What are the parameters that allow us to check that everything is in a workmanlike manner? How does the efficiency of a workshop affect the cost of labour? Within this article, we will talk about how to correctly and efficiently calculate the workforce in the workshop.
Every single automotive entrepreneur, owner of a workshop, has to calculate the manpower. The correct calculation of the workforce is essential, in order to make correct estimates, and to achieve the widest and most structured profit margins.
The calculation of the manpower is certainly not something that can be improvised, but must be the result of a careful and scrupulous process, which we will now introduce.
It is also a matter of transparency, when an estimate and cost management is made within the workshop. In this way, we can let the customer know how much the cost of our labor is, and how much the costs of the individual pieces affect.
If an intervention requires many hours of manpower, with a low cost of spare parts, it is good to highlight this in the estimate. Same thing in the opposite direction. Very often, customers have no perception of how important labor is, and how much it affects the individual quote.
Before moving on to the actual calculation of the workforce, we advise you to read our article "What are all the costs of a mechanical workshop?" You will find many useful ideas for optimal management of the workshop!
Now let's move on to understanding how to calculate manpower.
The labor cost calculation mainly affects two important areas of analysis of the shop floor:
- the cost of labor in a given period;
- the hourly rate
For the first aspect, we are speaking in this case of production manpower, but also of resources related to the organization (such as logistics for example). In this case we have to analyze the impact of the cost of labor on operational management, and consequently we can subsequently set up corporate human resource management policies and strategies. An example? Let's think, for example, of a production bonus for individual workers.
The second major branch of the labor theme is the hourly rate. The calculation might seem trivial, as on the one hand it requires the cost of personnel and on the other the hours worked.
An initial analysis, and an initial estimate of the hourly rate, can in fact be defined as the ratio between the cost of personnel and the hours worked by personnel.
Hourly rate: cost of personnel / hours worked by personnel
In the phase of defining personnel costs, however, there may be problems.
Observing the general ledger, in fact, the amount of hours actually worked by the mechanics does not always coincide with the actual hours of presence or clocking-in. In other words: if a mechanic works 8 hours a day, in concrete terms he will most likely work 8 hours a day on cars…but certainly less. At a fiscal level, the calculation of the hourly yield is 80%.
In fact, within the working day, there may be comparisons between workers of different training for the resolution of a specific problem. So, technically, the mechanic isn't actually working on the car.
Furthermore, let us not forget that personnel costs must in any case take into account all those costs deferred over time (severance indemnity, thirteenth or production bonuses, ..). This is how the management of a workshop increases in complexity if we want to go into detail.
Finally, a third problem occurs in the management of sick leave. We always remind you that the cost for the first three days is borne by the company and only subsequently does it become borne by INPS.
HOURS WORKED BY STAFF
Having highlighted the problems relating to the identification of personnel costs, we must now consider the denominator of this relationship. We have to ask ourselves what are the actual hours of work.
Not all the hours of presence are transformed into processing or the management of spare parts. In fact, a workshop could have problems related to inefficiencies, around the imperfect storage of any spare parts in the warehouse, or a high complexity of individual car maintenance.
How to do then?
To try to help the workshop, there are various indicators which allow the overall effectiveness of the workforce to be highlighted.
What we want to introduce in this article is the most widespread one, namely the overall labor effectiveness indicator, also called OLE Overall Labor Effectiveness
OLE Overall Labor Effectiveness
This indicator is produced by the multiplication of availability, by shape and quality.
OLE: Availability x Shape x Quality
To obtain this product, the first value to be introduced is that of Availability. We can define Availability as the ratio between Net Available Hours and Gross Available Hours.
However, be aware that the gross hours available are clearly different from the hours of presence. If a mechanic has 8 hours of presence, he will have a lower number of gross available hours which can be 7.5. And the Net Hours? These are the hours that he actually physically works on the cars.
As far as performance is concerned, we must instead consider:
Performance = Services performed x Cycle Time / Net Hours
The performance takes into account that not all net available hours are actually transformed into completed services. In fact, there may be micro-breaks, or some production delays or slowdowns, as other problems in the cars arise.
Performance, therefore, is also an indicator of the individual mechanic's ability to transform spare parts and his/her own knowledge into effectively finished jobs.
Clearly for "cycle time" we have to talk about that relating to labour, i.e. taking into account any combinations between a mechanic and one or more cars.
The third parameter that we must consider is Quality, i.e. the fact that not all interventions can be perfect. To calculate the Quality, we have to compare the number of good quality interventions and the total number of interventions carried out. Therefore, if our workshop tries to maximize interventions with excellent quality, in this case we are talking about a value equal to 1.
Once these three indicators have been defined, namely availability, performance and quality, we can highlight the OLE indicator.
A question that may arise now is the motivation for which we have introduced this indicator. Simply put, inefficiencies need to be factored into any workshop service cycle.
It would be very risky to say that the operations inside the workshop are as perfect and as efficient as possible. As a result, the labor cost still needs to consider the level of labor efficiency.
The more efficient the labor is, the more we can lower the cost of labor, because we know that the mechanic works efficiently.
On the other hand, the more we know that there is work to be done on labor efficiency, we must raise the cost of labor precisely because we must protect ourselves from any problems in the interventions.
In this way, the advice is clearly to refine the competence of the individual mechanics as much as possible, precisely to subsequently reduce the price of labor.
How often do you have an efficiency check?
Checking the overall efficiency of the labor should be done every three months, in order to adjust the cost of the labor and the final price that is paid to the customer. In this way, we can also monitor any deviations in the company's cost structure.
As a final piece of advice, remember to define a standard hourly rate for labor that can be differentiated according to roles and tasks, as well as according to the types of work within the workshop.
This level of detail can be achieved if we have a very precise and punctual cost detail. The more our workshop manages to be precise and capillary in the definition of costs, the more it manages to have a positioning of low prices towards people.
In this way, we can compete with as many workshops in our area, thanks to an absolutely competitive labor price.
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