Tuesday, June 4, 2019

June 2019: "Show Me How To Fix It!" - Part One: Lost Sales

In my opinion, finding a problem and fixing a problem are two different things. Anyone can tell you that you have a problem, but I'm more interested in ways to fixing the problem. In this computerized age that we live in, we have tons of reports available to us, but it's what we DO with all this information that is most important.

Over the next five months, starting with this issue of ACG "Smart Parts", we will concentrate on five Key Performance Indicators, (KPI's) in Parts Inventory Management that shape just how well our parts inventory is performing compared to industry guidelines.

We will start with Lost Sales, followed in consecutive months with Phase-In/Phase-Out Criteria, Stocking Levels, Gross & True Turns and lastly, and most important...First Time Off Shelf Fill Rates. Each of which, we will lay out a business plan to fix these KPI's and get them to industry guidelines.

A couple of years ago, I was invited to attend a conference with other parts industry analysts to have a "round table" meeting to discuss the "state of our industry" concerning parts in general as it pertains to today's automotive dealership.

One of the first topics of discussion was the reporting of parts "Lost Sales" and its overall effect in the daily operations and stocking levels of the parts department. We first discussed the true meaning of Lost Sales, and of course, the actual definition of a "Lost Sale".

With approximately fifteen to twenty attending this conference, just how many definitions do you think we had from those attending?....Exactly!....about fifteen to twenty! This was a great start to the conference and the debates began!

That being said, therein lies the first problem to less than desired results in many dealership parts departments today achieving industry guidelines of approximately 5% - 10% reported Lost Sales at cost compared to total parts sales at cost.

So, if all of us that attended have a difference of opinion, how do we expect our dealers' parts managers to achieve these industry guidelines?...What is the true definition of a Lost Sale?...and perhaps most important...Why is it important to report Lost Sales to begin with?...

So many questions, but now....Let's Fix It!....

Much like any problem or situation, before we can fix anything, we have to identify the root cause and develop a plan with an end goal in mind, along with a timeline to completion, or expected result. This is especially true when it comes down to Lost Sales Reporting and its definition.

When I was asked what my definition of a Lost Sale at this conference, my answer was much like any answer I give as a consultant as I tend to answer a question with another question. My answer to the question, (in the form of another question) was...

"What is the industry guideline"?

The answer given to me was 5% - 10% of total sales at cost, meaning that if my total cost of sales was $100,000.00 on any given month, then I should be reporting at least $5000.00 to $10,000.00 in Lost Sales at cost. 

At this time, I did answer the question as to my definition of a Lost Sale with...

"I guess then if you are a parts manager reporting Lost Sales at 5% - 10%, you have the right definition, if you are not...then you don't have the right definition"...

That being said...let's lay out our "Three Step" plan to "fixing" Lost Sales Reporting...

Step One: Belief System

In my opinion, fixing Lost Sales Reporting starts with the parts manager "believing" in what reporting Lost Sales can do for them. First of all, a Lost Sale is considered a "parts demand" or "hit" in the Dealer Management System, (D.M.S.). Demands to the D.M.S. are only recorded with either a Sale, or a Lost Sale.

Reporting "parts demand" into the D.M.S. is the only way parts are phased-in to the system and to eventually be considered a stocking item or part. Once the parts are phased-in, then the Stocking Level Parameters take over until the parts phase-out from inactivity or a given period of time.

It is in this first step where most don't even achieve industry guidelines on Lost Sales Reporting because they don't truly believe how important it is. This is why I don't like the term "Lost Sale" as I would replace the term with "Potential Missed Opportunity".

That interpretation alone, in my opinion, is a game changer. The term Lost Sale to me just seems to have a negative tone to a practice that is a positive one. Posting Lost Sales is not a bad thing, it's a good thing.

Do I want to take a chance by missing a potential "part demand" in my system"? Even if I record a Lost Sale up front when the customer or technician inquires about a non-stocked part, should I report a Lost Sale?

