Wednesday, November 2, 2022

November 2022: Winding Down In 2022 - "What Have We Learned?"

It's hard to believe that we are "winding down" this current year of 2022, but do we actually have that mindset of "winding down" this year, or are we "winding up" and preparing for the new year right around the corner?

It has definitely been a challenge this year, much like the past couple of years as we, once again are having to endure through struggles in our personal and business lives. Backorders and Supply Chain Issues still haunt us and just trying to cope with our current economic situations is more than anyone could wish to deal with.

That being said, and in my opinion, we have always adapted to our environment, especially in the automotive industry as we just pick ourselves up, brush the dust off our sleeves and get right back into the arena to battle yet another day.

In this issue of ACG "Smart Parts", we are going to focus on what 2022 has taught us to this point. We have already published ten issues thus far in 2022 through October and each issue has had a significant topic, meaning and focus to help guide us through these times.

Each month's topic has also included a solution to what we are currently dealing with, surviving through and most importantly, prospering through these times. Unfortunately, we don't often read between the lines, and we tend to complain, or have excuses for undesired results.  

Quite honestly though, we are not alone as it rains everywhere, and we are all having to deal with backorders, supply chain issues, employee issues, manufacturer demands, increasing costs, customer demand and a whole lot more.

This month's issue will challenge all "Smart Parts" Readers as we will highlight each month's topic thus far in 2022 and give actual reason, benefit and result to each month's topic. In other words, we will resurrect the topic of each month and if, only if, we applied these recommendations from ACG "Smart Parts"...ask yourself this question...

"Where Would I Be Right Now?" 

Let's begin with January 2022...

January 2022: The Top 10 "Do's & Don'ts" for 2022

There is no better way to start off any New Year, especially this year with what we should be focused on and what we should avoid. In January of this year, we highlighted our Top 10 "Do's & Don'ts" as Smart Parts Managers.

Starting at Number Ten and winding down to our Number One, we focused on proper Special-Order Processes to avoid adding more to our Obsolescence, then on to Ordering Parameters, Managing & Maintaining Proper Stocking Levels in order to stop Obsolescence before it happens.

We also focused on Updating Pricing Levels each month as costs is always changing, just like at Walmart, or any department store. So why don't we update our prices more often, or at least review our pricing strategies as often as we should? Unfortunately, many dealerships haven't updated their prices for many years due to the fear of losing customers to other dealers.

In my opinion, if we are worried about losing customers due to adjusting for these inflationary times, then we have other issues that may be causing low customer retention rates. Customers will always come back if we provide great service and a fair price.

Parts Monthly Reconciliation, Proper Posting of Lost Sales & Emergency Purchases led us down to our top "Do's & Don'ts" in January of this year along with providing more Parts Training, more aggressive Parts Pay Plans and Incentives topped out as our Number Two and Number One "Do's" for January of this year.

February 2022: D.M.S. Utilization:

D.M.S. Utilization was and is still a hot button in many dealerships today. For years, our Dealer Management Systems, (D.M.S.) have gone way underutilized. As a matter of fact, the average utilization factor for most systems is a shocking 20% - 25%! That means we are only using our system's capabilities up to a measly 25% at best.

Sad thing is that dealers are paying lots of money for these systems and they are not being used to their potential. One of the main reasons for these poor results is a lack of "proper" training on these systems, or what their capabilities are. D.M.S. Training Installations fall far short of the training needed to even come close to better utilization factors.

Sadly, many D.M.S. Installers don't even know what they are installing, especially in the Parts Department as "cookie cutter" set ups are installed that don't even meet basic math equations. On top of that, many D.M.S. Installers have never worked in a dealership before and can't even communicate on a dealership level.

March 2022: The Parts Department In The EV Revolution:

I have to admit, this was one of the most fun issues for me this year! I'm not saying I am for or against EV's, but it did challenge me to do the research on Electric & Hybrid Vehicles in general. I felt like I was in High School again as the research and information was amazing.

The topic in March was driven by many Parts Managers asking me...

"What kind of Parts are we Going to Sell on these Electric Vehicles?..."

This question led me on a quest to find that answer and lo and behold, I got more than I bargained for as I believe that we will be even more profitable in the Parts Department as these "EV's" evolve as they do require maintenance and will have "wear and tear" parts issues as well.

This issue probably has the most in-depth research of 2022, and you just may want to read it again as they will have a more significant impact to Parts Departments in the very near future. I know I learned a lot by doing the research as well as opening my mind to something fairly new.

April 2022: Dealing With Supply Chain Issues:

Our April issue still haunts us today as backorders, cross-ship parts, restricted parts, etc. are still huge issues. The key on our April issue is not so much that we have these issues, it's more about how we are dealing with these Supply Chain Issues.

First and foremost, we all have Supply Chain Issues, and we have to deal with it. We have dealt with many similar situations in the past such as Union Strikes, Petroleum & Refinery Strikes, Railroad Strikes and so on. We just have to have a mindset of dealing with it versus using it as an excuse.

In our April issue, we drill down hard on overcoming this on-going Supply Chain Issues. Backorders for example, do we just lay down when we see them pop up, or is our job just beginning as we now have to find this backordered part elsewhere? 

Unfortunately, many Parts Managers are settling in and not taking the extra steps, or "effort" to do their job, which is providing parts to our customers. In my opinion, we can't just settle and tell our customers, or Service Manager that nobody has it and it's on national backorder. We need to have a "somebody has to have it" attitude.

May 2022: Mapping Out The Parts Department Floor Plan:

Our May issue was a little different and isn't often thought of as a crucial topic in the Parts Department, especially in these times. Ironically though, our Parts Department "Floor Plan" plays a key role in our overall theme this year

We just got through talking about Supply Chain Issues in our April issue and that alone directly dovetails into having the right Parts Department Floor Plan. Not only should our parts be conveniently "binned" from fast moving parts, to slower moving to bulkier parts, we need to have adequate "air space" to stock the parts we need.

On top of that, and especially in these times, we may have to carry the added Days Supply of the parts we sell the most. This means we need to have the adequate pace to stock these Extra Days of Supply, even if we have to "overstock" these hard to get, fast-moving parts, and store them in outside storage units.

Lastly, our May issue was a hot topic because many Parts Managers "understock" their fast-moving parts inventories due to a lack of space. That may have been okay a few years ago because we were replenishing our Normal Stocking Parts pretty much overnight.

It's a different situation these days as many manufacturers are experiencing much lower fill rates from their local PDC's compared to just a few years ago. We cannot afford to run our Days Supply of parts down below or close to our "Lead Time" Days that potentially lead to stock out situations.

June 2022: Expanding The Parts Inventory "Breadth"

If you haven't noticed by now, there is a pattern here and a progression in our issues in 2022. Expanding the Parts Inventory "Breadth" in order to have better inventory coverage and better "First Time Off Shelf Fill Rates" should be our Number One Goal as "Smart Parts" Managers.

Ensuring the right D.M.S. Set Ups & Controls, with the right math, allows to have better inventory coverage with higher "First Time Off Shelf Fill Rates". Expanding the inventory "Breadth" increases Cycle Times in our Service Departments and Collision Centers.

The best part is, having the part on the shelf lessons the chances of increased backorders, cross ship parts and restricted parts. Having the right part at the right time, during these times is a great advantage as the parts we make the most gross profit on are those parts that we normally stock, much like having the right vehicle on the lot.

July 2022: Managing The Tire, Gas , Oil & Grease Inventories

Our July issue was a little different as it took us down the road of Parts Reconciliation and Proper Accounting. Parts Reconciliation in general was and still is a very hot topic dating back to the beginning of the Pandemic.

Due to the Pandemic and economic changes over the last couple of years, dealers are getting even smarter, watching their expenses and maximizing on sales and gross opportunities more than ever. All this includes dealers getting smarter on their Accounting Practices.

