One of the biggest issues facing any business owner is loss. Loss of clients, loss of inventory, loss of quality employees all are potential pitfalls. But one of the biggest problems facing business owners is loss through theft.
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When I talk about theft, I don’t mean breaking and entering or common smash and grabs. Those thefts normally can be contained by quality alarm and security systems. The reality is, those types of thefts actually are pretty rare.
However, there is a different type of theft that plagues every business, particularly shop owners: theft from within.
Internal theft is an insidious and business-killing problem for shop owners everywhere and it’s not just employees stealing from the till. In fact, that’s the least of your problems when it comes to internal theft.
There are two areas of internal theft every shop owner needs to be aware of when combating loss:
• Theft from employees
• Theft from vendors
Because this is such an important issue, I’ve decided to address internal theft in a two-part series. This month, I’ll discuss internal theft from vendors and will hopefully provide some strategies to not only help you identify the problem, but prevent it from occurring in your shop. Next month, I’ll examine employee theft.
Trust, but Verify
I travel to a lot of shops every year and without fail, the biggest problem I see is that shop owners simply trust their vendors way too much. This isn’t to say that vendors are out there plotting ways to ruin your business, it’s just that many shop owners simply aren’t diligent enough when it comes to checking their inventory, invoices and deliveries.
To prevent any potential vendor theft, you always should order your own product. I see too many shop owners that allow their sales representatives to come in, count their inventory and then decide what the shop needs. At first glance, it might seem as if the supplier is saving you time, but that lack of insight is costing you real money. If you’re not overseeing the process, there is no way to guarantee that the vendor isn’t overloading you with supplies and parts you don’t need.
Determining how much inventory you should have on hand might not be easy, particularly if you’re a shop owner with lots of old inventory on-hand. The first step is to clear out the inventory that hasn’t sold for months (or maybe even years) by selling it on eBay or Craigslist. Getting some money for that stock is far better than seeing it collect dust on shelves, and it’s nice to start the inventory counting process with a clean slate.
The next step is to establish inventory par levels, which are the baseline levels at which you can operate. To figure that out, go into your system and see how many filters, alternators, oil, etc. that you are selling on a weekly, bi-weekly or monthly basis. You’ll need that information to tie your numbers to when your vendor visits and replenishes your supply. The goal is to get your inventory level as low as possible without running out and impacting customers. And remember, your inventory needs may vary depending on the season, so you’ll need to adjust your par levels for cyclical changes in sales. Count your inventory at least once a month.
With your par levels in place, you only need to order as much inventory as you sell. When your order arrives, check it to ensure that the quantity and product you ordered was actually delivered. Count it just like you would a bank deposit. Stocking your own inventory and entering it into your system (rather than relying on a vendor to perform that task) will give you another chance to verify the invoice. By doing that, you might spot a price increase that you didn’t authorize that may have otherwise gone unnoticed.
Cores and Credits
Another key area where loss occurs relates to cores and credits. Having cores lying around your shop signals an accounting problem and makes you a target for vendors wanting to take advantage of your disorganization. Nip this in the bud by creating a system to track your cores. Whenever you order a new part, it’s ideal to have the old part off the car so you can turn it in as soon as the new part arrives. Create a file for core credits where you can record and retain all paperwork associated with those cores. That will help you follow up on delayed credits and ensure that you get the proper credits for your parts.
For example, if you order a new part and receive the wrong one, you should receive a new parts credit. However, mistakes happen and sometimes you’ll receive a core credit instead. Having all of your cores properly tracked will make it easier for you to demonstrate that you received the wrong credit and remedy the problem.
Shop Around
Finally, when it comes to vendors, always, always compare vendors and check prices. If you’ve used the same vendor for several years, you probably should check to make sure your vendor is providing you the best prices available. Never sign an exclusive, long-term contract with a vendor, because that gives you less flexibility to obtain the best price possible. In many cases, vendors will raise prices without notifying you, especially if you’re in a long-term contract you’re not closely monitoring.
When it comes down to it, this is not a vendor problem, it’s a management problem. Shop owners who are taken advantage of by their vendors suffer from poor management, lack of oversight and, in some cases, laziness. Simply put, if you’re not doing your due diligence, you will get taken advantage of. Most vendors are about the same, and most are honest, well-run businesses. But mistakes happen and extra costs do get charged. If you’re not doing your job as a shop owner and ensuring that your orders match your invoices and deliveries, you will lose money and ultimately go out of business.
In the next article, I’ll discuss ways to combat employee theft, and there’s a lot more to it than simply placing cameras over your cash register.
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