November 2020 - Automotive Industry Update: "Looking Beyond Covid-19"

Each year, in the month of November, ACG "Smart Parts" focuses on providing our readers an automotive industry update with an analysis of what we have seen thus far in the current year along with a perspective of what we can expect going forward into, in this case, 2021.

We will provide our readers with data, opinions, perspectives and opinions from respected industry analysts as well as our own experiences here at ACG "Smart Parts"  with our dealers over this past year. We will break down our update in three different sections as follows.

Our first section of the update will be an overall update on the automotive industry in general based on new and used vehicle sales data and predictions from NADA's Market Beat Report from September 2020. This data from NADA will give us information from the automotive production side as well as unit sales thus far in 2020 and predictions going forward.

Our second section will focus on the parts industry specifically, including the automotive dealership level and the aftermarket parts levels provided by the McKinsey Global Institute, including data and predictions for the automotive parts industry as it stands now and looking ahead.

Lastly, our third section will provide our readers our own data and experiences from an ACG "Smart Parts" perspective with our own dealers here in the U.S. and around the globe. 

This unique perspective will give our readers a "hands on" view of what's really happening out "in the field". We will review what our dealers and their employees are experiencing from many different market areas and the actual affects this pandemic has had on them.

The Covid-19 Pandemic has definitely impacted our industry and most important, it has impacted our lives in all aspects. It is not our intention to tell you what you already know, rather, we want to give our readers "information" that will shed light on just what has happened from an industry standpoint and to  help us to prepare going forward.

Our goal is to try and answer the following question...

"Where Are We Now And Where Are We Going?" 

Many of you may already have an opinion or answer to those questions, but the information we will be looking at may help in our thought process going forward. Even though we have already gone through a lot during this pandemic, the automotive industry still remains strong and resilient.

 Here We Go!

Section One: NADA's Market Beat Automotive Industry Update

First of all, I would like to recognize NADA for providing the following data and information concerning new & used vehicle sales through September of this year as well as their predictions going forward. The following information is readily available and in more detail at their website, (www.NADA.org)

The Covid-19 Pandemic has obviously impacted new & used vehicle sales, but the good news is that sales have been steadily climbing this year with sales of 16.3 million units in September, the highest since February, finally topping the 16.0 million mark. Even though overall, sales are down 4.3% from September 2019, with overall decline this year at 31.9%, the trend is looking positive.

The good news is that the decline percentages continue to shrink with predictions of increases in sales to climb even higher on into 2021. The biggest reason, believe it or not for the sales declines were not due to customer demand, as plant closures due to Covid-19 limited production and dealers not receiving or re-stocking their inventories.

In addition, model year changeovers also put pressures on overall inventory levels, but as of the end of September, inventory on dealer lots totaled 2.66 million units, which was up 3.6% over August 2020, but down overall by 26.7% from September 2019. We still have a ways to go, but the signs are that we are on the comeback trail in a consistent fashion.

Along with this continued increase in production, it is supported by increasing consumer confidence and lower interest rates, thus promoting dealer sales and after sales with more trade ins supporting the used vehicle inventories. Much of the year thus far has seen dealers desperately seeking used vehicles to offset the lack of new inventory and trade ins.

Market share increases were also seen for GM, Ford, Hyundai-Kia and Subaru, while Honda and Volkswagen remaining the same with their market share numbers. Toyota, FCA and Nissan suffered the biggest declines in their market share numbers. 

Light Duty Truck Sales continue to dominate the light vehicle market as the only category to show a year to year overall increase, even through the Covid-19 Pandemic.

Section Two: Dealer & Aftermarket Parts Industry Update

Once again, we would like to recognize our resource, McKinsey & Associates, (www.mckinsey.com) for their data, research and predictions for our industry update on the dealer and aftermarket parts industry update. We all know that our first section on the overall new & used vehicle industry update has a huge impact to our automotive parts industry.

First of all, we have all experienced the direct effect of the manufacturer plant closures, parts shortages and vendor shut downs that Covid-19 has caused. With that said, we can now look at we may not know about the parts industry in general and what we can possibly expect going forward.

In the past, the automotive parts industry has been pretty resilient during any crisis, even when we consider the financial crisis we all experienced back in 2007-2009. Back in that particular crisis, people delayed major purchases such as homes and new or used vehicles. This actually put emphasis on repairs to existing vehicles resulting in higher parts and service sales.

In that last recession of 2007-2009, we realized GDP declines all over the world, resulting in substantial declines in new and used vehicle sales. But in retrospect, some are actually predicting that this Covid-19 Pandemic could cause a more substantial negative effect to our automotive parts industry. 

According to McKinsey & Associates, there are some new factors that have not been evident in any past crisis. People are driving less, as much as 50% less in certain areas. This reduction in miles driven results in fewer collisions, lower traffic numbers, lower public transportation and even higher use of e-commerce platforms.

These numbers and analogies don't just apply here in the U.S., they also apply around the globe as the Covid-19 Pandemic has impacted everyone. Many analysts also predict that many of these impacts will result in changes that may never go away and become the "new norm" going forward.

On the other hand, some of these changes in our habits such as social distancing along with a general new awareness could cause a spike in sales. With public transportation being reduced due to this new awareness, new and used vehicle sales may actually rise. Even though less miles may be driven, the overall individual vehicle purchases may increase with less people using public transportation.

Also, with the reduction of overall new vehicle sales, even though they are on the comeback as mentioned in Section One, the increase in used vehicle sales could promote more parts sales as older vehicles requiring more repairs will result in higher parts sales. 

We've already seen a spike in aftermarket service contracts, as manufacturers warranties would decrease due to lower new vehicle sales. All pointing to higher dealer and aftermarket parts sales, including accessory parts sales.

Another big factor to consider would be our trade agreements with other nations that could impact overall parts distribution and sales worldwide. Just the introduction of the USMCA versus NAFTA could have a huge impact on parts distribution, pricing and overall sales here in the U.S.

McKinsey & Associates also notes that Automation will play a much bigger role in our parts industry going forward. With the disruptions in the labor force, and more attention paid to social distancing and reduced infection risk, manufacturing, distribution centers and warehousing may become more automated.

Bottom line is that in order to survive and climb out of any crisis, we all have to adapt and change to whatever the environment is and whatever the market bears. As competition increases, so will the landscape and the players. Downsizing and consolidation may be front and center in order to remain efficient and profitable.

Section Three: An ACG "Smart Parts" Industry Update & Perspective

This year has definitely been one for the ages ond one that we will never forget for many reasons. In this, our final section, we will provide a perspective that all "Smart Parts" Readers can relate to as I refer to this section as the "Real World Section".

Working with our Owners, Dealer Principle, Parts Managers, Service Managers,  Collision Center Managers, Service Advisors, Parts Counter Staff, Office Managers & Staff, Sales Managers, Cashiers, Drivers, Porters, Body & Service Technicians, etc. directly has given me a unique perspective in all areas of the dealership and not just Parts.

First and foremost, Dealer Owners have not only had to survive, (and still surviving) the Covid-19 Pandemic, they've had to survive in general. Decisions had to be made in order to stay in business while trying to protect and secure their employees.

After the initial impacts of the Covid-19 Pandemic were felt in the first few months, we noticed that dealerships were starting to emerge as sales started to increase. The amazing thing was not only were sales increasing, they were increasing to higher levels from the previous year numbers in the same months once we hit the mid-year point.

Parts Departments were doing their best to find parts during factory shutdowns wherever they could to provide the best customer service, even at higher costs. Parts inventories became leaner and dealer owners were taking more interest in their Parts Department's performance and overall investment.

As mentioned in our last month's issue of ACG "Smart Parts", parts inventory reconciliation between the Account Ledger Balance Inventory and the D.M.S. Controlled Inventory seems to have become center stage as the dealers investment discrepancies went in the wrong direction.

Due to the disruption of normal parts receipting and accounting integration practices, discrepancies were on the rise during this pandemic. The number of parts vendors also rose due to "get the part by any means" became a normal phrase in our Service and Collision Center departments. All leading to a "Pandora's Box" during the pandemic.

Even though all of our dealers and all their employees had to endure, and still enduring this pandemic, overall...sales are coming back to normal expectations. Even though, many of our dealers are operating in understaffed conditions.

It's always been tough to find qualified staff, especially technicians, it's even more so during these times. That being said and going forward, there can never be a more appropriate time than now to focus in training at every level and promoting from within if applicable.

Lastly, and most important, I've never seen a time where our dealers and their employees working harder than ever before to be the best they can be, no matter what the circumstance. 

