Good morning, everybody, and welcome to the webinar, Tame the Beast, Change Your Working Process from a Headache into a Cash Cow. This has been brought to you by AED and AED Foundation. My name is Bill Mace, and I work at the Machinery Advisors Consortium, and I'm very happy to be with you this morning. So let's go ahead and get started. If I can just get these things to advance, we'll be in good shape. So let's just make sure we define what we're talking about, working process. Everybody knows if you're on this webinar, it's obvious that you have discussions about this occasionally. So what is working process? Typically, I mean, basically, it's a financial term for the value of parts and service labor that has been applied to an open work order, but that work order still remains open. And it shows up on your balance sheet as an asset. So that's what it is. And why is it important? Why should we be worried about working process? Well, first, it's a universal challenge. Everybody has it. Everybody who runs a service shop of some kind has working process. Everybody who runs a factory has working process. So this is something that we all have to maintain an eye on, make sure that it doesn't get out of hand. But a high level is not necessarily bad. A high level of working process could just mean that you're going to have a high level of sales. You've got a high level of business. So it's not automatically a bad thing. The problem is it's a balance between work getting done and closing the work orders. So it's not having work. It's getting the work orders closed when the work is done so that you can turn that into accounts receivable, which then turns into a revenue or actual cash that goes into the bank and pays your bills. Now, why does it get out of balance? The problem is that when working process gets too high and you have too many work orders that are still open after the work is done, it gets out of balance. So why does this happen? Well, first, before we get into this too much, we've got to make sure that we see where this is coming from. And the problem we've got, especially in the construction equipment distribution industry, is that department personnel are often immune to a high value of WIPP. They've had it for so long and WIPP seems to hover in a certain level that this is sort of normal business. And to send out the one actually paying the bills, they don't worry about it or they don't wonder why or they do wonder why it's such a big deal. Well, that's what I'm going to tell you today and then I'm going to tell you how you might go about remedying that. Well, you're always there during the month and the sales in the service department, unless you're closing work orders every day, tend to sit very low. And so they'll stay low and they'll stay low during the month until the month ends when you start closing the work orders. And then those work orders, as they close, recognize the revenue and the revenue starts to build up. So what you'll see is it's normal for having nothing and then it goes to a high value of your sales and that means your working process starts high and then falls off, goes back high and then falls off. And it becomes such a repetitive process going up and down that the individuals in the service department who are responsible for managing it tend to say, well, it always does this every month and it's not that big a deal because it's always high, it's always low and so I'm just going to let it run its course. And I'm going to spend my time working on fixing machines and satisfying customers and making the sales department happy and all these other things that have people demanding my time every day instead of just an occasional conversation with my CFO about why my working process tends to be so high. Now, does it have to be high? The fact is, no, it doesn't. And you could close, as a best practice, your work orders in about three days. Twenty to thirty days is normal in the industry right now, but that is way too high. What we're going to do is make sure that the service and parts managers understand the financial implications of a high WIP and then change the expectation that they have and everybody else has as to what is the proper time to close a work order, the amount of time. Well, let's look at this. What's the value of open work orders? Because you've got to see, I'm trying to turn this into a cash cow. Well, what does that mean and how much cash are we talking about? Let's say we have 20 technicians and your billing rate is $125 an hour. You've got eight hours in a day, so the value of one day of work, as long as it's still open, is $20,000 for these 20 techs. If your average day to close is 20, you've got $400,000 in revenue, which then should be accounts receivable, which should be cash tied up in this working process. If you have 50 techs, and there's a lot of you who do, and your billing rate is $150 an hour, which is not at all uncommon, eight hours in a day, you've got $60,000 tied up in every day of WIP, 20 days worth of WIP, which is kind of the average that I've seen to close work orders, is $1 million. Actually, it's $1,200,000 in working process that should be in accounts receivable. Why don't we take that same pick of techs, $150 an hour, $60,000 a day, and close them in three days? That would be $180,000 in WIP, which means that you would actually free up additional cash of $1 million. That $1 million is cash that you're borrowing right now, or someone is borrowing, because you've got a short-term line of capital, a line of other financial institutions, because we're in a cyclical cash business, where receivables don't always come in on a routine basis, after the