What if that customer or technician eventually orders the part and we sell it, aren't we now getting two demands on the same part? One from the Lost Sale and one from the actual sale of the part...will that not give me a "false" demand of two instead of one?

Let me respond with my own "What If?"....What if we don't post a Lost Sale up front because the customer or technician is ordering the part?....What if the customer never comes back, or the part is never installed?

Now I have a part that I ordered sitting on the shelf with NO demands posted even though there was a "need" or "demand" for that part. But, if I did post a Lost Sale and I sell that part to someone else, I would now have two demands on that part. One more demand that could lead to stocking that part in the future.

Here's the key.....It Doesn't Matter!

Step Two: YOUR Definition as a Parts Manager

If our "Belief System" has been resolved, we can now take the next step in "fixing" Lost Sales Reporting. Keep in mind that if we don't "believe" in what we do, then don't expect anyone else to believe it, especially our parts employees.

This "state of mind" has help 95% of all my clients achieve industry guidelines on Lost Sales Reporting within one to three months. Each of which were well below industry guidelines, or didn't even report Lost Sales at all in the beginning. 

Choosing the right definition as a parts manager, in my opinion is basically "simplifying" the definition in the first place. Too many parts managers that I have met that have less than desired results in this category have way too many restrictions on Lost Sales Reporting.

In most Dealer Management Systems, (D.M.S.), Lost Sales Reporting is recorded by demand within a given month, even though you can set limits on total demands. So, in other words, it doesn't matter if I record one Lost Sale, or ten Lost Sales on a given part number, the system is only calculating the demand that month.

If the part has demand within a given month along with demand in a two or three other given months out of let's say six or seven months, then the part will phase-in to the system. Even if the part does phase-in, it's not going to "jump on the shelf". The parts manager still has to decide if he or she wants to accept these parts as stocking parts.

The most important thing to remember is that we can't manage what we can't see in front of us and I don't know of any parts manager can manage thousands of part numbers in our system without seeing it right in front of us.

So, when it comes down to simplifying the definition for your parts employees is...when in doubt?...post the Lost Sale. DO NOT restrict your employees from posting, or making them decide if they should post a Lost Sale on this ball joint for a 1986 Ford F150. Chances are, there won't be any more demands on that part ever again.

And...if we ever did post a Lost Sale on that ball joint AND we posted a sale on the same part, as a parts manager, I'm not going to accept it as a stocking item when I look at my phase-in report. I've actually accepted many "weird" parts and let them phase-in and realized many future sales on those parts and let them phase-out after their life cycle was completed.

Step Three: Resources For Lost Sales Reporting

"So, where do I find these "Potential Missed Opportunities?"...are there more out there that we could be reporting? Are we only reporting Lost Sales when we simply check a part number and we don't have it? Can we have a Lost Sale AND an Emergency Purchase at the same time?..."

Many Lost Sales go "unreported" because we simply don't look for all the areas of "Potential Missed Opportunities". Here are just a few areas where we can enter Lost Sales to build our system "demands" for potential future stocking parts...

  • Aftermarket parts that we purchase that are within our carline. The part may be billed out as the aftermarket part number, but we should post a Lost Sale on the manufacturers part number.
  • Parts on service estimates that go "unsold", or the customer declines to have the work performed at a later date. Let's say a customer has an estimate that involves ten different repairs or services, but only chooses to have five of the repairs or services performed. If the other five that the customer declines involves parts that are not stocked, Lost Sales should be posted on the non selected items. After all, there was a "need" or "demand" for those parts even though the customer declined them. 
  • Emergency Purchases are also another "resource" for posting Lost Sales. You actually can have an Emergency Purchase and a Lost Sale on the same transaction. Here's why...what happens to all those parts we chase that end up just sitting on the floor and not installed, only to be sent back to the vendor or dealer where it was originally purchased.
We have to be careful though because I'm not insinuating that we post Lost Sales and/or Emergency Purchases on all parts that we Special Order. I'm only recommending we post Lost Sales and an Emergency Purchases on parts we have to chase, excluding Collision Parts unless you are a dealer that is actively pursuing wholesale sales.