The Parts Department asset in most dealerships today, is the second highest asset they have next to the Used Vehicle Inventory. Who knows, the Parts Inventory maybe the Number One asset for some dealers with shortages in finding vehicles in general to sell.

That being said, the Tire Inventory and the Gas, Oil & Grease Inventory usually have the most discrepancies when reconciling the parts inventory in general. In July, we broke it all down as managing all these parts inventories, especially reconciling them, can actually "make or break" a dealer if the Ledger Balance Inventory climbs well over the Controlled Parts Inventory on the D.M.S.

August: "Don't Take Your Foot Off The Gas!"

Here's where we started stepping up as in August, we challenged dealers and "Smart Parts" Managers to not laying down and accepting the status quo, or maybe just falling into the trenches with everything that's going on with all these backorders, supply chain issues, employee woes, etc.

"Enough Already!" is what I was hearing quite often as many parts managers have had enough as they were saying that it's not fun anymore. Day after day, fighting with manufacturers to get parts, answering that never ending, preverbal question all day long..."When is my part going to be in"?

All the while, in August, we sent out our battle cry to not only let these times not get the best of us, but it was also time to step on the accelerator of go to the next level. Backorders seem to be a way of life now and instead of complaining about them, we just have to deal with them as part of the job.

Instead of thinking that our job was over when we experience these backorders, it's actually just beginning as we have to do our best to either change, or upgrade the backorder status, find the part by other means, i.e. OEConnect, or even Aftermarket options if necessary.

"Are you Seeing a Pattern Here Yet?"

September 2022: "It's Time To Raise The Bar!"

Our September issue was a perfect follow up to August where we encouraged "Smart Parts" Manager to keep their foot on the gas. Now that we have our foot back on the accelerator, it's now time to raise the bar and take it up a notch.

This year has also seen many dealers going above and beyond normal industry guidelines. Used Vehicle Grosses have never been higher, and many dealers are actually more profitable now than ever! Who would have thought that enduring a crisis like a pandemic would reap these kinds of results? I, for one wouldn't have thought it would be like this.

You would think that just surviving through, (which many of us did) would be the primary objective, but it's going much higher and beyond that. Dealers are breaking records in sales and gross profit as retained gross percentages are climbing, especially in the Parts Department.

It seems that the mindset got to the point where dealers thought that they had to get what they could get, no matter what, in order to survive. Survival is one of our basic human instincts and it appears that when we got in "survival mode", something happened.... we made more money! What a concept!

September taught us that not only was it time to raise the bar, we realized that it was already happening all around us as we were finding ourselves achieving new and higher guidelines, or expectations. Now, we have to raise the bar just to keep up with everyone else! If not, we will just be left in the dust.

October: Managing Through Inflation In The Parts Department

We have now worked our way up to our last month's issue of ACG "Smart Parts" and if these past couple of years haven't been enough to deal with already with the pandemic, supply chain issues and the like, now we have to deal with Inflation and a potential Recession! It's now time to toughen up even more!...Seriously?

Our October issue took us through our "Top 10 Factors" that we have had to focus on in order to get through these inflationary times. On top of that, we learned not only how to get through these times, but we have also learned how to succeed and prosper through these times.

We started setting new and exciting Achievable Goals, we beefed up Parts Department Training and Staffing Needs. We added more Aggressive Pay Plans & Incentives, while Controlling Expenses even better. Finally, we started to utilize our Purchasing Power by Shopping Vendors and better controlling our Stocking Levels.

We also learned that we have to "constantly" review our Pricing Strategies in order to keep up with rising Inflation. We just can't afford to have a "set it and forget it" mindset as prices are always changing which means we have to keep up with these price changes. In order to maintain our gross margins, it just makes sense to adjust with the market as it is constantly changing.

Managing obsolescence is more important now than ever before as our assets, especially our parts inventory asset has to "turn" at industry rates, or even better. We cannot afford to hold onto obsolete inventory anymore as Acquisition & Holding Costs are rising at an alarming rate.

Returned, or sold obsolescence, even at $.50 cents on the dollar, or perhaps less can actually be re-invested on parts that turn several times a year and can actually bring back a "Return on Investment", (ROI) of well over 250% - 300%. Cash is king, especially in these times as well as getting the best return on our assets.

Lastly, in October we highlighted one of the most important factors of weathering this storm and that is accountability. First and foremost, we have to hold ourselves accountable before we can hold our employees accountable. It all starts at the top as we, the "Smart Parts" Manager has to set the example.

Our focus all year has been on this challenge that we all face and to not let these current events sway us from our overall goals and expectations. It's actually quite the opposite as we have to hit these challenges head on and consider them opportunities.

It takes a "Smart Parts" Manager to evaluate the situation, come up with a plan and then execute the plan to expected results. If you think about it, these past couple years are really no different than any other year because no one knows what lies ahead. 

The only thing we do know is that we alone are ultimately responsible for our own destiny and results, no matter what the environment throws at us, just like it has always been. We can have all the knowledge and background training in the world, but if we don't have the desire to succeed, the environment will suck us in and dictate the outcome.

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...



Monday, October 3, 2022

October 2022: Managing Through Inflation In The Parts Department

Inflation in itself is an interesting topic that we are all familiar with as the economy is one of the biggest concerns for all of us in this country. It affects each and every one of us every day and "coping" with it is a struggle in itself. It's also one of the biggest topics, discussions and conversations that everyone can relate to.

On the receiving end of Inflation, we really don't have much we can do in the way of preparation as it's more of how we deal with it and make the necessary adjustments purchasing goods and managing our own expenses. Being "frugal" and watching our pennies is our primary means of preparation.

On the other hand, and from a retail perspective, we are on the other side of Inflation as a free market provider of goods and services, especially in the Parts Department. Preparation for Inflation takes on a whole different meaning as we have to consider many other different factors.

One might think that just adjusting our prices to Inflation is all we have to do as the "trickle down" effect takes center stage. After all, we just have to adjust our prices as our costs increase and then just pass the added cost down to the consumer to remain profitable.

In all actuality, it goes much further than that as just merely adjusting our prices to meet the added costs we incur is one of the last factors in preparing the Parts Department for these inflationary times. We have to have a different mindset with a "preparation to meet expectation" attitude and focus.

In this issue of ACG "Smart Parts", we are going to list out our "Top 10 Factors" in preparing the Parts Department for these inflationary times. Some might think that there can't be that many factors in inflation preparation in the Parts Department, but I believe that all these "Top 10 Factors" play a huge role.

We are not alone in the Parts Department as most other businesses that offer retail goods and services are going through the same thing, having to consider many factors in inflation preparation. As a matter of fact, and as we review our "Top 10 Factors", you may see that these factors may apply in any business.

We will review all these factors in order of importance from an ACG "Smart Parts" Perspective, starting with our Number One all the way up to our Number 10 factor in "Managing Through Inflation In The Parts Department". Preparation is also the key to success and if we aren't prepared, we won't meet the expectations.

We all know Inflation is already here and we have been dealing with it for a couple years now, but are we really prepared? Are we really considering all the right factors that we should be in order to not only survive Inflation, but succeed and prosper through it? 

Question is....

"What's Your Answers to These Questions?"

Let's Begin with our "Top 10 Factors" in Succeeding through Inflation!...

Number One: Goal Setting/Guidelines

First and foremost, and if we haven't done it already, we have to have a plan. We all know that we have to meet or exceed industry guidelines, but the bar has been raised as we mentioned last month. Dealers have been "raising the bar" over the last couple of years and to some degree, the demands have increased from the status quo.

Not only do we have to "raise the bar", most importantly, we have to communicate these new goals and guidelines all the way down to our parts employees as no one should be left out of the overall objectives. Everyone has to be on the same page and understand what each staff members duties & responsibilities are.

