In our last issue of ACG "Smart Parts", we focused on our "Top 5 Parts Focal Points for 2022". In that issue, we highlighted some key areas of Parts Management where, if we would just "think outside the box" a little more, we may just achieve even better results in 2022.
We looked at some industry guidelines in a different light where if we did raise our expectations, we could achieve new heights. We also looked at possibly more Accounting Training, D.M.S. Utilization, managing Stocking Levels more aggressively and even thinking "outside the box" on our Pricing Strategies.
Now, as we move into 2022, we have to take a hard line look at what we seem to accept versus what we shouldn't accept. We can't accept the status quo anymore if we want to be profitable in the dealership and especially in the Parts Department.
As we move on down from our Number 10 down to our Number 1 "Do's" and "Do Not's", some "Smart Parts" Managers may to do a little "self evaluation", or perhaps a "reality check" on how we conduct our business each day. As I've mentioned often times, we have to take ownership of our Parts Departments as if we were the owners.
Each category will have a section on what we should do and what we shouldn't do, or perhaps what we are doing versus what we should be doing. The big question is...
"Are We Willing To Make The Appropriate Changes To Do What We Should Be Doing?"...
Even if some may agree or disagree with the overall Top 10 "Do's" and "Don'ts" for 2022 as far as how they are ranked, most will agree on the topics. Once again, we should all keep an open mind as we count them down and know that all the solutions, or "Do's" are more than feasible, they are realistic.
Here We Go!
Number 10: Managing Special Order Parts
We all know that Special Order Parts are are part of what we do. However, we can manage them in a way that they can be minimized and controlled much better than perhaps they are right now. Let's take a look at the "Do's" and "Don't" on Special Order Parts.
Do Not:
Do not take Special Order Parts lightly by not having specific guidelines on how Special Order Parts are ordered, receipted, and shelved in tghe first place. If the Special Order Policy has loose, or have no guidelines where anyone can order Special Order Parts, the results will be obvious as Special Order Parts Aging will just continue to climb and freeze up assets.
Do not order "extra" Special Order Parts for technicians "just in case" they may need them. Do not have an attitude where if the part doesn't sell, we can just put in on the shelf in hopes that someone else will come along and buy those parts.
Do:
Do set guidelines for Special Order Parts to include, deposits or prepayments required when applicable, "future" Service Appointments should be set before the part is ordered, and only authorized Parts Personnel and Management can order Special Order Parts...technicians do not order parts!
Do have another key component to the process by having a "Special Order Parts Policy" that has consequences. Handling and return fees need to be applied to all Special Order Parts over 30 Days, including other dealer departments that authorized the Special Order Parts initially.
Number Nine: Proper Ordering, Receipting and Accounting Practices
Proper ordering, receipting and accountability of parts cannot be taken lightly. We can't just "assume" that the Parts Personnel responsible for these tasks are doing it correctly. Managing a Suggested Stock Order, receipting and posting correctly to the correct order numbers and order types is crucial.
Do Not:
Do not let these practices go unsupervised if not actually done by the Parts Manager. Do not let parts be given out to technicians prior to the full or partial receipt of the parts into inventory as often happens in many dealership Parts Departments.
Do not let any packing slips, receipts or invoices go unchecked or verified before any paperwork is turned into the Accounting Office with the proper Account numbers applied and signed by the Parts Manager.
Do:
Do conduct proper parts personnel training on Ordering, Receipting and Accounting Practices if not done by the Parts Manager. If the Parts Manager is not training properly, then the dealer should provide the proper training in all aspects of ordering, receipting, posting and most importantly...basic, standard Accounting Training.
Do have a secure area to properly check in, receipt and post all parts with proper security to insure non authorized personnel have the freedom to walk in and out of the Parts Department. Do have a proper filing system to file all order slips, packing slips, receipts and invoices for proper parts reconciliation into Accounting.
Number Eight: Managing Stocking Levels
Managing Parts Stocking Levels is an on-going task each day, week, month and year. Unfortunately, many Parts Managers have the "set it and forget it" attitude. Last month we mentioned that the recent supply chain shortage has increased "stock out" situations in many dealerships this past year.
That being said, we need to manage our Stocking Levels more frequently to decrease these "stock out" situations. The problem is that many Parts Managers don't even know how to manage their own Stocking Levels on the Dealer Management Systems, (D.M.S.), or their Vendor Managed Inventory, (V.M.I.) from the manufacturer.
