It's hard to believe that we are winding down to the last couple of months here in 2024. In my opinion, the results we experienced this year thus far in the Parts Department, whether positive or negative are impacted by several areas which I call "Parts Indicators".
As in many other dealership departments, if we don't keep our focus on the things that got us to where we are, we will obviously start going in the wrong direction. Being "asleep at the wheel" in the Parts Department is especially impactful as we directly impact the results in other dealership departments, especially in the Service Department and Collision Centers.
Even though these Parts Department topics that we discuss are not new, what may be new is how we pick up on these "Parts Indicators" and "Right the Ship" before it's too late. It's one thing to notice these reverse trends after we see the Financial, but it's another to act on it and fix it.
Even the best Parts Departments that are run by some of the best Parts Managers out there may tend to fall asleep at the wheel until they find out that in the end, they realize "When You Snooze, You Lose!"
So, the first question that I have as perhaps many Parts Managers have is how did this happen? The next human instinct is to blame other people, or maybe even use another excuse, whether the economy, the weather, staff shortages or perhaps even the manufacturer. In the end, it all falls on us as it rains everywhere.
It also reveals that if we initially respond with some of the above reasons or excuses for failure, we have to own up to the results.
Keep in mind though that there are always some other Parts Managers at some other dealerships out there that is still getting the job done. No matter what the excuse or reason may be, they know that "When You Snooze, You Lose".
So, let's break this all down and to me, the most successful Parts Managers out there pick up on these "Parts Indicators" that may lead to undesired results and most importantly, they either don't let it happen in the first place, or they pick up on these negative trends and act on it.
First, let's talk about these "Parts Indicators" that lead us to the biggest question of all...
What Happened and How Did It Happen?!...
As simple as it may sound, the above question is probably the easiest one to answer as we have to just trace it back to the root cause, just like a technician diagnosing and "trouble shooting" a problem with a vehicle.
We already know what happened, so we just can't sit there and wonder what happened, we have to trace it back to why it happened and how it happened. Fortunately, we work in the Parts Department and it's all about the math which means that there is a logical solution.
As opposed to let's say the Service Department, there are many more factors over and above the math that can impact negative results. Even if we have the best practices in place in the Service Department, they can all go "by the wayside" because of the "people aspect".
Let's start it all off with the "Parts Indicators" and the "Root Causes" that impact these negative trends or results...even if we thought we had it right to begin with. The one unique thing about the Parts Department is that if we have the Set Ups and the right math, it's just a matter of consistent execution.
Let's Do This!
Number One Indicator: First Time Fill Rates Dropping
Other than seeing our Parts Sales & Gross Numbers dropping, this is probably the most important Parts Indicator that we have to stay on top of. As we will see going forward, when Parts First Time Fill Rates start to drop, a whole lot of other areas are affected in both the Parts Department and the Service and Collision Departments.
So, as we drill this down as to why the Parts First Time Fill Rate may be dropping, the first thing we have to look at is our Parts Set Ups & Controls. If the Parts Set Ups & Controls are still the same as when we had higher First Time Fill Rates, then we have to look at our daily process and routines.
Once again, if the math is irrefutable, then we have to look at the obvious, which is ourselves and what we are doing, or not doing differently. Here are some of the questions that we need to ask ourselves...
"How often do we run our DMS Stock Order, over and above my Manufacturer's Vendor Managed Inventory, (VMI) Stock Order?", (if in fact we do participate in in the Manufacturer's VMI)
"Are we actually overriding what the Suggested Stock Order reveals in order to save money, even though the history and math reveals otherwise?"
"Is the Service Manager participating in reviewing the Suggested Stock?"
On that particular question, I have always suggested that the Service Manager participate in reviewing Suggested Stock Orders as it adds another opinion. It is a fact that the Parts Manager looks at a Suggested Stock Order much differently than a Service Manager does.
Parts Managers look at and affirm Stock Orders much more critically than a Service Manager would. As Parts Managers, we tend to "disqualify" many parts by price, make & model, low & high year applications, etc. On the other hand, Service Managers look at a Stock Order by need and what's tying up the Shop.
Number Two Indicator: Lost Sales Reporting Dropping
One could argue that this Parts Indicator should be our Number One, but it's usually not seen as the original cause of lower First Time Fill Rates and tends to ride below the radar. It's not until the Service and Collision Departments start to complain that we don't have the parts, or maybe not as we did before we started to "Snooze and Lose". As mentioned, lower Lost Sales Reporting always seems to fall under the radar, when in reality, it should be one of the first things we look at.
But I will say this for sure...when Lost Sales Reporting starts to drop, it's just a matter of time, (and not that long I might add) that the Parts First Time Fill Rate will follow in that same downward spiral.
The trends always follow a pattern...when Lost Sales Reporting drops, First Time Fill Rates drop. Stock Order Performance drops, 0-6 Months Sales Activity drops and lastly, the percentage of Normal Stocking Parts drops.
