Traffic jams, government paperwork, bathroom drains, make-ready departments; no matter what the bottleneck, it can cost you and your dealership time and money. Time and money are 2 things many want to hold on to, so speed to market is criticle for used car margins.
So how do we identify and measure bottlenecks in our recon process? By far the most important number we look at is the deviation in our process. This tells us the variability in our make-ready department. Said another way, how streamline is your process.
To visualize this, think of a water hose as your recon process. Now water can be pumped into it as much as possible, but there are 2 limiting factors to the rate of which that water comes out the other end.
If you were to pick up a water hose and water wasn’t coming out fast enough, what is the first thing you do? You look for “kinks” in the hose. That’s your process deviation. If anyone of your steps is higher than 24-hour deviation then you got issues.
The second factor is the size of the water hose, how wide is it? This is capacity. But as you can see, you can’t speak about capacity until you get your kinks out of the hose. Once that’s done then you can work on capacity.
Deviation measures the spread of your process. Let’s assume your average Speed To Market is 5 days and your Process Deviation is 4 days. That means a vehicle in your process could take 1-9 days to get to market……not very tight. However, if your average Speed To Market is 6 days but your Process Deviation is only 1 day this means vehicles in your process take between 5-7 days. So even though in example 2 your average speed to market is 1 day higher, it’s tight…it is not all over the board like the first example, which can cost you time and money.At Trace, we shoot for a sub 48-hour deviation.
To use this to make business decisions, I follow this procedure. When you look at each step in your process, if your deviation is good in that step, but the Average Time In Step is still high then that means you have a good process but you don’t have enough capacity and therefore need to add more capital to increase throughput. Capital can take the form of additional labor or equipment. But now you can put a $$ amount and calculate your return on investment. Here is some quick math: say your average Holding Cost is $50 per day per vehicle, and your detail department is taking 3.6 Days to get a vehicle out; then take the number of vehicles in your recon process, multiplied by your average holding cost multiplied by the difference between your current time in step vs your goal.
Let’s look at an example
Average holding cost: $50 (estimated)
Number of vehicles in recon: 103
Current: 3.6 Days
Goal: 1 Day
Difference: 2.6 Days
Total: $50*103*2.6 = $13,390
So currently your Detail department alone is costing you $13,390. Now you can have a business discussion on whether you should add more detailers, wash bays, power washers, etc…what would be the cost and the increase in throughput(capacity). Gone is the guess work.