AARN Business Forum: focus on profit

AARN Forum

The recent AARN Business Forum was an opportunity for repairers to meet with work providers and suppliers and discuss key issues in the collision repair industry.
Held at the Grand Hyatt Hotel in Melbourne, the inaugural Australian Accident Repair Network (AARN) Business Forum was well attended by repairers from as far as Darwin and central Queensland, insurance representatives and industry suppliers.
The first day consisted of a series of sessions presented by industry suppliers. An excellent presentation by Greg Bach, manager -- Bodyshop Consultancy for Akzo Nobel gave practical information on how to reduce cycle time and why it is important in the running of a bodyshop. Michael Tuyau, southern refinish manager for K&H Technologies gave a talk on modern body fillers and the specific applications they are suited to. Hugh O'Neill of PPG Industries gave what many said was a very informative talk entitled 'Life after Benchmarking' in which he discussed how to implement systems in the shop to use the information gained from a benchmarking program. Brad Woods, area manager for Standox discussed DuPont Performance Coatings new bodyshop management program while Darren Lobley, OEM and major account manager for Glasurit talked about ways to effectively market a bodyshop business, touching on subjects such as customer satisfaction indices and 'key influencers'. Paul Maclean of Festool told delegates why dry sanding saves money and improves workplace OH&S as well as presentation. Barry Edney of Akzo Nobel reported back on the recent European Study Tour organised by Akzo Nobel which took in bodyshops in the Netherlands, Germany and Belgium. Rex Hartley of BMS took a look at definitions of bodyshop efficiency and explained what bodyshop operators should be measuring to increase their performance.
Michael Sheargold's session on Saturday was well received by members. His to

Charity gala dinner raises $30K
The AARN Gala Dinner at Melbourne Town Hall came alive to well-known Melbourne cover band Ricki Loca and the comedy of Jean Kittson.
More than 270 people attended the evening event which was also the setting for the AARN 2002 Repairer of the Year Award and fund raiser for CanTeen.
Dianne Page from AARN said the choice of Repairer of the Year was very difficult and the judging committee of Steve Wells of PPG, Nancy Lane of DPC, Tim Loden of Akzo Nobel and David Gardner of BMS should be commended for their commitment and personal time taken to review all the applications and attend the final committee meeting.
The winner of the AARN Repairer of the Year Award 2002 was Genevieve Hey from Daniel Hey Smash Repairs, Biloela, Queensland. The stand-out items in Genevieve's application were the commitment to her business plan demonstrating both the goals and achievements, the management of failures and setbacks within the company and the relentless pursuit of excellence with a real commitment to staff training and personal development.
"Dan and I contribute much of our success to the dedication of our staff," said Genevieve. "Our apprentices are very committed and we are very proud of their achievements. If we ever win this again, we will give the prize to one of our apprentices. Special thanks should be given to AARN and Akzo Nobel for their sponsorship of the awards and also for the work they are doing for our industry. I am especially impressed with the insurance companies who send their staff to these conferences," she added.
As the winner, Genevieve has been jointly sponsored by AARN and Akzo Nobel to attend the Sikkens European Study Tour for 2003, this eight-day tour throughout Europe will take place in September.
Another major component of the Gala Dinner was a fund raiser for CanTeen (teenagers living with cancer). This was a huge success, with AARN corporate members donating items for a silent auction and Harris Freer Toyota of Berwick Victoria donating a Toyota Echo to auction. All of the items sold incredibly well with member Jim Holden of Wizard Smash Repairs in Queensland purchasing not only the car but several other items. Well done Jim!
Items on the night sold for in excess of $30,000 with a net donation to CanTeen of $18,000. Andy Scobie from CanTeen said "When AARN approached us about the night we had no idea the sort of money that could be raised, this is amazing and will cover our entire winter camp, one week for 70 children, lock stock and barrel. All activities, counsellors, catering -- the works, we can't possibly thank you enough".

