Dave's Top Ten Indicators: "Number TEN: Parts Net Profit"

We've finally made it to the top in our ten part series titled "Dave's Top 10 Indicators" with our last indicator being Parts Net Profit!

As we have with our previous nine indicators, we will "drill down" the Net Profit indicator within itself. Most of us realize that if we do well with the other nine indicators, or by "doing the right things", the bottom line net profit will take care of itself.

Although this may be true to a point, we still have to measure and control this net profit by understanding all the variables and not by just managing the previous nine indicators. Variables such as expense allocation percentage, dealer location or demographics and manufacturer franchise requirements can impact the net profits heavily from dealer to dealer.

Managing a "predictable" and successful bottom line net profit requires Parts Managers to meet and exceed all the guidelines in the previous indicators as well as working with the variables. To simplify it even further, the Parts Manager needs to establish his "budget" and that "budget" is gross profit.

The Parts Gross Profit is the one "constant" that we need to use in setting our budget. Setting this gross profit budget is the key in achieving a "predictable" bottom line net profit.

Establishing this gross profit "budget" begins with sales and gross profit history and trends. Much like our own personal "budget", we shouldn't be spending what we don't have. In order to achieve net profit guidelines, we have to start with what we can afford, including all the variables and allocations. As the old saying goes..."It is what it is"....

Even though the dealer looks at his financial from the bottom up, it all starts at the top of the page with sales and gross profit. This is why we climbed the mountain in our "Top 10 Indicator" series with Parts Net Profit being number ten and not number one. Achieving a successful bottom line Net Profit always starts at the top.

There is one "variable" that I have not mentioned yet and it's one of the hardest for a Parts Manager to manage and that's "origin of sales". In most Parts Departments, parts sales are highly dependent on other dealer departments.

In many dealerships, parts sales dependency on other internal departments can be as high as 70% or more. This requires the Parts Manager to manage personnel expenses very closely as this category is normally the highest expense category in the department.

Parts Department Net Profit Guidelines also vary between manufacturers and dealers, ranging from 25% - 40% or even more with some manufacturers.

These guidelines help in determining just how much of the Parts Department "budget" can be allocated for Personnel, Semi-Fixed and Fixed Expenses. Keep in mind that Fixed Expenses are "fixed" for a reason.

The Parts Manager must control the expenses that he/she can control based on the gross profit "budget" without any deviation, much like our own personal budgets. As sales and gross profits grow, our "budget" grows due to the increased cost of doing business. 

Managing the Parts Department Net Profit may seem to be a "juggling act" at times, but it can be done. Following the guidelines laid out in our series of "Top 10 Indicators", these may be just the tools needed in achieving "predictable" bottom line results. 

If you missed any of our issues in this series, or want to review previous issues of "Smart Parts", just visit our website at www.smartpartstraining.com

Lastly, we hope you have enjoyed our series on "Dave's Top 10 Indicators", but more importantly, we hope this series along with numerous  "takeaways" help to improve YOUR bottom line!

To all of our "Smart Parts" Readers:

 "Happy Holidays" and  a Prosperous New Year!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top 10 Indicators: "Customer Pay Gross Percentage to Sales"

Our ninth "Top 10 Indicator" focuses on parts customer pay gross as a percentage to sales. Our pricing policies have a definite impact on what we retain on the "bottom line".

In many cases, these pricing policies, particularly on customer pay parts, can often be the determining factor in overall Parts Department profitability.

Most industry guidelines for customer pay parts gross profit ranges anywhere between 40% - 45%, depending on the manufacturer.

Sadly enough, I see many Parts Managers failing to achieve these benchmarks more often than not. Even worse, it's one of the easiest benchmark to achieve and maintain.

Achieving these benchmark levels requires a combination of pricing policies that will allow the Parts Department to be competitive in all areas.

As many of us already know, utilizing a parts pricing escalation matrix is the key to achieving the proper gross retention percentage.

Many Parts Managers may already utilize a pricing matrix, but still don't achieve the proper customer pay gross retention because they are not utilizing it properly.

They may not realize that there are some price ranges that need to be more aggressive than others, especially on "captive" parts sales.

First of all, we absolutely should not be using an escalation matrix on competitive parts or "fast moving" parts. Actually, we should be lowering our gross expectations on these parts to remain competitive and to retain our customer base.

Our best opportunities for maximizing a parts escalation matrix comes from sales on "captive parts". Another fact is that 80% of our parts sales come from the $10.00 - $25.00 parts cost range.

Increasing the matrix percentage in this cost range on "captive parts" can dramatically impact the overall customer pay parts gross percentage.

Customer perception also plays a key role in proper use of a parts escalation matrix. Customers usually have a general idea of what competitive parts sell for, but not so much on "captive" parts.

Here's an example...

Let's say that you are bringing your car in for service with two primary concerns. The first is your "Check Engine Light Is On" and the second is "Interior Lights Are Inoperative".

After diagnosing the first concern, the cause on the "Check Engine Light" is a P0301 code stored for a misfire in the number one cylinder due to a cracked spark plug.

The diagnosis on the second concern revealed that the drivers side door jam switch was sticking, thus causing the failure on the interior lights.

Parts needed for repairs are a spark plug, (non-platinum) and the drivers door jam switch. The customer retail price for both the spark plug and the door jam switch is $12.50. The question is, which item do you think the customer is going to think is too expensive?

Perception is everything in this case as most customers would perceive that the spark plug is too expensive and the door jam is perceived to be priced fairly. The irony here is that the spark plug actually costs more than the door jam switch!

The matrix price on the more "captive" part, (door jam switch) allows us to retain more gross profit so we can sell the spark plug at a more competitive price. This balance in pricing can insure an overall customer pay gross profit percentage to the desired level and beyond.

So, how do we determine which parts are captive, competitive or fast moving in order set up the proper matrix?

Setting up our parts sources and ranking them by piece sales allows us to separate these three categories as well as setting up individual escalations for each individual source.

For example, parts with sales in excess of 100 times per year are apt to be more competitive and/or fast moving. These parts should not be attached to a matrix in order to remain competitive.

Parts with sales with perhaps 5 - 14 sales per year are more likely to be "captive" which allows the Parts Manager to be more aggressive with the matrix in that source. Once again, perception is the key on these sales on "captive" parts.

In my opinion, if a customer says "yes" to a sway bar link that sells for $22.87 at factory list price, they would also say "yes" to $26.22 for that same part. Especially if the Service Department is using "One Price" estimates properly.

In my opinion, maintaining the proper customer pay gross retention percentage has always been one of the easiest goals to attain. I can't think of any other department in the dealership where you can manage the gross retention by using a key board and a computer.

