BUSINESS TOOLS FOR SERVICE MANAGERS

Hours Summary.

Maurizio Bonacchi Caterpillar 1

Geneva

Labor Hour Summary

• 52 weeks/year.

• 5 days/week

n 8 hours/day + overtime

• 2080 hours + overtime

• 1 technician represent 2080 of Total hours/year + overtime

Maurizio Bonacchi Caterpillar 2

Geneva

1
 Labor Hour Summary

• 4 weeks/year vacation.

• 2 week/year of illnesses (accidents, doctors visit, family cares, government obligations,

statutory holidays.)

n 5 days/week

• 8 hours/day

• 1 technician represent 240 hours of allowed hours/year

Maurizio Bonacchi Caterpillar 3

Geneva

Labor Hour Summary

• 1 technician represent 1,788 + overtime hours to work.

• If overtime is 10% one technician represent 1,967 hours to work.

n Benchmark say… ~85% of 1,967 hours are used to produce billable hours or
productive hours.

• ~15% of the hours are non chargeable between Rework, Service

Policy, Lost time, and invested in Training.

• 1 technician represent 1,672 billable hours. Only 73%.

Labor utilization

Maurizio Bonacchi Caterpillar 4

Geneva

2
 Labor Hour Summary
2080 of Total
hours/year
+overtime

1,672 billable 240 hours of

hours allowed
hours/year

Controllable
Expenses
hours

295 hours of
total Non-
Chargeable
hours/year

Labor Hour Summary

“Service Labor Hour” The Service Dept. Product that is managed by the Service Manager.

MAJOR GROUPS OF ACCOUNTS

Cat Revenue Hours: External Customers
Goal Interdepartmental Hours: Internal Dealer Customers
>85%
Warranty, CSA, Flat Rate: External or internal Customer
Expense Hours: Service Department
Forecast
Allowed Hours (vacation, etc ) hours
+ Or
Service Hours REDO (Rework Expense) 2% Total
+ Service
Lost time Cat hours
+ 9% Goal
Commercial Policy Hours <15%
+
Training Hours (Recommended) 4%
Maurizio Bonacchi Caterpillar 6
Geneva

3
 Labor Hour Summary

Revenue + Interdepartmental + Warranty + CSA

TP%=
Revenue + Interdepartmental + Warranty +CSA+ Policy+Redo +Lost Time+Training

Billable Hours/Productive hours Non - Chargeable Hours

Hours Worked

Maurizio Bonacchi Caterpillar 7

Geneva

Labor Hour Summary

Billable Hours

Maurizio Bonacchi Caterpillar 8

Geneva

4
 Labor Hour Summary

Expense Hours
(Allowed Time) (Non Chargeable Hours)

Maurizio Bonacchi Caterpillar 9

Geneva

Labor Hour Summary

• General formulas:

• Calculation of %: Labor utilization or Billable Hours, Expenses hours &

Allowed hours e.g.:

Billable hours Total Billable hours

or Labor % = Dealer Goal
Total Hours (Potential/Real)
utilization

Expenses Total Expense hours

hours = Dealer Goal
% Total Hours (Potential/Real)

Allowed Total Allowed hours

hours = CAT Goal =N/A
% Total Hours (Potential/Real)

Maurizio Bonacchi Caterpillar 10

Geneva

5
 Labor Hour Summary
• General formulas:

• Calculation of %: Always the denominator will be Hours worked =

Billable hours + Non Chargeable hours e.g.:

Non Chargeable Total Non-Charg hours

Hours % = CAT Goal =<14%
Hours worked

Technician Total overtime hours

Overtime = CAT Goal =<15%
% Hours worked
& depend on each
country
Travel Total travel hours
hours = Hours worked
%

Maurizio Bonacchi Caterpillar 11

Geneva

Billable hours distribution

Which is the best billable hours distribution in this 8 dealers & why?

Maurizio Bonacchi Caterpillar 12

Geneva

6
 LABOR HOURS ANALYSIS

• Specific formulas:
• Calculation of hours weight %: Always the denominator will be total
specific reference hours and numerator will be an specific hours to
weigh e.g.:

Revenue hours Total revenue hours

weight % =
Total billable hours

Non-Chargeable travel Non Chargeable travel hours

Hours weight %=
Total travel hours

Maurizio Bonacchi Caterpillar 13

Geneva

Labor Hour Summary

Are we able to fool us and to

show that we have a TP%>= 85%?

Yes. We can hide non-chargeable hours in the billable hours

account.

Maurizio Bonacchi Caterpillar 14

Geneva

7
 Labor Hour Summary
Definition, Formulas and Benchmark

Is the ratio between

Labor
Billable Hours Dealer Goal
Utilization
% and Total Service Hours

Is the ratio between Cat Goal

Technician Billable Hours
Productivity =>85%
and Hours Worked.
%

Is the ratio between Dealer

Expense the Expense Hours and Goal
Hours % Total Service Hours

Maurizio Bonacchi Caterpillar 15

Geneva

Service Hours Recommendation

Maurizio Bonacchi Caterpillar 16

Geneva

8
 Labor Hour Summary
How service can produce more billable hours/technician with the same
number of technicians, without increase overtime or with a legal and
controlled increment ?

