Tuesday, April 9, 2019

Service Cycle Times: "Are We Doing Our Part?"

Have you ever wondered or even considered how similar our Parts and Service Business is to the restaurant business? In both service industries, sales and profitability is often determined by shear numbers and volume. Both industries also focus heavily on time, meaning how efficient we utilize our "inventory of time".

Also, in both industries, time is a "perishable inventory" that we can never retrieve or get back. With that said, we could compare "turning the tables" in the restaurant business to our "Service Cycle Times".

As a matter of fact, they are so similar that my partner, Guy Salkeld, who heads up our Service Division, has actually conducted restaurant training with many of our service processes that actually "dovetail" quite nicely into the restaurant business.

In comparison, having a dinner party of ten people occupying a big table for two hours instead of maybe one hour could be as costly as let's say an engine job in the shop that pays 15.0 hours flat rate for close to thirty hours in clock time.

In each scenario, starting with the restaurant business, we probably could have waited on two parties of ten people in the same time period, thus increasing "efficiency" two fold. In our business, on the engine job scenario, we could have done two engine jobs in the same time frame if we were 100% efficient and productive.

Before we break down and focus on our part in "Service Cycle Times", let's see how extremely similar the restaurant business is to our parts and service business by matching up these similarities.

Restaurant Industry: Tables
Automotive Service Industry: Service Bays

Restaurant Industry: Waiters/Cooks
Automotive Service Industry: Technicians

Restaurant Industry: Inventory - Food Products
Automotive Service Industry: Inventory - Automotive Parts

Restaurant Industry: Food/Drink Menus
Automotive Service Industry: Vehicle Maintenance Menus

Restaurant Business: Waiters/Bartenders
Automotive Service Industry: Service Advisors/Parts Counter Staff

Restaurant Industry: Food Inventory/Food Shelf Life
Automotive Service Industry: Parts Inventory/Obsolescence

Restaurant Industry: Food/Menu Selection
Automotive Service Industry: Parts Inventory Breadth

Restaurant Industry: Tips
Automotive Service Industry: Incentives/Commissions

Restaurant Industry: Food Deliveries
Automotive Service Industry: Parts Deliveries

Both Industries also share other similarities such as; management levels, sales greeters, "sales per ticket" goals and guidelines, sales training, word track training, as well as many other similarities that I may have not mentioned.

So, how does our part in contributing to "Service Cycle Times" affect our overall Parts and Service Sales and Profitability?

Could you just imagine going into a restaurant and selecting something on the menu that you really want that would satisfy your taste buds and looking forward to, or maybe even that certain dinner cocktail or wine selection only to find out that they ran out?

This is exactly what I'm referring to when it comes down to doing our part in the "Service Cycle Time" Process. The costs in both industries are again similar and could impact overall sales and profitability and more important...Customer Retention.

Now down to the "nitty gritty"....

One of the most unique excel calculators I have can actually detail the overall cost of not having the "right part at the right time", or what I refer to as having the right "First Time Off Shelf Fill Rates". According to NADA, (which I truly agree with), we should have a "First Time Off Shelf Fill Rate" of 80% - 90%.

In many stores that I have visited, these "First Time Off Shelf Fill Rates" are below 50% and some way below 50%. If we use the restaurant scenario, I don't think we would be going back to that restaurant if they didn't have our food or drink selection less than 50% of the time.

Now, let's look at the overall cost of having a "First Time Off Shelf Fill Rate" less than 50%...

According to Automotive Service Industry studies by NADA and others, the average technician, (excluding Express Services), works on 5 - 6 repairs orders per day, pending the manufacturer of course and that same technician spends an average of 5 - 7 minutes at the parts counter, looking up and retrieving parts, (excluding dealers with a parts delivery system to technicians).

This totals up to an "accepted technician down time" of approximately 25 - 40 minutes per day of lost service productivity. Unless the parts department has a parts delivery process to their technicians, this lost time has and is usually acceptable as long as the Service Department maintains an accepted overall productivity to NADA Guidelines, (100% - 125%).

Although, in many Service Departments across the country, productivity percentages are well below industry standards. In my own personal research and experience, when the parts "First Time Off Shelf Fill Rates" are below 50%, the added time spent by the technician at the parts counter, or even waiting for parts to be chased down has doubled the technician lost productivity number.

