Considering The Cost of Losing a Skilled Technician

Transcription

1 Land-based Engineering Considering The Cost of Losing a Skilled Technician A Report Commissioned by A.E.A Training & Education Committee Compiled by David Kirschner Consultancy March

2 Table of Contents 1 Introduction 2 Skilled Technician Overview 3 The Technicians Influence on The Business 4 The Financial Impact of Losing a Customer 5 The Technicians Contribution to The business 6 The Training Investment 7 Considering The Economics of Replacing a Technician 8 Templates For Projecting the Cost of Losing Your Skilled Technician 9 Summary and Conclusion 10 Acknowledgements 1

3 1. Introduction The skilled technician working within the Land-based Engineering Industry today plays a pivotal role in the success of his or her employers business. Economic pressures within the sector many of which are beyond the customers control have served to focus customer attention on the selection of machinery deemed to be efficient and cost effective. The dealership s ability to offer professional technical support of the product supplied has also become an important consideration in the overall efficiency / cost purchase equation The customer s quest for greater efficiency and the manufacturer s drive to gain commercial advantage by employing cutting edge technology has delivered the industry to a point where the importance of the land-based service technician s role and the expectations of his abilities have escalated dramatically in the past 10 years. This period of change has seen many customers move from a position of having spare machinery capacity to sole reliance on one or two prime movers to establish, maintain or harvest a crop e.g. large tractor, high capacity combine, self propelled forage harvester etc. The considerable capital cost of these high capacity machines and the customers reliance upon having them at work when the situation demands brings additional pressures for manufacturers and their dealers alike who have a commitment to keep the customers machine at work with minimum downtime. With few modern day dealerships having the capacity to finance and stock a fleet of large prime mover machines kept in readiness to use as customer support units, it is plainly obvious that having skilled technicians at your disposal is essential if you are to avoid customer dissatisfaction and possible litigation. 2. Skilled Technician Overview It is likely although not mandatory that the skilled technician will have completed an advanced modern apprenticeship achieving level 3 NVQ or an equivalent qualification. This provides the underpinning knowledge that forms the basic foundation upon which the technician s skills have been built. Work place learning combined with the under-pinning knowledge will have fostered an appreciation and understanding of the principles of electrics, electronics, hydraulics, power units and transmissions these skills being necessary to facilitate a logical approach to technical problem solving. Following completion of an apprenticeship the technician will have continued within the dealership through the improver stage for 3-4 years and graduated having accumulated workplace experience and knowledge from the attendance of manufacturers training courses to become a skilled technician aged approx years old. At this stage the technician will have the ability to work both within the dealership workshop and out on site without technical supervision. Possessing the ability to diagnose machinery and system faults using computer based diagnostic equipment in an effective manner and carry out efficient repairs to the highest standards of proficiency will be a quality that has been attained. Inter personal skills allowing effective communication and a degree of customer care will also have been achieved. 2

4 Further advisory skills may well have been accumulated through experience gained whist in the daily course of business. These will include the capacity to deliver guidance to customers on both technical matters and machine selection, technical reporting, training capabilities gained through mentoring younger workshop members and the education of customers in machinery operation. A technician having a blend of these skills will be an invaluable member of the company and have a high value adding capability for the business. Further knowledge gained by the skilled technician working within a dealership will fall into several categories 1) The dealership 2) The customer base and area of influence of the dealership 3) Product knowledge of the franchises held by the company 4) Contacts with suppliers 5) Technical development 6) Specialist knowledge such as LOHLER and Installation training Elaboration of the above categories follows. 2.1 The Dealership Each dealership has their own unique set of operating criteria. For example chain of command, job card systems, departmental procedures, time sheets, overtime rotas, reporting procedures, vehicle policies, Health & Safety policies and general house keeping rules. This knowledge will have been gained by an exiting technician over a number of years and will have been taken for granted. A new employee will require an introduction to the company, this takes time and causes a double drain on resources one being the management time to carry out the induction and the second being valuable technician chargeable time lost through training and unfamiliarity with procedures which will continue for a period of time. 2.2 The Customer-base The skilled technician will have knowledge of the dealership s customers, their buying cycles, their farms, their staff, the machinery currently operated and their likely requirements for the future. Added to this it is quite likely that the technician has the customer s contact details and conversely the customer may well have the technician s home or mobile number. Other considerations will be the local knowledge of the area of influence and all the short cuts and quickest routes between service calls, including knowledge of where machinery is based in the case of customers with large estates or multiples of farms. The benefits of this experience will promote the timeliness of repairs. This local knowledge may not be considered important whist working on retail work but in the case of warranty repairs every hour lost in travel is a potential loss of revenue for the company. 3

