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Big MSO’s understand this law very well and have taken many steps to ensure they maintain an optimum car count or “WIP” through the use of scheduling or load leveling. By understanding the correct number of units to have at your repair facility at any given time will give you the opportunity to maximize both profits and cycle time. I will boldly go forth and say that the number one biggest influence on most shops cycle time performance is simply based on the amount of work they bring in each day. There is nothing magical about bringing all the repairs in on a Monday unless you can start on all of them on Monday!
Little’s Law was named after MIT Professor, John Little and is a mathematical formula that is used to calculate cycle time. In the case of collision repairers, we usually measure cycle time from the point a customer drops off their vehicle until it is finished and picked up. (Keys to keys)
Check it out…
Cycle Time Performance = Work-in-Process Units (Number of Cars) divided by/ daily throughput (Average number of Units produced per day)
(You can also measure using Dollars or Labor Hours instead of Units)
So if you look at the funnel graphic on the PDF, it represents a repair shop that averages 2 vehicle deliveries a day. This shop has 10 cars in it. 10 divided by 2 = 5 days average cycle time.
Let’s take a look at the same shop again, only now they have been grabbing a lot more keys! What would the average cycle time be now? You do the math.
In order to reduce cycle time, you often must reduce your WIP. The trick is to not lower the WIP to the point that people are standing around and your revenue begins to suffer. Conversely, if you have too much WIP and feel your cycle time may suffer, you may need to consider a temporary increase on production hours in order to return to Optimum WIP levels.
To choose an Optimum WIP Unit number for your shop – reverse the math:
- Find your average number of repairs produced daily (Total vehicles delivered divided by days in the month)
- Choose your goal cycle time (keys to keys days)
- Multiply repairs produced daily X goal cycle time days = Optimum WIP Units
Example: XYZ Body Shop produces 4 cars a day on average and wishes to reduce its cycle time to an average of seven days per RO. 4 X 7 = 28
XYZ Body Shop must maintain a work in process (WIP) count of 28 cars to achieve it cycle time goal of 7 days. However, if XYZ Body Shop does not have the systems and resources available to effectively process the reduced number of ROs quickly, they run the chance of damaging revenue. I recommend that you set your goals to reduce WIP incrementally as your system improvements allow.
You can see the important role that work-in-process plays in cycle time performance. The path to Optimum Performance must involve Optimum WIP and it all begins with good scheduling skills and habits. These habit do not need to involve over-rated fancy computerized scheduling solutions, it can be done using a simple spreadsheet and a little common sense so don’t over-think it. Feel free to email me if you would like to see an example of this, but you may be disappointed by its simplicity. email@example.com
There are many things that affect your cycle time performance, but understanding Little’s Law and simply paying attention to your Optimum WIP could have a huge impact immediately!