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Mike Anderson

mike anderson autobody newsMike Anderson is the president and owner of Collision Advice, a consulting company for the auto body/collision repair industry. For nearly 25 years, he was the owner of Wagonwork Collision Center, an OEM-certified, full-service auto body repair facility in Alexandria, VA.

 
Wednesday, 08 July 2020 19:13

From the Desk of Mike Anderson: Making the Most of the ‘Parts’ Portion of Your Business

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Given that there aren’t list prices for recycled or salvage parts, most shops are marking up the cost of those parts. Don’t confuse mark-up with gross profit. When a shop marks up a part 20%, it is making a 17% gross profit; when it marks them up 25%, it is making a 20% gross profit.

Most shops find their margins on stock parts are similar to their margins on paint materials.

 

Best Practice: Don’t make parts decisions based solely on gross profit margins.

 

I’m not going to argue here about the merits of using OEM or aftermarket parts. But I will say you should take into consideration factors beyond just gross profit percentages.

 

In some cases, for example, it may take a technician added time to install an aftermarket part. Given the average collision technician generates $100 in gross profits per hour, an added 30 minutes installing a part costs you $50, even aside from any impact on efficiency and cycle time.

 

Can you get remunerated for that added labor? Perhaps. A “Who Pays for What?” survey last year found 29% of shops said they bill the insurer for this labor at the shop’s retail rate, and another 10% said they bill the parts vendor. But 21% said they only billed for this at a discounted labor rate, and another 22% said they most commonly didn’t bill for the labor in such situations.

 

On the other hand, some could argue the higher profit margin on a less expensive alternative part makes sense if an older vehicle has discontinued parts or is close to being an economic total loss.

 

As you read through some of my other parts best practices, you’ll see other factors---such as the availability of the part, vendor performance and parts ordering efficiency---can play a role in making the best parts decision. Price or discount should not be the only considerations.

 

Best Practice: Consider all the costs associated with ordering of parts.

 

Those of you who have studied and worked to implement “lean principles” within your business know lean is all about eliminating waste. Waste includes the time we spend on things we do for free. I don’t know any shop including a line item on estimates or invoices for “order parts.” That’s work shops do “for free.”

 

So if you’re not getting paid to order parts, would you rather do that two or three or even four times per job---or just once?

 

Making that a reality starts with 100% disassembly of the vehicle to identify every broken, damaged or one-time-use part needed for that job. (I’ll discuss one-time-use parts more in next month’s column.)

 

I also believe shops need to be using an electronic parts ordering solution. It saves time---no one should be waiting on-hold to place a parts order---and improves parts ordering accuracy. It ensures the parts vendor has the VIN, vehicle production date and other information to help them validate the parts ordered match the vehicle being repaired. Some electronic parts ordering systems automatically do this scrub of the parts order and tell you if a part doesn’t match the VIN. That’s a great feature for shops.

Next month’s column will offer more best practices related to parts. 


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