Common sense is the best way to simplify the posting of Lost Sales to industry guidelines. If a category of a part is a normal stocking part, then I should post Lost Sales on those types of parts. If I stock ball joints for certain vehicles, then I should be posting Lost Sales on ball joints that I don't stock.

Here's another note, if you are a dealer that utilizes a Vendor Managed Inventory Program from the manufacturer, (V.M.I.), posting Lost Sales in your own D.M.S. is the only way to increase your demand in YOUR inventory. 

Relying on the manufacturer that tabulates demand on groups of dealers will only give you group information that may not meet your own demand. It can also lead to overstocking of parts that you don't sell and understocking of parts that you do sell.

If 95% of the parts managers that I have worked with, (39 of 41) can get their Lost Sales Reporting at, or above guide, then there is no reason, or excuse for not reporting Lost Sales. After all, it is an industry standard and not just an option.

"The benefits from posting Lost Sales far outweigh the efforts of changing habits within our department...we just have to believe it".

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, May 7, 2019

May 2019: Low Parts Gross %?: "Don't Blame Your Parts Escalation Matrix!"

Have you ever heard the term that refers to gross profit as just a "State Of Mind"? This statement or term is probably most evident in our business when we talk about pricing our Used Vehicles in the Sales Department once the Used Vehicle has gone through reconditioning.

Usually, Used Vehicle prices are determined from "cost up" once backed in costs are added to the vehicle such as mechanical/body repairs and vehicle reconditioning. Once "true cost" is determined, the sale price is added from "cost up" in order to retain the desired gross profit margins and percentages.

In theory, the same thought should be applied when determining our "desired" retained gross profit percentage in the Parts Department, but unfortunately, there are many more variables to deal with in parts. There are also many more transactions in the Parts Department that can impact the overall parts retained gross profit percentage.

If it were that easy, we could just double our cost on all parts, (except for competitive parts), and we would realize a 50% retained parts gross profit. As a matter of fact, I have actually met Dealers and Parts Managers that have suggested that for a solution and they still didn't realize their "desired" retained parts gross percentage.

Once again, it's just not that easy as there are far too many variables in the Parts Department that eventually lead to less than desired retained parts gross percentages. Simply doubling the parts cost, or increasing the parts escalation matrix could actually lead to more problems.

These two simple solutions, (doubling parts cost & increasing the matrix), can lead to "overpricing" parts on certain parts invoices and repair orders that could eventually lead to losing customers and lower customer satisfaction and retention.

Even though I am a true believer that overall gross profit "dollars" are what we can really spend, as we can't spend a "percentage", but I also believe that both gross profit "dollars" and retained gross profit "percentages" should and can be achieved in the Parts Department.

The prime reason for my belief in achieving both overall gross profit "dollars" and retained gross profit "percentages" is that parts cost is a "constant" and very rarely changes as opposed to Service Labor and Used Vehicle costs that are always fluctuating due to various Technician Rates and Used Vehicle Reconditioning Costs.

So, what's the solution?...

Much like any situation, or problem that requires a solution, we first have to identify the areas where the situation, or problem exists in the first place. Simply applying solutions, or "band aids" to a situation or problem without "drilling it down", only leads to undesirable results.

After countless situations that I have experienced over the years in many dealerships on this topic, I have decided to focus this month's "Smart Parts" edition on my list of "Top 10" causes for Low Parts Retained Gross Profit Percentages. 

We will start at Number Ten and work our way up to our Number One cause for Low Parts Retain Gross Profit Percentages.

Here We Go!!!

Number 10: Mistakes

We know that everyone makes mistakes, but there are actually more chances for this to happen in the Parts Department because there are more transactions in the Parts Department in a single day than there are in the whole dealership in a single month.

Mistakes are made in the areas of "fat fingering" parts quantities, receipting parts, billing parts to the wrong repair order at the wrong price, or line number on the repair order, and more importantly, pricing errors. Pricing errors often occur because we tend to "assume" far too often.

