As we get closer to the end of yet another year here at ACG “Smart Parts”, we thought we would focus on preparing for “Parts Year End”. Of course, that would include performing the Parts Physical Inventory.
After the Parts Inventory has
been performed, the “new” parts count is then reconciled with the Parts
Accounting Ledger Balance. This reconciliation compares the Parts Inventory
Count to the “Dollar Amount” on the Parts Ledger Balance on Page 1 of every
Dealer Financial.
This process is done annually to
confirm any variances between the two, which the accepted variance amounts is
usually 3% - 5%, depending on the Certified Public Accountant (CPA). This
variance between the PAD Inventory and Ledger Balance should be what’s called
an “uplift”.
This uplift is a variance where
the PAD, or “Controlled Inventory” is higher than the Ledger Balance Inventory
after the Physical Inventory has been completed. A variance either way
represents a 100% profit gain or loss for the Parts Department.
This process is usually performed
at the end of each fiscal year in dealerships, which most often is also the end
of each calendar year. The results, or “variances” between the two inventories
can be disastrous or a pleasant surprise.
To achieve a pleasant surprise,
as opposed to the “shock factor” on negative results depends on the preparation
and process throughout each year starting on January 1st. Believe it
or not, Protecting the Dealers Parts Investment involves many aspects, or
“Guidelines”.
These Guidelines are many and
involve many things that we may be overlooking every day. These Guidelines may
also involve many things that we find ourselves saying…”We used to do that”,
but we stopped doing it and got lazy.
Even though many “good practices”
start out well, they seem to go away until something happens and then we wonder
why. It’s kind of like dealing with OSHA, (Occupational Safety & Health
Administration) where there is never a problem until they show up at our door.
In this issue of ACG “Smart Parts”,
we are going to give our readers a “freebie”, which is our ACG Smart Parts
Inventory Protection Guidelines in it’s entirety. These guidelines have been
provided to many of our ACG “Smart Parts” Dealers and now we are going to give
to all of you.
It’s time to once again prepare for
Parts Year End, but this time, our “Smart Parts” Readers can have a head start
in the preparation process. You just may be surprised at what these guidelines
reveal and what we may take for granted.
Here We Go!...In
its Entirety and as written in our ACG Smart Parts Dealer Installation
Program!
“Smart Parts” Parts
Investment Protection – Guidelines
Protecting the Parts
Inventory Investment is crucial to the Automotive Dealer as the Parts Inventory
is generally the Dealer’s second highest asset next to the Used Vehicle
Inventory. Protecting this asset includes Accountability, Consistent
Reconciliation, (monthly), Security and Basic Accounting Practices to insure
the highest Return on Investment. The following guidelines and recommendations
should be considered in the Overall Protection of the Parts Inventory.
Parts Inventory Reconciliation:
Parts
Reconciliation should be monthly practice to compare and balance both the
Accounting Ledger Balance Inventory and Controlled Parts Inventory, (D.M.S.) to include all Parts
Inventories listed on Page 1 of the Dealers Financial. These monthly
reconciliations can be accrued throughout the year and balanced at the end of
each year after the Parts Physical Inventories have been performed. Doing this
“practice” monthly allows for an easier way to track down discrepancies over 30
days versus the whole year.
Ø Parts are ordered by authorized parts personnel utilizing Dealer Management System, (D.M.S.), or via Automated Purchase Order System. Purchase Orders to be filled out completely, itemized, priced with proper accounting.
Ø Ordered parts are received in the parts shipping/receiving area or front parts counter with all Packing slips and Invoices verified and signed by authorized parts personnel. Parts are receipted into the D.M.S. into the proper Source with all counts verified before any parts are billed to repair orders or parts counter invoices.
Ø Parts orders, packing slips, and invoices are to be reconciled and filed accordingly in the Parts Department for accounting purposes. Once reconciled in the Parts Department, all invoices are turned into the Accounting Office with Parts Manager’s Signature of approval.
Ø All invoices need to be stamped properly with an “Accounting Stamp” and signed by the Parts Manager. Accounting Stamp to include the proper inventory account, discounts & allowances amounts, (if any) accounts payable account and signature. All completed and verified invoices are sent to Accounting Department daily.
Ø Parts do not leave secured areas unless billed on proper dealership document, i.e. repair order or parts counter ticket.
Ø Secure all parts shipping and receiving areas with locks, or passcode entry systems. Access to the Parts Department is reserved to authorized personnel only.