Save time and money with dry sanding
A presentation by Paul Maclean of Festool showed AARN delegates how real savings can be made switching from wet sanding to dry sanding.
"Productivity plus efficiency equals profitability," said Paul Maclean at the start of his presentation on the benefits of dry sanding. In the refinish process, a whopping 63 per cent of time is spent on total sanding activities, says Maclean. Eight per cent is taken up by polishing and 29 per cent by painting. "Therefore, sanding offers the biggest potential for efficiency savings," reasons Maclean.
Dry sanding in conjunction with dust extraction can be used for a variety of tasks including the removal of paint and putty, preparing a surface for blending out, de-nibbing and polishing. Dust extraction can also be used in the panel shop. "This is one area that gets overlooked," says Maclean. "What's the first thing a panel beater does when he starts a job? He gets an airline and blows off the car. This means dust particles get airborne and find their way into the paint shop, into the booth and this means more time needs to be taken at the detailing stage especially if the vehicle interiors have not been masked and more de-nibbing will be required."
The use of dry sanding equipment without dust extraction is not only environmentally unsound, it causes the abrasive paper to get clogged, says Maclean.
Dry sanding is much faster and easier than wet sanding, contends Maclean. Wet sanding by hand allows for an average of 4 sqm per hour to be sanded. Using a dry sander, a technician can cover 10 sqm in the same time. If a shop currently processes 20 cars per week, with the time savings generated by dry sanding, using the same number of employees, the shop can turn over 26 cars in the same time. Dry sanding cuts sanding time by between 20 and 40 per cent and increases worker productivity by 30 per cent says Maclean. Although switching from wet sanding to dry is not a simple task for those that are used to years of wet sanding, Maclean confidently predicts that within two months, everyone can master the different techniques required.
"Dry sanding is ideal for those shops that pay their workers through incentive schemes as the workers will love it because they can get through more work," says Maclean. "You can grow your business without increasing labour costs."
Maclean gave some concrete examples of how much a shop can potentially save by switching to dry sanding:
Tyfront guard 10 minutes 5 minutes
door 14 minutes 8 minutes
rear wing 21 minutes 12 minutes

20 minutes saving per average damaged car.
20 minutes x 20 cars per week = 400 minutes
6.7 hours @ $65/hour = $435.50 savings per week
$435.50 x 46 weeks = $20,033 savings per year

Added to this saving, Maclean says many shops have to clean the cars after wet sanding which can take up to 13 hours per week on 20 cars, this time can also be saved through the use of dry sanding.
Other savings can be made through the use of Festool's patented nine-hole Jetstream technology which has a vacuum effect emanating from the centre hole which pushes dust residue to the outer holes and reduces clogging which in turn prolongs the life of the abrasive. "$8000 to $15000 a year can be spent on abrasives. A 25 per cent saving on this means $2000 to $3750 a year," says Maclean.
In addition to the time and cost savings, dry sanding also helps keep a shop well presented, avoids possible fines for disposal of wet sanding sludge down drains, avoids the possibility of greasy handprints on sanded surfaces which can lead to contamination and gives a better finish than wet sanding.
Call Festool on 1800 063 900 for further details.

Measuring bodyshop productivity
Rex Hartley of Bodyshop Management Systems gave a talk at the AARN Forum titled 'Controlling productivity and labour costs'.
Too many seminars deal in generalities without getting into specifics and so it was refreshing to hear Rex Hartley from BMS go into practical details about productivity and labour margins.
Hartley says the key to benchmarking key performance indicators (KPIs) such as efficiency ratings is to ensure consistency. Only then will you be able to achieve comparability. Towards this end, he suggests a better measure of performance is a 'CPI' -- a comparative performance indicator.
To work out your labour margin you need to divide you profit from labour by your labour sales. Your labour sales are calculated by deducting parts, sublets and other sales as well as paint and material sales from total sales. This is converted into hours using your 'shop sell rate' -- a variable that if changed, critically affects your productivity calculations.
Once you have you labour sales you can work out your profit on labour. Take you average wage per week and multiply it by the number of employees you have; that is your labour cost. Take that away from your labour sales and that is your profit on labour. Divide your profit on labour over your labour sales to work out your labour margin. The best practice mark is around 70 per cent, says Hartley.
To work out your productivity, divide your labour hours sold by your labour hours worked; if you charged for 300 hours in a week and your employees attended 400 hours in the week, then your productivity score is 75 per cent. Best practice is over 150 per cent, says Hartley.
Productivity can be measured not only for the whole shop, but for individuals as well, but to gain an even better idea of how a particular employee is performing, Hartley suggests using what he terms a 'performance index'. To work out the performance index, divide the labour margin by the target margin (which should be set at around 67-70 per cent) and multiply this by the productivity score. This figure is more representative of relative performance and is fairer on employees, says Hartley. For instance, an apprentice may be only 85 per cent efficient but taking into account the higher labour margin afforded them by the lower salary, you may find they are performing as well as employees with higher productivity ratings.
Hartley says it is essential to calculate where you stand at the moment so you can measure the impact of change. "What would a 20 per cent improvement in productivity bring to your shop?" he asks. Here's how you can calculate this:
If a shop sells 300 hours from 400 attended hours per week it is 75 per cent efficient. A 20 per cent productivity improvement would mean 80 more hours produced (400 hours x 95% = 380 hours produced instead of 300). Eighty hours multiplied by a shop rate of say $60 per hour equals $4,800 per week or $225,600 per year.
A word of caution: "If it was easy to do, everyone would be doing it," says Hartley. BMS strongly recommends staff are put on a payroll incentive program, either manually or through the BMS TRIM system. It is important that employers understand though, that the rate of pay set within this system affects productivity and ultimately profit, as does the shop rate, so these variables and others need to be set to aim for best practice standards.
Sounds complicated? Call BMS on (03) 9809 8200 for an explanation.

