Out of the Crisis.Org

[Louis Altazan]

Dr. W. Edwards Deming's Fourteen points

Point Ten: Eliminate slogans, exhortations, and targets for the work force applies to a good deal more than just meaningless signs. The same may be said for charts, graphs and messages that are publically displayed. This includes publically comparing one person to another. It also implies goals and targets with no plan are meaningless and may be counter-productive.

Point Eleven: Eliminate numerical quotas for the work force and people in management.

Proponents ask, "What is so bad about flat-rate?" I believe there is nothing inherently bad in a pay system that both parties agree to. It [flat-rate, quotas, incentive pay] is simply not as effective as other available methods, in my opinion. Flat-rate is basically a quota system, as I understand it.

A time figure is pre-established for a given task [quota.] The allotted time is paid without regard to how long the task actually takes. This system guarantees, for management, a specified cost per hour/unit. It also removes from management responsibility for improvement to the system.

The worker produces the said amount of work in the allotted time or less. Management thinks all is well. People are very smart, they quickly learn to produce the quota. They may diagnose easy to solve issues, leaving more difficult and subtle problems ignored. The vehicle may soon have problems and the dissatisfied client goes elsewhere for service. In my opinion the tech was doing what he is paid to do, produce billable hours.

In some cases workers may argue over the work allotment given them. I could not blame them, who would wish to work harder for less pay? Some folks are less assertive than others and tend to end up with the more difficult work. I have seen people use this justification to rationalize all sorts of creative charges, none in the best interest of the shop nor the client.

Once a Ford tech told me he could replace both head gaskets on a 3.8L Mustang in 2.5 hours. He told me he did it everyday. I asked what method he used to clean the head surfaces. His response was, he didn’t get paid to clean things.

I sensed very little happiness in this person with regard to his job. He was putting in an application for employment at the time. His reason was he did not make enough. I asked, "How much would be enough?" His reply, "It depends on what I have to do to earn it."

What has worked better for me is to allow a tech to work on the vehicle until they are satisfied they have done their best. Their time is tracked and billed accordingly. Records can be kept of actual working time and a data base built over time. Jobs are studied and ways are sought to improve the job and where possible reduce the time taken. Each tech shares what they have learned and work is directed to the person most qualified for the task.

The point to me is not a goal or quota. The point is constant improvement. With jobs done more efficiently, a higher rate per hour still results in a competitive price for clients. Shop earnings per hour rise drastically. This rise in earnings is shared with the staff in the form of higher wages. Everyone makes more and the client is not charged more.

Cost are lowered by a reduction of rework and reduced time to produce services. More work can be produced in the same amount of working hours. This increases earnings without increasing price. Personal improvement is tracked by each person, comparing their previous production to their current.

Management efficiency can be tracked by comparing the dollars in gross sales divided by the total number of employees. For instance in year X, four techs and two office staff produce $800,000 in gross sales. The same four techs and office staff produce $1,200,000 in year (X+5) and the percentage of net remained constant. Over the five year period the company’s pricing remains competitive. This appears to be evidence of constant improvement, management efficiency.

I do not believe such cooperation is obtainable from people obsessed with how much each job pays. In my experience, good people must be paid enough to meet their needs. They must also be paid enough to feel secure. Thus paid, the right person is freed to pursue joy-in-work and concern themselves with constant improvement. This presupposes they understand and agree with the aim of the business.

There is no quota nor is one needed. To impose a quota is to cap improvement. Rather the aim is constant improvement. Always to seek better, quicker and more efficient methods for every task.

_________________
Louis Altazan
Owner/Manager AGCO Automotive Corporation
Baton Rouge, LA

[Bud]

Our dealership runs on spifs. BG sales are tracked per tech and service advisor and posted for all to see every day. Different production or sales contests are running constantly, so everybody competes against everybody else as the normal order of business.

The apprentice techs are not encouraged to become trouble shooters. Rather, they are congratulated on how many flat rate hours they produce each week. Naturally when they mess something up or misdiagnose something, they are made to feel bad.

We are a top-producing dealership, too, so nobody sees any reason to question what we do.

Except when business dies off every few months or so, which everybody says is normal.

[Louis Altazan]

Hi Bud,

[Dave]

I think quotas can be a double edged sword. On the one hand, the goal is to meet the quota, it does not matter how. On the other hand, once the quota is met, there is no reason to produce any more.

Quotas and fear go hand in hand. If the quota is not met, there is fear of reprisals or even the loss of the job. When there is fear, people get inventive. They will figure out a way to meet the quota. In my experience, people will either turn out defective products or report falsely what was produced. The person is “forced” into wrong tactics, and most likely feels bad doing so, but also feel they have little choice in the matter. These result in increased costs to the company and consumer.

I once worked as a mechanic for a large freight company. This company prided themselves on being very efficient. The company had time studied every labor operation so they knew just how long each job should take. Each person was supposed to produce eight hours of work for every eight hour day worked, and after about the third day on the job, we did. If someone could only bill six hours in the eight work day, they falsely reported that they had also done two hours of work on another vehicle. If they could produce all eight hours of billable time in six hours, they sat around for two hours. This was accepted company practice. The company always seemed to be short handed, they had a problem finding “good” mechanics.

Quotas also force people into an us against them mentality. It becomes each person for themselves. Each person or group is only responsible for their quota, they do not care about anyone else. One group can make their quota, but in doing so hurts another group as well as the company as a whole.

The service manager needs to make a certain percentage of profit on each job. That is easy, just purchase cheaper parts and charge more for them. He is a hero, the parts margin is higher than it has ever been.

But, the first part is defective and has to be returned, lost time. The second part, although made to spec does not fit properly, and modifications have to be made in order for it to work. The tech then gets frustrated because the job is not going well. He is not able to meet his quota, so now the schedule is off. Customers that have to be rescheduled are upset. In six months the radiator springs a leak, so the shop has to redo the job. There is much loss for a little gain.

Someone needs to look at the big picture in order to see how one change will affect the whole.

[Louis Altazan]

Hi Dave,