Lastly, there's a right way and a wrong way to having an effective pricing policy. Don't be one of those Parts Managers that tries a get "all the money" on those fast moving, competitive items because they are guaranteed sales.

There are a lot of missed opportunities on getting a little more for stocking the right "captive" parts, the first time!


Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top 10 Indicators: Number Eight: "Expense Management"

Our Number Eight Indicator is very close to our top indicator for a very important reason. Expense Management is probably the most "under managed" duty and responsibility in most dealerships. It seems that, other than the dealer, many managers don't realize that you can't spend what you don't have!

Personally, I've always tried to manage my dealership expenses like I would my own expenses in my personal life. Managing our "check book", budgeting our expenses versus our income is an essential practice to maintaining a "healthy" standard of living.

I believe that these "core principles" that we abide to in our personal lives should also be reflected in our duties and responsibilities as a dealer manager. Our "belief system" has to be one where we not only understand the "checks and balances", we have to abide by them.

Although, in many cases, it's not quite that simple as there are many departments within the dealership. There are also a variety of expense allocations that can determine the "net profit" of any one individual department within the dealership.

Managing Expenses begins with the knowledge that it takes to properly read, understand and "dissect" the dealer's financial information that is provided to most managers.

It's hard to believe, but there are still dealers that do not provide this information to their managers. Managers should at least be provided a D.O.C (Daily Operating Control) on a consistent basis.

As most of us know, there are three main categories of expenses to manage which are Personnel, Semi-Fixed and Fixed. The guidelines for "expense to gross" in these three categories, including allocations may vary depending on the manufacturer or individual dealer.

The Parts Manager, as well as all managers need to know what these guidelines are in order to maintain a healthy "bottom line". The manager also has to have the mentality that they are managing someone else's "check book" and they have to treat it like their own.

Now, let's break down these three categories...

Parts Personnel Expense:  (Guide: 32% - 50%)

Most manufacturers and dealers allocate anywhere from 32% to 50% towards personnel expense with higher allocations to some European Manufacturers. This allocation range depends on the manufacturer or, my preferred reference, N.A.D.A.'s (National Automotive Dealers Association) guidelines.

Staying within this personnel expense budget also requires the proper "metrics" when selecting parts staff members. Having the right mix of people on the "front and back" counter, shipping & receiving, stocking, inventory, sales and drivers is crucial to meeting the appropriate guideline.

Not having the right "balance" of personnel can not only effect overall "expense to gross" targets, it can also impact the initial sales and gross profit numbers. As we all know, gross can take care of everything and if we fail to meet our gross targets, our personnel "expense to gross" percentages will rise.

Parts Semi-Fixed Expenses:  (Guide: 10% - 19%)

The Semi-Fixed category contains some of the most fluctuating and under managed expenses on the dealers' financial statement. Expenses such as advertising, freight, outside services, training, policy and supplies are just a few of the expenses that can vary considerably from month to month.

I recommend that many of these Semi-Fixed expenses carry limits set by the dealer and require authorization if over exceeded. Discipline is the key word and if there is one expense category that requires a "check book" mentality, it's Semi-Fixed. 

We also have to keep in mind that many of these Semi-Fixed categories have a "Fixed Expense" nature. Expenses such as Data Processing, Legal & Auditing, Vehicle, Telephone and Uniform, though categorized as Semi-Fixed are pretty stable and steady each month

. 

Categories such as these should be budgeted in the "expense to gross" numbers and percentages, leaving the other fore mentioned controllable Semi-Fixed categories to carry dealer authorized limits each month.

Parts Fixed Expenses:  (Guide: 9% - 16%)

Well!...they call them Fixed Expenses for a reason! They are going to be there and we have to include them in our budget each month.

Many managers believe that Fixed Expenses are uncontrollable and we have to live with whatever number that the dealer throws in there such as Rent (the big four letter word!), Repairs to Real Estate, Taxes, Heat/Power & Lights and Insurances just to name a few.

Well?...I have news for those who think that we can't impact or control Fixed Expenses! We CAN impact those Fixed Expenses by increasing our gross! Unless the dealer changes the Fixed Expense allocations mid stream, we can actually lower them by being "gross minded".

Parts Overall Net To Gross:  (Guide: 25% - 40%)

This is what it all about...the "Bottom Line"! After all has been said and done, the dealer is going to read his/her financial statement from the "bottom up".

Expenses can be a "gross killer" and I have seen too often where records are made in sales and gross, but because of "under managed" expenses, so much hard work and effort is wasted. 

Bottom Line is..."The Bottom Line" and you don't have to be big to be successful and profitable. We just have to manage our "check book" and treat it like your own....

Struggling with YOUR Net Profit?

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Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top 10 Indicators: Number Seven: "Inventory Gross & True Turns"

As we get closer and closer to our top indicator, our number seven indicator is probably one of the most important indicator in determining just how "healthy" the parts inventory is. Inventory Gross & True Turns have two distinctive meanings, even though their formulas of calculation may be somewhat similar.

Ironically, many Parts Managers don't even know the difference between Gross & True Turns or even how they are calculated. In this issue, we will not only review the proper definitions of Gross & True Turns, we will also review their individual meaning in determining just how "healthy" the parts inventory is.

First, let's review the definitions;

GROSS TURNS  (N.A.D.A Guide: 8 Turns Per Year) 

Total Sales (at Cost) for the Last Twelve Months, Divided By, Average Inventory Investment for the Last Twelve Months.

TRUE TURNS (N.A.D.A Guide: 5 Turns Per Year)

Total Order Receipts for the Last Twelve Months, Divided By, Average Inventory Investment for the Last Twelve Months.

Many of the Dealer Management Systems, (D.M.S.) automatically calculate Gross & True Turns on the Parts Monthly Analysis Report. Although, it is extremely important for Parts Managers to know their individual meaning and how to calculate their own Gross & True Turn.

First, let's look at Inventory Gross Turns;

The biggest difference between the two is that "Gross Turns" focuses on parts sales at cost. Unlike the True Turn calculation, Gross Turns only calculates and focuses on the sale of parts at cost on an annual basis. 

Technically, we could maintain a guide level of 8 Gross Turns Per Year without even stocking a single part. All inventory purchases, whether in stock or not, are measured in the Gross Turn calculation, including outside purchases.

To explain further, Gross Turns measures my total sales at cost which really represents my inventory marketability. In other words, with a guide of 8 turns per year, that means I should have a 45 days supply, whether on the shelf, or available to meet the sales demand.

As in new and used vehicle sales, a 45 days supply has been a standard in meeting market demands. This 45 days supply also equates to our Gross Turn Guide of 8 Turns Per Year. "Turning" the inventory every 45 days equates to 8 gross turns per year. There are also potential concerns for Gross Turns that may be too high or too low.

