Monday, January 7, 2019

January 2019: "What's Your New Year's Resolution?"

In my opinion, for the "Smart Parts" Manager, January is one of the most important months of the year. More important in fact for many reasons far different from other dealer department managers. January gives us an opportunity to not only start all over again, it also gives us a "seeing eye" into the future.

Unfortunately, I have witnessed Parts Managers and other department managers begin each New Year with  holiday season "postpartum" depression with a "here we go again" attitude. To me, I couldn't wait to start all over again each year.

New challenges and forecasts, inventory looking fresh as we just performed the annual physical inventory last month, and most important to me was...getting a chance to jump out of the gate fast and furious.

As we move forward with our first issue of ACG "Smart Parts", we will be challenging "Smart Parts" Managers out there to a New Year's Resolution by implementing what I have always called the 5 "Fast Start" Initiatives for each New Year.

These 5 "Fast Start" Initiatives will definitely give the "Smart Parts" Manager a more proactive and positive approach to the New Year and...if holiday "postpartum" depression still lingers, this will definitely get everyone in the department up and running again.


So, if you are ready to make a "Smart Parts" New Year's Resolution...Let's get it going with our 5 "Fast Start" Initiatives for 2019!


Number One: Modify Phase-In Parameters

That's right!....we are going to "forcefully" modify our phase-in settings to be more aggressive for just the month of January. One might ask why we would do this and change what's worked in the past and the answer is quite simple.

The month of January is the only month of the year where all our basic parameters, business ratios and inventory measurements are "annualized" with just one month of information and that would be January of each new year.

The clock turned on January 1st, 2019 at midnight where all our business ratios that we monitor will give us immediate results in the areas of Level of Service, (Overall Off Shelf Fill Rate), "First Time" Off Shelf Fill Rate, Stock Order Performance as well as Gross and True Turn Rates.

Most Dealer Management Systems, (D.M.S.) measure parts demand, (sales or lost sales) on a monthly and annual basis with exceptions given to newer Dealer Management Systems like Dealertrack and Quorum for example where demands are measured "daily" and even "weighted" over a specific period of time.

So, other than the exceptions I have listed, and for most other systems out there, January is the only month of the year that we can "trap" this vital information on our business ratios as it's happening right now and without averaging and annualizing a whole year.

On February 1st of this year, we will be looking at our first Parts Monthly Management Report of the New Year reflecting January alone. This first report of the year will also give us an "annualized" report based on just one month into the year.

We will never get this "snapshot" again for the rest of the year and it will be our best indication of the parts inventory performance. This is also the best time to make modifications to any of the set ups and parameters going forward.

Now, getting back to the answer as to why we should change our phase-in settings for one month. Basically, we want to see what's out there and to give the "Smart Parts" Manager a "seeing eye" into the future.

If you are primarily using a Vendor Managed Inventory, (V.M.I.) such as RIM, ARO, PartsEye, etc., you will not get this information there.

Trapping this vital information can only come from your own D.M.S. after aggressively modifying the phase-in parameters and running an in-house D.M.S. stock order.

It is not necessary to modify Best Reorder Points, (BRP, or Low Days Supply) and Best Stocking Levels, (BSL, or High Days Supply) as basic math will determine those levels.

As an example, if your basic phase-in parameters are set for demand in 3 separate months in the last 7 months, with a total demand of 3 or more, we would change those parameters 2 demands in 3 separate months with a total demand of 3. This will give us a lot more information over a shorter period of time.

Once the modifications are set and we have run the system update to store and keep the changes, we can now create a system generated stock order on our D.M.S.

This stock order may be huge and with a lot of pages, especially if we haven't created one in a while. Especially if we are only relying on our Vendor Managed Inventory, (V.M.I.) stock orders instead of including our D.M.S. stock orders.

The results may be astonishing as now I will see the most recent activity and an accurate "Dynamic Days Supply", (D.D.S.) as this is what's happening right now.

Keep in mind though that these parts will not just jump on the shelf as the "Smart Parts" Manager makes all the plus and minus adjustments before approving any stock order.

Lastly, after aggressively modifying these phase-in parameters, we can maintain them, or revert back to the initial phase-in parameters if too aggressive.

Most importantly, we will see what's happening now and we may just find some new part numbers out there that we should be stocking, whether they are protected by a V.M.I. or not.


Number Two: Pricing Strategies

Our number two "Fast Start" Initiative is very simple and right to the point. Our pricing policies need to be updated at least once a year and what better time than the first of the New Year.

Prices that need to be updated include; Weighted Parts Prices, (air & cabin filters, wiper blades, etc.), Service Menu Prices and most important to me, the Parts Escalation Matrix on "captive" parts.

Prices are constantly changing, whether up or down, but we still need to manage these areas to insure the proper gross profit retention. In most dealerships, our parts sales are controlled by other departments, but we control our gross profit and gross profit retention.


Number Three: New Model Year Accessories

Yes Accessories!....

When I talk to many Parts Managers, accessories is not a popular subject for many reasons. Low profitability, shorter parts life cycles, little or no parts return protection, higher stocking requirements, etc. just to name a few.

So, why is "New Model Year Accessories" our number three "Fast Start" Initiative? Quite simply, it's probably the most under utilized opportunity sitting out there for "Smart Parts" Managers and for most of the aforementioned reasons listed above.

On the contrary, selling accessories is no different than selling all other parts except for the "point of purchase", (P.O.P.) factor....the customer has to see them and be led to them.

Image advertising is not new and especially when the customer is excited over their new purchase, seeing is buying. Displays are as crucial as the T.O.'s, (turnovers) received from the Sales and Service Departments.

In my opinion, each new vehicle purchase customer should be offered to view and/or purchase all available accessories offered on their new purchase. To me, accessories should be treated just visiting the F & I Office to complete the sales transaction. 

Lastly, all accessories should be inventoried in their own separate source with separate phase-in/phase-out criteria and days supply to limit overstocking and potential obsolescence.

These parameters should include shorter phase-in/phase out criteria and "controlled" Reorder Points and Stocking Levels due to shorter parts life cycles.


Number Four: Controlling Obsolescence

For the most part, controlling obsolescence is not just a "January" thing as we all know that controlling obsolescence is a never ending task for "Smart Parts" Managers that goes on day in, day out, month after month and year after year.

But, here's the difference....when do we ever make a decision on what to do with the obsolescence? Usually that's a year end decision that our dealer makes whether to write off the parts obsolescence or not, or maybe the dealer puts it off again for another year.

But again...when do we make a decision and what's our plan moving forward to "stop the bleeding" and stop the obsolescence from returning year after year. If the dealer chooses to keep his parts obsolescence, it should at least be moved to a separate source and out of the active inventory.

There are many options for keeping obsolescence from returning, with my favorite being an in-house "scrapping" program with funds set aside each month to make up the difference that we never seem to get from selling obsolescence on eBay, OEConnect, etc, or from our manufacturer's accrued return reserves.

Lastly, we have to look at how we got all the obsolescence in the first place and the two most common contributors to how we accrued so much obsolescence in the first place is Vendor Managed Inventories, (V.M.I.'s) and improper set ups and controls in the Dealer Management System, (D.M.S.) due to lack of Parts Manager training.

