Conducting a Fixed Operations Expense Review – Part 1

This is Part 1 in a three-part article. Be sure to check back next week for Part 2. | Written by David Dietrich

 The end result of the “strongest month we have had in fixed operations” 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 collision center 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:

 Are the various supplies being purchased in the right quantities?
Are the supplies necessary based on need?
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.  These elements are discussed in the section below.

  • Identification and development of controllable expense items.
  • Development of a “supplies purchased listing.” (Later Newsletter Issue)
  • Development of a vendor pricing review procedure and vendor bid specifications. (Later Newsletter Issue)
  • Development and maintenance of Vendor Pricing Guides. (Later Newsletter Issue)
  • Monthly monitoring of individual expense categories (and measurement of usage). (Later Newsletter Issue)

 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 – Thoroughly review the items on the listing in each category, marking the items used in your dealership, and perhaps drawing a line through any that do not apply.  For example, you may not rent floor runners and mats, or you may only use bulk oils instead of case lots.

 As you continue to develop this listing, add any item or service you use that is not on the list.  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.

 Continued next week in Part 2!

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