September 2025: The Long-Term Parts Effects of Changing Dealer Management Systems, (DMS)

We all know that change is not necessarily welcome even though some of us welcome change and is inevitable over time. Although, I think that most of us would agree that switching over to a new Dealer Management System, (DMS) is not one of life's changes that we all look forward to.

In this day and age, it seems that dealers are changing their DMS more than they ever have in the past. A couple of reasons for these more frequent DMS "changeovers" by dealers can be easily explained, even though we dread it when it does happen.

One reason for these more frequent DMS changeovers is the fact that there are more systems out there to choose from than there were 20 or 30 years ago. Back when systems were first introduced, there were just a few to choose from.

Reynolds & Reynolds, ADP, (now CDK), Convergent, UCS and Arcona were just a few that entered into the DMS market early on. Dealers also pretty much stayed with their system for years and years and were pretty comfortable with their system, except for consistently negotiating contracts and pricing from time to time.

DMS contracts were lengthy, and most dealers would need a team of lawyers to break their contracts with some of these DMS companies. All that has changed over the last 5 - 10 years with new systems popping up and cloud conversions.

In today's dealership world, breaking DMS Contracts is much easier, and the competition out there is immense. Systems are also more capable of doing more things due to new technology and are more "user friendly" than ever before while pricing has become more affordable than years ago. 

All that being said, I have had to now learn 14 different Dealer Management Systems in Parts & Service just to keep up with the systems that are out there today with more coming. Even though the "language" of each system may be different and some systems better than others, the basics have to be there, especially in Parts.

Converting over to a new DMS is not a welcome change as we mentioned as each department has to learn a new way of doing business as well as adapting to new routines.

Even though this DMS change is felt by everyone in the dealership, in my opinion, the biggest effect that this change brings could have the biggest, negative "long-term" effect on the Parts Department than any other department in the dealership.

One of the biggest DMS Changeover Frustrations is the fact that these conversions are conducted during normal business hours. I think we have all felt the impacts of trying to learn a new system and taking care of customers at the same time with phones blaring in the background.

Each one of us only cares about how it affects us personally during these conversions with stress at its highest level. So why do we think that Parts could feel more of the negative, long-term effects of a DMS Conversion?

It's time to find out why with our ACG Smart Parts "Top 10 DMS Parts Conversion Impacts" in the Parts Department that can impact our results for years to come!

Let's Begin!...

As we mentioned earlier, every dealership department is highly impacted by changing over to a new Dealer Management System, (DMS). But what we did not mention is the fact that these impacts in all the other dealership departments are temporary.

Once we manage through all the Op Code Changes, Service Pay Types, Accounting Integration, New Chart of Accounts, F & I Set Ups, Pricing, Sales Deal Set Ups, etc., they are good to go. At this point, it's just a matter time before we get used to navigating through the new system.

This is also true in Parts, but what lies underneath all these Parts Set Ups is what could have the most devastating overall impact over time if not understood or set up correctly. Not only the math has to be correct, but we also have to know and learn a new DMS "language".

Let's start with our "Top 10 DMS Parts Conversion Impacts" that can be felt for many years to come. Keep in my mind that our Top 10 are not listed in any particular order as all 10 play a role in potential negative results over the long term.

Parts Phase-In

Parts Phase-In is where it all begins as all parts have to "qualify" in order to become a Normal Stocking Part. This is also where the "life cycle" of a part begins, or "born" as every part has to have enough demands, (sales or lost sales) in separate months over a course of a determined number of days or months.

Many may not know that not all Dealer Management Systems have the same "language" on the initial Parts Set Ups to accurately track demands over a course of days or months. If we do not read the DMS verbiage correctly, we could actually be preventing parts from phasing in.

An example would be if we wanted to track demands of at least 1 in 3 separate months over the course of 8 months, it could actually be entered incorrectly into a new DMS. If we don't actually read the verbiage correctly, the DMS could actually be set at at least 3 demands in 3 separate months over the course of 8 months.

The result would be that the system would not phase in that part until it actually had 9 demands over 3 separate months over the course of 8 months. Thus, the results would mean that many parts that we may want to stock would not phase in.

Also, not all systems track demands in separate months like Tekion for example that only tracks total demands and not in separate months. This could actually cause an "early phase-in" problem. In other words, if we sold 16 lifters on one application, the system would potentially bring in those lifters prematurely.

Lastly on Parts Phase-In, switching over to a new DMS may require parts that were considered Normal Stocking Parts in the old DMS to go through the "Rephase-In" process all over again.

Normal Stocking Parts vs. Non-Stock Parts Status

Here's another huge Parts Long-Term Negative Affect as parts that had a Normal Stocking Parts Status in our previous DMS may just convert over into a Non-Stock Status in the new DMS. During Parts Conversion, some new systems do not recognize the previous DMS Stocking Status.

In the case of CDK for example, Normal Stocking Parts carry a "blank" Stocking Status. This means when the new DMS converts Normal Stocking Parts over from CDK, they often times default over to a Non-Stock Status. 

The new DMS may not recognize what a blank status means and defaults these parts to a Non-Stock Status. This ends up giving false Inventory Investment amounts on Normal Stocking Parts vs. Non-Stocking Parts on the Inventory Investment.

The only way to fix this issue is to do a "Batch Move", or "Mass Move" on all parts with a Normal Stocking Bin Location, with quantities over to Normal Stocking Status. Please be aware though if Special Order Parts are not binned as "SPORD" and carry a Normal Stocking Bin Location, they may be included in this "Batch Move", or "Mass Move".

Batch Moves, or Mass Moves

Speaking of being able to perform Batch Moves, or in some systems called a Mass Move may not be available in some Dealer Management Systems. Systems that do not provide the option of moving parts from one place to another in mass quantities based on the criteria selected have to be moved or adjusted one part at a time...not good!

Even though these systems do not provide this option, they may have other alternatives that require a lot of work and additional input. They also may not be accurate in many cases depending on the criteria needed or selected.

Weighted Daily Demand Option, (WDD)

This feature is a great option to have in any DMS but unfortunately is not available in most systems where Dealertrack, CDK, Tekion and DealerBuilt do provide this option. This WDD option allows the Parts Manager to "weight" annual piece sales over the course of the year.

In other words, I could sell 24 parts over the last 12 months, which could be 2 sales in in each month for 12 months, or it could be 12 sales over the last 2 months over the past year. This feature allows the Parts Manager to "weight" when parts sell and apply a desired percentage over the past 12 months.

This is especially an important feature on measuring seasonal sales with the peaks and valleys on when these sales occur. An example would be if I lived in Michigan and I sell 12 A/C Compressors over the course of the year, we could "capture" those sales when the occur in the summer months vs. the whole year.

Source Movement Updating, (ABC Source Ranking)

We all know that parts move at different rates over the course of a given year as some parts sell just 12 times a year and other may sell over 100 times a year. Each movement range requires different Stocking Levels for Best Reorder Points, (BRP) and Best Stocking Levels, (BSL).

