By: Shawna Laird, Business Manager & Maggie Laird, Business Services Team
No matter what we buy today, there are hidden costs associated in our purchase price. The manufacturers and vendors set the price of the part(s) to include all their associated costs and a profit. Government fleets agencies are not typically allowed to make a profit, but we should cover all of the related costs. We could hide those costs in a fully burdened shop rate, but as those costs climb, we are in jeopardy of not being market competitive. Changing the charge rate for labor to reflect only the maintenance related costs and adding parts markup to cover the cost of the parts operations allows the managers to better monitor and manage their operations and stay competitive.
There are different methodologies in calculating a parts markup. Here are some examples:
Now how do you define the total cost of your parts program? Some programs charge a flat mark-up percentage without fully understanding what that markup should cover. Some things to consider when determining the “total cost”:
Also remember, that the cost of a part rises every minute it is not used on a vehicle. If a part is ordered and then sits on a shelf, it continually accrues costs. Warehousing and labor for physical counts can quickly multiply. Parts programs, ideally, would only keep parts that turn over rapidly and thereby keep the cost of a part low. So when calculating total costs, be sure to consider the cost of keeping certain hard-to-acquire parts or parts with long lead time on the shelf.
The FleetPros Blog is written and moderated by the Business Manager with contributions from the membership and Business Services Team.