FCE and Managing Service Profitability

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FCEand Managing Service Profitability
Presented by Wes McArtor President BEI
Services
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Goals

• Identify key service reference points
• How these points have an effect on profit
• Opportunities where and how much
• Managing the numbers
• Creating action plans and goals
• Raising the bar for service performance

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Service Reference Points

• Service Dept Profitability
• Many dealers allocate revenue and cost in a way
  that make this more difficult than it sounds
• If you dont already have reliable financial
  benchmarks, Globals benchmarks would be a good
  place to start.

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Model 1 Variations among dealers
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Model 2 Variations among dealers
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Service Reference Points

• Model Cost per Copy by volume
• Technician performance by model
• First Call effectiveness
• Benchmarks for the above items
• Call Back Rates
• Hold for part rates
• Parts Cost per Copy

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Service Reference PointsModel Cost per copy by
volume

• The most common mistake made by dealers today is
  placing the wrong machine in the wrong volume
• As of Dec 05 the average analog seg 4 machine was
  doing only 7303 copies per month, Digital Seg 4
  is doing almost 21000, but well below its
  capacity
• Overall CPC for Digital seg 5 is .005, at its
  optimum volume its .0017, at 20000 per month
  its .007 for service only.
• You must have checks and balances to prevent
  sales from overselling the customer

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Service Reference PointsModel Cost per copy by
volume

• As illustrated you must know where each product
  runs its best, and adjust maintenance pricing to
  the volume being committed to by the customer.
• The lower the volume the higher the CPC.
• There is significant profit lost due to
  negotiated retail CPC without tying it to print
  volume.
• If retail CPC is governed in some measure by the
  marketplace, and your costs vary as much as 70
  from the best volume to the worst, wouldnt you
  want the most profitable volume?

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Service Reference Points Technician performance
by model Model 5
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Service Reference Points Technician performance
by model

• MCBV varied by 71
• CPC varied as much as 50
• So the worst performing tech created 70 more
  service calls than the best.
• This, in fact, reduces your potential profit on
  the machines that the poorer tech services.
• Increases customer dissatisfaction
• Increases your manpower needs
• There are multiple causes, calls per day
  expectations, training, technical skills or
  abilities, management support, machine placement
  activity, application or environment and
  territory.

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Service Reference Points First Call Effectiveness

• FCE, is the percentage of time the technician
  resolves a customers complaint without incurring
  a callback or a hold for part call
• What is a call back? For most dealers this is a
  shot in the dark number and the criteria tends to
  track the owners expectations. If the owner
  wants 18 call backs, the system can be set up in
  a way to get that number
• BEI controls that criteria so everyone is
  measured equally and is tied to the national
  performance of each model. This creates an
  equitable criteria even if the machine has issues

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Service Reference Points First Call Effectiveness

• CB is the number of call backs divided by the
  number of EM or customer generated calls
• Hold for parts calls are those calls that
  required the tech to create an additional call
  because they didnt have the required parts
• More often than not this stems from a few key
  problems Lack of trained personnel in the parts
  department, lack of systems training, lack of
  inventory management training, techs controlling
  car stock, or an X-Tech managing parts
• HP is the number of HP calls divided by the sum
  of EM and CB call types

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Service Reference Points First Call Effectiveness

• FCE is primarily the dealers responsibility.
• On the Model 5 this number goes from a -48 to
  67, this cant be related to the quality of the
  product
• This data is made up of 45 different companies
  who are servicing this product. 33 of the 45
  dealers are at less than 30 FCE
• Think about this, When the customer calls for
  service, 70 of the time the tech will return for
  a call back or a hold for part call!
• We laugh because the tech has a reserved parking
  stall, not much wonder

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Service Reference Points First Call Effectiveness

• What drives FCE?
• More often than not, FCE problems stem from a few
  critical areas Listed in order of occurrence
• 1. Calls per day expectations
• 2. Response time expectations
• 3. TRAINING
• 4. Number of units placed
• 5. Lack of inventory expertise
• 6. Wrong compensation model
• 7. Wrong people
• 8. Mis-interpreting benchmarks

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Service Reference Points First Call
Effectiveness - Calls per day expectations

• Calls per day guidelines are okay, however,
  setting this requirement in stone forces techs to
  choose between quantity and quality
• There is a balance, but expertise, experience,
  territory distribution, and machine mix all play
  into this number
• A less experienced tech cannot do as many calls
  per day as a tenured/experienced tech can
• Consider quality first, quantity second. Few
  techs can deliver the same quality at the same
  speed

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Service Reference Points First Call
Effectiveness - Response time expectations

• Response time is based on TWO factors Incoming
  call load and the number of technicians
• As call load goes up so does response time, this
  forces techs to work faster, which decreases
  quality, which in turn creates more calls, which
  increases call load, that starts the cycle all
  over again
• Staffing As staff increases response time gets
  better
• Geography The larger the geography, the more
  staff or the longer the response time will be

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Service Reference Points First Call
Effectiveness - Response time expectations

• A significant portion of your staff is doing
  un-necessary repeat work
• If your call load rises and stays high, the only
  way to meet your market driven response time
  target is to increase manpower
• OR, require quality, and reduce the total number
  times a customer is required to call for service,
  this reduces incoming calls, betters response
  time, and reduces manpower

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Service Reference Points First Call
Effectiveness - Training

• Its a given that training is key to
  effectiveness
• For a technician to troubleshoot and resolve a
  customers complaint right the first time,
  training and experience are paramount
• Initial training gives them an overview of the
  machines specific components and requirements
• Solving problems in the field is the experience
  they need to become effective
• Which leads to units placed.