sale, or after the rental, or after the work. It takes people time to pay. We're in a cyclical business as far as time of year and time of business. We always have a working line of credit that we borrow against to pay immediate bills, because our payroll stays more or less constant, our payments stay more or less constant. There are times when the cash is not available to pay the bills, even though we're profitable. What would happen if you could free up this $1 million? This would become cash that you have now, and you don't have to borrow. That would save you money. That would make you more profitable. That would make the CFO very happy, and you. What does that make a difference for you? What is your WIP? What I'd like you to do is go back and look at your WIP, but value it per day of work, and say, how many days, what is the value of one day of WIP for my people, the number of technicians I've got, my billing rate, eight hours a day, and then see what is the value of the day of WIP, and then look at your WIP and see how many days do you actually have sitting in your WIP right now. What is your number, average days to close? Do you even measure it? This is one of the things of best practice. You have to measure your days to close, and the typical measurement for that is the days since the last labor was performed. Once you've stopped performing labor on a work order, start the clock on that, and then see how long it takes from that point until you close the work order. Where does this WIP come from? I like my little cartoon, I'm billing, therefore I am. The fact is, financially, until you close that work order, nothing took place. I know you're busy, I know your technicians were busy, I know that you're talking to customers, and you're doing a lot of work, but unless you bill it, financially it didn't happen. I'm going to talk a little bit about good WIP and bad WIP. Like I say, high WIP is not necessarily a bad thing. What is good WIP then? Good WIP is work that is still in process. There's still being labor added to this work order. You're still working on the machine. You can't close it because you're working on it. That's good WIP. That amount of WIP is going to vary based on the amount of work you've got. However, even that WIP, you can control to some degree in that if you're being inefficient in the way you order parts, or the way you utilize your bays, if you start technicians going to a job and then have to pull them off a job for whatever reason to help someone else, or because they're waiting on parts, that's efficient. That ties up the labor that they've already got in that machine as WIP, and that becomes bad WIP. Essentially, as long as the machines are still being worked on, I consider that good WIP. Bad WIP is after the work is completed. You're not doing any more labor on the machine, but you're not closing the work order. Why are you not closing the work order here in just a second? Until you close it, it cannot be invoiced. That amount of WIP, I consider bad WIP because that should not be in WIP. It should be in sales revenue and accounts receivable. Because once you close it, that amount moved to accounts receivable can be collected and turned into cash to pay your bills or to avoid any kind of borrowing. Why are work orders hard to close? That is a good question. Because those of you who've been in the auto or the truck industry know that work orders close almost immediately after labor is performed. How long do you take your vehicle into the shop, into a dealership, have labor performed on it, and then before you get to pick your vehicle up, what do they say? Go talk to the accounting clerk or the receivables clerk behind that window over there, pay your bill, and get your keys, and then you can leave. They don't have this WIP problem and this accounts receivable problem. They're getting their money as soon as the work order is closed. Now, I know it's a different industry, but the fact is, I'm not talking about three days to close. I'm talking about immediately after the work order is done. So, why not us? What keeps us from closing work orders as quickly as they do? Well, frankly, it's mostly tradition. Mostly tradition. Because it's about getting organized. In the past, in our industry, we have carried a lot of accounts receivable for our customers. We have been their banker. They are not the banker anymore. We expect them to go somewhere else to get their money, their line of credit, to pay their bills, but because we were expecting them, we were being their banker, we got into the habit of giving them the machines back and not expecting them to pay for it. We would just then, when we closed the work order, load that into their accounts receivable, and then we would just collect that as a normal course of business. Well, that's not the case now. We're expecting them to pay these bills when they receive them. The problem is, we're not giving them the bills. We're giving them the machines back without expecting immediate payment. We train our customers to expect to be able to get the machine without paying the bill. Frankly, they don't have any incentive to try to change that. That's really a pretty good deal for them. What we've got to do is change the way we think about the expectation of getting the machine back and paying your bill, and tie those two together. To do that, it means that we have to get the work order closed. We're going to have to change some things in our own practices. One of those things that we're going to have to change, those things that we're going to have to look at, first is, typically, the invoice is waiting for the review by the service manager or the work