Dealers constantly want to know how to ascertain if their body shops are running efficiently. How does one measure efficiency? What are the influences which most impact body shop efficiency?
There are two basic ways to measure efficiency which must be considered:
· Labor Efficiency
· Production Efficiency
Labor Efficiency
Labor efficiency is defined as the relation of actual man hours spent in a given time period to the man hours produced during the same time period. For example, the total of hours worked in a month by all production employees (all workers who actually work on a car; metal men, helpers, preppers, painters and detailers) in relation to the total of repair order hours actually completed during the same month. The formula is: Hours Produced divided by Hours Worked.
A shop that billed or produced 2,000 hours in a month who spent 1500 actual man hours on the clock was 133% efficient (2000 hours divided by 1500 hours=133%).
This calculation needs to be done in order to measure the relative effectiveness of your technicians. Dealers are usually surprised when they accurately measure efficiency. They typically find that, shop-wide, the percentage is low. Usually they presume that labor efficiency is high because of two or three technicians that are capable of producing some big commission checks. When "all" workers are figured into the calculation, though, they find that labor efficiency is not so impressive. We recommend that the dealer use the benchmark of 150% labor efficiency as the standard. Remember to include all technicians and all hours worked in measuring your performance.
The following is a list of influences on labor efficiency:
· Completeness and accuracy of statements
· Training of management staff
· Training of technicians
· Quality of physical resources, equipment, lighting and shop layout
· Morale of crew
· Pay plan and incentive programs
· Quality control, number of re-do's, etc.
Production Efficiency
Production efficiency differs from labor efficiency in that labor efficiency measures primarily manpower resources and production efficiency measures total resources.
Production efficiency is the ratio of current output to current resources. All resources including number of work stalls, staffing density, labor efficiency, average labor rate and labor sales ratios are factors in figuring production efficiency.
First you need to calculate what your facility is capable of producing in dollars per given time frame if it were to operate at its maximum capacity. Then you would need to know what your current performance is during that given time frame. You then divide your resource capacity by your current output. The formula is: current output divided by resource capacity. The maximum production efficiency would be 100%.
This measurement serves as a quantifier for the dealer to be able to ascertain if his body shop is doing enough volume or if more can be done. Most dealers consider building on to their facilities when they haven't even maximized their present facilities. I like to see a dealer get all he can out of what he has before he considers adding more space. Most shops that we measure are only operating at 60% of potential, yet the body shop manager often thinks he needs more space. We try to get the present facility running at around 90% production efficiency before we encourage any major expansion. Our admonition is clear: Make more money in less space.
A final word on the influences of production efficiency: The same influences that affect labor efficiency also impact production efficiency. Refer to the 7 points listed and see which ones you can do something about.