Productivity & Efficiency

“Productivity and Efficiency, in a mechanical workshop setting, are two critical measures intrinsically linked to a workshops success. Understanding, measuring and analysing both of these KPI’s can yield significant improvements to the capability and profitability of your operation.”

 

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Every year, we collect and collate data on behalf of the MTA to provide industry benchmarking. Our team is comprised of individuals with significant industry experience, both on the tools and in service management, who understand that Productivity and Efficiency, in a mechanical workshop setting, are two critical measures intrinsically linked to a workshops success. Understanding, measuring and analysing both of these KPI’s can yield significant improvements the capability and profitability of your operation. Our industry experienced staff and data analysts have curated this article collaboratively and hope it offers you some new insights and food for thought on these key industry measurements.

Understanding the differences

Productivity is the principal KPI for a workshop to gauge profitability through the sale of available labour and one of the more easily calculated and understood KPI measurements. It is a matter of scale, but generally higher productivity % = greater profitability.

Productivity measures the percentage of ‘available’ time you are actually selling, so therefore is not just a measure of technician output but also a measure of successful marketing and the selling capability of the front counter.

For example, if a technician charges out 4hrs of work during an 8 hour shift, he is 50% productive (half of his worked hours were billed).

This output is less than ideal, however it may be impacted by factors outside the technician’s control; such as in locations affected by seasonally quiet periods or simply due to slow business caused by ineffective marketing, uncompetitive pricing (whether or not this is a matter of customers’ perception) and various other factors reducing the amount of work coming in the door. A technician cannot produce 8hrs of chargeable time if there is not 8hrs of chargeable work there to complete.

Of course, there are factors within the technician’s control, such as too much time spent on non-chargeable work (inefficient work on internal non-chargeable tasks and idle time) or charged time written off or written down due to unacceptable levels of efficiency.

Efficiency analyses how efficient (or skilled) a technician is while clocked into chargeable work. Efficiency is a valuable measure of a technician’s capability that the technician can be held accountable for and improve on. Skill, focus and work ethic are core values intrinsically linked with a technician’s efficiency. There is a misguided perception that efficiency compares a technicians output against manufacturers’ book times; however, as book times are not necessarily the same as the hours quoted or ultimately charged to the customer, this is not strictly the case.

If the technician only clocked in 4 hours of time on chargeable work, but billed out 6 hours of work during this time, his ‘efficiency’ is a commendable, and somewhat extraordinary, 150% (they billed out 150% of their 4 productive hours). This is made possible by completing the work well within the allocated time; by working skilfully, having a sound understanding of the correct troubleshooting methodology and how to apply the fix efficiently or actively multi-tasking concurrent work (e.g. draining oil on one vehicle while turning spanners on another).

It is possible for a tech to achieve 150% efficiency on jobs they hold specific expertise in (providing no unforeseen issues, e.g. something is seized) however, this is not realistic on all jobs. We see this with our MTA benchmarking analytics; generally efficiency is around the 90% mark and productivity around the 60% mark.

Measurement

A key difference between efficiency and productivity is the time/date ranges typically used when reporting on these. Productivity reporting is often useful over very large date ranges (a month or more) because looking at small periods can result in fluctuations so large that they make the report useless. For example, if a four technician workshop has one technician away on annual leave and another is in a half day training session, productivity figures for the day in question are obviously going to look poor – but no manager would make any permanent changes to the business because of this. For this reason, longer report periods generally give far more meaningful results for productivity reporting.

While the “smoothing” effect of longer reporting periods makes productivity reporting more accurate and useful as an indicator, the reverse applies with efficiency reports. When reporting on efficiency, it is usually more useful to look at SMALL periods - even focussing in to individual job level. Imagine looking for an identical job that all technicians have done a few times each and comparing their times – this might be VERY useful information to the knowledgeable service manager.

Productivity: A simplistic approach to measuring overall productivity can be extracting ‘total hours worked’ captured through payroll and dividing this by labour sales figures from sales reports. However, to derive more meaningful results, on a ‘per technician’ basis, you will need to elicit a few key figures, total hours clocked and total hours charged for each technician.

Capturing and reporting on these figures will generally require a comprehensive service management system that tracks availability/worked hours for each technician, and retains a link to each individual technician for all labour sales processed through the billing system.

When the figures are known, the calculation is simple;

Productivity % = Hours Clocked / Hours Charged x 100.

Example: Technician works 40hrs, and charges out 36hrs.
Hours Clocked =40. Hours Charged = 36.
36 / 40 x 100 = 90

In this example the technicians productivity is 90%.

