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

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

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

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

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

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

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

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

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

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

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

Here's our Top 10....

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

Number 1: Price Escalation Levels

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

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

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

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

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

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

Number 2: Application - Where To Apply The Matrix

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

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

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

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

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

Number 3: Percentage Ranges

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

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

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

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

Number 4: Cost Plus Matrix vs. List Plus Matrix

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

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

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

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

Number 5: Captive Parts

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

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

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

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

Number 6: Cost Ranges

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

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

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

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

Number 7: Capping The Grid

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

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

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

Number 8: Discounts & Overrides

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

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

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

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

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

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

Number 9: Measuring & Managing Results

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

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

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

Number 10: It's a Moving Target

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

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

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

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at (786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Here's why....

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                                                                                              - Epictetus

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

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

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

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

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

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

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

Number One: Parts Demand

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

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

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

Number Two: Parts Phase-In Criteria

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

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

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

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

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

Number Three: Stocking Levels

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

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

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

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

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

Number Four: Obsolescence Prevention 

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

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

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

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

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

Number Five: Lost Sales Posting

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

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

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

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

Number Six: Our Employees

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

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

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

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

Number Seven: Parts Marketing 

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

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

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

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

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

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

Number Eight: Pricing Strategies

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

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

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

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

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

Number Nine: Pick Up & Delivery Service

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

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

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

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

Number Ten: Be Positive & Remain Positive

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

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

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

                                                                                                                

                                                                                            - Wade Boggs

        

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at (786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

April 2020 - Stock Order Performance: "Is Yours Accurate?"

In my opinion, the performance of the parts department and the parts manager is not just measured by what we see on our financial page at the end of each month. Even though our number one objective is to be profitable to the guidelines set by our industry and our dealers, parts managers must also maintain and achieve expected Inventory Performance Levels. 

Often overlooked, our Inventory Performance Levels indicate not only the performance of the parts inventory, most important, it's the true measurement of the dealers number two asset in most dealerships next to the used vehicle inventory.

Inventory Performance Levels are measured by our five parts inventory "Business Ratios" which are as follows;

Level of Service, or Overall Fill Rate
First Time Off Shelf Fill Rate
Stock Order Performance
Gross Turns
True Turns  

Our five parts Business Ratios can also be referred to as the Parts Manager's Report Card, next to the sales and profitability section of the dealers financial. If reported correctly and revealed in the D.M.S. Parts Monthly Summary or Inventory Report, these five K.P.I.'s tell the whole story as to how well the parts inventory is performing.

Right smack dab in the middle of these Business Ratios is Stock Order Performance and like the other five, plays a key role role in the overall equation. If the Stock Order Performance percentage is accurate and to industry guidelines, all of the remaining Business Ratio K.P.I.'s are most likely at or close to industry guidelines.

If Stock Order Performance does not meet or exceed industry guidelines, the only other factors that could hinder the remaining four Business Ratio K.P.I.'s from achieving industry guidelines would be obsolescence, overstocked parts quantities and of course, inaccurate reporting.

The last of these three hindrances is exactly where we begin along with this question...

Stock Order Performance: "Is Yours Accurate?"

Let's start off by defining Stock Order Performance to get an idea of what goes into the calculation percentage in the first place. After reading and understanding the following calculation, or "formula", I think "Smart Parts" Managers will also see where this K.P.I. may have lot of "loopholes"...

"Year-To-Date Stock Orders Processed - Divided By - Year-To-Date Total Sales At Cost"

The two determining factors in realizing an accurate Stock Order Performance percentage comes down to our Order Methods and our basic Phase-In Criteria which determines which parts have a Normal Stocking or Active Status to begin with.

With the emergence of many manufacturers offering Vendor Managed Inventory Programs to replenish parts stocking inventory, one could probably "assume" that if we are relying solely on these manufacturer's programs, our Stock Order Performance must be accurate.