5 2.3 Product Knowledge The technician having completed his apprenticeship and advanced to skilled status will have been in employ for a minimum period of 6-7 years. The product knowledge that the technician will have accumulated during this time will not relate just to the machines produced within this time. It is quite possible that the knowledge held will span machines produced in the last 15 years or possibly longer. Whilst with financial investment it is possible to train a new technician on the current machinery available, replacing the knowledge required for the older machinery is by no means so easy. Another factor to be considered is that there is no substitute for experience when being called upon to diagnose and repair a machine this is particularly relevant in this industry. Often experience will save hours in repair times and the components used in a repair. This can have a huge impact on the recovery of warranty costs and the likelihood of customers questioning or asking for revision of a repair invoice. Furthermore whilst a technician will know the strengths of a machine he will also take away the knowledge of weaknesses of the machines that he has been called upon to repair. This information has the potential to be commercially damaging if used in sales arguments by a competitor. 2.4 Contacts and Suppliers Whilst difficult to quantify, a good technician has a personal list of contacts that are used when seeking information, these can range from technical advisors and trainers within manufacturers organisations to specialists who work within diesel injection and electrical repair shops etc. Contacts like these take time to develop but are part of the armoury of a good technician who needs to access specialist knowledge from time to time. 2.5 Technical Development As technology marches on and the complexity of machinery increases it has become a necessity to continuously train key technicians to undertake specific diagnostic duties and repairs. Financial constraints and the dealer s portfolio of machinery on offer often prohibit training all technicians in all things This raises the vulnerability of the workshop to respond to repair requests should a key technician with specialist knowledge chose to leave. Depending on the franchise held manufacturers recommend between 1 10 days of training each year as being required to stay abreast with their respective products. 4

6 2.6 Specialist Training and Qualifications Increasingly today as professional standards are being raised the skilled technician will have been developed to meet specialist demands placed upon the dealership. LOHLR qualifications, machinery installation qualifications, certification of competence to handle refrigerant gasses and the like are all becoming common place. It is a certainty that as time progresses the range of personal development training programmes being offered will increase, these will in turn increase the value of each technician. It goes without saying that whilst these skills are required by the industry to meet the challenges of today the value of a fully trained technician will increase which will directly impact on the cost of losing and replacing a skilled technician. 3. The Technicians Influence on the Business Having a skilled technician at hand inspires customer confidence and reinforces the customer s buying decision. A stable sustainable business must grow and foster repeat business, positive efficient after sales support and the relationship between technician and customer will be a consideration for the customer when he next purchases. It is not uncommon for the technician to have formed a close working relationship with key customers. The technician will more often than not have greater exposure to the customer than other members of the dealerships staff. The customer will trust and respect the skilled technician s ability to carry out effective repairs and to impart sound advice. The skilled technician is always welcome at the customer s premises as he is invariably there to help, not to influence decisions or persuade customers to make new purchases. Skilled technicians are often approached by customers for what is considered to be impartial advice. This relationship between the dealership and the customer is a valuable asset to the company which cannot necessarily be retained if and when a technician leaves the companies employ. In fact history shows that skilled technicians leaving a company to start their own business or to join another employer have indeed taken key customers with them. A further consideration is that loss of key company personnel can destabilise a workforce and cause dissatisfaction. A key member of staff rarely leaves for less pay and poorer working conditions. Although not considered as good practice, it is not unheard of to use personal contacts to approach employees and workmates from a previous employer to also entice them to leave. 4. The Financial Impact of Losing a Customer Should a customer choose to follow the exiting skilled technician and transfer his business to a competitor what effect will this have on the business? The first consideration is that not all customers are equal and that there are indeed customers many dealers would be happy to lose. 5