If my Gross Turn is too high, (Over 8 Turns Per Year, Less Than 45 Days Supply), it could indicate that I don't have enough inventory available to meet the demands of my market. This may result in chasing more parts at a higher cost, lost sales and lost productivity, just name a few.

In vehicle sales, a high Gross Turn or Low Days Supply could lead to more than desired "vehicle locates", lower gross or even lost vehicle sales. In either example, Gross Turns determines my marketability and just how much inventory VALUE needed and available to meet customer demands.

Now, let's look at Inventory True Turns;

Now that we know how to determine our marketability and just how much we can spend on inventory, it's time to measure our inventory investment. The True Turn calculation will help us determine how much of that "market potential" should be on the shelf to meet immediate demand.

True Turns also determines the overall "health" of the parts inventory. An "active" inventory should have 75% of sales at cost within the last three months, as we reviewed last month with our Number Six Indicator. Stocking the right parts, the FIRST time increases sales and gross potential as well overall service shop productivity.

Just as in the front end of our business, it is always easier to meet sales demands if the vehicle is on the lot. Having the most popular makes and models available always leads to higher vehicle sales and gross as well as higher vehicle turnover. It's no different in the parts department. 

Obsolete parts inventory, just like older aged units, freezes assets and reduces the amount of cash available to acquire the proper inventory in order to meet market demands. Measuring the Parts Inventory True Turns is the Number One measurement in protecting the overall investment.

Lastly, the Parts Manager's understanding of Gross & True Turns, by definition or meaning can easily be determined by reviewing the Dealer Management System's, (D.M.S) Parts Monthly Analysis Report. Unlike the Sales and Service Departments, Parts is "Black & White"...it either is, or it isn't with no grey areas.

Utilizing these measurement terms wisely can maximize market share as well as maintaining a "healthy" parts inventory investment. How "healthy" is your parts inventory? 

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top 10 Indicators: "Number Six: Sales Activity 0 - 3 Months"

Measuring sales activity in the parts department has always been, in my opinion, one of the key areas where we can see just how "healthy" the parts inventory is.

We can also break down our dealers investment in these categories which lead to our gross and true turn numbers. Here in lies some of our first "clues" to what these numbers really represent overall.

First of all, we have to keep in mind that many Dealer Management Systems, (D.M.S.) may list these sales activity categories differently. Some may have all the information we need readily available while other systems may require us to "do the math" ourselves.

I also want to start out with the guidelines that I have followed for years for these sales activity categories set forth years ago. The following guidelines by Mike Nichols and the National Automobile Dealers Association, (N.A.D.A). are as follows:

• Sales Activity 0 - 3 Months:       75%
• Sales Activity 4 - 6 Months:       23%
• Sales Activity 7 - 12 Months:       2%
• Sales Activity Over 12 Months:   0%  

This would mean that 75% of our total "inventory value" should have sales movement in the 0 - 3 month category. To take it one step further, 98% of our total "inventory value" should have movement in six months or less! Now THAT's a "healthy" inventory with lots of return on investment!

To accomplish this goal, we have to look at our inventory "face value" and how it plays into the guideline percentages. For example, if my obsolete or "idle inventory" over twelve months is excessive, then it will change the percentages in all of the sales activity categories.

On the other hand, if the sales activity in the 0 - 3 month category is HIGHER than the guide, it could indicate another issue. If this is true, than it could indicate that a "lack" of proper inventory or amount could be evident which may lead to lost sales, emergency purchases and lost shop productivity.

With both of these scenarios in mind, we have to be aware of the consequences from both sides of the perspective. Keep in mind that these "indicators" illustrate a different set of circumstances and follow up action plan.

Let's look at the first scenario which is Sales Activity in the 0 - 3 month category that is BELOW the guideline of 75%...

In most cases obsolescence is the culprit as all inventory dollar amounts are included in the sales activity cycles. It's quite possible that the obsolescence or "idle inventory" amounts of the inventory are excessive and may be "dipping into" the all the sales activity cycles, not just the 0 - 3 month category.

We not only have to measure this amount, we also have to keep it in perspective to the overall sales activity amounts.

For example, if the amount of obsolete or "idle inventory" over 12 months exceeds 10% of the total inventory value and the sales activity in the 0 - 3 month category is less than 75%, it is quite possible that the sales activity in the 0 -3 month category is well within guide.

If you "back out" the obsolete "idle inventory", the sales activity in this and all other sales activity categories could be well within guide.

Although, this is not an excuse or a solution to the problem, we still have to have an action plan to make these numbers real. Many dealers choose to keep obsolete or "idle inventory" on hand because in their mind, it's paid for, or..."it's gotta be worth something and I'm not going to just throw it out"!!...Sound familiar?

Problem is that most dealers don't realize that holding obsolete parts that have less than a 2% chance of ever selling again COSTS them in the long run. Never mind the acquisition and holding costs, carrying these "dead items" cost much more than they may think.

Those "inactive parts" could be costing dealers thousands as these parts take up the inventory value and space of "active parts" that may sell or "turnover" 5 - 8 times a year on average if not more!

Just like an "aged vehicle" whether new or used, get rid of it or at least, separate it from the active inventory. There are many avenues to market obsolete parts inventories with today's technology.

Now, let's look at the second scenario where perhaps the 0 - 3 month Sales Activity is ABOVE the guideline of 75%. It is quite possible for the pendulum to swing the other way, with sales activity moving too fast.

 Moreover, if the inventory sales activity is moving, or "turning" too quickly, the missed opportunities will rise as "out of stock" and "lost sales" activities increase. This will also result in lost productivity in the service shop and lower "First Time Off Shelf Fill Rates".

Not having enough parts inventory is similar to not having enough new and used vehicle inventory. The added cost of parts emergency purchases, lost sales and shop productivity is no different than vehicle swaps and dealer locates.

Even though we "may" save the sale, we will lose gross in the long run!

All dealer inventories have to be measured in a similar way based on days supply, sales activity and inventory turnover. Too many turns will indicate a lack of sufficient inventory and increased lost sales opportunities even though it may insure a higher return on investment for the short term.

Having the right "balance" of parts inventory will always be based on proper sales activity. The right balance will also be determined on how many times the inventory "value" turns. All of which will lead to higher gross profits as well as predictable results and a "healthy" parts inventory.

Last question...."What's your SMART PARTS Action Plan"?

Contact Dave @ www.smartpartstraining.com


Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top 10 Indicators: "Number Five: Special Order Parts"

Our number five indicator takes us to the halfway point of our ten part series to higher success and profitability in the Parts Department. In this issue, we will be focusing on "Special Order Parts" from all angles, from  "necessary evil" to "managed chaos".