Number Two: Training

Parts Training has become more important than ever as I can attest to over these last couple of years from the Parts Manager down to counter staff, shipper/receivers and parts delivery staff. Every position is crucial from proper receipting of parts, posting Lost Sales and Pricing Policies.

Parts Manager Training on the Proper Set Ups & Controls on the D.M.S. in conjunction with the Manufacturers Vendor Managed Inventory, (V.M.I.), if offered, is crucial to understanding and maintaining proper Stocking Levels and the process of Phasing In the right parts at the right time.

If you don't know it already, Parts Counterpersons are "salespeople", and they have to be trained in selling skills. They have to also have a personality that accommodates the sales environment and be dressed appropriately to represent the dealer's profile.

The Front Parts Counter area needs to display accessories, apparel, etc. and have a "store front" feel to it to invite customers. It cannot have a "service counter" look to it and should be updated frequently with new products and displays as opposed to old, outdated accessories that just collect dust over time.

Number Three: Proper Staffing/Employee Incentives

Proper staffing in the right position in the Parts Department is key to providing efficient service to technicians and front counter customers. Technicians standing in line waiting for parts is a "Productivity Killer" as time is a perishable inventory. 

If a technician is waiting for parts for even 15 minutes can cost $50.00 to $100.00 in parts and service sales that we can never get back. Unfortunately, many dealers under staff the counter staff based on sales resulting in Lost Service Productivity.

Parts employees should also have sales incentives as they are salespeople after all. Incentives based on Overall Sales, and/or Service Productivity promotes higher sales and team effort in increasing Service "Cycle Times". It also incentivizes the Parts Department to have the right part at the right time and much faster.

Number Four: Controlling Expenses

Controlling expenses is not a new thing, or is it any less important at any time, especially during these inflationary times. But what is more important now more than ever is reviewing our vendor invoices on a monthly basis. Most often times, we just pay the bill each month from the same vendors without batting an eye.

In addition, payables and receivable staff don't often communicate with managers on the bills we are paying each month. All Managers, and not just Parts Managers should authorize all semi-fixed expenses each month and "sign off" legibly so that there is no confusion as to what is being paid and who's paying for it.

Paying for employee overtime has also been an issue the last couple years between the pandemic and rising inflation. More and more dealers are cutting back on hourly and/or salary-based compensation as a means of controlling overall dealer expense as our employees are our biggest expense.

This can be a "Catch-22" though as we can't expense our way into profit in most situations and we don't want to cut our staff and hours too low where it effects overall sales and gross. We need to staff properly based on industry guidelines and in sales, our sales staff needs to perform as well to industry guidelines.

Number Five: Purchasing 

This category of purchasing goes beyond just buying part in the Parts Department as we are referring to all purchasing controlled by the Parts Department. Sublet Purchases, Shop Supplies, Cleaning Supplies, Waste Oil & Hazardous Waste Removal, etc. are just a few of examples of the "purchasing power" of the Parts Department above and beyond just parts purchases.

That being said, there should only be authorized parts personnel that have the "power" to create and authorize a purchase order, whether buying parts or any other of the above examples. In addition, all purchases, invoices and purchase order numbers need to be "married up" for Accounting Reconciliation. 

Parts purchases also have to be reconciled to ensure that the price we pay is the price we cost out on the repair order or parts invoice unless there are adjustments to be made in Discounts & Allowances to balance with the Parts Ledger Inventory in Accounting.

Number Six: Shopping Vendors

This category kind of "dove tails" into our Number Four on Controlling Expenses, but with a little twist. Not only should we be authorizing only what we purchase, we should also be "shopping" our vendors at least twice a year to keep them honest.

One example is that I just changed my Auto Insurance Company after being with them for over thirty years. The increases in rates over the last year have been astronomical and they just thought I would go along with it. 

They took for granted that I had been with them so long and that I would just accept these crazy rates. The end result was a huge savings with a top insurance company with even better coverage. All I got for excuses from my previous auto insurer was..."prices are going up everywhere". 

We have to do the same thing in our Parts Department as our dealer's "purchase agent". As mentioned, we need to keep them honest and shop, compare and barter with other vendors who are trying to make it through these inflationary times as well. You may be surprised at what some of these vendors may offer in order to get our business!

We just don't have to settle for the status quo when it comes down to spending the dealer's money. We just have to be diligent and do our homework and take the time to do the research. After all, and as in my auto insurance example, if it was your money...what would you do?

Number Seven: Stocking Levels

Some may feel that our Number Seven should have higher priority, but when you think about it, and other than our Number Four on Controlling Expenses, all the other factors have to come into play in order to properly manage our Stocking Levels.

One thing for sure that we all have experienced Supply Chain Issues over the past couple of years and to some degree, we still are going through it. That being said, it becomes even more imperative to have the right Stocking Levels while battling Inflation.

Not only the right Stocking Levels, but the right Stocking Levels on the "right parts" and that can only come from our D.M.S. with the Proper Set Ups & Controls based on the math and our own individual demand history from Sales and Lost Sales.

The last thing we need is to increase our Stocking Levels while adding to the obsolescence problem. We have to have the right parts at the right time while "Phasing-Out" the part that have no demand in over seven or eight months while we still have a 35% - 40% chance of selling those parts and not restocking them, unless they meet Phase-In Criteria all over again.

Number Eight: Controlling Obsolescence

This category just makes sense as a follow up to our Number Seven on Proper Stocking Levels. Obsolescence is also a category that is no stranger whether managing through Inflation or not, but what is different now is we cannot afford to hold on to it.

The IRS Standard Depreciation of any commodity or inventory is half of the cost of what is displayed on the D.M.S., which is approximately $.50 cents on the dollar. Acquisition & Holding Costs alone add up over the years and for the most part, the dealer has already made money on those obsolete parts over the years just on price increases alone.

The cash back from selling the obsolescence for whatever we can get can be reinvested on parts that sell, or "turn" several times a year on faster moving parts. Unfortunately, the old theory that many dealers still have today that "it has to be worth what it costs" is old school. These dealers still don't realize the ROI that can come from selling it for $.40 - $.50 cents on the dollar.

Lastly, we have to "stop the bleeding" and control obsolescence from happening in the first place which can come from having the right D.M.S. Set Ups & Controls along with an "In-House" Scrapping Program, (an ACG "Smart Parts Exclusive"). 

An "In-House" Scrapping Program also frees the dealer from the clutches, controls and dependency on the manufacturer for trying to build return allowance from purchasing more parts for that little bit of protection that never matches the obsolescence build up each year.

Number Nine: Pricing Policies

Wow!...we finally got to the meat!...our Pricing Policies to combat Inflation!...

Even though pricing is the final "end game" in battling inflation, we absolutely cannot have the "right" Pricing Strategies unless we do all of the above first. Developing the right Pricing Strategies while maintaining, or even growing our customer base is absolutely crucial.

The amazing thing is that developing the right Pricing Strategies is the easiest thing we can do because it's all about the math. The key ingredient to developing these strategies is our cost factors, as cost is constant. What we pay for parts is what we pay, and we have to structure our gross profit from "cost up".

We also have to keep up with our cost factors as most manufacturers have already had two major parts price increases this year alone. They are passing the ball down to us and we have to pass it on down as well to ensure our gross margins. Gross pays the bills, and we have to be able to afford our Number One Asset, which is our employees.

Developing and maintaining our Pricing Strategies is not a "set it and forget it" category as we need to review, modify and update, if necessary, each month to ensure our gross margins. We have to compare our results each month to industry guidelines and make the necessary modifications.

Number Ten: Accountability

Our Number Ten is the "glue" to all of our "Top 10 Factors" in our battle against inflation. Everyone, and I mean everyone needs to be held accountable to their Duties & Responsibilities. We cannot achieve our goals if we deviate from the process and dealer guidelines listed above.

Parts gross killers include discounting, price overrides, costing errors, pilferage, parts security, lack of training, housekeeping, accrued obsolescence, accounting errors, improper reconciliation, etc. and I could go on and on. We have to maintain control and accountability at all times.