7 The harsh economic fact is that 80% of the business is generated by 20% of the customer base and it is these customers who should receive first consideration as their loss will impact on the business very quickly. Research for this report supports the 80 / 20 rule with the maximum deviation being 2% when looking at the customers contribution to workshop and parts turnover To fully appreciate the impact of losing one or more customers it is crucial to understand their contribution to the business. By banding customers into turnover groups and identifying Key customers, Core Customers and Occasional Customers a clear picture can be gained. This enables a calculation of the minimum effect of losing a customer in each banding. It should be borne in mind that Key Sales Customers logically may not be key parts and labour customers as the machinery that they operate is newer, under warranty and may not need frequent workshop repairs. It is also important to note that the key labour and parts customers may contribute more profit to the dealerships bottom line that the key sales customer. To produce an illustration of the value of customers in each banding the following assumptions have been applied Net profit on whole-goods sales 7% Net profit on parts sales 26% Net profit on labour sales 45% Customer Category Key Customer Core Customer Occasional Customer Annual Whole goods purchased 50,000 and Above 25,000 to 50,000 5,000 to 25,000 Min Annual Whole goods Net Profit Annual Labour purchased 3,500 10,000 and above 1,750 5,000 to 10, ,000 to 5,000 Min Annual Labour Net Profit Annual Parts purchased ,000 and above 2,250 5,000 to 10, ,000 to 5,000 Min Annual Parts Net Profit 2,600 1, As clearly illustrated losing a customer who fits into the key status in one or more categories represents a major quantifiable loss to the company. This will be felt very quickly and requires serious consideration in the calculation of the cost of losing a skilled technician. It is extremely unlikely that lost customer accounts can be regained in the short term, it should be remembered it costs the business far less to retain a customer than to conquest a new one. 6

8 5. The Technicians Financial Contribution to the Business The technician s financial contribution to the business in terms of labour sales is a straight forward calculation involving understanding the amount of labour purchased or paid to the technician and the recovery of labour invoiced to retail customers, suppliers (warranty) and internal customers (other departments) 5.1 Theoretical Example In a standard working week the technician is paid 37.5 hours, only a percentage of this time being available for resale. In a year without overtime a total of 1950 hours (52 weeks x 37.5 hours) is paid to the technician. There is however non productive time to be considered for each employee:- 8 days Public Holidays 60.0 hours 20 days Annual Holidays hours 3 days Sick / doctors / dentist etc 22.5 hours 10 days Product Training 75.0 hours 2 days Meetings / shows / demos etc 15.0 hours Total hours Total hours available to sell being 1950 hours hours resulting in a theoretical hours to sell This represents saleable labour availability of 83.5% of that employed If we take that available time and call it 100% we can calculate a recovery rate of the 100% of the time the technician has available to sell. It should be remembered that labour time unlike spare parts does not have a shelf life and if not sold immediately will be lost forever. It is rare that a labour recovery rate of 100% is ever achieved as there is always some wastage. (Usually booked to the workshop) A recovery rate of 90% or hours sold is therefore nearer reality in the most efficient of dealerships. The following assumptions are made for the purpose of this illustration Technicians pay rate 9.00 per hour Labour sold split 50/50 between retail and internal / warranty work 50% ( hours) being 40 hour = 29,295 50% ( hours) internal and warranty 25 hour = 18,309 Labour sold hours = 47,604 The cost of skilled technicians labour 1950 hours x 9.00 per hour = 17,550 Labour hours sold 47,604 17,550 labour hours purchased from technician. Total contribution of technician s labour 90% recovery rate = 30,054 The resulting can be further enhanced by the sale of overtime labour. 7