Pricing Levels and Pricing Strategies also tend to cause many errors in billing parts as mistakes are made in the basic assignment of these Pricing Levels, or Pricing Strategies. Parts counter staff can often make mistakes in applying the right Pricing Level, or Pricing Strategy to the right customer.

Finally, the most common mistake made in the Parts Department is billing the right price on an invoice, or repair order from outside purchases. Parts may be billed out at factory cost without any adjustments made on the actual "true" cost that was paid for the part, especially on warranty repair orders.

Number 9: Proper Sales Training

That's right!...who would ever think that we would ever consider sales training in the Parts Department. In many Parts Departments, other than "over the counter" sales, parts counter staff are rarely exposed to the vast number of customers that flow through our dealerships each day.

Having the confidence and knowledge in selling is a skill that requires the proper training in any retail environment. Lack of training, skill, knowledge and especially confidence not only impact overall parts sales, it can also impact potential profits at the desired retail retained parts gross percentage.

The biggest impact from the lack of sales training is counter staff  "assuming" a part costs too much in their mind, thus giving the customer a discount up front, even before the customer objects to the original sale price of a given part or accessory.

Number 8: Sales Mix

Believe it or not, the "Sales Mix" of our parts sales can highly impact our Parts Retained Gross Profit Percentage. Depending on location, demographics, customer and area median income, etc., the Sales Mix between Competitive, Maintenance and Repair Parts & Labor Sales can vary.

For example, if my Service Department's repair order sales and repair order count leans more heavily towards Competitive and Maintenance Repairs and/or Services, my Parts Retained Gross Profit is going to be lower than expected industry guidelines.

On the other hand, many Fleet Service Dealers tend to realize even higher Retained Gross Profit Percentages because their Parts and Service Sales tend to be more "Captive" Repairs that usually outweigh Competitive and Maintenance Repairs and/or Services.

Even if an Escalation Matrix is installed, when we are considering the Competitive and Maintenance Categories, the Escalation Matrix is often substituted by parts "Flat Pricing" which is locked into fixed parts sales price with a fixed gross profit in order to remain competitive in the marketplace.

Number 7: Flat Pricing

Speaking of "Flat Pricing", that is Number 7 on our list of causes on Lower Parts Retained Gross Profit Percentages. The problem or concern that I have with "Flat Pricing", even though I'm a big fan in the concept is that many Parts Managers just throw out a "Flat Price" on a part such as an air filter without doing the proper math.

Even though these "Flat Priced" parts are usually competitive in nature and are usually considered Menu Items, it doesn't necessarily mean that we have to assume an expected Lower Parts Retained Gross Profit Percentage. If we do our homework and apply "Weighted Parts Price Averaging", we can get the best of both worlds.

By utilizing "Weighted Parts Price Averaging", we can actually research our annual piece sales of, let's say our "Top 10" air filter part numbers, combine the total annual piece sales of these "Top 10" air filters, then divide the total annual piece sales of all ten part numbers by the total cost for all ten air filters annually and come up with one average cost for all air filters.

Once the average cost is determined for all these air filters, we can then apply our markup percentage to achieve our desired Retained Gross Profit Percentage. For example, if my average cost for all these air filters is $11.87, then we can "markup" from cost by 1.67 to achieve my desired Parts Retained Gross Profit Percentage of 40%. So, in this case, all the air filters would sell at a sales price of $19.82.

The theory, (which actually works!) is that the air filters that we sell the most, usually cost less and the air filters we sell less, usually cost more. Once the weighted average kicks in, we may make less on the air filters that we sell the least, but...we make a much a higher Retained Gross Profit Percentage and more often on the air filters that we sell the most, thus retaining an overall "average" gross profit percentage of 40%.

Number 6: Emergency Purchases

I believe it's pretty obvious that Emergency Purchases has made our "Top 10" List, even though some may question it's position at Number 6. Quite simply, and much like in the Sales Department, if we have to chase it, we lose gross profit, both in dollars and retained gross percentage. 

This problem is even more magnified if the Parts Department has a low "First Time Off Shelf Fill Rate". I guess opinions may vary on where Emergency Purchases falls in to our countdown as it would depend on how low a particular Parts Department's number is, or what their percentage is on their "First Time Off Shelf Fill Rate". 

