Strategies and Tools to Shrink WIP and Unapplied Labor

Transcription

1 Strategies and Tools to Shrink WIP and Unapplied Labor With Rob Campbell, Analyst at The Mironov Group Moderated by Mike Bowers, Executive Editor at DealersEdge Thursday, August 23, :30 pm ET Rob Campbell, Analyst at The Mironov Group, LLC Rob Campbell serves as one of the resident dealer analysts and consultants with The Mironov Group, LLC, working with dealerships nationally to improve their results from fixed operations as well as helping through difficult warranty audit concerns and negotiations. He has conducted training sessions and worked as a consultant to many dealerships around the country. A frequent and popular speaker at industry events, including five NADA conventions, he is a true professional and a great communicator. In addition to his consulting background, Rob has spent the past fifteen years writing extensively concerning fixed operations management and warranty administration issues. Rob has 17 books or manuals on Fixed Operations management under his belt. He is also an associate of the Association of Certified Fraud Examiners.

2 TIME OUT Strategies and Tools to Shrink WIP and Unapplied Labor DealersEdge Management Webinar Rob Campbell, Analyst The Mironov Group Introduction Reducing unapplied time Speaking the same language What s the problem? Understanding the interaction of the transactions to accounting Top five errors with specific cases where things can go wrong

3 Minimizing Unapplied Time We will cover the top reasons Make sure payroll reflects invoicing Bill time to proper expense Make sure unapplied time is really unapplied Ways to cut at the shop level Shop Level Controls While hourly is the killer, flat rate is not the cure-all. Diminishing guarantees Is the low production a shop problem? Consider non-techs for some items Non-time payoffs

4 Speaking the same language Service side WIP or work-in-process is the amount of labor you have expended on open repair orders Just the cost of open repair orders We will just refer to it as an open repair order report, but it is the report showing costs on the repair orders. Speaking the same language

5 Speaking the same language Accounting side Work-in-process, labor-in-process, work-inprogress is the inventory asset account We will just refer to it as WIP.

6 Transaction side When is labor/time paid to the technician? If it is only when the job is complete and invoiced, should there be any labor cost on the Open RO report? What about multiple lines LOF, rotate, coolant flush, warranty door trim (SOP) Accounting Side Payroll journal Sales journal General journal

7 The Problem Gross percentage you know what to target You see many RO s, you run exception reports, advisor reports Expenses you comb over and know what is going on Expenses are easy to see because there is a physical check/p.o. associated with them. The big leak in the barrel

8 The Problem Work-in-process compared to open RO Report Labor we have bought Labor we reasonably expect to get paid for $11,651 difference

9 The Problem An inventory shortage. The dealership bought an asset with the intent of resell A direct and straight hit to gross; the problem is actually worse. Assume 70% gross profit - $11,651 lost in W.I.P $11,651 30% = $38,837 sales lost, $27,186 in gross lost Look at the accounts Understand your dealership s practices When is labor paid How are transactions posted How is the payroll posted What are the specific procedures in the dealership? Do a walk-through of the transactions.

10 Look at the accounts

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12 The solutions Gather Compare Correct What Could Happen? Tech was paid more than was billed Purposefully over paid for job By management By Advisor/booker Was mistakenly overpaid Someone is cheating the system

13 The solutions Gather Compare Correct Flag sheets Invoicing reports Time flagged to time billed This should be part of your weekly payroll What Could Happen? Costs are incorrect or do not take into consideration variation in pay rates. Tech is given a raise in payroll but invoicing is not changed. Tech has a productivity bonus or override on hours

14 The solutions Gather Compare Correct Tech settings Payroll settings Flat Rate to Flat Rate Fix rate or use other account for bonus What Could Happen? Tech is paid for "shop time" that is never billed. If you are paying time it should be billed to someone Open an internal and expense to time to maintenance or other account Open another line/ro for policy

15 What Could Happen? Salary guarantees are paid Payroll goes in at 40 hours but only assigned cost comes out. Hourly people are place in WIP The light tech work Foremen or leaders The solutions Gather Compare Correct Payroll Invoicing reports Time Paid to time invoiced Routine adjustments should be noted

