February 2025: Parts Obsolescence Prevention: "What Are Our Best Options?"

As we continue forward into 2025, and to follow up on our "Top 5 Parts Focus Points" in the First Quarter of this New Year, we will expand on those "Top 5 Parts Focus Points" by breaking things down even further.

As a reminder, let's look back to our January issue when we revealed our initial "Top 5 Parts Focus Points for 2025" listed as follows...

• Reducing, Controlling & Eliminating Parts Obsolescence
• Parts Monthly Reconciliation
• On-Going Parts Perpetual Physical Inventories
• Parts Pricing Strategies & Policies
• Parts Mindset for 2025

The first listed "bullet point" above is what we will breakdown in this month's issue of ACG "Smart Parts", followed by our March issue which will focus on the rest of our "Top 5 Parts Focus Points" in the First Quarter of 2025.

The reason for this issue being totally devoted to Parts Obsolescence is quite simple. The Parts Inventory is the second highest Dealer Asset and Parts Obsolescence highly impacts the other "Top 5 Parts Focus Points" in the First Quarter of 2025.

If you could just imagine for a moment if we didn't have to deal with Parts Obsolescence, how much would that impact our other "Top 5 Parts Focus Points?" Parts Monthly Reconciliation would be much more accurate, our Pricing Strategies would be more focused with lower Acquisition & Holding Costs and Pricing Strategies would be more aggressive. 

The result of all the above would definitely impact our overall "Parts Mindset" for the New Year ahead. Who would have thought that Parts Obsolescence would impact so many other areas? But if you think about it, and as many Parts Managers believe, Parts Obsolescence highly impacts our overall Parts "Mind Set".

All the above being said, we definitely have to put Parts Obsolescence to the forefront and format a game plan in place to reduce, prevent and eliminate Parts Obsolescence. 

Pretend for a moment if a Parts Manager didn't have to be concerned with Parts Obsolescence, just how would it change the overall "Parts Mindset" on all these "Top 5 Parts Focus Points" for the First Quarter of 2025, or any other time for that matter?

Now that we have an idea of where we are going in our February issue of ACG "Smart Parts", let's start out by getting this "Monkey Off Our Back" early on in 2025. More importantly, let's put a plan together that will keep that "Monkey Off Our Back".

Here's The Plan!

When tackling Parts Obsolescence and before we start out on our Parts Obsolescence Reduction Plan, we have to consider a few important facts about Parts Obsolescence in general...

• Parts will go obsolete at a rate of at least 3% - 5% every year.
• Parts Inventory Acquisition & Holding Costs are currently at a rate of 25% - 30% of our Total Inventory Value each year.
• The IRS Standard Accounting Method indicates that any inventory or commodity that has not sold in 12 months or more is only actually worth half of its purchase value, (50%).
• Reinvested Obsolescence Revenue "Return Cash" can result in an overall Return On Investment, (ROI) of 300% or more on parts that turn 30+ times a year.
• Parts "Pre-Purchased Obsolescence" Rates are exceeding 25% or more each year meaning many parts are purchased that do not meet minimum Stocking Requirements, thus being obsolete when we first purchase them.

Now that we have a sense of why Parts Obsolescence can impact our Parts Gross & True Turn Capabilities, Overall Parts Profitability, First Time Fill Rates and Service Productivity, let's focus on our "5 Step Breakdown" on how we can use all of our tools in our toolbox to Control and eventually Eliminate Parts Obsolescence.

Number One: Utilizing Manufacturer Return Reserves

Our first option on controlling Parts Obsolescence is a "no brainer" as all Parts Managers know that when we accrue Manufacturer Return Reserves, we are going to use those funds to the utmost on parts returns eligibility at 100% on the dollar.

The problem is for most Parts Managers is that we can never "accrue" enough Return Reserve to offset the rate these parts going obsolete each year. Unfortunately, even though these Return Reserve Accruals never seem to be enough, many Parts Managers still fail to use all these reserves each year.

In addition, and for most dealers, these Return Reserves are often used for other returns such as Special Orders and Parts that were ordered incorrectly. Unfortunately, this was never the intent for Parts Return Reserves as they were initially intended for Obsolescence Protection.

On the other hand, there are a small percentage of dealers out there that are very big into wholesale and actually do have an abundant amount of Return Reserve.

 This gives these dealers a huge advantage with higher Return Reserves that can protect them from obsolescence and actually be in a position of buying obsolescence from other dealers.

Number Two: Utilizing Parts Obsolescence Vendors

Our Number Two is actually the most popular option in getting rid of Parts Obsolescence and in my opinion, is not used enough. It seems that many dealers still cannot fathom selling off their obsolescence for $.50 cents on the dollar or even much less.

When we look at the above "bullet point" on what these parts are "really worth" after they hit that 12 Month - No Sales Category, many dealers think that these obsolete parts are still worth what they paid for them, or more. Unfortunately, and as history tells us, these parts that have not sold in the last 12 months only have a 2% chance of ever selling again, thus making them virtually worthless from an asset standpoint.

This is also evident as the IRS Standard Accounting Method stating that all goods, commodities, or inventories are only worth half their value after 12 months, no sales. This includes all retail institutions such as Walmart, Best Buy, Lowe's, etc. This is why you see many of these retail institutions selling their obsolescence at 50% off or more after the peak sales season has ended.

If we look back to our Number One for a moment on Return Reserves, this is why we need many more options on getting rid of Parts Obsolescence. This is also why our Number Two is definitely a viable option and should actually be our Number One after utilizing whatever Return Reserve we accrue.

There are many Obsolescence Vendors that we can research and take advantage of. Here is a list of just a few that we have had significant success with...

• Dealermine - www.dealermine.com
• Parts Broker Direct - www.oecconnection.com
• Parts Voice - www.partsvoice.com
• Find Rare Parts - findrareparts.com

There are others as well, but I will have to say that timing is everything. Meaning that these Obsolescence Vendors are in the World Market and partner up with companies such as Ebay and others. That being said, prices and offers for obsolete parts may vary at different times.

