Many collision shop owners and managers realize that the increase in parts sales to labor sales has contributed to lower gross profit on each job. However, most have yet to stop and realize how much additional time is consumed on parts orders and invoices, which ultimately increases administration expenses. Consider the total number of administrative steps your shop takes from the moment it places a parts order till it cuts a check to the parts vendors. Think about the time spent on making invoice copies, job costing, accounting, etc.
Frequently while assisting clients, we work together and "process map" their entire parts procedure to determine an average time from start to finish. We divide the monthly administrative cost by the total number of administrative hours worked to arrive at an admin cost per hour. This exercise creates an awareness of what administrative duties cost the shop for every parts order.
To get an even better understanding of how a shop is performing in the administrative area, use this simple exercise.
1. Select 50 closed RO files of $2,500 or more.
2. Count the number of invoices (invoice numbers including return slips) from the primary OE vendor for that particular job.
3. Write the total down on a piece of paper. If you are an Excel person, put it in a spreadsheet.
4. Once you've completed the math on the 50 ROs, average the number.
In reality most shops have their greatest number of invoices from the same vendor on their "heavy hits" and justify it because of the complication of the repairs. I've monitored files and found more than 20 invoices and return slips from the same OE vendor on many occasions. The admin costs to the shops in those situations are staggering. I've found that most shops have yet to realize how much time is wasted when multiple parts orders and invoices from the same vendor are created.
An average of two or fewer is a good benchmark target, though there may be reasons that a shop's average number of invoices might be slightly higher.
At this point, we've established an average admin cost per parts order and we have a goal for the number of invoices we should be seeing from a specific vendor.The next step is finding a way to shorten the overall cycle of the parts ordering process. We'll examine some solutions in a future article. The point here is getting you to realize just how much administrative inefficiency could be costing your shop.
Although all the issues creating multiple invoices and parts orders can't be controlled, the reality is that many can and ultimately are controlled after a shop better understands the time and expense of redundant administrative steps.
Taking steps to cut your administrative work is worthwhile. It's just like cutting re-work on the production floor of the shop. If your administrative re-work rate was as frequent as the re-order rate for your shop, consider how quickly you would want to fix the problem.
What are you waiting for? Do you have profits to spare?