Doing more with less is definitely evident in all of our dealerships that we partner up with and their results are proof that no matter what we face in our industry, the Industry Updates will always positive!

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 2020: Parts Monthly Inventory Reconciliation - "Now More Than Ever!"

This year has definitely been different from any other year we have experienced due to the Covid-19 Pandemic, which has impacted everyone of us in all aspects of our lives. It has also impacted our industry, like many other industries in so many ways.

Back in February of 2016, our ACG "Smart Parts" feature article was titled, "Reconciling The Parts Inventory". That feature focused on the benefits of performing a Parts Monthly Inventory Reconciliation versus just one Annual Parts Inventory Reconciliation.

We are bringing this topic back for another "go around", but with a different focus on the same topic. This year, more than ever, we have been overwhelmed with dealers contacting us for help with their Parts Inventory Reconciliation. 

General Ledger amounts are soaring at a much higher rate than ever compared to the Controlled Inventory amounts revealed on our D.M.S. Reports, or even after physical inventories are taken. This 180 degree swing in these two inventory amounts is sending many dealers into panic mode.

In retrospect, could you imagine if our New & Used Vehicle Inventories experienced the same scenario? In other words, you may have 250 New & Used Vehicles sitting on the lot, but the Financial shows that there are 300 New & Used Vehicles in Inventory. 

This comparison is exactly what many dealers are experiencing with their parts inventory.

For years, many dealers have experienced a parts inventory "pick up" at the end of year, after the physical inventory was performed. This is the reason, most dealers do not want to perform a monthly parts reconciliation because they like that 100% net profit bonus at the end of the year.

What they don't realize is, even though they like that bonus, how do they know if that bonus should be even greater? In other words, let's say that their end of year "pick up" bonus is $35,000.00 after the physical inventory is completed. What if that bonus could have been $50,000.00 or greater by performing a monthly parts reconciliation?

Maybe it could be greater, and just maybe I could write down more of my obsolescence and take a "pick up" at the end of the year, thus reducing my inventory acquisition & holding costs. These are areas that, in my opinion, should be the concerns for the dealer.

Waiting until the end of the fiscal year allows for a whole year of variances to occur. If the Parts Manager knows that they are building up this little "kitty" during the year, it allows for a little "buffer zone" to adjust the parts inventory throughout the year.

Without making any accusations, it just leaves too much out there to the realm of possibility, or to question. How would I know if parts are going out the back door?...how would I know that my "pick up" is accurate?...could it be more or less?...should I scrap some obsolete parts. etc.?" 

By managing the parts inventory monthly as opposed to annually, the parts inventory discrepancies can be seen and adjusted monthly. It's also much easier to find these potential discrepancies over the last thirty days as opposed to trying to track them down at the end of the year which will include the last twelve months.

This is exactly why Office Managers, Dealers and Accountants prefer to make that one entry at the end of the year and hopefully, it's a positive adjustment in the dealer's favor. If not?....then this is when everyone comes unglued and this is the reason this year is so much different.

"So, What Has Caused This 180 Degree Shift And Panic Among Many Dealers This Year During the Covid-19 Pandemic?"

The one thing that I believe we can all agree on is that the Covid-19 Pandemic has definitely taken us all out of our Comfort Zones. This cannot be more evident and true than for the Parts Manager. First of all, most Parts Managers are regimented to doing the same things, the same way, over and over again throughout each day.

As opposed to Service Managers and Sales Managers, each day is different as customer concerns and sales needs in both departments are different and unique. In the Parts Department however, each day brings on the same processes and procedures, even though some days may be busier than others.

The results of what we have experienced and are still experiencing from the Covid-19 Pandemic are the shifts and changes from what we are normally used to in the Parts Department. Some, or perhaps many of these shifts and changes to every day operations has left a huge, negative impact on our parts inventory reconciliation.

Let's take a look at how some of these shifts and changes in our normal operations have impacted the parts inventory....

Receipting Practices:

This category is first and foremost as one of the causes and affects that Covid-19 has had directly on the variances in the Ledger Balance Inventory Value versus the Controlled Inventory Value in the Dealer Management System.

Parts delays, back orders, parts coming in from different vendors at a different cost, parts not even being receipted, but sold on repair orders, cost adjustments not being accounted for, Manufacturers Parts & Accessories Statement not matching what was receipted into the D.M.S. are just a few of causes in this category alone.

In the last three months, over 16 dealers that I have been working with have had discrepancies from what was receipted into the D.M.S. versus Manufacturer's P & A Parts Statement that the Accounting Department will pay for and add to the Parts Accounting Ledger Balance.

Even though we normally experience parts purchases that may be carried over from month to month, these amounts that I'm seeing are staggering. Some manufacturers are worse than others, but dealers are actually paying for parts they haven't even received yet.

With some plants being closed throughout the shut down, parts managers have had to do anything they could to service their customers whether stock replenishment, or special orders. Using different vendors, or even other dealers for a source, this has led to many accounting nightmares and unfortunately, most have gone unnoticed or accounted for properly.

Negative On Hand & Outstanding Orders:

This is another category that has led to an extreme amount of variances between the Parts Ledger Balance Amounts versus the Parts Controlled Inventory Balance in the D.M.S. during this pandemic. I have seen "Negative On Hand" amounts in the D.M.S. skyrocket in many dealerships which means a couple things. 

Number One, parts were being sold and not even receipted, thus reducing the D.M.S. Controlled Inventory Balance, even though the Ledger Balance Amount will go up. Number Two, in most Dealer Management Systems, Negative On Hand Balances, left uncorrected, can impact Normal Stocking Levels in a negative way.

Outstanding Orders are also a heavy player in these inventory variances as many of these Outstanding Orders are false and most likely were received, put not properly receipted and/or relieved from the original Outstanding Order(s). Once again, reducing D.M.S. Controlled Inventory Value Amounts.

Left unrelieved properly, the D.M.S. and the manufacturers Vendor Managed Inventory Suggested Stock Orders will not be accurate as those parts left "outstanding" will not be included. This alone will result in Parts Manager's chasing even more parts to fill the shelves at a higher, unaccounted for price, not reported, recorded or adjusted in the Parts Ledger Balance Inventory.

Parts Receipted Into The Wrong Inventory:

This category is another key player into these variances that we are experiencing between Accounting Ledger Balance Inventories and the Parts D.M.S. Controlled Inventories. The parts main inventory, tire inventory and the gas, oil & grease inventory have often been confused, even before Covid-19. It just got worse with Covid-19 than ever before.

With most manufacturers, tires, gas, oil & grease purchases can be receipted into the wrong inventories, and actually be sold into different inventories. An example of this is an invoice for tires can be receipted, in Accounting into the parts main inventory, but sold from the tire inventory, or vice versa.

This will cause a discrepancy in both inventories and if only reconciled at the end of the year, these discrepancy amounts can add up in all three inventories throughout the course of a year. Monthly Parts Reconciliation can trap these discrepancies much easier each month.

In the gas, oil & grease inventory alone, there should be a monthly, and/or annual "pick up" as oil is normally sold at a higher cost per quart than the actual "true" cost paid per quart. If reported monthly, the additional profit should be recorded as "Discounts & Allowances", resulting in more monthly parts gross profit as opposed to just reducing, or "buying down" the Parts Ledger Balance Inventory.

Manufacturer's P & A Statement/Outstanding Credits:

I mentioned earlier that I have witnessed many dealer parts statements from the manufacturer did not reflect what was actually receipted into the D.M.S. and that there may be some month to month rollovers, but I have witnessed much more.

Parts return credits, core returns and delays from the ability to send back parts to the manufacturer during the Covid-19 Pandemic have all really created a mess when it comes to Parts Inventory Reconciliation. Most often times these "relieved", Outstanding Credits are going unreported.

Even though parts and/or dirty cores are being returned and deleted from the D.M.S. Controlled Inventory, the "Outstanding Credits" are not being accounted for in the Parts Inventory Ledger Balance, even though the Parts Manager has taken them out of the D.M.S. Controlled Inventory.

Here's the worst one that I have witnessed...the manufacturer's P & A Purchase Statement may also include "promo" material such as Sales and/or Service Advertising Banners, Brochures, Accessory Displays, Gift Items, etc. that were being posted into the Parts Ledger Balance Amount.

If we are not looking at our Parts Purchase Statement from the manufacturer each month and waiting to reconcile at the end of the fiscal year, there in itself can be a huge problem. The Parts Manager should also be "matching up" every parts invoice from the manufacturer to every packing slip from the manufacturer to insure that we are only paying for what we receive.