In other words, we could send a list of obsolete parts in November and the offer may be lower than if we send that same list in January of a New Year. This is why I recommend using several vendors at the same time. After all, one person's trash is another person's treasure, especially at different times during the year.

Number Three: In-House Scrapping Program

In my opinion, every dealer should have an "In-House Parts Scrapping Program", much like most dealers have with their Used Vehicle "Bruise Accounts", or "Push-Pull" Accounts. 

Many dealers actually do have Parts Scrapping Accounts where they set aside a particular amount each month, which is great. I actually recommend setting aside a "percentage" amount of Customer Pay Parts Gross each month, which in most part, we control via Parts Matrix and Flat Pricing.

Setting aside an actual percentage of Customer Parts Gross gives us a few extra advantages. First, setting aside a percentage will flow with CP Parts Gross each month, whether up or down. It's also much easier to control the CP Parts Gross with Parts Pricing Strategies such as the Parts Matrix and Flat Pricing as mentioned.

From an Accounting standpoint, the Monthly Journal Entries are easily managed as this percentage can be charged back to the Customer Pay Retail RO Cost of Sales. Then, this "charge back" to CPRO Gross can be applied to a separate "Parts Inventory Adjustment" Account for "banking" our Parts Scrapping Account.

This Accounting Practice is also used quite often for Advertising "Charge Backs" to various other Sale Accounts such as Service Coupons and Sales Promotions. This makes it much easier for the Accounting Department as well as Department Managers to monitor gross percentages during the month.

If we do the math, and if we use a "Cost Plus" Parts Matrix, by increasing our "Parts Plus" Matrix by just 10%, it will result in a 2% increase in Parts Retained Gross. 

So, if our Parts Customer Pay Parts Gross Percentage target is 42%, we could adjust our "Cost Plus" Matrix by 10% and gain a 2% additional gross, which we could "tuck aside" towards our Parts Scrapping Account and still be at Industry Guide.

Number Four: End of Year Dealer "Write Offs"

If you are a Parts Manager that is lucky enough to have your dealer afford to "write off" Parts Obsolescence, it is truly a gift. Also, we cannot expect this gift every year as these situations are far and few between. 

Also, if you are fortunate enough to realize this benefit, be assured that you need to work on not expecting this each year. Most importantly, you need to be taking this gift as a sign that an Obsolescence Prevention Program needs to be implemented, starting with our Number One.

Also, there are some legal aspects concerning Parts "Write Offs" as this tax benefit truly does not legally allow us to resell these parts. Many dealers think that they can "write off" these parts and then reprice them down to $.01 and resell them for virtually a 100% profit.

These parts need to be destroyed and trashed with no resale attempts. Many dealers today still decide otherwise by storing them in a different location and providing their list of these parts to other vendors.

Number Five: Monthly Parts Obsolescence Prevention Process

It would definitely make sense after all this discussion on Parts Obsolescence that we would implement a process that would prevent this situation from happening again. This means that we need to finish this off with a "Monthly Parts Obsolescence Prevention Process" so we don't have to deal with this on a higher scale.

Our Number Four and Number Five are the most important steps in our "5 Step Breakdowns" in keeping Parts Obsolescence from getting out of hand. Even though we can never really "prevent" obsolescence from happening, we can definitely "control" it by attacking it early on.

First and foremost, we have to put a stop on buying Parts Obsolescence right out of the gate! We have to have a Special-Order Policy in place with accountability. Only authorized personnel should be authorized to order parts in the first place.

Special Order Parts should only be authorized if there is an Open Repair Order, or by "Pre-Appointment Only". Received Special Orders over 30 Days must be returned with handling fees charged to the department authorizing and initiating the Special Order in the beginning.

We don't need to be adding to the problem of Parts Obsolescence by buying it up front. After all, they call them "Special Orders" for a reason because we don't stock these parts as they have not met Parts Phase-In Requirements.

Implementing a "Monthly Parts Obsolescence Prevention Process" simply means that we will deal with Parts Obsolescence each and every month. Each month as parts age from 12 Months - No Sales to 13 Months - No Sales, we will then market these parts to Obsolescence Vendors instead of waiting.

With the exception of Vendor Managed Inventories, (VMI) Programs from the Manufacturer that may require holding these parts for 15 months, the best time to market these parts that have not sold in my inventory is now at 13 months. The results I have experienced by doing this monthly is interesting...

• First, these parts are still "fresh" and tend to attract more Obsolescence Vendors for purchases at higher prices.
• Second, the lists are smaller and more manageable, so they tend to also have a higher closing ratio and lower freight expense, no matter who is paying the freight.
• Third, by sending these lists to all Obsolescence Vendors, it is not uncommon that a "bidding war" ensues between the Obsolescence Vendors.
• Fourth, the "Parts Scrapping Account" does not get affected as much as more of these parts are purchased, leaving a credit balance in the Parts Scrap Account at the end of the year.

Having a "Parts Obsolescence Prevention" Program just makes sense as opposed to letting it build to a point where options are much fewer with lower Return On Investment. Much like anything else we do in Parts, we have to be proactive, always looking ahead in giving our dealers their best return and now is the time...

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...

January 2025: First Quarter 2025: "Top 5 Parts Focus Point"

As we start off yet another year here at ACG "Smart Parts", and before we get into the first issue of our "Top 5 Parts Focus Points" in the First Quarter of 2025, I would like to start off with a little editorial to kick things off. Then we will dive into our first issue of 2025.

ACG "Smart Parts" has now been publishing monthly blogs and articles for nearly 15 years as we are now publishing our 178th issue in January of 2025. I've often been asked how we can keep going on focusing on Parts each and every month for almost 15 years.

After all, how much more can we write about Parts after all these years? What can be new and exciting over what we already know about Parts? What can we learn that will help us to continue on in our industry that may give us that "edge" over anyone else?

