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Five KPIs to Watch

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Industry experts share their picks for the top KPIs that aren’t being paid attention to—and shared why they should be 

Department: Service

The KPI: Proficiency  

Why it’s Not Tracked:

According to Mark Martincic, director of fixed operations at KEA Advisors, it’s not that time isn’t tracked—the issue is that it’s not tracked accurately.

Martincic, who worked for three dealerships in 22 years and has been a consultant for the last 29 years, says that he’s noticed a trend in the industry where technicians don’t punch accurately, which means that unapplied time is not accounted for. Martincic believes, based on his experience, that this trend started because a leader was “beat up” for having unapplied time, so to avoid this, he or she decided to allocate the time. For example, the time in between jobs where a technician is running out to get something or helping clean a bay is applied to training, for example—even though it’s not.

“We need to be able to see reality,” Martincic explains.  

Why it’s Important:

Not accurately measuring time can impact efficiency and productivity, explains Martincic. If a technician is not punching correctly, and there’s all this wasted time trying to hunt down parts and customer approval without punching out, it’s hiding what the technician is actually doing with his or her time, which makes productivity look better and efficiency look worse, when, in reality, that’s not the issue. On the flip side of that, if a technician is being paid an efficiency bonus, it can sway the other way, Martincic says.

“Those two measure are critical. The combination of those two is real. I know how many hours I billed and I know how many hours the techs was present—whether they’re paid hourly or a flat rate—that’s what I call proficiency,” Martincic says. “The problem is, if it’s (proficiency) lower than I want, I have to decide if I have a productivity or an efficiency issue. It’s two different things. Productivity is all about process and management and efficiency is all about the tech and the repair time.”

Without processes in place and technicians correctly documenting time, it’s hard to know where the issue is and, because of that, solve it.  

How to Improve it:

“One of the biggest things that I’ve learned is changing human behavior is really hard,” Martincic says. “It takes commitment and it takes building the structure to be able to do that.”  
That’s why he advises making the changes your staff’s idea rather than dictating what they’re going to do.

“If I demand, they’ll push back with every excuse,” Martincic says.

Martincic also points out that, usually when there’s an issue, 85 percent of it is management’s fault. If the staff doesn’t punch their time accurately, there may be negative behaviors—like taking a long smoke break or texting—but the majority of it is learned behavior or a lack of an effective process.

Martincic starts out by having a meeting where he prints out the reports for productivity and efficiency for everyone and then explains what each of the terms mean. Then, he points out that most of it is management’s fault and he’s not there to reprimand them for the little things that they do, but rather find a solution to the bigger issue.

“I’m here to talk about what we have you do that keeps you from working and what we can do as a process to get rid of that,” Martincic suggests saying.

After the meeting, Martincic suggests having a few leaders talk with every single person on the team for a couple of days to find out what’s getting in their way. For example, is there only one place to punch in in the department? Is it far away? Is there often a line? If so, that’s something that needs to be changed.

“The more you can draw out with questions, the more buy-in you get,” Martincic says. “Then, it takes daily coaching: ‘We didn’t get punching right yesterday; let’s get it together.’”

Benchmark:

Use productivity as a measurement, Martincic suggests. Shoot for above 90 percent.

“The goal is always 100 percent for productivity,” says Martincic. “The reality is, if you’re running between 92 and 94 percent, that’s what the best dealers do. Low 90s and you’re doing a good job for productivity.”

Department: Service/ Parts

The KPI: Age of parts and length of warranty claims

Why it’s Not Tracked:

According to Kevin Flanagan, president of Smythe Volvo in Summit, N.J., KPIs are a challenge, in general.

“It’s [about] getting the time to actually use KPIs,” Flanagan says. “Service managers come into work without a daily plan and spend the entire day putting out fires and reacting and they don’t have structure.”

That’s why, Flanagan says, it’s important to create a structure and make tracking these (and other KPIs) a habit.

Why it’s Important: They may technically be two different KPIs, but Flanagan says tracking these will “get your fixed operations moving.”

Tracking the 10 oldest parts will give information on turn rate. The shorter amount of time that a part sits on a shelf, the quicker a profit is turned.

“With half a million dollars of parts sitting on a shelf, I want to make a profit,” Flanagan says.

That’s why he says it’s essential to make sure that the turn rate of parts is between 30 and 60 days and avoid stocking anything that sits on a shelf longer than that.

Turn rate and fill rate both contribute to the length of time a part sits on the shelf.

“If I’m selling a part, how quickly is this turning and at what rate?” Flanagan says. “If I’m turning those quickly, I might need to order those more quickly.”

