Measuring the "Performance" of the Parts Inventory can only be detailed and illustrated by the Dealer Management System's, (D.M.S.) Parts Monthly Management Reports. Depending on which D.M.S., these reports have many titles and may or may not contain the same information, or in some systems, not enough information.
In addition, with some Dealer Management Systems, the end of month parts analysis information may be on more, or perhaps several end of month parts reports. The important thing is to know what we are looking for and what we are measuring in the area of "Parts Inventory Performance".
The other important aspect of measuring what we see on these reports is accuracy. What we see on these reports may not be accurate as it depends on how information is entered into the D.M.S. that dictates the outcome on these reports. As the old saying goes...garbage in, garbage out.
Other than what we see as far as sales and gross profit information on the dealer financial, there are several Key Performance Indicators, (K.P.I.'s) that need to be measured and tracked on these end of month parts management reports.
The true "Performance" of the parts inventory asset cannot be seen on any financial page and can only be measured by an accurate, detailed Parts Monthly Analysis Report, Inventory Management Report, Benchmark & Trends Report, or whatever name the D.M.S. labels it as.
Industry Guidelines actually dictate what these Key Performance Indicators, (K.P.I.'s) are, telling us what we should be looking for on these Monthly Analysis Reports. Even though there is a "ton" of information on some of these reports, the most important are as follows;
- Overall Off Shelf Fill Rates, or Level of Service
- Cost of Sales Analysis, (normal stock parts vs. non-stock parts)
- Inventory Analysis, (normal stock vs. non-stock)
- Lost Sales & Emergency Purchases Reports
- Stock Order Performance
- Inventory Adjustments, (plus/minus)
- Annual Parts Gross & True Turns
- Parts Sales Activity
You may notice that there is no mention in the above list about "First" Time Off Shelf Fill Rates as the Dealer Management System does not calculate First Time Off Shelf Fill Rates and has to be calculated manually, even though some systems will calculate "Same Day" Off Shelf Fill Rates.
Last but not least on our above list, and the topic of this issue is "Parts Sales Activity" which, in my opinion, is the most misunderstood Key Performance Indicator in the above list. The key word to keep in mind as we move forward is that word "activity".
Before we get into "breaking down" Parts Sales Activity, let's take a look at the industry guidelines for Parts Sales Activity. Almost immediately, you may see some confusion between the industry guidelines and what the D.M.S. actually calculates in this category.
Let's start off with the industry guidelines from NADA, which by the way just changed in 2021. Prior to this update in 2021, the previous NADA Guidelines for Parts Sales Activity reflected a much closer match to most Dealer Management Systems.
Here are the new NADA Guidelines for Parts Sales Activity, as well as prior to 2021...
Up to 2020:
0 - 3 Months Sales Activity: 75%
4 - 6 Months Sales Activity: 23%
7 - 12 Months Sales Activity: 2%
Over 12 Months Sales Activity: 0%
New NADA Guidelines for 2021:
0 - 6 Months Sales Activity: 85%
7 - 12 Months Sales Activity: 10% - 15%
Over 12 Months Sales Activity: 5% or Less
This is where the confusion begins as in most Dealer Management Systems break down Parts Sales Activity in different ways. Some systems break down Parts Sales Activity by the guidelines listed above up to 2020, and yet some other systems will break Parts Sales Activity as follows;
0 - 3 Months Sales Activity
4 - 6 Months Sales Activity
7 - 9 Months Sales Activity
10 - 12 Months Sales Activity
13 - 23 Months Sales Activity
Over 24 Months Sales Activity
There are also some Dealer Management Systems out there that actually break down Parts Sales Activity by individual months and confuse Parts Sales Activity with Parts Aging Analysis. Even though the two are similar, they are actually two different categories.
Even though we all can do the math on our D.M.S. to add up to the previous and current NADA Guidelines, the problem, or confusion starts with the definition of "Activity". Parts Sales Activity often gets confused with "Parts Aging Analysis" and "Parts Movement Analysis".
All three categories are usually broken down by the same above guidelines, which already confuses things because even though all three may look the same, they are completely different, especially the "Part Movement Analysis".
So, which one of these Dealer Management System Reports are we supposed to use?...and which one is the "true" Parts Sales Activity Report that NADA is looking for in the current or previous guidelines?..no wonder we are all confused!
Let's Begin and End all this Confusion on Parts Sales Activity and "What Does It Really Mean?"
Let's start by breaking down all of these categories that can be labelled as Parts Sales Activity. Keep in mind, we will be reviewing "Activity" as mentioned earlier because when we talk about sales activity, it doesn't mean that we have the part currently on the shelf.
For example, I could have a very popular oil filter that is active in the 0 - 3 Month Parts Activity Cycle, but I am currently out of stock. I could also have a Special Order part that I ordered yesterday and sold today, which leaves me a zero quantity, but will also be considered an active part in the 0 -3 Month Parts Sales Activity Cycle.
So, before we break down all these different terminologies mentioned above, I wanted to clarify and simplify what "Activity" really means before start looking at which reports are accurate in various Dealer Management Reports that we mentioned previously.
Let's break down the various reports we mentioned....
Parts Aging Analysis:
Just by the title of this report, we should already see the difference of what we are looking for in "activity" versus how long a part has been on the shelf. Even though this report can be broken down the same as the actual Parts Sales Activity Report, it represents two different categories.