Surprisingly, writing these articles and blogs for almost 15 years goes much further than the basic questions mentioned. Even though our industry is constantly changing in many areas, it all comes down to "Coaching".

Much like in many professional sports, even though many professionals are experts in their field, we believe that everyone still needs a Coach. Someone that will keep us on our toes on the basics as well as picking out areas that need improvement or "tweaking".

It's easy to lose sight by taking our eyes off the ball with our everyday Duties & Responsibilities, we need that "coach" to put us back on track or perhaps keep us on track. This is why we move on each month, concentrating on what needs to be focused on while all the while, forging forward on to new goals and new heights.

That being said, our first issue of ACG "Smart Parts" in 2025 will be devoted to what we need to focus on entering this New Year. Even though the content may not necessarily be new, the real question is...

"Are We Ready for the New Year and What Do We Need to Focus on Right Out of the Gate?"

Here we go "Smart Parts" Readers as we venture into 2025 with our first issue!...

January 2025: 

First Quarter 2025: "Top 5 Parts Focus Points"

Moving on to a New Year has many benefits for the Parts Department as the clock has been rewound back to zero in many areas. Calculating Parts Gross & True Turn starts over, Year to Date Sales & Gross Percentages, Sales Activity rewinds and End of Year Parts Reconciliations have given us a new start.

In this issue of ACG "Smart Parts", we will key in on our "Top 5 Parts Focus Points" in the First Quarter of 2025 starting in January through March of the New Year. Getting a jump in Parts, in my opinion is most important every New Year as these first few months can highly impact the Parts Asset and Profitability for the whole year ahead.

Let's Get Started!...

Number One: Reducing and Eliminating Parts Obsolescence

Even though we wound down last year with perhaps some "parts write-offs" to close out the year, many dealers out there enter the New Year with an excessive amount of parts obsolescence. Even though they may have made adjustments at the end of the year, they still tend to carry over a good portion of their obsolescence.

We first must accept the fact that parts will go obsolete at a rate of at least 3% - 5% each year no matter what we do. So, the question really isn't if we will accrue more parts obsolescence as it is more of a question of what we will do about each month going forward.

January of each year is the best time to get a game plan of first getting rid of our obsolescence and then having a follow up plan to control it going forward. Letting it build every year without a plan will just lead to a never-ending cycle that won't go away.

With a New Year to work with, we can start our 12-month plan to get rid of it and prevent it from growing in the future. Many Obsolescence Vendors and Dealers that are interested in purchasing obsolescence are usually very hungry to buy obsolescence at the beginning of each New Year as opposed to the end of their fiscal year.

This allows dealers that have an excessive amount of obsolescence to get their best Return On Investment, (ROI) early in the New Year. Unfortunately, many dealers don't even pay attention to their parts obsolescence until the end of each New Year when they are reconciling their Parts Inventory, including "write offs". Their attention to their parts obsolescence should actually be spent in the first part of each New Year.

Number Two: Parts Monthly Reconciliation

Our Number Two follows "hand-in-hand" with our Number One focus early on in the first quarter of the New Year. What better time to set up a Monthly Parts Reconciliation Process? Why wait until right after we finished up the previous year when we had to "balance the books" and end of year Parts Physical Inventories for most dealers?

Unfortunately, and once again, the majority of dealers do not make it a practice of reconciling their Parts Inventories each and every month. Even if they would perform this "practice" each month and monitor their Parts Inventory amounts between the Ledger Balance Inventory compared to the Controlled Inventory in the DMS, it would be a plus.

Even if they just monitored the monthly variances and make one final Journal Entry at the end of the year, it would at least allow them to see if there are any major discrepancies each month. It's much easier to go back over 30 days to find errors versus trying to find these discrepancies over a whole year.

Most importantly, it's a great practice for Parts Managers to get into this practice as, in my opinion, they need to take more "ownership" in their dealers Number Two Asset as if it were their own.

Number Three: Perpetual Inventories - Daily/Monthly Bin Checks

Our Number Three can't go without mention as there are more transactions in the Parts Department in a single day than there are in the whole dealership in a month. Thousands and thousands of part numbers that are in our Parts Inventory are managed daily and cannot go without some sort of on-going accountability.

The best time to start a "Perpetual Inventory" Process is right after a Physical Inventory is performed to verify a fresh, new starting point. Although, Many Parts Managers confuse "Perpetual Inventories" with Daily, or Monthly "Bin Checks".

The difference between the two is quite simple as performing "Perpetual Inventories" means that the whole inventory is counted each month and reconciled with Accounting each month. Performing "Bin Checks" just means that we may count a certain number of bins each day or month as a sampling of the whole inventory to get an idea of what variances there may be.

The first of the year is a great time to start a process of either or both of the two to avoid any major discrepancies in the inventory counts throughout the year. The worst thing in my mind is to find out that we may have issues and too late by the end of the year.

Number Four: Parts Pricing Strategies - Menu Pricing

Last month we talked about one of our "End of Year" duties should be to review our Pricing Strategies, Service Menu Pricing and our Overall Parts Gross Percentages. In the first quarter of 2025, we need to act and implement these Pricing Strategies based on the results, in this case, in 2024.

Retail customers tend to adapt to price adjustments at the beginning of a New Year versus during the current year. Keep in mind, I'm not implying that just because we are entering into a New Year that we should increase our prices just because it's a New Year.

It's just a "better" time to make adjustments based on previous years' results. Managing our Parts Gross Profit, other than perhaps Warranty Parts Pricing and Collision Parts Pricing is our responsibility and for the most part, we control it.

Our Industry Guidelines are specific, and, in my opinion, we deserve to achieve the Industry Guidelines for our dealers. What better time than the first of the year to set these new goals and holding ourselves accountable to them in the New Year?

Our Menu Pricing should also be updated at the beginning of the New Year as we have to balance these prices to Industry Guidelines and our cost while remaining competitive in the Marketplace. 