Reducing cycle time
There are many steps in the collision repair cycle and Gregg Bach of Akzo Nobel highlighted some key areas in which significant time savings can be achieved.
"Think of the repair process as a watch; all the gears have to mesh together in order for it to work properly," said Gregg Bach, manager, bodyshop consulting for Akzo Nobel at the AARN Business Forum. Out of at least 19 distinct processes in the repair cycle, Bach highlighted three key areas: scheduling; dispatching/production; and communications.
Before continuing, he said it is important to ask how your repair centre defines cycle time. Many different definitions exist and although the Akzo Nobel Acoat program defines it as from drop-off of the vehicle to delivery, including weekends but excluding tow-ins, it doesn't matter how you define it, as long as everyone defines it the same, says Bach. "You have to measure apples with apples."
Bach ran through several benefits of an improved cycle time to the bodyshop including increased capacity, better customer and insurer satisfaction, less risk of lost sales due to a backlog of repairs, higher returns on assets and higher staff morale. Benefits to the consumer and insurer include reduced severity (the longer a car is in the shop, the more likely something else will be found that is wrong with it), better policyholder retention, happier customers (customer satisfaction indices go down 10 per cent each day past the stated delivery date) and quicker return of funds to investment for the insurer (insurers make money through investing premiums, the sooner an account is closed, the quicker the premiums can be re-invested).
Being able to track cycle time is critical if you are then to improve it. "Just measuring things in itself brings about improvement," says Bach. There are many ways to measure cycle times and track them against industry averages but Acoat uses dollars per day, that is, the total repair order cost divided by the number of days it took to repair. The Acoat average (that is the average of the shops within the Acoat Selected program) is 2.5 to three hours per day against a target of four hours, or $180 per day against a target of $240, or seven to nine days to repair per repair order against a target of five days or a 'facility capacity utilisation' percentage (that is, actual sales divided by potential sales capacity) of 65 per cent against an industry average of 90 per cent. All of these measurements are ways of tracking and comparing cycle time, says Bach.
Bach highlighted what he calls "periods of latency" -- possible production gaps. These number 40, including waiting for parts, authorisation delay from the insurer, waiting for prep and waiting for QC but "the list could go on and on", says Bach. He suggests bodyshops compile their own list of possible delays, go over it with employees and come up with a 'standard operating procedure' to overcome these problems. "Have a goal, like one more car a day, and try and reach it," says Bach.
Proper scheduling of work can help eliminate these gaps. To do this, you need to determine your shop's current capacity, measured in number of vehicles per day, dollars per day or hours per day, says Bach. Bach feels that scheduling by hours per day is the most logical method as hours do change from repair order to repair order while dollars do. Capacity can be defined in hours but not dollars and scheduling by number of cars does not factor in the size of the repair. There are a number of scheduling tools available including the calendar feature in Microsoft Outlook, various collision repair management systems and Microsoft Excel spreadsheets.
To accurately schedule repairs, you have to know how long a repair will take. This is calculated by dividing the total metal and paint hours on the estimate by five and then adding one day, says Bach. This gives you the number of days needed for the job which allows you not only to schedule it accurately, but give the customer an accurate report on when their car will be finished. An effective regularly updated production plan used in conjunction with a scheduling plan will keep the work flowing evenly.
Bach gave further tips on eliminating problems, such as making a parking lot plan so people know where each car is (and even putting colour-coded magnetic 'hats' for each car), having a keyboard for key storage and effectively utilising a production 'walk-through'.
For more information on how Akzo Nobel can help you reduce your cycle time, call (03) 9646 5988.

There is too much information from the excellent AARN Business Forum to list in these pages. We will run a follow up article in the next issue of Paint & Panel reporting on some of the other presentations made at the forum. For more information on upcoming AARN events, including the bi-annual AARN Conference in October, call (03) 9792 9422.