The first thing we will have to determine is what really defines a "Special Order Part"? One Parts Manager's special order part just may be some other Parts Manager's stocking part.

In actuality, ALL parts have to be ordered for a first time at some point, but it's what happens from there that determines the stocking status of a part.

This is where the Special Order Part is born. It happens when there is a demand on a part that either has no previous history, or it may be a stocking part, but there is "stock out" situation for one reason or another.

 The demand requires immediate action and depending on the severity of the demand, may even incur added costs to acquire.

The decisions that Parts Managers make at this point can determine many different outcomes. They could order the part along with an existing daily order to reduce added costs, or they may try and locate the part the same day with potential added costs.

This decision can ultimate effect other departments in the dealership from service and sales. Customer satisfaction may also be impacted as well as service productivity, vehicle deliveries and promise times.

We've discussed over and over how a part comes into the inventory with phase-in/phase-out criteria, days supply, source ranking and so on. We've also discussed how demands are tracked in our Dealer Management Systems (D.M.S.) by sales and lost sales, but sometimes we are just not going to stock certain parts.

Over the past thirty years or so, I have seen the evolution of the "Special Order Part" go from REAL special to NOT SO special. Back then, it wasn't unusual to see Special Order Parts lead times in the weeks, not just days! That had to be a REAL special part to take that long to get!

Today, most manufacturers have better fill rates and offer dedicated delivery to their dealers, thus reducing lead times to two days or less in most cases. We can get almost any part within a few days now, thus me labeling them NOT SO special now, as they are all treated equally.

Even though the manufacturer's are doing a better job with better PDC fill rates, dedicated delivery and reduced lead times, there is an added cost for this increase in service to the dealer.

 Many manufacturers invoke penalties and/or fees if Parts Managers don't maintain compliance with "their" stocking levels. They may also invoke fees for parts ordered "outside" their basic parameters.

Most Parts Manager want to maximize any discounts even if it's a Special Order Part. They may receive that discount from the manufacturer and that's a good thing, but unfortunately seeking those added discounts may not always benefit the customer in the long run.

Maximizing the discount may not maximize the repair turnaround time. Unfortunately, time is a "perishable" inventory in the service department that we can never get back.

This evolution has also created another "double edged" sword as many Parts Managers are stocking less and changing their stocking criteria because many parts are available over night. Even though some Customer Special Order parts are ordered on a stock order, they are still Special Orders.

Many Service Departments are experiencing lower productivity numbers as well due to this "double edged" sword. Repairs that would normally be done today have to wait until tomorrow to complete the repairs due to needed parts that have to be "Special Ordered" overnight on the Daily Stock Order.

The pendulum does swing in both directions though! One of my worst pet peeves as a Parts Manager was when a technician, advisor or manager "has to have the part right away"!!...Only to see it sit on the shelf for a week or so collecting dust.

All this adds up to one thing....Special Order Aging!

Many industry guidelines suggest and I would agree that Special Order Aging should always remain at thirty days or less. In most cases, thirty days is more than sufficient to complete the cycle from diagnosis to repair and satisfy the Special Order requirement.

In a perfect world, this would make sense, but it is not often the case. Special Orders tend to sit for months until the Parts Manager decides to return the parts, (if returnable!) and use up valuable return reserve monies that was designated for return of phased out, obsolete parts. This is why I often refer to Special Order Parts as "Accrual Killers"!

So, once again, this leads us to "How Do We Fix It?".....

Here are a list of items and/or processes that need to be implemented:

• Proper Set Ups & Controls have to be installed on the Dealer Management System, (D.M.S.). Criteria such as Phase-In/Phase-Out, Days Supply, Source Ranking By Piece Sales, etc. have to be set to maintain a minimum 75% FIRST Time Off Shelf Fill Rate or Stock Order Performance. Proper Set Ups & Controls will reduce the need for Special Orders.

• The Special Order Process should include a deposit or prepay option on Retail Parts Counter. Special Order Parts on Service Customers should be preassigned or prebilled to a Repair Order. All Special Orders should also be controlled in the Dealer Management System, (D.M.S.) as opposed to manual hand written Special Orders for proper follow up.

•  Special Order Parts should be "shelved" by days on hand, color coded and updated weekly to draw attention. Shelf One, (green side marker) would be for Special Order Parts received within seven days. Shelf Two, (yellow side marker) for Special Order Parts eight to fourteen days in stock. Shelf Three, (red side marker) for Special Order Parts fifteen to twenty one days in stock. Shelf Four, (black side marker) for Special Order Parts over twenty one days. Special Order Parts listed on shelf four referred to management for final decisions and/or fees assessed.

• Technicians do not order parts! They can requisition parts to a repair order as to what parts would be needed to complete the repairs, but they do not order them. Parts are only Special Ordered by customer approval via way of service advisors, managers or the customer themselves utilizing current pre-billing and/or deposit guidelines.

• Special Order Parts Reports should be generated daily on the Dealer Management System, (D.M.S.). Report should be generated by advisor and counterperson for management follow up. Advisor and/or counterperson updates Special Order by contacting customer and/or setting future appointment. Reports are then turned back to management after notes and updates are completed. 

Special Order Parts may be a "necessary evil" but we can manage them and protect our inventory at the same time. Controlling just who is able to order Special Order Parts is also crucial to maintaining this process.

Most importantly, keeping these parts to a "thirty day or less" standard will keep your obsolescence accrual protected and used for it's intent.

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top 10 Indicators: "Number Four: Lost Sales Reporting"

Our fourth "Top 10 Indicator" takes us into June of 2013 and I believe, it is one of the most highly discussed and "over interpreted" indicators of all....Lost Sales Reporting.

Some may say that I have beaten this indicator to death, but in all actuality, there isn't a better way to seek out potential sales in the Parts Department without reporting a good number of "Potential Missed Opportunities", which is my interpretation of "Lost Sales".

I also believe that it has become even tougher to properly identify Lost Sales these days due to better delivery and lead times from today's manufacturers.

Many even offer factory sponsored stock replenishment  programs that they totally manage, with the added benefit of discounts and inventory protection over a period of time.

In addition, many "out of stock" items are readily available from other sources within a reasonable amount of time, often even the same day.

So, it's no wonder that Parts Managers are posting less Lost Sales as there are "technically" less incidents that the sale was actually lost, or at least...it would appear so!

So what's my point?....

First of all, there are only two ways that may cause an "out of stock" situation. Either we never stocked the part to begin with, or we simply ran out of that stocking item. This "juggling act" has been on going for years and still continues today.

Special Order Parts will always be there as first time demands all have to have a "first time" before they begin their cycle, but there in lies the problem. Even though a sale creates a demand automatically, what about those "parts inquiries" that go unsold AND un-posted?