As mentioned, parts is all about the math and if we don't achieve our gross numbers, then somebody is overriding the math, it's that simple. If we don't receive the results we expect, there has to be a logical reason.

Inflation is just another period in time that we have to adjust to. Getting through it and prospering through it are two different things....

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...


 











Wednesday, September 7, 2022

September 2022 - An ACG "Smart Parts" Perspective: "It's Time To Raise The Bar!"

It's hard to believe that we have reached yet another milestone here at ACG "Smart Parts" with our 150th Edition. In this edition, and as a follow up to our last edition titled "Don't Take Your Foot Off The Gas!", we are going to challenge "Smart Parts" Managers yet again in this month's issue.

For years, we have measured our individual dealership success by meeting or exceeding the standards set by industry analysts, companies and of course, the manufacturers. These guidelines have changed to some degree over the years, but overall, they have been the standards that we have all been compared to.

These comparisons, or "composites" have given us industry information in many areas in all dealership departments and help us determine if we are above average, just average, or below average. This collective information has also helped many dealers meet or exceed these guidelines by sharing different processes and ideas with other dealers.

Since the Covid-19 Pandemic began a couple years ago and, in my opinion, much has changed in how dealers operate their businesses. Along with supply chain issues, employee shortages and rising inflation, dealers had to adapt to a different way of doing business in order to survive.

That being said and fast forwarding to today, I have noticed that many of our industry guidelines are being replaced by new goals and guidelines set by individual dealers. One good example of this is what dealers are achieving today in their average "front and back" New & Used Vehicle Gross Profit Margins.

Many have over doubled their "front and back" New & Used Vehicle Gross Margins to offset supply chain issues and overall lower New & Used Vehicle Sales. Many are actually making more with less with Floor Plan Expense dropping by thousands of dollars.

This phenomenon is also true in the Fixed Operations as dealers became even more dependent on their Service Absorption, or "Fixed Coverage" in the dealership's "back end". This trickle-down effect, in many dealerships today between the front and back end has made them more profitable than ever!

"So, what has all this done to our industry guidelines, especially in the Parts Department?"

In my opinion, the results of these past few years have definitely impacted our industry guidelines, especially in the area of parts for sure. As a matter of fact, the impacts are so great that we need to start thinking about "raising the bar" on some of our parts guidelines.

In this issue, we will break down five of these guidelines and perhaps, get a new perspective on where we should set that bar. Even though, we are not challenging or disagreeing with these industry guidelines, we are just challenging ourselves to achieve what is possible.

Question is...

"If other dealers are doing it...What should MY new guidelines be and how far do I raise the bar?"

Let's Begin...

First and foremost, we can't just throw crazy numbers and percentages out there to achieve some crazy goal as these goals and guidelines have to be S.M.A.R.T.* Each guideline has to be carefully thought through, make sense and most important, the math has to work as well because Parts is not about opinions, it's "black & white".

* Specific, Measurable, Attainable, Realistic and Time Focused

In each guideline category, we will list the current industry guideline and then we will list our ACG "Smart Parts" Perspective Guideline and as you will see, the math will have to work to match other parts industry guidelines. Also, we will back these ACG "Smart Parts" Perspective Guidelines with formulas, and/or definitions to confirm the perspective guideline result.

The following five guidelines are not listed in any particular order, and we will list industry guideline first, then followed by our ACG "Smart Parts" Perspective Guideline. We will follow with our reasons and explanations for "raising the bar" if need be, or if we maintain our current parts industry guidelines.

Customer Pay Parts Retained Gross Percentage:

Industry Guideline: 40% - 42% (Matrix When Possible)

ACG "Smart Parts" Perspective Guideline: 45% - 48% (Matrix Captive Parts, Flat Price Competitive)

This guideline is the one that I've seen climb the most over the past few years in many dealerships that I have visited as well as the most under achieved guideline. It seems that many dealers are either "over-achieving" the industry guideline, or they are not even coming close which has resulted in the biggest gap of all the guidelines.

In my opinion, there should only be two Pricing Strategies on Customer Pay Parts. One being the proper utilization of a Parts Pricing Matrix in the right "cost plus" ranges on "captive parts" and the second Pricing Strategy being "flat priced" parts for "competitive parts".

The reason the industry guideline is at 40% - 42% is because most Manufacturers Suggested Retail Prices are set to retain an average of 40% - 42%, even though some are higher and some lower, the overall average will retain a 40% - 42% retained gross, which matches the industry guideline.

The ACG "Smart Parts" Perspective Guideline for Customer Pay Retained Gross Profit goes a little further. The reasoning for "raising the bar" on Customer Pay Gross follows two basic, commonsense principles. Plus, this 3% - 5% increase in Customer Pay Gross Retention doesn't really change customer perception when it comes down to what people buy.

The first basic principle is the cost of doing business has gone up expensively, especially in Parts from Acquisition & Holding Costs, Cost of Employees, Insurance, etc., just to name a few impacts of what we are experiencing today versus just a few years ago.

The second basic principle is customer perception when buying parts and services in our dealership. As I mentioned, the average MSRP of parts today is pretty much set to average the current industry guideline of 40% - 42%, which from a "cost plus" standpoint, we are marking up from cost by 67%.

In addition, and another fact is that approximately 80% of our parts sales are coming from the $10.00 to $40.00 cost range. That being said, if I have a $20.00 cost part, the manufacturer will most likely have an MSRP of approximately $33.40. This is where it all starts as this price at MSRP drives the customer perception, if any.

If I were to "matrix" that same part that costs $20.00 cost + 82%, instead of 67%, I would be selling that same $20.00 cost part at $36.40, which is only $3.00 more. The difference though is that I achieved a 45% gross profit margin instead of 40%. In my opinion, if the customer says "yes" to $33.40, they will also most likely say "yes" to $36.40.

This, of course only applies to those "captive parts" when customer perception doesn't usually play a role as much as "competitive parts" would. In my opinion, those "competitive parts" should be "flat priced" and weighted for average pricing at cost + 67%, which would retain a 40% gross margin.

Parts Sales Per Employee/Gross Profit Per Employee:

Industry Guideline: Sales: $45,000+/Gross Profit: $15,000+

ACG "Smart Parts" Perspective Guideline: Sales: 50,000+/Gross Profit: $20,000+

The reasoning behind this one is quite simple as the math doesn't lie. Our industry guideline math results in a 33% overall gross profit margin and we should be trying to achieve at least a 40% retained gross margin overall. The ACG "Smart Parts" Perspective Guideline does result in a 40% overall gross margin.

The other reason for the higher gross margin is now with most manufacturers having to pay full list on warranty parts, or a substantial "uplift" to dealers for those warranty parts, our target should be at least 40%. With exception given only to those few states that have not yet litigated for this warranty parts uplift, a 40%+ parts gross profit overall is achievable.

Lastly, and if anyone hasn't noticed yet...the cost of everything is going up. We are actually selling the same parts for more as all manufacturers have raised their prices this year at least once, if not more already. That means our Parts Staff is selling at higher price and higher gross with the same effort and number of transactions, and not necessarily selling more parts.

Lost Sales Reporting:

Industry Guideline: 5% - 10% of Total Parts Sales at Cost

ACG "Smart Parts" Perspective Guideline: 10% - 15%+ of Total Parts Sales at Cost

Actually, the industry guideline for Lost Sales Reporting has gone down over the past few years as the guideline for reporting Lost Sales used to be at 10%, but now has been reduced to 5% - 10% which does not make sense to me. In my opinion, Lost Sales should actually be called "Potential Missed Opportunities".

Lost Sales is a key component in recording "parts demand" along with parts sales. The more we record parts demand, the more we will see and be able to manage on potential parts that may phase into the Dealer Management System, (D.M.S.) The less demand we record, fewer parts will phase in, resulting in a lower inventory "breadth", or coverage.

