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Calling Around to Get the Best Price on Parts?Posted 8/13/2002By Bob Cooper
The people I'm talking about are those hard-working guys and gals who have been led to believe the way you develop a more profitable, successful business is by selling a job, picking up the phone, then calling around to find the parts they need ... for the cheapest price. Unfortunately, that misguided belief has been around our industry since the days of the Model T, and it's the pied piper that leads good-hearted people right up the steps and into bankruptcy court. So before you let an age-old, misguided belief tear apart your business, let me take just a couple minutes of your time. Over the years I've found that if you plan on being successful in the auto repair business, then you have no choice. You have to buy high-quality parts because substandard parts all have three things in common: they'll drive up your repair time, they'll bury you with comebacks and they'll devastate your customer base. So the first conclusion we need to come to as business people is that we can't afford to buy what I'll call “cheap” parts. From whom we buy our parts is the second thing we need to take into consideration. And it doesn't take long to figure out that the right supplier, more often than not, isn't the company with the lowest prices. Instead, they're the companies that deliver the right part in the right amount of time, they stand behind their parts, and they understand your needs. These suppliers are out there, and over the years I've found they are absolutely priceless.
I'm also going to hope that as a businessperson, you put a value on your time as well as your service advisor's time. If you do, then you'll see why it's so important that you should be “investing” a few more minutes with your customers rather than “spending” the time trying to save a few bucks. On a more personal note, over the years I've found that an extra five minutes with a customer at the point of sale will give a far better return than spending the same five minutes calling around to part suppliers. You also need to consider this: If you're calculating your gross profit as a fixed percentage, then buying a part for less can actually lead to less profit! Look at it like this: Let's say we have two shops, Elite Auto and Mike's Auto. And let's say both are looking to make the same percentage of gross profit on their part sales. Elite buys a high-quality part from his primary vendor. Working from a specific gross profit margin percentage, his software calculates the sale price and when all is said and done, he's left with a gross profit of approximately $83. On the other hand, Mike's Auto calls around, spends an extra five to 10 minutes on the phone, and finds a cheaper part that costs several bucks less than the price the other shop paid. However, based on the same gross profit margin percentage, Mike's Auto determines the sale price for its part, which leads to an approximate gross profit of $70. When we do the math we find Mike's profit is actually $13 less than Elite's. So with all his efforts, what Mike accomplished was this: One, he made less profit. Two, he spent more time with his suppliers and less with his customers. Three? He's ignoring the value of building a good, strong relationship with the company that really is his best vendor. There is no question in my mind that the relationships you build with suppliers are just like the relationships you build with your customers: they're the cornerstones of every great business. To quote Bob Lutz, past vice chairman of Chrysler Corp., who's now with General Motors Corp.: “Browbeating suppliers doesn't lead to higher performance. As a matter of fact, it leads to the opposite.” So here's what you need to do next ... a little secret I used to grow some of the most successful auto repair facilities in North America ... a technique I learned by studying the life of Ray Kroc, founder of McDonald's Restaurants: I would identify the key part supplier I want to use, and set up a meeting with that supplier's officials. I would then tell them this is what I would do for them: give them all our “first calls” for every part, and the only time we would call another part supplier would be if they couldn't deliver the part in a predetermined, reasonable amount of time. I would also tell them I wouldn't be questioning their prices as my competitors were. And obviously, I'd pay all their statements promptly.
So by now you're probably wondering how well this all worked for me. Well, here's your answer: First, I was able to keep my service advisors doing what they do best, which is selling, not dialing for dollars. And that's one of the reasons we set so many sales records in all our locations. Second, the service we received was always extraordinary and our competitors were always wondering why we were so well taken care of. Third, my part suppliers became indirect “partners” because they knew if their companies didn't meet my defined expectations, then at the end of the year, they would lose a major account. Now if this isn't enough to convince you as to what you need to do, then let me say this: At the end of the year, my cost of parts would always average between 12 percent to 17 percent under any of my competitors. And while I was busy building my businesses, my competitors were sitting behind their counters with a phone in their hand, on hold, and they'd be tapping their fingers. Not selling, mind you, and not building relationships with their customers. What they were trying to do was save 20 bucks, when in reality all they were doing was alienating the local part suppliers. So let me leave you with this thought: There's a musical note, played by the pied piper, and it's been passed down over the years from shop owner to shop owner. The song says you'll save money by calling around for the cheapest price. In reality, if you follow him, that pied piper will lead you, not to a more profitable business, but down that long and dark road that ends in front of a bankruptcy judge. Take my advice and ignore his song. And listen to the wisdom of Ray Kroc. I did and it worked for me, so I know it'll work for you.
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Copyright (c) 1996-2010. Automotive Service Association®. All rights reserved.
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Most of us came into the auto repair industry because we love automobiles, we have a passion for helping people, and we have a strong work ethic. And that's why most of our early-on mentors were talented technicians who had really big hearts. But when you look back, what you'll see is most of those good-hearted mentors did not have a very good understanding of ... the business of business. It's the primary reason so many of those shop owners failed over the years, and it's the same reason so many people in the auto repair business today are struggling to survive.
Now that we know we need to buy the right parts from the right people, we need to move on to the next step. We must accept the fact that our suppliers are no different than us: they like to be treated the same way we like to be treated. Cherry-picking a part supplier by shopping them on every major purchase is no different than one of your customers price shopping you on all your recommended services. All it'll do is lead to ill feelings, a lack of trust and a lack of compassion. So if you want to make it to the top of your part supplier's list, then what you need to do is the very same thing your customers would have to do to make it to the top of your list: be a good customer.
In return, this is what I would ask: I want to be at the top of their “service list,” meaning when parts I ordered went on a truck, my shop would be the first delivery. Tell them that because you run a first-class operation, you don't want to be questioned about returns, warranty claims or inventory adjustments. And all they need to do to keep this relationship going with your company is demonstrate to you, at year end, that they met all your expectations and the prices you paid over the year were not necessarily the lowest, but extremely competitive.
