CP-is it Dollars or Hours

[TheOne]

The original question was a good one! The answers not so good.

Either way you are tracking dollars per RO if done properly.
Correct hours per Ro is a measurement of dollars per Ro normalized so that it can be used as a comparative tool across differing markets with dissimilar labor rates.
The following formula correctly measures hours per RO:
labor sales (divided by) RO count (divided by) posted labor rate.
Using this formula allows a small rural store for example to compare performance with a large metro store on a level playing field.

There have been a variety of people arguing that it should be measured against an effective labor rate. The arguements almost universally cite maintenance rates and particularly oil change labor rates as a reason to measure against an effective labor rate. The arguement fails to hold water for a myriad of reasons, the most glaring being that to improve hours per RO simply knock down the effective rate and the hours per RO will show higher. This does nothing but make the measurement useless as a tool, other than to allow the manager to lie to the dealer principle.

On the other hand measuring it properly not only tends to cause an incidental rise, it also puts Advisors in a position that it is in their personal best interest to boost the effective labor rate.

Was that two birds killed with one stone?

[This message has been edited by TheOne (edited 09-30-2008).]

[Mike Vogel]

The last post is definitly correct. The only way to get a true measurement of hours per repair order is to use the dealerships door rate, not effective labor rate. As previously stated this gets all advisors/stores on an even playing field and the calculation cannot be manipulated by ELR. Great answer "TheOne".

[Tyler Robbins]

Hours per RO is unfortunately only a "partial" measurement and NOT a very good one at that. I realize that this whole industry adpoted it as "acceptable" and it was probably some yahoo like me (Consultants) who started this fiasco in an effort to sell a dealer his services.

Although, I can go and have gone on a lot longer than I should here to explain why this is such a poor measurement - let me give you some highlights.

First and foremost, whether you "normalize" by performing some arbitrary math to allow urban and rural dealerships to compare to each other, the act of dividing by an equally arbitrary door rate makes no sense. This "math" implies that the door rates in the respective rural and urban markets generate the exact same gross profit. If they do generate the exact same gross profit, it is at least a little bit closer to a fair comparison, but the likelihood of that exactness is slim to none, therefore, the "divider" is, for all intent and purpose - irrelevant.

The second point and clearly the most important one is the actual flat rate times from one location to the next. If you could confidently say that every service operation utilized the exact same Flat Rate times for each maintenance service or repair service, at least the hours could be equally compared, but as you all know - that is simply not the case. I've been to dealerships who pay techs 0.2 for LOF's and others who pay 0.5, one who pays 0.4 for a 4-Wheel aligment and another who pays 2.0, tire rotations that vary from 0.2 to 1.0, brake jobs that vary from .5 to 2.5 - should I go on??

Even if two operations were "selling" the same amount (volume) of these services, the hrs/ro would be different implying that one (the higher) is better than other - That really is somewhat inaccurate dont you think?

If the flat rate hours are different, in order to still "TRY" to compare the two, it would mean that the labor sale amounts of each of these services would have to be exactly equally proportionate to the other. So an Alignment with a FRH of 0.4 would have to sell for $40 and the other service operation would have to sell their 2.0 Aligment for $200 to equally compare these two. Honestly - if one market dictates competitively that an alignment sells for $200 and another market dictates competitively to sell it at $40 - please share with me and the rest of the visitors to this forum which two markets are that aligned (no pun intended) as it simply doesnt exist. Furthermore, a market with $200 alignments most likely has different technician costs than a market with $40 alignments so measuring "sales amounts" be that hours or labor dollars is an act in futility.

Gross profit will be the true difference in the two sample markets, and measuring that will at least allow comparisons to be accurate, but measuring CP only is only "partially" measuring your shop.

In all reality though, hours per RO was developed as a means to measure whether or not an operation was maximizing the opportunities coming into the service lanes, and the only true measurement of whether or not an opportunity was maximized is to have consisent "opportunity" measurements, which has never been explored by the industry.

EXAMPLE:
Dealer X maintenance menu lists a 30K service as 1.0 hr and $129.95, and that same dealers window of "opportunity" is +/- 1500 miles and has a "penetration" of 80%.

Dealer Y maintenance menu list a 30K service as 4.0 hrs and $599.95 a +/- window of 2500 miles and has a penetration of 50%.

