Evaluating the impact of pre-diagnostics on an automotive workshop’s operational efficiency
Abstract
Time-Driven Activity-Based Costing (TDABC) is an addition to traditional Activity-Based Costing (ABC). The process of ABC highlights and allocates costs to products providing a more accurate view. However, TDABC focuses on the time spent on processes and eliminates certain barriers in traditional ABC implementation. Due to the ever changing environment influenced by technology and globalisation, companies need to change the way they did things in the past to remain a noted role player in the market. Making use of accurate costing methods can provide management to make informed and real time decisions; active measurement opens the window of opportunity for improvements. TDABC allocates a cost to time; this is very important for the fast moving world businesses are operating in.
Value Stream Mapping (VSM) is a process involved in lean thinking. During this process the objective is to visually draft the current process followed within the business to identify waste. Waste, also known as non-value added, is a normality, a duplication of work or lead times that can be prevented. To visually depict the process being followed and to objectively evaluate the status quo can contribute to companies longing to reduce waste.
By integrating TDABC as time-driven costing method with the aim to reduce waste using VSM can be an exciting combination to evaluate your current business and the possible increase of profitability.
During the study the value of TDABC is highlighted and combined with an evaluation of the diagnostic process followed in an identified automotive workshop. The aim of this study is to identify whether there is any waste during the diagnostic procedure followed by means of VSM and to conduct a profitability analysis making use of the TDABC principle. This framework will assist management with tools to make better profit calculations and to challenge the status quo of operations.
Anonymous Motor Group is in the automotive industry selling and offering after-sales services to the public. They do not manufacture the products but represent certain brands as approved dealer. New vehicle sales have grown instable due to the strict competition involved amongst all the different brands. However, stability is provided through the after-sales departments, because clients need to service their vehicles to retain the warrantees and normally these vehicles have active service plans. Consumers need to service their vehicles but due to the competition and national dealership footprint of the brands, customers can choose their preferred dealership. Automotive workshops sell their time against an allocated benchmark rate and a governed labour rate, thus profitability is correlated with the efficiency of technicians.
The main objective of this study was to establish if pre-diagnostics will have a significant influence on the efficiency rate of technicians. The efficiency rate was converted to a profitability analysis per minute making use of TDABC. The pre-diagnostics were integrated into the current process by making use of VSM and a conclusion was made accordingly.
TDABC is a helpful tool to calculate costs and revenues and VSM disintegrates the current process followed to identify any non-value added processes.