Do Not:
Do not take Stocking Levels for granted as parts is a "moving target" and Stocking Levels can change day in and day out. Do not have the "set it and forget it" attitude and think that they will always level out as they are constantly moving from season to season and supply chain issues.
Stocking Levels can be adjusted as needed based on these supply chain issues and seasonal trends. Especially in these times where we need to actually "overstock" on our fastest moving parts while trimming down Best Stocking Levels on parts that have reached 8 to 9 months with no sales movement and on their way out, falling into the obsolescence category.
Do:
We do need to manage our Stocking Levels more frequently, whether in our own D.M.S. and/or the Manufacturers Vendor Managed Inventory, (V.M.I.). Many Parts Managers also may not know that we can provide weekly, updated Stocking Level changes to the manufacturer so "they" can stay up to date on "our" current Stocking Levels.
We do also have to keep an eye on our Phase-In and Phase-Out Criteria in order to see what parts may be meeting the necessary criteria to possibly "Phase-In" even earlier. On the "Phase-Out" side, we also need to stay focused on those parts that have less activity over 8 months.
Number Seven: "Manage" The Obsolescence
The key word here is to "manage" the obsolescence as parts will drop down into the obsolescence category each year at a rate of at least 2% - 3% minimum. The questions isn't that we will have obsolescence, it's more a question as to what we do with it.
Parts that don't sell quite simply "freezes up" the dealers assets and ties up cash that could be spent on parts that are fast moving and can "turn" much more frequently on a annual basis. Keeping the dealers cash moving is as important as turning the New & Used Vehicle Inventories.
Do Not:
Do not take obsolescence lightly either by just collecting obsolete parts each year and adding to the overall parts inventory. Do not collect over aged, (30 days or more) Special Order Parts, (refer to our Number 10) and just adding them to inventory.
Do not set your Phase-Out Parameters at 12 months and beyond as parts that reach that point have a 98% chance of never selling again. Even if you are utilizing the Manufacturer's Vendor Managed Inventory, (V.M.I.) that may require us to keep these parts for 12 months or more, we still need to set our own D.M.S. Phase-Out Parameters at no more than 8 months.
Do:
Do set your Phase-Out Parameters at no more than 8 months as these parts, once reaching that point of 8 months with no sales will at least alert the Parts Manager that these parts have reached pretty much their high peak in sales. Once they reach that point and perhaps do sell, they won't be reordered again unless they meet Phase-In Criteria all over again.
Do have an overall "Obsolescence Prevention" Plan in place with a combination of outside vendors in which to "sell off" the obsolescence, even if at $.50 cents on the dollar or even a little less. Also, we do need to have an "in-house" Parts Scrapping Program. If you need more information on setting up an "in-house" Parts Scrapping Program, please contact me.
Number Six: On-Going Pricing Strategies
The key word in our Number 6 is "on-going" as we all have experienced price changes over the last couple of years. Whether due to supply chain issues, increased demand and cost, or even recent economic changes in the market.
Setting up and maintaining a consistent pricing strategy is also one of those categories that we can't have a "set it and forget it" attitude. Parts pricing, like any other commodity requires constant attention to what the market can bear.
I'm quite sure that when we visit the grocery store, or perhaps the hardware store we are seeing constant price changes, but why is it that we keep our same pricing strategies for the most part, never even giving it a second look from time to time?
Do Not:
Once again...do not have a "set it and forget it" attitude when it comes down to parts pricing. Costs are always changing and we do not want to miss opportunities while keeping competitive with our parts prices. We often conduct competitive price surveys on our Service Pricing Menus, but when have we shopped around for pricing on our "captive parts"?
We also do not want to keep our eyes off of industry guidelines of parts retained gross profit or even a little higher. We do not want to just accept what we achieve on parts retained gross profit at a lower percentage, and just settling for what we get for the part. Customers will always pay a fair price if we give them the service they desire.
Do:
We do need to adjust our pricing strategies whether our matrix or our "flat price" parts on a consistent basis which I recommend once a quarter at least. So many Parts Departments that I've visited haven't even reviewed or adjusted their pricing strategies for months or even years. It almost seems like it's a chore no one wants to tackle on a consistent basis.
We also do need to adjust "down" our prices from time to time to remain competitive and not lose customers. It's a "fine line" that we have walk always in order to achieve our goal which is at least 40% overall parts retained gross profit in all sales categories.
