Module 1 - SLP1 Example
Productivity & Process Improvement
SLP1 Example: Excellent Ford, Inc.
NOTE: This is an example of identifying and discussing the issues of Productivity and Process Improvement. Your paper may or may not take on the same form or format depending on the business you choose and the nature of the issues you identify. I have generated this business from my experience. You will see that I used four references. You should use at least three references (more is better) and citations to back-up your discussion about productivity and process improvement, as well as any information about the nature of your company that you may have obtained from the literature.
Introduction & Company Background
This discussion is about a fictitious Ford dealership, Excellent Ford, Inc. Excellent Ford, Inc. sells new Ford cars and trucks as well as quality used cars. The dealership has these departments: New Vehicle Sales, Used Vehicle Sales, Parts & Service, Body Shop, and the Accounting and Back Office. The dealership has generally done well over the many years it has been in business, serving the community of 50,000 and surrounding area of farmers and small businesses.
The business is managed day to day by the General Manager. As in any other business, productivity at Excellent Ford is measured by the ratio of output/input, as defined in many references such as Wikipedia (n.d.-a) and Kumar (2008). Productivity has generally not been an issue except during tough economic times, such as Excellent Ford has been experiencing the last several years and up to now. Each department has its own productivity issues since they are staffed and structured differently and each has its own goals.
The New Vehicle Sales department is managed by the New Sales Manager. There are several ways that productivity is measured. Keeping in mind the general form of Productivity, Output/input, productivity measures for new car sales are:
Total number of new cars sold/cost of new cars sold
Profit from sales of new cars/cost of new cars sold
Profit from sales of new cars/Number of new cars sold
Profit from sales of new cars/number of prospects on the lot
The Service department is managed by the Service Manager. And there are several ways to measure productivity.
Total Retail Sales / Repair Order
Tech time sold / Repair Order
Parts sold / Repair Order
Tech time sold / Total Tech time paid
Processes at Excellent Ford, Inc.
Excellent Ford, Inc., like all businesses, is comprised of many processes as defined in the Handbook for Basic Process Improvement (n.d.) Here are some examples:
New and Used Vehicle Processes:
ORDERING NEW VEHICLES FROM FORD
PREPING NEW VEHICLES ON ARRIVAL FOR SALE
BUYING/SELLING USED VEHICLES AT AUCTION
REPAIRING USED VEHICLES TO MEET STANDARDS AND PREP FOR SALE
SELLING AND DELIVERY OF VEHICLE
Parts and Service Processes:
ORDERING PARTS
RECEIVING AND STOCKING PARTS
TALKING TO CUSTOMER AND WRITING A REPAIR ORDER
REPAIRING A CUSTOMER VEHICLE
Productivity and Process Improvement
This discussion will review productivity and process improvement at Excellent Ford in the Vehicle Sales Department and the Service Department.
In the Vehicle Sales Department, one key to productivity is to utilize the sales person’s time effectively. Another key is to generate as much gross profit per vehicle sold. This is true in both cases of New Autos and Used Autos. Here is the process as it flows:
Prospect on the lot --> Sales person gets a deal written --> Prospect signs the deal --> Deal is approved for financing --> Closer attempts to sell add-ons to increase profit
Over the course of a week or a month, data is collected and the following productivity ratios are calculated at each step of the process:
Deals written / Prospects on lot (130 / 510)
Deals signed / Deals written (82 / 130)
Deals approved / Deals signed (66 / 82)
Gross Profit / Deals approved ($207,372 / 66 = $3142/deal approved)
To improve productivity for the dealership and for the sales person (who gets paid commissions on each sale), the process is studied in detail. How can the sales person get more prospects to agree to getting a deal written and then signed? What are the issues with customers approved for finance? How can the Closer present and sell more add-ons such as Credit Insurance, additional warranties, membership in the Priority Club, etc.? The answer to these questions are not so much based on muda or waste and inefficiencies in a physical process as they are based on psychology and marketing. They are, nonetheless, important productivity and process issues. Sales managers and sales people meet on a regular basis to discuss these issues, share ideas, and agree to try different incentives and promotions to induce prospects to become buyers.
Now let’s look at the Service Department. The primary goal of providing service to an owner’s vehicle is to find and fix the problem. Customers do not like or want to spend money that is unnecessary fixing things that are not broken and having to come back several times until it is fixed. This is considered to be a prime area that makes or breaks Customer Satisfaction, both with the dealership and Ford Motor Co. The tricky part is knowing what to bill the customer and what to “eat” in terms of non-productive time fixing the real problem. Highly trained technicians, using up to date tools and technologies, and correctly diagnosing the problem are three main keys to a productive and profitable Service Department.
In order to measure productivity, data is collected on a weekly or monthly basis and key productivity measures are calculated with total number of Repair Orders written as the initial input:
Total Tech time paid / Repair Orders written
Tech time billed / Tech time paid
Flat Rate time quoted / Tech time billed
Another key productivity measurement is Time Vehicle in Shop / Repair Orders written. Customers do not want to wait days for their car to be fixed. And the dealership provides loaners to some customers, which is an expense. So getting the car in and out is also a priority.
The Service Manager collects information about the difficult and long repairs that occurred during the month. These are analyzed and discussed with the technicians in order to generate ideas for correct diagnosis and repair procedures. Team work is considered on some major repairs. Ways to reduce the wait time for parts is also analyzed.
Both of these examples use the continuous improvement model of process improvement (Wikepedia, n.d.-b). There are ways to consider use of lean thinking (Lean.org, n.d.). In the New Car Sales department, customers could order their vehicles from Ford to be delivered within five business days. This would reduce the amount of New Car Inventory at both the dealership and the factory. Customers could create their orders online without even going to the dealership. If they wanted to test drive, then a trip to the dealership would suffice. The dealership would need to have only a small number of new cars as demos.
Lean thinking in the service area is little trickier. Consider transporting the vehicle to a large regional repair center where all parts are available and there is a cadre of highly trained factory technicians. In the meantime, the customer is provided with a comparable vehicle on loan. Repairs could be done by replacing modular parts with credit for these parts on trade-in. The parts that are removed could then be repaired and sold as refurbished for a lower price at the customer’s choice. The economics of this supply chain process would need to be analyzed in cost-benefit terms.
References
Handbook for Basic Process Improvement (n.d.) Retrieved from http://www.balancedscorecard.org/Portals/0/PDF/bpihndbk.pdf
Lean.org (n.d.). Retrieved from http://www.lean.org/WhatsLean/
Wikipedia (n.d.-a) Retrieved from http://en.wikipedia.org/wiki/Productivity
Wikipedia (n.d.-b) Retrieved from http://en.wikipedia.org/wiki/Business_process_improvement