Lastly, we need to review our Parts Matrices to balance Captive Parts versus Competitive Parts. A successful matrix is one that works in achieving our overall Parts Gross Goals while remaining competitive. Even though the same matrix can bring different results between dealers, it's all about developing that balance on parts that we can matrix versus those parts that we cannot apply a matrix.

Number Five: A New Mindset for 2025

Perhaps one of the most important in our First Quarter Focus in 2025 is our overall "Parts Mindset". Even though it is our Number Five, if we don't have the right mindset in today's world, we may just be missing the boat in the overall scheme of things.

We all know that backorders, supply chain issues and overall parts availability is a way of life as it rains everywhere, and we all have to deal with it. The difference, in my opinion, between those who succeed and those that don't is the way we approach each day.

Even if we have the best DMS Set Ups & Controls, parts availability is what it comes down to. Our DMS, (if set up properly) is only providing information and the DMS does not know if parts are on backorder, or unavailable, it simply saying that we need these parts based on the proper math.

It all comes down to the Parts Manager making the proper decisions and to have the determination to do whatever it takes to get these parts and get these vehicles off the lift and on the road.

We have to have the "mindset" in my opinion to believe that someone out there has to have these parts that we need. Even though that may still not produce these "harder to get parts", we cannot sit back and wait until they may become available down the road.

We also need to include our Service Managers in our "Stock Order Meetings" to help us make those critical decisions on what parts we need to stock. Parts Managers look at a Stock Order much differently than a Service Manger does.

We, as Parts Managers tend to make Stock Order decisions based on the price of the part, Model Usage, History, Overall Amount of the Stock Order and Low & High Model Year Usage. After all, what if these parts we buy end up obsolete? The fear of buying parts that may not sell weighs heavily on the Parts Manager's mind.

The Service Manager on the other hand is looking at the part itself and what parts are tying up vehicles in the shop along with relative parts to complete the overall repair. In other words, what good would it do to stock the turbo without the associated bolts, gaskets and hoses?

We have to go above and beyond to do our jobs, much more than ever before, but if that's what it takes, then that's what we have to do. We can't let our guard down and just wait for things to happen instead of making things happen in 2025 and beyond.

Lastly, in my opinion, we have three basic responsibilities in our role as Parts Manager...

• Achieve and Maintain "First Time Off Shelf Fill Rates" of 75% - 85%
• Achieve and Maintain Parts Profitability to Industry & Dealer Guidelines
• Protect the Dealers Investment in Gross & True Turns as well as Controlling Parts Obsolescence to Industry Guidelines of 0% - 5%

Happy New Year "Smart Parts" Readers!

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...

 

 

December 2024: "Preparing for Year End & Predictions for 2025

As we wind down yet another year here at ACG "Smart Parts", we will once again devote our last issue of the year "finishing up" our current year of 2024, then take a "look ahead into the new year of 2025.

Although this year, we will add a little twist as in prior years, we took a look back over the current year to see what we all experienced. This year, we will prepare for "finishing the deal" in 2024 and then prepare for the new year ahead in 2025.

I think we all know what we have experienced this past year, so rather than looking back, we will "prepare" for not only the new year ahead, but we will also "prepare" for closing out the current year.

That being said, we will split up our issue into two sections starting with end of year preparation and then move on to predictions & preparation in the new year ahead. As always, we will also utilize our trusted industry resources on bringing our readers an in-depth look on what lies ahead.

We may not truly know what lies ahead, but one thing for sure is that we do have to prepare for what "may" lie ahead. Our industry as well as our overall economy will be moving into another era and now that the elections are over, it will be interesting to see what our industry and other economic "prognosticators" are predicting.

Let's start "Smart Parts" Readers with our End of Year Preparation!...

Here We Go!...

Part One: Preparing for Year End

Number One: Year End Physical Inventories

As mentioned earlier, many dealers actually perform their Parts Physical Inventory many different times in the year, depending on when their Fiscal Year actually ends. For the most part though, most actually perform their Parts Physical Inventory in either November or December.

This way, final posting of their Parts Reconciliation entries between the Parts Controlled Inventory and their Parts Ledger Balance Inventory by the end of the current year can be made. Keep in mind though, just because it's a time for end of year Parts Reconciliation, it doesn't necessarily mean the dealer actually makes these end of year adjustments.

Many dealers "opt out" of actually making these adjustments in lieu of using their LIFO, (last in, first out) inventory options. This option is usually used when there are way too many discrepancies between the Controlled Inventory and the Ledger Balance Inventory.

Using this option will eventually catch up to these dealers when the LIFO Funds run out and they will have to, at some point make the proper adjustments to balance out the discrepancies in the long run.

This is why we recommend doing Annual Physical Inventories every year. Whether in-house and utilizing an outside company at least every other year or three years at the most. 

Secondly, we recommend that these end of year inventories are reconciled, no matter which way. Industry averages say that there should be a Parts Inventory "Uplift" of at least 3% - 5% in the Controlled Inventory versus the Ledger Balance Inventory.

Number Two: Applying for Parts & Labor Warranty Uplifts

Typically, the Manufacturers allow dealers a once a year, one time opportunity to apply for parts & labor increases going forward. This application process includes a 90-day survey of current Customer Pay Repair Orders to determine the average Parts & Labor Sales to determine the average Parts Gross & Service Labor Effective Rates.

Then, "unqualified" Customer Pay Parts & Labor Sales are backed out, which normally include competitive Parts & Labor Sales to determine the average over the 90-day Survey Period.

It's important to note though that if the current Customer Pay Effective Labor Rate is not at least 90% of the Posted Door Rate and the Customer Pay Parts Retained Gross Percentages aren't at least at Industry Guide of 40% - 42%, it is not recommended to apply for these uplifts.

Number Three: Review Current Pricing Strategies

Our Number Three actually falls right in line with our Number Two and even though we should be reviewing our Pricing Strategies as a monthly routine, it's especially important to review them before entering into a new year.

