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Many times I am asked in a consulting engagement to help improve the profitability of a service operation. I am usually asked how to increase the labor rate without losing business. It is an understandable question, but not the right question at all.

The right question is to ask how to maximize the profitability in the service operations without regard to the selling price. That allows you to truly dig into the operation and come up with methods and processes to improve profitability.

Over the past two months we have discussed setting labor rates, measuring labor efficiency, and standard times. This month is more fundamental to the operation. How should we operate in order to maximize the profitability of the department?

There are some very simple truths here, starting with the most obvious. It is all about good, and I stress good, management and supervision. Good direct supervision can overcome substandard performance skills of the group being supervised every day of the week. At the same time, excellent performance skills cannot overcome substandard management and supervision. It is proven in every aspect of business and life.

So we need to explore the supervisory function of a service operation. First of all, let’s identify what we mean when we say supervision. I am talking about the individual on the shop floor or at the service dispatch desk, the individual who has responsibility for a group of technicians. Not a lead hand who performs mechanical functions as well as being there to assist in the supervision of the work. No, this is a dedicated job function—the direct supervision of technical personnel.

So now that we have the defined job function, we need to determine the number of supervisors or the density of workers for each supervisor. For this I want to reference some traditional measures and look at it historically. The Roman armies had 10 centurions for each supervisor 2500 years ago. The U.S. Army has 10 GIs for each direct supervisor, or less in highly skilled disciplines.

I normally recommend that there be one direct supervisor who does nothing but supervise for every eight technicians. The normal structure has the supervisor spending 15 minutes with each technician, once in the morning and again in the afternoon. The morning time is to ensure that the technicians all understand everything expected of them during the day. That they have the tooling and parts required, along with the documentation to assist them in the performance of the work. The afternoon time is to verify that all the assigned work is completed before they head home at the end of their shift. In between as events dictate, there will be further communications between the technicians and the supervisor when difficulties arise, or additional problems are found with the equipment or systems, or whatever the technician might need from the supervisor.

Similarly, the supervisor might intervene based on work habits, methods, safety, or any array of items they notice. The point is, the technician knows the boss is there and watching and that affects their performance. They work more diligently, more efficiently, and more safely. It happens all the time. And everyone knows this truth and acknowledges it as the truth. So why don’t we do it? Hold up the mirror if necessary and ask the question.

The second major item impacting labor efficiency and profitability is to simply know what to do before starting the work. This is equally as simple. Before any work is done, an inspection of the current unit or system has to be performed and the work to be performed set up in “segments” as we discussed last month. Each segment has to be identified with a job code and then we can obtain the standard times and standard job descriptions. Remember though that each segment has to be established with no more than eight hours of labor and no less than 30 minutes. (We want certainty on the work being completed on the same day it is assigned and this can only be done if there is not more labor assigned to a technician than they can complete in one shift.)

Now one last thing from last month, and it is a key element of any labor functions. We add a factor to cover for the risk involved in our providing a guaranteed price and completion date. There are naturally occurring deviations on labor which result from variable conditions of the system or components being worked on, differing conditions based on environmental conditions, the elements, etc., which in the standard time systems I have been involved with usually represents a factor of 15%. That means that in every eight-hour day (480 minutes) there will be 15% (72 minutes) each day of standard time deviation in the work assigned to each individual technician. That means we should have all work completed within the eight hours of a shift. There will be exceptions, but they will be rare.

Two simple things: the right supervision and the right density of supervisors, as well as inspections to allow job setups to be done properly and precisely.

This means the labor efficiency should be at least 100% and it has a chance of being 115% with the right circumstances and conditions. With that strong a labor efficiency, you will achieve a high gross profit. We will base the selling price on the wage multiple and we will manage the work to ensure achievement of the maximum possible efficiency.

The technicians will appreciate working within such a system, the customers will be happy with no surprises and delays, and the owners will enjoy the proper level of profitability. What’s wrong with that? I didn’t think so either.