The Covid-19 Pandemic has definitely impacted, and still impacting each one of us as we have noted over and over throughout this year. In every dealership, changes have been made to adjust and adapt to the way we do business and the dealership Parts Department has definitely had it's share of these changes.
The results of these changes and adaptations in the Parts Department seems to have peaked the dealers interest in taking a closer look at how their number two asset is performing. Not only the performance of the investment has suffered as profitability has also been impacted heavily.
In this issue of ACG "Smart Parts", we will look at the concerns and issues that dealers have in their Parts Departments. We have compiled data from our dealers and our industry in general as well as our own data collected here at ACG "Smart Parts".
Many Dealer 20 Groups have also put the Parts Department to the forefront as dealers look to increase their overall profitability and the Parts Department is one area that has overwhelming opportunity. Not only are we missing opportunities in the Parts Department, we are going in the wrong direction in many areas.
The reasons for these concerns have been caused and still being caused by the effects of the Covid-19 Pandemic. Normal daily routines interrupted by the pandemic in the Parts Department have caused a lasting impact in the Parts Department investment, while increasing operating costs and lowering profits.
In the past, for the most part, Parts Departments have always been profitable for many dealers. Unfortunately, they have also "fallen under the radar" when it comes down to areas of concern. For many dealers, the qualifications for being a Parts Manager has been the either the next one in line, or perhaps a counter person that has had the most tenure in the parts department.
Now, with what we have learned and experienced during this pandemic, all of a sudden, many areas concerning the Parts Department have come to the surface. Cash flow is now a top priority and "frozen assets" have become a resource to dealership sustainability.
Here in lies the question that, in my opinion, should have been a question far before this pandemic...
"Why Does It Take A Pandemic To Bring These Issues In The Parts Department To The Forefront?"
With that said, and in order from number five to number one...Let's take a look at "The Top Five Dealer Parts Concerns For 2020"
Number Five: Parts Obsolescence
If there ever was a result area that would indicate that we have a problem is obsolescence. Not that we haven't had obsolescence in the past, it's actually the "growing" obsolescence this year that's new, even more than years past.
With more focus this year than perhaps previous years due to the pandemic, "cash flow" is suddenly a means of survival for many dealers. In prior years, cash flow was a constant as money was always flowing from so many areas from new and used vehicle sales, service and parts sales, etc.
Due to the pandemic and for many dealers, this cash flow train came to an abrupt halt and all of a sudden, dealers are looking for cash to remain in business and retain employees. Shut downs and reduced traffic took us to a new low in many dealerships.
Obsolescence of course is a means for cash flow as these "frozen assets", even though they can be sold for less than we purchased are suddenly becoming a dealer revenue source. To make matters worse, due to manufacturer shutdowns and decreased customer traffic during this pandemic, obsolescence has actually increased in many dealerships.
With lower than normal parts sales activity, more parts are moving into the obsolescence category as parts age no matter what the situation as parts movement happens, regardless if there is a pandemic or any other market collapse.
This overall increase in obsolescence has opened the eyes of many dealers as the more obsolescence increases, the higher their acquisition and holding costs become. Combined with tying up cash flow and increasing the "frozen assets", this is our Number Five Dealer Parts Concern for 2020.
Number Four: Parts Stocking Levels
Another area of our dealers concerns is that even though sales have diminished, our parts inventories are rising. Not only are we experiencing more obsolescence as previously mentioned, the "fear" of not getting parts due to the pandemic has caused many Parts Managers to overstock their Normal Stocking Parts.
Not only that, many manufacturers that offer a Vendor Managed Inventory Program, (V.M.I.) have also gotten into that act by recommending Higher Days Supply, or Best Stocking Levels. This catches the dealers eye as they see their parts inventories rising when sales are not supporting the excess inventory.
The other reason for increases in Stocking Levels is that most Dealer Management Systems, (D.M.S.) manage Stocking Levels by Annual Piece Sales. If ABC Source Ranking is not set up, or set up properly with the proper algorithms, (if D.M.S. equipped), previous Stocking Level set ups will take over, even though sales have been negatively impacted by the pandemic.
This will lead to overstocking of what we don't need and under stocking what we do need and if the Parts Manager is not trained, or simply doesn't know, (how do we know what we don't know?), then Stock Orders and V.M.I. Suggested Stock Orders will not be accurate, or make sense.
On another note, many Parts Managers do not trust their own D.M.S. generated Stock Order because of improper Set Ups & Controls. What has always bugged me is if they know this...why don't they want to get it fixed so the system can do the work for them instead of the other way around?
Trusting the manufacturer's Vendor Managed Inventory recommendations on Normal Stocking Parts and Stocking Levels alone, and not utilizing our own D.M.S. for recommended Stocking Levels is just a recipe for not stocking what we do need, and overstocking what we don't need.
The pandemic has definitely impacted the dealer parts Stocking Levels and the dealers are taking notice that their total inventory values are far exceeding, in many dealers as much as twice the recommended guideline of 45 Days Supply, (1.5 months). Would we allow this same scenario with our New & Used Vehicle Inventory Days Supply?....this is why Stocking Levels has hit our top five at Number Four.