Posting Lost Sales at a higher rate will result in better inventory coverage and defining what is a true Lost Sale is very simple. At the time of part inquiry is our best opportunity to post Lost Sales as one of the four following things will happen...

Number One: We have the part and we sell it, or...

Number Two: We don't have the part and we Special Order the part, or...

Number Three: We don't have the part and we have to chase the part, or...

Number Four: None of the above three happens and we post a Lost Sale.

Overall Fill Rate/Level of Service:

Industry Guideline: 90% - 95%

ACG "Smart Parts" Perspective Guideline: 85% - 90%

It may look like we are actually lowering the bar on this one, but that's not exactly true. First of all, Overall Fill Rate, (Level of Service in some D.M.S.'s) has a different definition than most may think. The Overall Fill Rate, (Level of Service) is defined as "Total Sales at Cost Minus Lost Sales at Cost".

All this category means is that we sold the part, whether today, tomorrow, next week or next year, minus any Lost Sales posted at cost. This is why the industry guideline is 90% - 95% because that's the opposite of the industry guideline for Lost Sales Reporting at 5% - 10%.

That being said, we could actually report no Lost Sales and the Overall Fill Rate, or Level of Service will show up the Parts Monthly Management Report as 99.9% or 100% Overall Fill Rate, or Level of Service. So, I guess in that case, we would look like a hero at 100% Fill Rate!

This also explains the ACG "Smart Parts" Perspective Guideline for Overall Fill Rate is at 85% - 90% as it too is the opposite of the 10% - 15% Lost Sales ACG Guideline. So even though the ACG "Smart Parts" Perspective is lower the industry guideline, the results are better.

On a side note, the most important fill rate to measure is the "First Time Off Shelf Fill Rate", which is the actual percentage of time the part is sold on first visit. That calculation cannot also be measured on the D.M.S. as it has to be calculated the old fashion way....

Total Sales of Normal Stocking Parts at Cost Minus Emergency Purchases at Cost

Stock Order Performance:

Industry Guideline: 75% - 85% of Total Parts Purchases at Cost

ACG "Smart Parts" Perspective Guideline: 75% - 85% of Total Parts Purchases at Cost

I agree with this industry guideline, but I wanted to put this one in because most Parts Departments will never achieve this guideline if they are only utilizing the manufacturer's Vendor Managed Inventory Programs, (V.M.I.) to replenish their stocking inventory. 

If we don't utilize our own D.M.S., (with the proper set ups of course by the math) in addition to the Manufacturer's V.M.I., the best we could ever achieve is a 50% - 55% Stock Order Performance as the Manufacturer's V.M.I. only covers approximately 50% - 55% of their total inventory breadth.

This guideline 75% - 85% should also be our guideline for our First Time Off Shelf Fill Rate as it only makes sense that if 75% - 85% of our parts should be ordered for stock replenishment and it's our guideline for Stock Order Performance, then we should be selling those Normal Stocking Parts at a rate of 75% - 85% as well.

There are many industry guidelines that I agree with and abide by, but I believe that these five industry guidelines not only can be attained, but they could also reach our ACG "Smart Parts" Perspective Guidelines as well. Sometimes it doesn't take much to make a difference and achieve higher levels of expectation.

To me, it's the "expectations" that we have on ourselves that allows us to achieve even higher levels and the first step to getting there is to realize that it's "Time To Raise The Bar!"

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...







  






 

Wednesday, August 10, 2022

August 2022: "Don't Take Your Foot Off The Gas!"

It has definitely been a whirl wind in our industry these past couple of years between the pandemic, shifts in the economy, supply chain issues and lower New Vehicle Production just to name a few. All the forementioned along with a lower work force participation rate, who would have thought that many dealers are experiencing their best years ever these last couple of years. 

The challenges have been great for sure, but as always, we adapt and move on in our industry. Profits have risen for sure along with our stress levels as we continue the battle of having so much work that we can't keep up with due to hiring issues and labor shortages.

With that said, the effects of these last couple of years taken into consideration, the job of the Parts Manager has never been tougher. The time spent alone chasing down many parts that are not easily accessible has taken up much of the time in the day for Parts Managers and their staff.

The pressure has never been greater as the needs of the customer to get their vehicle back on the road relies heavily on having the right part, or just trying to get the right parts to complete the job. Back that up with the pressure on the Service Department to have enough technicians to meet the increased demand adds up to a stress level we have never experienced before.

All the above mentioned is not news that we don't already know, but in my opinion, we have to separate what is out of our control and what is in our control. It seems that we tend to let what is out of our control actually control our thought process and our actions.

No matter what gets thrown at us, we have to maintain control and not let the outside environment stop us from doing the basic duties and tasks that the Parts Manager is responsible for. This is why the title of this month's issue is what it is..."Don't Take Your Foot Off The Gas!"

Every Parts Manager is facing the same issues, no matter who their manufacturer is, so rather then talking about the tales and woes of what we are facing, we will focus on what is in our control and get back to some of the basics of what we can do and not what we can't do.

That being said, let's get started and ask ourselves one simple question...

"What am I not doing that I should be doing no matter what the current environment is?"...

To set the stage, I did a little research on over 30 Dealership Parts Departments that are on our current Smart Parts On-Going Parts Training Program. Over 90% of these dealership Parts Departments are succeeding to be at or above parts industry guidelines in almost all categories.

Considering all that's going on in our current environment with backorder issues, supply chain issues, employee shortages, added time to chase parts that are not available whether parts restriction or cancellations, they are still getting it done.

So that brings me to this question...

"How are they getting it done when everyone else out there is complaining that they can't get parts?"

This is where the research began as I started to break down the Parts Manager's "good practices" that have never changed over the years and are in our control versus what's not in our control due to the results of our current industry environment which include parts shortages, supply chain issues, parts restrictions, employee shortages, etc.

The results were really not shocking to me, but they may be for others as we go down the list of what some Parts Managers are doing to get things done versus the ones that aren't. Even though we are truly working harder, we have to go further and work smarter. We also have to understand how Normal Stocking Parts get on the shelf in the first place.

"Is your foot on the gas, or off the gas?....here are four ways to find that answer for yourself...

Number One: Lost Sales Reporting/D.M.S. Utilization

Every single one of these successful Parts Managers continues to post Lost Sales at the industry guideline, or better of 5%-10% of total cost of sales. Posting Lost Sales is essential to picking up those added parts demands over and above the natural parts demand realized from parts sales.

Each one of these Parts Managers are also utilizing their own Dealer Management System, (D.M.S.) in addition to their Manufacturer's Vendor Managed Inventory, (V.M.I.). Therefore, posting Lost Sales can be an advantage as the extra demand posting from these Lost Sales allows for more parts to "phase-in" to the D.M.S., leading to more parts inventory "breadth".

Keep in mind though, if you are not utilizing your own D.M.S. and relying solely on the Manufacturer's V.M.I. such as RIM, ARO, PartsEye, etc. for Stocking Replenishment, it doesn't matter if you post Lost Sales or not as that information really doesn't get utilized if we are not running our own D.M.S. Stock Order for those parts not covered by the Manufacturer's V.M.I.

Posting Lost Sales only helps if you are running your own D.M.S. Stock Order in addition to the Manufacturer's V.M.I Stock Order as the Manufacturer's V.M.I. Stock Order only covers approximately 50%-55% of the Manufacturer's total inventory "breadth" with mostly A and B parts movement.

All the rest of what I call the "hard parts", or the "meaty parts" can only be picked up by the Dealer's D.M.S. with the proper Set Ups & Controls based on the math. In fact, during my research I found that dealers with Manufacturer's that did not provide a V.M.I., had a much better inventory "breadth" and experienced fewer back orders and parts restrictions because they already had the part on their shelf.