Parts need to move into their Proper Source or Stocking Group as sales ranges change constantly in order for the Suggested Stock Order to be accurate on their stocking recommendations.

Even though most systems provide this option which is usually referred to as "ABC Source Ranking by Piece Sales", updating Parts Movement by Piece Sales is not automatic or in some system limited at best. In many systems, Source Movement has to be done manually each day, especially before running the Stock Order

The Negative Long-Term Result is that Stock Order recommendations will not be accurate and may affect the Manufacturers Vendor Managed Inventory, (VMI) recommendations as well. It can also lead to more Parts Obsolescence and "Stock Out" situations.

Parts Posting Procedures

This critical area can definitely lead to Long-Term Negative Parts Effects as every DMS has their own "quirks" in what is defined as a Lost Sale, Emergency Purchase, Stock Order Purchase, Supplemental Stock Purchases, "In & Out" Purchase or Other Purchases.

Defining these categories in every DMS is crucial in order "classify" each parts purchase and receipt accurately all the way into the Accounting Office. Posting Other Purchases and "In & Out" Purchases on Manufacturer Parts can have a Long-Term Effect on Stock Order Recommendations.

Other Receipts and "In & Out" Receipts and Purchases are not tracked for Stock Order Recommendations in most systems, even though sales history is recorded. These Outside Purchases, or "In & Out" Purchases should only be used for other receipts other than our own Manufacturer that we do not intend to stock.

On the issue of Lost Sales, some systems do not actually record a Lost Sale even though we enter the part as a Lost Sale. In other words, if we are not familiar with the new DMS, we may think we are posting a Lost Sale, but it doesn't really post as a Lost Sale unless we take an additional step to confirm the Lost Sale.

Parts Matrix

Implementing the right Parts Escalation Matrix can also be confusing from one DMS to another. Whether using a Cost Plus Matrix or a List Plus Matrix, we need to make sure how the DMS calculates the percentages. 

Some systems calculate the percentages with cost assumed while others may not. In one system Cost Plus 67% will net us a 40% retained gross profit where another system does not assume cost in the uplift and has to be entered as Cost Plus 167%.

In addition, some systems offer a "Cost Plus" Feature and a "List Plus" Feature within the same matrix where other systems may not. In some systems, you have to choose one or the other which makes it difficult for Parts Managers to choose the right percentages for "out of grid" defaults to MSRP on higher cost parts.

The Negative Long-Term Effect is inconsistent pricing, loss of additional gross profits and most important...more discounting by Parts Staff. It also makes it much tougher to sustain a Desired Gross Profit Trend that is sustainable.

Parts Flat Pricing or Family Pricing

While we are the topic, let's add in another pricing feature that may be different from one DMS to another is "Flat Pricing", or "Family Pricing" on Competitive Parts. Some systems require the Parts Manager to actually create a different Parts Source for their Competitive Parts.

The reason for setting these Competitive Parts is to set the Source Parameters to "not update" to lock in a desired out the door price without the Matrix. Setting these parts up in their own separate Source does accomplish the mission of locking in the price but at the sacrifice of Proper Stocking Levels if not set up for ABC Source Ranking as well.

On the other hand, there are quite a few systems the offer Flat Pricing that will override the Parts Matrix on selected parts, which is great. There is no sacrifice on Stocking Levels while the end goal is the same to lock in a fixed price.

The Negative Long-Term Parts Effect is if this Flat Price Feature is not available could be Stock Out situations on fast moving parts and loss of gross profit on parts we could have applied the Parts Matrix. All because we have to separate these parts into a separate Source just to lock in a fixed price.

System Navigation - Taking Shortcuts

Another area that differs from DMS to DMS is System Navigation as some systems are more "User Friendly" than others. Where this comes into play with the "Long-Term Effects of Changing the Dealer Management System, (DMS)" is that we are all Creatures of Habit" and we tend to always look for the easy way out.

Taking shortcuts in the DMS is not uncommon, but on the Parts Department side of the DMS, taking some shortcuts to make things easier can be detrimental. Entering in the wrong order codes and receipt codes could affect Accounting Reconciliation.

Relieving Dirty Cores for example is one huge area that can affect Accounting Integration as well as all parts returns. Making adjustments to the Parts Inventory improperly, discounting parts within the Repair Order or Counter Ticket instead of applying the correct discount codes at the bottom can impact gross profits and expense accounts.

Getting trained properly on the new DMS seems to always be an issue. It seems like they just want to make the system functional so we can get through the day and then they are gone. DMS Training is minimal at best without too much explanation as to why we have to do it in a certain way.

Parts Monthly Management Reports

Our last in our "Top 10 Long-Term Parts Effects of Changing Dealer Management Systems, (DMS)" is the Management Reports offered, or not offered in the new DMS. Each system has different reports that are supposed to give us all of our Parts Key Performance Indicators.

In my opinion, every DMS should be able to give us monthly parts data including...

• Parts Sales & Gross Information
• All Parts Fill Rates including Overall Parts Rates & First Time Fill Rates
• All Parts Purchases including Stock Order Receipts, Supplemental Stock Order Receipts, Customer Order Receipts, Emergency Purchase Receipts, Other Receipts and Unusual Receipts
• Processed Parts Orders and Outstanding Parts Orders in all Categories
• Parts Inventory Analysis to include Normal Stocking Parts, Non-Stock Parts, Manual Order Parts, Auto Phase Out Parts, Manual Phase Out Parts, Dirty Core Inventory and New Core Inventory.
• Annual Parts Gross & True Turns
• Parts Sales Activity in the 0 - 6 Month, 7 - 12 Month and Over 12 Month and Never Sold Parts Categories
• Cost of Sales of Normal Stocking Parts, Non-Stock Parts, Auto Phase Out Parts, Dealer Phase Out Parts
• Monthly Lost Sales at Cost
• Parts Inventory Adds, Deletes and Adjustments
• Beginning and Ending Parts Inventory Amounts Monthly

Believe it or not, many, many Dealer Management Systems do not provide this basic and necessary information on one Parts Monthly Management Report. In systems that do not provide this information makes it much tougher to manage the Parts Inventory Investment.

In closing, it all comes down to the dealer making the right decision on the best DMS that will suit their needs at an affordable price, and they are out there. Most important is that we need to "look before we leap", especially in Parts as the Long-Term Parts Effects could cost the dealer more than the potential savings by choosing the wrong DMS.

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

August 2025: News Flash: "Your DMS is Not a Person!"

As we move on into the latter half of 2025, I want to hit on a topic that has really bugged me over the years. I still see and hear Parts Managers referring to their DMS as a real person. How many times do we hear..."The computer says..." and it goes on from there.

What's worse is that blaming the DMS has become commonplace, or perhaps an excuse for why we either ran out of a part, or never even stocked the part in the first place. In defense of Parts Managers everywhere though, we are used to taking the blame.

Either we don't have the part, we ran out of the part, the wrong part came in, or the Parts Department ordered the wrong part seem to common excuses. Another common excuse is the Parts Department forgot to order the part.