Bottom line in our Number Four "Fast Start" Initiative is to start each year making a decision on how we will manage and keep obsolescence from coming back this year. Don't carry it year to year....Make A Decision!


Number Five: Encourage New Ideas

Some of the best ideas that I have learned and shared were right in front of me as they came from my own staff of employees. In my opinion, EVERYONE we are in contact with is a resource, as there  are countless "information centers" are all around us that haven't even been tapped into yet. 

They seem to see things that we don't and if asked, they are happy to share their ideas and they will especially be appreciative that we did ask. This is where employee confidence and loyalty is taken to a higher level.

They may have ideas on how we can sell more accessories, or maybe even a new bin layout that would save space and be more efficient, or maybe even ideas on how we can gain more wholesale accounts. Ideas are everywhere and we just need to ask and encourage our staff to be more involved in our business.

The reason that I chose "Encourage New Ideas" as our Number 5 "Fast Start" Initiative is simply because "new ideas" work best in the "new year" and encouraging our employees on a positive level always gets them out of the holiday "postpartum" depression. 

Rewarding our employees for their "best ideas" and involvement is also highly recommended as well. Letting them even "champion" some of these new ideas as they were the ones to come up with...let them run with it!...

So don't let the holiday season "postpartum" get you and your staff merely walking into the New Year...start the race running with your New Year's Resolution and the 5 "Fast Start" Initiatives for 2019 and make it your best year ever!....Happy New Year All!


Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com
























Wednesday, December 5, 2018

December 2018: "Are You Ready For The New Year?"

If I were to ask our intro question to most Parts Managers, the most popular answer would most likely be..."As ready as I will ever be"....or perhaps even..."Of course I'm ready!"....

The concern that I have is that quite a few Parts Managers say their ready, but I don't believe that they are "prepared" and ready for the new year. I truly believe the preparation does precede our expectations and simply going through each day like the one previous will simply lead to undesirable results in the end.

To prove my point, let me start out by asking a series of questions that would prove to me that we are actually "prepared" and "ready" for the new year....
  • Have we reconciled our year end inventory between the "Accounting" Inventory and the "Controlled" Inventory?
  • Have we completed our employee annual or semi-annual evaluations and performance reviews?
  • Have we reviewed our parts setups and controls such as phase-in/phase-out, days supply, stocking levels, etc.
  • Did we complete a new year sales, gross and expense forecast with all other department managers?
  • Have we met our goals for 2018 and did we set new goals for ourselves and our employees based on our forecasts and projections?
If we cannot answer all these questions with a resounding "YES!"....then I guess we really aren't "prepared" and "ready"...

So, "Smart Parts" Readers!....let's get "prepared" and "ready" for the new year....

These five questions above lead us to what I refer to as the top five "Must Do" tasks that a "Smart Parts" Manager needs to complete at the end of each year in preparation for each new year. Along with some key information from NADA and other industry analysts, we will have the key ingredients to forecasting the new year ahead.

Let's start out with these five "Must Do" tasks that will help us prepare for the new year ahead. Some of which will require some key industry analysts information in order to build our "business plan" or, forecast going forward into 2019.

Let's go forward with the Five "Must Do" tasks...

1.) Parts Inventory Reconciliation:


At the end of each year, most automotive dealerships are required to "reconcile" their parts inventory between the "Accounting" Inventory and the D.M.S., (Dealer Management System) "Controlled" Inventory, whether a physical inventory was performed or not at the end of the year. 

Many automotive dealerships reconcile their parts inventory each month throughout the year which makes it much easier to "reconcile" these two amounts at the end of each fiscal year. Reconciling the parts inventory only once at the end of each year leaves the door open for higher discrepancies.

The bottom line is that reconciling the parts inventory at the end of each month and each year sets the stage for each new year with accurate reporting and a solid accounting of the parts inventory asset. The parts inventory asset represents the second highest dealership asset other than the Used Vehicle Inventory in most dealerships today.

On the profitability side of things, reconciling the parts inventory each month and each year can shake up the dealer's bottom line drastically. Even though changes in parts inventory amounts from year to year can impact the dealer's overall profitability, balancing this amount is key to maintaining a consistent asset liability.

2.) Employee Performance Evaluations:

This "Must Do" task is usually the most overlooked end of year task by Parts Managers by far. When in fact, evaluating our employees' performance is probably the most critical "Must Do" task of all.

 Developing a "Parts Team" is critical in so many areas such as Lost Sales Reporting, Maximizing Parts Profits, and Building Customer Relationships.

The most critical area of Customer Relationship Building in the Parts Department is Inter-Departmental Relationships and Incoming Calls to the Parts Department as trust and parts expertise play a huge role in maintaining customer loyalty and trust.

Lastly, the Parts Department usually maintains a dependability, tenure and employment performance level higher than any other department in the dealership, second only to office and administration staff.

Evaluating and rewarding parts department staff for consistent performance has been a major factor in the parts departments' net profit consistency in most dealerships today.

3.) Reviewing D.M.S., (Dealer Management Systems) Setups and Controls:


This is the one area that freaks out most Parts Managers when I ask them...."When was the last time you looked at, reviewed or modified your basis Setups & Controls such as Phase-In/Phase-Out Criteria, Days Supply, or Parts Order Parameters?....

In most dealerships today, the Parts Manager rarely reviews these basic Setups & Controls when in fact, parts movement cycles change on an average of every three months! That being said, why wouldn't we be watching the movement trends more often?....perhaps two or three times a year at least? Those days of "set it and forget it" are long gone in my opinion.

With days supply, both low and high days, changing so frequently, managing especially the high days supply, or BSL, (Best Stocking Levels) are more crucial now than ever before! Along with that, source ranking parts by piece sales are extremely critical in maximizing parts profits utilizing a parts escalation matrix at peak, captive performance intervals.

Even if you have a manufacturer that offers a Vendor Managed Inventory, (V.M.I.), utilizing your own Dealer Management System, (D.M.S.) is crucial to maximizing all demands recorded, especially Lost Sales. Proper recording of ALL demands, through the D.M.S. and or your V.M.I. are critical if we want to have the proper stocking criteria and stocking levels.

4.) Forecasts and New Year Projections:


First off, I have to say that if you don't know where you've been, there's no way that you could know where you are going.  You have to have a plan, and building a Forecast is not to be taken lightly. There are many components to building a Forecast and it begins with these few basics:
  1. Prior Year Monthly Averages
  2. Current 3-Month Trends on Sales and Retained Gross Margins
  3. Future Market Expectations Based on Past Performance
  4. New and Used Vehicle Sales Forecasts, Service Forecasts
  5. Personnel, Semi-Fixed and Fixed Expense Trends, (last 3-month & 12 month trends)
The most important factor to remember when forecasting Parts Department Sales and Gross Profits is that Sales and Gross Profit are pretty much dependent on other dealership departments forecasts in most dealerships. Projected Sales Department and Service Department expectations highly impact the projected  results of the Parts Department.

5.) Goals and Expectations:

Once we have crunched all the numbers, it's time to make that all important commitment to our dealer as far as what we can expect in the days, months and year to come. If we have done our homework and have combined our efforts with other dealer managers, future results can be expected.