Number Two: Managing Back Orders/Restricted Parts/Supply Chain Issues

Our number two does have a long title, but all three of the above falls into the same category as to how the Smart Parts Manager actually "manages" those situations. Even though we are spending more time on the phones chasing parts more than ever, it doesn't change the fact that we still need to get the parts.

First of all, our job as Smart Parts Managers doesn't stop when we discover that the part is on backorder, restriction, unavailable until whenever, perhaps requires a VIN number to process the order, our job is actually just beginning. Having a mindset that we just can't get the part just makes matters worse.

Common sense tells me that somewhere out there, some other dealer or vendor has the part that is not available through normal supply chains. Also, we have to utilize all of our options, such as offering the customer with the aftermarket options in order to complete the repair and get the customer's vehicle back on the road.

But!...What About The Exceptions!...

Of course, in every situation there are going to be exceptions and that's what I hear about the most from our Smart Parts Managers. Exceptions such as warranty situations that require a factory only part to complete the job with no parts availability and no expected delivery date until whenever.

Keep in mind that we have always had these exceptions and that's why we call them exceptions in the first place. Yes, perhaps we are experiencing more of these exceptions than we ever have, but for the most part, we can go much further to reduce these situations.

That's where the right mindset comes into play as we need to focus more on what we can do versus what we can't and stop complaining about the exceptions to the rule because there will always be exceptions, it's just a matter of how many we have to deal with each day.

For example, often times I've seen where a part is on back order and all I had to do was upgrade or change the order type to get that part. Or perhaps I may have to find the part on OEConnect, or some other Locator and pay more for it, but in the long run, I will make more gross "dollars" once the job is completed.

I was actually shocked to find that many Parts Managers would not go the extra mile because it was going to hurt their parts gross margin. These Parts Managers, to me, are not getting it and are not looking at the big picture as I can't spend a gross margin, but I can spend gross dollars.

Number Three: Parts Staffing Needs

Since the beginning of the pandemic and due to other economic reasons, we have experienced a much lower work force participation rate and we all know that. Although, we may or may not know that over the last couple years, we have seen more and more workers that are in the work force changing jobs and/or careers for higher wages and income.

Most people in the work force know that employers from every aspect and field are looking for employees who want to work. That being said, more and more people are looking for work, but they may want higher wages and salaries due to economic reasons.

So, I guess my question is that if we know this already, then why are we letting our people and staff walk away to other dealerships? Just like everything else nowadays, everything is going up and that includes employee wages and we have to pay them if we want to keep them.

As a matter of fact, parts people in the aftermarket generally make less wages and salaries than the average parts counter person does in the automotive parts dealership which gives us an advantage to try and recruit, hire and train these parts people from the aftermarket parts stores.

It's our job as managers to make up the gross due to the higher cost of business, which includes our employees. Problem is, many, many managers and owners have a fixed cost in their mind of what a person is worth and that's the problem. For example, I think a gallon of gas is worth about $2.00 - $2.50 a gallon, but that's not what I'm actually paying today.

Who would have thought we would be getting the price for Used Vehicles today with more front and back gross than ever before. That goes for the people in the work force today as they know this and they will shop other opportunities if they have to just to survive our current economy.

Down the road, things may change, but one thing for sure is that we have to keep up with the times as they are and stop having a mindset that is outdated. People will work for a decent wage and they won't shop other opportunities if we just pay them what the going rates and trends dictate. As managers and owners, we are the ones that are responsible for sales and gross to expected industry guidelines.

One last comment and example on our Number Three...

I recently visited a dealer that was complaining that they couldn't find any help, (no surprise!) and they said they couldn't afford what people were asking for as far as wages, from Parts Staffing Wages to Technician Flat Rate Wages, etc.....sound familiar?

Not surprisingly though as this same dealer had not raised a simple oil change price or any other maintenance menu item in over five years, no adjustments to parts pricing and matrix as far back as he could remember, and his Service Customer Effective Rate was the same as it has been for over five years. Last I knew...a lot of things have gone up over the years...

"If you can't afford to pay, then I guess you can't afford to play"...

Number Four: Managing Proper Stocking Levels

Managing the right Stocking Level on all Normal Stocking Parts also goes beyond just utilizing the Manufacturer's V.M.I. as the information they receive to have the right Stocking Level comes from our own Dealer Management System.

So, as the old saying goes..."Garbage In, Garbage Out" and if the dealer's D.M.S. Set Ups & Controls aren't accurate based on the math, we will end up having too much of what we don't need and not enough of what we do need. This will amplify the problems we are already having with backorders, supply chain issues, restricted parts, etc.

So now, it goes well beyond the "exceptions" I mention above because we are now running out of the most common, fast-moving parts and that has never happened before! We have always had the fast-moving parts such as filters, wiper blades, brake pads, etc.

We are now running out of the simplest parts that should never be an issue, but due to all the above mentioned, we are having to scramble to buy even oil filters from other dealers, or aftermarket vendors. Back in the day, we actually stocked "too many" fast-moving parts with more overstock than we really needed as "lead times" and "fill rates" were never a problem.

We need to rely on our own D.M.S. and also have to know how to use it when it comes down to Managing Stocking Levels and doing the math. When Supply Chains and Shortages happen, we can "turn the switch up" on our Best Stocking Levels, or High Days Supply to carry our Stocking Levels further out to accommodate longer lead times.

If we are relying solely on the Manufacturer to supply us based on their recommendations, and/or we don't utilize our own D.M.S. with the right Set Ups & Controls, then we will run out, it's that simple. If we utilize our own D.M.S. with the right math, the Manufacturer will emulate our D.M.S. and provide the right Stocking Levels on their qualified parts as well as.

The biggest problem with Supply Chain Issues, Part Shortages, Restricted Parts, etc. is that many Parts Managers don't know how to make the appropriate modifications to their D.M.S. in their Best Reorder Points, or High Days Supply. These increased lead time changes alone caused by Supply Chain Issues will cause "stock out" situations.

Quite simply, if my system is designed to carry the right parts for a specific amount of days, and then those normal stocking days get interrupted by increased lead times from supply chain issues, or perhaps from a different supply warehouse that takes longer to get... then wouldn't it seem obvious that I need to make the appropriate adjustments in my D.M.S.?...seems pretty simple to me...

The above four areas are what supplies the fuel that keeps the parts engine running and if we don't have the fuel, we can't keep our foot on the gas in providing the best service for our customers. If we don't utilize all the tools in our tool box, then the results will not change during these times. We will always be running on half a tank of fuel and at half the speed limit...

We can either watch what happens, wonder what happened, or we can make things happen. One thing for sure though, if you want to get through it..."Don't Take You Foot Off The Gas!"

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...





Tuesday, July 5, 2022

July 2022: Managing The Tire & Gas, Oil, Grease Inventories

Managing any inventory is a task in itself, but when it comes down to managing the Parts Inventory in the automotive dealership, it can be even more diverse. In the automotive industry, and for years, the Parts Inventory has been broken down into three separate inventories.

These three parts inventories, especially from an accounting standpoint, has always been the main parts inventory, the tire inventory and the gas, oil & grease inventory, (G.O.G.). Although, some dealers today have actually combined all three of these parts inventories into one main parts inventory.

Most Dealer Financial Statements have this separation of parts inventories on the first page of the Financial which is called the "Balance Sheet". Some manufacturers even have Accessories separated on the first page. Much like the separation of the New & Used Vehicle Inventories, they are all listed as "assets".

Before we get down to the reason of this separation of Parts Inventories, let's break down some of the facts, or "differences" in the parts Main Inventory, Tire Inventory and the Gas, Oil & Grease Inventory. As a matter of fact, "back in the day", dealers actually had gas on sight, which was part of the Gas, Oil & Grease Inventory to fuel their New & Used Vehicle Inventory.

Here are some of the facts on the differences of these parts inventories, then we will get into the reasons for the separation....