Even though there may have been a misdiagnosis by the technician, it seems to always fall on the Parts Department. Either way, the eventual outcome is the same, it seems that no one takes a step further to ask why we may not be seeing what we want to see.

Communication and the DMS play a huge role in these outcomes other than the technician misdiagnosis. Keep in mind that we don't have the right part for only two reasons...either we ran out of the part, or we never stocked the part to begin with.

So how does this all play out when we talk about our DMS and how it seems to "talk" to us, and why do we often times refer to our DMS as a real person? Why do we seem to "blame" the DMS when the blame falls on us or the Parts Department in general?

More importantly...

"Why do we seem to trust the DMS as opposed to questioning why we are seeing what we are seeing and fixing it?"

The reason is simple...we have to understand that the DMS is putting out what we put into it. It's calculating the set-up data and producing the mathematical results. What's missing in all this is what the DMS cannot do.

Let's Begin!

Our DMS does not have common sense, does not have the ability to reason and cannot perform critical thinking theories. Even though we are headed into the New Age of Artificial Intelligence, (AI), we are not there yet with our Dealer Management Systems, (DMS).

Even with AI is coming on strong, we will still need to do what the computer does not know. The DMS does not know if a part is on backorder, it does not know if it is a restricted part, and it does not determine recommendations by the cost of the part.

In other words, if we run our Suggested Stock Order, it will recommend the part based on the set-up criteria for "phase-in" and demand history. Even though these demands can be "weighted" over a period of time, the cost of these parts are not measured for Phase-In and Stocking Levels.

If it meets the demands based on the set-ups, the DMS does not care what the cost is and will make recommendations based on demands. Even if the proper math is used in our set-ups, we will still have to make decisions whether to stock the part or how many to stock.

Perhaps we have significant demand and Stock Order Recommendations on parts we do not intend to stock in the first place like engines, other high dollar parts or even collision parts that we do not want to stock. Even though demand has been met, we "choose" not to stock them.

The DMS doesn't know these exceptions as it's giving us raw data based on set-up parameters. The DMS does not know a part is on back order or restriction, and we have to take from there as our job is over, it is just beginning. 

Unfortunately, many Parts Managers just stop and wait on backorder situations and don't take the effort needed to "find" them. We already know that we need them as the math, (if set up correctly) has revealed this whether it is available or not.

If we, as Parts Managers believe the part is on backorder and not available, then that's what our expectations will be. In my opinion, I believe that someone out there has to have it, and I have to find it. Even if I fail on some occasions, I will still succeed more often than not as it's the "mindset" that needs to change in my opinion.

Unfortunately, we tend to find out a part is on backorder when the customer is already there, and the vehicle is on the lift. Wouldn't it be great to had that backordered part already on the shelf before the vehicle is on the lift when it was on our Stock Order?

So, let's talk about when the DMS "says" we need to order parts we don't agree with, or the amounts recommended, or even why we don't have them on the shelf. Even if the DMS "says" we should have it, and we don't, or perhaps it "says" we need to order more or less than we think we need, we still need to ask why.

First of all, we cannot try and "outthink" the DMS as it is just giving results based on input. So, talking to it, or telling others what the DMS is saying is really an admission to guilt on us. If we don't question why we are seeing these incorrect results or takes steps to fix it by the math, we will keep talking to the DMS and eventually ourselves.

Sales Demands over the last 12 months can also get the Parts Manager talking to the DMS as these annual demands can vary throughout the year. Especially in areas of the U.S. where they actually experience all four seasons.

Many Dealer Management Systems "weigh" sales demand over the last twelve months which is also something we have to consider. In other words, we could sell a part 24 times over the last year which could be 2 per month over 12 months. Or we could sell 24 in just one month over the last 12 months which makes a big difference in the DMS recommendations.

This is actually huge because if your DMS does not have the ability to "weigh" most recent sales demands by percentage versus the total demand over the course of the last 12 months, it can give Parts Managers a "false reading" on the current Recommended Stock Order.

If the DMS has this feature to "weigh" parts demands over the most recent period of let's say 3 months, it can highly impact having the right part at the right time. An example would be if we lived in Minnesota and we sold 12 AC Compressors over the last year, that would mean that we sell on average 1 per month.

But we actually sell most if not all those AC Compressors during the 3 Summer Months. This would mean that we would run out in the summer and have them on the shelf in the winter. If the DMS has this "Weighted Daily Demand" feature, we would be able to have those parts when we need them.

This "Weighted Daily Demand" feature kind of confuses many Parts Managers as they could be looking at a Stock Order and the first thing we all look at is Annual Piece Sales. One Parts Manager called me all confused as he had a part on his Stock Order that had sold 21 times over the last year and the DMS Weighted Average Recommendation was to order 14.

He did not agree with that recommendation because he thought it was way too many and like most Parts Managers, he wants to protect himself from potential future obsolescence. This is a perfect example when I referred to trying to "outthink" the DMS.

What he did not realize is that 17 of those last 21 Annual Piece Sales were in the last 2 months as this part is on the rise. He was going to chop that order down to 3, but as I explained to him that if he only ordered 3, he would run out.

As an added note, I had him look at another part that was on this same Stock Order that had a similar Annual Piece Sale total that was recommending "less" than what he would order. He found one part that sold 25 over the last year, but the recommendation was for only one.

I asked him if he agreed and of course he said no and wanted to order 6 as he knew the part number by heart. After he told me what the Weighted Daily Demand average was, I told him to look at his Annual Piece Sales and he had only sold one of those parts in the last 8 months.

The system calculated the drop in Annual Piece Sales and reduced the recommendation. The results "would have been" bad if he trusted himself over the math as that part was on its way out and he would essentially be "purchasing" obsolescence. 

We need to let these parts Phase-Out and understand what the system can do for us if we understand it as well as the math if set up properly. Unfortunately, most of the obsolescence that is accrued is because of poor decision making to prevent it in the first place.

Speaking about the math, if not set up properly, here are a few areas that can cause undesirable results...

• Incorrect Phase-In Phase Out Criteria
• Incorrect Stocking Levels based on Incorrect Math being set up
• Improper Use of Weighted Daily Demand Percentages, (if available)
• Seasonal Sales not being Updated
• Changes in "Lead Times" and/or Supply Chain Issues
• Supersession Links not being updated on Superseded Parts

The results are that we are actually seeing and getting is due to what we put into it, or as it's been said for many years..."Garbage In - Garbage Out". That being said, if the results aren't what we expect, something was set up wrong in the first place or changed along the way and has to be fixed.

Unfortunately, and again, many Parts Managers have not been trained or taught about these basic set ups based on the math or even where to go to fix them. After all, "How Do We Know What We Don't Know?" In my opinion this is where the Parts Manager starts referring to their DMS as a person.

Here's why computers can't do what we can do, even with AI, someone has to input data parameters or what I call the "what if" situations. In order for the computer to even have a chance to "reason through" these math problems, it's still requiring input data by a "real person" for the computer to "process" through.

