Recently at a seminar I was teaching, one of the attendees complained about the accounts payable system of the older legacy DMS system he had. He said that when he orders non-part supplies like printer paper, toilet paper, pens, or light bulbs, there is no receiving process for those items. Compare this to the process in your parts department. When they order parts, they issue a purchase order and then order each part number and quantity. When the parts arrive, there is a shipment list, which the clerk compares to the physical parts being received and circles the quantity – or uploads for validation. Next the invoice arrives and that shipment list is matched to the invoice. The parts are received in the DMS and thus approved electronically. The cost is verified and the person who approves the invoice indicates how much to charge to parts inventory and how much goes to freight expense. If they bought the parts at an amount over or under the factory “tape cost,” then the person indicates the account that should credited or debited for the premium or discount received. In some DMS systems like DealerStar, if the source is setup to use average costing instead of “tape cost,” then the user can “allocate” those amounts over the cost of each part using a weighted cost method. It is a complicated process to ensure that we don’t pay for parts we didn’t receive and have the correct cost entered. What happens when we ordered 10 cases of paper, but they only shipped us 5 cases, yet charged us for the full amount?
Most non-parts purchase orders are for a single item. For example, we order new tires for a certain stock number and the manager authorizes that for $700. The invoice comes in and the manager checks to make sure the tires are on the vehicle and at the price he agreed upon and then signs and approves the invoice by signing it. When we have a sublet tow bill, the same thing happens; a manager or advisor signs the invoice and then puts the amount onto a repair order. What happens when we have office supplies, license plate frames, key tags, balloons and toilet paper? Who “receipts” those supplies and verifies the quantity and price?
More dealerships are starting to consider their parts departments as a full purchasing department. Larger corporations have purchasing and receiving departments for anything that is purchased. If your parts department has the space, why not have them take over all supply ordering? I never understood why as an office manager, I had the all important job of ordering, issuing, and locking up supplies – especially when our department used the least amount of those supplies. I really didn’t have the space or time to adequately control these supplies and they normally arrived when I was busy in a manager’s meeting or involved in some other task, so nobody checked to see if the right amount arrived. They had to be quickly put on the shelves to keep from tripping over them because we didn’t have a receiving area. If instead, we had the supplies come into the parts department, they could verify the quantity and “receive” them as parts. A separate parts source would be setup to hold these non-part supplies and they could sell them to the various departments on a single monthly parts ticket for each that is normally open anyway. If they don’t want these to be in the parts inventory, then the purchases could go to Prepaid Assets and a monthly valuation list could be printed of that source and the account adjusted. I like the idea of single parts ticket each month for each department because instead entering hundreds of invoices each month and distributing to each department, a single entry could be made to Prepaid Assets for each invoice and then the parts ticket would distribute to each department. The employee that took the box of pens, could be entered in the memo field and each department could see their actually consumption of pens and other supplies at the end of the month instead and arbitrary distribution based on percentages. There would actually be a part number for toilet paper, and the parts inventory record could hold wonderful data like how much we pay for it and our default vendor of where to buy it. It is a very efficient process and should provide better internal control and if you want, let the parts department mark up the supplies a small amount to justify the cost of receiving, protecting, storing, and selling the supplies.