Number Five: Parts Monthly Reconciliation
We've talked about this quite often in past articles where we need to make sure that our Parts Controlled Inventory balances to the Accounting Ledger Balance Inventory to 2% or less. The only way we can do this is to perform a Parts Inventory Reconciliation each month.
In many dealerships, this reconciliation function is only performed on a annual basis after the Parts Physical Inventory is performed. Times are definitely different today as dealer profits rely on every profit category including Asset Management.
Do Not:
Do not rely on the dealers "Balance Sheet" and carry over amounts each year such as LIFO methods, (last in, first out) to "balance out" v ariances between the Parts Inventory Controlled Balance and the Parts Ledger Balance Inventories. I'm sure we do not do the same exercise with the New and Used Vehicle Inventories, especially when the New Vehicle Inventory Floor Plan comes into play.
Do not trust the Dealer Management System, (D.M.S.) totally when conducting end of month Parts Analysis Reports. It has to make sense month to month on what we actually see on these reports, especially when we consider proper ordering, receipting and posting practices. (refer to our Number 9.)
Do:
Do provide the proper Parts Manager training required in Basic Standard Accounting. As I mentioned last month, the Parts Manager and the Office Manager need to be on the same page and speak the same language when it comes down to account numbers and parts sources in all inventories.
Do implement a Parts "Perpetual Inventory Count" System where parts are constantly being "bin checked" each month in order to reduce variances between the Parts Controlled Inventory, (D.M.S.) and the Accounting Ledger Balance Inventory each month. Studies have shown that when we implement a "Perpetual Inventory Count" System, variances end up at 2% or less each month.
Number Four: Posting Emergency Purchases "Correctly"
Emergency Purchases has always seemed to be the "Lost & Forgotten" category as it's often not used correctly or even utilized at all. When in all actuality, it's one of the most important tools in the Parts Managers Tool Box.
Emergency Purchases, when utilized correctly can alert the Parts Manager on "stock out" situations on parts that are normally stocked. These "stock out" situations, in my opinion are the most embarrassing situations that a Parts Manager can experience.
If we have to chase a part that we would normally stock, we are losing money in both Parts and Service for time lost that we can't get back. Posting Emergency Purchases "properly" can reduce those "stock out" situations and increase profits.
Do not:
Do not post Emergency Purchases on aftermarket parts as those purchases should be posted as "other" purchases", or "In & Out", (I.O.'s). After all, we are trying to make the proper Stocking Level adjustments on those parts we would normally stock as opposed to those aftermarket parts we chose not to stock.
On the other hand, if we do chose to stock aftermarket parts for whatever reason, then we should apply the same principles of posting Emergency Purchases of Normal Stocking Parts from the manufacturer. Emergency Purchases allow us to research and find out why we ran out and adjust the Stocking Levels accordingly.
Do:
We do need to separate these purchases from all others as the information will be valuable and making the correct and proper modifications in our Stocking Levels. By posting these Emergency Purchases accurately, we can measure these purchases versus normal purchases, which the guideline is 10% or less.
Number Three: Lost Sales Reporting
Well "Smart Parts" Readers!...we knew that this topic was going to come into play sooner or later and it falls into our Number Three slot. Reporting Lost Sales goes without saying as the D.M.S. only records parts transactions in two ways. One is Sales of course, and the other is Lost Sales Recording.
Lost Sales plays an integral part in seeing what parts could be eligible for Normal Stocking Status. If we don't report Lost Sales, we are missing a big part of that picture. We need to know what is out there and reporting Lost Sales is nothing more than a "good thing".
The more we have demands on a part, the more likely that we will be able to see what's out there in potentially stocking more "breadth" in our Parts Inventory. In my opinion, we can never report too many Lost Sales on Non-Stocking Parts as we "can't manage what we can't see".
Do not:
Do not "over think" what a Lost Sale is and what is not a Lost Sale as these parts will not just "jump on the shelf" as they will still have to meet Phase-In Criteria to "potentially" meet the Parts Manager's approval to consider a Normal Stocking Part.
Do not restrict your Parts Counter Staff from the actual definition of a Lost Sale. Posting a Lost Sale should be simple and require no real thought process. If an inquiry is made on a non-stock part that we do not stock and it isn't going to be ordered or chased down, it's a Lost Sale.