order so they can close it and get an invoice. Every service manager wants to personally review every work order before closing. Why? Because this is the big one. This is what really ties things up, because unless the service manager has someone to help them that they trust and are going to let them do this, it's going to take the service manager's time, and they tend to batch this in. First, they want accuracy. The service manager wants to make sure the work order is complete. They want to make sure that the parts that are going to be warranty are pulled off to put in warranty claims. They want to make sure that the parts are posted. They want to make sure the write-up is good. They want to make sure that everything looks fine. At the end of the day, the one thing they really want to look at is the number of hours that are being posted. They want to see, is this the right number of hours? Not, is this the number of hours that got onto the time card, but can I really charge this number of hours? If this was 10 hours, is this work justifying 10 hours, or do I need to write it down to 8 hours? Or possibly, should I add an hour onto it, which is less frequently done, but it is done. The challenge is that this takes a lot of time. It's a slow process to look at, work, see what was done, and then evaluate it, and then change those hours into an acceptable number of hours. The problem is here, this too also gets into write-offs. What you end up with is less revenue, because you don't want the customer to complain, or maybe you were the best technician when you were the technician, and you say, well, I could have done that job in two hours less. I really can't justify billing this number of hours. Well, the fact is that if you were the best, most people were billing more than you were anyway on any particular job. So you have to come to some even balance about how you do that. We'll talk about how you would do that with standard charge, if you will, so that everybody is charged a certain dollar amount. Now, you're going to base it on the hours that do the job, but you're going to base those around your average technician, so that the best technicians are going to beat those hours, and you're going to get a gain. The worst technicians are going to lose an hour there, but you're going to end up having to more or less write off, but you're going to bill a consistent amount to the customer, and when the customer is happy, because they know what it's going to cost them before they get to the machine, at least within a range, and then they get that bill. So it makes it easier to collect that bill, and it makes it easier to close the work order. Now, what gets caught into there? Diagnostic times, so technicians waiting for parts. These are all things that you then have to address in your service department. So these are things that cause work orders to take a long time. That causes you to have to look at those work orders, and see if that time is correct. That means you're going to have to look at your technicians and see which jobs they are able to do well, which jobs they're not able to do well. Do they need training? Do they need something else? Do they need some help? Or simply, and this is hard to do if you don't have very many technicians, don't give them certain jobs. This is where you have to get involved with your parts department to make sure that you're not waiting on parts. This is where you need to get involved in triaging machines, which means having someone look at the machine before it ties up a bay to see if what the customer told you is really the right one. You can get some parts on order, because even if you're a great dealer, you're not going to be delivering more than about 85% of your parts over the counter out of inventory. That means something is going to have to come from a supplier. Now, most of us can get that overnight, get the machine down, but we have to pay freight. Most of us can get it in two to three days on a stock order and not pay the freight. But this takes planning. And this is something that often we haven't taken the time to do, change our processes. So these are lots of details that cause the service manager to have to take time to review every work order. And that's got to be taken care of. So like I said here, what else keeps it open? Well, maybe it's waiting for an invoice from an outside supplier, a radiator shop, a machine shop, a paint shop, something else that you're not doing in-house, but you're either sending out a component, or you're sending out the whole machine, or you're having someone come in from outside to work on the machine in your yard. And then what you end up doing is waiting on the invoice before you can bill that amount to your customer. And of course, you've probably got to add 10% or some amount to that invoice. And so your accounting department tells you you cannot close your invoice or close your work order at invoice until you have a backup invoice from your supplier. Well, that just slows down your money. And the fact is that you need to work with your CFO to take care of that. We'll talk about in a second. What else can cause it? Waiting for a write-up by a technician. This is always a challenge. And field technicians are notorious for slowing down your write-ups. Often, they don't even do it until they come in at the end of the week. If you have them out in the field a lot, they're going to batch all of their work orders and do write-ups at the end of the week. And the problem with that, again, not only does it slow down your work, but it hurts the value of the write-up and the justification of the write-up to get the money from the customer. They want to