Keeping up with our Pricing Strategies to remain at or above Industry Guidelines on a monthly basis actually allows the dealer to feel confident in applying for the once-a-year application for Warranty Parts & Labor Uplifts with the Manufacturers.

In Parts, we need to be looking at our Competitive Prices more frequently as markets change, (as we have all experienced) and costs keep climbing, especially on fast moving parts and oil. 

Menu Pricing should be reviewed on a quarterly basis just to keep up with rising costs and maintaining proper gross profit margins while remaining competitive.

Our Customer Parts Matrix should also be reviewed on a quarterly basis at minimum to ensure that we are getting a little more uplift on "captive" parts to offset our competitive parts that may carry less gross while remaining competitive in the market.

Number Four: Obsolescence Prevention

Even though we should have an on-going monthly plan to control obsolescence to eventually keep us within industry guidelines of 0% - 5%, we also need to review our goals and plans to keep us within these guidelines in the upcoming year.

Parts will go obsolete each year at a rate of at least 3% - 5% no matter what we do to prevent it. The real question should not be how many parts will go obsolete each year. The real question is what are we going to do about it?

The fact is dealers with an unacceptable amount of obsolescence is due to the fact that they have just let it build up and don't have a plan in place to get rid of it and control it going forward.

This is why I recommend if you don't have an Obsolescence Prevention Plan in place...get one! The beginning of a new year is the best time to put a plan in place as we will have 12 months to begin hitting that goal of 0% - 5%, even if your dealer is enrolled in the Manufacturers Vendor Managed Inventory, (VMI) Programs.

The best part is...if you don't have one, we can help!

Number Five: Dealership Infrastructure & DMS Review

Lastly, one of the most important year end preparations that needs attention is our own current dealership infrastructure and DMS Set Ups Reviews. In the area of "Infrastructure", this would include Sales & Gross Projections for the new year, employee reviews and logistics.

Most dealers require their managers to give them their sales, gross and expense projections for the upcoming year prior to entering the new year. Also, it's the best time to encourage our employees to be part of this new quest into the new year with new incentives and individual career path goals.

Reviewing the current year's results in Parts & Service are huge components into making our projections into the new year as well as economic and natural growth predictions. We always have to look at what history has shown us along with a goal and a realistic plan to push the bar even further.

In the area of logistics, we have to look at what we will need in order to achieve our future goals and dealer expectations. The end of the year is where most dealers are looking to invest in their own dealership and end of year "write offs".

Space & equipment modifications, upgrades as well as staffing requirements are just a few of the areas that we need to communicate to our dealers that may be needed in moving forward and achieving newer and higher goals.

It's also a great time to review our DMS Set Ups & Controls as these basic DMS Set Ups tend to be overlooked. In my opinion, our DMS Set Ups & Controls should not be viewed as "set it and forget it".

Modifications on Parts Phase-In and Phase-Out, Stocking Levels utilizing ABC Source Ranking & Stocking Groups, or Source Management are key set ups that can even affect Accounting Integration and Monthly Reconciliation in the future.

Part Two: Preparing & Predictions for the Year Ahead

This topic is one of my favorites each year as we get a chance to look at what may lie ahead in the new year. Doing this research each year always makes me optimistic in setting new personal goals in our ever-changing automotive industry.

We will start out with some insight from our trusted industry analysts on what history has led us to in making their forecasts for 2025, starting with New & Used Vehicle Sales. After all, it all starts with the initial vehicle sale that will determine what we see on the back end.

Let's start off with the J.P. Morgan Research Team as they predict the following...

"The car industry is undergoing a radical transformation, with most carmakers agreeing the next 10 years will bring more changes than the previous two decades. The next target date cited by automakers as a tipping point is 2025, when everything from fuel to cost and the companies that build cars are set to look dramatically different..."

Wow!...what a start as this refers to the upcoming new year! This article continues with their expectation of a continued rise in Electric Vehicles, (EV's), Hybrid Electric Vehicles, (HEV's) and Plug-In Electric Vehicles, (PEV's to an overall market share of 7.7% at 8.4 vehicles in 2025 worldwide.

I agree on a global standpoint that we are headed that way, but on our domestic front, we may want to consider some other analyst's views on what we may see on the home front.

In a recent article in MotorTrader.com by Justin Fischer, gives us some insight on what will be happening domestically...

"Following a year of stagnant sales, automakers will have to work harder for each sale in 2025. New Car Incentives are already on the rise, a trend that will continue in the new year. Falling Interest Rates will bring 0% financing to more models and pull shoppers away from the used car market."

I tend to agree with him as many automakers are experiencing an excessive amount, or "Days Supply" of new vehicles of over 170 Days with some manufacturers, which is three times their desired levels, or Days Supply.

Justin Fischer goes on to say...

"After four years of tumult, the car market is finally starting to resemble normalcy, at least in terms of seasonal price fluctuations and dealership lot inventory. Yet, as many car shoppers know, new car prices remain high. Over the past five years, new car prices have surged by 27% and remain just shy of the record highs we saw in late 2022. So, will car prices drop in 2025?..."

A recent survey by Edmunds.com found that nearly half of all new car buyers aim to spend $35,000.00 or less on their next vehicle. Considering that the average transaction price for new car was $47,870.00 in mid-2024, there is a mismatch between what consumers want, and the automakers are trying to sell"

So, what about Parts?...

It's interesting to see these insights and predictions from a new vehicle standpoint, but when it comes to Parts & Service, this can only lead to more vehicles hitting our Service Drives ending up with more Parts & Labor Sales.

In my opinion, it just won't lead to more Parts Sales, it will also lead into a new wave of what parts we will be selling. We all know that maintenance parts will be on the increase, but we will also see more parts that drive the technology in today's new vehicles.

In a recent article in TechInsights.com, they had this to say as to what we in Parts should be looking for more of in the near and distant future...

"The automotive semiconductor market is on the verge of significant growth, driven by evolving technologies and increasing demand for electric vehicles and automation. With innovations like 5G chipsets, advanced E/E architectures, and the rise of software-defined vehicles, the industry is transforming at a rapid pace".

