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Achieving repair shop profitability through careful parts control

Tuesday, November 21, 2017 - 09:00
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Next to payroll, parts is a major recurring expense for a repair shop. Managing that expense is the key to keeping a shop profitable. The day you order the part versus when you use the part is a factor in profitability.

In addition, there are other factors that play into parts control. In many cases, it’s not the part cost itself that is a deterrent to profitability but part return credits, repair credits and core charges that put a shop in the red.

Pre-ordering parts based on an insurer estimate for a vehicle scheduled for repair hampers profitability. Because the repair might not be completed before you pay for the part, you have incurred a dead expense.

Some shops I visit are complaining about parts storage concerns because they have pre-ordered parts waiting for the vehicle. At one shop I visited recently the vehicle arrival dates written on the parts list were up to two weeks away. One of the parts lists showed the parts were ordered on the 28th and the vehicle was not expected until the 12th of the following month.

You cannot collect for a part before you complete the repair and can bill for the part through a completed invoice. The payment for these parts would be due on the 10th under normal billing practices. In most cases, you are going to require additional parts once the vehicle arrives, you disassemble the vehicle and create your repair plan.

It’s a better practice to order all the parts needed for the repair at one time after the vehicle is at your shop. You will be waiting on parts either way so there is no reason to tie up your money for parts to sit in boxes. While this is contrary to some insurance company directives, showing them the statistics on your secondary parts orders usually brings some understanding.

I was at a shop recently and saw a bumper sitting by itself with a faded note on the invoice indicating the part should be returned. I asked the parts clerk how long the bumper had been there and she said a couple of weeks. She added, “The box is a little ragged so the delivery driver would not take it.”

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