Every manager needs to measure, control and improve their department’s Key Performance Indicators (KPIs) in order to reach the maximum potential for revenue and performance. Although this is essential for any business, there is another task just as important and that many dealers do not perform: detecting possible money leaks.
Dealers can suffer more than 50 money leaks: i.e. unnoticed events that may be causing money to be lost in the different departments of the dealership: Sales, Parts, Service, and Finance/Administration.
Money leaks usually happen due to lack of controls in the dealership´s business processes and in the dealer management system (DMS).
There are 2 ways to detect and eliminate money leaks. One of them is through periodic external audits that review all of the dealers’ business processes; the other involves real time controls inside the dealer management system (DMS) in order to prevent the leaks before they occur.
We will now analyze some of the most frequent money leaks that a dealer may experience.
Open Repair Orders
A RO that is open for too long can mistakenly continue to have parts associated to it. In other words, parts are subtracted from inventory but are associated to the incorrect RO. The dealer can lose track of its parts if this situation is not regularly controlled.
How to plug this leak
Workshop control reports allow you to recognize open ROs and the dates on which they were opened. This way the Service Manager can analyze each open RO, one by one.
Dead part orders
This leak is caused by deficient controls and inadequate inventory management in the parts department. It usually manifests itself when parts that are in stock, and that are part of the dealer’s dead inventory, are unnecessarily ordered. This has two undesired consequences: an unnecessary investment in parts that were already in stock, and an increment in immobilized parts inventory which generates more expenses and a long-term loss of inventory valuation.
How to plug this leak
A common strategy is to balance inventory in all warehouses at all stores based on parts activity and current stock, and to implement a parts purchase methodology based on statistical information.
Controlling money leaks can be just as important as monitoring the dealership’s KPIs. Managers must constantly think of ways to improve the dealership’s profitability, but it is also crucial that they avoid losing money needlessly.