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Service Reference Points First Call
Effectiveness Units placed

• Many dealers marketing organization jump on every
  new machine that is made available, without
  consideration to what happens in service
• If you place only a handful of products in the
  field, the techs will never be effective at
  repairing them. They simply dont see enough
  variety in the problems to get good at it
• The moral here, is dont get into a new product
  unless you are confident you can promote and move
  enough product to ensure your service profit
  stays in tact

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Service Reference Points First Call
Effectiveness Inventory Expertise

• For the average dealer lack of inventory
  expertise costs them a 20 increase in manpower
  and 30 to 40 increase in inventory that is kept
  on hand
• Roughly 60 of the incomplete for part calls
  happen because the technician does not have a
  part that he routinely uses. The remaining calls
  happen because of parts that are needed too
  infrequently, are to expensive or environmentally
  sensitive, which makes it hard to justify
  carrying them
• The first problem above, is based around
  restocking intervals. Daily should be the target

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Service Reference Points First Call
Effectiveness Inventory Expertise

• Techs should not be allowed to determine
  inventory, they are pack rats!
• For yield sensitive parts you should monitor this
  by tech and by model to ensure each tech is
  maximizing the yield potential.
• Each tech should be restocked daily, this will
  reduce the number of HP calls and reduce the
  amount of inventory in the car
• Your parts manager should be trained in
  forecasting, to reduce shipping costs and improve
  the restock schedules
• They should also pay special attention to
  obsolete parts, which tend to come from techs
  controlling parts ordering

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Service Reference Points First Call
Effectiveness Compensation Model

• The old saying, you get what you pay for is
  truer than ever with technicians
• Many dealers find that the cost of living
  alive and breathing raise leaves them with high
  tenured, high paid techs whose performance isnt
  commensurate
• Most comp plans simply pay the tech to show up
  each day and take calls, the fact that the tech
  generates calls isnt even considered
• The fact that many techs waist your parts dollars
  isnt considered

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Service Reference Points First Call
Effectiveness Compensation Model

• Techs are in the cost control business, they are
  not responsible for revenue!
• So your comp plan must be based around
  controlling expense, not necessarily profit
• We believe that 20 to 40 of a techs total
  compensation needs to be productivity, based and
  dependant on measurable requirements and goals
• Performance expectations should be laid out and
  reviewed at least every quarter
• Failure to meet these goals should exclude the
  tech from the variable portion of their
  compensation or end in termination

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Service Reference Points First Call
Effectiveness Wrong people

• Not everyone is the right one. Finding good
  people is one of the hardest challenges we face
• Ive counseled hundreds of dealers and virtually
  every one has had someone they wish they didnt
  have but were afraid to do anything about it
• Many of my successful dealers, have told me that
  once the poorer performers were gone the entire
  department improved. In many cases these techs
  generated more calls than they took
• You must set the performance bar and
  expectations high enough to ensure everyone's
  success

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Service Reference Points First Call
Effectiveness Wrong people

• Objective tech measurements often uncover
  technical deficiency that is being masked by good
  customer service skills. You need BOTH
• Itex has a power hour on addressing
  underperformers. A must attend for your service
  manager
• Many techs have become experts at managing their
  managers
• Many dealers that see objective performance
  measurements on their techs are shocked to see
  their best tech is at the bottom and the
  mediocre tech is at the top

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Service Reference Points First Call
Effectiveness Mis-interpreting benchmarks

• I hear complaints all the time from service
  managers who are being asked to achieve
  performance benchmarks that their owners learned
  about at a conference
• Benchmarks are great, but understand, how you
  manage your systems, allocate your revenue and
  expense, and how accurate, the data you are using
  is, will all impact these benchmarks
• If you are going to use them, make sure you
  understand them, and standardize your business in
  a way that will make them meaningful

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Service Reference Points Call Backs

• This is a contentious point. What is the
  criteria for a call back?
• Currently, most dealers are averaging nearly a
  60 call back rate, using our definition. The
  more successful dealerships are in the 20 range
• Our criteria is model based and includes a set
  number of copies OR set number of days the
  machine must run before the next customer call.
  This number is based on the national performance
  of that model
• This ensures uniformity in the measurement and
  allows for increases and decreases in machine
  performance over its life cycle

