Are Your Parts Walking Out The Door?
I remember one hot summer day I was filling in for my service adviser who was on vacation. The day had been hectic and I was glad when there was a break in the action. I started looking over the morning’s vendor invoices. One was a core credit of $25 for an a/c compressor. I remembered that the first compressor ordered that day was wrong. I went through the previous day’s paperwork and there it was, a $368 compressor that was a new return, but the parts driver marked the return as a core on the return slip. To make matters worse, it had my signature at the bottom.
We are in the customer service business but what we sell are parts and labor. For every $1.00 of labor most shops sell about $.80 in parts. This means parts are nearly half of what we sell. Parts must be managed efficiently for your shop to be profitable. Parts should have a 60% gross profit. Most shop operating systems have a built in parts pricing matrix that you can program, with different levels of mark-up. Your biggest margins are achieved on the most inexpensive parts. These parts are often overlooked or simply thrown in with the repair. It is a huge mistake to give these parts away. $25 or $30 a day might not seem like a lot but it is, if you consider those parts should have been marked up to about $75 to the customer. Multiply that by 265 working days per year and now we are talking about $20,000 in gross revenue. That is real money. It is important to charge for all the parts used and to be sure you are using your parts matrix to achieve the correct gross profit. Pricing is important to profitability. Look at the profitability of each pricing level in the matrix. If a particular level of the matrix is under under-performing it can easily hurt your total gross profit on parts.
What do you have in your parts inventory? Why do you stock what you stock? Many shops have a rather hit or miss inventory that has accumulated over time. Inventory is a big investment and it should give you a big return. You can get a good idea if you review a parts sales report and compare it to your current inventory. Chances are you will find popular items that you are ordering regularly and do not stock. You also will find items in your inventory that are not selling. Return all the dead stock you can to your vendors and liquidate the remaining items by any means necessary.
Decide what parts you will stock on a regular basis. Base your decision on what is selling, according to your parts sales report. It is a good idea to stock popular oils, coolants, and other fluids. These fluids are important to have on hand for repairs and maintenance services. Small items that fit many vehicles are necessary to stock, like wiper blades, light bulbs, electrical supplies, clamps, and bulk hose. If you have a certain belt number or particular set of front pads that you sell a few times a month, you can stock one of those as well. This means that when you need it, you will have it in stock. Then order that part right away and put it back in stock. The wisdom of stocking just one is that you can instantly respond to doing the repair and save money by not stocking three or four of the same item. A good example is radiator caps. Stock one of each popular radiator caps. When your customer rolls in overheating and needs a radiator cap, you should not be waiting 30 minutes for the parts store to bring one. The goal is to stock parts so that no tech or customer is waiting for the parts store to deliver anything. Continue to review what you are selling and keep it in stock at an appropriate level. Make your inventory an asset that works well for your shop.
The debate about shop supplies had been a hot topic in our industry for years. I know that the things that shop supplies pay for are legitimate expenses. The problem with shop supplies is the customer’s perception. It appears to many customers like another kind of tariff, tax, or service charge. Look at it like this; you just finished a delicious ribeye, baked potato, and pint of beer. As you review the bill, you see a “kitchen supplies” charge. You ask the waiter to explain this. He says the restaurant charges 5% of the bill for kitchen supplies. Items like cooking oil, dish soap, aluminum foil, aprons, towels, trash bags, and cleaners. So how do you think your customers feel about shop supplies? With customers perception is reality, and as soon as they feel they are being taken advantage of, all the trust and good will that you have built up with them dissipates in an instant. Then they begin dissecting the entire invoice with a jeweler’s loupe, questioning every charge. The solution is to charge for all the parts that go into a particular job. You can create canned jobs that contain typical items for a particular job. For an electrical repair you could use a canned job that has 15 or 20 typical items like wire, butt connectors, zip ties, dielectric grease, fuses, cleaner, etc. The technician can keep track of the small parts as well by noting the quantities of the parts he used and strike out the parts on the list that he doesn’t use. Now you are charging for parts that were used on your customer’s car. The invoice will reflect legitimate charges and it gives you credibility with your customer.
Control of your parts sales and inventory is a key to profitability. There are a few things you can do that are easy and very effective. Develop a purchase order system so you can track your parts from beginning to end. You need to have designated employees that are the only ones authorized to order parts, service advisers and managers only for example. Tell your vendors who the authorized employees are and that they MUST have a valid purchase order number when they order parts. Use the repair order number followed by the employee’s initials. For example, 184365BD would be for repair order number 184365 and was ordered by Bob Depontes. The next step happens when the part arrives. The person who posts the parts to the repair order should circle the purchase order number and initial it. This means any vendor invoice you look at will be a paper trail that works like a chain of custody.
Technicians want to repair vehicles, but in their haste they can forget some details. Make sure they confirm parts they use on the repair order and also line out any parts that were not necessary. Keep your parts under physical control. If technicians have uncontrolled access to parts, items will be used and not listed on the repair order. Require your technicians to use written parts request forms to help minimize any potential miscommunication that could lead to using parts that are not charged out on the repair order.
Cores require a plan. Without a plan it can be like herding cats. Use paper tags with wire ties. When the new part arrives, tag the part itself with your repair order number, the vendor, and the word “CORE”. This will remind the technician to transfer the tag to the old part when he gets it off the vehicle. Put a note with the same information on the box itself. Many cores require the original box to get your core deposit back. Have a designated area for cores so that they are not scattered all over the shop. Have a canned job that adds a line to the repair order for the service adviser to confirm the core is properly processed and has been turned in and placed in the designated core pick up area.
· Bill your customers for everything! You cannot be afraid to bill your customers for EVERY item that is used during the repair, this includes small items like bolts, grease, zip ties, etc.
· Pay attention to the repairs that are being done and parts/fluids that may not have made it onto the work order.
· Keep a close on eye on your inventory. Don’t stock anything you are not using regularly.
· Keep track of all return slips until you receive the credit and try to match it up with it. This ensures that you are getting full credits for returns or warranty items, including core credits.
It is extremely important to control your inventory. It’s more than just the parts of your business. It is one of your biggest investments.