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The Profit of Efficiency David Ellings Business Mentors 2009 Large Loss and Business Development Summit, Chicago, Illinois.

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Presentation on theme: "The Profit of Efficiency David Ellings Business Mentors 2009 Large Loss and Business Development Summit, Chicago, Illinois."— Presentation transcript:

1 The Profit of Efficiency David Ellings Business Mentors 2009 Large Loss and Business Development Summit, Chicago, Illinois

2 Quantum Restoration What’s On Tap 1.Industry standards 2.Efficiency myths and facts 3.Study profile 4.A case study 5.The results 6.The hidden effect 7.The bottom line 8.Simple steps to improve your position

3 Quantum Restoration Measuring Success? Employees Equipment Building Size Volume

4 Quantum Restoration SALES: $5,000,000 EXPENSE: $4,850,000 PROFIT: $150,000 or 3% SALES: $750,000 EXPENSES: $600,000 PROFIT: $150,000 or 20%

5 Quantum Restoration

6 NAICS Code Industry Segment Profit

7 Quantum Restoration PROFIT DIRECT COSTS OVERHEAD COSTS 0 – 22% 15 – 30%50 – 80%

8 Quantum Restoration DIRECT COSTS 50 – 80% Direct Costs 20 – 50% Material/Equipment 50 – 90% Labor

9 Quantum Restoration 50 – 90% Labor Focus For Efficiency

10 Quantum Restoration Top Five Inefficiencies Materials Buying smarter and using wiser Speed of work Get your employees to move faster through the assigned tasks Amount of management Train your staff to function in the field with less management oversight Pricing Estimating program pricing problems Project size Advance to larger projects…they are more substantially more profitable

11 Quantum Restoration True Inefficiencies Scheduling –Time management and efficient use of resources Material procurement –Multiple trips, retaining stock, price shopping Accuracy –Time card slippage, accountability, management Drive time –Most significant indicator, liability, waste, waste, waste

12 Quantum Restoration Ratio Difference Efficiency

13 Quantum Restoration Study Profile Executive Summary Productivity trends carry a large impact on profitability Utilize detailed data gathered over three years to analyze efficiency Productivity focused on production employees and management processes Clear conclusions were able to be drawn by the results

14 Quantum Restoration Introduction Background –Productivity is the key factor of economic health –Industry productivity is not well defined –Rely on productivity figures from sources of questionable credibility Exactware, Means etc. –Ineffective management results –Need to offset the tightening of profits by the insurance industry

15 Quantum Restoration Introduction Objectives –Study efficiency trends over an extended period –Create an awareness –Counter insurance industry pressure on margins –Increase management tools –Nothing matters unless we increase…. $ NET PROFITS $

16 Quantum Restoration Introduction Scope –Defined: The American Association of Cost Engineers “Productivity is a relative measure of labor efficiency, either good or bad, when compared to an established base or norm” –Its nature creates difficulties in tracing it as an absolute value over time. –Information is gathered against movements of an established base, or benchmark value

17 Quantum Restoration Introduction Methodology –Study detailed movement of 82 production employees –Focus on inefficent time and not on production cycles –Created buy-in through incentives and self- improvement –Used sampling and statistical analysis techniques to establish and confirm results –Sampled across all company production areas –Gathered data very quietly

18 Quantum Restoration Affecting Factors Project Uniqueness –Each job is different and unique Environmental factors –Landscape, weather, and physical location Aesthetic factors –Level of quality required, material selection, existing conditions Human factors –Expectations of adjusters, owners, managers etc. –Uniqueness requires modification of the process…creating an inefficient learning curve at the beginning stages of each project activity

19 Quantum Restoration Affecting Factors Technology –Hugh effect on overall productivity –Modify skill requirements –Create difficulties in separating contributions of technology, management and labor to the efficiency –Less motivation to add technological changes when the associated labor is not expensive –Sometimes expensive and only a temporary strategic advantage

20 Quantum Restoration Affecting Factors Personnel –Management Level of training, accountability, and knowledge Documented studies – poor management activities account for over 50% of the inefficiencies –Production Cross training, flexible contract increase efficiency The fall of “real wages” within the industry –Old skills retire...young talent goes else ware –Industry tends to retire or fall off at an earlier age Lack of formal training –Lowest of any formal sector of the economy –Workforce tends to be transient, causing a reluctance to invest capital to train