Emergency Purchases would actually rank a little higher on our countdown for some if "First Time Off Shelf Fill Rates" percentages are drastically low, resulting in more Emergency Purchases. More Emergency Purchases means lower gross dollars and percentages.

Low "First Time Off Shelf Fill Rates" that result in Emergency Purchases not only impacts the Parts Retained Gross Profit Percentage, it actually impacts the Service Department with lower shop productivity, efficiency and ultimately, lower labor sales and profitability.

Number 5: Service Estimating

As we reach our top five, we will see a higher impact, or potential higher impact on not only Retained Parts Gross Retention, but also missed gross profit opportunities in dollars which is a "double whammy". Ironically, in many dealership Service Departments, there is no real Service Estimating Program.

Whether there is a Dealer Management System, (D.M.S.) integrated Estimating Program, or one that operates electronically and separate from the D.M.S., chances are less likely for lost gross profit dollars and percentages in both parts and in service labor.

The sad truth is that many dealers' Service Departments still operate on a manual Service Estimating Process where estimates are written on the back of a repair order. Parts and Labor quotes are scratched on the back of the ticket and communication between parts and service is poor at best.

Poor communication in the areas of E.T.A., (estimated time of arrival) on parts, omitted parts, added costs to obtain parts, addition errors, etc. are just a few parts "gross killers" out there that can and does happen more often than we would expect, or even see.

Number 4: Pay Plans

Now we are getting to the "real meat" as we get even closer to our Number 1 reason for Lower Parts Retained Gross Profit Percentages. If you don't know it already, most of our employees "work their pay plan" as most of us want to maximize the areas that will end up in our back pockets.

Let me give you an example....

Let's say that I'm a Service Advisor and my pay plan is steered more towards selling labor than it is parts. I will even go one further and say that my pay plan is also steered more towards selling customer labor as opposed to warranty and internal labor.

That being said, which jobs are going to have the higher priority? Of course, warranty and internal parts and labor will take a back seat as customer pay labor is my number one priority. So, whether it's incentives, or the clock, (if I'm paid by the hour), that's how I am going to work my pay plan.

Here'[s another one...let's say that I have a transmission job in the shop that requires either  a transmission replacement or a transmission overhaul. Which one do you think I would want to push, or sell to the customer? Of course it would be overhauling the transmission as that we pay me more with the customer pay labor.

Also, wouldn't it behoove me to "pad" my labor utilizing labor grids more than the actual parts needed for the repair and at the parts escalated price?

Even though both the grid and matrix should be applied, the tendency to discount, or reduce my estimate may be what it takes to make the sale. If I did have to make cuts somewhere, it would definitely be on the parts side.

On top of that, and in my opinion when it comes down to ethics, replacing the transmission with a
re-manufactured unit with a better warranty would be a better value to the customer in many cases. Unfortunately, ethics isn't always the case when pay plans come into play.

Pay plans also impact Retained Gross Profit Percentages for Parts Managers and their counter staff. If my parts pay plan leans heavily towards "total sales", or even "total gross profit", then percentages really don't mean anything to me.

I would tend to lean towards making the sale and applying discounts just to drive the numbers instead of making sure I retain the right gross percentage.

Number 3: Overrides

Some may think that "Overrides" is the same as "Discounts", but they are quite different as overrides are directly linked to overriding stated Escalation Matrix Sale Price, or maybe even the Manufacturers Suggested Retail Price. Overrides may also be legitimate when we look at our Pricing Strategies, or Pricing Levels to certain customers.

So, it doesn't really matter what the Escalation Matrix is, or how strong it is, if I'm going to override it anyways, the actual sale will be determined by how much the override is and not how good the Escalation Matrix may appear.

Even though overrides may be legitimate in many cases, the real factor in overrides that can contribute to Low Parts Retained Gross Percentages is that there is usually very little "policing" by Parts Managers. Once a parts counter person has the ability to override once, they may just do it again and again, even if the customer does not qualify in a particular Pricing Strategy, or Pricing Level.

