As we move on into the second half of the year, our June Issue of ACG "Smart Parts" will be focused on getting the most out of our Parts Department. It doesn't really matter how big or small, or the number of sales or the number of employees.
Even though we all want to get the most out of our Parts Department, wouldn't it be great if we had a Parts Insurance Plan? In other words, if we had a "Parts Insurance Plan" that would lead to predictable results in getting the most out of our Parts Department in Key Performance Areas, we would never have to worry.
The only difference between a "Parts Insurance Plan" versus other insurance plans such as auto insurance, homeowners' insurance or even life insurance is that there is no monetary payout per say if the insured has to be compensated for any coverage reasons.
Although there are huge monetary "benefits" from having the right "Parts Insurance Plan" that will pay dividends for as long as we are covered and following the "Parts Insurance Plan" guidelines.
So, for the sake of conversation, and content of this month's issue of ACG "Smart Parts", we will refer to our topic as "Parts Insurance". Some may wish to call it a Parts Protection Plan, but the overall goal will be the same.
We will focus on getting the most out of our Parts Department while protecting the dealers' number two asset, right behind the Used Vehicle Inventory. We will also dial in on our "Top 5 Parts Insurance Protection Categories" which will give us more consistent, desired results each and every month.
The markets and the economy may swing up and down, but our "Top 5 Insurance Protection Categories" flow with the current market trends as well as the economy. Again, it's more about getting the most out of our Parts Department, no matter what's going on around us. As I've said many times..."It rains everywhere, and we all have to deal with it"...
We don't always control where our sales come from, but we do control the outcomes in all of our "Top 5 Insurance Protection Categories" which will be the topic of this month's issue of ACG "Smart Parts".
"So, How Can We Protect Ourselves and Ensure That We Are Getting the Most Out of our Parts Departments?"
Let's Get Started!
Much like in any Insurance Plan that we may currently have, we all have a desired level of protection that we are looking for in case something should happen. Having a Parts Insurance Protection Plan is similar, but different in some ways.
In regular Insurance Plans that we may currently have, we are protecting ourselves from the "unknown", where in our "Parts Insurance Protection Plan", we are protecting ourselves from the "known", less than desired results.
Our "Parts Insurance Protection Plan" will involve five key areas that require a specific plan in order to prevent less than desired results while ensuring we achieve our overall goals each and every month.
As we move on through our "Top 5 Insurance Protection Categories", we will detail, (not in any specific order) what it will take make us "bullet proof" to normal, outside market and economic issues. Even though there are really no guarantees in life, especially catastrophic events that are out of our control.
Here We Go!
Gross Profit Insurance/Protection:
Believe it or not, ensuring that we attain industry guidelines on Customer Pay Parts Gross Profit is for the most part, totally in our control. As I mentioned, we may not always control where our sales come from, but we should be controlling how much we keep.
Even though Warranty Parts Gross and Internal Parts Gross may not be totally in our control, we can always control our overall Parts Gross Profit with the right Customer Pay Parts Matrix and the right Customer Pay Competitive Parts Pricing Strategy.
The Parts Gross Profit Protection comes into play if we are maintaining and/or modifying these "controllable" Parts Gross Margins on a more consistent basis. We should be monitoring Parts Grosses daily and not waiting until the end of the month to see that the results were less than desirable on the Financial.
It's also okay to "tweak" the "right" Parts Cost Plus Matrix three to four times a year to adjust for price changes, market swings or even lower Customer Pay Parts Grosses for bigger ticket items such as Powertrain or Electronic Parts that do not have the Matrix applied and are usually sold at MSRP.
We need to be looking at discounting, overrides, or even outside influences that may affect the eventual outcome on the Financial at the end of each month. We, in Parts, are ultimately responsible for the gross outcome each month.
If our dealer trusts us to achieve these gross profit gross margins, then they should be giving us total control, unless overrides are approved by upper management. If we are not monitoring our gross profit percentages daily, then don't be surprised if the results at the end of the month are not what we expected.
Parts Asset Insurance/Protection:
In Parts, we are responsible for the dealers second highest asset next to the Used Vehicle Inventory. In some dealerships, the Parts Department Inventory is the highest asset. That being said, we have a huge responsibility in "turning" this Parts Inventory at Industry Guidelines or better.
Gross and True Turns are huge indicators on how well this asset is performing. Parts Obsolescence also plays a big part in the Overall Gross and True Turns. Keeping Parts Obsolescence at a low amount, (0% - 5%) will keep this asset turning at Industry Guidelines.
