Thoughts on Effective Service Management

By Walter J. McDonald

In my experience, the Field Service business is the most complex Revenue Center in a machinery dealership. Field Service is more difficult to manage than sales, parts, rentals, or shop service.

The problem involves pricing as well as a cost. Field service is fraught with potential inefficiencies that dramatically impact the cost.

Step 1- Optimize Parts Fill Rate to Service

To optimize Field Service performance and revenue, the dealer needs to start at the beginning: off-shelf line item parts fill rate to service. Unless the off-shelf parts fill rate to service is at least 98% by line items for the primary product line, field service will continue to struggle.

Most dealers do not measure off-shelf parts fill rate much less fill rate to service. Begin there. What is the score for the past four weeks for Off-Shelf Parts Fill Rate to Service for your Primary Line?

Product Support needs to be developed as a Competitive Weapon. And, the stronger the off-shelf parts fill rate to service is, the better able the dealer is to charge premium rates and outperform competitors.

Step 2- Focus Machinery Marketing and Sales First in Major Clusters.

This is a strategic move for the dealership. Instead of random, opportunistic selling across a wide geography, focus on “clusters” of accounts that are easier to support. For example, if a Dealer is located in Mobile, blitz and develop the market area within 25 miles of Mobile Bay first. Then, move to Birmingham. I have seen dealers with large equipment fail miserably by having one or two units each in Huntsville, Florence, Tuscaloosa, Birmingham, Montgomery, and little spots in between. This is a prohibitively expensive product support problem. By building critical mass in selected high-potential market areas, the dealer will sell more units, be able to service them at less cost and generate a cadre of satisfied accounts that will provide referrals.

Step 3. Improve Field Service Efficiency

a. Improve Pre-dispatch Diagnostics. (Please refer to Service Management Machinery Dealer Manager’s Handbook, pages 200-224.) The more a dealer can perform intelligent pre-dispatch diagnostics, the more likely the technician will arrive with the right part, the first trip. A “Dispatch Authorization Form” as illustrated in this text is one part of the solution.

b. Improve Service Request Technology
The second element of efficiency improvement is through a digital connection between the end-user and the dealer. Please see HIVEQR.COM for an excellent overview. The system begins with an encrypted decal on each customer unit that includes vital information such as model, serial number, location, etc.

c. Improve Dispatch Logistics
Where is each of your field technicians now, this minute? GPS-based maps are now available to locate technicians, identify customer locations, and enable visual understanding of who should be sent where. See Service Management text page 306 for one map source.

d. Technician Assignments by Territory
By assigning field service technicians to specific geographic territories, they get to know the customers and their fleets. This greatly enhances their ability to “fix before fail.”

e. Van Parts Inventory
You want the field service technicians to arrive at the job site with the right part first trip 98% of the time. Get the technicians to suggest parts that should never be out of stock and that should be in van inventory. Secondly, set up each van as a “branch” inventory location and monitor inventory stock status, fill rate, excess stock, and obsolescence. Stock parts to the load limit of the vehicle.

f. Sell Maintenance Contracts in Customer Unit Clusters.
What’s the sense of selling a PM program in Tuscaloosa and the next closest PM account is in Demopolis, AL?

g. Technician Incentives
Never reward technicians for sales or profit. He is the most trusted advisor in the dealership and customers expect him to be objective, honest, and technically competent.

Best to reward the Individual Technician on Productivity (hrs. billed/hrs. available) and Efficiency (hrs. estimate/hrs. actual). Also, many dealers have had good success with also rewarding the whole field service team for achieving field service departmental objectives: Technician incentive is 60 % for personal performance, 40% for contributing to overall field service team performance.

Step 4. Labor Rate Pricing

a. Eliminate Internal Discounts (In House).
There is no need to discount labor or parts for rentals or used machinery reconditioning or new machinery predelivery. These discounts just evaporate profits and are never recovered by incremental sales. See Service Management page 100, “The Case Against Internal Discounts.” Fortunately, as more business-oriented dealer operations managers achieve dealer leadership, this problem seems to be going away, at no loss of customer business.

b. Structure Labor Rates Properly
Customer Billing Rate should be three times average Technician Wages + Benefits. Many dealers add a 10-15% premium for Field Service Technician if high level of first call completion rate and customer satisfaction. The higher the quality of service the more the dealer can justify a premium rate. A strong apprentice technician program reduces average Wages + Benefits.

One of the ways to handle travel time is to have Zone Service Charge added to the Repair Order. Customers seem to prefer this to mileage charges, etc.

I trust this will be helpful to your dealership. Many dealers seem to be addicted to internal discounts and solving the service profitability problem through pricing. I encourage you to look at cost reductions and operations efficiencies first. Then, price. HIVEQR.COM is very new and very exciting in terms of cost/benefit for machinery dealers. This problem can not be solved in an hour. It needs a “bus driver” to make sure every step is completed properly. I’d be happy to help further as needed.

Management Review of Service Management-Machinery Dealer Manager’s Handbook

Good morning Walter,
I have had some time to comb through your latest release, Service Management: The Machinery Dealers Manager’s Handbook.

My reaction: While titling your latest release a handbook, it really is more like a bible to be religiously used to prosper in the service industry. For motivated dealer managers and business owners, nothing like the content exists anywhere else to sustain continuous operations improvement, superb customer service and financial well bring. If management consists of doing things right and leadership is knowing what things need to be prioritized and done right, then this book speaks to both. None else has assimilated the knowledge from working with over 2400 service managers and woven it into an instrument for excelling in service management and gaining a competitive advantage. Those who ignore the operational wisdom found in this handbook do so at their own peril. Thank you for channeling your passion into a work that can be passed on to generations of service operations personnel.

James A. Wilson, Director of Dealer Development (ret.) Mitsubishi Caterpillar Forklift America

Order your copy of Service Management: The Machinery Dealers Manager’s Handbook HERE.