Here's another scenario...what happens if one counter person gets a request for a part that is not on stock, then enters the "Lost Sale" only to have that same customer return to order that same part from another counter person?

Now we have just created TWO demands on that same part! Now what are we supposed to do?

If the Parts Manager does not have a "Potential Missed Opportunities", (Lost Sales) Reporting System, there will definitely be times where either in-coming phone call parts requests and counter parts requests on "out of stock" items will not be posted as "Lost Sales"....GUARANTEED!

So how do we find a "Happy Median"?

The answer is much simpler than anyone would think. When in doubt?...post the "Lost Sale"! Here are the reasons for my simple answer.

First of all, as the Parts Manager, I see all the "Potential Missed Opportunities" on Phase-In Reports, Suggested Stock Order Reports and Lost Sales Reports.

I determine whether I want to stock a particular part or if I want to manage quantities. These parts don't just arrive on the shelf automatically, that's why I'm the Parts Manager.

On the other hand, I can't manage what I can't see if these "Potential Missed Opportunities" don't get entered! They will not show up on any report for me to make proper decisions whether to stock or not to stock. Any Parts Manager can make decisions on parts that sell, I just want more parts to get into that category. 

Second, if I have to adjust my Phase-In criteria in number of demands over a period of days, weeks or months, pending the Dealer Management System, (D.M.S.), then I can do so.

 I can also create a "Test Phase" Source, specifically for these "Potential Missed Opportunities" just to take a glance at what demands are out there that may be worth stocking.

I can also go one step further by controlling the Phase-Out criteria on these "Test Phase" Parts to insure obsolescence protection.

Lastly, if my manufacturer offers a stock replenishment program, I will still run my own Phase-In Reports and  Suggested Stock Order Reports in addition to theirs.

Many of these programs operate in the same way as our own Dealer Management System, except that their stocking criteria based on a number of dealerships. I want to make sure that my stocking criteria meets the demands of MY customers, not everyone else's.

All of this will result in higher "First Time Off Shelf Fill Rates" and much higher Service Shop Productivity as "down time" is reduced.

I will also reap higher profits from the buying power gained from stocking more of the right parts. Seeing is believing and by seeing more demands, I'm able to stock more of these "right parts".

Managing a parts inventory today is far more difficult than it was years ago, although the same principles apply today as it did then. Don't let YOUR "Potential Missed Opportunities" get away from you because if you are...someone else is cashing in on those opportunities right now!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top 10 Indicators: "Number Three: Sales & Gross Per Employee"

Welcome to May "Smart Parts" Readers as we continue on up the ladder of our Top Ten Indicators that will lead us to higher success and profitability!

This month, we will will "drill down" our Number Three Indicator which is "Sales & Gross Per Employee". This category is one of the most important as it lays down the foundation to our Parts Department operations.

Having the right amount of employees to carry out the daily operations and to achieve proper sales and gross numbers goes beyond just this one guideline.

Depending on which franchise or manufacturer, the guideline for "Sales & Gross Per Employee" is approximately $38,000.00 in sales per employee and $14,000.00 in gross per employee.

Gross per employee should be approximately one third of the sales number as overall parts gross profit to sales should be in the vicinity of 33% to 35%.

Overall, this is is a good measurement to the total amount of parts staff that we should employ, but it really doesn't break it down enough. The "Sales & Gross Per Employee" guideline includes ALL parts employees, but in order to maintain a proper "bottom line", we have to have the right amount of employees in the right position as well.

Technically, we could achieve the proper "Sales & Gross Per Employee" guidelines, but still NOT achieve the overall personnel expense to gross guideline on the balance sheet.

The amount of overall parts employee compensation for specific positions within the department has to be addressed as well.

This is where the Parts Department "staffing metrics" comes into play. In order to attain the "Sales & Gross Per Employee" guideline AND achieve the proper personnel expense to gross guideline, we have a few questions to consider:

• How many "total" parts employees should I have on staff based on current sales and gross numbers?
• How many of these staff members should be front and back sales counters?
• How many drivers should we have on staff?
• How many shipper/ receivers do we need?....or do I need any?
• Do I need to have an inventory clerk and/or stock person?
• Do I need an assistant manager? 

All these questions should come into play when we are trying to achieve and maintain the proper staffing.  It will allow us to not only hit our target on the "Sales & Gross Per Employee" guideline as well as maintain the proper expense to gross numbers on personnel expense management.

Keep in mind that in most dealerships, personnel expense represents over 40% of the total expense each month in the Parts Department.

So!...How do we do this?

Proper "staffing metrics" begins with one simple item and that is our "sales to support" ratio. Just as we measure "sales to support" ratio in service and sales, the same applies in the parts department. The "sales to support" ratio in parts is 2:1, just as it is in the service department. 

That being said and using a little basic math, each counter "salesperson" should achieve one and a half  times the sales and gross numbers to account for one half the expense of support staff. Also, "support staff" employees usually earn about half as much as "sales staff" employees with the exception of management.

Here's an example Parts Department "Staffing Metrics" based on an average parts department sales & gross numbers:

Average Month's Sales: $200,000.00

Average Month's Gross: $70,000.00

Total Parts Employees Based on "Sales & Gross Per Employee" Guideline: 5

Staffing Metrics:  Parts Manager: (1)  Sales Staff: (3)  Support Staff: (1)

This example could also have a little "shift" within itself as some "support" staff members may play duel roles in working the front and/or back counters during peak times.

Parts Managers may also play in this scenario as well playing multiple roles. The most important part of this example is the proper "sales" staffing is crucial to meeting ALL the guidelines and net profit expectations.

Achieving the proper "Sales & Gross Per Employee" guideline is just a piece of the puzzle. Building the proper "people" foundation in the Parts Department is critical and proper "staffing metrics" have to implemented in order to achieve "predictable results" on the bottom line. 

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top Ten Indicators: "Number Two: Level of Service (Overall Fill Rate)

Our series on the "Top Ten Indicators" to a more successful and profitable Parts Department continues this month with our second indicator, which is "Level of Service" or as some refer to as "Overall Fill Rate". Keep in mind, each month we are climbing the ladder to our overall number one goal which is higher net profits.

Last month, we featured our number one indicator which was "First Time Off Shelf Fill Rates", not to be confused with this months "Top Ten Indicator", though quite often it does.

Having the part on the first visit to the counter is extremely important, but we also have to meet the overall demand 85% - 90% of the time and that's where "Level of Service" comes in.

The "Level of Service" (Overall Fill Rate) is an important indicator because it measures how well we are meeting the demands of the customer and not losing sales opportunities. The problem is, often times Parts Managers don't post all their demands properly which leads to an unrealistic measurement percentage on the Monthly Management Report.

