In the last article, we discussed parts as related to the technician and service calls. In this article, we will focus on areas where we can reduce parts expense without impacting FCE. We will consider three separate areas where opportunities exist to improve profitability.
Warranty
All manufacturers offer a warranty period on equipment. As a service manager, you need to be familiar with the terms of the warranties available and use them to the full. You need to take advantage of every possible warranty claim to improve profitability.
If your back office system has the ability to flag potential warranty parts usage, make sure it is configured and implemented. Technicians need to bring parts that might be under warranty back to the shop for determination. The technicians also need to obtain any needed documentation. If the manufacturer offers a program that guarantees the yield of consumable items, then you should treat these in the same manner as a warranty part.
One challenge in some companies is how the warranty credits are applied. When replacing a part, the cost is charged to the individual device. If possible, apply the credit back to the individual device; this is important when analyzing equipment profitability.
Aftermarket
Most service managers receive calls on a regular basis from aftermarket suppliers. The sales person describes how the profitability of the service department improves when using their products. Most service departments use aftermarket items to some extent.
Service managers need to be selective about using aftermarket products. You should test each item in use to see what impact on MCBC the use of the part creates. You should also compare the difference in page cost between two parts. A third factor is any manufacturer rebate program that reduces the cost of OEM parts.
Reclaimed
Most dealers reclaim at least some parts from used equipment. In most dealerships, these parts machines are stored in some sort of boneyard where technicians can remove needed items. This process is either a source of increased profitability or a drain on company resources, and most dealers do not know which.
Boneyard systems create several issues that affect profitability. The first is the lack of tracking. In most cases, there is no way of accurately measuring impact of these parts. A second issue is the lack of information on parts availability in the boneyard. The third issue is the amount of time it takes a technician to search the boneyard, find a part, and then remove it. A fourth issue is the viability of the removed part. In most cases, the technician does not have information on how long that part was in the machine or whether the part was causing problems. The final issue is the amount of warehouse devoted to storing the boneyard.
The first step in resolving these issues is to develop a process for dealing with used equipment as it comes in to the dealership. Most equipment will fall into one of four categories: lease return, refurb for sale or rental, loaner pool, or parts/disposal. Someone has to have the responsibility of making the determination. With the exception of lease return equipment, they should review the service history determining the age, reliability, and potential value of the equipment. Models with high reliability and low volume are potential candidates for the rental and resale pools.
For remaining equipment, determine if there are still enough machines in the field to justify deconstructing it for parts. If there are not, then check to see if the machine has had any significant parts replaced recently and remove them, then send it to scrap.
For machines that may have parts value, the choice is whether to leave them intact and pull as needed, or to dismantle and put the pulled parts in inventory. For small dealers, leaving them intact may be a viable option. To solve the issue of wasted tech time and control, you need a system that allows you to track the removed parts so that techs will not waste time looking for a part that does not exist. If your software allows, one possibility is to do a negative install of the part number with an additional character at the end to show it is a reclaimed part. This should then show as available in the inventory and be accessible to a technician to use in a customer’s machine.
As these machines are salvaged, they will reach a point where there is little left of value. After performing a final salvage, send the bones to scrap. Regularly culling these machines reduces the amount of storage space required.
For larger dealers having a dedicated technician disassemble, label, and store the parts in a separate inventory location may be a better solution. For midsized dealers, this may be a good task for new technicians. If you have slow times, use field technicians to assist with this process. Once the technicians have removed and labeled all of the parts, scrap the remaining plastic and steel. This process reduces the floor space devoted to storage of equipment being salvaged and provides definite availability and tracking of reclaimed parts.
