Turning a Profit by Turning Inventory
Not long ago inventory management was pretty simple. It only took about eight thermostats and six wiper numbers to cover over 90 percent of applications, and you could stock about 25 or 30 numbers of brake pads and only occasionally go to the local parts store for a set. Now, some shops are bursting at the seams with inventory and still finding themselves calling out for more and more parts because they do not have the correct stock. What happened?
The trade calls it part number proliferation. Car manufacturers consider it technology improvement, but whatever you call it, more and more part numbers are being added to inventories each year, and only a few of the old ones are going by the wayside. In the past, to operate profitably, an installer had to be technically savvy. Now you must also control your inventory, or you will have too much money tied up and sitting idly on your shelves.
Facing the Problem
We have witnessed so many shops overreacting to inventory pressures by invoking the knee-jerk reaction, “I’ll just buy everything outside and let my supplier carry the inventory.” When asked about the higher purchase price associated with this so-called solution, we usually hear, “I just pass the added cost on to my customers.” Always calling out for all your parts is bad business for a number of reasons that we will explain.
Even in the quickest time scenario, a 15- to 30-minute delivery time for parts means that the bay doesn’t profit for approximately 20 to 40 minutes on each job. This is what probably happens: You call to order the part, then wait until the part arrives and finally get back to the job upon delivery. Multiply 30 minutes by the number of jobs completed in that bay per week, and that gives you your approximate productive time lost per bay each week. Then multiply your loss by the number of bays and watch your profit go down the drain!
That identifies the lost income for the bay, but how about the labor factor? How many times can you afford having your highly trained technician sweep the floor waiting for parts? At least they won’t be cleaning the stock room; you don’t stock any parts! Many try to do busy work or sit with their iPhones until the parts arrive. Take that same amount of bay down time waiting for parts, and multiply it by your hourly labor rate. That is how much labor productivity you are losing waiting for parts.
Some managers say that they plan on waiting for parts and arrange productive time so they maximize their labor. In very few instances, we have seen installers using time productively. However, most of the time is usually taken up by talking sports, reliving last night’s TV shows, planning where to meet for happy hour or clicking on Facebook. How profitable is a trained technician’s time while doing other “work?”