Which service operation is doing a better job?

Remember - YOUR SHOP has CP/WP/IP every single day, and it all generates gross and ideally net profit. Dont't lose sight of the bottom line on your way to it. Measuring CP only is like a showroom only measuring one of the models they sell, rather than ALL of the vehicles sell. All of the pay types combine to a total, and its the total that we take to the bank.

I can ramble on even more as needed, but I will end this post with this:

Don't let supposed "experts" (of which I realize I am one of) make blanket statements as to what is the "proper" number, the proper RO Count, the proper measurement, the proper gross, the proper sale - every measurement has merit and the totals are driven by each collectively not individually.

As one of those guys who is great with the numbers myself, I can prove or disprove just about anything with data - what you really need to determine is whether or not you are moving forward (improving) or moving backward and if you need help with that - get the help!

[This message has been edited by Tyler Robbins (edited 10-24-2008).]

[TheOne]

I'm not going to go through it in its entirety it isn't worth it, but I am going to take on the most blatent of errors.

Hours per RO does not measure flat rate per operation nor is it supposed to. Door rates are not arbitrary. They aren't updated as often as they should, but they are fairly competitive for each market.

No one on this board in my memory has ever said that hours per ro was the only thing they were measuring. It is one of many and it is a VERY valuable tool, as is gross profit retention, CSI, work mix, tech skill mix, and on, and on, and on

[This message has been edited by Forum Admin (edited 10-25-2008).]

[Tyler Robbins]

The One

Let me correct you, obviously you misunderstood my post. I did not say "Flat Rate per Operation", I stated Hours Per RO is a POOR measurement. In fact, I will go on record in saying it is probably the WORST mistake perpetuated on Retail Fixed Operations EVER.

The title of this topic, for your reference is: CP-is it Dollars or Hours

Far too many Service Managers and dealers are focused on CP Dollars or Hours Per RO, and in many cases there are guys/gals out there whose very jobs depend on it.

You claim "blatent errors" - of which there are none, but certainly - if you can attempt to disprove or "correct" any of these so-called errors - you owe it to this post to endeavor to explain.

So, it is worth the effort.

[TheOne]

Your second point in arguement against hours per RO as a good measurement tool references the differences in flat rate times market to market for the same labor operation. This has nothing to do with hours per repair order, and would be addressed using another measurement tool called gross profit retention.

I have fixed many stores in 16 years on the road in part by moving the needle of hours per repair order as measured against posted labor rates. Comparison market to market based simply on labor dollars per repair order skews the numbers horribly in favor of expensive labor markets in spite of weak performance.

An additional measurement tool although flawed is operations per repair order (see my other posts regarding diagnostic charges). My take is you have a personal dislike for hours per repair order as a measurement tool and seek to invalidate its usefulness by edict! My arguement is simply that when used correctly it has a tremendous positive impact on revenue per customer transaction, ELR, gros profit retention, and believe it or not CSI.

You are going to have to come to the table with something objective and compelling in argument of your position

[Tyler Robbins]

The One - Clearly you dont understand why Hrs/RO is a flawed measurement altogether, and like many "consultants" you can continue to direct dealers and service personnel to acheive partial objectives.

Since you and I are the only ones still posting to this forum - if you want me to teach it to you - I have not hidden my identity on here and can easily be found if you search for me online.

Best of luck to you.

[TheOne]

Robbins,

attacking me because you cannot answer the question at hand. Save your lesson. You are flat out wrong! Hours per RO is a valid useful tool. Save your implied insults and go on to something else.

[harleygrl]

Just a note after reading all these posts. HPRO has been a "tool" used for many years. However the industry has changed significantly over the recent past few years. Therefore we need to change our approach and way of doing business if we are going to keep "current" and relevant to our changing industry. There is a quote from General Eric Shinseki, U.S. Army chief of staff that I like. "If you don't like change, you're going to like irrelevance even less."
With change comes different processes which will require different tools of measurement. If we are going to be successful in the "new world" of Fixed operations, we need to be open to new ideas and constant students of progressive ideals.

[X476]

I have to agree the HPRO is has been and always will be a useful measurement. Is there other ones also you bet. But just because one consultant believes his is right or better than anothers does not constitute changing everything in the way we measure our shop. Use HPRO for what it is a useful tool.