Income statements have many different sales and cost centers. Each sale and cost center deserve attention to ensure overall profitability of the business. One of the most difficult cost centers to turn a profit on is stock parts. Stock parts like nuts, bolts, clips and retainers can be a convenient life saver for an on-time delivery and can aid in alternative parts utilization. However, with convenience comes a price. The monthly expenditure on stock parts when left unchecked can quickly eclipse sales, leaving repairers in the red on stock parts. There are three actions shops can take to manage stock parts and achieve an acceptable level of profit from these tiny, but important, parts.
The first action requires the repairer, not the vendor, to periodically audit the stock parts inventory to check the for relevance, turn rate and discount. This is an important check to prevent the overstocking of quantities or part numbers. When auditing the stock parts, it is important to include the technicians for feedback on what parts are used or not used. This will help the shop identify both relevant and obsolete inventories. This feedback can also identify gaps in inventory for new stock parts that need adding. The next step in auditing the stock parts inventory is checking for turn rate, that is how fast the stock parts are selling by part number. This can be performed through vendor reports or simply by placing a colored sticker in a stock part’s bin every time a stock part is used. The later method also provides a nice visual cue to highlight the most frequently accessed inventory. Once turn rates have been established the final step is to analyze the vendor discount on each part for the top 10-20 part numbers. The discount needs to be analyzed by part number to verify that the discount is acceptable. Some vendors may provide lower discounts on faster moving products and deeper discounts on less common parts. Analysis may reveal that it may be more profitable to purchase some clips or retainers directly from the OEM. Findings from the audit should be reviewed with the vendor.
The second action to ensure profitability on stock parts is to set the inventory in order. This requires two steps, setting stock levels and distinguishing between billable and non-billable items. When setting stock levels, it is important to work with the vendor to set them both digitally in the vendor’s ordering system and physically in the shop’s storage system. The bins for each part number should be sized appropriately to prevent overstocking. If a shop purchases items that are not going to be billed out, these should be invoiced separately from billable items and denoted clearly on the invoice from the vendor. This step will help repairers know the true cost of billable items purchased and provide a clear picture of the actual profitability of the stock parts.
The third critical action to maintain profitability on stock parts is to place the inventory under control. The goal of stock parts is to bill out every billable item consumed during a repair. This is akin to medicine in hospitals; there are no free doses. To do so requires securing the inventory to prevent shrinkage. Non-billable items need not be secured, but profits can be completely eroded by missing billing for only a few clips or retainers on each job. It is important to identify one or two key employees who are responsible for providing access to the billable stock parts inventory. The key employees should also be trained and responsible for utilizing the vendor’s electronic invoicing system. The shop can hold the key employees responsible for the profitability of the stock parts. It is important that profitability is reviewed monthly with both the key employees and the vendor to ensure everyone is on the same page. Depending on the repairer’s volume an incentive plan may appropriate to incentivize the employees responsible for the stock parts based off profitability goals.
Stock parts are a common part in collision repair, but it is uncommon for repairers to be profitable on stock parts. Taking an action-oriented approach to auditing, setting in order, and controlling stock parts inventory is key to unlocking the profitability available in these tiny, but important, parts.
