Let’s take a look at why workflow management is vital for a business. The automotive industry is currently in a state of transition due to consolidation away from small family run operations towards more corporate-run multinational organisations. These organisations are by definition more process driven and they eventually hold a competitive advantage against smaller operations in terms of processes and cost control due to greater resources and greater bargaining power with suppliers.
The majority of smaller businesses often operate with ingrained and out-dated processes, which can lead to inefficient production teams, mismanaged workloads (or work in progress), lesser bargaining power with suppliers and potentially either the business goes bankrupt or shuts down voluntarily. This is a shame, because the small family run business has a key function in the automotive industry, in performing a more personalised service to their existing clientele, that corporate-run organisations cannot do. This is particularly the case in regional centres such as the Murray, Dubbo, Tamworth, Newcastle, and Wollongong.
Important factors to consider in workflow management
Two crucial components to running a successful business in the automotive industry, is having control of your workflow management, and productivity and cost control. Have these two issues under control, and you will inevitably be running a successful business operation. However too often in the automotive industry, businesses become unstuck due to on-going jobs being forgotten, once they have been completed and delivered. There is no process in place to invoice these jobs, and therefore get paid. How would you feel if you put in many hours of work on a specific job that was quite complex in nature, and not get paid for it? In this industry it happens way too often, and can lead to businesses losing money, and potentially going broke.
Several years ago, when I was assisting in establishing a new paint and panel operation in Sydney, I was speaking to an Assessing Manager at a prominent insurance company, whilst we were setting up the manual and electronic platforms in which individual jobs and insurance claims were managed. He advised me to make sure that when a job is completed it is invoiced within a couple of days of completing the job. In my naivety, I scoffed at him and suggested that him mentioning this was absurd, however he responded by saying that I would be surprised at how many businesses do not complete their job properly by not invoicing it.
If a business cannot control its workflow management, it cannot manage its cashflow and can severely affect the profitability of the business.
What is Workflow Management?
Workflow management is about managing all the tasks and stages in your workflow. Accountants and lawyers refer to this as work-in-progress, and it is simply work that is under your control which you are currently in the process of completing, or about to complete. Having control of your workflow is about the following:
- understanding how much work you have in your workshop;
- understanding your staff resources and requirements to complete that work;
- performing that work efficiently and effectively;
- delivering the completed work to the owner or the relevant party.
- Invoicing and getting paid for the work completed.
The pitfalls associated with poor workflow management are:
- upset customers enquiring why it has taken over a month longer than promised to complete the job;
- upset staff and therefore poor staff morale because of a lack of organisation in managing workloads;
- customers not returning the next time they require their vehicle to be fixed.
- Work not being invoiced, causing suppliers to not be paid, wages not paid to staff, and therefore leading to massive cashflow problems.
For many small businesses the solution to their workflow problems is already in place. Many workflow and production management software systems in the industry are easy and simple to use daily, but so often, the business has the software in place but does not use the system to its maximum potential.
Here is an indication of the possible problems a business has when not managing its workflow properly. A small business repairs on average 20 cars per week at an average cost of $3000 per job. That equals $60,000 a week in revenue or annually $3.12 million per year. If your workflow management issues cause you to forget just 2 jobs in one week, that has a flow on effect in the following weeks because that 20 cars per week average can drop to as low as 17 or 18 cars because you are catching up from the previous week. That causes your revenue to drop $6,000 – $9,000 per week. If this problem persists that can equate to over $300,000 per year. Your costs stay the same. It may even increase as you get your employees working longer hours to catch up the overload. So that lost revenue (or lost profits) can be well over $350,000 per year!
As you can see the flow-on effect of poor workflow management is quite striking and can be simply fatal for a small business where workflow management is the crucial element of a business in the automotive industry. Your business is providing a service after all.
What is Productivity and Cost Control?
Productivity is a measure of how efficiently you are producing the goods or services to sell. It can be measured individually, in groups or organisationally.
Cost Control is essentially the methods you have which controls your costs either on a jobs basis, or activity basis. In the automotive industry you have fixed costs like many businesses such as rent, electricity, office expenses, motor vehicle expenses and wages, however production costs such as spare parts, paint and materials are key costs which can be allocated to particular jobs and activities. Having control of these costs ensure that you are paid the correct amount for a job, and you do not incur losses for the cost of parts and materials that you have fitted onto a car.
Both productivity and cost control are extremely important success factors in maintaining solid workflow management processes. Your business is providing a service and therefore you are selling the skills of yourself and your staff. This is a valuable commodity, so employing the right staff is an important skill, often relying on gut instinct, but also in maintaining good processes within your business, so that your staff know what is expected of them.
These processes are:
- Job costing all supplier invoices against open jobs, ensuring a margin is always negotiated and attained on a line by line basis on your quote;
- Ensure that your quote includes parts and sublets that are necessary to complete the job;
- Ensure that quality control procedures are in place to ensure that reviews of jobs and quotes are done throughout the entire duration of the job, to ensure that items don’t get missed and therefore don’t get invoiced.
- Constantly review your fixed costs to ensure that there is “no fat” or surplus spending that can easily get out of control.
When taking on a job, many businesses will underquote to win the job. It is a competitive environment, but you must ensure that when you provide a quote that the quote provided indicates your knowledge of the scope of the work involved, and that your quote, whilst being competitive must also be profitable for you. This means that you must be able to know how much it will cost you to complete that job. Always remember that each job will consume fixed costs as well as productive costs, such as supplier invoices and such. We can assist you in these areas, as well as working out just how much it costs to run your business, and how much more efficiently you can run your business.
Get in touch with a Virtual CFO now
If you are having problems with your workflow management, productivity and cost control, a Virtual CFO can help you solve these problems and get your business back on track to profitability and cash flow under control.
-Written by Con Koudsy