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Achieving repair shop profitability through careful parts control

Tuesday, November 21, 2017 - 09:00
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I asked if she had talked to the person she ordered the part from or the parts manager about returning the part. She said she had not and was hoping a repair would come in that needed the part. I pulled the invoice off the box, looked at the part price and the date it was ordered. I asked the parts clerk if she felt comfortable asking the shop owner for $358.63. She quickly said “NO!” 

I said that’s odd because you feel comfortable letting this bumper sit around for 20 days, essentially costing the owner $358.63. She admitted she had not looked at it that way. We went on to discuss how to talk to the selling parts department about the return, taking into consideration how much the shop spends with them and getting an agreement on parts returns.

As I was reviewing estimates at a customer’s shop I saw “2.0 repair on damaged door” in an estimate line note. I asked why that wasn’t added as an estimate line item rather than a note. The manager said, “The parts credit doesn’t get posted to the RO, the note is to change the labor cost when billing.” Let me start off with saying that every management system allows posting of parts credits for labor to the RO and allows you to convert it to paid labor time. While most labor credits are for repair of recycled parts they can also occur on new parts.

First make sure you ask for a parts credit invoice rather than a reduction in price. A price reduction is harder to convert to labor because you don’t get the paper trail a parts credit invoice provides. A price reduction changes your parts gross profit but does not help pay for the repair labor. It is important to post the parts credits for labor to a labor account. Then add the repair to an estimate line using the parts credit value as payment where it will also count towards cycle-time calculations.

Parts carrying a core charge are increasing almost daily. I remember when it was just on mechanical parts or wheels, now it is on a large variety of parts ranging from bumpers to headlights. It also seems that no matter how big a parts clerk writes “CORE’ on a part it still ends up in the trash. Core charges are often posted on the invoice when the part is sold so you incur the cost up front.

Referring back to pre-ordering parts you will see if you pre-order a headlamp and it spans over a billing period you have created a dead expense. This is another reason to not have parts delivered until you are going to use them. The best defense to excess core charge costs is to mirror-match parts and send the core back the same day you receive the part. This not only expedites your credit but ensures you have the packaging needed to return core for full credit.

I encourage you to discuss parts credits with your management system provider and set up a process to manage them effectively. A credit has a face value, you need to ensure it is processed properly so you can benefit from those dollars and cents as increased profitability.

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