We have to use our ability to reason, utilizing common sense, and thinking through all the things that a DMS cannot do is what we have to do. We have to know current Supply Chain Issues, changes in Parts Lead Times, or even what type of parts we want to stock. 

In my opinion, common sense is not so common in many situations. If we would just start out by questioning why, we would be on a better path to better results in taking away this DMS person...maybe we should give our DMS a name!

I didn't learn 14 different Dealer Management Systems without asking a LOT of questions along the way. What I did know that led me to learning all these systems was that I knew what I was looking for and didn't give up until I found out. 

Even though it may have been in a "different language" from one system to another. The basics are all the same from Phase-In/Phase Out Parameters, Annual Piece Sale Ranges, Weighted Daily Demand, Pricing Strategies, etc.

We just have to know what we want and where to find it, then implement the right math in order to get the most out of each system. Most importantly, if the results are not what we expect, we have to do the research, find out why and fix it.

Many don't know that the math in our DMS, (whether right or wrong) also translates to the Manufacturers Vendor Managed Inventories, (VMI). That being said, if your DMS is not set up correctly, then your Stocking Levels from the Manufacturer will also be incorrect. Maybe the Manufacturers VMI is also a person that we talk to?

My fear is that with all this new Artificial Intelligence, (AI) and new products and programs out there that will do the job for us, we will lose our own ability to reason and figure things out for ourselves. 

Simple reasoning and math concepts have seemed to slip away from us, and we have become so dependent on computers and new innovation to replace the ultimate computer which I believe is the human brain.

Even though all these new innovations help us to expand our knowledge and achieve new levels of our own intelligence, in my opinion, we cannot let them replace our own abilities. Especially the basics of math, common sense, our ability to reason and utilizing our own critical thinking skills.

Lastly, if your DMS is a person, why not just give it a name, but keep in mind that what you see is a direct result of what is or was put into the system. Nothing will change if we don't ask why and get it fixed. Otherwise, we might as well be talking to ourselves and the ceiling every night...

"Does Your DMS Person Have a Name?"

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

 

 

July 2025: Managing Parts Department Expenses

As we move on into the second half of the year, and as a follow up to last month's issue of ACG "Smart Parts", we will take it to the next level along with our "Parts Department Insurance Plan" by adding some Parts Bottom Line "Protection".

Even though we may do a great job on Parts Sales & Gross Profit, all that effort may just go by the wayside if we are not managing our Parts Department Expenses. We also have to keep in mind that in Parts, we are responsible for our portion of the overall dealership's "Fixed Absorption" Percentage.

The Parts Department is responsible for 25% of the Total Fixed Absorption Percentage if we have a Collision Center, and 20% if we do not have a Collision Center based on Industry Guidelines.

Even though these Absorption Percentages are based on Parts Gross Profit, we have a dual role here as we are not only responsible for this Absorption Percentage, but we are also required to have a "Net Profit" of up to 40% or even higher depending on the Manufacturers' Industry Guidelines.

This means that the Parts Department, by percentage, should be the highest "Net Profit" department in the whole dealership. A huge responsibility for "Smart Parts" Managers and we cannot achieve these numbers without controlling our Parts Department Expenses.

In this issue of ACG "Smart Parts", we will focus on protecting our "Parts Bottom Line" by managing those Parts Expenses that are in our control. All dealership departments have expenses that may be "out of our control", which are usually "Fixed Expenses" and maybe even some "Semi-Fixed Expenses".

Not only do we have many of these Parts Department Expenses in our control, but there are also many Parts Department "Unseen" expenses that we may not be aware of. Many of these Parts Department "Unseen" expenses can also highly impact the Parts Bottom Line as well as the dealerships overall Bottom Line.

Question is...

"What Parts Department "Seen & Unseen" Expenses should we be focusing on and how can we bring them to the surface?"

Once Again "Smart Parts" Readers!...Let's Get Started with our "Top 5 Parts Department Controllable Seen & Unseen Expenses!"

As mentioned, there are many Parts Department Expenses that may be out of our control which are usually Parts Fixed Expenses. There are also some uncontrollable Semi-Fixed Expenses, as well as some overall Dealership "Allocated" Expenses depending on the Manufacturer.

Let's get started with our Top 5, and as in last month's issue, they will be listed in no particular order, but we will save the best for last with our "Unseen" Parts Department Expenses that may be impacting the Bottom Line.

Here We Go!

Parts Personnel Expense:

In order to control the overall Parts Department Expense, we first have to look at some Industry Guidelines. There are some key guidelines that will help us manage this overall expense even though we do not control many of these Personnel Expenses.

Personnel Expenses such as Owners Salaries, Employee Benefits, Taxes and Absentee Compensation are just a few that will just be there each and every month. This means that we have to look at the overall Parts Department "Expense to Gross" Guideline which is usually between 30% - 35% depending on the Manufacturer.

The only way to hit these "Expense to Gross" Guidelines is to either increase Parts Gross Profit or reduce Parts Department Personnel Expenses. That being said, we need to first look at the total number of Parts Employees with a second set of Industry Guidelines.

To determine the right number of Parts Employees, Industry Guidelines indicate this total by both Parts Sales & Parts Gross Profit per Employee. On the Sales side, the number is $55,000.00 in Sales per Employee for Domestic Dealers and $70,000.00 per Employee for Import Dealers.

On Gross, the numbers are $20,000.00, (domestic) per Parts Employee, and $22,000.00 - $25,000.00, (import) per Parts Employee. The reason we have both the Sales & Gross Guidelines is that we may have high Parts Sales Numbers, which would dictate more Parts Employees, but due to high Parts Wholesale Sales Numbers, we still may not meet the "Gross Profit per Parts Employee" Guidelines.

Even though some Manufacturers do not really measure the "Parts Personnel Expense to Gross" Percentages of 30% - 35% due to their Financials measuring "Allocated" Personnel Expenses. We can still measure the right numbers of Parts Employees by these Sales & Gross per Employee Industry Guidelines.

Parts Advertising Expense:

This "Semi-Fixed Expense" should be anywhere from 2% - 4% as far as "Expense to Gross", again, depending on the Manufacturer. The reason we need to watch this expense account is that there usually isn't that much spent on "direct" Parts Advertising per say.

That being said, the Parts Department may share in some Total Dealership Advertising Expense, which all departments participate in. Unfortunately, I've seen in many dealerships the Parts Department may just be sucking up more of these Dealership Advertising Expenses than they should.

Even though this is a decision made from upper management, or ownership, it is not unusual to see the Parts Department paying more than their fair share. One reason may be the fact that the Parts Department usually has the highest "Net to Gross" Percentage in the dealership as mentioned earlier.

Parts & Service Advertising is definitely a shared advertising expense that we often see due to Service Promotions, Coupons and Specials that will help drive Service Lane Traffic. It is extremely important that the percentage of this "shared" Advertising Expense is "fair" based on how much total gross each department generates.

