If there ever were any two topics, when it comes down to managing the Parts Department that get"beat up" and "beat down" so much, in my opinion, they would have to be Lost Sales and Emergency Purchases Reporting and in that order for a reason.
Before we think about not reading through this whole article because we may think that these two topics aren't anything new...I would challenge anyone reading through to it's entirety to think again. Once again...you may think you "know it", but the real question is..."How Good Are You At It?"
This previous question can't be more true and evident when we evaluate just how well we report Lost Sales and Emergency Purchases and how important they really, really are! Before we get into definitions, we have to look at what they represent in the first place.
The first thing that we all have to realize is that there are only two reasons why we don't have the part in the first place and those two reasons are...
"Either I Never Stocked The Parts In The First Place, Or...I Ran Out!"
It's just that simple as either the part didn't have enough "demand" to qualify for parts phase-in, or...we ran out of a part that we normally stock for whatever reason. If we ran out, maybe we need to adjust our Stocking Levels, or perhaps, these "stock outs" could have been caused by manufacturer back order, or cross ship.
Either way, wouldn't we want to know how we ran out?...and where we should go the replenish this "stock out" situation? If we never stocked the part in the first place, should we not "want" to record that need, or demand?
Recording Lost Sales and Emergency Purchases accurately goes way beyond the obvious reasons that we all know. Do we actually know how much these two categories impact sales, gross profit, service productivity and customer retention?
Do we actually know how much these two categories actually impact the dealers second highest asset and parts inventory "true" turns? Do we know how important parts training is when it comes down to the proper definitions and accurate reporting in each of these categories?
I will go out on a limb to say that "accurate" Lost Sales and Emergency Purchases Reporting are the two most important categories that we, as Parts Managers have and need if we want to provide the highest customer service while turning the dealers investment at it's highest potential.
It's Time to Examine this "Trickle Down" Affect of Lost Sales and Emergency Purchases Reporting and the Impact They Have on all the Key Performance Indicators, (K.P.I.'s) in Managing the Parts Department.
Let's start with Lost Sales...
Even though Lost Sales and Emergency Purchases Reporting go hand in hand...Lost Sales Reporting is the first of the two that can have an impact many Key Performance Indicators, (K.P.I.'s) as parts enter our D.M.S. through the process of parts phase-in in order to attain Normal Stocking Status.
Parts phase-in is the process of recording "demands" into the D.M.S. and there are only two ways to record demand and they are Sales and Lost Sales. Sales will always happen, but if we are not reporting Lost Sales at the recommended guideline of 5%-10% of our total sales at cost, we are missing potential demands for parts phase-in.
It would be like not recording "Ups" in the Sales Department when customers arrive at the dealership to shop for New & Used Vehicles. If we don't record those "Ups", much like Lost Sales in Parts, we never get a true feel of what our customer demand really is and what we should have on the lot, or on our shelves in the Parts Department.
As far as the definition of what a Lost Sale truly is, there are of course many opinions, but the bottom line is that if we are not meeting the guideline of 5%-10% of total sales at cost, then I guess we may just may have the wrong definition.
There is no harm in reporting a Lost Sale that eventually becomes a sale, or "double posted" because the D.M.S. focuses primarily on "months with demand" no matter how many demands are recorded within a given month. We can also control our "total demands" considered for parts phase-in to account for those times that parts are "double posted" in error, but either way, there is no damage done.
The bottom line is that no matter how many demands are posted, or double-posted, the part will not just jump on the shelf. All parts that qualify for part phase-in have to be reviewed by the Parts Manager for final approval.
We can't manage what we can't see and I would rather see the part phase-in and suggested on a stock order as opposed to not seeing the part and missing potential sales for lack of Lost Sales Reporting below recommended guidelines.
So!...What does this all mean and how does the lack of Lost Sales Reporting "trickle down" and affect the all important Key Performance Indicators, or K.P.I.'s?
The lack of Reporting Lost Sales accurately and to the recommended guidelines goes far beyond what you may think. The "trickle down" affect for the lack of, or inaccurate Lost Sales Reporting can and does have a negative impact on the following Key Performance Areas...
