Taking The Mystery Out Of Labor Inventory – UnderhoodService

# Taking The Mystery Out Of Labor Inventory

Many colleagues in the industry seem to be confused about managing labor inventory in their shops.  Much of the confusion comes from the terminology thrown around the industry and because the definitions for these terms vary (no disrespect to my peers).  I would like to clarify, from my perspective, what I believe to be the proper terminology and formulas for managing labor inventory.

• Available Time – This is number of hours your technicians are physically in the building, ready to work on vehicles.
• Actual Time – This is the time measured when a technician is working on a vehicle and producing billable labor.
• Sold Time – This is the time the customer is charged for the specific time the technician produced from an assignment or labor operation.

From this information we can measure certain things as managers of our businesses, and create changes for improvements.  The following are the KPI’s that I feel are most important to pay attention to when measuring your technicians:

• Technician Productivity – The Actual Time ÷ Available Time x 100 = the Technician Productivity percentage.  Each technician should achieve 90%.

• Technician Efficiency – The Sold Time ÷ Actual Time x 100 = the Technician Efficiency percentage. Each technician should achieve 125% unless they are a general service tech that is predominately producing low sold hour operations, such as oil changes.

The next items will help you effectively measure the business performance, as it relates to labor inventory:

• Labor Sales Per Billed Hour – This is measured by the Total Labor Sales for the month ÷ Total Sold Time produced by the technicians. It is important to monitor your average labor sales per billed hour compared to your door labor rate to determine if your front counter staff is doing a good job of not letting the labor rate erode due to discounting or selling work below your posted rate.

• Effective Labor Rate – This is one of the most confusing terms in the industry. Effective Labor Rate deals with analyzing your available time and your labor rate.  The formula is Total Labor Sales for the month ÷ your Total Available Time. The reason for this formula is to help you determine how effective your staff is at selling your technician’s entire labor inventory.  If we have 3 technicians in the building for 8 hours per day and for 21 days in a month, we will have 504 Available Hours. If we divide that into our labor sales we will get a comparison to our labor rate. If the staff sells and produces more flat rate hours in a month and those hours are sold for a better Labor Sales Per Billed Hour, then you will have a more effective (or more profitable) Effective Labor Rate.

Remember, at the end of each day what we have to sell is labor, as parts sales naturally come along with the sale of labor. It is very important to manage that labor inventory because it is a perishable commodity that spoils daily and cannot be replaced. The shop owners that I work with that do a great job of managing labor inventory, controlling margins, and controlling expenses tend to be some of the most profitable shop owners I coach.

This article was brought to you by Elite’s Jim Murphy. Jim is the leader of Elite’s prestigious Pro Service, a 20 group-like community comprised of 90 of the top shop owners in North America.

# Continental Releases 67 New Part Numbers

#### Twenty-two new import part numbers, as well as 39 new pulley and tensioner part numbers, are immediately available.

Continental announced a continued development of its import line of products with the addition of 22 new part numbers, as well as the expansion of its metals program, including 39 new pulley and tensioner part numbers. The new product line extensions are immediately available, Continental said.

39 Tensioners and Pulleys

##### Standard Motor Products Introduces 268 New Numbers

The release provides new coverage in 75 product categories and 80 part numbers for 2023 and 2024 model-year vehicles, SMP said.

##### BCA Bearings Unveils 2024 Endless Summer Promotion

The Endless Summer promotion runs from May 1 through June 30, 2024.

##### Clarios to Supply High-Performance AGM Battery to Major OEM

It offers up to 80% reduction in CO2 emissions over traditional AGM batteries, in many cases, Clarios said.

##### Philips Announces GoPure GP5212 Automotive Air Purifier

It uses a 3-layer filter to deliver cleaner, healthier, fresher air on the go, Lumileds said.

#### Other Posts

##### Snap-on Announces Latest Software Release

The latest software includes new coverage and guided component tests and features.

##### AACF Launches 65th Anniversary Fundraising Initiative

The campaign aims to raise \$65,000 through 1,000 donations of \$65 each.

##### BendPak Founder Don Henthorn Passes Away

Grew company from small machine shop to global leader in car lifts and garage equipment.

##### ASE Practice Tests Available Online

You can get a good idea of what to expect by adding the official ASE practice tests to your study plans.