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Mind Your P&Ps - Policies and Procedures for Parts and Service

Sep 12, 2016

Mind your P&Ps

Successful businesses in any industry have standard policies and procedures (P&Ps) that formalize ways to perform certain tasks. Automobile dealerships are no exception.

Having established P&Ps is especially important in the Parts and Service department. Perhaps no other area of the dealership holds as much potential for high revenue and profits – or conversely, for waste, inefficiency and fraud.

Control your parts inventory

P&Ps are vital to reducing the opportunities for Parts and Service employees to commit fraud. In particular, policies and procedures that establish tight control over parts inventory are critical to helping prevent employee theft of parts and minimize shrinkage.

Create P&Ps for ordering, purchasing and receiving parts and entering them into your computer system. Then be sure to match purchase orders to the parts that are received. Also, assign different employees to order and receive parts and manage parts inventory so one employee can’t manipulate the system in order to steal parts.

In addition, you should have an outside auditor conduct a parts inventory for you at least once a year. This inventory should count all the items on your parts shelves and compare this count to the data in your computer system.

Investigate any discrepancies that arise. And supplement your annual parts inventory with bin counts on at least a monthly basis, choosing bins randomly based on high-dollar or fast-moving parts categories.

Also set up procedures for closely monitoring open repair orders. Since parts go on repair orders, having numerous open repair orders raises the risk of employee theft. For example, a dishonest employee could create a fake repair order, place an expensive part (such as an alternator) on it and then walk away with the part. The only way to uncover this scheme is to periodically investigate open repair orders.

Finally, create policies designed to keep close tabs on obsolete parts in inventory – for example, by monitoring inventory aging and turnover and parts movement through your department. Consider returning some slow-moving parts to the manufacturer for credit or selling them wholesale.

Follow other tips

Here are some more policies and procedures that can help your Parts and Service department run more smoothly while reducing expenses and boosting profitability:

Promptly return and track core returns. Don’t let core returns, whether they’re small-ticket batteries or big-ticket transmissions, just sit around unaccounted for. Return them to the manufacturer in a timely manner and keep track of these returns in the general ledger.

Conduct an annual vendor expense review. At year end, review all of your vendor contracts, including pricing and terms. Contact each vendor and ask them for new quotes, letting them know you’re looking at other options. And consider signing a long-term vendor contract in exchange for a lower price and better terms.

Check the credit of large corporate customers. If you perform service and repair work for corporate customers that maintain fleets of vehicles, run credit checks on them before extending credit and offering payment terms. Late payment (or nonpayment) by these customers could seriously jeopardize your cash flow.

Collect a deposit from customers for special orders. If you have to special order parts, consider collecting a deposit that’s sufficient to pay the restocking fee you might be charged if the customer changes his or her mind about the repair and you have to return the part.

Follow up with customers who decline repair orders. Sometimes customers have second thoughts about declining repair recommendations. Create a process for calling these customers within a day or two to ask them if they’re sure they don’t want to have the repair or service work performed.

Strategize your P&Ps

Your dealership could reap many benefits by establishing sound policies and procedures, such as deterring fraud, increasing efficiency and boosting profits. Meet with your managers to strategize which P&Ps make the most sense for your Parts and Service department.

Sidebar: Is your service function running at peak efficiency?

Increasing productivity and efficiency is the key to boosting the profitability of your service function. Are there things you can do to streamline the workflow in your service area and make your technicians more efficient?

For example, some dealerships mount individual bins for each technician on the wall just inside the service area. Parts employees can then place repair orders and necessary parts in each technician’s bin, reducing wait time at the back counter and preventing technicians from picking up the wrong repair order or part.

One industry benchmark is to strive for 92% technician productivity and 125% service and repair efficiency. In other words, technicians should spend at least 92% of their time on work that’s billable to customers, and service and repair work should be completed in 75% of the allotted billable time. For example, a one-hour repair should be completed in 45 minutes.

Dealer Insights - September/October 2016

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