In addition to the aftermarket parts sales growth both on the domestic and worldwide market as we reported in my earlier article this year, we also have a new wave of what type of parts we may be adding to our shelves in the future.

A few of "take aways" for me in these predictions from our industry analysts are...

• No matter what your vehicle of preference, there is an abundance of New Vehicle Inventory out there that the automakers have to unload.
• I believe the consumer will benefit from this "unbalance" of the desired New Vehicle purchase price versus the current average new vehicle purchase price.
• Rebates, Cash Back, Zero Down, Zero or Low Financing will drive consumers back to our showroom floors in 2025.
• I believe Used Vehicle Prices & Values will drop with this eventual "sell off" of New Vehicle Inventory.

Lastly, on Parts...in my opinion, 2025 will not only be a great year, but also innovative with new parts hitting our shelves as in my opinion, we will see more computer chips, batteries, semi-conductors and other electronics hitting our shelves.

On the other hand, and unfortunately, I don't see shortages, back ordered parts, and supply chain issues going away any time soon. That being said, it will be another year of spending much of our days chasing those parts that are not easily accessible.

Just keep in mind "Smart Parts" Managers...when a part goes on back order, or is presumably unavailable, our job is not finished...it's really just begun. We have to have the mindset that the part is out there somewhere. We just have to go and get it and get these vehicles off our lifts in the Service Department.

See You All in 2025!...Wishing All "Smart Parts" Readers a Safe Holiday Season & a Happy, Prosperous New Year!

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...

 

November 2024: "When you Snooze, You Lose!"

It's hard to believe that we are winding down to the last couple of months here in 2024. In my opinion, the results we experienced this year thus far in the Parts Department, whether positive or negative are impacted by several areas which I call "Parts Indicators".

As in many other dealership departments, if we don't keep our focus on the things that got us to where we are, we will obviously start going in the wrong direction. Being "asleep at the wheel" in the Parts Department is especially impactful as we directly impact the results in other dealership departments, especially in the Service Department and Collision Centers.

Even though these Parts Department topics that we discuss are not new, what may be new is how we pick up on these "Parts Indicators" and "Right the Ship" before it's too late. It's one thing to notice these reverse trends after we see the Financial, but it's another to act on it and fix it.

Even the best Parts Departments that are run by some of the best Parts Managers out there may tend to fall asleep at the wheel until they find out that in the end, they realize "When You Snooze, You Lose!"

So, the first question that I have as perhaps many Parts Managers have is how did this happen? The next human instinct is to blame other people, or maybe even use another excuse, whether the economy, the weather, staff shortages or perhaps even the manufacturer. In the end, it all falls on us as it rains everywhere.

It also reveals that if we initially respond with some of the above reasons or excuses for failure, we have to own up to the results. 

Keep in mind though that there are always some other Parts Managers at some other dealerships out there that is still getting the job done. No matter what the excuse or reason may be, they know that "When You Snooze, You Lose".

So, let's break this all down and to me, the most successful Parts Managers out there pick up on these "Parts Indicators" that may lead to undesired results and most importantly, they either don't let it happen in the first place, or they pick up on these negative trends and act on it.

First, let's talk about these "Parts Indicators" that lead us to the biggest question of all...

What Happened and How Did It Happen?!...

As simple as it may sound, the above question is probably the easiest one to answer as we have to just trace it back to the root cause, just like a technician diagnosing and "trouble shooting" a problem with a vehicle.

We already know what happened, so we just can't sit there and wonder what happened, we have to trace it back to why it happened and how it happened. Fortunately, we work in the Parts Department and it's all about the math which means that there is a logical solution.

As opposed to let's say the Service Department, there are many more factors over and above the math that can impact negative results. Even if we have the best practices in place in the Service Department, they can all go "by the wayside" because of the "people aspect".

Let's start it all off with the "Parts Indicators" and the "Root Causes" that impact these negative trends or results...even if we thought we had it right to begin with. The one unique thing about the Parts Department is that if we have the Set Ups and the right math, it's just a matter of consistent execution.

Let's Do This!

Number One Indicator: First Time Fill Rates Dropping

Other than seeing our Parts Sales & Gross Numbers dropping, this is probably the most important Parts Indicator that we have to stay on top of. As we will see going forward, when Parts First Time Fill Rates start to drop, a whole lot of other areas are affected in both the Parts Department and the Service and Collision Departments.

So, as we drill this down as to why the Parts First Time Fill Rate may be dropping, the first thing we have to look at is our Parts Set Ups & Controls. If the Parts Set Ups & Controls are still the same as when we had higher First Time Fill Rates, then we have to look at our daily process and routines.

Once again, if the math is irrefutable, then we have to look at the obvious, which is ourselves and what we are doing, or not doing differently. Here are some of the questions that we need to ask ourselves...

"How often do we run our DMS Stock Order, over and above my Manufacturer's Vendor Managed Inventory, (VMI) Stock Order?", (if in fact we do participate in in the Manufacturer's VMI)

"Are we actually overriding what the Suggested Stock Order reveals in order to save money, even though the history and math reveals otherwise?"

"Is the Service Manager participating in reviewing the Suggested Stock?"

On that particular question, I have always suggested that the Service Manager participate in reviewing Suggested Stock Orders as it adds another opinion. It is a fact that the Parts Manager looks at a Suggested Stock Order much differently than a Service Manager does.

Parts Managers look at and affirm Stock Orders much more critically than a Service Manager would. As Parts Managers, we tend to "disqualify" many parts by price, make & model, low & high year applications, etc. On the other hand, Service Managers look at a Stock Order by need and what's tying up the Shop.

Number Two Indicator: Lost Sales Reporting Dropping

One could argue that this Parts Indicator should be our Number One, but it's usually not seen as the original cause of lower First Time Fill Rates and tends to ride below the radar. It's not until the Service and Collision Departments start to complain that we don't have the parts, or maybe not as we did before we started to "Snooze and Lose". As mentioned, lower Lost Sales Reporting always seems to fall under the radar, when in reality, it should be one of the first things we look at.