16 What Could Happen? Accounting mistakes are happening Vacations Training other time-off Non-productive people being put in there Remember: W.I.P is a sellable inventory Accruals are not properly handled The solutions Gather Compare Correct Payroll To what you know about the personnel Occasionally check for errors in postings

17 What Could Happen? Payroll master summary for techs The solutions If all else fails you can set-up the account to schedule for a week or two to actually watch the additions and relief. The control part of going in is easy, the manual relief from payroll using RO control numbers is not. Rarely do you need to go beyond the first week

18 Thanks for listening Are there any additional questions? You can reach me afterwards via at:

19 TIME OUT Strategies and Tools to Shrink WIP and Unapplied Labor DealersEdge Management Webinar Rob Campbell, Analyst The Mironov Group The Mironov Group P a g e 1

20 Introductions - Plan for today Minimizing Unapplied Time We will cover the top reasons Make sure payroll reflects invoicing Bill time to proper expense Make sure unapplied time is really unapplied Ways to cut at the shop level Speaking the same language Service side WIP or work-in-process is the amount of labor you have expended on open repair orders Just the cost of open repair orders We will just refer to it as an open repair order report, but it is the report showing costs on the repair orders. Accounting side Work-in-process, labor-in-process, work-in-progress is the inventory asset account We will just refer to it as WIP. The Mironov Group P a g e 2

21 Example Financial Statement - Assets The Mironov Group P a g e 3

22 Transaction side When is labor/time paid to the technician? If it is only when the job is complete and invoiced, should there be any labor cost on the Open RO report? What about multiple lines LOF, rotate, coolant flush, warranty door trim (SOP) Accounting Side Payroll journal Sales journal General journal _ The Mironov Group P a g e 4

23 The Problem Gross percentage you know what to target - You see many RO s, you run exception reports, advisor reports Expenses you comb over and know what is going on - Expenses are easy to see - there is a physical check/p.o. associated with them. The big leak in the barrel You measure every drop that goes in and every drop that comes out but is there a hole in the side of it. Work-in-process compared to open RO Report Labor we have bought Labor we reasonably expect to get paid for An inventory shortage - The dealership bought an asset with the intent of resell The Mironov Group P a g e 5

24 A direct and straight hit to gross; the problem is actually worse. Assume 70% gross profit - $11,651 lost in W.I.P $11,651 30% = $38,837 sales lost, $27,186 in gross lost Understand your dealership s practices When is labor paid How are transactions posted How is the payroll posted What are the specific procedures in the dealership? Do a walk-through of the transactions. What Could Happen? Tech was paid more than was billed Purposefully over paid for job o By management o By Advisor/booker Was mistakenly overpaid Someone is cheating the system The Mironov Group P a g e 6

25 Costs are incorrect or do not take into consideration variation in pay rates. Tech is given a raise in payroll but invoicing is not changed. Tech has a productivity bonus or override on hours Tech is paid for "shop time" that is never billed. If you are paying time it should be billed to someone Open an internal and expense to time to maintenance or other account Open another line/ro for policy Salary guarantees are paid Payroll goes in at 40 hours but only assigned cost comes out. Hourly people are place in WIP o The light tech work o Foremen or leaders The Mironov Group P a g e 7

26 Accounting mistakes are happening Vacations Training Other time-off Non-productive people being put in there Remember: W.I.P is a sellable inventory Accruals are not properly handled EXAMPLE PAYROLL DEPARTMENT SUMMARY If all else fails you can set-up the account to schedule for a week or two to actually watch the additions and relief. The Mironov Group P a g e 8

27 Setting up a scheduled account is easy going in. For example: ADP > CAS (Change Account Scheduling) Create New Schedule, Select the Account, Don t worry about controlling existing amount or clear it, control on RO and test and see if it is what you want. The trouble is from relief that must be individually done RO by RO, flag by flag by payroll. Generally a custom report that outputs by tech, in RO order, and lists cost and hours. Are there any additional questions? You can reach me afterwards via at: rcampbell@mironovgroup.com The Mironov Group P a g e 9