When we set individual and department goals, especially when we write them down, we are putting our "stamp of approval" or "signature" on to what our dealer can expect in the upcoming year. Keep in mind that excuses on goals not met could just be alibis that lead to failure.

I was taught many years ago when setting goals, I had to make sure that they were S.M.A.R.T.....meaning Specific, Measurable, Attainable, Realistic and Time Focused. Setting unrealistic goals, or "pie in the sky" goals were never going to work and ultimately would just lead me to failure.

I was looking at the NADA Data numbers from the mid-year point of 2018 and a few staggering numbers just jumped out at me. All of which highly impact our parts business as well as what the future holds going forward.

The total number of new vehicle automotive dealers stayed pretty steady in 2018 with a total number of 16,794 new vehicle dealers. But the interesting thing to me was that new vehicle dealers actually employ over 1.1 million people, which is near the top of the retail market sector.

Another interesting fact in this NADA Data mid-year report was that wages for dealership employees went up 3.1% in 2018 over the previous year. Even though this was interesting to see, it was not too surprising because of unemployment at all time lows.

Finding good employees in all aspects of the dealership today continues to be a struggle as we all have experienced, but "keeping" good employees is a much tougher challenge. The cost of doing business continues to rise in the areas of training and personnel expense among other expenses that continue to reduce the dealer's bottom line.

Speaking of which, dealership net profits have dropped from 2.8% in 2012 to 2.3% so far in 2018. The percentage actually dropped from 2.5% in 2017 to 2.3% thus far in 2018 which is the biggest drop in the last eight years.

The good news is that new vehicle sales remain steady, with only a slight drop predicted in 2019, even though gross margins have dropped a little. Manufacturers keep up the heat though by offering even more dealer incentives. The increase of incentives has also driven dealer loyalty percentages even higher to the manufacturer.

The cost of these incentives to the dealer by the manufacturers may be one of the reasons that the average price of a new vehicle is up over 15% from 2012 to 2018, along with new truck sales outperforming new new car sales. New truck sales represented 68% percent of all new vehicle sales this year to date, up from 47.6% back in 2008.

Here are few more "factoids" that directly impact the parts and service departments that I found to be an interesting read in this NADA Data mid-year report were...
  • Service Department Repair Orders Sales exceeded $58B, (Parts & Labor)
  • Service and Parts Gross Profit accounts for over 45% of Dealer Profits
  • Average Customer Pay Parts & Labor Sales Per Repair Order: $294.00
  • Average Warranty Pay Parts & Labor Sales Per Repair Order: $356.00
  • Average Current Parts Inventory Per Dealer: $394,113.00 (My question would be...How much of that amount is considered obsolete?)
  • Average Customer Pay Parts to Labor Ratio: 158%
  • Average Customer Pay Labor Rate: $118.00
  • Average Technicians Per Dealership, (Including Body Shop): 16
One of the facts listed above kind of shocked me as Warranty Parts & Labor Sales outperformed Customer Pay Parts & Labor Sales as most dealers have been experiencing an overall drop in Warranty Parts & Labor Sales compared to the previous few years.

E-Commerce Parts Sales are are also continuing to rise with an expected 57 Billion in total parts sales by the end of 2019. As a matter of fact, the total outlook for our economy is still very positive with GDP, (Gross Domestic Product) numbers hovering in the 3.5 - 4.0 percent range.

One of the biggest area of concern looking ahead is the fluctuation of the the stock market and what the potential impact that import and export tariffs may have when we head to the showroom floors as some say that these tariffs alone may impact the average new vehicle price by as much as $8,000.00.

All in all though, 2019 and beyond is looking pretty strong in my book and once we take a look back at what history has shown us, along with all the above information and indicators, being "prepared" and "ready" for 2019 should be a very easy question to answer.

Thanks to the folks at NADA for all they provide in the areas of industry information, training, insight and an overall perspective that fuels our industry as well as all individual dealerships. You can check out all this information that I have alluded to and more at NADA.org

So, with all this information at our fingertips, and if we follow our five step "Must Do" list of tasks by the end of this year, answering this age old question should be a no-brainer....So?!...

"Are You Ready For The New Year?"

Happy Holidays To All From ACG "Smart Parts!"

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com






....

Tuesday, November 6, 2018

November 2018: Inventory Amounts: "Too Much Or Too Little?"

As mentioned in my intro, picture if you will that you are an investor and you are interested in purchasing an existing automotive dealership. In the "buy sell" agreement, you notice that the selling dealer currently has a parts inventory amount of $249,387.00 on the latest dealer financial.

Next, you research a little further and find out the selling dealer's D.M.S., (Dealer Management System) "controlled" parts inventory amount shows a different parts inventory amount of $211,459.00, leaving a variance, or "discrepancy" amount of $37,928.00 between the controlled inventory and the dealer financial inventory.

Of course, this is an obvious concern to you as a potential buyer as this "discrepancy" has to be accounted for and adjusted to actual physical inventory count records. As a potential buyer, this would probably be primary concern when researching the parts inventory asset in the "buy sell" agreement.

This above situation is not uncommon for buyers and sellers of automotive dealerships when researching and considering the actual net worth of the selling dealers parts inventory.

The sad thing is that this above situation doesn't even hold a candle to what disasters may lie underneath when considering the actual net worth of this huge dealer asset.

In my opinion, when we consider these two varying amounts, I wouldn't be as concerned about the discrepancy as much as these amounts can be reconciled to the agreement of both parties, even though one of the two parties may feel they got the better of the deal.

Here's what would concern me more than anything...


As a potential buyer, wouldn't it be great to know how "liquid" this parts inventory is? Wouldn't it also be great to know how current, or obsolete this parts inventory is? Lastly, are these parts inventory amounts "too much or too little" to satisfy my customer base?


The biggest question even beyond the three mentioned above is...

What is the proper amount that I should have invested in my parts inventory?

This to me IS the question that we should consider as a buyer and most importantly when we are looking forward to the parts departments return on investment, (ROI). After all, if I'm the buyer, I could be looking at a parts inventory that could either "too much or too little" based on the previous dealer's monthly sales averages.

So, just how do we determine what I call the "desired" inventory amount that will satisfy my customer base? What will be my basic inventory value guideline going forward for my parts manager to manage and maintain?

The answer to these two questions will lead us to the correct and "desired" inventory level as well as potential answer to what may be causing these "too much or too little" inventory amounts. Lastly, the answer will give us a game plan to fix and manage either situation, whether "too much or too little".

The answer lies in a couple simple parts guideline set by NADA starting with recommended days supply of parts inventory amounts. As a matter of fact, these recommended days supply guidelines also apply to new and used vehicles.

We will then bring in the second NADA Guideline that will also play a part in determining our "desired" parts inventory amount. Actually, the "math" of this second NADA guideline will determine NADA's FIRST guideline!

Here are the NADA Guidelines that will determine our "desired" parts inventory amount along with an example;

The first guideline is NADA's recommendation for "days supply" of parts inventory, which is 45 days, or 1.5 months supply. This means, in a dollar sense that if I was unable to buy any more parts today, I would at least have enough "parts supply" in dollars to last the next 45 days, or 1.5 months.

So why 45 days, or 1.5 months?...

