How to Establish a Parts Policy
According to Tim Ronak, parts are the single largest expense in most collision repair centers. And that’s not just because parts costs equate to roughly 30 percent of the average shop’s overall sales.
Inefficiencies and ineffective organization of a shop’s parts management process can cause interruptions in workflow; drive up costs and cycle time; and cripple profitability.
“[It] is the single largest expense that is also the most poorly managed in most facilities,” says Ronak, the senior services business consultant at AkzoNobel.
One way to decrease the likelihood of mistakes is to create a parts policy to standardize the interaction between your business, your shop’s parts person, and your outside vendors, Ronak says. The policy should provide process guidelines for your employees and vendors, establish what is important to you in a parts vendor, and negotiate parts discounts with the vendor.
Ronak regularly helps shops implement strategies to better manage the parts process—from ordering to storing to returning parts. And, he says, any shop operator can follow a set of simple steps to establish a parts policy that will save time and money.
Defining a Parts Policy
In its simplest form, Ronak says, a parts policy outlines the terms of engagement between your shop and your parts vendor.
“What’s wound up happening is that most people are accepting whatever the parts vendors are willing to give them,” he says. “It’s devolved to a point where shops work very, very hard hoping that they can get a vendor to sell to them. Rather than taking the perspective that you can buy from many vendors and they should entice you to do business with them. In one case, all the decision making is on the part of the shop. In the other case, it’s on whether or not the vendor deems you worthy to sell parts to.”
Ronak says that a parts policy should do three things: 1) Standardize the interaction between your company and outside vendors; 2) Outline process guidelines for your employees and vendors; and 3) Establish what is important to you in a parts vendor.
—Tim Ronak, senior services consultant, AkzoNobel
Choose Your Best Vendor
Ronak says to start by asking yourself this question: “Why might we choose to order from one vendor over another?”
“When there is an opportunity to have a relationship where you can pick and choose your vendors, part of that is sitting down and doing a methodical assessment as to whether or not that vendor is worth doing business with,” he says.
To start, Ronak recommends surveying all potential vendors and asking for their processes related to ordering, delivery, returns, billing and discounts. For example, when it comes to delivery, ask what time deliveries arrive or if the delivery personnel will inquire about any returns. When it comes to discounts, Ronak recommends asking what the current discount is, the discount they are willing to give, and the current prompt payment discount.
Ronak says the next step is to determine which vendor meets your needs and not to compromise too much.
“You do that through some type of vendor evaluation where you assess multiple vendors against one another in some kind of common way,” he says.
Establishing a Policy
Establishing a parts policy means engaging your parts person and your vendors to create a mutually beneficial relationship where both parties hold up their end of the deal. Ronak says that shops should take a methodical approach to establishing the policy to ensure that the right vendors are selected, the discounts are negotiated effectively and the processes are well suited to the shop and followed.
The parts policy should cover the four ways in which you interact with a vendor: ordering, delivery, return and billing. More specifically, it should outline the processes and steps that will take place during each of those interactions.
Start by sitting down with your parts person and discuss the ideal way you would like the entire parts procurement process to go, from beginning to end. That process should then be broken down into the following four categories and outlined in a letter:
- Assign a specific person and a backup person who handles the shop’s account
- Provide the name, phone number of your parts manager
- Note the critical information that will be included and should be reviewed in the attached parts order
- Detail the way in which you will send the parts order and how you would like the order to be confirmed and verified
- Explain how you would like back-ordered parts to be handled for your account
- Explain how you would like the invoice named and how supplements should appear on the invoice
- Outline the terms related to early payment
- Outline the credit on returns
- Note the invoice date and when billing will occur
- Explain how you expect the invoice to look and the information that should be included, such as estimate line number, part description, estimator’s name
- Detail the location where parts should be delivered
- Note when you would like morning and afternoon deliveries to occur
- Outline the process that should take place upon delivery
- Explain that parts should be inspected parts for damage, mirror matched, count number of delivered parts and verify to invoice, put each part in its corresponding place
- Note the authorized purchasing personnel at the shop who should sign the invoice
- Number of copies of return forms to be left at the shop
- The credit that is to be received for unused parts
Have the parts person in your shop and the vendor sign the agreement. Ronak says to explain that the policy is used because you place a premium on service and is used to differentiate vendors dedicated to service versus simply large discounts. Explain that due to these sometimes high expectations, you rarely make a switch in vendors and that they can expect large volumes of work from your shop.
Use the Policy Daily
Ronak suggests visually displaying the most critical steps in the shop to ensure that the policy is always being followed.
“Because we’ve got a parts policy defined, there may be some things you want defined right at the drop-off area,” Ronak says.
In order to make sure the agreed-upon stipulations are being followed, he suggests hanging the six most critical steps of the parts process on the wall where the delivery occurs. That way, the steps can be easily referenced.
“Any vendor that is going to drop things off, the first thing they do is count the number of parts and verify that it agrees with the number of parts specified on the invoice. Then they open the box and verify the parts are not damaged or for the proper side of the vehicle, etc.,” he says.
This is also a way to engage the parts person in the process and ensure that missing parts and damaged small parts are caught, which Ronak says account for 90 percent of the most common supplements.