There are a number of factors to consider when evaluating the cost of tires and parts. Of course there is the price paid for tires or parts but also there is the cost involved in the purchasing process and inventory management. When the best price possible is obtained gross profit margins will increase. Paying attention to the processes of purchasing, handling and payment for parts can result in lower operating costs thus widening net profit margins. All aspects involving inventory should be taken into consideration when striving to reduce costs.
- Decide on price shopping vs. preferred suppliers – Consider the cost of price shopping versus establishing agreements with preferred suppliers for frequently used parts. Price shopping takes time and suppliers will be willing to offer favorable pricing in exchange for higher volume. Based on cost, availability and sales it may be more advantageous to price shop some parts and establish agreements with suppliers for others.
- Keep preferred suppliers honest – A long term relationship with a supplier has a number of advantages. However, over time things may tend to become lax. Even if just by a sample pricing should be checked from time to time.
- Consider the impact of integration – A supplier that provides shop management system integration can reduce the time required to source and order parts by several minutes each time a purchase is necessary. These time savings can add up to significant cost reductions.
- Evaluate the pros and cons of on hand inventory – On hand inventory has a number of benefits. When purchasing in larger quantities better pricing can be obtained. Also having tires or parts readily available can increase throughput in the shop. On the other hand inventory is an investment and spending money on inventory precludes other investments. Furthermore inventory takes up space that could be used for other purposes, requires counting, is often subject to taxation, and will sometimes become obsolete. When deciding on whether to carry inventory items both the pluses and minuses should be taken into consideration. Actual cost dollars for stock versus purchase as needed should be calculated in order to make the decision.
- Take advantage of automation – Computerization of purchasing, inventory handling and paying for tires and parts can significantly reduce operation costs. Streamlining all inventory related business processes to the greatest degree possible will positively impact throughput and profit margins.