This is where guideline number two comes in with NADA's recommendation of parts inventory "Gross Turns" comes in. The parts inventory "Gross Turn" represents the number of times annually that the total parts inventory value sells, or "turns" and that guideline, or recommendation is 8 times annually.

So, if we do the math, twelve months a year, (annually) divided by eight recommended parts gross turns equals 1.5 months supply, or 45 days supply, whether we are talking parts, or new & used vehicles.

Next, in order to determine our existing parts gross turn number, we have to look at history and bring parts "cost of sales" into the picture. The formula for calculating gross turns is;

"Total Sales at Cost for the Last Twelve Months - Divided By - Average Inventory Investment for the Last Twelve Months"

Now, we have all the ingredients to determine our overall "desired" parts inventory amount. That being said, all I have to do now is bring in my "cost of sales" amounts and my guideline for gross turns into the picture to finally determine my "desired" parts inventory amount.

Here's the example utilizing an average monthly parts "cost of sales" amount for the last twelve months of $100,000.00;

$100,000.00 X 12 Months - Divided By - 8 Annual Gross Turns = $150,000.00 

As you can see based on the example, without even having to actually do the math, we can simply take our average monthly sales at cost and multiply the amount by 1.5 and we can determine exactly what our parts inventory amount should be.

"Now that we know the amount, what do we do if the amounts are "too much or too little?"

Having a parts inventory amount that is "too much or too little" can have ramifications both ways. Much like in new and used vehicle inventories, there are no real benefits to either situations, only undesirable results from either one.

First, let's take a look at what could happen if our parts inventory amounts are "too little"....

The biggest risks of having "too little", or a low days supply of inventory is the potential for lost sales and lower service productivity as "stock out" situations will happen more frequently.

Turning the inventory amounts at a higher rate does give a higher and more frequent return on investment, but what's "unknown" is the unrealized and lost sales.

Overall customer satisfaction and retention is also at risk as too many return visits or even extended service visits due to not stocking enough parts, or the right parts may have a substantial impact. Not having enough parts, or the right parts can also impact overall service sales and employee wages.

Next and lastly, let's take a look at the negative impacts and risks of having "too much"...

Having "too much" in the way of inventory amounts carry far more risks and dangers than having "too little". In this situation though, we have to not only determine how much is "too much", we also have to know where we have "too much".

For example, if our "desired" inventory amount is like our above example of $150,000.00, and we are carrying $200,000.00 in inventory, where is the overage coming from? This is where we have to do a little more research in determining where we go next to get it back to a "desired" inventory amount.

There are only two areas that can cause the situation where we have "too much" in area of parts inventory amounts. Those two areas are parts obsolescence and overstocked parts inventory within the current, active parts inventory and each can be determined quite easily.

If we use the above example again with a "desired" parts inventory amount at $150,000.00 and an actual inventory amount of $200,000.00, we are "overvalued" by $50,000.00 in obsolescence and "overstocked" inventory.

If my obsolete inventory is $30,000.00, (parts with no sales over 12 months), the remainder would be "overstocked" parts that may be active, but carry more parts days supply than necessary. Both can be managed by the "Smart Parts" Manager.

In the area of obsolescence, we not only have to come up with a game plan to eliminate the amount, more importantly we have to "stop the bleeding" so obsolescence doesn't return year after year. Solving the problem is one thing, managing it from coming back is another.

As far as the overstocked amounts, those can be managed by proper Source Ranking, Low and High Days Supply, or Best Reorder Points, (BRP) and Best Stocking Levels, (BSL) until these "overstocked" parts reach their proper stocking levels.

In my opinion, the biggest danger and/or risk if our parts inventory amounts are "too much" is the fact that some of the same risks that apply in "too little" inventory amount category can apply in the "too much" category as well.

Excessive obsolescence and excessive overstock amounts can actually overshadow the "desired" inventory amounts. It is quite possible, once I do the math, that I could have "too much" and "too little" at the same time.

For example, if my "desired" inventory amount is $150,000.00 and my actual inventory amount is $200,000.00, but with $100,000.00 of that amount considered obsolete, my net "active" inventory amount would be $100,000.00.

This would leave me with $100,000.00 in active inventory...$50,000.00 less than the "desired" amount.

Having the right parts and the right inventory amounts go hand in hand. The right combination of the two can only lead to gross and true turns at or above guide, expected return on investment and a high level of customer service.

Are Your Parts Inventory Amounts "Just Right?"....Or, Are You "Too Much, To Little, Too Late?"

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com


















Wednesday, October 10, 2018

October 2018: Comparing Management Styles

In my opinion, one of the toughest things that we all have to go through at some point in our lives is our own personal "self evaluation". As Parts Managers, or any dealer manager for that matter, our own "style" of management brings us to where we are.

Before we even get started, I do not profess to be a psychological analyst by any means, but after being in this business for over 40 years, I have seen so many management styles that I have admired and many that I thought were not so admirable.

In my opinion, the Parts Manager's "Management Style" includes many variables as the parts department is the only department within the dealership that operates in a "wait and see what happens" atmosphere.

In most other departments such as Service and Sales, there is a plan for the day, whether it be a certain number of appointments, a planned sales event or calling customers back for follow up, there always seems to be a basic plan.

In the Parts Department though, we have to "wait and see what happens" for the most part, as in most cases, the other departments are the ones that will eventually dictate how our day will go. Much of what happens is directly and indirectly out of the control of the Parts Manager.

Even though we can be proactive in some respects by looking at how many Service Appointments there are, how many recall customers are coming in, etc., in general, the Parts Department operates in a "reactive" manner. Much of the duties and responsibilities of the Parts Department is to provide and to serve.

To me, the Parts Department reminds me of the movie "Groundhog Day", starring Bill Murray, where every day repeats itself to a point of frustration and with the same outcome. Over and over, the routine stays the same including the same results.

So how does this all play out when we refer to the Parts Manager's "Management Style"?

First of all, we have to go back to the beginning where the Parts Manager has to possess the right skills, abilities and knowledge just to be in the Parts Manager position in the first place. The duties and responsibilities of the Parts Manager has to come in first and foremost.

After that, the Parts Manager's "Management Style" takes over as to how far and how successful they become. Even though most successful Parts Managers, including myself, seem to have a similar personality profile which would include an analytical, logical mindset and an intrinsic, or introverted behavior pattern.

Much like the dealer's Office Manager, the Parts Manager deals with numbers, specifics and a high level of transactions each day which requires a "deep thinking, calculating" mind just to keep up with daily parts operations. Much different than a Service Manager or Sales Manager where "thinking on the fly" is a normal attribute.

In my opinion, the Parts Manager's "Management Style" not only has to be consistent, it has to be goal oriented with the leadership capabilities, even through this "Groundhog Day" affect. Each day can be so repetitive in nature as the same movie plays over and over. 

It is not unusual to see everyone in the Parts Department fall into a "Comfort Zone" that can impair the overall vision and eventual goals of the Parts Department. Keeping everyone in the department focused and chasing the same goal can be quite a challenge.

Think about it for a minute, in many Parts Departments, we see the same technicians each day, we may answer phones from the same customers from the same body shops and service garages over and over. Other than a few customers showing up at our retail counters, or calling in to get a price on a part, every day replicates itself.