9 The table below illustrates what happens to profitability as labour recovery rates fall. % Recovery Rate Hours Labour Sold Labour Sales Revenue Internal Labour Sales Revenue Technician Cost Contribution to Bottom Line 90% ,295 18,309 17,550 30,054 80% ,660 17,288 17,550 27,398 70% ,780 14,238 17,550 19,468 60% ,540 12,213 17,550 14,203 50% ,280 10,175 17,550 8,905 Consider that each days labour lost represents a 0.5% reduction in labour availability it is now possible to grasp the cost implication of reduced labour sales brought about by replacing a skilled technician. The following points will all have an influence. Finding a replacement Service Technician immediately is unlikely resulting in a period where labour available for sale will decrease. Training input will be significantly higher to ensure sufficient product specific knowledge to enable the new technician to carry out his role effectively Time spent on company induction and familiarisation Slower diagnosis and repair times impacting on warranty recovery rates Extended repair times or poor diagnosis on unfamiliar product leading to customer complaints / reduction of labour booked to a job etc The increased possibility of comeback jobs due to working on unfamiliar product Profitability will be further impacted by reduced parts sales as there is a direct correlation between the amount of labour sold and the value of parts used in the repair. As companies within the industry are so diverse the retail rates, internal and warranty rates, technicians hourly pay rates and the split of labour between retailed labour and internal work vary considerably each company would therefore need to consider their own data to appreciate precise costs. 8

10 6. The Training Investment in a Skilled Technician. Investment in technician training is essential, just as machinery requires regular maintenance to ensure optimum performance the maintenance of the technician s product knowledge and work enhancement skills are required for the same reason Investment in training is just that an investment that yields returns in the following ways. Efficiency in diagnosis and completion of a repair The means to keep the company and therefore customers abreast of product improvement and advances in technology Improved technician status, confidence and feeling of wellbeing Career progression possibilities encouraging retention of skilled staff Justification for a professional charge out labour rate Increased profit margins due to more efficient use of labour Higher customer confidence encouraging loyalty and repeat business Raised the perception of the company What costs are involved in training a skilled technician? The skilled technician s training requirement from joining a company as an apprentice through advancement to technician status is likely to represent an investment in excess of 55,000 depending on the franchises held and the level of diversity of the technician. A technician who specialises in one product will not necessarily need as much product training as a technician who works on a wide and varied range of machines. The apprentice will spend approx 150 days away from the workplace at college during which time he will not contribute any income to the business. Depending on the franchises held by the dealer the apprentice may also have been required to attended basic training courses at the manufacturers training facility. The employer will have lost labour sales revenue and undoubtedly incurred additional costs associated with the education, accommodation and travel expenses of the apprentice. It is not unrealistic to calculate the investment in an apprentice as being in the region of 20,000 for the dealer. The additional technical, personal development and product knowledge training required to secure the advancement from apprentice to skilled technician are likely to require a further investment in the region of 30,000-35,000. It is wholly feasible that with some machinery franchises this figure could increase. 9

11 It is these costs or part of these costs that have to be considered when replacing a skilled technician leaving the business. New applicants applying for the post of skilled technician will undoubtedly have completed an apprenticeship or have a proven track record but training will be required to aid the transition into the company and product franchises held. Considering the cost of training new technicians joining the business Assumptions for this illustration Retail rate of 40 per hour Average rate of 25 hour for interdepartmental and warranty work Average hourly labour rate recovered Labour sales split 50/50 between labour retailed and used inter department Tuition fees 100 per day (Industry charges range per day) Mileage 100 miles each way at 0.40 Accommodation subsistence costs 65 per day Cost of Induction Day Item Days Lost labour revenue Tuition Cost Management Travel Total Time Induction Cost of Each Product Training Course Item Days Lost labour Tuition Accommodation Travel Total revenue Fees Fees Product Foundation Course Product Advanced Course The above illustration is a guideline of the costs likely to be incurred for each product type. Major manufacturer s product training courses are structured and presented at two or more levels (Foundation & Advanced) therefore necessitating 2 or more visits to the training facility for many of the product courses. To appreciate the costs of training a new technician, multiply the man days of training required by the illustrated costs. A technician joining a dealership representing a different manufacturers franchise to his previous employers can be expected to require product knowledge and specialist courses covering a number of the following subjects:- Tractors Material Handlers Combine Harvesters Balers & Grass Machinery Self Propelled Forage Harvesters Electrical systems and Electronics Hydraulic systems Diagnostics Tier 3 Engines Air Conditioning Customer Care Machinery Installation and Handover 2 or more courses 2 or more courses 2 or more courses 2 or more courses 1 or more courses 1 or more courses 1 or more courses 1 or more courses 1 course 1 or more courses 1 or more courses 1 course 10