But I will say this for sure...when Lost Sales Reporting starts to drop, it's just a matter of time, (and not that long I might add) that the Parts First Time Fill Rate will follow in that same downward spiral. 

The trends always follow a pattern...when Lost Sales Reporting drops, First Time Fill Rates drop. Stock Order Performance drops, 0-6 Months Sales Activity drops and lastly, the percentage of Normal Stocking Parts drops.

The first and foremost thing that can stop these spiral trends is to get back on Lost Sales Reporting. We need to let these Lost Sales Demands "Phase-In" and let the DMS do its job, (if the math on the Set Ups is correct by the math), then run the Stock Order and don't "over think" the math and trust it!

Parts Demands are only created in our DMS by Sales and Lost Sales. If we fail to report Lost Sales on Non-Stocking parts with demand, we are losing a major contributor in tracking parts history for parts we should eventually stock.

Number Three Indicator: Parts Gross Profit Dropping

This is another key "Parts Indicator" as managing the Parts Gross Retained Percentage should be a daily routine and not one that we look at after the month is over. Lower Parts Gross Percentage may be attributed to many things such as increased parts cost, price overrides, coupons, service contracts, chasing parts, etc. just to name a few.

The most important thing to ensure that we are not asleep at the wheel is to monitor the Parts Gross Retained Percentage is to look at it daily and to review exceptions and overrides. We also have to monitor our Parts Matrix each month to ensure we are getting the desired gross to offset competitive and flat priced parts.

Powertrain parts sales also impact our parts gross as engines, transmissions, rear ends, accessories, etc. usually carry a much lower parts gross percentage and the only way to offset these parts sales is to make the appropriate modifications to the parts matrix more consistently, at least on a quarterly basis when we see trends going in the wrong direction.

One other Parts Indicator in our Number Three that may lead to lower Parts Gross Percentage is our "Parts to Labor Ratio". Industry Guidelines have current Parts to Labor Ratio Guidelines at 1:1. In other words, for every $100.00 in Customer Pay Labor that is sold, we should also be selling $100.00 in Customer Pay Parts on Repair Orders.

Although, it isn't always a Parts Sales or Gross Issue if we fall short on this 1:1 Ratio, as it could also indicate that we aren't getting enough Customer Pay Labor per Repair Order which would drive that Parts to Labor Ratio higher on the parts side. For example, if just may be that we fall short on our desired Customer Pay Effective Rate, resulting in a higher Parts to Labor Ratio.

Number Four Indicator: Increased Emergency and Special Order Purchases

When you see the Parts First Time Fill Rate dropping, you will also see Emergency Purchases and Special-Order Purchases climbing. Just as in our Number One Indicator, when First Time Fill Rates drop, we end up chasing more parts as Emergency Purchases, and/or we end up having more Special-Order Purchases.

This could a "net result" of being over critical on our Stock Orders and not really relying on the math and the facts. The trickle down now begins into many other Parts Indicators as it will spill down into our Stock Order Performance percentage, which should represent 75% - 85% of our total purchases based on industry guidelines.

Increased Special Order Purchases are also a major contributor to our Overall Parts Obsolescence. It's hard enough already to gain enough Return Allowance to protect ourselves from building obsolescence, Special Order Purchases do not qualify for Return Allowance and only add to the potential of increased obsolescence and lower Return Reserve.

Number Five Indicator: Increased Parts Obsolescence

Speaking of Obsolescence, it is our Number Five Parts Indicator. Many "Smart Parts" Managers may not know this, but Parts Obsolescence will accrue at a rate of at least 3% - 5% each year no matter what we do. The real question is..."What are we doing about it?"

As Obsolescence increases each year and due to all the above Parts Indicators, that reveal that "If You Snooze, You Lose", Obsolescence will just increase at an even higher rate to the point of being totally out of control.

When we see Obsolescence increase at an even higher rate, it's always due to the "trickle down" of the above and previous Parts Indicators. When we lose control, or start "Snoozing and Losing", it's usually followed by increased Obsolescence. Another area that we tend to say..."What Happened?!"

Keeping Parts Obsolescence under control is a monthly Duty & Responsibility of the Parts Manager and not something we look at after it gets out of control. Parts that drop down in that "Over 12 Months - No Sale" category have to be dealt with at that point on the 13th month and not later, otherwise, it just keeps climbing out of control.

Utilizing Obsolescence Vendors, implementing an In-House Scrapping Program along with utilizing our Return Reserves is crucial to controlling Obsolescence. Even more important is not to buy Obsolescence right up front! 

Managing our Manufacturers recommended Stocking Levels and managing our own Special Orders in order to prevent "Obsolescence Purchases" at the get go is crucial. Being "Obedient" to the Manufacturer as opposed to being "Compliant" is a major contributor to Obsolescence and Over Stock Parts amounts.

In Conclusion...

It's one thing to fall asleep at the wheel and finally realize "When You Snooze, You Lose", it's another when it does happen, we don't act on it. What really matters is how we respond to what happened and how it happened, and then drill it down to the root cause and fix it. 

Finally, and then and perhaps even most important is to make sure it doesn't happen again and to stay awake at all times because we all know that...

"When You Snooze, You Lose!"

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...

October 2024: News Flash! "Service Drive Training Actually Begins with Parts!"

As we wind down these last few months of 2024, I wanted to bring in a topic that is a little bit out of our normal sequence of ACG "Smart Parts" Newsletters. The idea of this month's topic came to me because many dealers have been coming to me and "wanting" Fixed Ops Training, but what they really want is the "Right" Fixed Ops Training.

That being said, there are lots and lots of opportunities out there for dealers to find the right Fixed Operations Training Companies that will suit their individual needs. To each their own as they say, but one common theme that I noticed when they approach me is that they wanted something different.