One of the biggest "Asset Insurance/Protection" Policy Guidelines has to include dealing with Parts Obsolescence on a monthly basis. We cannot afford to let it build to a point of no return. If we deal with it at Month 13, we have a better chance of keeping it clean at all times.
In order to have the right Parts Asset Insurance Protection Policy, we have to make sure that the asset is "self-protected" and "insured" by keeping the Parts Inventory active within a twelve-month period. If we do that, we will always be protected, ensuring that the Parts Inventory is "liquid" and retaining it's value.
Parts Employee Insurance/Protection:
Here's one of our "Top 5 Insurance Protection Categories" that often goes undetected. We all know, especially in these times, that finding and retaining good employees is harder than ever.
Once we have an employee that is performing at expected levels or even higher, there is absolutely no reason that they should be looking elsewhere. Quite simply, all employees want to belong to something and to be a part of something.
Most of them want to grow and build their careers and want that path to grow their careers. That being said, we have to have a career path that provides them the proper training and goal setting opportunities.
One area that I feel is changing in our marketplace to the positive is the career opportunities in the field of trades. There are many opportunities for young people to seek their future goals in this field of trades that will lead to potentially a higher income level versus going to college for their bachelor's degree or master's degree in other fields.
In providing this career path, we have to have an on-going Parts Training Program that will allow our Parts Employees to grow. That means we have to compensate then accordingly with sales incentives to grow their careers.
Parts Employees should have the same opportunities as technicians, salespeople or even other dealership management positions. Working in Parts should not be just another steppingstone to where they may eventually end up in some other field. We should be "grooming" them to grow to other potential dealership positions, if qualified.
First Time Fill Rate Insurance/Protection:
If there was one of our "Top 5 Insurance Protection Categories" that would yield the best results is this one. Quite simply and much like the Kevin Costner Movie "Field of Dreams", the saying would go the same.
As mentioned in the movie..."If You Build It, They Will Come", which would translate to Parts as..."If You Have the Part, They Will Buy It". Believe it or not, having the right part at the right time is the Number One contributor for increasing Parts Sales, which of course, Lost Sales Reporting is the key factor to increasing First Time Fill Rates.
Again, having the right part at the right time, (75%-85%) of the time doesn't have anything to do with the overall value of the Parts Inventory. It simply means that we provide that part, on a first-time basis of 75%-85% of the time.
I will say that if we achieve these levels, much of our Parts Insurance Protection will stem from this one specific category. Sales and Grosses will be higher, Service Productivity will also be higher, and Asset Protection will be higher and so on, no matter the sales volume.
That being said, in order to achieve these First Time Fill Rate Percentages, we have to have the right math and the right Set Ups & Controls in our DMS. If we do have a Manufacturer's Vendor Managed Inventory, (VMI), their settings would also be emulated by these proper DMS Settings, thus giving us better Stocking Levels on Qualified VMI Parts.
Market Penetration Insurance/Protection:
This is a big one as we all want to make sure we are getting our fair "market share" of customers. There are also many factors that contribute to maximizing our market share penetration, especially in Sales & Service.
We do play a big part in this from the Parts Side, especially having the right part at the right time as mentioned above. We have to do our part by not only having the right part at the right time, but we also have to be competitive.
In partnership with our Service Department, we have to be first focused on Customer Retention, keeping our customers coming back. It doesn't make much sense to invest in all this advertising in order to gain new customers if we aren't taking care of the ones we have already.
Focusing on our current customers before reaching out beyond our customer base has to be a priority. Delivering the Customer Promise is the Number One priority in maintaining high Customer Retention, especially in Service.
The right number of skilled technicians with the proper training, trained Service Advisors that are focused on taking care of the customer are surely key factors in Customer Retention.
All that being said, and if we are doing all the above, we have to have a "market plan" that reaches out to all customers on our market area, not just those customers that have purchased New or Used Vehicles from us.
All of our "Top 5 Insurance Protection Categories" are designed and focused on achieving high Service Absorption Levels overall in Fixed Operations, which means of course that we have to be focused on Expense Management.
Insuring and Protecting the Parts Department does follow basic Insurance Guidelines as we all want to make sure that we are "covered" in case something happens. The only difference in my opinion is that we do have some control of potential outcomes versus outcomes that are out of our control in other insurance policies.
One last thing, one of my dealers once told me that..."Continually working with ACG "Smart Parts" is the Best Parts Insurance a Dealer could have". Which, by the way, they are still with ACG "Smart Parts" for over seven years.
Accidents can and do happen as well as other events that may happen which may be out of our control, but to me, if we could prevent potential negative events and results from happening, we should act on it before it happens by having the right Parts Insurance and Protection Plan.
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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