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Information You Need to Succeed

29 Mar, 2007 By: Jack Duncan imageSource

Information You Need to Succeed

Todd Johnson, Senior Vice President of Acquisitions at Global Imaging
Systems, pointed out the importance of Benchmarking in the December issue of
imageSource, noting that service benchmarks were perhaps the most important of
the aspects that make up a successful business. If we are to make accurate
business decisions on matters such as staffing levels, maintenance agreement
pricing, parts purchasing, etc, we had better have accurate information on hand
to make these decisions. The fact that service and supply must make up the
lion’s share of the profit contributions in this model, only reinforces the need
for benchmarks.

Add to this the fact that service is a unique environment where  our
employees are doing what we pay them to do, we can’t see them, and we have an
even greater need for statistical information. Ultimately, however, while
numbers and statistics are critical components for running a successful
business, they shouldn’t deter you or give you an excuse for not getting into
the field and "Inspect what you Expect."

As we determine what information we need to run a successful business, we
find that we can break technician performance down into two main elements:
Productivity and Proficiency.

Technician Productivity

At its simplest state, what we really want to know is this: Did the
technician give us a day’s work for a day’s pay? In other words, did he or she
work all day and use their time wisely? What do we need to know to establish

First Call Completion Time is the first and often overlooked tidbit of
information that tells us that the technician started their day on time. Last
Call Completion Time tells us that they worked until the proper time as well.
The number of calls performed is another main element of productivity and is
usually established as Net Calls per Day. For the sake of argument here instead
of giving you a target, I will say that the number of service calls performed
can vary greatly due to travel time and driving distance between calls. Daily 
Customer and Travel Hours  are an important measure as well with the side note
that the more customer hours you can achieve per day and per month, the lower
your burden rate will be.

Technician Proficiency

Next we need to know how proficient our technicians are at servicing
equipment. First and foremost, we need to establish their Efficiency, or First
Call Effectiveness (FCE). In order to do this, we need a system to establish
what a recall is. There are several ways of doing this; the BTA Model has a set
of recall standards based on segments; another is to establish Days to Fail and
Copies (prints) to fail to establish a standard for each model you service. 
It’s generally accepted that if, after a service call, a machine does not make
50 percent of the days or copies when compared to the   machine’s standard
performance statistics before the next service call, (either or), it is a
recall. BEI Services also has this information available, based on data from a
world wide database.

Having the right part in the right place at the right time should also be
considered "Mission Critical." Incomplete calls due to parts availability should
not exceed 10 percent of total calls, or you are throwing labor at a parts
issue. To get this FCE number, total the number of recalls and incomplete calls
and divide by the total number of calls run for the time period you are
measuring. You should also track the Days and Copies to Fail by model for each
technician. Parts used per service call may be difficult to use with the advent
of color and other types of equipment, but parts Cost per Copy is certainly
vital to profitability, both at the technician level, as well as the department
level. Use too many parts and you give up profits; use too few and you sacrifice
reliability. The next thing we need to know is our cost of goods and retail

Service Cost per Copy

The above information leads us straight into the Operating Cost of our
equipment, either by month or by copy or print. Establishing Parts CPC is fairly
straight forward, however the labor portion of the CPC is dependent on an
accurate burden rate. Burden rate is the wholesale cost of having the technician
in front of the equipment for an hour. It includes salary, fringes, travel
expense and G&A expense (General and Administrative), divided by Customer Hours.
Once the burden rate has been established, it is a simple matter to divide the
parts and labor costs for a service call by the copies produced to establish CPC
or Cost per Copy (or print). Ensuring that our technicians are as proficient as
possible is imperative as we look at pricing our services, or we will surely
price ourselves out of the marketplace, if not out of business (See Figure 1)..

Maintenance Agreement Rates

With our business model calling for 52 percent Gross Profit in service, we
must price our agreements accordingly in order to meet our goals. If we price
our M/A’s at a 40 percent margin, I believe it’s mathematically impossible to
hit our 52 percent target! With that in mind, we should establish the midpoint
of the volume band for the equipment and price that mid point at a 50 percent
margin. Drop below that midpoint and we need to increase our margin
proportionately to 55 or even 60 percent in order that we can sell the higher
volumes at, say, 45 percent. Without proper pricing, no amount of cost cutting
can get us to our goal of 52 percent if we are to maintain quality service (See
Figure 2).

The Bottom Line

The bottom line is that we must use numbers and statistics to help us
establish and control our expenses. We must "Inspect what we Expect" in field
service while keeping our technicians properly trained and equipped with the
proper parts to produce an acceptable level of First Call Effectiveness. We must
know what our Cost of Goods is to maintain our equipment population, and take
steps to ensure that it is as cost efficient as we can make it while pricing our
service at a competitive rate that will allow us to meet our goals. Without the
proper road signs (benchmarks), we will ultimately lose our way on the road to
Success (Profits).

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