To "assume" that the Stock Order Performance would be accurate with the previous statement, that may be false. Even though it is our intent is to order these parts to refill our shelves, some of these parts may not make it into our Stock Order Performance calculation.

Many of these parts ordered through our manufacturers' V.M.I., (i.e. RIM, ARO, Partseye, Prime, etc.) won't necessarily be calculated into the D.M.S. Stock Order Performance percentage. Some of these parts ordered through our manufacturer's V.M.I. may enter our D.M.S. as Non-Stock Parts.

All part that enters the D.M.S. without meeting basic Phase-In Criteria will be considered Non-Stock until meeting criteria and will remain in a "Test" Source, or "Default" Source. The only way to change this result would be to manually change the Stocking Status of these parts in the D.M.S.

On the other hand, if we do not use, or do not have a manufacturer's V.M.I. Program, utilizing our own D.M.S. is the only way to create our stock orders. Even in these situations, inaccurate Stock Order Performance percentages may still loom overhead.

Special Order and Non-Stock Parts can physically be added to Regular Stock Orders just by utilizing the Order Method for Stock Orders instead of Special Order, Forced Order and Non-Stock Order Methods, thus creating up to three different Order Methods combined into one.

If all of these orders are combined into the same Stock Order, all of the above mentioned part orders will be considered in the Stock Order Performance Calculation. The D.M.S. only recognizes the Order Method and in this case and would combine all these orders into one and add them to the Stock Order Performance Calculation.

  

Let me explain a little further...

A few years back I was performing a Parts Department Evaluation at a particular dealership. Upon looking at the dealers Parts Monthly Analysis Report, I noticed the following;

No Lost Sales Recorded
No Customer Orders Recorded
No Emergency Purchases Recorded 
Level of Service, or Overall Fill Rate was 99.9%
Stock Order Performance was 99.9%
Gross Turns was 10.1
True Turns was .1 

Pretty interesting!...by looking at the numbers, you would think I just met the "Perfect Parts Manager", but we all know, the above numbers on the Parts Monthly Management Summary Report were no where near accurate.

The real scary thing about this is that ALL of these Business Ratio K.P.I.'s can and at times are manipulated if the parts manager is either unaware, or has never had the proper training from the beginning.

Even though this was an experienced parts manager and had been in this position for over 35 years, in this case it was more like one year, 35 times. We can't manage what we can't see and unfortunately, some parts managers don't realize, or don't know the value of accurate reporting into the D.M.S.

In order for us to realize an accurate Stock Order Performance, it all starts with the proper Stocking Status of all parts in the inventory. If the proper parts Phase-in Criteria is in place and once these parts do phase-in, they are properly assigned the Normal Stocking or Active Status to qualify.

Next, we have to make sure that all manufacturer V.M.I. parts have the Normal Stocking or Active Status manually applied to them as well because if these V.M.I. parts have not met the individual dealers Phase-In Criteria, they will considered Non-Stock Parts.

Even though we are buying these parts for Normal Stocking or Active Status, they will be considered Non-Stock Parts until they meet Phase-In Criteria. Keep in mind that most parts purchased from the manufacturer's V.M.I. are already considered Normal Stocking, or Active Parts.

The only manufacturer V.M.I. parts that may enter our D.M.S. as Non-Stock are those parts that are new "Proposals" or suggested by the V.M.I. due to "Group Demand", and not necessarily our individual D.M.S. demands.

Even though it comes down to our Stock Order Methods, as our formula indicates above, we can still technically have Non-Stock Parts ordered as part of our Stock Orders. On the other hand, we can still have parts that we normally stock classified as Non-Stock, thus giving us inaccurate Stock Order Performance, First Time Off Shelf Fill Rates and True Turn information.