At the end of the day, month or year...it all comes down to "balancing" the books and the Parts Accounting Ledger Balance Inventory as this is what we need to reconcile to. No matter if we reconcile monthly or annually, the adjustments have to be made to match that Parts Ledger Balance.

It would only make sense to do this process at the end of each month in order to protect ourselves from these end of year surprises, especially when we are expecting all this "blue sky", only to discover that it ends up in the other direction. 

At that point, it's just too late and we will just have to pass down the blame to guess who?...That's Right!...the Parts Manager when all the while, so many others may be involved in the discrepancy. This is why we need to do the process as intended and save everyone from all that end of year aggravation with our Accountants.

Covid-19 has definitely been a wake up call for all of us and as we always do...we learn from these experiences and the lesson here is undeniable and if we don't act on it, then I guess history just may repeat itself in the future...

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...

 

 

 

 

 

September 2020: The Future Of The Parts Department In A Virtual World

When we reached the new millennium back in the year 2000, would anyone have even thought that we would have self-driving, autonomous, or even "robotic" vehicles that could sense it's environment and move safely with little or no human input? Absolutely not!...and I for one would have never believed it possible in my lifetime anyway.

Even though we already have remotely operated subways, trains and even "drones", the idea that an autonomous vehicle can sense it's environment and adapt to that environment as opposed to trains and subways that are on a designated track, which is it's predetermined environment.

Drones on the other hand are controlled remotely by the operator and they have a much bigger environment in the air. The drones also cannot adjust to it's environment as once in the air, the drone operator controls it's every move, but if the drone operator runs the drone into a tree, it will hit the tree and not self adapt to avoid it.

Driver-less vehicles is a perfect example of where we are headed in a world that is becoming more virtual with less human interaction. We can now also imagine drone technology expanding into commercial travel, (which I would be totally against!) where pilots would no longer be required to fly commercial passenger airplanes.

Today, new vehicle manufacturing has significantly moved into this virtual world as robotics are replacing, or reducing the need for factory assembly line workers. People will always be needed to operate and run these new robotics, but there is a huge difference in producing automobiles today versus the day when Henry Ford started the assembly line over 100 years ago.

New vehicle design has also changed from drafting boards and clay models, (although still used) to other technology such as ECAD 3-D technology that can take many new vehicle designs "virtually" from inception to reality much faster and more efficiently, leading to new designs never thought possible.

Even the television and movie industries have gone "virtual" over the last twenty plus years as Pixar's RenderMan has been their #1 "rendering" technology to meet their ever-changing challenges in 3-D animation technology. So advanced is this technology that even animation can look almost perfectly and virtually real. 

That industry as also come a long way, "virtually" from the days when Walt Disney drafted his first images of Mickey Mouse with a pencil on a piece of paper. Much like the movie industry from a series of photographs to 8mm movie cameras to I-MAX Theaters to even video technology that all of us have on our Smart Phones.

"So, How Does All This Affect The Future Of The Parts Department In A Virtual World? 

During this Covid-19 pandemic, we have all had to move in many new directions in order to provide customer service in a more "virtual" way with less human interaction, including myself, having to provide fixed operations training exclusively through virtual means via the internet.

Zoom, GoToMeeting, MicroSoft Teams, FaceTime and many other internet face-to-face, live social media interaction venues have taken the place of live, one-on-one, on-site interactions with not only client and customer, but also a primary means of communication for media in general.

Our Service Departments have had to step up their "pick up and delivery" services, with more online communications through texting and website services for customer follow up and even "waiter" appointment slots being reduced, and "drop off" appointments increased.

In the Parts Department, we have also had to adapt and offer more "virtual" services, delivering more parts directly to our retail customers and not just to our wholesale customers, using alternate delivery options such as UPS, U.S. Mail and even in some cases, Uber services if needed.

On the more virtual side, we are seeing more and more websites and companies such as Rock Auto and other aftermarket companies allowing the customers to look up their own parts and ordering them without even talking to another human being.

We now have parts "scanners" that allow us to receipt parts much more efficiently, requiring less personnel, or people to perform those duties. Once again, the more technology expands, the less need for people to do the same job, and of course, more cost efficient in many cases.

The advancement of new, electronic parts bin systems have also allowed the advancement of robotics to more efficiently stock more parts in less space. All we have to do is push a button and the part(s) come to us. 

Once again, less human interaction and less need for people. Streamlining the stocking of many smaller parts allows for more efficient managing of the parts inventory.

On the the biggest areas, in my opinion, that is not far in the distant future is the use of Parts Kiosks. Even though kiosks are not new, we are seeing the use of these kiosks more and more than ever before and the parts department is no exception in my opinion.

It wouldn't surprise me in the not too distant future, where we can go to the dealership parts department "area", or my local aftermarket parts store, look up my own parts by VIN number and buy the parts I need through a kiosk or vending machine, pay by credit or debit card and the part is brought or sent to me in the vending machine, or by a delivery driver, perhaps even by a driver-less vehicle!

If you think about it, and please don't take this the wrong way, with parts cataloging systems are now so electrically advanced where 99% of the time, all we need is the VIN number of the vehicle, and anyone could research and look up their own parts.

We already see this today as most Collision Centers submit their parts orders to the parts department and the part numbers are already on the estimate, as opposed to years ago where we had to look all those crash parts up ourselves. 

Once again, most of the work and "interaction" is taken out of the equation, with exception to those parts that require more information due to model options, special equipment, etc. where a seasoned "parts pro" needs to do the job.

We have already seen the introduction of this kiosk and vending machine technology with the car vending machine, introduced by "Carvana". 

Now, we don't even have to deal with a New or Used Car Salesperson as we can conduct the sales transaction online and then just pick our New or Used Vehicle up at the car vending machine satellite site.

In Japan, there is actually a dealership, (Autobahn Motors) where they have all their vehicles in vending machines and from the outside, their building looks like one giant vending machine. Even their showroom is car vending machines. Definitely worth taking a look at their website to see this amazing look into our "virtual" future.

The success of this new "virtual" way of buying a New or Used Vehicle is still yet to be determined in my opinion as I still think there is nothing that can replace that experience of buying a New or Used Vehicle and "making the deal" face-to-face.

As for the parts department, we will be seeing more and more come down the pipe as after all, we do sell a retail product, which is a commodity that can be moved physically, or electronically through robotics or other "virtual" means, and it's just a fact like any other physical, tangible product.

Overall, I believe there is no replacement for the human element and the interaction between the dealer and the customer...period! Technology and innovation will always be growing and expanding, including the direction into this "virtual" world, but good old fashioned customer service will never be replaced.

We all want it and we all need it and that's what separates the competition and makes us always try to be the best of the best. Most importantly, that's what makes better products and better services as competition is not like a machine, a robot, or any new technology. The one single thing that cannot be replaced, reinvented, or re innovated is our human spirit and the will to succeed.

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 2020: Covid - 19 Update: "What Have We Learned?"

In our May issue of ACG "Smart Parts", we focused on preparing our Parts Departments for and beyond Covid-19. Now, after months into this health crisis, it's time to see what we have learned and what the effects and results have been for "Smart Parts" Managers and more importantly, the effects on the parts department.

Also in our May issue, we highlighted our "Top 10 Action Items" that parts managers should prioritize in preparation for Covid-19 and beyond. These action items have already played a key role in what we are seeing now, just three months later, since our May issue.

In general, the effects this virus has had on our industry is quite staggering, from the manufacturers, automotive vendors and of course, each one of us in all aspects of our lives. Some of these effects will be temporary, although, some may change our industry and our lives for many years to come.

In my opinion, even though these effects and results from Covid-19 have obviously been negative, there has been some positive effects and results as well. In some ways, this pandemic has forced us back to our roots on managing the basics in all departments.

In this issue of ACG "Smart Parts", we will look at what we have learned these last three months since we prepared ourselves back in our May issue. Believe it or not, there has been more damage done to our parts inventory than you might expect.

Manufacturers limited availability, supply chain issues, delivery issues, factories and warehouses closing, etc, have all contributed, (and still contributing) to the overall "trickle down" effect of reducing our abilities to be profitable while still trying to provide the products and services our customers expect.

We've all heard the term..."One thing leads to another"...and in the area of the parts department, that term is more evident than one might think as we "drill down" the "trickle down". In this process of measuring the effects, and/or results from Covid-19, we should all ask ourselves this one question....

"What have we learned and what are we doing about it?"