Main Parts Inventory:

The Main Parts Inventory carries the bulk of the overall parts inventory value and most of the part numbers in the overall inventory. Also, the Main Parts Inventory also carries the largest life span of parts with more consistent overall demand over time.

The Main Parts Inventory requires different criteria on Parts Phase-In, Phase-Out, Stocking Levels and Pricing Strategies. Lost Sales play a huge part in the Main Parts Inventory initial demand set ups on parts Phase-In to record overall demand compared to the lower Lost Sales demand on tires and oil.

Lost Sales are hardly ever recorded on Tires and Oil, although Lost Sales should be recorded on tires as they tend to have more part numbers than oil and far many more vehicle applications. Tires should be considered as regular part numbers, even though they should be separated from the Main Parts Inventory.

Tire Inventory:

The Tire Inventory has far many more obstacles and concerns to overcome. First and foremost, tires take up a lot of space and weight which requires not only space requirements, but they also require safety considerations when storing them. Along with the expected lower gross margins and shorter life span, tires can be literally "a pain in the butt" for Parts Managers.

Although, from the Service side of things and from a retention standpoint, tires are essential to keep our customers coming back to the dealership. Selling tires, much like selling a basic Lube, Oil & Filter are the two primary services that lead to keeping our customers coming back.

Tires are also always changing designs and superseding to an upgraded tire which requires updating tire inventory constantly. As a matter of fact, it is most likely that the tire that came with your new vehicle will be replaced by an upgraded tire by the time of replacement. 

Gas, Oil & Grease:

Oil is the highest volume part number sale in the whole parts inventory, even though oil has the lowest inventory of part numbers in the parts inventory. Oil also is never considered as a part that will ever go obsolete. On the contrary, oil can be the highest asset purchase risk in our entire parts inventory.

Oil can't be returned and is an environmental risk while occupying valuable inventory space forever once it becomes obsolete. Are there any vehicles utilizing 10W-40 oil any more, or an even better question: Does anyone still have 10W-40 in their inventory? Oil is ours once we purchase it and will most likely stay where it's at right now.

"So!...What Are The Reasons For Separating These Inventories?"

Let's look at the reasons...

Reason Number One: Reconciliation

First and foremost, the Gas, Oil & Grease Inventory is the toughest one of the three to keep reconciled to correct amounts between the Accounting Ledger and Controlled Inventory Amounts each month and year. Bulk oil is the biggest culprit as varied amounts are pumped out each day.

Receipting oil is also a problem as often times oil is receipted into one inventory and then sold from another inventory. The sales and cost of sales accounts must be linked correctly with the proper parts source or stocking group to insure proper reconciliation.

Tires also fall into this category as parts may be purchased as a part and receipted into the main parts inventory and then sold from the tire inventory. Most invoices from the manufacturer on both oil and tires allow for the dealer to receipt to either the main inventory, or the other two.

Reason Number Two: Inventory Aging

Oil and Tires age much differently than the parts in the main parts inventory, especially tires as the life span is much shorter. That being said, tires require different set ups as far as Phase-In, Phase-Out and overall Stocking Levels. Tires need to especially have a shorter Phase-Out timeline as tires tend to supersede to updated part numbers.

Also, tires only come around for replacement approximately 24 - 36 months so they are especially hard to track for consistent sales demand. That being said, it's very unlikely that we get return tire business from the same customer. It's much better to capture initial tire sales and then let them Phase-Out after six to nine months.

Believe it or not, oil can also go obsolete as most parts managers keep refilling the tanks until one day, the manufacturers come out with a new grade of oil to meet new emission and fuel conservation requirements, or regulations. At that point, we are stuck with what we have left in the tank with no options to get rid of it.

Number Three: Inventory Discrepancies

Even though it's our number three reason for separating these inventories, it's probably the most important reason. Oil is the number one reconciled inventory of all the inventories because it has the highest individual unit of sales by quantity.

It also has the most "crossover" inventory accounting between the main parts inventory and the gas, oil & grease inventory. Packaged oil may be considered a part while bulk oil may be considered gas, oil & grease and they may even have the same part number. We could have 0W-20 oil in bulk and packaged in two separate inventories.

Tires may also fall into this same category as we may purchase tires from the manufacturer and is receipted and sold as a part. We can also purchase tires from the local tire vendor and those tires get receipted and sold out of the tire inventory.

Crossover accounting from the main parts inventory, the tire inventory and gas, oil & grease inventory happens all the time and creates an accounting nightmare in many dealerships. If only one main inventory is used for three of these inventories, it is much harder to "trap" overall parts inventory discrepancies.

The Bottom Line:

With all of the above facts and reasons mentioned above, the separation of these three inventories seems pretty obvious. It may be easier for accounting to have them all looped into one inventory, but when a problem, or a huge discrepancy occurs after the physical inventory is performed, no one is happy.

Also, a physical inventory can be performed on the tire inventory and the gas, oil & grease inventory to reconcile the Accounting Ledger Inventory and the Controlled Parts Inventory on the D.M.S. each month to control any discrepancies.

Unless we are performing Perpetual Inventories on the main parts inventory, we can't count our main parts inventory each month, but we can "trap" most of these most common discrepancies that happen mostly in the tire inventory and the gas, oil & grease inventory.

If we are just waiting until the end of each year when most perform their annual physical parts inventory to deal with these discrepancies, we are just leaving ourselves open to surprises that may not be in our favor...

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...








 




Monday, June 6, 2022

June 2022: Expanding The Parts Inventory "Breadth"

One of the main goals as "Smart Parts" Managers is to always have "the right part at the right time". Believe it or not, having the "right part at the right time" in today's world is a much tougher task than it was just a few decades ago.

More and more vehicle manufacturers have jumped into the market while existing manufacturers continue to expand their vehicle model base. Along with the on-going new vehicle technology added to all these new vehicles and models, replacement part number expansion has skyrocketed.

In addition, part number coverage is not what it used to be a few decades ago. For example, "back in the day", we would have had just one part number for a set of front brake pads that fit many models for several years. Today, we could have several different brake pad numbers that fit the same model vehicle for just one model year.

All this has led to a nightmare for parts managers trying to hit that elite goal of having "the right part at the right time" at least 75% - 85% of the time on that first visit to the parts counter. Also, and to add insult to injury, many manufacturers are not making it any easier.

Since the evolution of vehicle manufacturers' wanting to control the dealer's parts replenishment inventory, otherwise known as Vendor Managed Inventory, (V.M.I.), many parts managers have abandoned creating their own stock order in the Dealer Management System, (D.M.S.)

The days of running stock orders on our own D.M.S., getting much higher return allowances and discounts, easier parts return policies from the manufacturers have been replaced by manufacturer-controlled inventories, lower discounts and return allowances, and program compliance, or "obedience" as I prefer to call it.

What many may not know is that most of the manufacturers' V.M.I. programs only cover approximately 50% of the manufacturers total inventory coverage with mostly A and B parts covered. That being said, and if we do the math, the best we can do on inventory "breadth" is about 50%. If we aren't utilizing our own D.M.S. to run our stock orders for the "rest" of the parts, increasing our own inventory "breadth" is nearly impossible.

Here in lies the big question...

"How are we going to increase our parts inventory breadth AND reduce our overall inventory amounts?"

Here We Go!...

The first thing that we have to do when considering increasing our parts inventory breadth goes back to my intro. We have to know what our customers are asking for and what they are buying as those two combined add up to parts demand. What they are asking for equals Lost Sales and what they are buying equals Sales Demand.

The second thing we have to do is manage and control our parts obsolescence in order to maintain a broader inventory breadth. There are always new parts coming in, or phasing in that meet total demand for normal stocking status so we cannot afford to hold obsolete inventory beyond the parts life span.

The life span of a part today is far shorter than it was decades ago. Here are a few facts on today's life span of a part courtesy of Mike Nicoles, Inc.