Another Parts Advertising Expense may actually be the discounts that are applied to these Service Lane Promotions. Some dealers will actually apply these discounts against Customer Pay Gross, thus lowering the Parts & Service Customer Pay Gross Profit.

This is also a decision that the dealer will make along with the Accounting Department, but we have to be careful when we charge back these discounts to Customer Pay Gross Profit. When these coupon discounts are charged back to gross, it is much harder to track as these discounts, or "costs" as they get swallowed up in what I call the "sea of gross".

When these "direct" Advertising Expenses are in fact charged to an Expense Account, it is much easier to track and compare them to Industry Guidelines. In my opinion, the actual cost of the Advertising Expense should be charged to Advertising Expense and tracked monthly.

Parts Freight & Shipping Expense:

This Parts Expense can obviously vary from dealer to dealer depending on wholesale sales, delivery expenses with the number of delivery drivers, outside delivery services, or even warehousing costs. 

We could also include "Parts Return Fees" into this category as repacking fees, damaged parts, and Manufacturer Return Fees can highly impact this Parts Expense. There will always be Parts Returns, much like Amazon or any other online retail outlets, as there is always a cost of doing business.

We have to have a policy that will "recoup" some of these costs from our customers, or even the dealerships' Service Departments and Collision Centers. There especially has to be more accountability on who's really responsible for these return costs.

Although, it's always easier said than done as many Parts Managers out there do not want to mess with their so called "good customers" that buy a lot of parts each month. In my opinion, we need to do our research to see what other dealers are doing about return fees to remain consistent and competitive.

You may be surprised but there are actually many dealers out there that are charging for delivery fees, return charges, repackaging fees and late fees for untimely monthly payments. We just seem to assume the negative at times when we really don't know until we do the research.

In my opinion, especially in our own dealerships, the person or department that is authorized should be responsible for the initial Parts Special Order "cradle to grave". They should also be responsible for any return or restocking fees. It should not be just assumed that the Parts Department pays for the cost of returns, or the burden of potential obsolescence.

Parts Data Processing & Outside Services Expense:

I kind of "looped in" two actual expense categories here as some dealers will use either one or the other depending on their particular preference. Either way, they both include outside companies that charge the dealer for their product usage or services.

This expense category may also be called "Information Technology Services" on some of the newer Financial Statements. Ultimately, these two expense categories usually include the Parts Department's share of the monthly DMS Fees, Parts Catalogues, Electronic Estimating Programs and perhaps even E-Commerce Fees to name a few.

Even though these expense categories could be referred to as "Fixed Expenses", they are still considered "Semi - Fixed Expenses". We do have a degree of expense control on these two in the way of making sure the expense allocations are fair, especially in the monthly DMS fees.

Controlling as a matter of "awareness" is most important and not just "assuming" that these expense entries are accurate each month. We need to follow the monthly trends to make sure we don't see any unusual "spikes" due to Accounting changes or entry errors.

We also need to do an ROI, (Return On Investment) breakdown on some of these Outside Companies to make sure we are getting our "bang for the buck". There are still many new "flavors of the month" companies out there that may tease us into buying some new computer program.

It's a fact that our own DMS Utilization Factors are at a stunning 20% - 25% and we can easily get sucked into some new computer program out there. Only to find out that we could get the same out of our own DMS, but just didn't know.

Parts Department "Unseen" Expenses:

As our Number 5, we wanted to save the best for last as these Parts Department Expenses will not be found on any Financial Statement. Even though they are technically "Unseen", you can be assured that they are out there and affecting the "Bottom Line" monthly and especially by the end of the year.

Parts Acquisition & Holding Costs are one of these "Unseen" Parts Expenses. There is actually a cost of acquiring and holding Parts Inventory. If you were to "Google" Acquisition & Holding Costs, you would see that the average "cost" of holding any inventory or retail commodity, the costs are anywhere from 25% - 30% of the total inventory value.

Handling the parts, Physical Inventory Costs, Asset Insurance, Damaged Parts, Building Rent and Warehousing Equipment are just a few that fall into this Acquisition & Holding Cost Percentages. That being said, holding Parts Obsolescence can just add to these costs each month and year.

We know that these Acquisition & Holding Costs are there, we just have to make sure that we are "turning" the Parts Inventory at Industry Guidelines. We also have to make sure that we are not carrying too much in the way of "excess" inventory and of course, parts obsolescence.

In other words, if we were still carrying approximately $100,000.00 in Parts Obsolescence, it is actually costing the dealer $25,000.00 - $30,000.00 a year just to hold those parts that will never eventually be sold. Again, you will not see this expense on any Financial Statement.

Another "Unseen" Parts Expense is lack of proper training in the Parts Department. If you drill it down, dealers for the most part, do not invest in Parts Department Training compared to other dealership departments.

Instead of spending the money on training the right, qualified Parts Employee that we already have, often times we just add more Parts Staff. Adding more Parts Staff to make up the difference for lesser trained employees can also add to this "Unseen" personnel expense.

It also doesn't go over well with the dealer when we simply say that we need more help to get the job done. Long lines at the Parts Front & Back Counters can be justified if we don't have enough Parts Staff based on the above Industry Guidelines, but if we are "under-trained" in Parts, that's a different story.

For the most part, the qualifications for hiring Parts Department Staff are minimal at best, especially for Parts Counter Staff. The lost productivity to the Service Department is also "Unseen" as technicians are waiting longer to get the right parts due to lack of proper Parts Training.

Lost Sales Reporting may also be affected due to lack of training and/or accountability. They need to be trained and informed on the proper definition as well as tracking their Lost Sales Reporting Performance daily. Most importantly on Lost Sales Training is explaining the actual purpose and reason why we report them in the first place.

This "Unseen" expense goes even further for Parts Managers as proper DMS Set Ups & Controls are incorrect based on the math. This Parts "overlook" leads to low "Parts First Time Off Shelf Fill Rates" thus reducing Service "Cycle Times" waiting for or chasing parts we perhaps should have had on the shelf "the first time".

We just "assume" that the math in the DMS is correct, but unfortunately, many, if not most of the DMS Trainers/Installers don't even know the right math. The initial Parts Set Ups & Controls initially installed are "cookie cutter" at best and don't follow basic math, which is irrefutable.

Keep in mind and don't misunderstand that we are not blaming the Parts Manager as it is more the question of "How Do We Know What We Don't Know?" Most Parts Managers that I have met are very intelligent, as it's mostly due to the fact they haven't been trained or informed about the math that could increase the "Parts First Time Off Shelf Fill Rate".

Unfortunately, in many Parts Departments today, the dealers have more of the parts they don't need and not enough of the parts they do need as far as inventory "breadth". This is also why Parts Obsolescence overall is at an all-time high.

It's hard enough these days where Parts Coverage, or the "Life Cycle" of a part is lower than it was years ago. The "Life Cycle" of a part 20 or 30 years ago used to have a nice "bell curve" during its Life Cycle. Today, it's more of a "sharp spike" up and then back down for 6 - 8 months and then the part is on its way out, dropping into the obsolescence category sooner than ever before.

