Operational performance can significantly impact sales and profits. Effective use of labor hours can result in greater capacity, increased sales and better profit margins. Quality in service delivery reduces waste resulting from performing repairs more than once because there was a problem with the first time they were performed. The cost of redoing repairs extends beyond the actual labor or parts being duplicated to include the overhead costs of processing a vehicle. Measuring and making improvements in business operations will support business profitability and success. Following are areas of operational performance to consider:
- Measure Employee Efficiency – Employee efficiency is measured by dividing the number of hours an employee took to perform a specified repair by the number of hours estimated (flag hours). Measuring employee efficiency month to month over a year will indicate trends over a one year period. If efficiency rates are improving then work processes are effective – if not corrective action may be required.
- Evaluate Shop Proficiency – Shop proficiency is measured by dividing the number of hours employees spent doing repair work (billable hours) by the total number of hours available during a period. This is a measure of how well the shop did at utilizing the available labor hours. When comparing proficiency measurements to previous periods or industry averages trends can be identified and corrective actions can be enacted if necessary.
- Determine Labor Warranty Ratio – Labor warranty ratio is the measure of the number of hours spent on warranty work versus the number of labor hours sold during a given period. This measure should be compared to previous periods and/or industry averages to determine whether trends are positive or negative.
- Measure Parts Warranty Ratio – Parts warranty ratio is the measure of the number of dollars spent on replacing parts versus the value of parts sold during a given period. This measure should be compared to previous periods and/or industry averages to determine whether trends are positive or negative. A change in supplier or brand may be needed.
- Evaluate Trends and Develop Improvement Strategies – The trends identified through measurements of operational performance can be used to make improvements and recognize growth in sales and profitability. The key is to use the measurements and determine where changes in processes are needed.
