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At the end of my May 2011 ENX article Calculating
Your Service Burden Rate, I offered to send a copy
of the Excel spreadsheet I use to calculate the
service technician’s burden rate (cost of labor
hour) to anyone emailing me a request. I received
dozens of requests ranging from newly promoted
service managers, seasoned veterans, past
attendees of the BTA FIX seminar, and a few
friends who took the time to say hello.
Several of the people who asked for a copy of the burden rate calculator Excel formula also asked questions about how to determine acceptable parts usage. The cost of parts—including purchasing, freight, warehousing, car stock, obsolescence and getting the right part to the end user— is usually the 2nd largest budget line item within the service department. Profitable parts acquisition and usage is more of an art than a science. It requires constant monitoring, creative acquisition, car stock supervision, tenancy in warranty follow-up, team education and relentless focus on profitability. There are no hard and fast rules for car stock quantities, inventory turns, usage of “used” parts, overnight air orders, board repairs, using of junk machine parts, in house parts repair, etc. Each area of appropriate parts usage and acquisition must be approached in an individual way. But there can and should be specific guidelines for each of these measures. It has become somewhat fashionable to bonus individual technicians who manage to maintain a predetermined low parts usage. Other dealerships monitor technician’s part usage and will penalize or even refuse to allow parts to be issued after a benchmark level has been reached. I do not believe in limiting techs to a specific amount of parts or awarding bonuses for low parts usage. My main focus is first call completion, which requires having the correct parts on the first call. This can be accomplished by educating dispatchers, techs, managers, warehouse and shop personnel on how to maximize parts availability while minimizing the cost of the parts being used. I strongly believe in monitoring, not limiting, parts usage. I do bonus the entire service department personnel on money received back on warranty part returns. Managed Print Services has added an entirely new element into the parts equation. Historically, printer repair is not as time sensitive as copier service. If a replacement part or supply item is needed for the printer, it usually display the specific need on the operational panel. Someone in your company should ask specifically what is the error message or other information being displayed on the operational panel. Without that information, a service tech should not be dispatched. Once this pertinent information is received, it must be determined if your warehouse, car stock or end user has the necessary items. The tech should not be dispatched to the call unless the part/supply is available. If the needed item has to be ordered, the end user must be contacted and informed of the time line. Be realistic. If the part does not arrive at the appointed time, re-contact the end user and adjust the ETA. It is the responsibility of someone at your dealership to obtain the needed items quickly. New, used, OEM, after market, remanufactured, picked from your graveyard, or repaired; however you chose to acquire it, find the part NOW. Don’t wait two weeks before you start the search. If the part is needed for a billable call, the sooner you quote the customer a price for the needed part(s), the better chance you have of keeping their business. The longer the equipment is down, the greater the chance of losing their business. It takes the same amount of time to find a part today, as it will to find that part next week. When looking for parts and supplies for your MPS equipment, keep accurate records of the best vendors to use on different equipment. Some wholesale remanufacturers specialize in a few makes and models. Usually their pricing will be a bit less expensive than distributors who carry a wide variety of OEM and compatible products. You must determine if a slightly higher price is worth the convenience of one stop shopping, cross reference guides, technical help and more economical freight charges. I firmly believe overnight part orders and the accompanying costs are very economical. Unused inventoried parts are much more expensive than the cost of overnight delivery. Next day freight costs are more cost effective than paying overhead costs of unnecessary parts inventory. If the customer is billable, offer them the ability to pay an extra $15 to $25 for an overnight air charge to get the part tomorrow. Require a deposit before special ordering parts, when dealing with a new customer, or a client with a history of paying slow, or cancelled calls. Ongoing parts management training is very cost effective. Knowing the cost of your labor hour (burden rate) is the first step in deciding when to repair equipment or replace a part. If a drum is wearing out, calculate the cost of the replacing parts versus the cost for additional service calls to clean and adjust. If the drum/laser unit replacement cost less than the burden rate of 2 service calls —- replace the drum. You will spend more resources on repeated service calls than on replacing the needed part on the first call. If a tech is somehow punished for parts usage and rewarded for the number of completed calls, it is a natural tendency to keep going out to a lot of calls that are not fixing the problem. You can actually establish part numbers for used or repaired parts. We simply use the letter U for used and R for repaired at the end of the regular part number. When a part is ordered, our computer default setting automatically searches for a R or U part first. The dispatcher, parts person or the tech can override receiving a used or repaired part for a new one if appropriate. It will not save the company money if a tech has to reschedule a call, drive back to the office and search for a used part. Learning to maximize your low cost or free parts inventory can boost your bottom line. Make sure your MPS and other servicing agreement’s fine print allows for the use of new, refurbished, repaired, or any other approved replacement parts. When selling “not new” parts to a chargeable customer, I always offer them the option of a new or used part. I always adjust my pricing to make sure I make the same amount of profit (cash dollars, not percentage) selling non-new, as I would on a new part. When using used parts, make sure the cost to obtain them is not greater than the money saved. Teach your service personnel the need for logical parts management. When dealing with MPS, it is perfectly OK to use not new parts. Take for example an architect who insists on their drum being replaced because of a small dot which only shows up when running 11X17 copies. The tech should save this drum. Repackage it in the container of the replacement drum. Label the print count and make a note ‘small side dot in 11X17 on the outside of the box. This will be an acceptable replacement for the rental copier or MPS equipment located in a dirty warehouse environment that runs 81/2 X 11. Your techs must be aware of the big picture. If a customer’s lease is over in 60 days, there is no need to do the 600K PM servicing. A simple cleaning and new drum blade will suffice. This same service method holds true for the customer who requests major servicing a few weeks before their current maintenance agreement expires. Wait for the renewal check before you invest in servicing that will last for the next six months. To make this system work, service personnel must have easy access to the end of lease and maintenance agreement dates. Upon installation we use the ‘message’ field in our dispatch system to record these dates. If you use service history cards in the equipment, these dates can be clearly listed. Techs generate money in the field, not the shop. Requiring techs to report to the office each morning to pick up their needed parts will waste more than $15,000 per tech per year (base rate of $83 cost of the burden rate X 1 hour wasted for 200 days) in non-sellable labor hours. $15,000 per tech can buy a great many parts or pay for a lot of overnight freight sent directly to the end user. If a tech must come in to pick up a part, schedule the pick-up at the end of the day, not the next morning. It is amazing how fast techs can pick up a part at the end of the day, compared to in the morning. The entire parts situation can make or break the profitability of your service department. Think out of the box when creating part usage and handling guidelines. Encourage your entire staff to be creative and organized when dealing with your part needs. Parts management can be the difference between just getting by and thriving. Aggressive parts management is crucial to your service profitability. Ronelle Ingram, author of Service With A Smile, also teaches service seminars. She can be reached at ronellei@msn.com |