12 7. The Major Costs of Losing a Technician When faced with losing a technician the situation is one that requires careful considered management to reduce the disruption to the business and maintain continuity of service to the customer. Each case will be different and the implications will vary depending upon:- The size of the dealership, The number and type of customers The time of year The dealership s reputation How amicable the technician s departure was The technician s relationship with the customer base The reason the technician has left the business The location of the technician s new employer The calibre of the remaining staff The existence of structured succession and apprenticeship programmes Communication with the customer base These are a sample of factors that will come into play, bringing with them their own challenges and absorption of management time. Taking time to consider where the costs can be incurred Advertising for a new technician Recruitment agency fees if these are used Management and administration costs of interviews and the selection process Higher remuneration packages to entice the new technician Loss of labour and parts revenue whilst looking to appoint a new technician Higher non recoverable cost of labour due to overtime working on sales and warranty work to keep up with the workload caused by the loss of a technician Induction day for the new technician, kitting out his van etc The cost of training a new technician, course fees, accommodation, travel Lost workshop revenue whilst the new technician is being trained Lower warranty labour recovery rates due to slower repairs and poor diagnosis Extended repair times of work in progress left stripped or part completed by the exiting technician. This could include lost components and documentation The immediate loss of key customer accounts sales, parts and workshop with the possibility of further customers and dealership staff being enticed away. 11

13 8. Templates for Projecting the Cost of Losing Your Skilled Technician Considering the profile and role that the exiting technician played within the business Exiting Technician's Profile Years Product Experience Yrs Pay Rate Attitude to the Company Poor Good Excellent Relationship With Colleagues Poor Good Excellent Career Prospects Poor Good Excellent Training Attended Specialist Capabilities Unique to This Technician Yes No Yes No Yes No Yes No Yes No Customer Contacts Over 50 Popularity With Customers Poor Good Excellent Projected Threats Posed To The Business 12

14 Example of Spreadsheet Projecting Costs of Losing a Skilled Technician Please Turn to Next Page to Fill Out Your Own Projections EXAMPLE Spreadsheet For Calculating The Cost of Losing Your Technician Recruitment Costs Time Cost Total Advertising National / Local Recruitment Agency Fees X X Management Time Used Conducting Interviews / Selection Process 4 hrs 60 hr 240 Administration / Arranging appointments / Correspondence E.T.C. 4 hrs 20 hr 80 Higher Salary Package Required to Attract Applicants 20 wk 1,040 Other Costs (e.g. Relocation expenses) 1,000 1,000 Totals 12 hrs 2,610 Company Induction Costs Time Cost Total Management Time 4 hrs 50 hr 200 Other Staff Members Time 4 hrs 32.5 hr 130 Technician Non Productive Time During Induction 4 hrs 32.5 hr 130 Preparation of Vehicle ( Cleaning, racking, kitting out) 4 hrs 32.5 hr 130 Preparation of Workshop Work Area 2 hrs 32.5 hr 65 Other Costs (e.g. Collection of Technician & Tool Kit 1st day) Totals 18 hrs 705 Training Costs Time Cost Total Labour Lost Attending Product Foundation Level 12 days 244 day 2,928 Labour Lost Attending Product Advanced Level 12 days 244 day 2,928 Labour Lost Attending Specialist Training Courses 2 days 244 day 488 Course Fees 70 day 1,820 Hotel / Accommodation Fees 50 night 1,300 Travel Costs (e.g. 200 mile round trip per course) x 7 40p Mile 560 Subsistence / Out of Pocket Expenses 10 night 260 Overtime Costs Whilst Travelling to Courses 14 hrs 13.5 hr 189 Totals 28 days 10,473 Estimated Lost Labour Revenue Lost Labour Sales Between Losing and Replacing Technician 3 wks 244 day 5,124 Warranty Labour lost Through Slower Diagnosis / Repair Times 24 hrs 32.5 hr 780 Estimated Loss of Labour Due Lack of Product Knowledge 24 hrs 32.5 hr 780 Lost Labour Due to Unfinished Work Left In Progress 8 hrs 32.5 hr 260 Other Costs (e.g. Wasted time locating farms / machine) 8 hrs 32.5 hr 260 Totals 23.5 days 7,204 Estimated MINIMUM Cost of Lost Customers Estimated Minimum Cost of Losing Each Key Customer Estimated Minimum Cost of Losing Each Core Customer Estimated Minimum Cost of Losing Each Occasional Customer Parts + Labour Per Year 7,100 Parts + Labour Per Year 3,550 Parts + Labour Per Year