21 Quantum Restoration Case Study Assumptions Employee Carpenter –Generalist to handle multiple tasks Wage: $25/hour Burden: 50% Total cost to employee: $37.50/hour Work year available: 1960 hours/year –2080 hours minus 3 weeks for holidays, vacation and sick time. Expected production: $100/hour

22 Quantum Restoration Scenario One 7:00 AM arrive at your facility to get assignment and supplies 7:00 – 7:30 drive to work site 7:30 – 9:30 install trim (productive work) 9:30 – 9:45 break (paid) 9:45 – 11:30 finish trim and paint (productive work) 11:30 – 12:00 lunch (unpaid) 12:00 – 1:45 install interior doors (productive work) 1:45 – 2:00 break ( paid) 2:00 – 3:00 install door hardware (productive work) 3:00 – 3:30 drive back and unload items and paperwork

23 Quantum Restoration Scenario One Results 8 hours worked and paid $200 wages + $100 burden = $300 cost 6.5 hours productive revenue generation 1.5 hours unproductive time paid 19% of paid time unproductive

24 Quantum Restoration Scenario Two 7:00 AM arrive at your facility to get assignment and supplies 7:00 – 7:30 drive to work site 7:30 – 7:45 get coffee then discuss project, activities last evening and other personal items with the rest of the production crew 7:45 – 8:00 unload supplies and tools from truck and set-up to work 8:00 – 9:00 install trim (productive work) 9:00 – 9:15 break (paid) 9:15 – 9:20 put away coffee, doughnuts and items from break

25 Quantum Restoration Scenario Two 9:20 – 10:00 install trim but a scope clarification problem arises (productive work) 10:00 – 10:15 discuss project with home owner and/or call project manager for clarification 10:15 – 10:30 install trim (productive work) 10:30 – 10:40 at 10:20 the carpenter realized that there wasn’t enough trim to complete the work, so a discussion about this issue occurs with the crew and the carpenter winds down his activities to get ready to leave for a store 10:40 – 11:00 drive to Home Depot (even though there was another lumber yard 5 min away but was unknown to the carpenter)

26 Quantum Restoration Scenario Two 11:00 – 11:30 locate trim in store, pick-up a couple of other supplies on your account, look at a the new compound miter saw, look at bath fixtures for a home remodel or side job, go to pro-desk to check out, converse with pro-desk manager about the weather or sports, load items into truck and leave 11:30 – 11:40 stop for gas and snacks 11:40 – drive back to project 12:00 – 12:30 lunch (unpaid) 12:30 – 12:40 conclude lunch and put away lunch supplies, clean-up and use restroom

27 Quantum Restoration Scenario Two 12:40 – 1:00 install last piece of trim ( project completed for the day, other supplies to arrive tomorrow) 1:00 – 1:15 wind down from activities and load vehicle 1:15 – 1:30 drive to a different work site 1:30 – 1:45 set-up tools and work at new site, also greet and discuss things with crew/homeowner 1:45 – 2:15 install windows (productive work) 2:15 – 2:30 break (paid) 2:30 – 2:35 put away coffee, doughnuts and items from break

28 Quantum Restoration Scenario Two 2:35 – 2:50 install insulation (productive work) 2:50 – 3:00 wind down for day, load truck and leave 3:00 – 3:30 return to facility, drop of time sheet/paperwork and unload supplies and debris

29 Quantum Restoration Scenario Two Results 8 hours worked and paid $200 wages + $100 burden = $300 cost 3.0 hours productive revenue generation 5.0 hours unproductive time paid 63% of paid time unproductive

30 Quantum Restoration The Cost of Inefficiency Scenario One Scenario Two Industry Average 1.5 hrs =$56.25/person/day =$13, 781/year 5.0 hrs =$187.50/person/day =$45,937/year 2.6 hrs =$99.00/person/day =$24,255/year

31 Quantum Restoration Is this it….

32 Quantum Restoration No, it is just the tip of the ice berg!

33 Quantum Restoration What about the revenue that should have been earned during the inefficient time spend….

34 Quantum Restoration Lost Revenue 2080 hrs in a work year = $208,000 –3 weeks removed for vacation, holidays, etc possible productive hours in a year At $100/hr = $196,000/person/year of revenue generation

