Making Money in Repair

from Intent to Implementation

Dick FullerThe MED Group

August 6, 2008

Objective

Learn how to more effectively manage your service operation

Agenda for today

Overview of service industry

How much does it really cost to provide service

Measuring productivity

Implementation

Assumptions: Have ongoing service operation

Trained and competent techs

Policies and procedures in effect

Quality assurance controls

Adequate facility with proper tools and equipment

Service industry history:

1887 Richard Sears and Alvah Roebuck

Early 1900’s automotive growth

1887 Richard Sears and Alvah Roebuck

Early 1900’s automotive growth

1887 Richard Sears and Alvah Roebuck

Early 1900’s automotive growth

The HME service department

Range of products

Changing technology

Many low volume products

Custom products

Reimbursement issues

Liability exposure

Cost of providing service

CRC Survey on PWC Warranty Costs

Purpose

Methodology

Limitations

n=60

CRC Survey, PWC Warranty

4 Sections:

Location of service

Field service

CODB

Product reliability Implications

CRC Survey, PWC Warranty

Section 1: Where service is done

Question 1Percent warranty done in-home

0-25% 32% of respondents

25-50% 25%

50-75% 25%

75-100% 18%

n=56

Question 2Percent warranty done in shop

0-25% 32% of respondents

25-50% 25%

50-75% 27%

75-100% 16%

n=56

Question 3Percent warranty done in facility

0-25% 91% of respondents25-50% 7%50-75% 2%75-100% 0%

n=56

CRC Survey, PWC Warranty

Section 2: Field service calls

Question 5Single service call to complete job

0-25% 59% of respondents

25-50% 23%

50-75% 7%

75-100% 11%

n=56

Question 6Two service calls to complete job

0-25% 7% of respondents

25-50% 23%

50-75% 27%

75-100% 43%

n=56

Question 7Three or more service calls to complete job

0-25% 86% of respondents

25-50% 9%

50-75% 0%

75-100% 5%

n=56

CRC Survey, PWC Warranty

Section 3: Cost of Doing Business

(CODB)

Weighted Average

Calculation: For each selection category, multiply by number of responses by the units (minutes, hours, dollars) for that selection category. Add these sums together and divide by total number of responses.

Question 9Average time to complete warranty repair

Weighted average = 86 minsn=56

Question 10Average time to complete paperwork

Weighted average = 65 mins

n=55

Question 11Average distance traveled for service call

Weighted average = 26 miles

n=56

Question 12Average cost per mile for van

Weighted average = $0.70 per mile

n=53

Question 13Average cost of tech labor: hourly wage plus allocation of management & clerical support, plus 30% burden (FICA, insurance, etc.)

Weighted average = $36 per hrn=55

Note: This is not average tech wage

Calculation, hourly cost of tech labor

Number of techs 6Average wage for techs 15.00Add 30% to above 4.50Allocation of Service Manager salary (per hr per tech) 3.33Allocation of clerical wage 2.50Allocation of Senior Management salaries 5.00

Hourly tech labor cost 36.33

Question 14Average non-labor overhead per repair tech hour

Weighted average = $34 per hour

n=55

Question 15Average CODB per hour (Question 13 plus 14)

Weighted average = $71 per hour

n=53

Question 16Percent of service orders that are warranty

Weighted average = 14.0%

n=53

CRC Survey, PWC Warranty

Section 4: Product Reliability

Question 17Percent requiring warranty service

Average incidence of repair = 6.3%

Implications:#1

Average cost for vehicle use for each service call: $18.20

Q-11 times Q-12 = $18.20 times 2 (round trip) = $36.40

Implications:#2

Average cost PWC warranty repair done IN SHOP = $124

86 mins at $71/hr CODB + 65 mins at $20/hr for billing

$102 + $22 = $124

Implications:#3

Single service call:

Average cost PWC warranty repair done IN FIELD (assume 25 miles each way) = $231

Implications:#4

Two service calls:

Average cost PWC warranty repair done IN FIELD (assume 25 miles each way) = $338

Implications:#5

25 Mi. 50 Mi. 75 Mi. 100 Mi.

Single service call $178 $231 $285 $338

Two service calls $232 $338 $446 $552

Three service calls $286 $445 $607 $766

Additional service calls $54 $107 $161 $214

Implications:#6

Minimize field service calls: Fix with single service call Sector routing Incentives:

Customer Staff

Now what?

Audit your cost of providing service

Compare to survey results

Identify problem areas

Review your labor rates

Budget for warranty

Measuring Productivity

The P&L

The 10 “Key Performance Indicators” (KPIs)

Measuring Productivity

Average Invoice (KPI #4)

Technician Productivity (KPI #8)

Measuring ProductivityKPI #4:

Average Invoice =Gross Sales

Service Order Count

Measuring ProductivityKPI #9:

Productivity =Hours Billed

Hours Available

Improving Productivity

Standardized labor charges

Use Flat Rate Manual

Measure productivity by technician

Set goals

Incentives

Closing thoughts

Expert repair techs are valuable assets to your business

Other industries have dealt with same issues

Participate in CRC

Excellent service is an opportunity