FCE and Managing Service Profitability

1. FCEand Managing Service Profitability

2. Goals Identify key service reference points How these points have an effect on profit Opportunities; where and how much Managing the numbers Creating action plans and goals Raising the bar for service performance

3. Service Reference Points Service Dept Profitability Many dealers allocate revenue and cost in a way that make this more difficult than it sounds If you don�t already have reliable financial benchmarks, Global�s benchmarks would be a good place to start.

6. Service Reference Points Model Cost per Copy by volume Technician performance by model First Call effectiveness Benchmarks for the above items Call Back Rates Hold for part rates Parts Cost per Copy

7. Service Reference PointsModel Cost per copy by volume The most common mistake made by dealers today is placing the wrong machine in the wrong volume As of Dec 05 the average analog seg 4 machine was doing only 7303 copies per month, Digital Seg 4 is doing almost 21000, but well below it�s capacity Overall CPC for Digital seg 5 is .005, at its optimum volume it�s .0017, at 20000 per month it�s .007 for service only. You must have checks and balances to prevent sales from overselling the customer

8. Service Reference PointsModel Cost per copy by volume As illustrated you must know where each product runs its best, and adjust maintenance pricing to the volume being committed to by the customer. The lower the volume the higher the CPC. There is significant profit lost due to negotiated retail CPC without tying it to print volume. If retail CPC is governed in some measure by the marketplace, and your costs vary as much as 70% from the best volume to the worst, wouldn�t you want the most profitable volume?

9. Service Reference Points Technician performance by model Model 5

10. Service Reference Points Technician performance by model MCBV varied by 71% CPC varied as much as 50% So the worst performing tech created 70% more service calls than the best. This, in fact, reduces your potential profit on the machines that the poorer tech services. Increases customer dissatisfaction Increases your manpower needs There are multiple causes, calls per day expectations, training, technical skills or abilities, management support, machine placement activity, application or environment and territory.

11. Service Reference Points First Call Effectiveness FCE, is the percentage of time the technician resolves a customer�s complaint without incurring a callback or a hold for part call What is a call back? For most dealers this is a shot in the dark number and the criteria tends to track the owners expectations. If the owner wants 18% call backs, the system can be set up in a way to get that number BEI controls that criteria so everyone is measured equally and is tied to the national performance of each model. This creates an equitable criteria even if the machine has issues

12. Service Reference Points First Call Effectiveness CB% is the number of call backs divided by the number of EM or customer generated calls Hold for parts calls are those calls that required the tech to create an additional call because they didn�t have the required parts More often than not this stems from a few key problems: Lack of trained personnel in the parts department, lack of systems training, lack of inventory management training, techs controlling car stock, or an X-Tech managing parts HP% is the number of HP calls divided by the sum of EM and CB call types

13. Service Reference Points First Call Effectiveness FCE is primarily the dealers responsibility. On the Model 5 this number goes from a -48% to 67%, this can�t be related to the quality of the product This data is made up of 45 different companies who are servicing this product. 33 of the 45 dealers are at less than 30% FCE Think about this, When the customer calls for service, 70% of the time the tech will return for a call back or a hold for part call! We laugh because the tech has a reserved parking stall, not much wonder

14. Service Reference Points First Call Effectiveness What drives FCE? More often than not, FCE problems stem from a few critical areas: Listed in order of occurrence 1. Calls per day expectations 2. Response time expectations 3. TRAINING 4. Number of units placed 5. Lack of inventory expertise 6. Wrong compensation model 7. Wrong people 8. Mis-interpreting benchmarks

15. Service Reference Points First Call Effectiveness - Calls per day expectations Calls per day guidelines are okay, however, setting this requirement in stone forces techs to choose between quantity and quality There is a balance, but expertise, experience, territory distribution, and machine mix all play into this number A less experienced tech cannot do as many calls per day as a tenured/experienced tech can Consider quality first, quantity second. Few techs can deliver the same quality at the same speed

16. Service Reference Points First Call Effectiveness - Response time expectations Response time is based on TWO factors: Incoming call load and the number of technicians As call load goes up so does response time, this forces techs to work faster, which decreases quality, which in turn creates more calls, which increases call load, that starts the cycle all over again Staffing: As staff increases response time gets better Geography: The larger the geography, the more staff or the longer the response time will be

17. Service Reference Points First Call Effectiveness - Response time expectations A significant portion of your staff is doing un-necessary repeat work If your call load rises and stays high, the only way to meet your market driven response time target is to increase manpower OR, require quality, and reduce the total number times a customer is required to call for service, this reduces incoming calls, betters response time, and reduces manpower

18. Service Reference Points First Call Effectiveness - Training It�s a given that training is key to effectiveness For a technician to troubleshoot and resolve a customer�s complaint right the first time, training and experience are paramount Initial training gives them an overview of the machines specific components and requirements Solving problems in the field is the experience they need to become effective Which leads to units placed.