35 Quantum Restoration Lost Revenue Scenarios 1.$36,750/yr of lost revenue per person –367.5 hrs unproductive = hrs productive 2.$122,500/yr of lost revenue per person –1225 hrs unproductive = 735 hrs productive Avg. $64,680/yr of lost revenue per person – hrs unproductive = hrs productive

36 Quantum Restoration What Does All of This Mean? Company Assumption 1,000,000 revenue for year –60% direct costs = $600,000 25% materials/equipment = $150,000 75% direct labor = $450,000 –25% overhead = $250,000 –15% profit = $150,000

37 Quantum Restoration What Does All of This Mean? Company Assumption We will use the average efficiency to test 1/3 of production day is inefficient 2 hours 38 minutes non-productive 5 hours 22 minutes productive time

38 Quantum Restoration

39 Small Increase, Big Gain 5% increase = 25% more profit Productive time –5hr 22min to 5hr 37min…..or only 15 min/day –12,000 hrs of labor in our example –1,500 personnel days per year –1,500/days X.25hrs X $100 = $37,500 increase in PROFITS

40 Quantum Restoration Results 5% increase = 25% more profit 1,000,000 revenue increased to 1,037,500 –60% direct costs = $600,000 25% materials/equipment = $150,000 75% direct labor = $450,000 –25% overhead = $250,000 –18% profit = $187,500

41 Quantum Restoration Results 5% increase = 25% more profit Therefore with the exact same costs the company was able to produce an increase of $37,500 of additional revenue which increased the profit by the expected 25% from $150,000 to $187,500 with only 15 min of increased production per person each day.

42 Quantum Restoration Results 5% increase = 25% more profit In addition, in order to capture the same profit of $187,500 without increasing the efficiency would require a 25% increase in the revenue or an additional $250,000 of sales…. Which is the easier improvement?

43 Quantum Restoration Actual Results Four Year History 62% increase in employee retention With incentives wages increased 6½ X greater then rate of inflation 18% increase in margins 76% decrease in paid none revenue travel time 36% decrease in management related inefficiencies 54% reduction in production inefficiencies

44 Quantum Restoration Actual Results 42.4%

45 Quantum Restoration Strategies For Corrections Put production on a pedestal –Plan and use your production staffs 2080 hours as your first priority

46 Quantum Restoration Production Create and post and organization chart –Make sure each production person know where they lay and who supervises them Emphasis safety and safety training –Let them know you are interested in their well being Create a detailed job description for each employee –Change them as the positions change Create a review form holding them accountable for the items in the job description

47 Quantum Restoration Production Include them in meetings Offer training incentives Have a clear and concise path for career mobility Remove cancers immediately –Hire tough…fire fast Create and implement an incentive plan –Both personal and team based –Small perks and recognition go a long way

48 Quantum Restoration Production Remember: You can’t manage what you can’t measure -Jack Welch And Trust but verify -Ronald Regan (with special credit to Phil Rosebrook Sr.)

49 Quantum Restoration Strategies For Corrections Put production on a pedestal –Plan and use your production staffs 2080 hours as your first priority Monitor and reduce drive time –Monitoring is the blood test of your businesses health check-up –Single most reducible and inefficient time spent

50 Quantum Restoration Drive Time Start/stop day at job site –Production staff should start and end day for all non- emergency work at the job site –Use technology to monitor the process –Review company vehicle policy –Pay mileage instead of allowance This will allow a tracking mechanism for drive time –Add runner for material delivery Better yet use your suppliers to deliver material –The numbers do not support staff material procurement

51 Quantum Restoration Strategies For Corrections Material Handling –Dispose of extras –Look critically at what you stock –Keep production from material procurement at all costs

52 Quantum Restoration Material Handling Don’t return unused commodity stock to your warehouse –Dispose on site –Give to property owner Production personnel should produce and not purchase Avoid the temptation to stock most supplies. –The savings on most bulk purchases are far offset by the cost of storage and delivery –Utilize suppliers that will deliver even for a fee