In order to realize and achieve an accurate Stock Order Performance percentage on our D.M.S. Monthly Management or Inventory Analysis Report, we must practice "Honest Reporting" in the following areas;

• Proper Stocking Status on all Parts (Normal Stocking Parts vs. Non-Stock Parts)
• Proper Order Methods (Stock Orders vs. Special Orders, Non-Stock and Forced Orders)
• Proper Receipting of Normal Stock Parts vs. Special Order and Non-Stock Parts

Much like our previous Business Ratios K.P.I.'s, in order for us to properly manage this valuable dealer asset, we have to understand how important it is to report accurately. Even if our Parts Monthly Inventory Management Reports may reveal results we don't want to see.

In reality, it is much better to see undesirable results from accurate reporting in order to make the appropriate modifications and corrections versus inaccurate reporting that reveals inaccurate results as we can't fix what we can't see.

Lastly, we have to have the proper knowledge and training up front in order to manage any of these Business Ratio K.P.I.'s. If we don't have the this knowledge and training to manage this dealer asset, it's never too late to learn and acquire the knowledge.

"Is Your Stock Order Performance Percentage Accurate?"

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at (786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

March 2020: Parts True Turn: "Is Yours Accurate?"

One of the most inaccurate and often times understated "Business Ratios" on our Parts Monthly Summary, or Management Reports is Parts True Turn. Sad thing is that many dealers and parts managers don't actually look at this number stated on the report.

Even worse, many dealers and parts managers don't pay much attention to this Key Performance Indicator, (K.P.I.) unless the Parts True Turn number is brought up in conversation perhaps at a 20 Group Meeting, or when we see our parts obsolescence starting to rise.

In my opinion, there is nothing more important than the Parts True Turn number from an investment standpoint. I'm quite sure many dealers look at their new and used aged vehicle inventory, so why would the parts inventory be any different?

The answer to that question is really quite simple as many dealer owners or principle don't have the time, energy or even worse...the desire to look at their parts inventory the same way as their new and used vehicle inventories. 

If we do have that mindset, then we might as well just throw in the towel because that one K.P.I. of Parts True Turn going unnoticed, or cared about leads to a "trickle down" of mass proportions. As a matter of fact, the biggest effect is Missed and/or Lost Opportunities in the overall Fixed Operations Gross Profit.

Some may disagree with me on that one, but let's take a look at some of these "trickle down" effects that Parts True Turn, or should I say the "lack" of proper parts inventory True Turns of at least 5.0 times, (current industry guidelines) annually.

Each one of these Missed and/or Lost Opportunities in the overall Fixed Operations Gross Profit can be linked to less than desirable Parts True Turn Numbers. Which in fact, effects our Service Absorption percentages and our break even number of units on the front end.

Let's break it down with my list of Missed and/or Lost Opportunities...

• Increased Parts Obsolescence
• Lower Parts Return on Investment
• Higher Acquisition and Holding Costs, (25% - 30% of Total Inventory Value)
• Lost Parts Gross Profit due to Emergency Purchases
• Lost Gross Profit from Lost Service Productivity and Cycle Times,
• Low "First Time Off Shelf Fill Rates"
• Lower Manufacturer Purchase Discounts and Accrual Amounts
• Lower Customer Satisfaction and Retention Percentages
• Lower Service Absorption in the Fixed Operations and Break Even Units

The above effects of less than desired Parts True Turn numbers are directly linked and I could probably find more as these are just a few. The biggest one to me in the above list is the Lost Service Productivity by not having the right parts on the shelf the first time.

Unlike the parts inventory, time is a perishable inventory and just fifteen minutes of lost time from a technician due to low Parts True Turn numbers can cost as much as $50.00 to $100.00 in lost parts and service sales for just one tech that we can never get back.

So, let's define and breakdown this term we call Parts True Turns and how parts are even classified and/or qualify in this category.

I mentioned earlier that there is a possibility that some dealers' Parts True Turn number may be understated, especially if you are a dealer that utilizes the manufacturers Vendor Managed Inventory, or (V.M.I.). This is due to many parts purchased on these programs are not entered into the D.M.S. as Normal Stocking Parts, which is the key ingredient to measuring Parts True Turn.