In my opinion, filling the overall demand is not the main issue. Any Parts Manager can order a part and fill the customer demand...I can do that without even stocking a single part.

To me, the real issue here is to make sure the Parts Manager is "seeing" all the demand opportunities in the first place. Many opportunities go "unseen" and the Parts Manager doesn't even get a chance to fill the demand, such as "Lost Sales Posting" or as I refer to them as "Potential Missed Opportunities".

If there is one issue that I get challenged on the most, it's definitely the "Lost Sales" category. More and more Parts Managers are telling me that they don't post "Lost Sales" because they either don't have any, or they are concerned about posting too many demands to their Dealer Management System, (D.M.S.).

I can understand why many parts managers feel that way, but I would challenge those who do to the following little  task.

Devote about an hour each day, preferably in the morning, just to listen to your parts staff when they answer the phone. Not only listen to how they answer the phone, but also "listen, watch and see" if they are just giving out information, or if they actually make the sale.

I can guaranty you that you will be amazed on how many "Potential Missed Opportunities" go unrealized.

• Did the customer on the other end of the phone just call for prices? 
• Did we have the part they were asking about in stock? 
• Are they really going to call back to order or buy the part? 
• How many phone calls do we take on a given day? 

Here's the worst part, we never even know how many opportunities are missed because they don't get posted.

So, what does the proper posting of all demands have to do with our "Level of Service" or "Overall Fill Rate"? First of all, a "demand" is defined as a "Sale" or a "Lost Sale" and the posting or reporting of these two lead to the "Level of Service" or "Overall Fill Rate" calculation.

With that said, I would have to ask this question:

"Are we really posting ALL of our Potential Missed Opportunities"?

With this thought in mind, I'm wondering if our number of demands could be increased and filled instead of being more concerned about the Level of Service or Overall Fill Rate percentage.

The NADA guideline for this category is 85% - 90% and most often times, I see Parts Monthly Management Reports in the mid to upper 90% bracket. When I see these high percentages, I often wonder if the Parts Manager is reporting ALL "Potential Missed Opportunities".

Personally, I would much rather be at the lower end of that percentage with more demands than I would at the higher end with less demands entered. In other words, I would much rather fill 85% of 100 opportunities instead of maybe filling 95% of 50 opportunities.

If I don't enter ALL of my potential demand opportunities, I would really never know what my market potential is.

By posting as many demands possible, I would not only have a better "vision" of my marketability on my Monthly Management Report, I would also increase my potential Gross Turn numbers.

Gross Turns are also a big indicator of market potential as it determines the inventory "dollar value" needed to meet demands and maintain a (45) days supply available. We will explore more about Gross and True Turns when we reach our Number Seven Top Ten Indicator in a few months down the road.

As you can see, being true and honest in our posting and reporting procedures can make a huge impact in planning our marketing strategies. Whenever I see a Monthly Management Report that shows a "Level of Service" or "Overall Fill Rate" higher than 95%?...I know that there are "Potential Missed Opportunities" not being posted.

One of the biggest indicators that can measure our market opportunities and impact the size of our customer base is our "Level of Service" or "Overall Fill Rate".

Increasing the number of demands posted along with the right Phase-In/Phase-Out and Days Supply Criteria can and will increase market potential. Don't let these "Potential Missed Opportunities" slip away from sight as they will ultimately lead to higher sales and profits!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

Dave's Top Ten Indicators: "Number One: First Time Off Shelf Fill Rate"

Last month we published, what I referred to as the "Top Ten Indicators" to a successful and profitable Parts Department. As we counted down to Number One, it was kind of ironic how each how each "previous" indicator was impacted by the next one down the list. 

For example; the number ten indicator which is "Net Profit As A % Of Sale" became impacted by number nine and so on down the list.

Actually, our "goal" is to impact number ten the most, with all the others playing a specific role in the overall success and profitability of the Parts Department. So, here we go with the number one indicator...."First Time Off Shelf Fill Rate"!

In any business that generates its' profit from buying, stocking, warehousing and selling an inventory; the ultimate success relies primarily on how well and how often the inventory "moves" or sells.

In my opinion, managing the automotive dealership parts inventory versus other types of inventories has many disadvantages right from the start. 

After all...how many different parts are there on a vehicle today versus even..."yesteryear"? Even though it is not "new news" that we need to stock the right parts at the right time...nowadays, it's the "right time" that's the challenge!

Parts sales activity cycles have diminished quite extensively over the years. For example; I remember when one part number's application cycle would fit multiple years. Now, you could have many different part numbers for the same application within the same year!

The first thing that we have to establish is the "true" definition of the First Time Off Shelf Fill Rate as opposed to just plain "Fill Rate". 

The actual overall fill rate simply means that the parts order was "filled" and not necessarily from my own inventory. Technically, I could have a 100% overall "fill rate" without even stocking a single part number! That is of course, if I'm not recording or have any "Lost Sales".

The "First Time Off Shelf Fill Rate" refers to parts orders filled from "stocking parts" that have met stocking criteria such as Phase-In/Phase-Out, Days Supply and Source Ranking by Piece Sales. 

The guideline for this criteria should be a minimum of 75% - 80% and NOT confused with the overall "Fill Rate" or "Level Of Service".

One other important practice that is crucial to achieving a goal of 75% - 80% "First Time Off Shelf Fill Rate" is separating "Customer Orders" from actual "Stock Orders". 

This is one BIG area that hinders Parts Managers' from achieving their goals, especially with many manufacturers offering overnight dedicated delivery service.

This added benefit can actually be a double edged sword as "Daily Customer Orders" get placed along with "Daily Stock Orders" and receipted as stock, instead of being receipted as a "Non-Stock" part, ordered for a specific customer. 

The first step is to be honest with our "Belief System" on how we use out Dealer Management System, (D.M.S.)

If we do not enter the information correctly to begin with, I can guaranty that a TRUE "First Time Off Shelf Fill Rate" of 75% - 80% will never be achieved. 

By this, I mean that every time a tech pulls up to that back counter, he or she receives that part on the first visit, 75% - 80% of the time. This also leads to higher productivity in the shop and higher parts gross as more stock order discounts and accruals are realized.

Once we have our "Belief System" in check, we can now proceed to one of the key ingredients to achieving a high First Time Off Shelf Fill Rate which is "Source Ranking By Piece Sales".

Today, to my amazement, there are many Parts Managers still utilizing just one parts source within a given automotive franchise.

Defining "Source Ranking By Piece Sales" simply means that we would create separate parts sources, or separate "little inventories" by how fast, or how slow they move, or "sell". 