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Service Reference Points Call Backs

• Key to callbacks is remembering that the largest
  percentage of these calls are CAUSED by the tech
  and the way they approached the service of the
  unit
• If you have a 50 call back rate and you could
  reduce it to our target level of 20, almost 30
  of your techs would not be necessary
• Im not suggesting elimination is necessary, you
  could grow into the manpower, but if the previous
  discussion about under performers is true, then
  these are techs you could truly do without
• The only solution to call backs is a change in
  compensation, management follow up, and
  enforcement of standards

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Service Reference Points Call Backs

• You can contact BEI for our call back standards
• Another issue confusing call back rates is the
  calculation method
• If a customer calls and then calls back the next
  day for the same problem, what's the call back
  rate? 100 right, one EM and one CB
• Now lets say the tech has to incomplete the
  second call (HP), the CB rate is still 100 and
  the HP rate is 33,
• In most systems CB is taken from total calls so
  the CB would be 33, HP is 33 and EM is 33. So
  you can reduce your call back rate by doing more
  HP calls? This isnt the goal and your techs
  know exactly how to play the game to get the
  number you are after

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Service Reference PointsHold for parts

• These are calls where the tech has to return for
  additional parts
• BEIs standard is 8 to 12, calculated as stated
  before.
• To achieve this you need timely restocking,
  accurate parts usage data and absolute control
  over your inventory
• A techs car stock should be inventoried once a
  month to begin with. If they give you two months
  in a row with no variance, then go quarterly. If
  they give you two perfect quarters then go semi
  annual.
• Bar coding is a must, dont wait
• The compensation plan should force a payback of
  inventory variances from their commission

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Service Reference PointsParts CPC

• This is critical Parts dollars, parts as a
  percent of revenue, parts per call are all common
  measurements
• They are not as accurate as parts cost per copy
• Parts usage, is in large part, determined by copy
  volume and technician competence
• You should be benchmarking Parts CPC. Techs that
  do a low parts cpc will tend to have high call
  back rates. Techs with a higher parts CPC dont
  always see an increase in CBCs, so again, your
  comp model should include a provision for
  monitoring parts CPC

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Service ProfitabilityReference Points

• CPC by volume, will allow you to maximize your
  service profit by placing product where your
  service cost is the lowest and adjusting your
  retail where your costs are higher
• Tech performance by Model Not all techs perform
  equally. You will need to make incremental
  improvements tech by tech, model by model
• FCE There is huge potential in this number.
  Standardize the measurement, set goals and follow
  through to see they are met
• Parts CPC Page volume requires parts usage. Be
  sure you are not losing profit from excessive
  parts usage or increasing your manpower needs
  from using to little

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Action Plans Goals

• Each qtr you should have a plan that addresses
  theses performance issues as follows
• 3 models, with 10 to 15 selected serial numbers
• The poorer performing techs on each of these 3
  models
• The models selected establish minimum call
  procedures and goals for improvement
• The techs determine if additional training or
  ride with's will be necessary
• In 90 days review the performance of these items
• If model performance does not improve, change the
  minimum call procedure
• If the techs performance doesnt change put them
  on notice and offer no more than an additional 90
  days to meet expectations or they will be let go

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Service ProfitabilityOpportunities

• CPC by volume There is direct correlation
  between sales compensation and mis-placed
  equipment
• Tech performance A significant portion of your
  daily call load is CREATED by your techs because
  they are working on models they cant repair
  effectively, address this and your margins will
  improve
• FCE For techs a call is a call is a call.
  Unless the customer is mad when they arrive, how
  many times they are there is not a concern
• Parts CPC This adds up to substantial dollars
  each month if not managed properly

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Service ProfitabilityOpportunities/Management

• Im consistently faced with problems that relate
  to management. Your key profit center is the
  service department - whos running this? A
  promoted or tenured technician, an MBA?
• Our experience, as well as our data, indicates
  that most of the issues weve discussed are there
  because the service manager has had neither the
  training, the data, the coaching, the backing
  from the owner or the experience to solve them
• Ive had customers where the techs have more to
  do with running service than the manager
• How else can we explain the fact that the techs
  were only accounting for half the available hours
  to work in the month?
• Recognize the importance of this position, train
  them in the business and people skills necessary
  to maximize your service resources

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Service profitability

• Summing this up
• Retail margin is driven in part by competition,
  most of which know less about their real CPC than
  you
• Ensure you have a skilled manager running service
• You must control your service cost. Reduce your
  cost and you can reduce your retail and still
  make the necessary margins
• You must compensate service techs to control
  cost. Which means complete every call as
  thoroughly as possible with the exact parts
  needed, no more no less
• Understand CPC and how its effected by copy
  volume, usage, application, environment and
  geography and work your sales organization
  accordingly
• You set the standards by which performance is
  measured, set the bar high. Not everyone will
  reach it but the right people will try