I thought about this for a bit, and I then realized what, in my opinion has been missing is that dealers are reaching out for what they believe they need is more Service Drive Training to increase their overall Service Absorption.

It's not unusual that this Fixed Ops Training would start out in the Service Drive as that is primarily the "point of purchase" Sales Opportunity, so why not start there? The customer pulls in the Service Drive and who is greeting them first but the Service Advisor.

This is where, in my opinion the opportunities begin, but it's also where the "break in the chain" also begins in the area of over promising and under delivering. No matter what kind of training is out there, or how well it's delivered, if we can't deliver the "Customer Promise", all training goes by the wayside.

Which brings us to the next challenge of having the right processes and the right resources to deliver the "Customer Promise". This is where having properly trained Service Advisors and Skilled Technicians come to the forefront.

But!....What's the Missing Link!

If you were to look up the definition of "Productivity", which is the engine to how our Service Department operates, the revelation becomes even more realistic when you factor in the importance of the Parts Department, especially when we are talking about Service Drive Training.

The definition of "Productivity" is simply this...

"Productivity Equals Output Divided by its Resources"

That being said, (again), what are the resources in this equation as far as the Fixed Operations referring to?...

You guessed it!....Parts!

We can't perform over 85% of our Service Department Repairs or Services without having parts to complete the repairs. So now, we are starting to get the picture of success of Service Drive Training and the initial overall requirements in the training process.

I don't care how good or how successful any Service Drive Training Process or Company is, without the Parts Department operating on peak levels with "First Time Fill Rates" at or above 75%, the investment spent on this training will not achieve expected results in both departments.

So!...How Does the Parts Department Impact the Service Drive Training Process?

Let's break it down and prove the obvious...

Parts "First Time Fill Rates":

Not to be confused with "Overall Parts Fill Rate", which is basically the sale of a part, no matter if we had the part or not, or where and when we get the part to fill the order. Overall Fill Rate does not mean we filled that demand on first attempt. It just means we filled the order and not necessarily on the first attempt.

The average Parts Department's "First Time Fill Rate", which means the parts demand was met on the first attempt is less than 50%, where the industry guideline is 75% - 85%. So, when we start talking about an effective Service Drive Training Process, all could be good except at the "point of purchase", all goes downhill because we don't have the part.

Think of it this way, you are looking to buy a brand-new lawnmower, refrigerator or stove and the salesperson shows you a picture, or perhaps a floor model and his or her training convinces you to buy, but then...he or she says we don't have it, resulting in great training, but no eventual sale.

Posting Lost Sales:

If you think that not posting Lost Sales may have an impact on Service Drive Training, you are missing a huge component to a Successful Service Drive Process. Posting Lost Sales is really defined as "posting customer demands", which are Sales and Lost Sales.

In other words, if we don't track what our customers are asking for, no Sales Training will end up in a sale without the availability of eventual desired product or service. In other words, if we don't have it, they will go somewhere else to get it.

On the other hand, even if we do post those Lost Sales, it won't really matter if we don't have the proper Set Ups & Controls in our DMS, which translates down to our Manufacturers Vendor Managed Inventory Stock Replenishment Programs, (VMI) if offered by the Manufacturer.

Proper Set Ups & Controls:

Speaking of which, if our "math" is not set up properly on our DMS, we are most likely not going to have that part 75% - 85% of the time and no Service Advisor or Service Drive Training Process, no matter who or what company it is will be able to wave a magic wand and make that part appear to close that sale.

Let's look at the other side of things if we do have a Parts Department that meets all the requirements and achieves all these industry guidelines. Just imagine for a moment if you have a Parts Department that has a "First Time Off Shelf Fill Rate" of 75% - 85%.

First:

Service Advisor confidence goes up because the part is in stock, and the Advisor can then go to closing techniques with fewer customer objections.

Second:

It is a fact that having the parts in stock, much like having the right vehicle on the lot increases closing ratios immensely.

Third:

Having the right part at the right time also promotes a higher "point of purchase" environment for both the salesperson and the customer.

Service Scheduling & Appointment System:

Believe it or not, having a high Parts "First Time Fill Rate" does impact Service Drive Training and the Service Drive Process by impacting and increasing Service "Cycle Times" and the overall availability of appointment slots.

Having a more efficient Parts Department enables the Service Department to process more customers through the Service Department. It can also impact the number of overall available Service Appointments including "Drop Off" and "Waiter" customers.

In Conclusion:

Getting back to the Service Drive Training aspect of things and what really works is proven quite obvious. Parts has to come first as far as Training along with the Proper DMS Set Ups & Controls. In my opinion, Parts Training, Proper Set Ups & Controls have to be in place at least two or three months prior to any Service Drive Training Process.

The reason I believe two or three months is needed is because sales history with the Proper Set Ups & Controls have to go through at least one "Part Cycle" of three months.  This cycle allows the system to Phase-In more demands and to set proper Stocking Levels and the data acquired from Lost Sales Posting leads to more inventory breadth as more and more parts phase into the DMS.

Putting the "cart before the horse" in this case just makes sense, but the problem is that Parts Training is scarce, especially if you don't know how to get these Set Ups & Controls implemented properly into the DMS. This is why at ACG "Smart Parts", we speak 14 different languages of Dealer Management Systems.

There are many out there that can tell you what needs to be done but can't actually get the job done because their knowledge of various systems is lacking. In addition, and unfortunately, many of the people employed by these various systems don't even know themselves what their system is capable of and don't know the basic math as I have personally witnessed. 

Having the Proper Set Ups & Controls is just simply that as it's all about the math. It's irrefutable as there are no opinions when it comes down to the math and how these systems and algorithms work.

In my opinion, no matter what Fixed Ops Training Program the dealer chooses, success will only follow if the Parts Department is ready and running efficiently and having the right part at the right time. If the Parts Department is not ready, then it's pretty obvious that the investment spent on Service Drive Training is likely to lead to less than desirable results.

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...