In order for a part to "qualify" in the Parts True Turn number is the part has to meet phase-in requirements. Many parts purchased from the Manufacturer's V.M.I. Program may meet "their" criteria for phase-in, but not necessarily the dealer's phase-in requirements. Thus, on these instances, the parts need to be manually phased-in, or given a status on Normal Stocking, or Active.

Let's now take a look at the actual definition, or "formula" for accurately measuring Parts True Turn. After reading the actual "formula", we will break it down in "layman's terms" as you will see from the actual definition, or "formula"....Here Goes!...

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

That's a lot to absorb if you are reading this for the first time! It all begins with Stock Order Receipts and the sale of parts that qualify for Normal Stocking Status, or Active Status to begin with. That's where it all starts as I can actually "manipulate", or even "miss" parts that are considered for Normal Stocking or Active Status.

In "layman's terms", True Turns could be calculated based on sales at cost of Normal Stocking or Active parts divided by total parts sales at cost annualized. Stock Order Receipts can be deceiving as many parts managers actually order Special Order Parts as part of their Stock Orders, thus giving us...again...inaccurate and higher True Turn numbers.

I can actually go back to the parts phase-in process as well which is where parts first qualify for Normal Stocking or Active Status. If my parts phase-in criteria is not set up properly, I could actually be "understating" or even "overstating" my Parts True Turn. We have to have the right number of total demands recorded, (Sales and Lost Sales) over the right period of time.

For example, if my phase-in criteria was set for just one or two "hits" or demands over a extended period of time, I could be seeing a higher True Turn number and would be "overstated". On the other hand, my parts phase-in criteria could be too restrictive by requiring many more "hits" or demands over a period of time, thus giving me a lower True Turn number.

In my opinion, in order to realize an accurate Parts True Turn number and to achieve expected or desired results on my monthly reports AND at an industry guideline of 5.0 or above, I would need to do the following...

• Install the proper phase-in criteria in my D.M.S. of either 2 or 3 demands in 6 months or less
• Properly record Lost Sales at 5% - 10% of total sales at cost
• If utilizing the manufacturer's V.M.I., insure all parts purchased are receipted as Normal Stocking or Active Status
• DO NOT order Special Order, or Non-Stock parts with less than 2 or 3 demands, (pending phase-in requirements) as part of a Normal Stock Order.
• Special Orders and Non-Stock Parts need to be ordered separately and receipted separately from Normal Stock Orders
• Eliminate & Control Obsolescence over twelve months to 0%
• Control Stocking Levels of Normal Stocking or Active Parts to the proper Best Reorder Point, (BRP) and Best Stocking Levels, (BSL) to prevent overstocking Normal or Active Parts.

Bottom line is that we first have to have a deep interest and concern for our True Turn number, especially if you are the dealer, trying to achieve the proper Return On Investment from my parts inventory.

If I am a "Smart Parts" Manager, this IS our bottom line when looking at our Parts Inventory Business Ratios. As we now know...so much is riding on our Parts True Turn number at 5.0 times minimum annually...if we haven't done so already....it's time to "Turn It Up!"

 If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at (786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

February 2020: Stocking Status: "Is Yours Accurate?"

As we continue on into this New Year, we will be focusing on many parts "Key Performance Indicators", (K.P.I.'s) and more importantly, we will be looking at how these K.P.I.'s are calculated and if they are really accurate.

In my opinion, one of the biggest and probably one of the most talked about Parts K.P.I.'s is "First Time Off Shelf Fill Rates". Next to Lost Sales, "First Time Off Shelf Fill Rates" is one category that I receive more questions about and how we measure it correctly.

Most Dealer Management Systems, (D.M.S.) contain information that "should" lead us to our "First Time Off Shelf Fill Rate" percentage, but unfortunately, even though the information may be available, it's most often times inaccurate.