Let's look at some of the effects and results over these past several months. These results are from my own experiences over the last three months, working, training and coaching many dealers through this pandemic. Keep in mind as we walk through this "drill down" that time moves on no matter what happens and parts age, no matter what happens.

Believe it or not, in just three months, which is one "parts cycle", ALL of our parts inventories have increased obsolescence, no matter how well we were managing obsolescence prior to this health crisis. Sales movement has been shifted automatically one level lower.

First, let's look at the industry guidelines for Sales Movement:

Sales Movement 0 - 3 Months: Industry Guideline - 75%

Sales Movement 4 - 6 Months: Industry Guideline: - 23%

Sales Movement 7 - 12 Months: Industry Guideline: - 2%

Sales Movement Over 12 Months: Industry Guideline: - 0%

The one thing that we all have to agree on is that managing parts is all logic..."black & white", it's all math, algorithms and most important, there are no opinions, it is what it is. We can look at these above guidelines and know for a fact, lower sales during this crisis will impact our Sales Movement over time.

After evaluating many dealership parts departments since this all started, the last six months, (two "parts cycles") EVERY dealership parts department has had a "downshift" in all four sales activity categories. Especially in the last two categories, seven months and beyond.

So, what does this all mean?

Basically, it means we have a problem as if we didn't have enough obsolescence before this crisis, we have now increased it by 10% - 15% in these dealerships that I have evaluated. Even though individual dealerships numbers all over this country may vary, this evaluation sampling has revealed some interesting results.

This is where the "trickle down" effect starts as not only did our sales suffer since the beginning of this crisis where we couldn't generate the expected sales and gross numbers, we now have increased our cost of doing business and freezing up more assets.

 

On top of that, many dealership parts managers couldn't even get many parts they did need from their manufacturers due to plant closures and had to buy from other sources at a higher cost, just to fill their customer needs, all of which resulted in a negative, "trickle down" effect.

Now, as I mentioned earlier, there were some positives from these effects as some dealers were actually able to "rid" themselves from some of their overstock quantities and obsolescence due to this crisis. Parts that were not selling with slower sales activity were now moving again.

Plant closures and parts source reductions forced parts managers to use many parts locator systems to find their parts at other dealers, whether for their customers, or even to replenish depleted stocking quantities. Even if they had to pay more, they still had to provide for their customers and in many cases, added fees were passed down to the consumer.

Another area that has been impacted heavily from this pandemic during these dealer evaluations is our Dealer Management System's, (D.M.S.) posting & receipting practices. The impacts have "trickled down" to even our basic Accounting Practices.

Stock Order receipting became Emergency Purchases receipting, adjustments for additional costs of parts purchases were not being accounted for, Lost Sales not being reported, Outstanding Orders not being cancelled or deleted impacting future suggested orders, lack of proper management on back ordered parts...the list goes on and on.

Let's take a look at some of these areas of normal, regular, daily routines that have been impacted and disrupted our lives as parts managers. Keep in mind, changing our normal daily routines as parts managers will have an impact going forward if we don't fix it now.

Ordering & Receipting Practices

The simple procedure of ordering parts and receipting parts during this pandemic has simply been disrupted and changed. Parts that we would normally order for stock replenishment, whether through the manufacturers Vendor Managed Inventory, (V.M.I.), or even through our own D.M.S. has been disrupted.

Many parts managers are trying to reorder parts to replenish stock and when they receive the back order, or cross ship answer back with no scheduled delivery date, they are forced to seek other sources. Problem is, many parts managers who order from other resources, tend to receipt these normal stock order parts as Emergency Purchases, or perhaps Other Purchases.

This in itself will disrupt the D.M.S. and send false signals on Stock Order Performance, First Time Off Shelf Fill Rates and Parts True Turn. No matter where we buy our parts to replenish stock, they always need to be receipted as Normal Stocking Parts.

The source of where we buy our parts to replenish stocking levels does not determine an Emergency Purchase. This is crucial and perhaps a little difficult to understand, but in normal circumstances, Emergency Purchases should only be recorded on parts we run out of and have to chase down for a customer.

The key thing to remember here is if I'm chasing down a Normal Stocking Part that I ran out of for a customer, which is an Emergency Purchase...OR!...if I'm chasing down a Normal Stocking Part to replenish stock because I can't get it from the manufacturer...it's still a Stock Order Receipt. Just because the vendor changed, the reason didn't, therefore it's still a Stock Order Receipt.

Lost Sales Posting  

Since this pandemic began, many of the dealership parts departments have pretty much stopped posting Lost Sales. In one sense, I can understand with all the confusion and the prime focus becoming..."Just get me the part no matter where you have to go!"...normal process and procedure seems to go by the wayside.

In all actuality though, this is one area that we really need to hold firm and stick to our guns. After all we are not talking about those parts that we already stock and ran out of because of restocking issues, Lost Sales Reporting is key on those parts we never had and we need to record that demand.

We also have to remember that people, pandemics, customer affordability, time of year or any other objection does not determine a Lost Sale....the vehicle does. If the vehicle needs it, whether it gets done or not, that's a demand and requires the posting of a Lost Sale, if not sold.

Lastly, let's keep it simple...there are only two reasons why we don't have the part...either we never stocked it because it hasn't met Parts Phase-In Criteria, (Post Lost Sale), or...we ran out of a Normal Stocking Part that has met Phase-In Criteria, (Emergency Purchase). Both are crucial and need to be recorded appropriately and accurately.

Recording each Lost Sale and Emergency Purchase accurately will allow "Smart Parts" Managers to reduce "run out" situations while posting more demands from Lost Sales to bring in those new parts that our customers need at the right time.

Outstanding Orders

In my opinion, this category alone has had the most overall impact and perhaps still continues and many parts managers don't even know it. Outstanding Orders in my recent evaluations has skyrocketed since this whole thing started and for good reason.

Obviously, with plant shut downs, "forever" back orders, cross ship parts, delivery issues, vendor issues...the list goes on and on resulting in higher than usual Outstanding Order numbers on our D.M.S. Management Reports.

Here's the problem and why I say this category has had the most impact....

If we do not "relieve" those Outstanding Orders with proper receipting practices, meaning if I manually receipt parts that arrive without "relieving" that particular order control number, it will still remain "outstanding" on the D.M.S. even though that part was technically receipted.

The reason this is more evident now is because many parts are arriving weeks and perhaps months after they were ordered so many of these parts get receipted "manually" with the original order or control number omitted.

Another reason for Outstanding Orders rising is because we haven't received the part that we originally ordered and eventually had to find another source to acquire the part, which is fine, but we need to "cancel" the original order for those parts.

Bottom line as to why this is huge...

The D.M.S. will not reorder, or suggest reorder of a part that it sees with Outstanding Order quantities pending, When you think about it, that makes sense as the system is basically telling us..."Why should I order more of the same part that you already have on order?"

In my opinion, we should clear out all Outstanding Orders over 30 days so we can allow our D.M.S. to do it's job when we run our D.M.S. Stock Orders, which I hope all "Smart Parts" Managers do. Don't just rely on your manufacturer to do your job for you. Even if a part does arrive from over 30 days, I can still track it down and receipt it manually.

Accounting Practices/Adjustments

This is also a category that has gone wild since the pandemic started and is still one of the hottest topics that I receive questions on today. With all the additional sources that parts managers have had to purchase parts, whether from other dealers or vendors, there is almost always a cost adjustment that has to be accounted for.

Problem is, many of these cost adjustments are not being properly accounted for all the way to the Accounting Department. Cost is cost when it comes down to billing out a part and if we do not make the adjustment on the repair order or counter ticket, then we have just started a Parts Reconciliation Nightmare with the Accounting Department.

Sad thing is in many dealerships today, they won't be aware of this issue until end of year when most parts departments perform their Annual Physical Inventory. Performing a "Monthly Parts Reconciliation" between the Controlled Inventory, (D.M.S.) and the Accounting Inventory, (Financial) is crucial and should be a normal, monthly practice.

If your dealership does not perform a Parts Monthly Reconciliation as opposed to one Annual Parts Reconciliation, I would strongly recommend to do a "trial run" through July because I can pretty much guaranty that this year especially will bring nightmares if you wait until the end of the year to try and reconcile the parts inventory.

Lastly, it's great to see in all of these evaluations that we are definitely on the upswing, climbing out of an event that none of us would ever expect, but we still go on, as we always do...we adapt and we move on in this industry that is ever changing and ever growing stronger each day, month and year.

So!...What Have You Learned "Smart Parts" Managers!...More Importantly...What Are You Doing About It?".....Stay Strong!

