Increase Your Profitability with Proper Core Management

Transcription

1 THOUGHT LEADERSHIP SERIES Increase Your Profitability with Proper Core 0 Management by Richard Schien Founder & Chairman of the Board of Karmak, Inc.

2 For many businesses, cores aren t an asset to a business. They are a necessary evil that costs you money. This doesn t have to be the case. Rather than seeing cores as a resource sink in your business, you can add them to your asset list, and use cores to increase the profitability in your business. Through the proper handling, tracking and accounting practices for cores, they can help your business rather than hurt it. The core tracking process One aspect of the successful handling of cores is the tracking process. If your cores are not tracked from beginning to end, neither is the money associated with them. The best way to do this is to be sure cores are checked at every stage. Check them in Although some systems do this automatically, cores are often not posted into inventory as cores when they are received from the supplier. And yet, every repair/exchange item has an accompanying core. For every repair/exchange item in stock there is a core, and a core value. This core value is an increase to inventory and should be posted into physical inventory and to an appropriate inventory account in general ledger. Many businesses do not want to deal with both a repair/exchange cost and a core cost. However, in the process, they lose track of the core cost. Check them out As was suggested earlier, each time a repair/exchange item is sold, inventory should be reduced by both the repair/exchange cost and the core cost. The charge for a core should take place every time a repair/exchange item is sold. It is important to show the customer that cores have a value, and it is even more important to show the customer consistent invoicing. Check them back in This is the most important step. Each time an old or dirty core is received from a customer, it is important to update the proper inventory records for that dirty core. Most businesses have no idea how many dirty cores they are supposed to have in stock. They can only count the dirty cores they see. Therefore, they do not know how many cores were lost, how many cores were not returned, or how many cores were sold at cost. Many core tracking problems can be eliminated by implementing a policy of Three Line Repair/Exchange Transactions. Karmak, Inc Page 2

3 Can you see your repair/exchange items? Each repair/exchange item in an inventory is actually two components: the repair/exchange cost and the core. Each time a sale takes place for a repair/exchange item, either the business computer system should automatically charge for the core, or repair/exchange items should be changed to include the core charge amount. Otherwise, those working at the counter will need to remember to make a core charge for each repair/exchange item they sell. If your computer system does not handle automatic core billing for repair/exchange items, you can add EX or RX to the part number and add the core charge amount to both the cost and the selling price. In addition, you can create a second part number for tracking the dirty core back into inventory, using a suffix of CX for the dirty core part numbers. Repair/exchange items are then sold outright, including the core charge and repair/exchange charge. Dirty cores are posted back into inventory and credited to the customer using the part number with a CX suffix. Repair/exchange part numbers and dirty core part numbers should be clearly identified in their respective descriptions. Three-line repair/exchange transactions As you handle cores in your general ledger, it is important to remember that every repair/exchange sale is actually three transactions. When a repair/exchange item is sold, there are two transactions: the repair/exchange part of the sale and the core part of the sale. The third line is required when the dirty core is returned by the customer. Many repair/exchange sales are simply listed as exchange. This is meant to indicate the customer had a core ready to exchange and, therefore, there is no need to charge for the core. However, these seemingly simple exchange sales can cause a number of problems. First, this method typically skips the step of posting the dirty core into inventory. Second, this method does not allow for dirty cores with varying values, such as cores with damaged or missing parts. Third, and most importantly, this method teaches customers that cores are sometimes not billed when repair/exchange items are sold. When repair/exchange items are always billed as a three-line transaction, customers see a consistent billing pattern. They always see a core charge. Every sale is the same. It does not matter if the core is returned immediately and credited on the same invoice or returned many days later. Transactions teach your customers and your employees that cores have value. Karmak, Inc Page 3

4 Core valuation establishing the cost of cores Zero valuation invites problems Some people set a value of zero on their cores. While this method of valuation certainly keeps inventory values low, it invites several other problems that may be much worse. First, a zero valuation of cores is such an obvious understatement of value that it will be challenged by even inexperienced auditors (IRS or otherwise). Second, valuing cores at zero tells everyone in your company that cores are worthless, which is an incorrect and potentially costly message. Setting the cost of cores For everyday business, we recommend using the same cost you are charged by your suppliers. This method allows you to check the cost on all incoming cores to verify that your cost records match those of your suppliers. Revalue cores once a year Since the core cost charged by your suppliers is often two or three times the market price for cores, revalue your cores to reflect market price at the end of each fiscal period for financial statement purposes. This revaluation should be done product line by product line since most suppliers establish core costs that are multiples of market price. Learn more As you can see, cores do not have to be bad news for your business. A painful situation becomes a profitable one when good core control methods are established and enforced. To ignore cores is to deny increased profits for your business. Ignoring cores only ignores the potential for profit. Cores will still be there, demanding your attention, and the more you learn about how to handle cores in your business, the better your core profits will be. You can start your research with Karmak s exclusive tip sheet, 7 Tips for Making Cores Profitable, to help you take practical steps to increasing your core profits. About Richard Schien J. Richard Schien, founder of Karmak, Inc., worked in his father s trailer manufacturing and truck parts business for more than twenty years before founding Karmak. This experience, coupled with his education in math and physics, provided a solid foundation for the development of a computer business system designed specifically for heavy-duty truck and trailer dealers, truck repair shops, truck parts distributors and truck lease/rental companies. Karmak, Inc Page 4

5 His focus on the special requirements of the heavy-duty marketplace, in addition to his ability to draw on his experience and contacts in the truck industry, provide a glimpse into the reasons for Karmak s success. Karmak s continued penetration in market share is a result of the superb management team assembled by Schien. His years of experience in implementing computer systems for heavy-duty truck related businesses have led to numerous invitations to write articles for industry trade publications and to speak at national industry meetings. Schien continues active involvement at Karmak as Chairman of the Board. About Karmak Karmak, Inc. is a leading provider of business management solutions for the commercial transportation industry. With more than 30 years of heavy-duty experience, we offer a unique approach combining innovative technology, strategic advice and best practices. Our success programs produce measurable results by improving ROI, mitigating risks and achieving operational excellence. Serving more than 1,800 locations across North America, Karmak is an employee-owned company with headquarters in Carlinville, Illinois Karmak, Inc. All rights reserved. Karmak, Inc Page 5