Each source would have different criteria on how a part phases into the system as well as when it will phase out over a period of time without any activity. 

Each source would also have a different number of days supply in order to avoid "over stocking" and "run out" situations.

Fast moving parts need less days supply because they get replenished more often and slower moving parts need more days supply because they don'y sell as often. Believe it or not, many get confused about my last statement, so let me explain;

If I have a part that sells only twelve times a year, or once every thirty days on average, then I would need only a "thirty days supply" of that specific part because it's only due to sell, on average, every thirty days.

 Fast moving parts need less days supply, maybe two to seven days supply, depending on stock order acquisition and lead times. Low and High Days Supply can be adjusted as needed depending on seasonal or promotional items.

The last ingredient to achieving a "First Time Off Shelf Fill Rate" is the proper posting of Lost Sales and Emergency Purchases. 

I like to define Lost Sales as "Potential Missed Opportunities" as many Parts Managers tell me that they don't have any Lost Sales. They just chase or order the part(s) over and over again if they don't have it.

Posting more "Lost Sales" or "Potential Missed Opportunities" will create more parts demands and give the Parts Manager more insight to potentially stocking more of the right parts. 

More demands will lead to more of the right parts on the shelf, controlled in their own source by their own movement cycles with specific criteria such as phase-in/phase-out and days supply.

Lastly, we can't stop the bleeding of obsolescence or parts inactivity until we set a proper foundation on how we stock parts in the first place. 

We also have to be honest about how we use our Dealer Management System, (D.M.S.) in order to get the best results in our "First time Off Shelf Fill Rate" category. 

You can't manage what you can't see and having the correct information on our Management System Reports is our first line of offense and defense.

Final Question: 

"Are your technicians getting the right parts on the FIRST visit to the parts back counter at least 75% of the time"?

If not, don't kid yourself...you can do better and our "Number One Indicator" is a good place to start climbing the ladder up to our "Number Ten Indicator" which is higher "Net Profits As A % Of Gross" and ACG "Smart Parts" can help you get there!    

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

"What Do We Do Now?"...Dave's Top 10 Indicators

As we all know, the success and profitability of the Parts Department relies primarily on a knowledgeable Parts Manager with the support of upper management and the dealer principal. Beyond that, the Parts Manager also has to have a plan that will lead to "desired results".

We also have to begin with focusing on key areas, or "indicators" that will impact these "desired results" and that will be the focus of our study as we "drill down" these top 10 indicators.

I also realize that some may agree or disagree on the order of these indicators, but I do believe we will all agree that as we move down to "Number One", each and every indicator effects the previous.

You may also see as we count down to number one, that many Dealers and Parts Managers seem to focus on these "Top 10 Indicators" in reverse as opposed to focusing on the "root causes" that effect our overall profitability.

So!...Are you ready?....Here We Go!

NUMBER 10: Net Profit as a % of Gross Profit (Guide: at least 25%)

Often times, we tend to look at the results on the financial statement from the "bottom up" and that is quite common. After we see the "bottom line", we start to dissect the numbers even further and if we do not see the desired results, we start looking at the expense side first, followed by the sales and gross numbers.

Next, we start "finger pointing" to certain areas, trying to justify the means, knowing all the time that we can't change what has already happened.

Our "Number 10" Indicator is a direct result of failed processes, poor expense management, improper I.M.S. Set Ups & Controls, improper guidelines, etc. "Number 10" is the "catch all" of all the indicators to follow.

NUMBER 9: Customer Pay Gross Profit as a % of Sales (Guide: 42%)

Obtaining the proper Customer Pay Gross Profit percentages is probably one of the easiest guidelines to achieve. I realize that demographics and market areas play a big role, but when you think about it, if the proper escalation matrix is in place, you can have the best of both worlds.

Remaining competitive is always important, but having the "right pricing mix" on both captive and competitive parts is easily maintained in most Dealer Management Systems (D.M.S.).

NUMBER 8: Expense Management 

Expense to Gross Percentage Guidelines vary from each manufacturer, ranging from 50% - 75% and can also be broken down by Personnel, Semi-Fixed and Fixed expenses. 

The most important guideline, or "thought process"  that I've always had was..."you can't spend what you don't have".

The Parts Manager has to also be very familiar with reading, understanding and dissecting the parts financial pages in order to properly manage the department. Understanding the numbers and how they got there is imperative for all managers, not just the parts manager.

 If we take on the mindset of what expenses we can control versus what can't control and stay within the guidelines set by the dealer and the manufacturer, we will achieve expected net profits. 

If you run your department like it was your own business...you WILL be profitable!

 NUMBER 7: Inventory Gross and True Turns (Guide: 8 Gross, 5 True)

This category is a key indicator in "Part Management 101" as the experience and knowledge of the Parts Manager comes first and foremost in managing one of the dealers' highest assets. 

The ability to "roll over" the parts inventory the proper amount of times annually is not an easy task, but contributes greatly to the overall parts profitability. 

This indicator also illustrates the "liquidity" and overall resale value of the parts inventory. It will also expose obsolete inventory as lower gross and true turns factors in all parts in inventory at cost, whether it moves or not.

NUMBER 6: Sales Activity 0 - 3 Months (Guide: 75%)

Our "Number 6" indicator ties in directly with our previous indicator on inventory gross and true turns. The parts movement activity cycle is a HUGE indicator on how well balanced the parts inventory is, especially in the 0 - 3 month category. 

In other words, three quarters of the total parts inventory value should be active in the last three months.

Once again, the experience and knowledge of the Parts Manager along with proper system management comes into play. This guideline CAN NOT be taken for granted and should be at guide or better without question.

NUMBER 5: Special Order Parts Aging (Guide: 30 Days or Less)

At "Number 5", Special Order Parts Aging probably goes down as the most "unnoticed" indicator in the countdown. It a very important indicator because it's a "return reserve killer"! 

As we all know, most manufacturers' provide a "return  reserve account" for the parts department based on stock order purchases. The intent of this this accrual account is to allow the dealer to return obsolete parts and to maintain proper inventory levels.

Most often times, this accrual account is "sucked up" by special order parts returns over 30 days and never gets utilized for the actual intent.

 It's also a huge indicator of "lack of process" on how parts get ordered in the first place without proper guidelines on special order deposits, customer follow up, etc. 

Just like in the Used Car Department, if we have a bunch of "aged units"....or in this case, "aged special ordered parts"...we've got other problems as well.

NUMBER 4: Lost Sales Reporting (Guide: 10% of Total Sales at Cost)

Defining "Lost Sales" has always been a big controversy and can be defined many different ways. First of all, I wish they would change the terminology from "Lost Sales" to "Potential Missed Opportunity". 