15 Spreadsheet For Calculating The Cost of Losing Your Technician Recruitment Costs Time Cost Total Advertising National / Local Recruitment Agency Fees Management Time Used Conducting Interviews / Selection Process Administration / Arranging appointments / Correspondence E.T.C. Higher Salary Package Required to Attract Applicants Other Costs (e.g. Relocation expenses) Totals Company Induction Costs Time Cost Total Management Time Other Staff Members Time Technician Non Productive Time During Induction Preparation of Vehicle ( Cleaning, racking, kitting out) Preparation of Workshop Work Area Other Costs (e.g. Collection of Technician & Tool Kit 1st day) Totals Training Costs Time Cost Total Labour Lost Attending Product Foundation Level Labour Lost Attending Product Advanced Level Labour Lost Attending Specialist Training Courses Course Fees Hotel / Accommodation Fees Travel Costs (e.g. 200 mile round trip per course) x 7 Subsistence / Out of Pocket Expenses Overtime Costs Whilst Travelling to Courses Estimated Lost Labour Revenue Lost Labour Sales Between Losing and Replacing Technician Warranty Labour lost Through Slower Diagnosis / Repair Times Estimated Loss of Labour Due Lack of Product Knowledge Lost Labour Due to Unfinished Work Left In Progress Other Costs (e.g. Wasted time locating farms / machine) Estimated MINIMUM Cost of Lost Customers Estimated Cost Per Year of Losing Each Key Customer Estimated Cost Per Year of Losing Each Core Customer Estimated Cost Per Year of Losing Each Occasional Customer Totals Totals Parts + Labour Parts + Labour Parts + Labour 14

16 9. Summary and Conclusion The successful operation of a dealership relies on the three revenue earning departments Sales, Workshops and Parts employing skilled key professional personnel working together to promote each other, the products sold and the company. Whilst the loss of any key member of staff can have a disruptive and detrimental consequence to the business the loss of a skilled technician presents by far the biggest threat. The reason for this is simple. The technician delivers his personal knowledge and ability, in other words himself as the product that he brings to the customer and the company. His ability has been developed through a combination of years of training and experience which cannot be replaced or recreated at a moments notice. The sales and parts department deliver pieces of hardware that have a predetermined quality available and produced on demand. Spare parts and machines can be sourced and replaced elsewhere and transported to the customer within hours whereas the skilled technician with knowledge of the customer s machines is a much rarer more elusive commodity. Will losing a skilled technician bring with it a cost? The answer is undoubtedly yes! The costs will range between a few hundred pounds to tens of thousands of pounds a fact substantiated by members of the industry who have contributed information for use in the compilation of this report. Can the loss of skilled technicians be avoided? Of course they can! In some cases technicians may leave the industry or the country for a variety of reasons completely unavoidable and beyond the control of the dealership. The retention of skilled technicians however is something that both the industry and dealerships can influence. Question: Answer: What does the technician provide to the customer and the company? His expertise. Isn t it time that the different levels of expertise were benchmarked, recognised and rewarded? 10. Acknowledgements I would like to thank the members of industry who have supplied data of a confidential and sensitive nature to assist in the compilation of this report. David Kirschner Consultancy