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 2020 - Parts Escalation Matrix: "Developing The Perfect Recipe"

In my opinion, one of the most debated and discussed topics in managing the Parts Department is the Parts Escalation Matrix, second only to managing Lost Sales. When it comes down to developing Pricing Strategies, which includes most often the utilization of a Parts Escalation Matrix, there are many variables that come into play.

Some of these variables may include market area, basic pricing strategies, piece sales & cost sales ranking, Dealer Management Systems, (D.M.S.) capabilities, parts training, etc. which all lead to variations from dealer to dealer when it comes down to what Parts Escalation Matrix to use, or when it should be applied.

Developing the "right" Parts Escalation Matrix goes well beyond "just having one", or "just using one" as there are many key ingredients in the development process that "should not" lead to the exact same matrix in any given dealership, unless, of course a parts manager does a "copy and paste" version from another dealer's matrix.

The reason that the Parts Escalation Matrix needs to be different is because of the variables previously mentioned, even if several dealerships are owned by the same company, these variables are still in play. One of the biggest variables fore mentioned is piece sales & cost sales ranking. Not all the same parts sell from dealer to dealer as markets and customers are different.

The utilization of a Parts Escalation Matrix is nothing new to any of us, but it is not a "one fits all" fix for achieving the proper parts gross profit numbers and percentages that we all expect. Much like any other process we have to manage, the Parts Escalation Matrix needs to be measured constantly for effectiveness.

Not only that, but the Parts Escalation Matrix needs to be designed to impact the proper price "cost ranges" with the right mark up percentages that will impact expected gross profit percentages without sacrificing or losing sales due to overpricing.

In this issue of ACG "Smart Parts", we are going to reveal our Top 10 Ingredients in "Developing The Perfect Recipe" when developing the Parts Escalation Matrix. Even though no matrix should be exactly alike, there are some basic guidelines, or "ingredients" that need to be applied to every Parts Escalation Matrix.

So!...before we get started with our Top 10 Ingredients in "Developing The Perfect Recipe" for our Parts Escalation Matrix, I have to ask all "Smart Parts" Managers this simple question....

"If so many Parts Managers have and utilize a Parts Escalation Matrix, then why are so many Parts Departments not achieving expected Customer Pay Gross Profit Margins & Percentages?"

The answer is...."Maybe we have the wrong ingredients in our recipe?"

Here's our Top 10....

As I mentioned earlier, there are Parts Escalation Matrix guidelines that, in my opinion, should be considered before we develop any parts matrix. The following Top 10 Ingredients to the perfect recipe will be listed in order of importance so that we can achieve our expected customer pay gross profit margins and percentages.

Number 1: Price Escalation Levels

I have seen so many Parts Escalation Matrices over the years and I have been amazed at the lack of, or improper cost ranges in many of them. Whether the matrix is a "cost plus" or a "list plus" matrix, there are so many "gaps" between these ranges. I have seen gaps from the $50.00 range all the way up to $250.00 with varying percentages above cost or list.

For example, I've seen cost ranges that from $5.00 to $50.00 with the same percentage increase which will result in under costing and over costing on certain parts with that much of a "gap" in the cost range. The end result is parts staff  "overriding" that matrix to a price closer the M.S.R.P., or perhaps even less, depending what they "think" the price should be.

Each Parts Escalation Matrix should have at least 12 - 15 pricing levels, whether cost plus, or list plus, (I prefer cost plus, which I will explain in our Number 3 Ingredient). Each level, escalating upwards, should only have a $1.00 gap up to $5.00, then a $5.00 gap from starting at $5.01 up to the $25.00 range.

The gaps can be increased by $10.00 or $15.00, starting at the $25.01 range up to $100.00 and then increasing by $50.00 or more before finally "capping out" around $250.00 with M.S.R.P. taking over from that point. As price increases, customers are more aware and may "price shop" at that point.

In my opinion, if a customer will pay $37.52 for a non-competitive part, they will also pay $39.87 for that same part as it remains in that "zone" where they are less susceptible to shop elsewhere. On the other hand, they may not buy a part that we may "matrix up" to $344.17, where M.S.R.P. is around $287.12

Setting up the appropriate levels is Number 1...percentages above cost or list may have to be modified from time to time to get the right "fit", but the ranges need to be consistent and a "constant". Not having the proper amount of ranges will only lead to more price "overrides" by the parts staff.

Number 2: Application - Where To Apply The Matrix

This is one question I get a lot...."Where should I apply the matrix?"...

There are some specific times that I may not choose to apply the matrix such as Competitive Parts as I mentioned earlier as those parts should be "flat priced" in the D.M.S., whether manually or automatically. Keep in mind that all parts should be priced the same "over the counter" and in the Service Department, whether matrix, or "flat priced".

Another area where "Application" comes into play is Pricing Policies & Strategies between certain customers and situations where promotions, discounts and certain parts like accessories may be involved. Training the parts staff is key to insuring consistency and proper gross margins and percentages are maintained.

Pricing strategies within the dealership could also affect whether we use the matrix or not is within our own internal organization like the Used Vehicle Department and Collision Centers. Once again, consistent and proper training by management is essential.

Lastly, we may have multiple Parts Escalation Matrices for Fleet Customers, Wholesale Accounts, Senior Citizens and Military, etc. that may require different matrices for certain situations as we are not limited to just one matrix, or "catch all" matrix within all parts sources, or parts stocking groups.

Number 3: Percentage Ranges

After we have set up a consistent and constant Pricing Range, it's now time to "experiment" with the proper matrix escalation percentages. Depending on which cost range, some parts may get "out of whack" and be way too far from M.S.R.P., and other parts may well be within the right percentage range.

Most important thing to remember here is that we have to separate by Parts Source, or Stocking Group which parts we want to matrix in the first place. In other words, I may have a set of brake pads that fall into the same price range as a sensor. The matrix price on the sensor may be okay, but I may be charging too much for the brake pads as they are more "competitive" and not "captive".

All competitive parts should be "flat priced" and excluded from the matrix by either Parts Source or Stocking Group and not updated to the matrix price. Most Dealer Management Systems, (D.M.S.) can be set up to override the matrix on "flat priced" parts.

The most important thing to remember about our Number 3 is that these percentages need to be experimented with, adjusted, modified, measured on a consistent basis and there are always a "moving target" and require on-going maintenance.

Number 4: Cost Plus Matrix vs. List Plus Matrix

Our Number 4 is also extremely important as I still see Parts Managers utilizing a "list plus" matrix and I believe that a "cost plus" matrix works best. For one thing, list price is also a moving target as list price varies on many parts and becomes very difficult to control retained gross profit.

Some M.S.R.P. prices may be set too low, especially with Accessories, and on the other hand, some M.S.R.P. prices have a "backed in" huge list price with lots of retained gross profit already. This may lead to either "under pricing" or "over pricing" on certain parts. Which, once again, leads to more price overriding by parts staff.

One thing to remember is that cost is always a "constant" and never changes as the price we pay is the price we pay. So, if I "mark up" from cost at 1.75% on a part that costs $10.00, I will always retain a 42.8% gross profit percentage, ($7.50), not matter what the list price may be.

The only way that we can control gross profit margins and percentages is to control our "cost plus" margins and percentages. It also allows us to make changes and modifications in specific percentage ranges in our matrix. In addition, it will always calculate, even if the manufacturer does not show a list price in their pricing guides.

Number 5: Captive Parts

I mentioned earlier that I don't believe that we should apply a matrix to Competitive Parts, which should be "flat priced", so that leaves us to those parts that are "captive" and less likely to be price shopped if the matrix is applied properly.

These "captive" parts also allow us to make up for the difference on competitive, "flat priced" parts to achieve our overall goal and targets on overall parts gross retention. Much like the Labor Grids we use in the Service Department, we need those "captive" repairs to make up for our competitive and maintenance service parts.

These parts can also be separated by utilizing the D.M.S. options with Source Stocking by Piece Sales, or other Algorithms that will determine which parts are considered "competitive" versus "captive". Once these ranges are determined, they can be separated by source, or stocking group with the proper pricing strategies applied.

The most important thing to remember when utilizing a parts matrix on "captive" parts is what cost ranges we need to focus on the most in order to retain our best margins and percentages, which leads us to our Number 6 Ingredient....

Number 6: Cost Ranges

Another key factor in developing the perfect recipe for the Parts Escalation Matrix is which cost ranges that need to be focused on. In most cases, 80% of our part sales at cost fall into the $10.00 to $35.00 cost range. These ranges can be easily determined by performing a D.M.S. Parts Ranking Report. This report can be run by parts sales at cost, and/or piece sales.