Having the right "Parts Insurance Protection Plan", (last month) and "Managing Parts Department Expenses", (this month) is the best combination a "Smart Parts Manager" can have in achieving Predictable Results each and every month.

Last Question...

"Is Your Parts Bottom Line Insured, Protected and Covered?"

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

 

....

June 2025: "Do You Have a Parts Insurance Plan?"

As we move on into the second half of the year, our June Issue of ACG "Smart Parts" will be focused on getting the most out of our Parts Department. It doesn't really matter how big or small, or the number of sales or the number of employees. 

Even though we all want to get the most out of our Parts Department, wouldn't it be great if we had a Parts Insurance Plan? In other words, if we had a "Parts Insurance Plan" that would lead to predictable results in getting the most out of our Parts Department in Key Performance Areas, we would never have to worry.

The only difference between a "Parts Insurance Plan" versus other insurance plans such as auto insurance, homeowners' insurance or even life insurance is that there is no monetary payout per say if the insured has to be compensated for any coverage reasons.

Although there are huge monetary "benefits" from having the right "Parts Insurance Plan" that will pay dividends for as long as we are covered and following the "Parts Insurance Plan" guidelines.

So, for the sake of conversation, and content of this month's issue of ACG "Smart Parts", we will refer to our topic as "Parts Insurance". Some may wish to call it a Parts Protection Plan, but the overall goal will be the same.

We will focus on getting the most out of our Parts Department while protecting the dealers' number two asset, right behind the Used Vehicle Inventory. We will also dial in on our "Top 5 Parts Insurance Protection Categories" which will give us more consistent, desired results each and every month.

The markets and the economy may swing up and down, but our "Top 5 Insurance Protection Categories" flow with the current market trends as well as the economy. Again, it's more about getting the most out of our Parts Department, no matter what's going on around us. As I've said many times..."It rains everywhere, and we all have to deal with it"...

We don't always control where our sales come from, but we do control the outcomes in all of our "Top 5 Insurance Protection Categories" which will be the topic of this month's issue of ACG "Smart Parts".

"So, How Can We Protect Ourselves and Ensure That We Are Getting the Most Out of our Parts Departments?"

Let's Get Started!

Much like in any Insurance Plan that we may currently have, we all have a desired level of protection that we are looking for in case something should happen. Having a Parts Insurance Protection Plan is similar, but different in some ways.

In regular Insurance Plans that we may currently have, we are protecting ourselves from the "unknown", where in our "Parts Insurance Protection Plan", we are protecting ourselves from the "known", less than desired results.

Our "Parts Insurance Protection Plan" will involve five key areas that require a specific plan in order to prevent less than desired results while ensuring we achieve our overall goals each and every month.

As we move on through our "Top 5 Insurance Protection Categories", we will detail, (not in any specific order) what it will take make us "bullet proof" to normal, outside market and economic issues. Even though there are really no guarantees in life, especially catastrophic events that are out of our control.

Here We Go!

Gross Profit Insurance/Protection:

Believe it or not, ensuring that we attain industry guidelines on Customer Pay Parts Gross Profit is for the most part, totally in our control. As I mentioned, we may not always control where our sales come from, but we should be controlling how much we keep.

Even though Warranty Parts Gross and Internal Parts Gross may not be totally in our control, we can always control our overall Parts Gross Profit with the right Customer Pay Parts Matrix and the right Customer Pay Competitive Parts Pricing Strategy.

The Parts Gross Profit Protection comes into play if we are maintaining and/or modifying these "controllable" Parts Gross Margins on a more consistent basis. We should be monitoring Parts Grosses daily and not waiting until the end of the month to see that the results were less than desirable on the Financial.

It's also okay to "tweak" the "right" Parts Cost Plus Matrix three to four times a year to adjust for price changes, market swings or even lower Customer Pay Parts Grosses for bigger ticket items such as Powertrain or Electronic Parts that do not have the Matrix applied and are usually sold at MSRP.

We need to be looking at discounting, overrides, or even outside influences that may affect the eventual outcome on the Financial at the end of each month. We, in Parts, are ultimately responsible for the gross outcome each month.

If our dealer trusts us to achieve these gross profit gross margins, then they should be giving us total control, unless overrides are approved by upper management. If we are not monitoring our gross profit percentages daily, then don't be surprised if the results at the end of the month are not what we expected.

Parts Asset Insurance/Protection:

In Parts, we are responsible for the dealers second highest asset next to the Used Vehicle Inventory. In some dealerships, the Parts Department Inventory is the highest asset. That being said, we have a huge responsibility in "turning" this Parts Inventory at Industry Guidelines or better.

Gross and True Turns are huge indicators on how well this asset is performing. Parts Obsolescence also plays a big part in the Overall Gross and True Turns. Keeping Parts Obsolescence at a low amount, (0% - 5%) will keep this asset turning at Industry Guidelines.

One of the biggest "Asset Insurance/Protection" Policy Guidelines has to include dealing with Parts Obsolescence on a monthly basis. We cannot afford to let it build to a point of no return. If we deal with it at Month 13, we have a better chance of keeping it clean at all times.

In order to have the right Parts Asset Insurance Protection Policy, we have to make sure that the asset is "self-protected" and "insured" by keeping the Parts Inventory active within a twelve-month period. If we do that, we will always be protected, ensuring that the Parts Inventory is "liquid" and retaining it's value.

Parts Employee Insurance/Protection:

Here's one of our "Top 5 Insurance Protection Categories" that often goes undetected. We all know, especially in these times, that finding and retaining good employees is harder than ever.

Once we have an employee that is performing at expected levels or even higher, there is absolutely no reason that they should be looking elsewhere. Quite simply, all employees want to belong to something and to be a part of something.

Most of them want to grow and build their careers and want that path to grow their careers. That being said, we have to have a career path that provides them the proper training and goal setting opportunities.

One area that I feel is changing in our marketplace to the positive is the career opportunities in the field of trades. There are many opportunities for young people to seek their future goals in this field of trades that will lead to potentially a higher income level versus going to college for their bachelor's degree or master's degree in other fields.

In providing this career path, we have to have an on-going Parts Training Program that will allow our Parts Employees to grow. That means we have to compensate then accordingly with sales incentives to grow their careers. 

Parts Employees should have the same opportunities as technicians, salespeople or even other dealership management positions. Working in Parts should not be just another steppingstone to where they may eventually end up in some other field. We should be "grooming" them to grow to other potential dealership positions, if qualified.

First Time Fill Rate Insurance/Protection:

If there was one of our "Top 5 Insurance Protection Categories" that would yield the best results is this one. Quite simply and much like the Kevin Costner Movie "Field of Dreams", the saying would go the same.

As mentioned in the movie..."If You Build It, They Will Come", which would translate to Parts as..."If You Have the Part, They Will Buy It". Believe it or not, having the right part at the right time is the Number One contributor for increasing Parts Sales, which of course, Lost Sales Reporting is the key factor to increasing First Time Fill Rates.