19. Service Reference Points First Call Effectiveness � Units placed Many dealers marketing organization jump on every new machine that is made available, without consideration to what happens in service If you place only a handful of products in the field, the techs will never be effective at repairing them. They simply don�t see enough variety in the problems to get good at it The moral here, is don�t get into a new product unless you are confident you can promote and move enough product to ensure your service profit stays in tact

20. Service Reference Points First Call Effectiveness � Inventory Expertise For the average dealer lack of inventory expertise costs them a 20% increase in manpower and 30 to 40% increase in inventory that is kept on hand Roughly 60% of the incomplete for part calls happen because the technician does not have a part that he routinely uses. The remaining calls happen because of parts that are needed too infrequently, are to expensive or environmentally sensitive, which makes it hard to justify carrying them The first problem above, is based around restocking intervals. Daily should be the target

21. Service Reference Points First Call Effectiveness � Inventory Expertise Techs should not be allowed to determine inventory, they are pack rats! For yield sensitive parts you should monitor this by tech and by model to ensure each tech is maximizing the yield potential. Each tech should be restocked daily, this will reduce the number of HP calls and reduce the amount of inventory in the car Your parts manager should be trained in forecasting, to reduce shipping costs and improve the restock schedules They should also pay special attention to obsolete parts, which tend to come from techs controlling parts ordering

22. Service Reference Points First Call Effectiveness � Compensation Model The old saying, �you get what you pay for� is truer than ever with technicians Many dealers find that the �cost of living � alive and breathing� raise leaves them with high tenured, high paid techs whose performance isn�t commensurate Most comp plans simply pay the tech to show up each day and take calls, the fact that the tech generates calls isn�t even considered The fact that many techs waist your parts dollars isn�t considered

23. Service Reference Points First Call Effectiveness � Compensation Model Techs are in the cost control business, they are not responsible for revenue! So your comp plan must be based around controlling expense, not necessarily profit We believe that 20% to 40% of a techs total compensation needs to be productivity, based and dependant on measurable requirements and goals Performance expectations should be laid out and reviewed at least every quarter Failure to meet these goals should exclude the tech from the variable portion of their compensation or end in termination

24. Service Reference Points First Call Effectiveness � Wrong people Not everyone is the right one. Finding good people is one of the hardest challenges we face I�ve counseled hundreds of dealers and virtually every one has had someone they wish they didn�t have but were afraid to do anything about it Many of my successful dealers, have told me that once the poorer performers were gone the entire department improved. In many cases these techs generated more calls than they took You must set the �performance� bar and expectations high enough to ensure everyone's success

25. Service Reference Points First Call Effectiveness � Wrong people Objective tech measurements often uncover technical deficiency that is being masked by good customer service skills. You need BOTH Itex has a power hour on addressing underperformers. A must attend for your service manager Many techs have become experts at managing their managers Many dealers that see objective performance measurements on their techs are shocked to see their �best� tech is at the bottom and the mediocre tech is at the top

26. Service Reference Points First Call Effectiveness � Mis-interpreting benchmarks I hear complaints all the time from service managers who are being asked to achieve performance benchmarks that their owners learned about at a conference Benchmarks are great, but understand, how you manage your systems, allocate your revenue and expense, and how accurate, the data you are using is, will all impact these benchmarks If you are going to use them, make sure you understand them, and standardize your business in a way that will make them meaningful

27. Service Reference Points Call Backs This is a contentious point. What is the criteria for a call back? Currently, most dealers are averaging nearly a 60% call back rate, using our definition. The more successful dealerships are in the 20% range Our criteria is model based and includes a set number of copies OR set number of days the machine must run before the next customer call. This number is based on the national performance of that model This ensures uniformity in the measurement and allows for increases and decreases in machine performance over it�s life cycle

