Digital Dealer - April 2019 - 11

Road Trip to DD26 | April 9-11, 2019 | Orlando

DD26

D E A LE R OP S & MA N A GEMEN T: Fi x ed Operati ons

FEATURED SPEAKER
By Ken Rock
Customer Care Manager,
Auto/Mate Dealership Systems

Policy & Shop
Supply Abuse
Do you know how much
revenue your store is
losing due to policy and
shop supply abuse? During
a visit to a dealership, I
discovered $35,000 in
revenue that had slipped
through the policy cracks.
That's $35,000 in one
month, in one dealership.
When I say abuse, I am
not talking about intentional
abuse by employees, but the
type of abuse that happens
when nobody is tracking
these expenses, as well as
the absence of a process
that addresses this issue.
Policy is any item sold
to a customer that can't be
charged to that customer,
so your dealership absorbs
the cost. Examples of items
charged to policy include:
 When a technician
backs a customer's car into
a lift and puts a dent in it
 When a salesperson
throws in a set of free floor
mats to help close a deal
 When a customer is
upset because their car isn't
ready at the promised time,
so the service advisor offers
a free oil change
Many policy charges are
inevitable, but if you're not
tracking these expenses,
somehow more and more
stuff tends to happen.
Shop supply is another
area where I see a lot of
abuse. Of course, shop sup-

plies are a necessary cost
of doing business. The cost
for supplies like cleaners,
solvents, rags, and waste
disposal is factored into your
labor rates.
But if you don't track shop
supply charges closely,
abuse can happen. In
effect, the higher the level of
abuse, the lower your labor
rate is. Examples of shop
supply abuse include:
 When a technician
"borrows" supplies needed
for a home repair and then
"forgets" to return them
 When a technician
doesn't know the exact part
needed to fix a repair, so
he orders three different
test parts. Only one part is
needed for the job, so now
you have two parts sitting on
your shelf that you can't sell
In my experience, most
dealers don't pay close attention to their policy or shop
supply charges. As a result,
they have no idea how
much money they're giving
away every month. That's
because these expenses
are typically grouped into a
single general ledger (GL)
account, along with a bunch
of other expenses.
As a dealer, you know
the average dollar amount
that you expect to see on
your expense ledger every
month. Unless something
looks out of whack, you

don't investigate, right? Well,
that's the problem with policy
and shop supply abuse. It's
a regular thing that occurs
every month, so it never
looks out of whack.
In the dealership I visited,
I was shocked when I tallied
up $35,000 in policy charges
for one month. I asked the
dealer "Have you looked at
your policy charges lately?"
Yes, he looked at them, but
he never questioned any of
them, and he had no idea
that they totaled $35,000. All
he saw was the lump sum of
expense, and because that
didn't vary much from month
to month, he never thought
to examine it more closely,
which means that his policy
charges were probably close
to $35,000 for many, many
months.
That's why it's important
to analyze your expenses.
Policy and shop supply are
not fixed expenses, and as
a dealer, you have more
control over these expenses
than you think.
HOW TO SPOT ABUSE

Set up a report in your
DMS. It's important to set up
this report in your accounting system, and not in fixed
ops. Include all expenses
charged to policy and shop
supply, as well as:
 Dollar amount of each
item charged
 Source: service, sales
D I G I TA L D E A L E R . C O M

or parts department
 Document number that
created the item
 Which individual posted
the charge in accounting (this
is important information to
include in the event of a theft
situation)
You might not be able to
see the details of each item,
but with document numbers
you'll be able to refer back to
the ROs and other invoices to
see what the items are, and
who ordered the product or
service.
HOW TO STOP ABUSE

You may or may not
uncover abuse. Either way,
it's a good idea to establish
processes to prevent these
expenses from spiraling out
of control. These processes
include:
 Require a manager's signature on all policy charges
 Require parts department to record the name
of the requestor, instead of
using "cash sale"
 Track where your shop
supplies are going
During my presentation at
Digital Dealer 26, I'll explain
in detail how to identify policy
and shop abuse, and how to
set up and manage processes guaranteed to stop abuse.
If you're looking to reduce expenses, start with policy and
shop supply. You're probably
giving away more than you
think.
KEN ROCK helps Auto/Mate's
dealership customers improve
ﬁxed ops efﬁciencies. Previously,
he was ﬁxed ops director for a
dealership group in New York
and Massachusetts. Ken has 25+
years of dealership experience and
hands-on training of dealership staff.
EMAIL: krock@automate.com

APRIL 2019

11
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Digital Dealer - April 2019

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