Posting "Lost Sales" is a "good thing" and is one of the biggest assets for a parts manager. Posting "Lost Sales" also creates a "demand" in the Inventory Management System, (I.M.S.) and allows the Parts Manager to see potential new parts to add to the regular stocking inventory. 

Posting these "Potential Missed Opportunities" are the "eyes" of future sales and should be posted whenever possible. 

When in doubt?...Post It! It can only help the Parts Manager see what's out there. Bottom line is...you can't manage what you can't see! "Number 4" in our countdown is "Number 4" for a big reason.  

NUMBER 3: Sales/Gross Per Employee (Guide: $38,000/$14,000)

One of the foundations in the Parts Department is having the right number of employees to meet the demands in all sales areas. 

From counter staff, shipper/receivers, delivery drivers and wholesale sales people...we not only have to "measure up" to these guidelines, we have to have the right person in the right seat on the Parts Bus. 

We can't accomplish any of our goals or guidelines without the right staff of people in the right positions.

NUMBER 2: Level of Service or Overall Fill Rate (Guide: 90 - 95%)

Overall, we have to provide a "service" to our customers. Our "Number 2" indicator could be debatable, but I chose this category as "Number 2" for one simple reason...if we do not provide an extremely high "Level of Service", which simply means that we provide the part(s) 90 - 95% of the time, we will lose customers. 

All would be lost if we didn't pay direct attention to customer retention and loyalty. 

The only variation in this percentage guideline would be "Lost Sales"...that is, of course, IF we report "Lost Sales" in the first place. 

If we don't post "Lost Sales", our "Level of Service" or "Fill Rate" would show on our Monthly Analysis Report close to 100%....which, of course, would not be a true.


And Here We Are!!....our "Number One" Indicator!...(Drum Roll Please!)


NUMBER 1: "First Time Off Shelf Fill Rate" (Guide: 75 - 80%)

When you stop and think about it, it all starts here. The ability to provide your technicians and ultimately, your customer the right part(s) on the  "first visit" to the counter 75% of the time. 

If we accomplish this one goal of 75 - 80% "First Time Off Shelf Fill Rate", most of the other "Top 10 Indicators" fall right into line automatically.

Not only will the most of the other indicators fall into line, we will highly impact and increase our overall service shop productivity. 

Excessive time at the parts counter; moving vehicles in and out waiting for parts; bringing vehicles back in the shop tomorrow when they could have been done today are all examples that contribute to lower shop productivity. 

With the exception of proper staffing, pricing structures and expense management, all of the other indicators would take care of themselves. 

Level of Service, Inventory Turns, Less Special Orders, Fewer Lost Sales, Higher 0 - 3 Month Sales Activity and Higher Gross Numbers are all achieved by this ONE indicator.

It's pretty amazing how one "key indicator" can impact so much overall  I am also quite sure there may be other indicators that we could add to the list of "Top 10" items. 

The most important items tend to go unnoticed but highly contribute to our "Number 10" indicator on this list which is Net Profit.

Stay tuned to "Smart Parts" each month this year as we "drill down" each and every one of our "Top 10" indicators starting with Number One: "First Time Off Shelf Fill Rates" in March. We will continue up the ladder all the way to higher Net Profits in December.  

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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

"Balancing The Books"

In most Parts Departments, the Annual Parts Inventory Count is performed at the end of each year for legal and accounting purposes. As in any business that manages an inventory, it is mandatory to account for inventory assets and it's overall value.

In most automotive dealerships, the Parts Inventory is one of largest assets that the dealer has to account for, especially when it comes down to "tax time" at the end of the year.

Even though Office Managers, or Controllers perform this similar function at the end of each month throughout the year, the "end of year" parts inventory balance must be reconciled between the Accounting Ledger and the Controlled Inventory Balance.

The "Controlled Inventory Balance" is defined as the inventory balance after the physical inventory is counted, completed and authorized. This inventory balance is also represented in the D.M.S. (Dealer Management System) after the inventory count and variances are posted.

So, what happens if the "Controlled Inventory Balance" amount doesn't match the Accounting Ledger, or Financial Statement Inventory amount?

First of all, the "final" Controlled Inventory Value MUST match the Accounting Ledger Value, or the Financial Statement Inventory Value.

In a sense, we have to "balance" the Controlled Inventory amounts to the Accounting Ledger by way of adjustments. This will also be reflected on the Financial Statement as "Adjustments to Inventory" and considered 100% as profit, either as a credit or a debit.

The second thing we have to realize is that "variances" after the physical inventory are common, but should also be within an acceptable range. Many inventory analysts suggest that this acceptable range be within two to four percent of the total inventory value on the Accounting Ledger.

Keep in mind that acceptable amounts should be to the positive side of the overall balance which means that the Controlled Inventory Value should be larger than the Accounting Ledger, or the Financial Statement Value.

Many dealers are primarily concerned about pilferage or theft and rightly so, but in most cases, there are usually many other causes for these discrepancies.

Here are some common variances that may lead to discrepancies between the Controlled Inventory Value and the Accounting Ledger Value:

• Manufacturers' pricing updates not posted
• Cost posting errors or overrides throughout the year by parts personnel
• Pilferage or Theft
• Parts "work-in-process" issues
• Gas, Oil & Grease bulk adjustments
• Tire Inventory adjustments
• Damaged or Scrapped Parts not accounted for
• Outstanding credits and/or debits from all parts vendors
• New and used core inventories

These are just a few areas that can lead to discrepancies between the Controlled Inventory Values and the Accounting Ledger.

Most Parts Managers and Inventory Management Companies are well aware of these items mentioned, but inevitably, these are the most common areas that lead to discrepancies.

So, how can we limit these discrepancies to a manageable level each year? Here are few tips that may lead to some helpful solutions:

• Make sure your "house" is in order by using good housekeeping practices
• Conduct daily, weekly or monthly bin checks and post adjustments to D.M.S.
• Insure proper security throughout the Parts Department.
• Post manufacturers pricing updates monthly and provide D.M.S.documentation to Office Manager
• Provide End of Month Parts Inventory Analysis Report to Office Manager for potential discrepancies between the Controlled Inventory and the Accounting Ledger on a monthly basis.
• Conduct a monthly physical on "other" inventories such as Tires, Gas, Oil & Grease, etc. 
• Review "Cost Override" and "Minus On Hand" D.M.S. Reports Daily
• Manage Parts "Work-In-Process" and Special Orders to less than (30) days

Lastly, we have to keep a mental mind set that closing out our "End Of Year" should be no different than closing out our "End Of Month".

It's much easier to manage what happens over the course of a month as opposed to trying to manage what happens over the course of a year in the parts department.

 Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The 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