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Strategies and Tools to Shrink WIP and Unapplied Labor
Practical tips on how to get a firm grip on these troublesome and profit draining
accounts. Shrink the pile!
With
Rob Campbell, AnalystThe Mironov Group
Moderated By
Mike Bowers, Executive EditorDealersEdge
Rob Campbell, Analyst – The Mironov Group
After fourteen years as a dealership consultant and trainer, Rob continues to have a passion for the service business. He currently serves as one of the resident dealer analysts and consultants for Mironov, Sloan & Parzialle, helping dealers through difficult audit concerns and negotiations. Mironov, Sloan & Parzialle is a leading and respected accounting firm with over 40 years of dealership experience. They are part of AutoTeam America and currently service over 250 dealerships in the New Jersey, New York and Pennsylvania area. A frequent and popular speaker at industry events, including five NADA conventions, he is a true professional and a great communicator.
Rob is a Northwood University graduate who has augmented his formal education with much practical experience. For fifteen years, Rob wrote extensively concerning warranty administration issues, conducted training sessions and worked as a consultant to many dealerships around the country. Rob has 17 books or manuals on Fixed Operations management under his belt.
In addition to his consulting experiences in serving the dealership community, he has also held positions in the dealership. While at the dealership level, Rob has experience with 14 different franchises, including European and Asian brands. He has experience as a manager in all areas of fixed operations, and has retail sales experience. His years of hands on service drive and unique dealership experiences give him a good knowledge base for dealers to draw on. By having personally taught hundreds of students, and writing to literally thousands more, Rob has proved his value to a significant portion of dealerships.
TIME OUTStrategies and Tools to
Shrink WIP and Unapplied Labor
DealersEdge Management Webinar
Rob Campbell, AnalystThe Mironov Group
Introduction• 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
• Reducing unapplied time
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
• Accounting side– Work-in-process, labor-in-
process, work-in-progress is the inventory asset account
– We will just refer to it as WIP.
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 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
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
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.
Look at the accounts
The solutionsGather 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– Some is cheating the system
The solutionsGather Compare Correct
Flag sheets
Invoicing reports
Time flagged
totime billed
This should be
part of yourweekly 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
The solutionsGather Compare Correct
Tech settings
Payroll settings
Flat Rateto
Flat Rate
Fix rate or
use otheraccount
forbonus
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
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– Both the light tech work– Foremen or leaders
The solutionsGather Compare Correct
Payroll
Invoicing reports
Time Paidto
time invoiced
Routine adjustments
should benoted
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 solutionsGather Compare Correct
PayrollTo what
you know about the personnel
Occasionallycheck for errors inpostings
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.
Minimizing Unapplied Time
• We discussed several solutions– Make sure payroll reflects
invoicing– Bill time to proper expense– Make sure unapplied time is
really unapplied
• Consider other payments for shop time– Preferable jobs
Thanks for listening …
• Are there any additional questions?• You can reach me afterwards via
email at:[email protected]
The Mironov Group 732-572-3900 P a g e | 1
TIME OUT Strategies and Tools to Shrink WIP and Unapplied Labor
DealersEdge Management Webinar Rob Campbell, Analyst The Mironov Group
Introductions Plan for today
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 732-572-3900 P a g e | 2
Example Financial Statement - Assets
______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________
The Mironov Group 732-572-3900 P a g e | 3
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 732-572-3900 P a g e | 4
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 732-572-3900 P a g e | 5
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 732-572-3900 P a g e | 6
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 732-572-3900 P a g e | 7
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 732-572-3900 P a g e | 8
Minimizing Unapplied Time We discussed several solutions
• Make sure payroll reflects invoicing • Bill time to proper expense • Make sure unapplied time is really unapplied
Consider other payments for shop time ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________ ______________________________________________________________________________
Are there any additional questions?
You can reach me afterwards via email at: [email protected]
Rob Campbell Analyst and Consultant for The Mironov Group
fter seventeen years as a dealership consultant and trainer, and over twenty-years in automotive, Rob continues to have a passion for the automotive retail business. That passion is immediately recognized by everyone that works with him. He currently serves as one
of the resident dealer analysts and consultants for The Mironov Group, working with dealerships to improve operations through better planning and financial review. He is nationally known for helping dealers understand and get better results from their fixed operations. He also helps dealership develop better internal controls with his training and experience in fraud investigations. A frequent and popular speaker at industry events, including seven NADA conventions, he is a true professional and a great communicator. The Mironov Group (formerly Mironov, Sloan & Parziale, LLC) is a leading and respected accounting firm with over 40 years of dealership experience. The firm currently services over 250 dealerships, primarily in the New Jersey, New York and Pennsylvania area and is a member of the AutoTeam America group of dealership CPAs. Rob is a Northwood University graduate who has augmented his formal education with much practical experience. For fifteen years, Rob wrote extensively concerning dealership operations, fixed operations management and warranty administration issues. He has conducted training sessions and worked as a consultant to many dealerships around the country. Rob has 17 books or manuals on Fixed Operations management under his belt. He is also an associate member of the Association of Certified Fraud Examiners. In addition to his consulting experiences in serving the dealership community, he has also held positions in the dealership. While at the dealership level, Rob gained experience with 14 different franchises, including domestic, European and Asian brands. He has experience as a manager in all areas of fixed operations, and has retail sales experience. His years of hands-on service drive and unique dealership experiences give him a good knowledge base for dealers to draw on. By having personally taught hundreds of students, and writing to literally thousands more, Rob has proven his value to a significant portion of dealerships.
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