The ability to change a selling price of any part, or overriding the selling price, should always be accompanied with the accountability that comes along with it. In my opinion, giving the ability, or access to parts overrides should be treated like giving someone your personal bank account number.

Unfortunately, in many Parts Departments, pretty much every parts counter person has the ability to override parts selling prices. That's why I always recommend that Parts Managers run their D.M.S. Exception Reports at least once a week which will reveal any unauthorized parts price overrides.

Number 2: Discounts

Even though they may seem similar, parts "Discounts" are different than parts "Overrides" because discounting parts has many more people involved and reasons for applying parts discounts. Coupon Specials, Service and Parts Promotions, Customer Rewards Programs, Competitive Pricing, etc. are just a few areas where we normally see parts discounting.

When we talk about the "people" side of parts discounting we see far more people involved compared to parts "Overrides". Parts overrides are usually centered around parts counter people and management, where parts "Discounting" has far more people involved.

Parts discounting can involve not only parts counter people and management as Dealer Principle, Parts & Service Managers, Service Advisors, Cashiers, Sales People, Advertising Managers, Internet Sales People and even the Ad Companies themselves may ALL have their "hands in the till" on parts discounting.

The danger in all this is not only the number of people involved, it's actually how all these parts discounts go "under the radar" until end of month numbers are revealed and the lost revenue and opportunities are discovered. That's usually when the "finger pointing" starts because with so many people involved, it's rather easy to escape personal responsibility.

Parts discounting also crosses into some of our previous "Top 10" causes listed as parts discounts can also be taken advantage of when we look at our pay plan category, or even Number 5 on our list with Service Estimating.

In my opinion, the one thing that separates "Discounting" from all the rest is the actual impact of discounting when it comes down to lost gross profit dollars and percentage. It is by far the top individual reason or "gross killer" in our "Top 10". Number 1 in actual dollars lost, but not our Number 1 "reason" for "Low Parts Retained Gross Profit Percentage".

And Now!...Drum Roll Please!...

Number 1: Belief System

In my opinion, our personal "Belief Systems" incorporates all the above and is our Number 1 when you think about it. After all, if we are willing to accept lower than desired gross profits and percentages in the first place, we would never have the any of the above reasons to begin with, or they wouldn't even happen in the first place.

Let me give you a few examples of how our "Belief System" could impact gross....

Advisor: "Wow, that part cost way too much, I wouldn't pay that much for that part!"

Parts Counter: "The part sells for $97.89, but I can give you a 10% discount!"

Cashier: "I'm sorry you aren't happy that your car broke down, how about I give you a discount on your bill?" 

Salesperson: "Thanks for your vehicle purchase, here's my business card, just show this card to the parts people and they will give you a discount on parts and accessories!"

I think that most of us can relate to any of these situations where we "freely" give away our hard earned gross profit, just because our "Belief Systems" are not where they should be all around. Also, it's just human nature at times when we feel threatened for any reason, the answer is always to give away money.

When our "Belief Systems" affects our management team, especially in a negative gross profit "state of mind", it will definitely end up being a trickle down throughout each department. Also, if our processes aren't what they should be, that's another reason to give gross away. These are just problems waiting to happen and will always result in lost gross dollars and percentages.

One of my favorite quotes from one of my favorite Motivational Speakers is...

If YOU Don't Believe In What Your Selling....Then, Don't Expect Your Customers To Believe In What You're Selling!"
- Warren Greshes

Your Parts Escalation Matrix can be a great tool in "fine tuning" gross profit retention. But, if we look at it logically, and if we were to just bill out everything at the Manufacturers Suggested Retail Price, with just a moderate Escalation Matrix to support those times where we have to sell at a Competitive Price...we would then, in theory, attain expected Retained Gross Profit Percentages.

"If you are not "hitting the mark" on Retained Gross Profit Percentage...Don't Blame The Parts Escalation Matrix,  you may just find your answer in our "Top 10" List!"

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, 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