Wednesday, April 8, 2020

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

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

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

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

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

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

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

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

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

Stock Order Performance: "Is Yours Accurate?"

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


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


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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

"Is Your Stock Order Performance Percentage Accurate?"



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
















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