Ø All parts deliveries are to be verified by the Parts Manager to ensure parts being delivered match the customer invoice.
Ø Consignment Parts Cabinets, (if equipped) for Express Service need to be locked at the end of each day and opened at the beginning of each day by authorized parts personnel. Keys for Consignment Parts Cabinets to be secured in the Parts Department only.
Ø Daily parts inventories need to be performed twice daily on Consignment Parts Cabinets, at the beginning and end of each business day and reconciled with daily sales and stock replenishment requirements.
Ø All bulk oil systems need to be metered and controlled in the parts department to control access to bulk oil system inventory supplies.
Ø Outside storage units always need to be secure with key access only to authorized parts personnel.
Ø Duties & Responsibilities for Collision Center Parts Personnel
· Maintain and secure all Collision Parts Inventory, including storage, staging and technician stalls.
· Work directly with Collison Center Manager and Estimators, researching, listing, and ordering parts requested and required for Collision Center Estimates.
· Proper invoicing of all parts to repair orders with appropriate pricing as per the vendors’ invoice.
· Manage all Collision Center Returns and ensure all returned parts are stored or returned to the appropriate vendor. Ensure all credit documentation is accounted for including inventory adjustments into DMS.
· Work directly with Collision Center Manager on estimates, customer promise times, dispatching, technician and shop issues, and inter-department relations.
· Maintain all shop areas including main shop, paint booth, paint storage area, general security, and potential safety concerns.
· Oversee all “on-site” vendors and purchases from vendors on all parts and supplies to prevent overstocking, understocking, and potential pricing issues.
· Technicians should not be allowed to access small parts & supplies normally stocked in drawers or small cabinets without parts personnel. Small Parts are to be billed accordingly on repair orders, or parts counter invoices.
Housekeeping is a major concern and can play a big role in the overall parts discrepancy between the Ledger Balance and Controlled Parts Inventories in the D.M.S. Controlling, maintaining, and securing all parts storage areas should be the number one area of accountability for the Parts Manager.
Process Recommendations:
Ø All entryways and exits and overall access into the Parts Department and all other parts storage areas should be locked with access only to authorized parts personnel.
Ø Technicians, or all other unauthorized personnel should not be allowed into the Parts Department. Shop Supplies should be separate from Small Parts normally stocked in bin drawers. Small parts in drawers billed to the Parts Accounting Inventory should billed accordingly on repair orders, or parts counter invoice.
Ø Small parts listed as “shop supplies” and expensed to the appropriate department need to be secure and supervised on technician needs. Technicians should not be allowed into the Parts Department unsupervised.
Ø Vendors replenishing small parts and shop supplies should not be allowed to “fill the shelves” without the Parts Manager. All stock replenishment purchases must be approved by the Parts Manager and accompanied with the proper, “detailed” Purchase Order.
Ø Small parts, or Shop Supplies not billed to customers should be billed on a Service Department Shop Ticket, or Repair Order”. Shop Tickets, and Shop Repair Orders need to be closed on a weekly basis with Parts and Service Manager Approval.
Ø All small parts or shop supply packing slips and invoices need to be reconciled to the original detailed Purchase Order upon receipt.
Ø Floors must be cleared of all parts and clutter, except for heavy parts such as engines, transmissions, differentials, etc. Bulk parts need to be stored in larger bins, or stalls to maintain an orderly appearance and part identification.
Ø All parts documentation including parts orders, packing slips, invoices, labels, or any other pertinent documentation must be filed, stored, or disposed of properly. Filing cabinet and cabinet area need to be maintained and labeled accordingly to identify and separate daily and monthly paperwork for accounting purposes.
Ø Dirty cores need to be stored and inventoried in a secure area including larger cores such as engines and transmission. Larger dirty cores such as engines and transmissions, if not covered or packaged properly, cause environmental risks and potential fines for non-compliance to OSHA regulations.
Ø General housekeeping practices should be followed maintained accordingly on front and back counter areas as paperwork, clutter and parts need to be organized and maintained.
Ø Parts paperwork throughout the Parts Department should be organized and filed in designated areas or filing shelves. “In & Out” paperwork for invoices, receipts, purchase orders, repair orders, picking tickets, etc. should be separated and marked accordingly to promote proper overall paper flow to and from the Accounting Department as well as Dealership Departments.
Are you prepared for
“Parts Year End”?
One thing for sure is if you are not prepared and if your results on the year end Parts Physical Inventory are not what you thought they should be…maybe, just maybe you may want to remember that “Preparation is the Key to Success!”
(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...