Again, having the right part at the right time, (75%-85%) of the time doesn't have anything to do with the overall value of the Parts Inventory. It simply means that we provide that part, on a first-time basis of 75%-85% of the time.

I will say that if we achieve these levels, much of our Parts Insurance Protection will stem from this one specific category. Sales and Grosses will be higher, Service Productivity will also be higher, and Asset Protection will be higher and so on, no matter the sales volume.

That being said, in order to achieve these First Time Fill Rate Percentages, we have to have the right math and the right Set Ups & Controls in our DMS. If we do have a Manufacturer's Vendor Managed Inventory, (VMI), their settings would also be emulated by these proper DMS Settings, thus giving us better Stocking Levels on Qualified VMI Parts.

Market Penetration Insurance/Protection:

This is a big one as we all want to make sure we are getting our fair "market share" of customers. There are also many factors that contribute to maximizing our market share penetration, especially in Sales & Service.

We do play a big part in this from the Parts Side, especially having the right part at the right time as mentioned above. We have to do our part by not only having the right part at the right time, but we also have to be competitive. 

In partnership with our Service Department, we have to be first focused on Customer Retention, keeping our customers coming back. It doesn't make much sense to invest in all this advertising in order to gain new customers if we aren't taking care of the ones we have already.

Focusing on our current customers before reaching out beyond our customer base has to be a priority. Delivering the Customer Promise is the Number One priority in maintaining high Customer Retention, especially in Service.

The right number of skilled technicians with the proper training, trained Service Advisors that are focused on taking care of the customer are surely key factors in Customer Retention.

All that being said, and if we are doing all the above, we have to have a "market plan" that reaches out to all customers on our market area, not just those customers that have purchased New or Used Vehicles from us.

All of our "Top 5 Insurance Protection Categories" are designed and focused on achieving high Service Absorption Levels overall in Fixed Operations, which means of course that we have to be focused on Expense Management.

Insuring and Protecting the Parts Department does follow basic Insurance Guidelines as we all want to make sure that we are "covered" in case something happens. The only difference in my opinion is that we do have some control of potential outcomes versus outcomes that are out of our control in other insurance policies. 

One last thing, one of my dealers once told me that..."Continually working with ACG "Smart Parts" is the Best Parts Insurance a Dealer could have". Which, by the way, they are still with ACG "Smart Parts" for over seven years.

Accidents can and do happen as well as other events that may happen which may be out of our control, but to me, if we could prevent potential negative events and results from happening, we should act on it before it happens by having the right Parts Insurance and Protection Plan.

 If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

.....

May 2025: Parts Return Sales: "The Costs & The Effects"

As we move on into May, we will continue our theme that we shared in our April Issue of ACG "Smart Parts". In April, we focused on the "Costs & Effects" of what Dirty Cores represent. Now it's time to continue in May with the "Costs & Effects" of Parts Return Sales.

Parts Return Sales is also one of those areas that we have to deal with as it's just a part pf doing business, much like any other retail operation such as Amazon Prime, Best Buy, Lowe's, Walmart or even at the local grocery store.

Believe or not, there is an actual measurement here as Industry Guidelines has these Parts Return Sales set to 5% or less of Total Parts Sales at Cost. This measurement can be debated as some say the actual number should be 10% or less.

Either way, there is a measurement that we need to pay attention to monitor trends as there are many costs incurred from Parts Return Sales. The interesting thing here that I have noticed over the past couple of years is that the actual rate of Parts Return Sales is on the rise.

So, whatever measurement is used, we have to take notice and wonder why Parts Return Sales are rising in many Parts Departments today, especially in higher volume Parts Departments, although this rise has also impacted smaller volume Parts Departments.

We all seem to know the most popular reasons for Parts Return Sales such as the wrong part was ordered, didn't need the part, customer never came back and so on. All that being said, all these basic reasons for Parts Return Sales have always been there. Why now and why so many and most importantly...what are the costs for these increased parts returns?

In this issue of ACG "Smart Parts", we will break it all down again with our "Top 10 Impact Areas" that are driving not only Parts Return Sales, but we will also break down why the increase over recent months and years.

The real question is....

"Why are Parts Return Sales Rising & What are the True Costs & Effects?"

Let's Find Out!...

First and foremost, let's look at the overall picture of our daily operations as we all know that parts will be returned at times and for various reasons that we have mentioned. But what we don't always look at is how often they happen because we just go on with our daily routines.

Of course, many if not all Parts Departments have some guidelines on returns whether we charge return fees, or maybe not allowing parts returns on electrical parts or Special Order Parts and perhaps requiring deposits or pre-payment.

In my opinion throughout all this is that many Parts Managers don' even track their rate of Parts Return Sales. We also have to first define Parts Return Sales as in many Dealer Management Systems, (DMS) simply taking a part off a Repair Order can trigger those parts into the "Return Sales" category on the DMS Monthly Management Reports.

Even though the sale never happened as the part was taken off the repair order for other reasons such as billed to the wrong RO, billed to the wrong line on the RO or the wrong quantity was billed out, it still may trigger a Parts Return Sale on the DMS.

Beyond all these normal transactions that we all deal with as mentioned above, it's now time to look further and find out why these "actual" Parts Return Sales are climbing and what are the true "Costs & Effects" of rising Parts Return Sales.

We will break down our "Top 10 Impact Areas" that will reveal either the cost and/or the effect on the overall results of Parts Return Sales and how they impact the Financial Statement or Overall Inventory Values. 

Acquisition & Holding Costs:

We will start all this off with one of the "unseen" costs of what Parts Return Sales can impact. Parts Acquisition & Holding Costs will not be found on any Financial as these costs are assumed at a rate of 25% - 30% of the Annual Parts Inventory Value like any other Retail Companies that resell goods to the consumer.

These Acquisition & Holding Costs include handling of goods, (or parts), building rent, inventory insurances, heat, power & lights, advertising, depreciation, etc. in order to maintain the parts inventory.

Parts Return Sales fits into this category immensely, especially in the handling of goods category, restocking fees, damaged goods and so on. Parts Return Sales, if in access, can drive these Acquisition & Holding costs even higher than the average.

Manufacturer Return Fees: 

Even though manufacturers vary on what they charge dealers for parts returns, this cost is usually absorbed by the Parts Department which has always amazed me. Especially in the Service Department and in our Collision Centers.

Even though these Return Parts Sales were initially authorized by these other departments, when they are returned for whatever reason, didn't need or the customer never came back, the Parts Department sucks it up and ends up paying these return fees.

In my opinion, whoever authorized the Parts Special Order is ultimately responsible for the Parts Return Fees implied, unless the wrong part was ordered by the Parts Department. In the case of GM, Parts Return Fees can add up to 35% of the cost of the part.

These return fees should be charged back to the department and/or a portion of the Return Fee be charged the actual individual that authorized the Special Order in the first place. Even a small portion to the individual sends a message and results in fewer returns.

