Protecting the environment has become a major issue over the last several years and so have the related fines for not complying. Recovering the cost of shop supplies from a customer is an interesting subject that appears to have a huge variance across different stores. It’s also one of those accounts that’s often completely ignored.
Do you remember when we used to get paid good money for used engine oil, dead batteries and old tires? Don’t ask how much of that went into the dealer’s pocket and how much just disappeared. We can remember when used oil filters went out with the rest of the garbage and, at times, used oil and coolant were poured down the drain. We also blew brake asbestos dust around the shop, mainly because health and safety issues simply didn’t exist.
Not terribly responsible, but, at the time we just didn’t know any better or perhaps just didn’t care.
EXPENSIVE PROPOSITION
Today of course, we have stringent health and safety laws, but disposing of these items has created a significant expense to running the service department. Fairly recovering these expenses from the customer is perfectly reasonable, providing this account has not been turned into a profit centre.
Shop supplies are one of those boring accounts often overlooked on the financial statement and at times written off as a cost of doing business. But if we’re smart, we should keep a constant check on this account every month because it can devour chunks of your service department’s bottom line. This account can also become a dumping ground for items that technically should not be there. For example, we’ve even seen parts buried in this account from shop comebacks rather than going in the policy account.
One of the best and fairest ways we’ve discovered for recovering supplies is by kit numbers — for example on a brake job, create a kit number in the computer such as BRK007 which might include items like brake cleaner and grease. If the customer should ask what’s in the kit, make sure the service advisors have a printed list to show the customer what they are paying for.
Our goal is to keep this account at zero, or at least under two per cent of gross profit.
Here are some of the things you are likely to find there: tools from the factory; small tools and air-lines not worth amortizing; technicians’ overalls; brake cleaner; silicone; and a lot of other technician consumables. Some of these items have a tendency to grow legs and walk, adding to the monthly expense. Occasionally when walking around the shop we see more supplies on or under the benches than there are in the parts department.
KEEP YOUR TECHS ACCOUNTABLE
Technicians should be made accountable for the supplies they use — it is amazing how many technicians think that they own them. Once on a Saturday morning we took a cart around the shop and picked up all the surplus supplies from the benches. The reaction on Monday morning was, “who took our supplies?” As an example, if a technician wants a can of brake cleaner, they should be made to hand in an empty can first. Each transaction should be recorded under the technician’s name, either by opening a monthly work order under their name or by a computerized system.
There is nothing wrong in discussing with each technician how many dollars of supplies they have been using each month and there is definitely nothing wrong with asking Joe why he is continually running 30 per cent higher than other members of the staff. Often when controlling expenses all it takes at times is letting the staff know that you know!
If you still think it’s not worth worrying about, check out these numbers below and then look at your own financial statement.
Remember every dollar saved in this account goes straight to the bottom line, so here is an example of a medium size store with an average service department gross profit of $150,000 per month and shop supplies running at 2 per cent = $3,000 X 12 months = $36,000 for the year, all of which could have gone to your bottom line.
So, here is another example based on $150,000 gross profit and the shop supplies running at 3.5 per cent = $5,250 X 12 months = $63,000 per year. Remember if you don’t measure it you can’t manage it!
JAMES JR TIP OF THE MONTH
Put a very pleasant letter together and send it out to all of your suppliers, it might go something like this. “We have appreciated you as one of our suppliers over the last several years, but as the current marketplace has become very tough we are requesting you to re-quote on your present prices.” You might be very surprised at the reduced prices you may get from some of your suppliers.