Not only that, each day has its own specific time to perform specific duties such as placing stock orders by the proper cut off times, special orders, checking in and receipting orders, stocking shelves, managing core returns, etc....the list goes on and on.

This is why to me, the Parts Manager has the most difficult job in staying on track with the right "Management Style" that will keep their staff motivated and striving to achieve the objectives and goals set before them.

Let's look at a few "pros and cons" that may affect the Parts Manager's "Management Style"...

PROS:

One of the benefits of the "Groundhog Day" effect is that through repetition, the Parts Manager can expect consistent performance from the Parts Department Staff. Each staff member has specific duties and responsibilities that can easily be managed.

Whether through performance expectations in the counter staff, or by observation of drivers, inventory clerks, shipper/receivers, etc., it's pretty much an everyday expectation for a Parts Manager to maintain.

Another "pro" is that most Parts Departments are profitable so dealer expectations are often met or exceeded, thus reducing pressure on the Parts Manager. It's less likely that the Parts Manager is the topic of "heated discussions or meetings" with the owner and other dealership managers.

The expected "consistency" of the parts operation is expected to be just that...consistent and profitable. This is also why, in my opinion, the Parts Department is pretty much excluded and often times forgotten when it comes to the importance in their role in overall Service Absorption.

Lastly, one other "pro" is that the Parts Manager usually has the longest tenure in the dealership as far as their management staff. The trust that dealership owners ranks almost as high as the Office Manager as the dealer has to trust their Parts Manager with their second highest asset next to the Used Vehicle Inventory.

Sadly though, most Parts Managers rank at the bottom as far as dealers investing in their overall training budget, whether it be in Inventory Management Systems, (I.M.S.) Training, Dealer Management Systems, (D.M.S.) Training, or most importantly, training in basic Dealership Accounting. 


CONS:

Based on the previous, this is where the "cons" of the Parts Manager's "Management Style" can take a turn for the worse. Without the proper training and leadership capabilities, the Parts Manager may not possess the right skills, abilities and knowledge necessary to be successful.

Many Parts Managers that I have met tell me that they got the job as Parts Manager just because they were the "next in line", or maybe through tenure they "inherited" the position. This to me is crazy, when you think about that this person in this position is controlling my number two asset and can sink my business.

Without the proper training, and throwing in the "Groundhog Day" affect, parts setups and controls don't get managed properly, low "First Time Off Shelf Fill Rates" appear and obsolescence starts freezing up valuable assets.

Service Productivity also takes a dive due to low "First Time Off Shelf Fill Rates" as things just start to "trickle down" and missed opportunities rise. I've even seen technicians leave for other dealerships because they lose so much waiting for parts each day.

If I were to pole a number of Parts Managers with these few questions, I would believe the results would be staggering in a negative way.....

1.) "When was the last time you looked at, or modified your Phase-In/Phase-Out Criteria?"

2.) "When was the last time you looked at, or adjusted your Low Days and High Days Supply, (Best Reorder Point, BRP and Best Stocking Levels, BSL)

3.) "When was the last time you looked at, or adjusted your Parts Escalation Matrix?"

4.) "Does your Parts Obsolescence, (over 12 months, no sales) represent at least 20% of your parts inventory?"

5.) "Are you reporting at least 5% - 10%, (Cost of Sales) as Lost Sales, or what I refer to as Potential Missed Opportunities?"

6.) "Last, and most important....do you know HOW to manage or modify all the above?"

Unfortunately, in many dealerships, Parts Managers are pretty sharp individuals, but their dealer has never given them the chance to even learn the basics of what I call "Parts 101". It's not their fault and when I do get a chance to train Parts Managers on the basics, I choose to refer to this training as the "sharing of information"

We can't know what we don't know and the beginning to a successful Parts Manager "Management Style" begins with leadership capabilities, skills and knowledge along with the proper training and the "sharing of information".

They also need to be able to motivate their staff to expected goals while managing the "Groundhog Day" affect each day. Comfort Zones are comforting, but in the long run....comfort is short lived as change is inevitable.

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com


















Tuesday, September 4, 2018

September 2018: Building Service Menus: "What's The Parts Manager's Role?"

For over 30 years I have trained and coached in well over 200 dealerships throughout the U.S. and Canada and I have to admit that one of my most "dreaded" visits into dealerships was "Service Menu Week". I knew I was in for a brainstorming week with both the Parts and Service Managers.

I also knew that this "Service Menu Week" would require lots of research including manufacturers' service and maintenance recommendations, local area recommendations and the dealer's sales and gross profit needs.

Most importantly though, bringing the Parts and Service Managers together and agreeing on "one size fits all" Service Menu.

Building the "right" Service Menu requires many elements including; recommended service intervals, maintenance recommendations, service labor times, proper effective labor rates and yes....parts!

We not only have to choose what parts to include at what intervals, we also have to determine the right price for so many different part numbers.

Before we get started building our Service Menus, I want to mention that as we move through this exercise, those of you who have the benefit of V.I.N. Specific Service Menus already have much of the research, or "homework" taken care of up front by the vendor.

Vendors who provide these V.I.N. Specific Service Menus "dial into" each vehicle manufacturers' specific year, make and model to labor time guides as well as part numbers for each interval menu service. The only items left to be installed are labor times, effective labor rates and the parts selling prices.

For most dealers though, these V.I.N. Specific Service Menus can be quite expensive which means creating and developing these Service Menus falls upon the Parts and Service Managers to do all the leg work. Often times, this is where we may be called in to assist the managers in creating their Service Menus.

We will go through each step of the Service Menu Development Process from start to finish which will of course include the Parts Manager's role. In my opinion, both the Parts Manager and Service Manager need to keep it simple when developing Service Menus.

Without a doubt, they can be quite cumbersome, complicated and could end up getting way out of hand.

Let's Get Started!... 

Step One: Competitive Market Survey

One thing that we have to consider is what our overall "out the door" pricing should be. Comparing other dealers Service Menu Pricing is extremely important as we don't want to price ourselves out of the market even though we don't necessarily want to be the cheapest.

The focus should be on value and providing the interval service that replicates the manufacturer and local area recommendations.

Choosing the right combination of the manufacturers' and local area recommendations could be the difference in overall menu penetration. Too little can be too little and too much can be too much when it comes down the final pricing decisions.

In comparing prices in the market, we have to make sure we are comparing "apples to apples" and not "apples to oranges."


Step Two: The Right Combination At The Right Interval 


When we talk about the right combination, we are referring to the right combination of manufacturer and local area recommendations at the proper intervals. In my opinion, this is one of the most important decisions that both the Parts and Service Managers have to make.

This decision will determine the overall menu penetration and proper sales and gross expectations.

Service Menu Packages should first include the manufacturers' recommendation, whether in severe or non-severe climates. Additional recommended services such as power steering fluid, brake fluid, fuel induction, transmission fluid, coolant and wheel alignments are often added to the manufacturers' recommendations.

Although, it's great to see many manufacturers now recommending, (once again!) brake fluid replacement, transmission fluid and coolant back in the rotation. For a while there, we were told by these manufacturers that some transmission fluid and coolant were considered "lifetime" fluids.

