Do You Track Your Service Department’s Inventory?

Have you heard the saying, “What gets measured gets managed”? Peter Drucker, best known as the man who invented modern business management, is credited for coining that phrase. Mr. Drucker felt, if you cannot measure something, and know the results, you cannot possibly improve it.

With that being said, I am continually surprised by the number of Service Managers I speak with who do not know what the actual inventory of their service department is, and furthermore, do not have a process in place to keep track of and manage that inventory.

The inventory I am talking about is the number of hours the Technicians are punched in and available for work. This inventory, often called “Available Hours” is the starting point for all production in the service department.

The basic business model for the service department is this:

  • Flat-rate Hours Produced  X  Effective Labor Rate  =  Labor Sales
  • Labor Sales  –  Labor Costs  =  Labor Gross Profit
  • Labor Gross Profit  –  Expenses  =  Labor Net Profit

Flat-rate Hours Produced comes from the Technician’s hours worked multiplied by the Technician’s productivity percentage.

For example, if a Technician averages a productivity percentage of, say, 110%, and that Technician works a 40.0 hour work week, he’ll produce an average of 44.0 flat-rate hours of billable labor per week (40.0  X  110%  =  44.0). Now, imagine if that same Technician leaves a ½ hour early each day. His hours worked for the week will only be 37.5 hours (7.5 hours per day  X  5 days per week  =  37.5 hours worked per week). Take the 37.5 hours worked times his 110% productivity, and he’ll now be averaging 41.3 flat-rate hours produced per week. That Technician leaving a ½ hour early per day ends up costing the service department 2.7 billable hours of production per week. Over the course of a year, with time off factored in, that could result in a total loss for the company of 130.0 flat-rate billable labor hours … for just one Technician. That is almost equal to one month’s production for an average Technician! Now, multiply that by the number of Technicians in your shop. That is a lot of money!

There is no doubt that tracking Technician “Available Time” is important. So why don’t more Service Managers track it? There can be many reasons, but the two I hear the most are:

#1)  The Technicians get paid on what they produce, so hours worked don’t matter to me.

#2)  It takes too much time to figure hours worked every day

I believe reason #2 is the real reason. Many Service Managers are extremely busy and they just don’t see the importance of adding this task to the already long list of things they need to keep track of.

I encourage Service Managers to find a way for their daily reporting to get done without themselves having to do it.

Like Mr. Drucker said, “What gets measured, gets managed”. I believe this “Available Time” is too important to not get managed. After all, it is the only true inventory a service department has.

So, find a way to measure your daily inventory of available Technician hours and manage it accordingly. This single process can have a significant impact on the service department’s annual net profit.

Written by Jeff LaMott


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