Managing Fixed Operations Assets – Part 1

This is Part 1 in a three-part article.

The end result of the “strongest month we have had in the fixed operation” is often disappointing. We just sold and grossed more than we ever have. But the bottom line (or net profit) does not reflect our record-setting performance.

Why? The answer is usually that while sales were booming, expenses were zooming – unnoticed and uncontrolled.

M5’s primary objective is to provide service, parts, and body shop managers in automobile dealerships with a proven process for management of the assets under their control. The techniques discussed herein are designed to assist management in verifying the validity of departmental expenses and to determine if expense dollars are being spent wisely. These techniques provide specific actions to be taken in order to accomplish these goals.

Questions such as the following are addressed:

1.     Are the various supplies being purchased in the right quantities?

2.     Are the supplies necessary based on need?

3.     Are the prices the best available for the required quantity and quality?

Asset Management Review Process

The asset management review process consists of the following five key elements and their corresponding activities.

1.     Identification and development of controllable expense items.

2.     Development of a “supplies purchased listing.”

3.     Development of a vendor pricing review procedure and vendor bid specifications.

4.     Development and maintenance of Vendor Pricing Guides.

5.     Monthly monitoring of individual expense categories (and measurement of usage).

1. Identification and Development of Controllable Expense Items

Identification of the Controllable Expense Items – List the controllable expense items in your dealership. Don’t overlook or exclude any item or service purchased regularly. Even include products or services that you have been getting from the same source for years. Also include any service or supplies with current formal agreements or contracts.

Developing a List of Controllable Expense Items – First, make a copy of all of your manageable expenses. As you develop this listing you may wish to review previous invoices from the accounts payable files to determine items that should be included.

Review contracts and formal agreements for services or supplies, noting the expiration date of the contract. Also note on your listing any pertinent information and questions that must be addressed before making a decision concerning the next contract.

Purify the listing. Scan the items on the listing looking for duplicate items.

2. Development of a “Supplies Purchased Listing”

Develop a “supplies purchased listing”. Create your master list of bid items.

Remember to maintain this listing. As new products or services are used, add them to the listing in the appropriate place.

3. Development of a Vendor Pricing Review Procedure and Vendor Bid Specifications

Shopping for the Right Price – Make it a rule to never pay retail price for anything and realize that you can save 1/3 to 1/2 of the normal price on most items. Like our vendors, we are in the retail sales business – how often do our customers ask, “Is that the best you can do?” Ask your vendors the same question.

In our selling situations we ask for the order from customers – why not ask for the available discount from vendors?

Many of us treat the purchase of everyday supplies casually. Consequently, we often develop a comfortable relationship with our vendors. We may have been doing business with the same vendor for many years. We may even assume that since we are getting a good price on one item, our friendly supplier offers us the best price on everything.

You cannot rely on only one vendor if you want to save money on your purchases. Even if you have a primary supplier for most products or services, apply the test of comparison shopping for every item purchased regularly.

Here are some helpful documents that you might find useful throughout this article series:

Bid Specification Worksheet
List of Common Items to Bid
Request for Bid Letter
Continued next week in Part 2!

Written by David Dietrich

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