Many owners manuals maintenance recommendations leave much up to chance with phrases like "inspect and replace as needed or required".

This phrase leaves the door wide open to varied menu package prices from dealer to dealer. Proper verbiage on service menu packages is crucial in NOT misleading customers on their service maintenance needs.

Most manufacturers Owner's Manual Maintenance Recommendations only suggest the very basic maintenance operations such as oil changes, tire rotations and maybe engine and cabin air filters. They leave the area recommendations up to the dealer and local climate conditions.

This in itself is very important in explaining to customers the difference between what their Owner's Manual states versus what the dealer may be recommending. Quite simply and for example, I'm sure that more air filters are replaced in Arizona versus Alaska.

Due to these variances in the Owner's Manual and local climate recommendations, educating the customer along with Service Advisor Service Menu Presentation Training on the Features and Benefits is extremely important.


Step Three: Parts Pricing

Here we go "Smart Parts" Managers!...

First and foremost, all Service Menu Parts Prices need to be "flat priced", unless a V.I.N. Specific Service Menu is being used. Service can't be changing their labor fee amounts around different parts prices on cabin filters for example. Weighted Price Averaging is the way to overcome all the different parts prices on the same type of part.

Weighted Price Averaging simply works by combining five or more of the most popular part numbers of the same type of part and combining all of the piece sales collectively. Once the collective piece sales of all five part numbers are tabulated, then we would divide the total piece sales by the total cost to get an average piece sale cost.

Example: Cabin Filters

 Part #                 Unit Cost          Annual Piece Sales          Total Cost       
123456                  $4.56                       512                          $2,334.72
654321                  $7.88                       345                          $2,718.60
123123                  $10.65                     112                          $1,192.80
321321                  $12.35                       54                             $666.90 
987987                  $14.12                       21                             $296.52

                               Total Piece Sales:  1,044   Total Cost:    $7,209.54

                               Average Piece Sale Cost:                              $6.91
         
                               Mark Up % (40% Retained Gross)                  1.67

                               Cabin Filter "Flat Price":                           $11.54


Even though there is a negative gross profit on the two least popular and most expensive cabin filters, the most popular cabin filter has a retained gross profit of over 60%, far exceeding the negative gross, with almost ten times the overall sales of the bottom two.

Most often times, the part that sells the most is usually less expensive.

The biggest "gross killer" for Service Menu Labor is the inconsistent parts pricing on Service Menu Labor Operations. Even though the Menu Labor Fee could have had a "backed in" Desired Effective Labor Rate, labor overrides due to part pricing inconsistencies tends to drive the Service Menu Labor Effective Rates down.

Oil and Fluid prices that may have varied quart or litre quantities utilized can also cause a problem for "out the door" Service Menu Pricing. The best way to overcome fluid quantity pricing is to go to the top right out of the gate. 

In other words, if quart or litre quantities range from four to six, allow for six in the Service Menu Pricing. Customers don't mind if their Service Menu Package was a little less than quoted as opposed to being more than quoted. 

Another way to overcome varied application usage is to provide the right comments, or disclaimers such as "includes up to 5 quarts of oil, add for additional". Either way, keeping it simple is always the best way to go and makes it much easier for Service Advisor Presentations.


Step Four: Service Menu Labor Pricing


Coming up with the right Service Menu Labor Pricing can now be added to the overall "out the door" package price. Now that the parts "flat prices" have been established, it's time to look up, or establish the proper technician times to each menu package and "a la carte" Labor Operations.

Combining each individual Labor Operation within each Service Menu Package is required to achieve one combined labor time for each package.

Once the labor time is established, the Service Manager needs to determine the right Customer Pay Effective Rate that will retain the proper gross margins while maintaining an overall competitive "out the door" Service Menu Price.

It is not uncommon to make compromises on Customer Pay Effective Labor Rates and Parts Markup Percentages in order to remain competitive in the marketplace. Most important is to eliminate overrides and advertise professional service and value.


Step Five: "Lock 'Em In"!!!

The last step in Building Service Menus is to lock everything in as far as Operation Codes, Flat Parts Package Amounts, Labor Fees and Technician Labor Times. If possible, depending on which D.M.S. is used, these labor operation codes should be password protected, thus eliminating any chance for overrides.

Overrides should only be allowed by the Parts and Service Managers Once overrides are allowed, that's when gross profit and menu penetration percentages start to go downhill. If "accepted" overrides are becoming more frequent, then maybe we need to modify the Service Menu Package, or "a la carte" service maintenance operation.

The Parts Manager's role in the Service Menu Building Process is crucial and plays an overall major role in the success of any Service Menu. The success of any Service Menu Program can only be determined by how well the Menu Presentation and Penetration Percentages are tracked and maintained.

I've often been asked by Service Managers....

"How do you like our Service Menus?"

My answer is always a question and quite simple...

"That depends, what's your overall Menu Penetration and Retained Gross Percentage?"


"The Service Menu is only as good as how well it was built in the first place, performing to the levels expected with at least a 35% Menu Penetration with 100% Customer Presentation. Lastly, if priced correctly with the right "backed in" gross amounts, the answer to this Service Manager question would be obvious."


Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com










Tuesday, August 7, 2018

August 2018: "What Are The Costs Or Benefits To Loyalty?"

Purchasing parts from the manufacturer today is quite a bit different than it was years ago. Back in the day, we just had parts order options such as stock orders, supplemental stock orders, emergency orders and perhaps critical orders that we placed and received overnight.

Each order carried its own cost or benefit whether it was receiving the best discounts and most return reserve accrual from placing a stock order to higher costs from placing emergency or critical orders to receive the parts as fast as possible.

Today, we see these basic parts order functions expanded into programs where many manufacturers are controlling the dealers parts purchases through Vendor Managed Inventories, (V.M.I.'s) and in some cases, tying in the Service and Sales Departments for overall dealer incentives and program qualifications.

To me, many of these parts programs being offered by the manufacturer are beginning to emulate many of the dealers up front vehicle sales incentive programs that may even include "cash back" to the dealer if compliant to their respective programs.

Discounts, allowances and return reserve accruals are also available to the dealer, once again, if compliant to achieve maximum program benefits. Sounds great if all this comes together for the dealer, but in many cases, the reality of higher costs outweighs the benefits.

Let me explain.....

The first key word that we need to pay attention to is "compliance".....

Let's look at the definition of "compliance" as stated by dictionary.com;


"The act of conforming, acquiescing, or yielding, a tendency to yield readily to others, especially in a weak and subservient way, conformity and accordance..."

So, to me, when it comes to being "compliant" to these programs, the first question I have to ask is... 

"Who's In Control Here?"...

I would have probably thought that these programs would lean more towards program "qualifications", or perhaps even program "enrollment", instead of "compliance".

 It also leads me to believe that we don't have a choice, but to comply. It also seems to imply that if we don't comply, there will be costs and consequences.

As I mentioned in the beginning, it was much simpler back in the day as the Parts Manager had control of the dealers "purchase power" and the discounts, allowances, return reserves and any added costs were controlled by the Parts Manager.

Today, with many manufacturers offering V.M.I.'s, the Parts Manager has lost much of this control, or chooses to give up their control, thus leading to the dealers "purchasing power" being forfeited over to the manufacturers.