by a control of the non chargeable hours

Legal obligation controllable controllable

Billable or [
Total hours – Allowed hours + Rework hours + Policy hours
Productive hours=
+ Lost Time hours + Training hours ]

controllable controllable

Service Hours Recommendation

The increment of productive hours, by reduction of non chargeable hours,
could be Real or Fictitious :
• Real
–Increment the appropriate training hours will reduce future rework hours, to use rework
cases such as training material will help to reduce future rework hours.
–Tooling, Parts availability, Trained supervision, Work Order Open-Close procedure.
Repair Process Integration steps implemented.
–External & Internal customer policy, Subsidization internal customers
(discount etc, etc)
–Service marketing plan, Standard job, Flat rate, Customer Support Agreement.
–Service Capacity & Capability.
–Analysis of price of labor rates/h vs. Market price.
–Service efficiency or Gross Profit variance.

Maurizio Bonacchi Caterpillar 18

Geneva

9
 Service Hours Recommendation

Cont… The increment of productive hours, by reduction of non chargeable hours,

• Fictitious :
–Record of non-chargeable hours in the inappropriate bucket.
–Keep non-Chargeable hours in the same work order/Segment such as billable
hours.
–Transfer hours between work orders.
–Wrong using of Flat Rate functionality in the Dealer system.
–Abusive discount after wrong quotation.
–Hide Rework, travel, parts that customer doesn’t pay. Errors, etc, etc

Maurizio Bonacchi Caterpillar 19

Geneva

Service Hours Recommendation

1. Do you have the specific training that each technician needs based on the
specific technician's KPI?
2. Do you have the specific training that each supervisor & administrative
need based on the specific technician's KPI & admin KPI?

•The specific training for the specific root cause

•Low Labor Utilization – Low Billable hours.
•Rework
•Lost time, all type related with technicians.
•Training abuse.
•Policy o Service Goodwill
•Customer loyalty/satisfaction

Maurizio Bonacchi Caterpillar 20

Geneva

10
 Service Hours Recommendation

KPIs with objectives for technicians and administrative

•Provide training to increase the technician's knowledge it is an open loop.
We don't know if we have been effective.

•Training should be linked with Key Performance Indicator & KPIs should
be linked with training. How many times the KPIs were analyzed to
discover if the reason is lack of training.
•Rework.
•Policy o Service Goodwill (This is not Caterpillar goodwill, is service goodwill)
Behind these
•Lost time, all type related with technicians.
hours there is
•Training abuse.
a not
•Low realized labor rate/h. recognized
•High Break Even Rate/h. lack of training
•Standard Job Hours & cost deviation.
•Customer loyalty/satisfaction
Maurizio Bonacchi Caterpillar 21
Geneva

Service Hours Recommendation

•Low Labor Utilization – Low Billable hours.

•Rework.
•Failure analysis, training based on rework cases.
•Lost time related with technicians skill.
•Correct R&I & D&A, procedure.
•Parts Reusability Guide training (reusing more parts and reduce parts cost)
•Correct usage of tools and special tools training.
•Diagnostic & NPI.
•Training abuse.
•Supervisor training in KPIs: all type of training hours should be justified and
approved. Lost time hours should not be replaced by non justified training. Non
chargeable hours in the right account..
•Policy o Service Goodwill.
•Supervisor training on policy rules, quotation, standard hours, travel policy,
discount is free hours. Don’t hide Rework,,

Maurizio Bonacchi Caterpillar 22

Geneva

11
 Service Hours Recommendation
•Fictitious high labor utilization:
•Policy o Service Goodwill.
•Supervisor training on policy rules, quotation, standard hours, travel policy,
discount is free hours. Don’t hide Rework in the cost of sales. Diagnostic & NPI
•Lost time all type related with shop layout, tooling, parts.
•Training on R&I & D&A, procedure.
•Training in how to use the machines to wash all type of components &
chemical products.
•Training in how to use of special tooling and equipment, Dyno, Hydraulic test
bench, cylinder test, re-honing machine, etc.
•Training in moving & hoist components in the shop.
•Training in the re usability and salvage of used parts
•Training in parts integrator & SIS web,
•Standard Job Hours & cost deviation, Flat rate deviation.
•Supervisor training related with service quotation. Standard Job training for
technicians, Foreman & Supervisors.
•Procedure on tools and special tool availability, usage of tools and special
tools training.
•Parts Reusability Guide.
•Training on R&I & D&A, procedure.
Maurizio Bonacchi Caterpillar 23
Geneva

Service Hours Recommendation

• Control deviations: Total hours vs. Forecast & Budget
• Every hour should be registered on daily basis.
• All non - chargeable hours should have a justification and approval by “account
owners”.
• Training hours by Training Manager.
• Redo hours by shop Supervisor / Foreman or Technical Manager.
• Policy/goodwill hours by Service Manager only !!!!!!!!
• All lost hours by the shop Supervisor / Foreman.

• Allowed Hours.
• Human Resources should know which technicians are on vacation, sick leave, etc.
• Overtime
• Use overtime only toward billable hours, if the technicians have already covered the
productive normal hours.
• Reduce overtime during expense hours (like redo, promised day, etc)

• Travel Hours
• Monitor and Control these hours specially when customer doesn't pay for it.

Maurizio Bonacchi Caterpillar 24

Geneva

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