Do not restrict your Parts Counter Staff for "double posting" a "potential" Lost Sale. Even if there is a "double posting" of a Lost Sale, it still has to meet Phase-In requirements for demand in separate months, regardless of how many times it was posted in a single month. We can also control our "total demand" in most Dealer Management Systems today.
Do:
Do enable Lost Sales posting without any restrictions because the bottom line is...we can't manage what we can't see. I would much rather see too many Lost Sales posted and make my own decisions as the Parts Manager on demands posted.
Do encourage Lost Sales Reporting with all Parts Staff Members, letting them know that you need their help with as many Lost Sales they can find so we can better stock our Parts Inventory with more "breadth" and less time spent on the phone chasing parts.
Do keep an active Lost Sales Record on the parts counter to make it as easy as possible for the Parts Counter Staff to write down and/or record Lost Sales. It's busy enough for Parts Counter Staff to keep up with all their daily transactions and the last thing we want them to do is to take extra steps in order to post Lost Sales.
Number Two: Parts Training
As I have mentioned several times, the Parts Department is the least trained staff in all the dealership next to Administrative Staff, but the the difference is that Parts people are in Sales! Would we ever consider not training our Front End Sales Staff?
The average "back counter" Parts Person generates as much gross profit as a Front End Salesperson does when selling 10 - 15 New and Used Vehicles. Shouldn't Parts Training be more of a priority than it is and shouldn't Parts Training be a requirement before and after we hire them?
Do not:
Do not make Parts Training an option and let's require them to take the necessary training and certifications necessary to perform their duties and responsibilities, especially when they have access to the dealers second highest asset.
Do not disregard the Parts Staff when it comes down to suggestions, opinions and recommendations when it comes down to making the Parts Department more profitable or more successful. They are part of the team and they need to be heard.
Do:
We do need to encourage them to take part in all aspects of training and certifications available to them and required by them. We also do need to give them a "career path" on what's available to them in the future, whether growing into the Parts Manager position, or other positions that may come available in the dealership.
We do need to hold them accountable for what they are in control of and to achieve the overall goals of the dealership. Let them know what their job description is and have annual reviews to their perspective goals and potential achievement levels.
Number ONE!: Parts Pay Plans & Incentives
Some may disagree with our Number One choice for "Do's" and Do Not's" for 2022, but I will say that most of us just want to succeed and have a passion for what we do. That being said, and being that we are in a Sales Position, money can be a driving force.
For some reason, the Parts Department Staff in many dealerships today is also the least incentivized of all Sales Positions. Much like training, many dealers just don't consider the Parts Counter position as a Sales Position.
News Flash!...they are Sales People and they can be motivated and driven to increase sales and gross profits in the Parts Department. As I mentioned in our Number Two, the average "back counter" person can generate as much gross profit as a Front End Salesperson that sells between 10 - 15 vehicles each month.
Question is..."Do we consider them as Salespeople and are we willing to treat them the same way?"
Do not:
Do not underestimate the value of your Parts Staff, especially the Front & Back Counter Parts "Sales" People. In many dealerships today, As mentioned, the Parts Counter Staff is the least "incentivized" Sales Staff in the dealership. Although, even if the dealer does offer an incentive for their Parts Sales People, the incentive percentage is much lower than other dealership Sales Staff in Front End Sales or their Service Advisors.
Do not make your Parts Department Sales Incentives so low that they are treated more as a "bonus" and not a considerable amount of their total compensation package. If they treat their "bonus" as a "bonus", they may never have the desire to achieve it.
Do:
Do give them achievable goals that are realistic, measurable, and most importantly...time focused. Give them incentives that will benefit the dealer and the employee so everybody wins. Do give them daily, weekly, monthly and annual goals and update them constantly on their progress.
Do include incentives that "crossover" to other departments such as the Service Department, Collision Center and the Sales Department on Accessory Sales. Drive them to the overall goal for all Sales Departments to the point where if they achieve their goals, everybody wins.
Do train them to achieve their goals and coach them to desired results and personal achievement. Keep in mind always that they are Sales People and play a huge role in other department's goals. The faster they get the part, the faster we achieve our sales and gross profit goals, especially in the Service Department.
Bottom line is this...in 2022, the Fixed Operations will continue to be the driving force to overall dealership profitability and success. We need to DO what we should be doing and DO NOT accept the status quo going forward.
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...