Once that’s been determined, Flanagan says he categorizes the parts according to the manufacturer's guidelines. He has A parts, B parts and C parts. A are the fast moving parts, B are moderately timed parts and C are the slower parts—like a fuel regulator—that you still need on hand, explains Flanagan. Getting a handle on parts inventory will help improve overall profit in the parts department.

Warranty claims, Flanagan says, are the same basic idea as oldest parts.

“It tells you what’s hanging up and why,” Flanagan says.

Warranty claims are different because it involves both the service and the parts department, but when you take a look at the 10 oldest claims, it’s easy to figure out where the holdup is.

“Sometimes, what I’ll find is that we’re waiting on a certain part and that’s why the warranty hasn’t been submitted. If someone doesn’t look at it, that RO can stay open for however long,” he says.

Claims that are 45 days or older need to be looked at, says Flanagan.     

How to Improve it:

Flanagan says that one of the most impactful changes he made to tracking KPIs in general was finding a management system that got him organized. Two years ago, he switched to Dealertrack, which made a monumental difference, he explains. With the old system, he had to be at the computer all of the time.

“It became tedious—so we didn’t do it and I couldn’t blame them,” Flanagan says.

With Dealertrack, Flanagan says it’s much easier to pull up the information that he’s looking for.

Another piece of advice Flanagan has for tracking KPIs in general is to held people accountable. One way that he does this is by showing his staff their own metrics via a handout. Beyond that, he holds bi-weekly meetings with the parts and service managers.

“The way that I get buy-in is by getting both of them in the room so they can’t blame one another,” Flanagan says. “They can have an honest conversation with one another.  I really find that by being a collaborative owner and manager is the best way to get buy-in.”

Flanagan says when he sees a problem, he gets everyone that’s involved with the particular trouble metric and hashes out a plan of what needs to be done and then creates a policy and a process.

“Policies are great, but they sit in a book. Change that policy into a process,” Flanagan says.   

The Benchmark:

As a general rule of thumb, Flanagan says to reference the OEM’s guidelines to see what the benchmarks for amount of time a part should sit on a shelf and length of an acceptable warranty claim.

Department: Service

The KPI: Maintenance Penetration  

Why it’s Not Tracked:

Maintenance penetration is tracked, but it’s a KPI that’s worth taking a more critical approach to, says Bob Kuehl, vice president of fixed operations for Zeigler Automotive Group.

Kuehl has seen many changes to the industry in his 27 years with the company, and one of those changes is the fact that vehicles require less maintenance than they used to.

Back in the day, it was common for maintenance intervals to be every 3,000 miles. So, a customer that drove 15,000 miles would come in five times per year. Now, most vehicles go 5,000–10,000 miles, which makes it critical to perform quality inspections that identify wear items—such as brakes, tires and batteries,  which are key customer defection points—because vehicles come in less often.

"Because there’s less, we need to work harder to get it,” Kuehl says. “We need to capitalize on the ethical sales of items to retain and satisfy our customer base.”

Why it’s Important:

With the decrease in warranty repairs in the shop, maintenance penetration is crucial and needs in-depth tracking by fixed operations directors.  

“I think everyone focuses primarily on the hours per repair order,” Kuehl says. “While that’s important, effective labor rate and maintenance penetration are huge and have an impact on sales.”

Checking oil change penetration, tire rotations, filter and bulb replacements—that’s all additional revenue, Kuehl says. Not only that, but focusing on oil changes, tire rotations and multi-point inspections (MPIs) as basic maintenance penetration is a huge source of retention.

When Zeigler purchased its Honda store eight years ago, the store had a retention rate of -25 percent (as measured by American Honda). It’s now improved to +10 percent (American Honda considers anything from 0 to a positive variance a success), with a large portion of that thanks to the Zeigler Automotive Kalamazoo campus express service building.

How to Improve it:

If maintenance penetration is something that you want to improve, find a way to bring in more tire rotations and oil changes, which can be done easily enough, according to Kuehl.

First, do a market survey to see where this kind of work is being done and for what prices. Then, decide where you want to be.

“Do you want to be the cheapest guy in town or do you want to offer quality?” Kuehl says.

After that, focus on throughput and figure out the time that it will take to do that work. To be competitive in the business, you need to be between 20–30 minutes for an oil change and MPI and 30–45 minutes for a tire rotation, oil change and MPI, according to Kuehl.

In order to meet these requirements and handle the volume of work, Kuehl suggests either a standalone building—like he has—or a dedicated bay.

“Focus your resources on building that business,” Kuehl says.   