The first and foremost thing that can stop these spiral trends is to get back on Lost Sales Reporting. We need to let these Lost Sales Demands "Phase-In" and let the DMS do its job, (if the math on the Set Ups is correct by the math), then run the Stock Order and don't "over think" the math and trust it!
Parts Demands are only created in our DMS by Sales and Lost Sales. If we fail to report Lost Sales on Non-Stocking parts with demand, we are losing a major contributor in tracking parts history for parts we should eventually stock.
Number Three Indicator: Parts Gross Profit Dropping
This is another key "Parts Indicator" as managing the Parts Gross Retained Percentage should be a daily routine and not one that we look at after the month is over. Lower Parts Gross Percentage may be attributed to many things such as increased parts cost, price overrides, coupons, service contracts, chasing parts, etc. just to name a few.
The most important thing to ensure that we are not asleep at the wheel is to monitor the Parts Gross Retained Percentage is to look at it daily and to review exceptions and overrides. We also have to monitor our Parts Matrix each month to ensure we are getting the desired gross to offset competitive and flat priced parts.
Powertrain parts sales also impact our parts gross as engines, transmissions, rear ends, accessories, etc. usually carry a much lower parts gross percentage and the only way to offset these parts sales is to make the appropriate modifications to the parts matrix more consistently, at least on a quarterly basis when we see trends going in the wrong direction.
One other Parts Indicator in our Number Three that may lead to lower Parts Gross Percentage is our "Parts to Labor Ratio". Industry Guidelines have current Parts to Labor Ratio Guidelines at 1:1. In other words, for every $100.00 in Customer Pay Labor that is sold, we should also be selling $100.00 in Customer Pay Parts on Repair Orders.
Although, it isn't always a Parts Sales or Gross Issue if we fall short on this 1:1 Ratio, as it could also indicate that we aren't getting enough Customer Pay Labor per Repair Order which would drive that Parts to Labor Ratio higher on the parts side. For example, if just may be that we fall short on our desired Customer Pay Effective Rate, resulting in a higher Parts to Labor Ratio.
Number Four Indicator: Increased Emergency and Special Order Purchases
When you see the Parts First Time Fill Rate dropping, you will also see Emergency Purchases and Special-Order Purchases climbing. Just as in our Number One Indicator, when First Time Fill Rates drop, we end up chasing more parts as Emergency Purchases, and/or we end up having more Special-Order Purchases.
This could a "net result" of being over critical on our Stock Orders and not really relying on the math and the facts. The trickle down now begins into many other Parts Indicators as it will spill down into our Stock Order Performance percentage, which should represent 75% - 85% of our total purchases based on industry guidelines.
Increased Special Order Purchases are also a major contributor to our Overall Parts Obsolescence. It's hard enough already to gain enough Return Allowance to protect ourselves from building obsolescence, Special Order Purchases do not qualify for Return Allowance and only add to the potential of increased obsolescence and lower Return Reserve.
Number Five Indicator: Increased Parts Obsolescence
Speaking of Obsolescence, it is our Number Five Parts Indicator. Many "Smart Parts" Managers may not know this, but Parts Obsolescence will accrue at a rate of at least 3% - 5% each year no matter what we do. The real question is..."What are we doing about it?"
As Obsolescence increases each year and due to all the above Parts Indicators, that reveal that "If You Snooze, You Lose", Obsolescence will just increase at an even higher rate to the point of being totally out of control.
When we see Obsolescence increase at an even higher rate, it's always due to the "trickle down" of the above and previous Parts Indicators. When we lose control, or start "Snoozing and Losing", it's usually followed by increased Obsolescence. Another area that we tend to say..."What Happened?!"
Keeping Parts Obsolescence under control is a monthly Duty & Responsibility of the Parts Manager and not something we look at after it gets out of control. Parts that drop down in that "Over 12 Months - No Sale" category have to be dealt with at that point on the 13th month and not later, otherwise, it just keeps climbing out of control.
Utilizing Obsolescence Vendors, implementing an In-House Scrapping Program along with utilizing our Return Reserves is crucial to controlling Obsolescence. Even more important is not to buy Obsolescence right up front!
Managing our Manufacturers recommended Stocking Levels and managing our own Special Orders in order to prevent "Obsolescence Purchases" at the get go is crucial. Being "Obedient" to the Manufacturer as opposed to being "Compliant" is a major contributor to Obsolescence and Over Stock Parts amounts.
In Conclusion...
It's one thing to fall asleep at the wheel and finally realize "When You Snooze, You Lose", it's another when it does happen, we don't act on it. What really matters is how we respond to what happened and how it happened, and then drill it down to the root cause and fix it.
Finally, and then and perhaps even most important is to make sure it doesn't happen again and to stay awake at all times because we all know that...
"When You Snooze, You Lose!"
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...