The end result in many dealers parts departments that I have worked with is an over inflated inventory with obsolescence in excess 25% or more.

Recently, I was interviewed by Fixed Ops Business on an article that is due out in November of this year and the subject matter focuses on "problem K.P.I's", (Key Performance Indicators) in dealership Parts Departments today.

Not to give too much away on the upcoming article, but I believe that parts obsolescence is one of the biggest "problem K.P.I's" that many Parts Managers deal with today.

One of the biggest contributors to parts obsolescence, in my opinion, is the fact that many Parts Managers "overextend" themselves into many of these programs offered by manufacturers just to be compliant.

So, who really benefits from these programs and who really gets impacted by the negative effects from these programs?

First of all, before we answer these questions, the news isn't all bad as there are significant benefits to being "loyal". Keep in mind that the following is just a sampling of my own research from dealers I have personally worked as well as a sampling of dealer 20 groups that I have also worked with.

Who Benefits?


For the most part, high volume dealers that have parts purchases in excess of $3,000,000.00 annually receive the biggest benefits from these "loyalty' programs offered by the manufacturer. Higher parts demands enables these dealers to achieve the biggest volume discounts by reaching higher discount percentage "tier levels"

Along with the higher demands, also enables these dealers to have a "broader inventory" with more part numbers that qualify for program benefits. Their inventory also tends to have higher gross and true turns annually so inventory is usually protected and obsolescence less likely to occur. 

Plus, with the strong "purchase power", accruing parts return reserves are much higher, thus allowing these dealer Parts Managers to keep up and return parts that may slip in that "over 12 months, no sales" category before the become obsolete.

These high volume dealers also tend to have strong wholesale sales which also allows the Parts Manager to keep their "loyalty" percentages strong as most of these wholesale parts are purchased from the manufacturer as opposed to purchasing parts from aftermarket vendors.

In the end, these high volume dealer Parts Managers can pretty much capitalize on all the benefits from these programs achieving the most in discounts, allowances, return reserves and overall dealer "cash back" from the manufacturer.

They are also a big player in the overall dealer programs that may tie in the Service and Sales Departments. So now we have "compliance" playing a role in all of the dealers operations and in all departments.

Who Does It Cost?


Well, I guess the opposite would be correct with dealers that have less than $3,000,000.00 in annual parts purchases. Especially, even those smaller dealers who don't  achieve that amount in annual parts purchases. Outside purchases are much more common from other dealers and aftermarket vendors as emergency purchases are much more frequent.

With so many part numbers out there in order to even qualify for some of these programs, it's becomes that much tougher to meet program requirements for "compliance". Because of this pressure to meet qualifications, oftentimes Parts Managers will purchase "qualified" parts just to meet compliance levels, even if these parts have little or no sales history.

These smaller dealer Parts Managers also tend to "walk away" from their own Dealer Management Systems, (D.M.S.) when it comes to creating their own stock orders, relying solely on the manufacturers' Vendor Managed Inventories, (V.M.I.). When this happens, the risks of overstocking the parts inventory and inflating obsolescence goes much higher.

In some cases that I have personally witnessed, Parts Managers are and have been pressured by their manufacturer to purchase more parts just to reach compliance levels just to gain a small discount. I have seen one case in particular where the Parts Manager would have to purchase $10,000.00 more in parts just to gain an additional discount of $2,500.00.

Sad thing is, these parts had very little or no sales history in this store, so you can imagine many of these parts will end up becoming obsolete and hopefully protected. The other sad truth of this example is that the discount isn't "real money" as discounts aren't realized until the parts sell, even though it is reflected on the financial as 100% gross profit.

On the brighter side of all this, there are manufacturer programs out there that benefit ALL dealers as some Vendor Managed Inventory, (V.M.I.) companies are better than some others. Some even encourage and credit the dealer for NOT overstocking or carrying obsolete parts inventory as well as shorter terms of months before parts can be returned to the manufacturer at no cost to the dealer.

I guess what it all comes down to is managing the parts inventory and the dealers' second highest asset without getting caught up in all the hype that the manufacturers' try to sell the dealer.

Getting the best return on the dollar is always most important without all the added expense and risks that overstocking and obsolescence can bring. In the end, I believe these programs should benefit the dealer and not be a second parts warehouse for the manufacturer.

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com























Monday, July 9, 2018

July 2018: Obsolescence: "How Does It Happen In The First Place?"

Talking about parts obsolescence is nothing new of course, and to take it a step further, we should be sick and tired of this topic still being a topic of concern. The unfortunate reality of it all is this topic may never go away if we don't eliminate the root causes of parts obsolescence.

I am definitely not one who just accepts things as they are merely because "that's the way it's always been", especially when it comes to this topic. If any Parts Manager has this frame of mind, then maybe it's time to not only think outside of the box, it's time to "get out of the box" altogether.

One added note before we begin, I have some great business associates and partners out there that actually work with, and help dealers "buy down" their obsolescence and it's their business to do so. But, as a Parts Manager for many years, my goal was to prevent obsolescence from happening in the first place.

Before we get into the contributing factors that create the obsolescence mess in the first place, I think we need to look into the benefits of an "obsolescence free" parts inventory. Imagine if you will, just for a moment, what it would be like if the "Smart Parts" Manager was "obsolescence free".

Picture this if you will...

The "Monkey On The Back" has been lifted and now the dealers' second highest asset is experiencing gross and true turns at, or above the NADA Guidelines. Parts profits rise as now we can experience the highest margins and earn the highest discounts and allowances possible.

Without the obsolescence, my sales activity is much higher, to the point that sales activity in the 0-3 month category meets, or exceeds 75% of the total activity and in the 4-6 month category, sales activity meets, or exceeds 23%, both NADA Guidelines in each category.

This would mean that 98% of the inventory is active in the 0-6 month category! In addition to that, if we maintain a Level Of Service 90%-95% and a Stock Order Performance Level at 85% - 90%, our "First Time Off Shelf Fill Rate" HAS to be 85% -90% as well!

That being said and in addition, the Service Shop Productivity can be maximized, from a Parts Support standpoint, thus increasing overall parts and labor sales and profits. Parts purchase power is at its peak and achieving top levels of manufacturer parts compliance and loyalty are also maximized to gain the highest discounts available.

Even though the topic is obsolescence, I think anyone of us can imagine all the above scenarios, IF we didn't have to deal with obsolescence in the first place. We also have to keep in mind the cost savings from outside purchases, inventory acquisition and holding costs, physical inventory costs, etc.

So now that we have had a moment to dream of an "obsolescence free" parts inventory, let's take a look at what causes parts obsolescence in the first place. We will look at each factor individually and explain how each of them impact this obsolescence "end result".

First and foremost, Parts Manager Training is the Number One contributing factor to parts obsolescence. As you will see in each of the following contributing factors, if we don't know what these factors are, their terminologies, definitions, or even how to manage them, we will have parts obsolescence.

If we can't read or understand the D.M.S., (Dealer Management System) Parts Monthly Management Report, or even understand what the results represent, we can not manage the parts inventory, especially in the area of parts obsolescence.