know what was done to the machine, especially if it's a very large bill, to see why should they pay this amount, what justifies it. And if you wait too long to do the write-up, the technician will forget certain details or they get into a batch mode and they do the least amount possible doing a write-up. So this becomes a problem. What else? How about waiting for parts to post? This is, again, a challenge. The parts are dispensed, but some of them aren't used. So the parts department has put them onto the work order, and they're sitting there in the working process. But if the technician doesn't use all of them, they need to get them back to the parts department so that the parts department can close the work order. And the parts department is not going to close their parts. They're not going to finish posting the parts until they get some signal that all the parts are back. And this is a challenge for technicians. This is a challenge for the parts department. This is a challenge for the service manager. And it may just be the sheer volume or the workload. You've got so much on your plate that you may have everything in place, but it's easier just to go ahead and wait till the end of the month and do the crunch on it, because everybody else is expecting it. The accounting department's expecting it. The parts department's expecting it. And so you just do the crunch, and everybody pushes these through. But now they've waited 20 days on anything that could have closed in the first week of the month. Now you've waited at least two weeks before you even try to close the work order. With that being the case, what do we do about it? It's great to point out the problem, but I've only pointed out the obvious that you already know. Let's go back to the review by the service manager. I talked about standard charge billing. That is one of the easiest and best ways not only to close your work orders and reduce your WIP, but to raise your gross margin and obtain more profitability. This is the way the auto and truck industry work. Now I know that they're different. I know that they have DMRS, or the Vehicle Maintenance Repair Codes, on almost every job they do. And I know they've trained the customer to accept billing based on these standard job codes. They then use these codes to give to their technicians. And they can change these codes internally, as could you, and set your own code. And this says, OK, this job is a four-hour job. If a technician does it in three hours, you still bill the four. Now you quoted the customer in terms of dollars, not in terms of hours. So it's four hours at $100 an hour. So he said, the leg is going to be about $400. So when you bill $400, the customer is expecting that. If you only took three hours and you bill a ton of material, you would only be billing $300. So in this case, you're gaining $100. Is this fair to the customer? Absolutely, because that's only when your best tech is on it. What happens when your worst tech is on it? And they take five hours. What do you want to bill? You're still going to bill $400. And you're going to eat that other $100. If you were billing tons of material, you would be billing $500 when one tech does it, and $300 when the other tech does it, where your customers pick that up eventually. And they begin to know. They're either going to begin to say, I want John to work on my machines. Everybody wants John, because they know John does good work. And they get lower bills. But John's not always available. They don't want Ed, because Ed doesn't seem to get it done in time. You just can't have your customer helping you schedule your shop. You don't have enough technicians to do that. But at the same time, the only way around that is to give them a dollar figure. And then they don't care. They don't see. And it doesn't matter who's doing that. So what you're doing is you're billing the value of the work, not the time that it takes a technician to do the work. The other thing is that as you train your people and they become more efficient, you can increase your bills margin. But if you don't do the standard charge billing and you send your people to class, and you spend $1,000 or $2,000 sending them to a school, and now they can do a job in three hours instead of four, you're actually billing less per hour of labor for them, or you're pushing less billings through the shop in a day's labor. And so you're not recovering the value of their training. Or if you buy a special tool, you're not recovering the value of that special tool. So this is why it's good for the customer. And it's good for the dealer. Different techs take different amount of time. And this is the way around that. So what it's going to do is take some time for you to establish this. And the way you want to do that is you want to start with your overhead sales department. Because they have to have it anyway. They want to know what it's going to cost to sell the machine. You need to know how to do that and what it's going to cost. They need to know what it's going to cost to put on an attachment. They need to know this before they bid the job or before they bid the machine to the customer. Plus, these are simpler jobs. There's not a lot of diagnostics. It's a matter of just putting this machine together. You've got your setup. You've got your installation instructions. Typically, the machines are cleaned so you don't have surprises, rusted bolts, other problems such as that, cleaning, whatever. So you can also put a lower level technician on it if you have to as you break into this idea of standard charge billing. Once you get that going and your customers or your technicians get used to working against