Benchmark:

The benchmark for maintenance penetration will vary, but it should be calculated based on the amount of oil changes, tire rotations and maintenance intervals done divided by the number of vehicles serviced. To give an idea of a successful dealership, Kuehl says the express building services 1,150 cars per month (45 cars per day) in that building, which is four bays with 5–7 people working at one time.

 

Department: Collision

The KPI: Gross Profit on Paint and Materials

Why it’s Not Tracked:

This is another example of a KPI that is tracked, but often incorrectly.

Martincic says that one of the biggest issues he sees on the collision repair side is the lack of management in paint and materials and because of it, not knowing what the gross profit is. Collision repair center managers tend to use the amount of money paid to them as a balancing account to make the repair order match the amount of money received for a repair, according to KEA Advisors. It is very common that all the paint and material money paid is not credited to the paint and materials sales account. This causes insufficient gross profit in paint and materials, according to KEA Advisors.

Paint and materials gross profit are tracked incorrectly for a number of reasons. Lack of inventory controls, waste of materials and shrinkage all contribute, Martincic says, but it’s also hard to measure the exact use per job, he says. While many manufacturers and distributors offer software to help calculate the cost of paint per job, there’s a lot more that goes into it, Martincic says.

“As an example, [paint] thinner is often purchased in large containers and used in almost all repairs. Sandpaper comes in rolls or reams—rarely would you use a complete ream on one job,” he says. “One job would typically use several different grits of sandpaper.”

The same is true for other materials, such as fillers, sealers and caulks; the exact amount used per job is difficult to track.   

Why it’s Important:

Without knowing your paint and materials gross profit, you don’t know your total gross profit and where numbers are coming from, Martincic explains.

“Obviously, profit centering each department or segment of any business is a best practice,” he says. “Many body shops use the paint and material revenue as a clearing account when balancing the final bill to the estimate and any supplement—thereby giving up profit dollars.”

How to Improve it:  

Though, as Martincic points out, it can be difficult to track, there is a way: “What you can measure is the amount of revenue received from customers or insurance companies for these real costs and you can easily track purchases—cost—of these items. The difference is what you made in gross profit.” When you’re doing inventory, here are a few tips from KEA Advisors:

  • Only new, unopened items should be inventoried
  • Any items on consignment should not be counted
  • If one piece of sandpaper is removed from the sleeve, do not count the sleeve
  • A physical inventory should be done at the end of each month

In order to get your team to do this, Martincic says it’s all about setting up that structure and encouraging this behavior. It also needs to be clear what defines paint and material and what the state laws are—so be sure to be clear about that with your staff, he says.  


Benchmark:

Forty percent is the average industry benchmark for gross profit on paint and materials, says Martincic.

“If you’re at 20 percent and you know the industry benchmark is 40 percent, don’t make the goal 40 percent,” Martincic says. “Make the goal to get to 25 percent. It’s about consistent improvement.”

Department: Collision

The KPI: Sublet Margin

Why it’s Not Tracked:

Ian Peterson, the service operations manager at Kuni Collision Center in Beaverton, Ore., says that when he joined the collision repair departement two years ago, the department was behind both in technology and processes. One area that it was impacting was the sublet margin.

“We weren’t really holding ourselves accountable,” Peterson says. “I think it just wasn’t made a priority. Just getting what they could rather than [setting a] standard markup.”  

In order to track and improve a KPI, Peterson says it’s essential to train everyone on what needs to be done and to stand your ground on what needs to be done—a common problem in general for fixed operations.  

Why it’s Important:

A standard markup leads to overall profit. Without a standard rate, it makes it easier for customers and insurance representatives to argue and get a lesser price, which takes away from the bottom line of the collision repair center, explains Peterson.  

“Tracking sublet margin is just as important as tracking any other margin because it all translates to a stronger bottom line,” Peterson says. “If you’re not tracking it, you don’t know if you’re losing out on profit opportunity.”

How to Improve it:

When Peterson joined the collision repair center, the shop held 7–8 percent gross profit on sublet, which stood out to him as an area that needed to be fixed. To improve it, he first gathered information from local collision repair center managers that he knew to help give him an idea of what others using as a markup. Then, he upped it slightly because the costs associated with processing sublet at Kuni tends to be higher than average.  

Once the standard markup was set in the DMS, he trained everyone on what needed to be done and emphasized that they need to stand their ground.

“Everyone was on the same page—they knew it needed to be done,” Peterson says.  

Benchmark:

Peterson says the industry standard is roughly 15 percent.

 

 

 

 

 

 

 

 

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