That being said, if I doubled the lost productivity percentage due to lower than desired "First Time Off Shelf Fill Rates", I would lose at least 30 minutes per day, per technician that I can never get back as time is a perishable inventory.

Now, let's do the math....

Let's use that 30 minutes as a potential lost productivity number per technician along with the following examples as a guideline;

Number of Technicians on Staff: 10
Current Overall Effective Labor Rate: $100.00
Current Overall Labor Gross Profit %: 72%
Current Shop Productivity: 90%
Current Number of "Billable Hours" Produced Monthly: 1500
Current Overall Parts Retained Gross Profit %: 40%
Current Parts to Labor Ratio: 100%
Current Hours of Operation Per Day: 8
Current Number of Days Per Week: 5

Now that we have the basic information tabulated, it's time to break down the lost productivity into potential lost sales and gross profit in both parts and service with just utilizing these 30 minutes as our guideline;

Lost Labor Sales Daily: $500.00
Lost Parts Sales Daily: $500.00

Lost Labor Gross Profit Daily: $360.00
Lost Parts Gross Profit Daily: $210.00

Lost Labor Sales Monthly: $10,500.00
Lost Parts Sales Monthly: $10,500.00

Lost Labor Gross Monthly: $7,560.00
Lost Parts Gross Monthly: $4,410.00

Lost Labor Sales Annually: $126,000.00
Lost Parts Sales Annually: $126,000.00

Lost Labor Gross Annually: $90,720.00
Lost Parts Gross Annually: $52,920.00

Total Lost Sales Annually: $252,000.00
Total Lost Gross Annually: 143,640.00

Even if we were able to capture 70% of that lost gross profit annually, it would still be an additional $100,000.00 in total gross profit annually. I don't know about you, but I would take that additional gross any day. In vehicle sales numbers, that would equate to an additional average unit sales in excess of 40 to 50 units annually.

The bottom line is that this lost gross profit in both parts and labor is real money and it can be obtained by focusing on our "First Time Off Shelf Fill Rates". In my opinion, that's our number one priority as "Smart Parts" Managers.

Utilizing the proper Set Ups & Controls in our own Dealer Management Systems, (D.M.S.) and not just focusing on our Vendor Management Inventory, (V.M.I.) offered by the manufacturers can highly impact these "First Time Off Shelf Fill Rate" numbers.

Final questions are...are you doing your part in "turning the tables" in your restaurant?....are your customers not coming back because you ran out of food at your restaurant? Very simple questions but very "eye opening" when we look at the our role in "Service Cycle Times" in a different light.

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, March 13, 2019

Parts Monthly Reconciliation: "Why Is It So Important?"

In my opinion, knowledge of basic accounting skills amongst parts managers today is still lacking and needs further attention. Most parts managers today have been thrown into the position without acquiring basic accounting skills along with the basic parts manager training on managing the dealers second highest asset.

Here inlies the basic problem as most dealer owners and dealer principles do not realize the importance of the position and what it requires. The parts manager needs probably more business skills, abilities and knowledge than any other department within the dealership.

I know that some may differ on this assessment, but when it comes down to managing a major dealer asset as well as one of the dealers biggest profit centers, why wouldn't you want that person to be as educated and skilled as they could possibly be?

A few years ago, I was fortunate enough to attend a Parts Summit at the NADA University and when they asked me what was lacking in training today amongst most parts managers and I inquivently and without hesitation said it was parts manager training on basic dealership accounting. 

The language between parts managers and office managers are of a different mind set and many times don't often agree or meet proper translations. Parts managers simply want to get through the day, receipt and sell parts, manage the parts inventory and turn in payables and receipts into the office each day.

On the other side, in the business office, they just want to balance the payables and receivables from a money standpoint. They really don't care about part numbers, part quantities and what part sources these parts end up in, they only care about "balancing the books". 

It only matters what inventory account these parts go into, what expense account applies, what cost of sale or sale account or maybe what goes into discounts and allowances or adjustments to inventory. It's just a matter of posting to the right account is what matters most.

This doesn't just apply to the parts department as all dealership departments are subject to these same procedures, but there are definitely some differences when it comes down to the parts department. Other than the new and used car departments, the parts department has to deal with several dealership inventory assets.