This report can also be usually run in an ascending, or descending option which will determine what parts are selling in what range by percentage. As mentioned, approximately 80% of most parts that sell at cost is between $10.00 and $35.00. The remaining 20% is split between the $.01 - $9.99 cost range and $35.01 and up cost ranges.

That being said, it's pretty obvious that when developing a Parts Escalation Matrix, we should be focused on the majority range on "captive parts". It also means that this is the range that requires the most work, modifying, experimenting, measuring and managing it constantly to insure proper gross profit margins & percentages.

A "tweak" here and there in this $10.00 to $35.00 cost range can make a huge difference in overall gross profit margins and percentages just from a volume standpoint. A simple 10% increase swing can mean a total difference of 1% - 2% in overall customer pay gross profit retention.

Number 7: Capping The Grid

Our Number 7 Ingredient is here for a reason as I've seen so many Parts Escalation Matrices that have little or no cap in the escalation percentages, thus resulting in lost sales and customer retention. In my opinion, any part that sells over the $250.00 cost range should default back to cost plus 67%, which will result in a 40% parts gross retention percentage on customer pay parts, which is industry standard.

In my opinion, many customers would be more inclined to price shop on repairs and/or parts that are higher in price, especially on high ticket parts such as engines, transmission, axles, air conditioning parts, or for any other major service repair part.

It's much better to gain a little most of the time instead of gaining a lot just a few times. Let alone what that would do to the dealer in general on future vehicle sales and overall customer retention. Capping the grid is also easier to remain consistent with less overrides as from the parts staff.

Number 8: Discounts & Overrides

The biggest "gross killer" when it comes down to maximizing the Parts Escalation Matrix is Discounts & Overrides. Not having controls in this category leads to inconsistent pricing from department to department, and dealer to dealer. Common sense should tell us that no matter who is selling the part, the price needs to make sense.

If the Parts Escalation Matrix does not have the right ingredients, the number one way we can tell is by the number of discounts & overrides were done by parts staff. Creating a "Parts Exception Report" in the D.M.S. by counter person weekly, if not daily is a must, especially if Discounts & Overrides occur frequently.

Once again, we have to look at these Discounts & Overrides in a common sense fashion and ask ourselves..."Why are they overriding the matrix?" If so, we need to look at our recipe from the beginning and check the ingredients. The "Perfect" Escalation Matrix won't have overrides and only  "authorized" discounts.

Lastly, on our Number 8 Ingredient, I've had MANY dealers call me and tell me that the matrix we installed isn't working. They suggest we have to adjust it higher, or, it's working on Counter Retail, but not on Service Customer Repair Orders which can't make sense, especially if it's the same matrix.

The last thing we should  to do is to play around and increase the Escalation Matrix due to poor retention when the real culprit is discounts & overrides, instead, we should be looking at adjusting, modifying or "tweaking" the matrix, training our people and holding them accountable.

We should also, (if possible) implement a "password protect" feature in our D.M.S. with password authorizations as to who can discount and/or override our pricing strategies in general and not just with the Parts Escalation Matrix.

Number 9: Measuring & Managing Results

Like anything else we do as managers, we have to measure and manage our results so we can "fix it" if need be. A Parts Escalation Matrix is not a "set it and forget" implementation and process. It requires constant monitoring and measuring just for the fact of promotions, seasonal changes, customer preferences, sales and gross numbers, etc.

Managing & measuring results may also lead to additional Escalation Matrices and where they be applied. Percentage modifications, marketing, sales and gross goals and a host of other reasons may lead us to having additional matrices. If we have and utilize a Parts Escalation Matrix, all the previous eight ingredients must be followed consistently and monitored constantly, no matter how many we have.

Lastly, the actions we take when measuring and managing the Parts Escalation Matrix requires staff accountability, training and coaching. Positive reinforcement is always recommended and encouraging feedback from our parts staff and will always help us achieve our goal of developing the perfect recipe.

Number 10: It's a Moving Target

Much like our sales and gross goals, the Parts Escalation Matrix is a constant, moving target as it should be. Sales and gross dollars always follow trends and the Parts Escalation Matrix is no exception. The Parts Escalation Matrix is also just a piece of the overall parts pricing strategies & policies that is different from dealer to dealer.

Developing any market strategy has to include how we sell and move products and/or services, so if we are not keeping our eyes on the never ending "moving target", we will never achieve our overall goals and expectations.

So, if we are not achieving our overall parts gross margins and retention percentages, then we don't have the perfect recipe in developing our Parts Escalation Matrix. If the results aren't there, it's time to get back to basics and change the recipe.

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 2020: First Time Off Shelf Fill Rates: "Is Yours Accurate?"

As we wind down our four part series on Parts Key Performance Indicators, (K.P.I.'s), there is none more important than measuring "First Time Off Shelf Fill Rates". As a matter of fact, it takes all of our first three K.P.I.'s along with a little common sense to accurately measure "First Time Off Shelf Fill Rates".

Our previous three K.P.I.'s included Parts Stocking Status, True Turns and Stock Order Performance. Each play a key role in our last K.P.I. Even though we have featured "First Time Off Shelf Fill Rates" in the past, we haven't really "dissected" the topic as we will in this final Parts K.P.I.

Most Dealer Management Systems, (D.M.S.) don't even measure "First Time Off Shelf Fill Rates" and even if they did, they wouldn't be accurate. Most systems will measure Level Of Service, Overall Fill Rate, Same Day Fill Rate, Demand Fill Analysis, or just plain Fill Rate.

Problem is, all the above with the exception of Same Day Fill Rate, only measure "overall" Fill Rate minus Lost Sales and maybe Emergency Purchases. It doesn't matter if the order was filled today, tomorrow, next week or even next month.

The same goes with Same Day Fill Rates as it doesn't matter if the order was filled in the morning or afternoon, or even how the order was filled, whether from Stock, Outside Purchase, Emergency Purchase, or even if we purchased the part from an aftermarket source.

In all these case scenarios, there is one key part missing as none of the above have no indication as to how well the parts inventory is performing. In other words, we don't even have to stock a single part in our inventory to be in any of the above fill rate measurement categories.

That's right!...we could buy ALL of our parts from outside sources and we could still get high ranking percentages in all Fill Rate categories, no matter how the D.M.S. defines it. And...depending how we are reporting into the D.M.S., these percentages can be skewed or manipulated.

"So Why Is It Important To Even Measure First Time Off Shelf Fill Rates In The First Place?"

The answer that question has many answers attached to it as "accurately" measuring "First Time Off Shelf Fill Rates" can lead to the following results;

• Higher "Cycle Times" in the Service Department
• Higher Parts Gross and True Turns
• Higher and Increased Profit Margins
• Higher Return on Investment
• Reduced Obsolescence
• Increased Stock Order Performance 

So, as you can see, there are many good reasons to measure "First Time Off Shelf Fill Rates" and to my knowledge, there is no D.M.S. out there that can "accurately" measure it because we have to do the math ourselves.

My reasoning for this is that the D.M.S. has to rely on "accurate" input in order to display results and measuring "First Time Off Shelf Fill Rates". There are too many ingredients that can lead to inaccurate results. Even though there is a formula for measuring it, there can be too many discrepancies in the calculation.  

Let's start with the formula for measuring "First Time Off Shelf Fill Rates" and then we can "break down" these discrepancies and insure accurate results. Keep in mind, we have to do the math as well as reporting accurately into the D.M.S....

"Total Parts Sales (at cost) of Normal Stocking Parts Minus Emergency Purchases"

Sounds simple right?....not so fast as it is not that simple!

Here's why....

There are some key words in the formula itself that can lead to inaccurate results when measuring "First Time Off Shelf Fill Rates". Normal Stocking Parts and Emergency Purchases are the keys and unfortunately, that's where inaccurate reporting begins.

The reason for using Normal Stocking Parts as our guideline to measuring "First Time Off Shelf Rates" is because Normal Stocking Parts are more likely to sell on a first time basis minus Emergency Purchases when there is a "stock out" situation.

There are only two reasons why we don't have the part...either we never stocked the part in the first place, or we ran out. Thus the reason for subtracting out Emergency Purchases as we should be recording Emergency Purchases only on Normal Stocking Parts that we ran out of.

