Time for a Tuneup: Advice on Assessing Your Service & Repair Department

Few words in mobility and rehab stir up as much passion as “service.” To many suppliers, offering personalized and customized service, often involving the most complex of seating and positioning cases, is more than a payor mandate; it’s a calling. And to many suppliers, providing superior, round-the-clock service is a way to distinguish themselves from competitors or new entrepreneurs who think there’s a quick buck to be made from selling mobility HME to aging and wealthy baby boomers.

While all of that is true, it’s also true that a changing funding environment is making it necessary for all DME suppliers to examine, from a cost perspective, the ways they do business. In the past, service departments — especially ones that pride themselves on working miracles for truly one-of-a-kind clients — have been notorious for having big hearts and turning a blind eye to the numbers on their spreadsheets. But several major developments such as competitive bidding, Medicare accreditation demands and lower power chair fee schedules have put service departments on notice: Either run efficiently and cost effectively, or risk extinction.

How can you tell whether your service department is running as efficiently as it could and should? Here are ways to determine if your service department could use a tuneup.

Q: Do you know your current service department costs — and what each segment of your service department is costing?
“Service is something that’s pretty important to really understand your activity-based costing,” notes Invacare Corp.’s Chris Yessayan, who says, for example, “Where are my costs hidden? I’ve got five trucks, I’ve got 10 techs, parts on the shelf, I’m tying up cash….”

 Says Invacare’s David Kazan, “The very first step is analyzing your business and realizing what the various pieces are doing. What are the pieces, can you assign costs and revenue to the pieces, and then once you’ve done that, which pieces are economical and making profit, and which pieces aren’t? For those pieces that aren’t, is that activity something that you want to and think you should continue doing?”

Q: What part will service play in your overall business? Does service define you? Or is it distracting you from what you really want to focus on?
“You have to decide if you want to be in service,” Yessayan says. “That’s every businessperson’s call at the end of the day: Either you want to do it, or you don’t. Is it a core competency, or is selling and marketing the product and billing it a core competency?”

 If you decide you don’t want to focus on service, consider partnering or subcontracting with a manufacturer or another supplier to handle part or all of it for you. That’s especially a promising idea for suppliers who do relatively little service and have relatively high service overhead expenses because of it. After all, whether your tech averages one scooter repair a day or a dozen, he’s still on your payroll, and you still have to buy and maintain tools, diagnostic equipment and replacement parts. That’s a tremendous cost for a business that sees little demand for service.

“In an era of very, very high reimbursement, it was easy: We could all afford to be all things to all people,” Kazan says. “But once the waterline starts to be reduced in the river, you start to see the rocks. There isn’t enough money necessarily to fuel these ineffective, inefficient and costly activities. You have to decide what you’re good at, what you’re making money at, and what is core to you as a business to offer to your customers. Of the things that are core and you absolutely have to have, what’s the best way to offer it? Is it to do it yourself or find a partner? That’s why all these afterthought-type activities aren’t afterthoughts anymore.”

Q: If providing service is important to you, are you doing so effectively? Or is your service model full of hidden costs and inefficiencies?
Phil Cunningham, The Aftermarket Group, recalled a recent visit to a rehab provider: “Their focus is on rehab, but they’ve always dabbled in oxygen. They had a tech repairing oxygen concentrators. That can’t be profitable for a tech — that can’t be a profitable venture for them. So that’s something they need to look at and say, ‘Is there another source that I can send these concentrators to in order to do the work? Or do I get out of oxygen altogether?’ Because the cost is a lot more than the revenue it’s bringing in.”

Other sample efficiency questions to ask, Cunningham suggests, are how often various vehicles, sets of tools or employee skills sets are used: “How often is this truck or that set of tooling or this mechanic utilized? Do you have things in the facility that are only used once in awhile or seldom? Do you have things just taking up space? How much do you spend on inventory, and how much (time) do you spend going back and forth (on deliveries and service visits)?”

 If you have problems answering those questions, it’s time to revisit your activity-based costing to determine where your inefficiencies lie.

 “Your warning signs are going to come out in your activity-based costing,” Cunningham says. “When you start looking at your costs going out and the amount of revenue coming back in on that project: That’s your warning sign. When you start seeing red there, it means you’re not doing something right. And it’s time to evaluate your situation.”

This article originally appeared in the October 2007 issue of Mobility Management.

About the Author

Laurie Watanabe is the editor of Mobility Management. She can be reached at lwatanabe@1105media.com.

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