As a matter of fact, many Dealer Management Systems, (D.M.S.) don't even calculate "First Time Off Shelf Fill Rates". One of the main reasons is that many Dealer Management Systems are not set up to calculate this K.P.I. with the proper information needed to calculate this percentage in the first place.

The first key element to calculating "First Time Off Shelf Fill Rates" is which parts "qualify" to be even considered in this K.P.I. This is where it gets tricky because how do we really know what parts were sold on the first visit?

The most common answer to that question should be the parts that are considered "Active", or "Normal Stocking Parts". So, the next question should be..."How does a part become Active or a Normal Stocking Part and what exactly is the criteria?"

In my opinion, when calculating "First Time Off Shelf Fill Rates", only those parts that we normally stock should be part of the equation. Even though, technically, I could have a "Non-Stock" part sold on the first visit such as a Special Order part that was never sold initially.

I could also have a Normal Stocking, or Active part that was not on the shelf on first visit because I ran out and had to make an Emergency Purchase. Thus, giving us inaccurate results when calculating "First Time Off Shelf Fill Rates".

This is where "Stocking Status" comes into play as every part number in our system has to have a classification, or "Stocking Status" whether we normally stock the part or not. So, if we are to even begin to calculate our "First Time Off Shelf Fill Rate", we have to have the separation between normal stock parts and non-stock parts.

To even get close to an accurate "First Time Off Shelf Fill Rate", we need to have some guidelines and the only guideline we have, in my opinion is "Normal Stocking or Active Parts". That being said, the only way these parts can meet that guideline is to meet the individual dealer's D.M.S. guidelines for parts Phase-In.

"So, why do I believe that the "Stocking Status" in many stores is inaccurate?"

As I just mentioned, in order for a part to achieve "Normal Stocking Status", or "Active Status", these parts must qualify and meet the D.M.S. Phase-In Criteria. If parts do not meet Phase-In Criteria, they are considered as "Non-Stock" Parts. Much like Special Order Parts, or maybe parts manually forced in by the Parts Manager.

Total demands meaning Sales or Lost Sales less than the Phase-In Criteria selected for potentially stocking parts. Normally, we would like to see some activity, (Sales and/or Lost Sales) of at least a few times over the course of selected months before considering parts for potential normal stocking status.

Now, here's where it gets a little dicey and it's also the reason why I believe that many, if not most Dealer Management Systems, (D.M.S.) "Stocking Status" is inaccurate. If it's true that parts need to meet the D.M.S. Phase-In Criteria in order for a part to meet "Normal Stocking", or "Active" status, then we have a problem.

This problem will also "trickle down" to properly calculating a true "First Time Off Shelf Fill Rate" if we are using the calculation of sales, (at cost) of "Normal Stocking" and "Active" parts. We must have an accurate "Stocking Status" in order to even come close to an accurate "First Time Off Shelf Fill Rate" K.P.I.

The first "inaccuracy" is if the D.M.S. Phase-In Criteria isn't set up properly as I have witnessed even most recently. In other words, I have seen D.M.S. Phase-In Criteria set for just one demand, (Sale or Lost Sale) in just ONE month over the course of twelve months in order to qualify for Parts Phase-In and "Normal or Active" Stocking Status.

I'm quite sure that just ordering a Special Order Part one time will not convince me to stock that part, but the D.M.S. only does what it's designed or programmed to do. So, if this was the case, every part would qualify for "Normal or Active" Status and all these sales at cost would be considered in the "First Time Off Shelf Fill Rate" K.P.I., which, of course would not be accurate.

The second "inaccuracy" on Stocking Status are the many, many parts that we purchase utilizing the manufacturers' Vendor Managed Inventory, (V.M.I.) such as GM's RIM Program, FCA's ARO Program, Parts Eye, etc. to manage and replenish their parts inventories.

Many, if not most of these manufacturer V.M.I.'s manage individual dealers' parts inventories based on dealer group criteria including Parts Phase-In and Overall Stocking Levels. In other words, if the Parts Phase-In Criteria is met on a group level, then it becomes a "qualified" V.M.I. part. 