the standard, then you can roll this out to other jobs, do more standard jobs. So that's the way you do it. Don't do it all at once. And ADB has different seminars that you can get involved in to learn how to do this if you've not run a standard job before. What that does, though, is it helps the service manager close the work orders. And if you're billing time and material, the service manager spends less time worrying about how long it should have taken and should they write something off or should they add something to it. So you have a better chance of closing that work order in a short period of time. I actually work with a truck dealer, a large truck dealer, and they do bill time and material. But they are good enough on their efficiency that they're very close to 100% billing efficiency, even though they're on time and material. And that's just after they account for the benefit hours because you can't bill out a benefit hour. Meaning if the technician isn't there, or they're away on vacation, or somebody paid time off, you can't bill that hour. So I'm not saying you have to do it with standard charge, but you have to be very efficient if you're going to use time and material billing. How about waiting for an outside invoice? Don't let your cash flow be held hostage just because you're waiting on an invoice from one of your suppliers. What you're doing then is you're letting your suppliers for business billing practices impact your cash. Because obviously it's impacting their cash, but they're doing the same thing. They are getting the work done, giving you the component back, and then waiting to invoice you because you're happy because you got the component back, and now you can get the machine running. But if you can't close your work order until you get the invoice, you're not happy. So here's what you've got to do. You've got to get them to quote you on whatever it is they're doing for you. The same way I'm telling you to quote your customers. And then you might have to review your own accounting processes, because I've worked with some dealers that the service manager says I can't, I'm not allowed to close this work order until I get an invoice. But when we got with the CFO and we worked out a process where the service manager got a quote from their supplier and then held their supplier accountable to that quote, meaning they would validate the invoice when it arrived against the quote, the CFO was happy with that and said, yes, I will permit you to go ahead and invoice that based on the quote that you received. Then obviously you have to see, can this supplier hit this? You might have to pad it a little bit. You might have to work with the supplier and say, okay, they're allowed 10% one way or the other. But obviously if they are all over the board, you might want to just change suppliers too. So this is a way of holding your supplier accountable and making sure that you're helping them with their business, but they're not holding up your cash. You cannot let your business practices be held hostage by one of your suppliers. How about waiting for write-ups from your technicians? What do you do there? Well, first you have to make sure that the technician knows that the write-up is part of the job. How do you do your clock? Do you include cleaning up the bay as part of the job? You should, because the bay has to be cleaned up for the next machine. You've got to get the floor clean. You've got to take care of the slip hazards. You've got to get the floor dry. You've got to get the dirt off the floor. You've got to, the technician has to clean their tools and get them back in their places so they know where they are. The technician has to return the parts that they didn't use so that they can close that prior work order. The technician has to return, clean and return any special tools that they used. And if a special tool is damaged, they need to work with whomever it is to identify that damaged special tool so that it can be repaired. So this is all part of doing the repair. And it should only take a few minutes, but if it's 15 minutes, it's 15 minutes that goes on to every repair. And if five minutes is necessary to do a write-up, and a write-up shouldn't take more than five, six, seven minutes. I know that people don't like to do it, but doing it now is when you need to do it. Do it at the end. It's all about instilling discipline into the process. It's going to take some time. It's going to, you're going to be changing behavior on the part of your people, but it's going to be what's expected. But what constitutes a good write-up? Do your technicians know? Because this is one of the reasons that service managers have problems. You end up going back to the technician, or maybe it's not the service manager, give it to an accounting clerk, a service clerk, or a warning clerk, and then have them go back and catch that technician and say, what was the key part of failure here? Because the manufacturer is not going to pay this warning claim without having the key part identified. What did you really do on this? Write it up better. Do we have a warranty segment? Do we have a segmented work order? Do we have an adequate description of the work being performed? And frankly, is it even written in such a way that I can read it? And is it something that the customer can see, because some of it's going to go on the invoice. Well, one of the ways around this is talk to text. Now, we all have it on our telephones, and it is getting better and better. It's learning accents, it's learning your individual voice, and it doesn't make the problem go away, but actually talk to text is something that even older technicians