Efficiency: Because we are potentially looking at small periods, it is therefore preferable for absolute accuracy with efficiency reporting that work in progress changes are adjusted into the reports. Because efficiency reporting depends on chargeable/sold time, if the time has not been invoiced and is still sitting on a job, we won’t necessarily be able to correctly calculate the efficiency. The most accurate means of dealing with this is to calculate the work in progress at the beginning and end of the date range in question (the difference between the two being the work in progress “change”) and factoring this WIP change into the calculations. For example if a technician works 40 hours but 30 hours of this is still in WIP (ie not invoiced yet), our technician has worked for 10 chargeable hours – if this 10 hours has resulted in 12 hours charged, he is 120% efficient in this period. The 30 hours is completely ignored as it will turn up later (in the period in which it is invoiced) and its efficiency can then be calculated along with any other chargeable time from that period. Often the final chargeable amount for this 30 hours (written up or down) won’t be known until the time of invoicing – adjusting for WIP removes this as a potential inaccuracy in the reports.

External factors (that do not interfere directly with the job at hand) are not factored into efficiency figures. For example, if a technician works for one hour and produces two hours of chargeable time, he is 200% efficient. If the workshop has no more work and the technician is idle for the next three hours and then leaves work sick for the last half of the (8 hour) day, they will be only 25% productive – having “sold” two hours of eight – their efficiency, however, remains 200%. Efficiency calculations are only concerned with measuring their conversion of TIME SPENT ACTUALLY WORKING.

When efficiency is calculated, it is therefore important that it is not confused with productivity and only the time allocated to a given job is used to compare against the chargeable time produced. Also, if management decides to change the chargeable time for any reason other than “what the job is really worth”, this should be IGNORED in the calculation. For example, if the manager decides to give Client X a 10% discount because he has been a great customer and it is Christmas, this has nothing whatsoever to do with internal workshop efficiency and the discount should be excluded from any efficiency calculations for that job. On the other hand, if the technician has taken 1.5 hours to do a job that is “worth” and can only be charged at 1 hour – this 0.5 hour write-off SHOULD reduce his efficiency.

Idle Time: You should be looking to achieve efficiency of high 90’s and productivity of mid/high 80’s. Obviously, the higher the efficiency of a tech the higher the productivity should be, the disconnect generally comes down to external considerations, such as; ‘are we booking enough work’ or ‘what non-jobs are taking too much time’. Here, you should be looking to identify excess idle/unsold time and convert it to labour sales.

In order to analyse idle time, it is imperative to have the tools available to extract the required information. Outside of SAM & Orion, many workshop software systems do not provide this, or do not do it well.

There is a further KPI, “Available Recovery”, which measures the hours clocked onto jobs vs. hours available. This helps to quickly see the workload of the tech as it excludes time written up or down.

This video demonstrates the SAM Time Clocking system and touches on measuring and reporting on productivity:
https://www.youtube.com/watch?v=plekVL4dayE

Identifying & Executing Improvement

Productivity: In order to improve productivity, the focus is in maximising Hours Sold; closing the gap between total hours available and total hours sold. If the Technicians simply work faster, no more revenue will be generated; they simply complete their jobs in a faster time. Efficiency, will show an increase but you will not generate any more profit.

Utilising software tools such as Time Clocking can help maximise hours sold to achieve gains in productivity by supporting best-practise procedures that accurately capture ALL worked time. Remaining “clocked in” to the job at hand until all activity pertaining to the current job is complete (job card completed and returned, work space tidied, vehicle off hoist and parked).

In instances where, for example, a technician starting a job at 10:58 might be inclined to state the start time as 11, a digital Time Clocking system would capture the exact start time, recovering the minutes lost at the start and end of each job. Furthermore, a Time Clock application can be set to automatically round up labour charges, rounding up to the nearest ‘unit’, generally in 6, 10, or 15 minute increments.

These steps combined help maximise labour sales. Peter Morton, of Herbert Morton Accountants, advises they see “30 minutes per day, per fulltime tech on the floor” in additional charged time when our time clocking systems are implemented. For a team of 5 technicians, this could mean an extra $50,000 income per annum*.

Efficiency: Efficiency rates can be an extremely useful service management tool, especially for comparing technicians with one another and identifying particular areas of strength and weakness among staff. If, for example, a particular technician is very efficient at brake servicing, the service manager could consider putting this technician onto this type of work whenever possible. Alternatively, perhaps studying why this technician is so effective and training or explaining this to other staff may be worth considering. Armed with comparative efficiency rates, the service manager is able to make better, informed decisions about work flow and assign the most appropriate technician to each task more often. Identifying a star performer across specific service tasks may present an opportunity to facilitate cross training; utilising their relative expertise to cross train others in how they plan and execute their work to try raise overall efficiency across the team.

Efficiency is also a useful management tool because it is the one area of workshop labour management that the employee is able to control completely and is therefore responsible for (actually although it generally applies, there is at least one qualification to this statement that should be noted – efficiency can be significantly affected by the quantity and types of training the technician receives – and the reality is that all aspects of labour reporting are somewhat inter-dependent). Also, the relative efficiency rates of various technicians can be a very powerful and undeniable measure when it comes to salary/wage reviews, disciplinary action etc.