Here in lies the problem....even though a part may meet the "group" criteria, they may recommend a particular dealer to stock the part just because it has met the "group" criteria, and not necessarily the individual dealer's Parts Phase-In Criteria. Once you "pull the trigger" on that part one time, maybe on a Special Order, now that part is recommended for normal Stocking Status.

 

I don't know about you, but before we even had the manufacturers' controlling our stock orders, I know I wouldn't stock any parts that didn't meet "my" D.M.S. Stocking Criteria, Stocking Status and Stocking Levels. As I have often said...I am not buying parts to hold and protect...I am buying parts to sell and meet proper gross and true turn numbers.

Even if the part hasn't met the individual dealer's recommended Phase-In Criteria, it has met the "group" criteria, these parts end up on the shelf, even though they may be "protected" by the manufacturer for return down the road if these parts don't sell.

What many Parts Managers don't know is if they purchase ANY part on the manufacturers' V.M.I. "that has not met" their own individual D.M.S. Phase-In Criteria, those parts will come into the parts inventory and D.M.S. as a "Non-Stock" part and will not be included in any "First Time Off Fill Rate" calculation.

This would mean that the Parts Manager must change the Stocking Status of these parts over to "Normal or Active" Stocking Status manually. I'm quite sure that we are buying these V.M.I. parts to replenish and/or stock and not ordered as Special Orders for certain customers.

I have visited many dealerships, even to this day where as much as 70% of their parts inventory was in a "Non-Stock" Status because many of their V.M.I. parts purchases were receipted as "Non-Stocked" because these V.M.I. purchases did not meet the dealer's D.M.S. Phase-In Criteria, which was also inaccurate in many of these dealerships.

I have personally assisted Parts Managers in changing the Stocking Status of literally thousands of part numbers from a "Non-Stock" Status back over to a "Normal or Active" Stocking Status because so many of their part numbers were purchased under the Manufacturer V.M.I. Program that did not meet their own D.M.S. Phase-In Criteria.

Calculating an accurate "First Time Off Shelf Fill Rate" can only be accomplished if the Stocking Status of all parts are accurate to begin with. Even though I believe that there is no 100% accurate "First Time Off Shelf Fill Rate" calculation because there will always be exceptions as I have mentioned above.

I DO believe though that we can be very close to 100% if the Stocking Status of all parts are accurate and correct, properly accounted for, including those parts purchased on the Manufacturer's V.M.I., (if offered). We also have to be "honest" and report "Emergency Purchases" on those parts that we normally stock, but run out of on occasion.

Emergency Purchases should only be posted on those parts we normally stock, but run out of. Now we can calculate an accurate "First Time Off Shelf Fill Rate" that is as close as it can be. Even though it is also true that we could have an Emergency Purchase and a Lost Sale on the same transaction, we can still benefit from posting both.

Only the Emergency Purchase "receipt" will separate the two and still allow us to record the Lost Sale for the added demand, while accounting for the "out of stock" situation that eventually needs to be "backed out" of our "First Time Off Shelf Fill Rate" calculation.

We must also ensure that we are only reporting Emergency Purchases on those "Normal or Active" parts supplied by our manufacturers' and not those parts purchased from outside, or aftermarket vendors as those parts purchases should be posted as "outside" or as "in and out" purchases.

If we do follow these principles and guidelines, we can pretty much use this following formula to "properly" calculate our "First Time Off Shelf Fill Rate"....

Total Sales, (at cost) of Normal or Active Parts Divided by Total Sales, (at cost), Minus Emergency Purchase Receipts

If we are going to measure any Parts K.P.I., we need to make sure we are not just "believing what we see" on our D.M.S. Monthly Management Reports, we need to make sure that we are reporting, receipting and recording all of the necessary information accurately and correctly in order to achieve desired results.

"Is Your Stocking Status Correct?"

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at (786) 521 - 1720...After all, not knowing is not worth not "fixing" it...