are getting very comfortable with because they don't like typing, especially if they're in the field and they've got some kind of a field computer, or a telephone, or an iPad kind of, it's hard to type on. But if you can talk into this and give a description of the work, it's very simple. And then you can do that from the field. You can say what the work order number was. You send that into a specific box, or in some of the newer business systems, you're actually putting it directly into the work order. So work with your business system provider to see if you have a talk to text feature that will go right onto the work order. Then your service clerk will have to still look at it because they can fix the errors for talk to text, or they can massage the way the technician talked about the work to make sure that it's appropriate for the customer because while you can still train your technicians, you still have to do a certain amount of massage and it goes on, but it's a heck of a lot easier when information is there, and it's there in a timely basis, timely manner. And this is the way to get an in from the field technicians without them waiting till the end of the week when they come back and try to bash it, or they try to get back to their house at the end of the day. They can go ahead and close the work order essentially, or send in the information so that you can close the work order right from the field. What about waiting for parts to post? Well, obviously we can't post, or can't close the work order until we post the parts. Now, the parts went onto the work order when they got dispensed because they got sold to a work order, or if you have a closed work order system, I'm hoping that all of you have a system in place where when a part is pulled by the parts department for a tech mission, it is actually charged at that moment onto a work order. Some of you may be using some kind of a system or a paper-based system where you're writing on a job ticket with a work order number on it. And then later, that is being posted onto a work order. That is old school, but it still works. If that's what you've got right now, do it, but do it with discipline. Make sure that you've got a work order open. Make sure that work order is identified on your document, whatever your parts ticket is. And then all the parts that go onto that work order or are given to that job go onto this ticket. They're not billed until they are invoiced. But the reason you want them to go onto the work order in your system is because if you don't do that, they still show as being an inventory. And then if another customer comes to the counter and wants that part, you think it's an inventory, you go to the bin, and it's not there. You think you've got a miscount or some other lost inventory, you'd have to go back to your parts tickets or your open work order tickets to see if it's on there. It's just too difficult to do. So you want to electronically, in your business system, post these parts to the work order so it shows out of inventory that moved over to the work order until the work order is closed. Then when there are those parts that the service department doesn't use, you're not going to go to the service department and say, you can only pick parts that you're going to use, or you've got to use every part that you pick, because that's not feasible. They don't know exactly what parts you're going to use, especially if it's a field job. So they're always going to have to pick parts that are not going to go on the job. But they still can have good discipline about getting those parts back to you, back into the parts department, so that you can remove those from the work order and post them back into inventory. The other thing here is, even though they're showing on the work order, if it's tied to a stock order, your stock order is automatic. If you're doing some kind of automatic stock order, it's going to look at your on-hand inventory, and it's going to show that that part's not in stock. It's going to try to reorder that part, because it's been sold to a work order. But now when it comes back off of the work order, what happens? You've got two of them. Now that's back in stock, and you've got another one coming from your OEM. So this is bad business practice, especially if it's a slow-moving part. Now you're building inventory. So it's important to both departments, the parts department and the service department, to get those parts back into the department as soon as possible after the end of the work, after the end of the labor. One of the best ways to do this is just, you've got to typically have what we call a back-counter parts person. That means someone that works from the parts department working with the service department full-time. Well, why don't they just go and deliver the parts to the bay? And I know the parts managers want to scream and say, well, that's not my job. Your technicians should come and get their own parts. Your technicians are looking up their parts and identifying their parts. But then they come to the back-counter. They order the parts. More of the parts systems now, and more of the service work order systems, the technician doesn't leave the bay. They're in the bay. They've got a laptop in the bay. Their schedule is on their laptop. So the next work order that they go to is on the laptop. They don't have to go anywhere and look for the work. That keeps them in the bay. That keeps them productive. That keeps them working. And any time they leave the bay, they're not productive, especially if you've got social Sam, I like to call, in the parts department running the back-counter. Because what happens is they want