What's different though with the parts department as opposed to the new and used car departments, they have to deal with many more different inventories. This is where the problems start, especially over the last several years.

Back in the day, we only had to deal with the basic parts inventory and maybe a tire inventory and a gas, oil and grease inventory. That in itself is more inventories to deal with than the new and used car inventories.

Let alone the individual quantities within each inventory as we all know that there are more part numbers and individual quantities in those three than any new and used car inventory. Maybe not so much in inventory value, but definitely in quantity where there is more margin for error.

The average parts inventory in the U.S. today encompasses well over 5,000 part numbers in the main parts inventory and another several hundred part numbers in other inventories such as tires, gas, oil & grease, accessories and others.

This in itself leaves the door wide open for discrepancies and cost variances. Waiting until the end of the year to "reconcile" these amounts can can very costly and dangerous for the Office Manager and ultimately the Dealer.

With all this said, it is imperative that the parts manager has basic skills and knowledge of basic accounting practices. Basic meaning having the knowledge of "debits and credits", "cost adjustments", "inventory adjustments" as well as "discounts and allowances" in order to balance the parts inventory each day, month and year.

One of the biggest differences today versus many years ago is that the manufacturers have gotten in the gas, oil and grease business as well as the tire business. This in itself may cause a potential inventory nightmare as gas, oil & grease and tires now have the potential of being receipted as regular parts inventory instead of being receipted as tires, or gas, oil and grease.

Tires and oil may be ordered by the parts manager through standard ordering procedures and once receipted, they end up in the wrong inventory account, but may still be billed out as sale, and cost of sales from different inventory accounts.

An example would be if I were to order tires from the manufacturer as a standard part number, it would then be receipted as a regular part number because that's how I ordered it. When these tires are sold, they could be sold out of the tire inventory account, thus causing a reconciliation nightmare. The same holds true for gas, oil and grease accounts, if not properly accounted for.

Another reconciliation nightmare is when the parts department buys a part from outside vendors and pays either more or less than what the dealer cost is AND without properly accounting for the adjusted cost on the purchase invoice before billing the part out on a repair order or invoice, inventory balances between the "controlled inventory" and "accounting inventory" will definitely differ.

But I have to admit, one of the biggest, if the the biggest reconciliation nightmares is knowing the difference between an "expense" versus an "inventory asset". Often times I witness shop supplies being billed on a repair order when these same shop supplies were billed to the Service Department as an expense.

This "double-dipping" leads to an improper parts inventory "buy down" which can result in a lot of "blue sky" for the dealer, which in most cases, they don't mind that at all in the least bit. Accruing parts inventory "blue sky" is when the dealers "controlled inventory" is higher than what is claimed on the "accounting inventory".

This "blue sky" for the dealer allows for additional profits as the net worth of the parts department inventory on the D.M.S. exceeds the inventory amounts on page one of the dealers financial. This variance to the "plus" for the dealer can be accumulated over several years and can eventually be considered as 100% profit.

On the other hand, if the "controlled inventory" is less than the "accounting inventory", the reverse would apply as the "accounted for inventory" is not really there and the dealers parts department asset would suffer greatly.

Performing a monthly parts reconciliation would "capture" these variances on a monthly basis where it would be much easier to find and correct these variances as they would only be happening in the last 30 days. Much easier to "drill down" the common mistakes that can happen in these parts inventories through the course of a month.

Waiting until year end could be a nightmare as days and months of accumulated mistakes, errors and improper accounting integration practices could multiply to the point of frustration and ultimately, the office manager simply making an adjustment, just to "balance the books".

To me, the simplest way to avoid all these potential accounting nightmares is to provide the proper training for parts managers in basic dealership accounting as well as promoting great relationships between the parts manager and the office manager. This, accompanied by performing a parts monthly reconciliation is the best combination of avoiding this ancient old, end of year nightmare....

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, February 6, 2019

February 2019: "Who's Controlling Your Stocking Levels?"

Over the past several months, I have been extremely busy providing Parts Manager Training on D.M.S., (Dealer Management Systems) Set Ups & Controls as well as basic Parts Manager Training on how to manage these Setups & Controls.

One of the other reasons that I have been so busy is because so many dealers are switching D.M.S. Vendors which, in itself presents a need for more Parts Manager Training on these various systems. Over the past several years, I have been fortunate to learn several different D.M.S. Vendors, thus allowing me to "speak the language" of each system.