The second "contributing factor" is Non-Stock Parts as parts that haven't even met phase-in criteria are almost a sure bet to end up in the obsolete category. Parts that are manually ordered, special order parts that are not sold, some V.M.I., (Vendor Managed Inventory) parts that have not met the recommended overall demand are all examples Non-Stock Parts.

Outside of Parts Manager Training, Non-Stock Parts in inventory is the biggest obsolescence contributor. NADA Guide on Non-Stock parts in inventory should be 10% or less, but in many parts departments, especially those I have been affiliated with, the percentage of Non-Stock parts in inventory exceeds 50% and even more.

In my opinion, this huge rise in Non-Stock parts in inventory over recent years is definitely due to Parts Managers diving too deep into their manufacturers Vendor Managed Inventory, (V.M.I.) Stock Replenishment Programs, which we will review further as we continue through our obsolescence "contributing factors".

Speaking of which, our third "contributing factor" are the Parts Phase-In Parameters. If we don't have the proper Phase-In Parameters, we could be actually "phasing in" an obsolete part right from the beginning. I have personally witnessed many dealers' Parts Phase-In Parameters that will phase-in a part after only one or two demands in a twelve month period.

The Phase-In Parameters need to be consistent over a shorter period of time with more demand over a shorter period of time, far less than twelve months, and if possible, measuring both total demand and demand within a given month.

Some D.M.S. (Dealer Management Systems) software systems can actually measure phase-in demand over a period of days, instead of months and can be "weighed" over the a shorter, more recent time period.

Our fourth "contributing factor" to obsolescence is Parts Days Supply criteria. Once a part has met phase-in criteria, the Days Supply criteria takes over the parts life cycle, stocking levels and best reorder points.

During the part's life cycle, the stocking levels can vary extensively and if not managed properly, high quantities of a part can remain, long after a part has phased-out, ultimately becoming obsolete.

Calculating the proper Days Supply is a simple math equation that unfortunately, many Parts Managers don't even know how to figure out.

Many Parts Managers confuse Days Supply with parts quantity. A single Days Supply of a given part could be a quantity of one or a hundred, both equate to a given part's Days Supply.

Calculating Days Supply is simply math as I just mentioned. For example; if a part sells twelve times a year, or annually, this means the part sells on average, once every thirty days. The "Low Days" Supply, or "Best Reorder Point", (BRP) would then be thirty days.

Calculating the "High Days" Supply, or "Best Stocking Level", (BSL) is simply multiplying the "Low Days" Supply by 50% - 150%, pending demand according to the Mike Nicoles Group.

The more a part sells, the lower the "Days Supply", or "Best Reorder Point", (BRP) number. The "Low Days" Supply, or "Best Reorder Point", (BRP) is as follows;

Total Annual Parts Piece Sales Divided By 365 Days A Year 


Number five on our list are the Parts Phase-Out Parameters, which often go unnoticed as Parts Phase-In Parameters are usually the primary concern for Parts Managers. Although, the Parts Phase-Out Parameters are just as important.

Once again, I have witnessed many dealers' Parts Phase-Out Parameters set to far out. It is not unusual for me to see these parameters set at twelve months or even higher.

With today's parts life cycle far shorter than they were as little as twenty years ago, these Parts Phase-Out Parameters should be set at nine months or even less. Parts reaching phase-out status at nine months or less can send a trigger to the Parts Manager and will have less of a chance of hitting the "over 12 Month" category as the three month "buffer" allows the Parts Manager to act quicker to make sure those parts are not reordered for stock replenishment.

Up to number six on our list of obsolescence "contributing factors" with Lost Sales Reporting. Now, one might ask why we would have Lost Sales Reporting on our list and of course, there is a valid reason. If we are not posting Lost Sales, we are missing out on all the "true demand" available to us.

Parts demand is defined as the combined total of Sales and Lost Sales and if we miss those demands from Lost Sales Reporting, we risk the chances of more outside purchases, manual orders, special orders and Yes...more risk of building obsolescence. Total demand helps the "Smart Parts" Manager in stocking only "qualified" parts at phase-in.

Number seven on our list of "contributing factors" to obsolescence is our Parts Special Order Policies, as this one should be obvious to most Parts Managers. If we don't have a Parts Special Order Policy, it is a sure recipe to accumulating parts obsolescence.

Special Order Policies should include deposits and/or prepayments for all Special Orders Parts that fall into the "customer pay" category. Special Order Parts that fall into the "warranty" category should only be ordered if the vehicle is in the shop or has a "future appointment" set by the Service Department BEFORE the customer leaves.

All Parts Special Orders should be approved and signed to maintain accountability and follow up. They should also be accompanied with consequences, cost and a time limit to complete the sale of the Parts Special Orders. Parts returned to the manufacturer must carry a return fee to either the customer, or department responsible for returning Parts Special Orders.

Also, as weird as it sounds, technicians DO NOT ORDER parts!...they REQUEST parts, as the Service Advisor and Manager authorizes the Parts Special Order. They are also responsible for getting the authorization and parts order priority from the customer. The Service Manager and Advisors are also responsible and held accountable the completion of the repairs.

Our last obsolescence "contributing factor" probably impacts our obsolescence today more than any of our other "contributing factors", even though all the previous are ranked above this one. Our number eight obsolescence "contributing factor" is the manufacturers' Vendor Managed Inventory Programs, (V.M.I.).

Ever since the manufacturer got into the game, parts obsolescence has exploded in many dealerships that have a manufacturers' V.M.I. Stock Replenishment Programs. Even though there are benefits to all V.M.I. Programs, there are many risks and high potential for excessive obsolescence and even overstocked inventory amounts of active parts.

Many Parts Managers are not even creating their own stock orders utilizing their own D.M.S. and relying on the manufacturer to determine what their stock replenishment needs are. These V.M.I. Programs can determine what a "select group" of dealer parts demands are, but not all the "individual" dealers parts demands, and what qualifies as a V.M.I. controlled part.

So what ends up happening very often is the Parts Manager may be stocking V.M.I. "qualified" parts that don't even sell, or even meet their own individual stocking requirements and phase-in parameters. Even though they may be protected, often times they still end up in the obsolescence category.

These parts that are so called "protected" still costs the dealer in acquisition and holding costs along with return fees. The other "unseen" cost of holding parts inventory is the lost revenue and gross by these parts occupying shelf space of parts that may turn several times annually.

On the other side of that, many parts that have met their own individual store's stocking requirements and phase-in parameters are not stocked or replenished on a normal basis because they haven't met the overall V.M.I. Program qualification standards in the group as a collective. 

The "art" of managing a parts inventory seems to be slowly slipping away from many Parts Managers as they don't even utilize their own D.M.S. as intended. Creating a D.M.S. Stock Order is still as crucial as it's always been to determine individual store's stock replenishment needs. There is more out there than just the manufacturer's V.M.I. Program.

One thing I have always maintained and believed is that I have never been one to stock inventory to "protect" and to be the manufacturer's second warehouse. I have always purchased and stocked parts to sell, not to hold and protect. That's a definite recipe for accrued obsolescence and overstocked inventories that will repeat itself year after year....

"Are you carrying too much obsolescence?....just remember, you have to stop the bleeding first, then you have to know the factors that cause obsolescence in order to eliminate it completely."




Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com