to talk about what they did that weekend, or how you're doing, or how the kids, or if you've met a past social Sam in the bay, it's too easy to stop and talk to someone or just be polite. And every five minutes is going to cost you money. I'll show you that in a minute. So it's really important to the parts department as well to keep that technician in the bay where they are selling parts. The easiest way for the parts department to sell more parts is to help the service department sell more labor. Because nobody argues over the parts or the parts prices. They're not shopping. They're the retailers. And so the easy way for the parts department is just to make sure that they're giving the service department good service. So what is five minutes worth? Let's talk about that. Five minutes worth of billing and service. Five minutes a day for one technician would be what? 25 minutes a week, right? Five days, five minutes, 25 minutes a week. 12 weeks, that means there's 100 minutes a month. That means there's 1,200 minutes a year. What has that been? 20 hours. 20 hours a year. So five minutes a day that you could be billing out that you're not because of some sort of inefficiency is $150 an hour. That's $3,000. So for every five minutes that you're not billing out because of technician inefficiency, you're losing $3,000 a year in bottom line profit. Bottom line profit. 10 technicians, if you've got 10, that's $30,000. 10 minutes a day is $60,000. 10 minutes a day, 10 technicians, you're losing $60,000. And that's in bottom line profit. Why? Because your cost of sales and service is what? It's your labor. When do you pay your labor? Not when you bill the invoice, but every time you make payroll. So you've already booked your cost of sales. So billing this extra five minutes out is not going to raise your cost of sales. It's just going to help you pay for that cost of sales. So that $60,000 would fall all the way to your bottom line as profit. Now, at a one-to-one ratio between the service labor sales and your parts sales, that means that if you're getting $60,000 more, that the parts department is selling $60,000 worth of parts. Now, they're only going to get 35% of that back as margin. But that's nothing to snooze at. So for every 10 minutes, in this case, for 10 techs, for every five minutes for one tech, that's $3,000. One tech, five minutes, $3,000 a year of parts sales. That's worth it for the, at least if you'll split it between the parts and the service department, to have someone running parts to keep the technician in the bay. So let's talk about just the sheer volume of workload. You've got a high volume of work orders. And if you let them batch, then at the end of the month, you're getting such a crunch that you just don't have enough time to get them all closed. And it's possibly waiting for that then to fall over into the next month before you can let it go. You may also be waiting for other people to do their part in it. So you're waiting for the service department to do their part, to finish posting the parts. You're waiting on something from the accounting department. So what happens there is while you may have enough time as a service person to close your part of it, you're sitting there waiting for them to do their part. And so you can't finish it. So you've got to get a flow going into your process. It's a lack of process and discipline in all the departments about how work should be done. When should the work happen? If parts get returned at the end of a job, meaning the end of labor, the parts department has to recognize this and go ahead and get those parts posted onto that work order so that work order is ready to close. Now, if you've got your normal process, it may be waiting two more weeks to close it. That's irrelevant. Because the parts department needs to do their job as soon as they have the information available. That way, if you can go ahead and close the work order, you're depending on them. So it's about getting together and getting disciplined and changing your processes in all of the departments. So what is the KPI, the Key Performance Indicator for work in process? Essentially, it's a case to close the work order. And your work in process amount should not exceed 15% to 25% of the value of your work per month. So you should close all work orders within three to five business days of the last work being performed. That means you've got to capture the date of that last work. And so you'll have something in your business system that allows you to identify when hours are being posted. This also tells you you may have to change your process around that, right? If you're letting it sit on a ticket until the technician says they've finished it, and then you post those hours into the system, you don't know what that last date was until after it's done. So what you want to do is you have to be posting hours daily. And if you have a modern business system and you're using your laptop as your time clock, it's actually posting those hours daily as they occur. That's what you want. So what that is is a process that allows you to then see if labor has been posted on that work order just today. And if it has not, if it wasn't posted the day before, and you just restart it, then hours get posted on that day, you just restart the clock the day. The value of labor and WIPP should not be more than 15% to 25% of your average monthly labor sales. Now, you may want to make that your prior month sales, because if your sales fluctuate up and down, this number is going to fluctuate as well. But that's why it's a 15% to 25%. You just take your average labor monthly sales, 15% to 25% of that is what should be