28. Service Reference Points Call Backs Key to callbacks is remembering that the largest percentage of these calls are CAUSED by the tech and the way they approached the service of the unit If you have a 50% call back rate and you could reduce it to our target level of 20%, almost 30% of your techs would not be necessary I�m not suggesting elimination is necessary, you could grow into the manpower, but if the previous discussion about under performer�s is true, then these are techs you could truly do without The only solution to call backs is a change in compensation, management follow up, and enforcement of standards

29. Service Reference Points Call Backs You can contact BEI for our call back standards Another issue confusing call back rates is the calculation method If a customer calls and then calls back the next day for the same problem, what's the call back rate? 100% right, one EM and one CB Now lets say the tech has to incomplete the second call (HP), the CB rate is still 100% and the HP rate is 33%, In most systems CB% is taken from total calls so the CB would be 33%, HP% is 33 and EM is 33. So you can reduce your call back rate by doing more HP calls? This isn�t the goal and your techs know exactly how to play the game to get the number you are after

30. Service Reference PointsHold for parts These are calls where the tech has to return for additional parts BEI�s standard is 8 to 12%, calculated as stated before. To achieve this you need timely restocking, accurate parts usage data and absolute control over your inventory A techs car stock should be inventoried once a month to begin with. If they give you two months in a row with no variance, then go quarterly. If they give you two perfect quarters then go semi annual. Bar coding is a must, don�t wait The compensation plan should force a payback of inventory variances from their commission

31. Service Reference PointsParts CPC This is critical: Parts dollars, parts as a percent of revenue, parts per call are all common measurements They are not as accurate as parts cost per copy Parts usage, is in large part, determined by copy volume and technician competence You should be benchmarking Parts CPC. Techs that do a low parts cpc will tend to have high call back rates. Techs with a higher parts CPC don�t always see an increase in CBC�s, so again, your comp model should include a provision for monitoring parts CPC

32. Service ProfitabilityReference Points CPC by volume, will allow you to maximize your service profit by placing product where your service cost is the lowest and adjusting your retail where your costs are higher Tech performance by Model: Not all techs perform equally. You will need to make incremental improvements tech by tech, model by model FCE: There is huge potential in this number. Standardize the measurement, set goals and follow through to see they are met Parts CPC : Page volume requires parts usage. Be sure you are not losing profit from excessive parts usage or increasing your manpower needs from using to little

33. Action Plans & Goals Each qtr you should have a plan that addresses theses performance issues as follows: 3 models, with 10 to 15 selected serial numbers The poorer performing techs on each of these 3 models The models selected establish minimum call procedures and goals for improvement The techs determine if additional training or �ride with's� will be necessary In 90 days review the performance of these items If model performance does not improve, change the minimum call procedure If the techs performance doesn�t change put them on notice and offer no more than an additional 90 days to meet expectations or they will be let go

34. Service ProfitabilityOpportunities CPC by volume: There is direct correlation between sales compensation and mis-placed equipment Tech performance: A significant portion of your daily call load is CREATED by your techs because they are working on models they can�t repair effectively, address this and your margins will improve FCE: For techs a call is a call is a call. Unless the customer is mad when they arrive, how many times they are there is not a concern Parts CPC: This adds up to substantial dollars each month if not managed properly

35. Service ProfitabilityOpportunities/Management I�m consistently faced with problems that relate to management. Your key profit center is the service department - who�s running this? A promoted or tenured technician, an MBA? Our experience, as well as our data, indicates that most of the issues we�ve discussed are there because the service manager has had neither the training, the data, the coaching, the backing from the owner or the experience to solve them I�ve had customers where the techs have more to do with running service than the manager How else can we explain the fact that the techs were only accounting for half the available hours to work in the month? Recognize the importance of this position, train them in the business and people skills necessary to maximize your service resources

36. Service profitability Summing this up: Retail margin is driven in part by competition, most of which know less about their real CPC than you Ensure you have a skilled manager running service You must control your service cost. Reduce your cost and you can reduce your retail and still make the necessary margins You must compensate service techs to control cost. Which means complete every call as thoroughly as possible with the exact parts needed, no more no less Understand CPC and how it�s effected by copy volume, usage, application, environment and geography and work your sales organization accordingly You set the standards by which performance is measured, set the bar high. Not everyone will reach it but the right people will try