We also have to keep in mind that posting Emergency Purchases on parts that we do not stock yet, or haven't met parts Phase-In Criteria will reduce "First Time Off Shelf Fill Rates". Posting Lost Sales will not affect "First Time Off Shelf Fill Rates" as only the sales of Normal Stocking Parts are calculated.

This is also where proper posting has to come in as often times, Parts Managers use other methods of posting what should be Emergency Purchases. Other receipting practices such as Outside Purchases, Other Orders and I.O.'s, (in & out) are used instead of Emergency Purchases.

Quite simply, Emergency Purchases should be used in receipting only those parts that we normally stock, but ran out and Other Purchases, Other Orders and I.O.'s in those cases where we are ordering those parts that we do not stock such as aftermarket parts not within our franchise(s).

Reporting Emergency Purchases in only those "stock out" situations of parts we normally stock will give us accurate information when calculating "First Time Off Shelf Fill Rates". Mixing in all the other Non-Stock Purchases will just lead to inaccurate results.

The other main factor in calculating an accurate "First Time Off Shelf Fill Rates" is defining Normal Stocking Parts. Believe it or not, this basic Stocking Status is not accurate in many dealership's parts department. The only way parts can meet this Stocking Status is through the D.M.S. Parts Phase-In Process, whether automatically or manually.

Having the right Phase-In Criteria is critical to bringing parts into the inventory and obtaining the proper Stocking Status in order to figure into the "First Time Off Shelf Fill Rate" percentage. Recording the proper amount of demands, (Sales & Lost Sales) over the appropriate period of time is crucial to proper Parts Phase-In.

Another reason why the Stocking Status of "Normal Stocking Parts" listed in the D.M.S. can be inaccurate is because of Vendor Managed Inventories, (V.M.I.) provided by the manufacturers. Some parts that are recommended by the manufacturer and purchased by the Parts Manager may have not even met the dealers criteria for Phase-In, even though these parts may have met "group" Phase-In Criteria.

If we receipt these parts into the inventory that have not met the D,M.S. Phase-In Criteria, they will be automatically carry a Stocking Status of "Non-Stock". Thus, not calculated in the "First Time Off Shelf Fill Rate" calculation, unless the Parts Manager manually changes the Stocking Status to "Normal Stocking", which is recommended.

After all, any part that is purchased to replenish shelf stock should carry the proper status of "Normal Stocking", regardless of the source these parts where purchased from. We also have to insure that we are not receipting Special Order Parts that have not met Phase-In Criteria and get mixed into stock orders and receipted as Normal Stocking Parts.

Case in point, I met a Parts Manager that ordered and receipted ALL his parts on his Daily Stock Order, thus revealing 99.9% of his parts in inventory were considered Normal Stocking Parts in the D.M.S., which of course was inaccurate. No Customer Orders, no Emergency Purchases, no Lost Sales and no Outside Purchases...I had finally met the Perfect Parts Manager!

As you see, there are a LOT of factors to consider when accurately reporting and calculating "First Time Off Shelf Fill Rates". Proper ordering and receipting practices are the top two ingredients to get an accurate percentage.

Even though there is no 100% accurate way to calculate "First Time Off Shelf Fill Rates" due to all these variables, but we can definitely come with a very small margin of error that if we are consistent and honest in how we record information into the D.M.S.

We will always have those times when we have a Special Order part, (non-stock) that was never sold, sitting on the shelf and eventually sells on a "first time basis", but doesn't get figured into the First Time Off Shelf Fill Rate" calculation because it was a Non-Stock part.

Or maybe we ran out of a part that we normally stock and had to chase the part from an outside source, AND forgot to report the part as an Emergency Purchase resulting in an inaccurate sale considered into the "First Time Off Shelf Fill Rate" calculation.

In my opinion, the ONLY Fill Rate that we should measure is "First Time Off Shelf Fill Rates" as it is the only fill rate calculation that measures the Parts Inventory Performance as all the other fill rate calculations can be manipulated and give the dealer an inaccurate analysis of the parts inventory performance.

Having the right Phase-In Criteria that leads to the Proper Stocking Status of parts, and separating those Emergency Purchases in those "stock out" situations is the only way we can get close to an accurate "First Time Off Shelf Fill Rate". Doing the math ourselves along with common sense will give us our most important Key Performance Indicator.

May 2020: "Preparing The Parts Department Beyond Covid-19"

First and foremost, ACG "Smart Parts" is wishing and hoping that all of our customers and ACG "Smart Parts" Readers are safe and healthy during this health crisis. Even though we all are going through something that we never expected, we will all prevail, including our automotive industry in general.

In this month's issue of ACG "Smart Parts", we are interrupting our current five part series on the Five Top Key Performance Indicators, (K.P.I.'s) to bring our "Smart Parts" Readers and exclusive issue dealing with our current health crisis with the Covid-19 pandemic.

We will bring our "Smart Parts" Readers our last part of our K.P.I. Series in our June issue and hopefully, we will be on our way to recovering and perhaps beginning a new era in the way we do business in our industry.

In my opinion, I don't think anyone of us was prepared for what we are dealing with, but I do know that this will shape our thought processes, our business models and believe it or not, challenge us to new opportunities in the future.

For me, the reaction to this crisis is the most important step that we all have to take in order to prepare and succeed moving forward. Our positive attitudes and motivations have to take center stage with the proper planning and business models, taking in all the variables and potential "New Norms" that may lie ahead of us.

In times like these, I am reminded of a motivational quote by Epictetus that really doesn't just apply in these times as the quote really should apply throughout our lives and it reads as follows;

 "It's not what happens to you, but how you react to it that matters"

                                                                                              - Epictetus

The parts department is not exempt from all these reactions and changes moving forward, and quite frankly, in many ways our reactions, planning and preparation going forward can highly impact the profitability and investment of the parts department in the future.

It's hard enough just to deal with what's going on in the present, but in my opinion, preparing for what lies ahead cannot be overlooked and now is the time to get ready as we approach the many phases of reopening our economy.

In this issue of ACG "Smart Parts", we will list and detail our "Top 10 Action Items" that will help us prepare for what lies ahead. We may not know it now, but what is happening right now is impacting how we will bring parts into the inventory, our stocking levels, future obsolescence, employee staffing metrics, marketing,  and much, much more.

So, as we fight to get through this crisis, the real battle will begin as we continue to recover. Is there a "New Norm" ahead?...How do we plan and prepare for what lies ahead, especially when we really don't know what lies ahead?

"Let's start to prepare NOW with our "Smart Parts" Top 10 Action Items to prepare our parts departments for what lies ahead, beyond Covid-19"

We are going to start our "Top 10 Action Items" to Covid-19 Recovery in the order of importance to insure that we keep focused on prioritizing the preparation process. If there is one thing that we have as an advantage to help us through this preparation is history.

Even though history is changing each day, our "parts history" and our Dealer Management System, (D.M.S.) provides a vehicle to moving forward and insuring that we make the right decisions regarding inventory management in the future, beyond Covid-19.

Number One: Parts Demand

First and foremast, "Parts Demand" is the fuel for our parts inventory engine when it comes down to stocking the right parts at the right time and at the proper inventory levels. Over the past couple of months, "Parts Demand" has been negatively shaken heavily with "stay at home" recommendations and "social distancing" reducing our in-dealership traffic counts tremendously.

With reduced service traffic and reduced overall parts business in general, our "Parts Demand" is constantly recalculating our stocking levels, or days supply to different levels, (in most systems) over the last twelve months, including those from our manufacturers Vendor Managed Inventories, (V.M.I.), if applicable to your dealership.

We cannot have a mindset of what "Parts Demand" used to be and to keep stocking parts because of what parts history told us even three months ago. We have to operate in the "now" mindset and be looking at "Parts Demand" over the last 30 - 60 days versus the last twelve months. 

Number Two: Parts Phase-In Criteria

If we haven't looked at this set up in a while, it's now time to take another look at just how parts "phase-in" to our D.M.S. Inventory. Especially those dealers that are utilizing the manufacturers Vendor Managed Inventories, (V.M.I.) as most V.M.I.'s use "group criteria" for how parts are qualified for their respective programs.

Just like in our own D.M.S., the V.M.I. parts "phase-in" criteria is most likely still set to "prior Covid-19" settings which requires parts demand, (usually 2-3 demands) over a period of months, (usually 6-8 months) which takes us back to times that don't reflect our current or even future status beyond Covid-19.

Parts Phase-In Criteria should immediately be changed to a shorter time span to reflect current sales over the past two or three months with proper recording of all demands which includes Sales and yes...Lost Sales.