Number Three: Parts Inventory Reconciliation
Our Number Three Top Dealer Parts Concern could have easily been one of our top two concerns from dealers based on the overwhelming number of calls we have been receiving here at ACG "Smart Parts". This "Covid-19" year has seen more dealers with Parts Reconciliation variances than we have ever experienced in the past.
Based on our data compiled from dealers, industry analysts and our own data, parts discrepancies in the wrong direction have been on the rise. Normally, dealers experience an end of year "uplift" in their parts inventories resulting in additional profits when reconciling the parts Controlled Inventory on the D.M.S. and the Accounting Ledger Balance Parts Inventory.
There are many reasons for this shift in these balances this "pandemic" year as opposed to previous years including; improper receipting and accounting of parts purchases, parts billed without being receipted properly, parts cost not adjusted properly on outside purchases, lack of control, pilferage, lack of training, etc.
Parts Reconciliation is probably the biggest area that has experienced this "out of the routine" result from this pandemic and has led to this overall lack of control and accountability. Parts Managers in general do not have the experience in Accounting even though it should be part of all basic Parts Manager Training.
In my opinion, this concern should have always been there, but because most dealers have been experiencing that end of year parts profit "uplift" just isn't there now. Now the blame comes down to the Parts Manager when it goes the other way. The causes are many, but the pandemic has definitely made Parts Reconciliation our Number Three Dealer Parts Concern.
Number Two: Parts Manager Training
Let me start off with our Number Two Dealer Parts Concern with the following statement that I've heard from many dealers....
"I'm not going to spend any money on Parts Manager Training, or any Parts Training...Anyone can hand out a part over the counter!"...
This is where it all starts, although I'm not saying all dealers feel this same way, but by far, this seems to be the general thought, but we will spend all kinds of money training other dealership managers and technicians, but when it comes down to parts, training is not a priority.
The problem is that many dealers don't understand is that in many dealerships today, out of all their managers, there are only two that can put the dealer out of business and that is the Used Car Manager and the Parts Manager.
Parts Managers today need to be one of the most trained managers in the dealership, not only on Inventory Management, but also Dealership Accounting. Also, the Parts Manager needs to be trained on the D.M.S. Set Ups & Controls as these Set Ups & Controls are not usually set up properly from the D.M.S. Vendor and how to manage them moving forward.
Maintaining the parts inventory investment is much more complicated than it was years ago as the parts "life cycle" is much shorter while demand for the right part at the right time is much higher. Turning the dealers investment, while limiting obsolescence is an art form today.
Other departments depend on the Parts Department, especially the Service and Collision Departments when we start to measure "cycle times" and productivity as time is a perishable inventory that we can never get back. In many dealerships today, these two departments may lose up to 20% of their overall productivity due to low "First Time Off Shelf Fill Rates".
Many dealers confuse "Overall Off Shelf Fill Rates" with "First Time Off Shelf Fill Rates" as the overall number just means we filled the order minus Lost Sales Reporting, whether I filled the order today, tomorrow, next week, or next year.
If I don't report Lost Sales, my number looks even higher, or better, but don't be fooled...the real fill rate to be concerned with is the "First Time Off Shelf Fill Rate". The percentage of time that we fill the order on the first visit which will increase overall shop productivity.
Parts Manager and Parts Training in general has finally moved up to where it should have been all along and is our Number Two Dealer Parts Concern. Installing the Proper Set Ups & Controls is one thing, but "managing" them going forward is another as parts has always been a "moving target".
Number One: Profitability
As it should be, profitability is our Number One Dealer Parts Concern. You may have noticed that our Number One says "Profitability" and not "Parts Profitability" and that's for a specific reason as most Parts Departments in dealerships ARE profitable.
This is also the reason many dealers do not invest in Parts Manager, or Parts Training in general because they can count on them to be profitable. What many dealers do not realize is that the Parts Department, by percentage is the most profitable department in many dealerships.
What many dealers also don't realize is just how much the Parts Department impacts the profitability in all the Fixed Operations and to some extent, the Front End Sales Departments. Much like in the Sales Department, we are likely to sell more vehicles that we have on the lot versus ordering or locating vehicles for customers at a much lower profit.
Whether managing the Parts Inventory, or the New & Used Vehicle Inventories, it still requires the proper training and skill set in order to get the best Return On Investment. Higher profits can always be achieved by having the right vehicles on the lot and having the right parts on the shelf.
In my opinion, maximizing on our Number One can only be achieved if we drill down all of our Top Five Dealer Parts Concerns and making the right decisions. Moving the Parts Department up in the priority category is essential to the overall profitability of the dealership.
The Covid-19 Pandemic has definitely made us more aware and focused on all of our dealership resources for maximizing overall dealership profitability. The Parts Department is one, in my opinion, that needs to get an "uplift" in the dealers priority list if it hasn't already.
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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