Editor's Note: This article was orginally published July 11, 2012. Some of the information may no longer be relevant, so please use it at your discretion.
You have heard me talk about inventory in my articles in regards to materials and related items. Today, I am going to focus on another type of inventory – the vehicles in your shop for repair. Most times that "inventory" will account for a majority of your monthly expenses.
The problem is some shop managers really don't pay any attention to it. In actuality, your repair inventory is a dead expense and if left unmonitored, could cause financial complications.
To illustrate the situation, let's look at a basic $3,000 repair. For this example, I will show it having 50 percent labor, 40 percent parts, and 10 percent paint materials using round numbers to make the math easy. In dollars and cents, that relates to $1,500 in labor, $1,200 in parts, and $300 in paint materials.
Using average gross numbers, this equates to $600 in labor expense, $900 in parts expense and $210 in paint material expense, with a total investment of $1,710. Using a shop that averages ten $3,000 repairs in progress, they will show to have $17,100 in dead expense. That does not include any train wrecks; they could easily double the expenditures. Remember, we only looked at 10 repairs.
To keep that expense from impacting your cash flow, you have to keep it moving. If it becomes stagnant and goes through a billing cycle or a pay period, you could be paying for the labor, parts and materials while the vehicle is still in your shop.
Essentially, you are spending money you have not collected and that is where excess repair inventory could impact cash flow very quickly. Creating a methodical production process will help you maintain positive cash flow. Treat the repairs like inventory and don't "buy" a repair until you need it.
Repair inventory should be controlled and scheduled to coincide with technician availability to ensure a quick turnaround. Using a repair planning process, you will know when a repair is nearing completion and when you will be able to schedule a repair to fill the vacancy. Repair planning requires utilizing a blueprint process to completely identify the tasks needed to complete the repair.
Once a repair is blueprinted and the repair requirements are identified, you can build a timeline to determine when each repair process will be performed. Monitoring the repair throughout the process will ensure that the repair stays on track.
If you utilize a management system, this process becomes quite easy. Most management systems have a repair-planning program that will monitor the progress for you. The key is to be able to track the repair progress and know when you need the next repair for a particular technician. By scheduling for planned vacancies you will maintain a steady flow of repair inventory and alleviate excess cash outlay.
To close out this article, I will use a word I started with – focus. To keep your collision center profitable, you have to maintain focus. Just like you verify that you need that quart of tint or a gallon of body filler, you must verify that you need a repair before it is dropped off.
I encourage grabbing the keys and keeping a repair whenever you can; however, you have to ensure it is the type of repair you need and will fill a vacancy. Keeping track of your schedule and reviewing it daily will help you know which keys to grab when the customer shows up at your door. If you are grabbing the keys just to grab keys, you might find yourself buried in dead expense.
I don't have to tell anybody that the best place for their money is in their account. I hope this gives you a way to look at where your money is going, and how to keep some of it in your account.
