management needs to tighten down the process of auditing and inventory.

A final thought on parts costs: although most OEMs have slowly taken away warranty credit opportunities, there are still a few companies that have very aggressive warranty programs. If you are working with one of those vendors, you need to make sure you capitalize on every warranty opportunity you can. I’ve found that giving incentives to your technicians and parts room personnel is one of the best ways to do this. Your technician compensation program should reward technicians who are watchful for these opportunities and do the things necessary to document the failure and get the parts returned. The person who is the real key in this is your parts manager and is the one person who really knows what is going out of your warehouse. Paying this individual a percentage of every dollar they get back in warranty credits is worth the $400 to $500 in commission to get several thousands back from your parts supplier. Set up a meaningful compensation program for this person and they will monitor your technicians to make sure your company is catching every possible warranty credit.

You are probably thinking, “This is nothing new” and that is exactly the point. These methods are the cornerstone in helping many companies become very successful at driving First Call Efficiency and Service Department profits. They will work for you as well, if you just ”Get Back to Basics”.

Steve Sharkey spent 21 years on the dealer side of the business, He was a service manager for 12 of those years. His company was one of the first BEI customers and have had a great deal of success with their analysis tools.  In 2005 he left that company and joined BEI as a performance analyst and consultant. Steve works with many dealers all over the country helping them get more efficient and profitable.