The Road To Success Is Filled With Forks: Which Path Will Your Business Follow?
By Clarence Clark
Don’t be too close to your business, or you risk losing sight of what’s important.
After visiting machine shops all over the United States, I have come to the conclusion that most shops in America are at that all-important "fork in the road" when it comes to the continued success of their business. As a shop owner, you can take that left fork and do what you and your competitors have always done, or take the "right" fork and chart some new territory.
I’m afraid if you continue to do what you’ve always done we’ll see you fade away just like the flat head Ford and now the small block Chevy. I’m talking here about what you’d call, in today’s lingo, "thinking outside the box" when it comes to pricing your work and charging for what you do.
If you’d ask most shops what their labor rate is, you’d hear something like "$60 per hour." Although it’s traditional in our business to think of labor in units of hours, I believe you’re all missing the boat on this! We need to think about the minutes, not the hours. One dollar a minute, in our above example!
It’s kind of scary when you think of it that way. Think how many minutes are wasted away every day in your shop.
To give you an actual example, one day I watched a shop foreman spend 40 minutes trying to sell a performance camshaft to a customer for $100. The shop’s gross profit on the cam was $40 minus the 40 minutes or $40 labor, putting our net at $0 before all other expenses are taken out.
How many examples like this do you suppose take place in your shop every week? Waiting time on the phone, time spent looking for tools, time spent looking for parts and, of course, good old BS time. This non-productive time, as the big boys call it, is killing you! Billable hours are the name of the game in the shop business.
When I had my own business, my wife always said, "if you need to hire two new employees, make do with one." She was right. The more people we hired the more our productivity per person dropped. Lean manufacturing was actually invented in Joplin, MO, by my wife and me more than 30 years ago! Seriously, overhead, whether it’s poor productivity, too much inventory or slow process time, will kill you.
First you’ve got to look at time management in your shop. Do you know how long it takes to set up and surface a head? Do you know the billable labor per week or month for each employee? Have you identified your top three time wasters? You’ve got to do some studies in your shop and answer these questions.
Once you’ve got some answers, the next step is formulating a plan for improvement. For example, let’s assume you’ve identified that your three machinists have $4,550, $6,785, and $5,890 average billable labor per month. The one with $6,785 does all of your balancing, line-honing and rod reconditioning. These are all jobs, I might add, that you have excellent equipment for and also have priced well.
Your guy doing $4,550 does all of the tear down and cleaning (not much billable labor) and all the head pressure testing (you charge a flat $20 per head and have an outdated machine). I’ve stood and watched this person spend an hour pressure testing a head! Hopefully, you’re starting to get the idea. We’ve identified a non-productive operation in the shop (the pressure testing) and at least recognize the fact that we’re possibly not recovering our cost from the cleaning operation as well as we should.
Clevite Engine Parts’ Bill McKnight and I have visited shops during our training programs, and what we often see is the shop manager and owner are so involved with the everyday work of trying to run the business that they don’t have time to think about what’s actually happening.
Sometimes it helps to get away from the shop for a while, whether it’s attending a trade show, meeting off-site or even a long lunch. You need to create conditions in which you’ve got time to think about what’s going on in your business. Also, getting help and advice from someone who knows the business but doesn’t have the close emotional ties to it is often a big help.
What you’ll end up with, if you keep on this path, is a pretty good look at your productivity, a pretty good idea of where the problems are in your operation, and hopefully a pretty good plan of where you need to focus attention to get improvements. You need to get a master plan for your business that covers all these things as well as looks to the future. Where do you want to be a year from now? Five years from now? Your business changes constantly, so you’ll have to bend and modify your plans, too.
I’ll wrap up this month with another old saying (seems like I’ve had them on my mind). "If you always do what you’ve always done, you’ll never get anything different than you’ve always got!" Be brave and take that "right" hand fork in the road!
Clarence Clark goes on location to share his 35 years of experience in engine rebuilding in a series of seminars at machine shops across the country. You may e-mail Clarence at email@example.com