It allows me to "translate" the old D.M.S. over to the new D.M.S in regards to installing the proper set ups such as Phase-In/Phase-Out Criteria, Days Supply to include Best Reorder Points (BRP), Best Stocking Levels (BSL), Source Ranking by Piece Sales, Pricing Levels & Strategies, etc.

When it comes to setting up and controlling Stocking Levels, it all starts with the Low and High Days Supply settings, or as forementioned, the Best Reorder Points (BRP) and Best Stocking Levels (BSL) settings.

Quite simply, these Stocking Levels are, for the most part, "self-controlling" based on annual piece sales. This "self-controlling" mechanism is, or should be the Dealer Management System, (D.M.S.) capabilities in moving parts from source to source based on piece sales, resulting in different Stocking Levels.

These piece sale ranges are what determines the proper Low & High Days Supply, (BRP & BSL) and proper piece quantities that will be on the shelf of any given part, whether a part sells 12 times a year, or over 1000 times a year. Each one will carry different Days Supply and Quantities.

I just mentioned briefly that the "self-controlling" mechanism that will ultimately determine the proper Stocking Levels is the Dealer Management System, (D.M.S.). But what if I told you that this may not be the case on many part numbers in your system?

What if I was to tell you that your Stocking Levels, even though you set them up based on your inventory's performance, meaning annual piece sale ranges can be overridden by an outside source and if undetected, could result in an "overvalued" inventory consisting over stocked and obsolete parts.

Not only that, some Stocking Levels that may be controlled by the V.M.I. could also result in Lost Sales, or "stock out" situations in your store because their "group average" Stocking Level criteria on some parts just may be to low for your sales history. 

How Could This Be Possible?....Let's Find Out!...

As I mentioned in my intro that I have been travelling quite a bit this past year helping Parts Managers to transition over to new D.M.S. Vendors as well as basic Parts Manager Training on Set Ups & Controls. 

Quite honestly, most Parts Managers hardly ever look at these Set Ups & Controls because it's not something we do each day, week, month, or even years. Once they are set in our system, we seem to set them and forget them.

With that said, I was recently training in a dealership with a great Parts Manager named Tim. Tim is a perfect example of most Parts Managers that I meet today. By that I mean that most Parts Managers that I meet are very intelligent and great to work work with, but they never had the opportunity to get the proper training, or what I call the proper "sharing of information".

As Tim and I started "digging in" to his Set Ups & Controls, we basically had to do a "redo" of pretty much everything. Tim quickly picked up on everything that I was sharing with him as he implemented all his own new Set Ups & Controls as I will only "guide him" because after all...these are his new Set Ups & Controls.

Now that Tim was "getting" how all this worked, he started asking great questions and provided me with some great examples of parts that have the wrong Stocking Level Parameters, even after we implemented the new settings. As a matter of fact, the BRP's and BSL's on certain part numbers didn't even make sense.

Keep in mind that the following two examples DO NOT follow any of the Source Settings that we installed into Tim's D.M.S., however, they did follow the Stocking Criteria set up by the manufacturers Vendor Managed Inventory, (V.M.I.) set ups, thus overriding Tim's D.M.S. Stocking Levels.

The first example was a radiator part number that only sold once in the last 24 months and it had a Best Reorder Point, (BRP) of 2 and a Best Stocking Level, (BSL) of 3! This part hasn't even phased into his own system yet, BUT, the Vendor Managed Inventory, (V.M.I.) provided by the manufacturer chooses otherwise and overrides his Set Ups & Controls.

In the second example, he showed me a head bolt part number that has sold 121 times over the last year and the Best Reorder Point, (BSL) was set to a quantity of 1 and the Best Stocking Level, (BSL) quantity was set to 2! Just the opposite of our first example as we will have way too many radiators that we will have to eventually return and head bolts that he will keep running out of!

It's extremely important to remember that some manufacturer's Vendor Managed Inventories and some Dealer Management Systems that we have out there need the proper settings managed by the Parts Manager and not the manufacturer.

Settings in the Vendor Managed Inventory website have to be set to default to dealer D.M.S. settings and NOT the manufacturers because the above scenarios will happen with some of these V.M.I. Vendors. After all, they love to sell their parts, whether you sell them or not, or whether they are protected or not.