sitting in WIPP. If it's 25% of your average sales, what does that mean? That means you've got one week's worth of labor sitting in WIPP. The idea, though, is to keep it simple. Find a way to measure this. Find a way to account for it so that you have this number. And that way you can watch this number and then look at it. Make the information available. Post it. Make sure everybody understands it. And then you should have not just the value of WIPP, but what you should have is the days since last labor average. So what's the days to close? Post that average days to close so that everybody can see it. Because that's the number you need to concentrate on. People get immune to a high dollar value of WIPP. But you can't get immune when you have a goal of three to five days, and you see that day's at 15%, 17%, going to 20%. That's just something that's not acceptable. So how do you change this? How do you make it happen? Well, it starts at the top. It starts with the Viva principle. It starts with the CFO. They have to understand that you've got to change the culture of the business and that we're doing things different. We've trained our customers to not expect the invoice and to wait for it. Because the customers are also going to wait to pay the invoice after they get the invoice. So it sits in the accounts receivable even longer. Many of the owners and senior managers, especially finance managers, don't really understand the job, so they simply complain to you. They don't understand why it takes so long to close. They don't understand what it takes to look at the work orders. All these things that we just talked about are details. They just understand that there's a million dollars sitting out here that if it would close, they wouldn't have to borrow that million dollars. They could use that million dollars to go ahead and pay the bills. So look for the root causes. Enlist the help of the people that are responsible for getting the work done. Don't just create a process, dump it on, and then expect them to comply with it. They're just going to see this as someone who's out of touch, doesn't understand how hard this job is, and is demanding of them, and they're going to resist it. It will take you a long time to get it done. So what you've got to do is put together a cross-functional team, make sure that servicing is included, make sure that parts is included, and make sure that accounting is included. You might even want the sales department to be included. And it's not the managers. The managers will select someone from their department so that they can manage it. But this is how you grow your people. You delegate this task to someone that is closest to the work, knows how the work needs to get done, knows what the problems are, and will give them the responsibility and the authority to develop the process. That means the authority says, once they do this, now they're going to come back to you as a manager and say, this is what we think. But you're going to pretty much have to say, OK, unless there's something significant that is not going to allow us to do this, you're going to have to let them do it. That's going to get the buy-in. That means it's their process. They understand it. And you might even have to let them set the goal. You're not going to say, get this done in three days. Yes, there are dealers in this industry that I work with that three days, business days, is their standard. And they close in three business days. That's why I say three to five business days. You might have to, if you're running at 30, the first thing your team's got to do is they've got to measure it. If you're doing 30 days, they've got to say, we're going to cut this to 17 days. We're going to cut this to some other number of days. We're going to do something else. So let them be the ones that take care of this. And then let them come up with a process. Then you get to buy off on the process and take care of it. So what are some of the best practices for keeping your wicket balance? Let's just start over and say, have a robust and clear process for closing your work orders. Make sure that everybody understands those work order processes and make sure they buy into them and then adhere to them. Be aware of your WIP daily. I know you are now, but be aware of it. Make sure that other people are aware of that WIP and see what it is, see how it changes. Benchmark that at 15% to 20% of your monthly loader sales. Communication is key on your difficult jobs. What this also means is that as you get in a job that have a lot of diagnostic time or something else, you're going to have a challenge here with the customer. And so it's also important with the technician and you and the customer that you all know that this job is being held up for some reason. We're just waiting for a component that's on back order from the supplier. And so you're sitting there with this work order open for two weeks, three weeks, a month, waiting on a component. But everybody knows this so that on that work order, you are making sure that it doesn't get out of hand. As work orders stay open more than 30 days, it gets very difficult to collect them once they do close. Now, if you do collect them, you're going to collect a percentage of the value, not the full value. And then the idea is that no revenue job is ever open more than 30 days. If a revenue job is actually open more than 30 days, there's a problem on the job. The exception to this is if you're selling off-season repairs, rebuilds, this sort of thing. So you're out there.

working process

WIP

open work orders

service manager

standard charge billing

communication

timely closure

customer satisfaction