Up Your Business - June - 2019

So Many Cars… So Why No Profit?

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Up Your Business is an exclusive GEARS Magazine feature in which I share stories, insights, and reflections about business and life.

Last week I received a phone call from a shop owner who started the conversation with, “Our parking lot is stuffed to overflowing with cars, but we’re losing money.” Over the years, I’ve received many calls from owners making similar statements, but the solutions vary from shop to shop.

The good news is that having a full parking lot is what I call a high-class problem. At first blush, as long as there’s plenty of work, it would seem like a tweak here or there to adjust overspending or overstaffing, or to price the work more profitably, should put things back on track.

As our conversation progressed, we discussed all these considerations, and I discovered that he had already considered these more obvious areas of concern. In fact, he was considering laying off one of his three rebuilders to reduce his expenses.

Laying off a key production team member seemed counterintuitive to the shop owner’s concern of “so many cars.” I asked why he’d reduce production capacity when it seemed clear that they were already struggling to get the jobs out. Before he could answer, I also asked how he decided which rebuilder to cut loose.

He said that, while this particular rebuilder was the best of his three rebuilders in terms of quality, he was losing interest in rebuilding, was producing fewer units, and was the highest paid. He planned to buy remans, if necessary, to make up for the loss of unit production.

While his plan had merit, I wasn’t totally convinced that it addressed the actual source of the problem. It just felt like something was missing. Then I remembered a book I’d read about 20 years ago: The Goal by Eliyahu Goldratt. Goldratt was an Israeli business guru and he developed a productivity theory called The Theory of Constraints, which was the focal point of his book.

Basically, his theory was that the output or throughput of a production process is limited by the slowest step in the process. This slowest step creates a bottleneck behind it. This seems so simple that it was hardly worth saying. But the existence of a bottleneck is often overlooked or ignored. Many times, they self-correct without ever being officially detected.

To make matters worse, even after they’ve corrected the bottleneck, there’s always a new bottleneck to find and correct because, in every multistep process, one of the steps is always going to be the slowest. The challenge is to keep finding and keep correcting.

I shared this story with the shop owner to introduce the concept to him. Back when I read The Goal, we had 10 retail transmission shops and a centralized rebuilding facility that supplied all 10 of our locations. Our retail shops were service-and-installation centers as well as distribution points to serve our wholesale accounts, and we did no rebuilding in those shops.

Anyhow, at that time we were trying to boost unit production without increasing the size of our centralized rebuilding facility or adding more rebuilding stations in our already cramped quarters. We felt we had implemented everything we could think of to maximize throughput without sacrificing quality.

  • The rebuilder disassembled and inspected the transmissions, and he completed a parts requisition.
  • The rebuilder wouldn’t see it again until he got it back, already cleaned and ready to rebuild, along with all the parts he’d requested. He was able to focus on inspecting and assessing damage (both cause and correction) and rebuilding the units.
  • The cleaning and prep work, along with pulling or ordering parts, was all done by a support person.
  • Once completed, we dyno-tested the transmissions before sending them out to the installation centers.

Well, I’ll shorten this story to illustrate my point about finding the prevailing bottleneck. While we had addressed all the bottlenecks to improve the rebuilding process, we failed to realize that the actual bottleneck was at the dyno. No matter how quickly we completed the units, they couldn’t leave the rebuilding facility until they passed the dyno.

We figured out a way to add another dyno within our limited space and that took care of the bottleneck — for a while. Ultimately, as we improved our processes by chasing the evermoving bottleneck, it came back to the dyno step.

We decided to challenge our thinking about the importance and necessity of the dyno step. We had been capturing the dyno test results, but sadly, we only used the statistical data to measure the production and quality of each of the rebuilders.

The results of evaluating the data from a different perspective were revealing. We found that we had about an 80% pass rate on the dyno, and less than half of the 20% that failed the initial dyno test required a teardown. Almost all the problems that didn’t require a teardown could be resolved while the unit was still on the dyno.

Armed with this new information, we decided to use the actual vehicle as the dyno for units to be installed at our installation center, which happened to be located adjacent to the rebuilding facility. This greatly reduced the bottleneck at the rebuild facility and had very little negative impact on the installation center, because they didn’t have the added inconvenience of waiting for one of our delivery trucks to bring another unit out like our remote centers did.

After sharing that story, the shop owner and I spent the next several minutes reviewing their processes with an eye on finding the bottlenecks.

Guess what: The bottleneck had nothing to do with any of the production steps. The bottleneck was at the front counter. Here’s a shortlist of what we found.

  • The service adviser was so fearful of losing some of their wholesale accounts that he was underpricing that work. This included used car lots who were abusing the already abused price structure on those jobs. We decided to raise the price on that work and allow those accounts to take their unprofitable work elsewhere or to pay the right price. This served as a filter to reduce the number of jobs while improving profit by eliminating the losing jobs.
  • There was an inordinate delay between receiving the cars and getting back to the customers with the diagnostic results and estimates. Of course, this bottleneck had a ripple effect. It led to customer dissatisfaction as well as delays in getting the jobs to the techs. We decided to kill two birds with one stone: The rebuilder that he was going to let go is now doing diagnostic work to speed up the process. He welcomed the change and is still available to rebuild when needed.
  • Apparently, the techs were working only as fast as they needed to because they wanted to stay or at least look busy until their next job assignment. This is a phenomenon where the work expands to fill the time allotted. Now that the work is coming at them quicker, their pace has also picked up. Best of all, their quality hasn’t diminished.
  • So, now that this bottleneck has been addressed, it’s time to find the new one and fix that… and so on and so on and so on.

Even if you aren’t suffering from an overflowing parking lot or production delays, spend a few minutes every now and then to look for your bottlenecks. I promise you that you have them because, as Eliyahu Goldratt observed, the bottleneck is the slowest step in the process chain and all process chains have a slowest step. It doesn’t mean your process is slow, it just means it can improve.

Finding and fixing bottlenecks is fun and, most of all, profitable. It’s also a great way to get the team involved. Once you’ve identified a bottleneck, share it with them and ask for ideas on how to fix it. If it’s their idea, they own it and they’ll make it happen.

About the Author

Thom Tschetter has served our industry for nearly four decades as a management and sales educator. He owned a chain of award-winning transmission centers in Washington State for over 25 years.

He calls on over 30 years of experience as a speaker, writer, business consultant, and certified arbitrator for topics for this feature column.

Thom is always eager to help you improve your business and your life. You can contact him by phone at (480) 773-3131 or e-mail to coachthom@gmail.com.