We have to be careful to not become the manufacturers second warehouse just to be "obedient", or as they say, "compliant". They may think it's okay because we can return the parts at the assigned date and time, but they don't tell you about the inventory acquisition and holding costs which can run as high as 30% or more of the inventory value each year.

So how do we even know what the proper Stocking Levels should be?

When it comes down to most of what we do as Parts Managers, it's all about the math. In other words, we don't need a "self-controlling" mechanism such as our D.M.S. to determine what our proper Stocking Levels should be, although, if set up properly, it's better to let the system do the math.

It is good to do our own math so we can see how it works and keep a better eye out for these inconsistencies, or outside influences trying to "overstock me" and in some cases, "under-stock me".
The two example I gave earlier really happened and it's up to the Parts Manager to recognize these situations and make the proper corrections going forward.

Here's an example of how you can determine your own proper Stocking Levels....

In our example, we will have a part that sells 40 times a year, and a part that sells 4,380 times a year, which means, if we do the math...

365 Days Annually Divided By 40 Piece Sales = 9 (Best Reorder Point, or Low Days Supply)

365 Days Annually Divided By 4,380 Piece Sales = 12 Per Day, or a BRP of 1 Day plus Lead Time of 3 Days (See Below on Lead Time Explanation)

Now, we know that our first part sells on average every 9 days and this becomes our Best Reorder Point. Our Best Stocking Level, (BSL) can be set at 100% of the Best Reorder Point, (BRP) which will give us a Best Stocking Level, or High Days Supply of 18 Days.

Remember though...don't confuse the BRP and BSL with quantity. The BRP and BSL only indicate the Stocking Levels of when we reorder the part and at what restocking level. The quantities are controlled by "Dynamic Days Supply" and "Average Daily Demand" along with part "Lead Times".

So, in other words, on this part that sells on average every 9 days, it also means that it sells roughly 3 times monthly, (3 Divided by 30) which gives me an "Average Daily Demand" of .010. So in other words, the Days Supply "quantity" can be different on many parts.

A Days Supply "quantity" of our second example, an oil filter can be 12 as it may sell 360 times a month, while the above part number only sells .010 times daily, or 3 times a month. Once we add in the Lead Time on Stock Replenishment of let's say 3 Days, which is one day to order, one day to receive the order and one day to restock shelves, we can now determine our shelf quantity.

So, with our "Lead Time" at 3 Days, I would need to set my BRP, or my Low Days Supply of the oil filter at 3 Days, with a BSL, High Days Supply of at least 6, or perhaps 9. The "quantity" of the 3 days adds up to 36, (3 days X 12 piece sales daily) and when stock drops to 36, it will be "reordered" up to my high days supply, which will be at least 72, (100% of Low Days Supply).

On our part that sells 40 times annually, or on average every 9 days and a "Average Daily Demand" of .010, the Best Reorder Point comes at 9 Days Supply and will reorder the part to it's Best Stocking Level of 18.

Now, where our "Lead Times" set at 3 days, the "quantity" of parts at the Best Reorder Point may be when the part is at 0 quantity, or 1 and Best Stocking Level to order up to 1 or 2, depending on annual "Weighted Demand" to give us a "Dynamic Days Supply".

The reason that our Best Reorder Point can get down to zero before reorder is because with our "Lead Time" at 3 days, we can allow the part to get down to zero as it only sells on average every 9 days, which leaves plenty of "Lead Time" to replenish to proper Stocking Levels.

This is why I love some of our new Dealer Management Systems out there because they will automatically set these "Average Daily Demands", "Dynamic Days Supply", and "Weighted Demand"  through algorithms that are irrefutable.

In closing, there are two main "takeaways" that I wanted to accomplish in this month's issue. The first being that IF you are a "Smart Parts" Manager who is utilizing the manufacturers Vendor Managed Inventory, you definitely need to make sure that your stock orders are following YOUR Stocking Levels, and not theirs.

Second and lastly, all "Smart Parts" Managers out there need to know how all this works and to be able to "do the math" ourselves so we can keep these Stocking Levels and all other Set Ups & Controls in check. Don't let outside influence from the manufacturer put you in that hole with overstocked & understocked quantities and unwanted obsolescence....

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, 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"...


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. 


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