In my opinion, knowledge of basic accounting skills amongst parts managers today is still lacking and needs further attention. Most parts managers today have been thrown into the position without acquiring basic accounting skills along with the basic parts manager training on managing the dealers second highest asset.
Here inlies the basic problem as most dealer owners and dealer principles do not realize the importance of the position and what it requires. The parts manager needs probably more business skills, abilities and knowledge than any other department within the dealership.
I know that some may differ on this assessment, but when it comes down to managing a major dealer asset as well as one of the dealers biggest profit centers, why wouldn't you want that person to be as educated and skilled as they could possibly be?
A few years ago, I was fortunate enough to attend a Parts Summit at the NADA University and when they asked me what was lacking in training today amongst most parts managers and I inquivently and without hesitation said it was parts manager training on basic dealership accounting.
The language between parts managers and office managers are of a different mind set and many times don't often agree or meet proper translations. Parts managers simply want to get through the day, receipt and sell parts, manage the parts inventory and turn in payables and receipts into the office each day.
On the other side, in the business office, they just want to balance the payables and receivables from a money standpoint. They really don't care about part numbers, part quantities and what part sources these parts end up in, they only care about "balancing the books".
It only matters what inventory account these parts go into, what expense account applies, what cost of sale or sale account or maybe what goes into discounts and allowances or adjustments to inventory. It's just a matter of posting to the right account is what matters most.
This doesn't just apply to the parts department as all dealership departments are subject to these same procedures, but there are definitely some differences when it comes down to the parts department. Other than the new and used car departments, the parts department has to deal with several dealership inventory assets.
What's different though with the parts department as opposed to the new and used car departments, they have to deal with many more different inventories. This is where the problems start, especially over the last several years.
Back in the day, we only had to deal with the basic parts inventory and maybe a tire inventory and a gas, oil and grease inventory. That in itself is more inventories to deal with than the new and used car inventories.
Let alone the individual quantities within each inventory as we all know that there are more part numbers and individual quantities in those three than any new and used car inventory. Maybe not so much in inventory value, but definitely in quantity where there is more margin for error.
The average parts inventory in the U.S. today encompasses well over 5,000 part numbers in the main parts inventory and another several hundred part numbers in other inventories such as tires, gas, oil & grease, accessories and others.
This in itself leaves the door wide open for discrepancies and cost variances. Waiting until the end of the year to "reconcile" these amounts can can very costly and dangerous for the Office Manager and ultimately the Dealer.
With all this said, it is imperative that the parts manager has basic skills and knowledge of basic accounting practices. Basic meaning having the knowledge of "debits and credits", "cost adjustments", "inventory adjustments" as well as "discounts and allowances" in order to balance the parts inventory each day, month and year.
One of the biggest differences today versus many years ago is that the manufacturers have gotten in the gas, oil and grease business as well as the tire business. This in itself may cause a potential inventory nightmare as gas, oil & grease and tires now have the potential of being receipted as regular parts inventory instead of being receipted as tires, or gas, oil and grease.
Tires and oil may be ordered by the parts manager through standard ordering procedures and once receipted, they end up in the wrong inventory account, but may still be billed out as sale, and cost of sales from different inventory accounts.
An example would be if I were to order tires from the manufacturer as a standard part number, it would then be receipted as a regular part number because that's how I ordered it. When these tires are sold, they could be sold out of the tire inventory account, thus causing a reconciliation nightmare. The same holds true for gas, oil and grease accounts, if not properly accounted for.
Another reconciliation nightmare is when the parts department buys a part from outside vendors and pays either more or less than what the dealer cost is AND without properly accounting for the adjusted cost on the purchase invoice before billing the part out on a repair order or invoice, inventory balances between the "controlled inventory" and "accounting inventory" will definitely differ.
But I have to admit, one of the biggest, if the the biggest reconciliation nightmares is knowing the difference between an "expense" versus an "inventory asset". Often times I witness shop supplies being billed on a repair order when these same shop supplies were billed to the Service Department as an expense.
This "double-dipping" leads to an improper parts inventory "buy down" which can result in a lot of "blue sky" for the dealer, which in most cases, they don't mind that at all in the least bit. Accruing parts inventory "blue sky" is when the dealers "controlled inventory" is higher than what is claimed on the "accounting inventory".
This "blue sky" for the dealer allows for additional profits as the net worth of the parts department inventory on the D.M.S. exceeds the inventory amounts on page one of the dealers financial. This variance to the "plus" for the dealer can be accumulated over several years and can eventually be considered as 100% profit.
On the other hand, if the "controlled inventory" is less than the "accounting inventory", the reverse would apply as the "accounted for inventory" is not really there and the dealers parts department asset would suffer greatly.
Performing a monthly parts reconciliation would "capture" these variances on a monthly basis where it would be much easier to find and correct these variances as they would only be happening in the last 30 days. Much easier to "drill down" the common mistakes that can happen in these parts inventories through the course of a month.
Waiting until year end could be a nightmare as days and months of accumulated mistakes, errors and improper accounting integration practices could multiply to the point of frustration and ultimately, the office manager simply making an adjustment, just to "balance the books".
To me, the simplest way to avoid all these potential accounting nightmares is to provide the proper training for parts managers in basic dealership accounting as well as promoting great relationships between the parts manager and the office manager. This, accompanied by performing a parts monthly reconciliation is the best combination of avoiding this ancient old, end of year nightmare....
Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world! Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com