Although, there is a "crossover" here as the Parts Aging Analysis does list those parts on the shelf by date of last sale, so by definition, the last time a part sold does indicate age and last "activity". Thus meaning, some parts could be on both reports, if there is quantity on the shelf.
In the case of one D.M.S., (Dealertrack) where the only place we can get any Parts Sales Activity is on their "Parts Aging Analysis" Report. This report can be used for Parts Sales Activity, but it needs to include "zero on hand" sales by months to include all Parts Sales Activity.
All other Dealer Management Systems, with the above exception in Dealertrack, the Parts Sales Activity Report should be used and not the Parts Aging Analysis Report. We need to stay focused here on "Activity" and not age of a part in stock, if the part is on the shelf or not, or whether it's a stocking part or a non-stock part.
If we stay focused on the above line in bold print, we will better understand what we are looking for...let's move on to the next category...
Parts Movement Analysis:
The Parts Movement Analysis does have some similarities to the Parts Sales Activity category, but with a few different "twists". In Dealer Management Systems that use this terminology, they usually break it down in parts with sales movement in the various month cycles as well as no sales movement in the various month cycles.
The one that matches the Parts Sales Cycle the closest is the parts that do sell in the various months cycles, but only on those parts that have quantity on the shelf. Those parts that are at a zero quantity are often left out as this movement category tracks current inventory amounts.
The other movement category, parts with no sales movement over a course of various months covers those parts that have quantities on the shelf and no quantities on the shelf. Those active parts that have no quantity on the shelf are just being tracked for history purposes.
In the case of those Dealer Management Systems that offer a "Parts Movement Analysis" versus a Parts Sales Activity Analysis, I would use the Parts Movement Analysis Report with sales activity of those parts with inventory amounts by date of last sale.
Last, but surely not least, let's look at the Parts Sales Activity Report and "What Does It Really Mean?"
Parts Sales Activity:
As I mentioned early on, the best way to understand Parts Sales Activity is to focus on the word activity. Parts are "positioned" in a particular month category based on the date of last sale and can move up based on current sales activity or move down based on inactivity.
In other words, if a part does not have any sales activity for over 12 months, the dollar amount of the last sale at cost will be in the "Over 12 Months" Parts Sales Activity. If this particular part does have a sale today, it will increase the dollar amount at cost of that part in that category of "Over 12 Months" Parts Sales Activity on the end of month analysis report.
The following month, and when the D.M.S. performs "month end" calculations on the Parts Monthly Management Report, the above part is "moved" or "placed" into the "0 - 3 Month" Parts Sales Activity and decreases the dollar value of that parts sale from the "Over 12 Months" Parts Sales Activity and increases the dollar value act cost in the "0 - 3 Month" Parts Sales Activity category.
So, in essence, selling a part in the "Over 12 Months" Parts Sales Activity category and seeing the dollar value at cost rise in that category is a good thing. On the other hand, seeing a rise in that "Over 12 Months" category can also mean that parts in "7 - 12 Months" Parts Sales Activity are falling down into the "Over 12 Months" Parts Sales Activity, which is not a good thing.
Basically, one reason for a rise in any of the month categories means that a sale at cost has happened and the system is just calculating the cost of that sale and increasing the total sales activity at cost in that category, even if the sale results in bringing a particular part to a zero quantity.
The other reason for a rise in dollar value at cost in any month category would be parts with date of last sale falling out of the current month range. In other words, a part with date of last sale was in the "7 - 12" Month" Parts Sales Activity just hit 13 Months and is now placed into the "Over 12 Months" Parts Sales Activity category.
This is why often times the total Parts Sales Activity at cost does not match the total parts inventory at cost. As mentioned in the previous example with the air filter, it's "activity", and not an indication of what we may have on the shelf.
All the confusion comes down to separating "activity" from "inactivity", as Parts Sales Activity only gives us a timeline of when the last date of sale happened. Even though that date may be over 12 months, it's still just an indicator of date of last sale.
This is why we should not use the Parts Sales Activity Analysis to measure our obsolescence because part of the rise in the "Over 12 Months" Parts Sales Activity could actually be parts that we are "buying down" from our obsolescence, which is a good thing.
Again, it's "sales activity" at cost and the D.M.S. is going to record that sale of that part at cost from the month category that it is currently in, which in this case we are referring to the "Over 12 Month" Parts Sales Activity category. The following month, the D.M.S. will move that part back into the "0 - 3 Month" Parts Sales Activity category as mentioned earlier.
So, now that we know that an increase of Parts Sales Activity "Over 12 Months" can be a good thing and a bad thing, we cannot be using this category to calculate our true parts, on hand obsolescence. Different D.M.S. reports need to be used for obsolescence which all of them have to create reports on parts inactivity, or no sales over 12 months.
Parts Sales Activity is one of the Key Performance Indicators, (K.P.I.'s) on most Dealer Management Systems and a very important category when measuring where most of our sales come from. As the current and previous NADA Guidelines indicate, most of our sales activity should be in the 0 - 6 Month Sales Activity Cycle.
The reason is simple as all parts will become obsolete and the most opportune time to sell parts is in that six month sales window before the percentages, or chances for selling those parts diminish at a very rapid pace.
Lastly, having an "Active" Parts Inventory that meets or exceeds the industry guidelines leads to higher Inventory Gross & True Turns, higher Sales & Gross profits, higher Service Productivity, and higher "First Time" Off Shelf Fill Rates.
"How Important Is Understanding Parts Sales Activity?..."
I think we all know the answer to that one!
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...