53 Quantum Restoration Strategies For Corrections Material Handling –Dispose of extras –Look critically at what you stock –Keep production from material procurement at all costs Add technology –Computer, faxes, PDA’s –GPS, Nextel systems

54 Quantum Restoration Technology Cost vs. benefit –Make sure it makes sense financially and logistically Keep production staff out of office –Use faxes or computers to send daily time sheets –Enter time data in real time through PDA’s or phones Use GPS to track assets, both organic and inorganic

55 Quantum Restoration Strategies For Corrections Increase management –Accountability –Direction

56 Quantum Restoration Management Scheduling –MS Project –CDCI –Virtual Boss (PDA software) –Primavera

57 Quantum Restoration Management Budgets –Everyone should understand the financial expectations of a project before it begins Communications –Improve management/worker communications to reduce the “assumption” factor –Use technology: s, text messages, etrace, etc.

58 Quantum Restoration Strategies For Corrections Increase management –Accountability –Direction Improve job costing –Review results as projects are ongoing –Measure, measure, measure Where profit is, loss is hidden near by –Japanse Proverb

59 Quantum Restoration Job Costing To contrive is nothing! To produce is something! To measure is everything! Unknown All produced work must be measured against a financial standard Incentive plan based on margins Accountability for all project phases based on budget Good financial accounting software

60 Quantum Restoration

61 Challenges of having a mobile workforce No visibility into your team High overtime costs Manual timecard processing High mileage costs Can’t allocate your resources effectively Difficult to communicate with your team Manual dispatching Manual paperwork chaos

62 Quantum Restoration Mobile Technology Productivity People Value: –Track and dispatch people and teams –Right person for the job –Increase T&M accuracy and records –Know how time is spent –Reduce errors –Manage sales team productivity Process

63 Quantum Restoration Process Productivity People Value: –Dispatch and track information –Increase customer satisfaction –See work in progress –Reduce errors –Capture and validate data Mobile Technology

64 Quantum Restoration Process Productivity People Value: –Control overtime –Accountability –Decrease drive time –Reduce errors & rework –Increase communication –Monitor asset usage Mobile Technology

65 Quantum Restoration System Architecture Mission ControlMobile SolutionsQuickConnect™  Non-Java and Java GPS-enabled  Easy to learn and use  Configurable to your business  Over-the-air administration  Peripheral support  View jobs, workers, activities  Dispatch and manage jobs  Real-time alerts  Fleet, job and worker reports  Back-office integration  Real-time connection  Secure and seamless  Supports all applications

66 Quantum Restoration 1)All landmarks and jobs are geo-coded & labeled by stop name. 2)A configurable Workzone surrounds each stop to define its boundaries for GPS collection 3)When a vehicle enters the Workzone, etrace starts to monitor the duration to determine if it should record this as a stop 4)When a vehicle is in a Workzone for a specified duration, etrace marks this as a stop and records details, such as distance traveled and time of entry. 5)If a vehicle is stopped in a Workzone that does not correspond to a landmark or job, the stop is logged as an “unscheduled” stop..” Stop is Recorded Potential Stop Workzone etrace Workzones

67 Quantum Restoration Worker Map Display of Exception Time

68 Quantum Restoration Summary Ability to transform the mobile workforce for the field service industry. Eliminate manual processes increasing accuracy and costs. Increase customer response times Decrease mileage and overtime costs Leverage your IT and backend system investment Fast return on investment

69 Quantum Restoration etrace ® editions – seamless upgradeability  Flexible GeoFencing  Real-time Alerting  PowerFields™  Real-time Mapping  Electronic timecards  Blue Tooth Enabled :worksightVisibility  Dispatch jobs  Manage workflow  Capture data  Robust Reporting  Blue Tooth Enabled :workflow $39Control  Robust data capture  Real-time field transactions  Credit card processing  Mobile printing :worksmart $59+Advantage :worksight.lite $14.95  Gain visibility  Non-GPS Tracking  WorkZone Landmarks  GeoFencing  Alerting $19.95

70 etrace® Transforming and Driving Mobile Workforce Performance

71 Quantum Restoration Your Gearworks Sales Team Contact Gearworks at GW-SALES today to schedule a product demonstration. See more. Do more. Be More


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