Collision Center Parts Return Sales:

Dealership Collision Centers are a huge contributor to higher Parts Return Sales and for good reason, but they have to take more responsibility for these Parts Return Sales. In their defense, they have to work with Insurance Companies, Supplements, Unseen damaged parts and so on.

That being said, there are ways to recoup some of these expenses that are incurred from Parts Return Sales. Especially if a vehicle ends up being totaled and all the original parts are still sitting there, many Insurance Companies will pay these return fees charged by the manufacturer as well as internal handling fees.

It just seems to be always "assumed" that the Parts Department sucks it up again and pays for these parts returns. Collision Parts ordered in excess, or perhaps "just in case we need it" should also be addressed.

Service Department Return Parts Sales:

Parts Return Sales in the Service Department don't usually add up to the what the Collision Center returns in cost, but as far as the number of Parts Returns Sales in the Service Department...they can be staggering for many reasons.

Parts ordered in error, no matter whose fault, parts ordered "just in case", customer never came back, didn't fit right, etc....the lists goes on. The bottom line is that all these reasons add up to Parts Return Sales.

Most often times, these Return Parts Sales end up on the shelf and eventually just adds to Parts Obsolescence. "Just put it back on the shelf and we will sell it to someone else!", or..."Just send it back!"

Not that easy as in most Parts Departments today, they can never accrue enough Return Reserve from the Manufacturer to even match the number of parts that get returned from Parts Return Sales.

As I mentioned earlier, there has to be some accountability, or "consequences" in place with an Internal Parts Special Order Policy. Someone has to pay, but it shouldn't always be the Parts Department as ultimately, it's the dealer who is paying.

Wholesale Parts Return Sales:

This is the big one as unfortunately there are many Wholesale Collision Centers out there that are surviving solely on our Parts Departments. Especially if these Wholesale Collision Centers are in the 30-, 60-, or 90-Day Accounts Receivables Category.

This is not anything new as for years, many Wholesale Collision Centers will order parts that are approved by the Insurance Companies, only to repair the fender and return that fender to the Parts Department for credit.

I have actually witnessed Wholesale Collision Centers keep up with their Monthly Parts Bill from the dealer with Parts Returns. This has gone on for years and the only way to stop it is to charge shipping and handling fees, no matter how we may feel, thinking that they are a "good customer".

There are actually many Dealership Parts Departments doing what I would be doing today is having all my Wholesale Collision Centers pay by credit card right up front. This way the payment is received up front, and shipping and handling fees can be applied when applicable.

Smaller Wholesale Collision Centers that cannot utilize a credit card for payment for credit limit reasons can be put on a 30-day credit limit only, if qualified and with a background credit check. After 30 days with non-payment, they would be cash or check only at that point.

Damaged Parts/Repacking Fees:

We all know that pretty much every manufacturer has some sort of added fees for damaged parts and repackaging fees. This one is also a big one as we all know the process of applying for credits takes months in some cases.

We also know that denied credits is another nightmare as it also trickles down to Parts Reconciliation with Accounting, sending inventory variances skyward. The timeliness of Parts Return Sales has many negative effects as prices are everchanging.

By the time we actually receive any credits for these Parts Return Sales, the price we paid when we bought these parts have changed, minus any other fees from damaged parts or repackaged parts. Any of these fees should also be passed down to the party responsible for ordering them in the first place.

Parts Wholesale Gross Profit:

Many of the Higher Volume Wholesale Parts Departments gain most of their profits on the backside for the manufacturers, especially today. That being said, it tends to cause what I call the "push and pull" affect, or a huge juggling act.

In order to receive this back-end money from the manufacturer, we have to maintain purchase amounts to qualify for the maximum discounts and allowances available. The "push" side comes from our purchases and the "pull" comes from getting the money in.

When we factor in the up front and back-end money, we have to come to a balance of total gross and net profit that meets or exceeds industry and dealer expectations and guidelines. If added costs are factored in that we mentioned above, we will not receive the expected net profits overall.

Obsolescence From Parts Return Sales:

We all knew that this one was coming as Parts Obsolescence is "the pit" where everything will end up and hide. If you look back to all of our reasons mentioned above that cause Parts Return Sales, we cannot think that there won't be a negative effect on Parts Obsolescence.

Parts Obsolescence is where the evidence becomes proof of how well we manage the Parts Inventory Investment. Even though Higher Volume Parts Departments have a better opportunity of protecting their parts investment due to higher purchase and sale amounts, obsolescence is still a huge concern.

Simply adding Parts Return Sales to the Parts Inventory is not a solution by hiding them on the shelf when they are returned will eventually show its ugly head. Dealing with them up front by charging these Parts Return Fees to the authorizing parties as we mentioned above is the best way to stay ahead of the game.

Managing Parts Return Sales:

As mentioned earlier, we all have Parts Return Sales, but are we inventorying these parts accordingly? We have to inventory these Parts Returns Sales and separate them from our Normal Active Inventory.

If these Parts Return Sales are Normal Stocking Parts, then they would of course be sent to their original assigned bin location. But if these Parts Return Sales are from the Special Order Category, they need to be "binned" or "housed" separately.

Special Order Parts Return Sales should never be given a Normal Stocking Part bin location as they will be "masked" as a Normal Stocking Parts. Parts with bin location are meant for Normal Stocking Parts and not "SPORD" parts mixed in.

They should also be "binned" or "housed" in temporary locations or bins that are viewable at all times to create awareness over a 30-day period and cycled through the return process each month.

Managing Parts Returns Measurement Reports:

Lastly, we need to be looking at our rate of Parts Return Sales each month to monitor trends. Whether you are at Industry Guide of 5% or less, or the trends follow a 10% or less Parts Return Sales Rate, we have to look at these trends like any other management trends we monitor.

We also have to factor in those parts on Repair Orders that were simple taken off the Repair Order for various reasons we mentioned earlier. Often times we may see our Parts Return Sales jump way up because we billed an engine on the wrong Repair Order.

The good news is, and if we are looking at these Parts Return Sales Management Reports, we will see when it happens and have the answers right up front as to why the increase happened in the first place.

In Closing:

As to the answer to our original question to rising Parts Return Sales, it's actually pretty simple. With the increased amounts of Vehicle Makes & Models, with the average numbers of parts in the Manufacturer's Pricing Guides, the chance of errors will rise in the order process and mistakes will happen.

One other reason, especially for Wholesale Parts Dealers, is that we tend to want to take care of our so called "best customers", only to find out that they are taking advantage of us and playing the game to their benefit and not ours.

Finally, the manufacturers are not making it very easy to receive our credits with added New & Dirty Core Value Parts Costs which makes it even harder to reconcile our inventories and gross profit percentages.

"Bottom line is that we need to follow these Return Parts Sales Reports just as much as we watch all of our other Parts Key Performance Indicators, (KPI's) as it takes much more today to manage our "true" Parts Gross & Net Profit Areas."

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...