We are slowly coming out of the twilight zone created by the reaction to COVID-19, and everyone handled this shutdown of businesses differently. Some used the time to re-evaluate their teams, some assessed and changed processes and procedures, and many did very little.
Since starting NEXERA in 1993, I’ve seen the imaging industry plagued by a lack of management discipline in service. The key reason this issue has survived so long? Margins have been good enough that most dealerships were too comfortable to be concerned. Additionally, the customers’ expectations were so low that they didn’t complain about it.
The reality is that the expectations for service, coupled with our sales model, makes solving this problem a daunting task for even the most seasoned service manager. Sadly, in many companies the service managers, while doing the very best they can, are unprepared and unsupported in their roles. These managers generally are not on par with their sales counterparts or others in executive management.
So how bad is it? Let me ask the question a different way.
If you took your car into the shop for repairs, and 60% of the time you were required to take it back because it was not fixed correctly, would you be happy with that shop? That’s the average dealership service call failure rate today when they start our program, and unfortunately, many start much worse than that.
In fact, almost 60% of all service calls are created by inefficiencies of the dealership, NOT the customer. There are a number of reasons for this; some are in the tech’s control, many are not. I know you may be challenging that percentage in your head, but let me assure you, it’s real. The problem is that most dealers set up their ERP systems to tell them what they want to hear, not what they need to hear. Having an objective third party evaluate your business can be helpful in identifying opportunity.
Let’s break down some of these issues and focus on the four main contributors to inefficiencies.
The root cause of most of these problems exists in our current sales and product cycles. Everything evolves around lease terms, quotas and sales commissions. This creates many problems, but we’ll focus on three main outcomes: call backs, hold for parts and inventory.
Call backs simply relate to the number of times a customer has to call back due to a problem within a predetermined time frame. NEXERA is the only company that standardizes this process to the model level, ensuring the criteria is fair, achievable and uniformly applied.
How does the root cause of the problem effect call-back rates?
The key here is the overwhelming number of models in which a tech is required to be proficient. In our data, a tech will touch 180 different models of equipment on average. How can they possibly retain all the necessary information to accurately diagnose and repair that many models? New product introductions and the incentives driven to sell that product, MPS programs and multiple product lines simply aggravate this problem. The top 10% of our dealers have a call-back rate of 21% or less, while the rest are 35% or greater—with some as high as 60%! While some level of call backs is expected, the goal should be 20% or less.
Hold for parts are calls in which the tech doesn’t have the necessary parts to complete the work, and has to reschedule once the part is received.
How does the root cause of the problem effect hold for parts?
It’s a similar issue as with call backs. The nature of new product introductions, leasing and sales incentives creates a cycle of parts usage that follows populations, in addition to the huge number of model variations the techs service. Techs can’t possibly carry everything that is required, so a level of hold-for-parts calls is unavoidable. But, the top 10% of our customers have hold-for-parts rates of 10% or lower, with the average for the rest at 23% or higher. This equates to 13% more service calls, increasing the labor required to service the same number of serial numbers.
Inventory is an investment, and most dealers are extremely heavy in the amounts of both the total inventory and the obsolete inventory they have on hand.
How does the root cause of the problem impact inventory?
Unfortunately, until NEXERA’s Advanced Inventory Management (AIM) program was created, most inventory programs have functioned off trended usage. So, when large numbers of units get upgraded as a function of lease terms, inventory often gets left holding a bunch of parts that have fewer machines to go in, creating overstock that leads to obsolescence. Today 35% or more of the average dealer’s inventory is obsolete and 27% is overstock (more than three months of trended usage).
A large contributor to the problem is that, as an industry, we typically don’t hire someone with a logistics background or adequately train the person in charge of running the parts-and-supply department. Properly managing inventory is a complex moving target, and hiring somebody with the necessary training and skill set to run this department is money well spent.
I mentioned four key areas, and the first three are specifically impacted by the root cause of the problem. The fourth issue is simply a management expectation issue. When applying the same letter-grading criteria to all of our customers, the top 10% of dealers have no techs with an F grade, and the rest have almost 40% of their techs with a D or F score.
Why is this? Very few dealers actually do active technician development, meaning they’re not coaching monthly with defined expectations, goals and accountability. One of the grading areas is time accountability; most dealer technicians average only 60% of their work hours traveling to or working on equipment. Nexera’s target is 85% or greater.
Another graded area is model-specific performance. Most dealers don’t bother measuring and holding techs accountable to model specific performance expectations, resulting in wasted man hours and lower-than-expected machine performance.
Some might look at these numbers and frame it as if our program is a failure, but no program works unless it’s implemented, and leadership must hold their team accountable to change. Otherwise, status quo keeps things the way they are. The top 10% simply executed on the solutions better than the rest.
In our 27 years of data collection and analysis, we see almost the same cycle of model performance. Of course, there are some exceptions, but the following is the normal trend:
- After a new product is introduced, its first-year costs are a little higher than average because the techs have to learn the equipment, the supply chain has to adjust to the equipment’s needs and customers are learning the product. Revenue is at its lowest.
- Heading into the second year, costs drop as everyone is more familiar with the machine, techs now know the common issues, parts are available and customers are comfortable with the product. There are a couple of bumps in cost related to preventative maintenance (PM) cycles, but generally the product stabilizes.
- Years three to five are the beginning of the most-profitable period—rates have escalated, costs are as low as they will go and everything is working. Then, for no other reasons than sales competition, quotas and compensation, the machine gets replaced and the cycle starts over.
Truth be known, because we tend to oversell everything, the most-profitable thing to do is leave it alone. However, the industry is stuck in the same exact cycle, and no one is willing to be the first to break it. When you look at the total pages on most lease returns, they are a fraction of what’s expected in the design of the machine.
Understanding where we lack in cost control brings me to my last point. Many imaging dealers have struggled with implementing a successful managed IT business. The primary reason is that they tend to run that business the same way they do their imaging service business, which simply won’t work. Managed IT requires discipline that doesn’t exist in most imaging dealers. If you are (or are planning on) diversifying into managed IT services, you can’t run that business the way you run the imaging side, or you will not be as successful as you need to be.
As we emerge from this virus lockdown, you must, as leaders of your business, set new expectations for what “good” looks like. Hold your departments to a higher level of performance and decide for whom you are in business. There are many ways to increase profit, some of which might even require a reduction in revenue. If Nexera can be of service, please don’t hesitate to contact us.