Phase-In criteria should be looking out over a period of days or months not to exceed 90 days, or three months. Demand should be set at two or three demands to reflect demands over this recent period. 

Now should be the time to be looking at the D.M.S. Phase-In Criteria as well as keeping a watchful eye open on just what the manufacturer is proposing on new parts added to their V.M.I. stocking programs. I always suggest to check your own D.M.S. demand history before stocking new parts recommended by their programs.

Number Three: Stocking Levels

Maintaining the proper Stocking Levels which can be defined as Best Reorder Points, (B.R.P.) and Best Stocking Levels, (B.S.L.) has always been an art, but there is no better time than now to maintain and control these Stocking Levels. 

It has always been important to maintain a 45 days supply of parts from a dollar standpoint, but if we don't maintain these proper levels, it will only lead to overstocking and adding to parts obsolescence. Parts algorithms never change on our Best Reorder Points, (B.R.P.) as math dictates, but the Best Stocking Levels, (B.S.L.) is always up to the parts manager's discretion.

Once again, trusting your own D.M.S. is always the best way to manage these Best Stocking Levels as they dictate YOUR sales demand and not the V.M.I.'s demand. Over stocking and under stocking of V.M.I. Parts is not uncommon as group demand varies compared to individual dealer demand.

Lastly, on this subject, many D.M.S. programs measure stocking levels on an annual piece sales basis and not necessarily over most recent days or months. Caution has to be taken on parts that sell on a seasonal basis and managed properly.

For example, a part that sells 12 times annually may have those sales happen over a three month period which dictates a 30 day supply, but...looking at these parts on an annual basis could lead to overstocking in low sales months and under stocking in peak months. 

Number Four: Obsolescence Prevention 

I hate to say this but this crisis has already started a new wave of obsolescence. Lower current sales combined with previous higher sales volume and stocking levels are a definite recipe for new obsolescence. Common sense would tell us that if my sales drop dramatically, I will have increased parts on the shelf that will become obsolete.

Keep in mind that every part will become obsolete, so we have to do our best to "stop the bleeding" before it's too late. Just as we mentioned in our "Phase-In" Criteria, we also need to set, or reset our "Phase-Out" Criteria to at least 7-8 months.

Phasing out these parts at an earlier month or days will change the Stocking Status of these parts to Phase-Out and not to reorder unless they meet Phase-In Criteria all over again. This is also why we have to be careful not to overstock parts as they will just add to the problem.

Lastly...on this subject, don't be fooled by "Inventory Protection" as it's a never ending, perpetual process that we can never win. Even though we can return parts after a certain number of months, there is always at least nine to fifteen months right behind it.

In other words, even if I could send back $20,000.00 in parts that have not sold and are "protected", there is always ten times that amount that has not sold built up right behind it over a number of months. It never ends...it's perpetual and you will never catch up from a dollar standpoint as well as the expense in inventory acquisition and holding costs.

Number Five: Lost Sales Posting

Here we go again!....Lost Sales is always a part of the picture and it comes in at Number Five for a reason. If you remember our Number One Action Item being "Parts Demands", then you already know why posting Lost Sales has to be a Top 10 pick. 

Parts Demands, as I mentioned early on, are the "fuel" for the parts department inventory engine and without demand, we wouldn't even have a parts inventory. Lost Sales plays as big a part in "Parts Demands" as Parts Sales do. Parts Sales happen, but "Lost Sales" posting doesn't always happen.

In order for us to "meet the demand" of our customers down the road, especially now during this crisis, we have to record our "Parts Demand" as best as possible right now. Reporting "Lost Sales" to me is like "Email Capture Rate", which we all know is valuable and will be going forward.

Parts Demand is always current and tells us what's going on now so we can plan on our future based on parts sales history, which gives us our proper parts to phase-in, proper stocking levels and eventually a higher First Time Off Shelf Fill Rate and higher profits...and so on and so on....

Number Six: Our Employees

It pretty much goes without saying that our employees are our biggest asset, but in my opinion our employee "Staffing Metrics" may be changed going forward beyond Covid-19. For years, we have lived and operated our businesses by a set of guidelines set by our industry.

These guidelines have been set based on "Sales Per Employee", and other guidelines that are required to service our customers in an environment that hasn't really changed for years. Now that our future business is in question as far as where it will come from and what the market directs us to, much is still unknown.

One thing for sure is that we will still need skilled and trained employees to compete and succeed going forward. I do believe though that the training and skill requirements will be much more in demand with social media and online services getting stronger and more popular.

I also believe that dealers will develop and pursue all avenues available to streamline their expenses overall, especially in the area of personnel expense. Hopefully, all these avenues will continue to lead our industry as one of the most prosperous career opportunities. 

Number Seven: Parts Marketing 

Even though internet online parts marketing has been on the rise for the last few years, I believe that going forward, social media, online marketing and internet sales will come closer to home. Up to this point, E-Commerce and Aftermarket Parts Sales has been for the big players only and has grown substantially in recent years.

Individual dealer parts departments may be heading in that same direction, no matter what size dealership as "social distancing" may be with us for an undetermined amount of time and require other means to increase parts sales overall.

"Do-It-Yourself" customers may also revert to other means to acquire parts opposed to taking a ride to the local dealer parts department such as online orders, kiosks and perhaps other prepaid delivery methods. 

As our Number Seven "Action Item", I believe it's time to make sure that our dealer websites are up to date with the ability for customers to buy parts online and navigate easily to make parts purchases. Most dealership websites that I have seen are very difficult to navigate, or even contact the parts department.

Most dealership websites do have links and portals that connect to the parts department, but when you click through to the parts department section to inquire on a part, it simply says..."Contact Us". Usually, they will ask for your name, phone number and what part(s) your are inquiring about and they will get back to you.

I would even go as far as to include parts cataloging availability on the website to help parts customers look up their own parts and order online with parts availability, special order options, proper payment methods and delivery options available, thus eliminating contact with the parts department altogether. 

Number Eight: Pricing Strategies

Believe it or not, in my opinion, I think there is a huge opportunity to change the "status quo" going forward as it pertains to parts "Pricing Strategies". As previously mentioned in our Number Seven "Action Item" concerning new concepts in Parts Marketing, offering the customer more convenience and adhering to potential "social distancing" guidelines can be offered with a price.

For years, we have lived by our guidelines set by the industry, especially on sales, gross numbers and percentages, but who's to say that we can't capitalize our profit margins by providing special services as mentioned earlier?

Providing conveniences such as online cataloging, parts availability, special order and delivery options could make convenience outweigh price. I'm not suggesting of course that we go overboard and charge "out of market" pricing, but it does leave a lot out there to think about.

Service pricing on our parts could also be impacted positively if we offer more of these convenient services that allow the customers more options in getting their vehicles serviced with "pick up and delivery service". This service is already being offered in many service departments with all the Covid-19 restrictions.

All that said and in my opinion, competitive pricing should always be practiced on the most common maintenance parts and services offered regardless the situation, whether crisis or no crisis. Good business practices and community involvement is part of what we should always maintain. After all, customer loyalty and retention will never change.

Number Nine: Pick Up & Delivery Service

Our Number Nine "Action Item" pick should be a real "no brainer" and is already in practice in many dealerships since the crisis began. I believe we should take it a step further and continue this service always.

Many upper line vehicle manufacturers have been using this service all along and though some dealers may think the cost may outweigh the return, I also believe this is one that will stick and be part of our normal features and benefits that we offer. Remember when shuttle rides were thought to be a waste of money?

Parts delivery is not offered in all stores as parts delivery is and was mostly offered to dealers who are into wholesale parts sales. Keep in mind, parts delivery doesn't have to mean we hire a bunch of drivers as there are other options such as Uber Delivery, UPS and the U.S. Postal Service, etc.

It all comes down to the "potential" and new ways to operate our parts departments going forward as none of us really knows how far this will go, or if "New Norms" will be created. But I know one thing for sure...we will adapt as we always have in the past.

Number Ten: Be Positive & Remain Positive

Our Number Ten "Action Item" should actually be a constant and a "state of mind" throughout this health crisis, or any other crisis or obstacle we may face, or have faced in the past. Thinking "outside the box" and "getting out of the box" is what it's all about.

I believe that's what makes us unique, especially what makes our business and industry unique. Keeping a Positive Mental Attitude will take us through thick and thin. With that, I will leave you with this quote from a very well known Major League Baseball Player....

" A positive attitude causes a chain reaction of positive thoughts, events and outcomes. It is a catalyst, and it sparks extraordinary results"

                                                                                                                

                                                                                            - Wade Boggs

        

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...