- Parts Gross Profit Percentages
- Parts "First Time Off Shelf Fill Rates"
- Service Productivity
- Inventory True Turns
- Stock Order Performance
- Inventory Investment on Normal Stocking Parts
Even though not Reporting Lost Sales accurately and to recommended guidelines results in lower expectations in all of the above, you can almost guaranty there will be a "rise" in another area and that is parts obsolescence.
The result of not utilizing the D.M.S. as designed and reporting Lost Sales accurately and Emergency Purchases for that matter, obsolescence is guaranteed to grow as the D.M.S. cannot provide accurate information without accurate input and most important, we can't fix what we can't see, especially in Parts.
Let's move on to Emergency Purchases...
In my opinion, Emergency Purchases has got to me the most under-utilized, misinterpreted and mismanaged function of all the areas of Parts Management. The industry guideline for Emergency Purchases Reporting is 10% or less of total purchases.
This can be misleading because a lack of reporting at perhaps 1%-2% is well within guide of 10%, but can we honestly say that our Emergency Purchases for any given month was actually and truly 1%-2%? That would just tell me that Emergency Purchase Reporting was not accurate.
Common sense would tell us that 1%-2% just doesn't make sense as we must have had to chase some Normal Stocking Parts that we ran out of, or perhaps even a part we did not stock like a set of brake pads that we felt we should have had.
But due to lack of Lost Sales Reporting and overall demands being posted, these brake pads didn't phase in to the inventory as a Normal Stocking Part. Another example may be that we ran out of a Normal Stocking Part and perhaps on Back Order from the Manufacturer.
No matter how we slice it, there are Emergency Purchases, whether we record them or not and the lack of reporting these Emergency Purchases "hand cuffs" the Parts Manager to fixing the problem of why we ran out in the first place by potentially adjusting Stocking Levels to prevent future "stock out" situations.
On the opposite side of Emergency Purchases Reporting is "over" reporting Emergency Purchases. First and foremost, we have to have the right definition of just what parts in this category actually qualify to even be receipted as an Emergency Purchase.
First of all, we should be only receipting, recording and reporting Emergency Purchase on "Normal Stocking Parts" that we ran out of and had to chase for a customer. Remember earlier, I mentioned that are only two reasons why we don't have the part.
Emergency Purchases receipting should not be utilized for any parts that we are not considering to stock in the first place such as aftermarket parts for other makes and models. Those parts should be receipted as "Other Purchases", or "In & Out" Purchases, Unusual Purchases, etc., depending on the D.M.S.
The simple reason why we should isolate the Emergency Purchase category for "stock out" situations on our Manufacturer's Normal Stocking Parts only is because if we do run out, we can print the report, research why we ran out and "fix it" by adjusting Stocking Levels, seasonal parts, etc.
We also have to be careful not to record Emergency Purchases on parts we had to chase from another vendor to "replenish stock" due to manufacturer back orders, limitations or factory shutdown. These are still stock orders, or supplemental stock orders as the only thing that changed was the resource where we purchased these parts to replenish stock.
So now let's look at the "trickle down" affect
for the lack of, or inaccurate Emergency Purchases Receipting & Reporting and how it can have a
negative impact on the following Key Performance Areas...
- Parts Gross Profit Percentages, (Higher Cost of Parts)
- Stocking Levels & Days Supply, (Stock Outs)
- Service Productivity & Cycle Times, (Longer Parts Wait Times)
- Inventory Reconciliation, (D.M.S. vs. Ledger Balance)
- Inventory Posting Variances, (Cost Variances)
- Stock Order Performance, (Lower)
This "one-two punch" of Lost Sales and Emergency Purchases Reporting are still on the front line in the matter of importance today as they were years and years ago, and perhaps even more so as today's parts "life cycle" is far lower today than years ago.
We have a much shorter life span of today's parts and we have to capitalize early on as parts are phasing out much quicker than ever before, especially after seven or eight months with no demand. We have to utilize our tools that our D.M.S. offers and use them wisely and correctly.
Let's be the "Smart Parts" Managers that we need to be by not taking Lost Sales and Emergency Purchases lightly because the bottom line is...the final "trickle down" will be profits...
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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