  • Parts with no sales in 6 months = 49% chance of no future sales
  • Parts with no sales in 9 months = 67% chance of no future sales
  • Parts with no sales in 12 months = 98% chance of no future sales
Let's back that up with the NADA Guideline for Sales Activity...
  • Parts Sales Activity 0 - 6 Months Should Equal 85% of Total Sales
  • Parts Sales Activity 7 - 12 Months Should Equal 10% - 15% of Total Sales
  • Parts Sales Activity Over 12 Months Should Equal 0% - 5% of Total Sales
As you can see, we cannot afford holding parts beyond their expected lifespan and the way we control this obsolescence from happening in the first place is to have our own D.M.S. set to the proper phase-out settings to where we can sell and phase these parts out well before 12 months. 

If we set our phase out setting between 7 and 9 months, we still have a 35% - 40% chance of selling these parts and they will not be restocked unless these parts meet parts phase in criteria all over again. Unfortunately, we may have to hold the manufacturer's V.M.I. parts much longer before we can return them.

So, now that we have looked at controlling our obsolescence to current parts life cycle times, we can now focus on expanding the parts inventory "breadth". Increasing parts inventory "breadth" can only come from one direction and that is from total parts demand recorded into the dealers D.M.S.

When we talk about total parts demand, that includes total Parts Sales and Lost Sales Reporting to industry guidelines or higher into our own D.M.S. which gives us what our customers are asking for and what they are buying.

Reporting Lost Sales into our manufacturer's V.M.I. Program can provide demand for a group of dealers, but it will not have as much of an impact as it would if reported into our own D.M.S. as we control the total number of parts demands before phase in and not the manufacturer.

The number one ingredient to increasing overall inventory "breadth" is reporting Lost Sales to industry guideline or higher, which is a minimum of 5% - 10% of total sales at cost, although I prefer 10% or higher. Unfortunately, Lost Sales Reporting is considered a chore in many parts departments and not taken seriously.

Actually, we should be looking for Lost Sales and areas we can post even more as the more "input" we give to our D.M.S., the more "output" we will get towards our goal of increasing our inventory coverage, or "breadth". But, before all that, we have to look at the definition of a Lost Sale in order to increase these demands.

We all know that if you asked 10 different people what the definition of a Lost Sale is, you would probably get 10 different answers. The end result would be a lack of, or no Lost Sales Reporting, which is really sad because when you think about it, the definition is really simple.

The best opportunity to report Lost Sales is at the time of inquiry as one of four things are going to happen when you are asked to research a part....

Number One: We have the part and we sell it...

Number Two: We don't have the part and we create a Special Order...

Number Three: We don't have the part and we chase it as an Emergency Purchase..

Number Four: None of the above happens and we post a Lost Sale...

We also have to look for these Lost Sales as "Potential Missed Opportunities" and record these demand opportunities to increase parts inventory "breadth". Lost Sales Reporting should not be considered a chore and we should hold our staff accountable in consistent, accurate reporting.

Keep in mind, even if we report an excessive amount of Lost Sales, it doesn't matter as these parts that phase in from Lost Sales don't just jump on the shelf. They will only phase in to a Suggested Stock Order where the parts manager makes the final decision whether to stock the part or not. One thing for sure is that we can't manage what we don't see.

Let's look at some areas for Lost Sales Reporting Opportunities...
  • Special Order Parts before they are sent back to the manufacturer
  • Aged Back Orders not received
  • Aftermarket parts sold in place of manufacturer parts with a Lost Sale posted under the manufacturer's part number
  • Service Quotes on unsold, non-stock parts 
Each one of these above examples do not have any demand posted as the sale did not happen under the manufacturer's part number. Even though there was an initial "need" for the part, the D.M.S. has no idea that there was a need, or a demand for the part.

Reporting Lost Sales isn't anything new that we didn't already know about, but I guess what many don't get is just how important they are when it comes down to increasing our parts inventory "breadth". The other thing is that we need to encourage Lost Sales Reporting as it is just as important as recording customer "Ups" in the Sales Department.

Increasing our parts inventory "breadth" also increases our parts profitability as we all know, and just like in Front End Sales, we make our most profit on the vehicles and parts we have on the lot and on our shelves. If we manage and control our obsolescence and increase our parts inventory "breadth" we will actually have more coverage and less inventory.

We will also capture the "peak sales" of parts during their shorter life span compared to years ago. Keeping our obsolescence at twelve months or less, and selling that obsolescence at even half the market value or less, the Return On Investment, (R.O.I.) by re-investing any revenue we receive from the obsolescence into parts that are moving can bring an R.O.I. of 300% or more.

Last and most important, if we do not utilize our D.M.S. with the proper set ups & controls in conjunction with manufacturer's V.M.I. as opposed to relying solely on the manufacturer to replenish our inventory, we will never achieve a broader inventory. 

All we would accomplish is increased Obsolescence, more Special Orders and Emergency Purchases, lower Parts & Service Gross Profit, lower Parts "First Time Off Shelf Fill Rates" and increased Parts Acquisition & Holding Costs. The tools are right in front of us...it's time to get back to basics and use the D.M.S. as intended.

Let's increase the "muscle" of our parts inventory and get rid of the "fat" as the end results will be that we can have a leaner and meaner parts inventory that will give our dealers' the best Return On Investment and higher 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...













Wednesday, May 11, 2022

May 2022: "Mapping Out The Parts Department Floor Plan"

Unless you are building a new dealership, or renovating your Parts Department, most Parts Managers have what they have as far as the space allotted for parts storage and the positioning of the parts currently in their inventory. That being said, these parts are where they are now and perhaps always will be.

But, have you ever thought for a moment that we don't have to continue with the "status quo" as far as where our parts are located? Have you ever thought that there may be a better and more efficient way to position, or "bin" our parts? Have you ever even considered that there is a "science" on how we should store and stock parts?

The Parts Department is unique in the fact that we get accustomed to what we see every day, or perhaps what we have been used to as where parts are located. This complacency has led us to brake pads go here, filters go here, spark plugs go here, bumpers go upstairs, cases of oil go here and on and on it goes because that's the way it's always been.

Positioning parts efficiently isn't something that's new as most "Smart Parts" Managers will position fast moving parts close to the back counter for technicians along with perhaps packaged oil, sealants, clips, connectors and such, but are we really utilizing our parts space efficiently? Even more important, are we utilizing our "air space" efficiently?

We will explore more on this topic and end the excuse mongering such as....

"I Can't Stock All The Parts We Need Because We Don't Have Enough Space!" 

I would have to say that my first response to that comment would be in the form of a question...

"How Much Parts Inventory Space Is Currently Occupied By Obsolete Parts?"

Let's Begin...

The proper positioning of parts begins with stocking parts "back to front" in the way of individual parts space requirements and sales movement. In other words, bigger parts in the back and smaller parts to the front. Keep in mind that fast moving, overstock parts also fall into this category.

"Back to front" also includes any upper level parts space capacity on mezzanines or second floor parts space capacities. These larger, bulkier parts items also tend to be slower moving parts and are less likely to interrupt technician efficiency.

As I mentioned most "Smart Parts" Managers already do have their faster moving parts closer to the front and back counters, but after that...parts could be anywhere depending on space restrictions or Parts Department demographics and logistics.

This is where the topic of this issue all begins...

Here's what many Parts Managers don't consider and should start to consider when maximizing their Parts Department's efficiency and space capacities. Keep in mind, the following considerations, or recommendations will work no matter how much parts space you have , or perhaps don't have.

Obsolescence:

First and foremost, all parts that are considered obsolete, (no sales over 12 months) should be in a separate parts source, shelved in the furthest most bin location from the front and back counter, regardless of the size of the part. Being that the chances of selling these obsolete parts is 98% or worse, they should be shelved in outside storage units, or at the furthest point from the front and back counters.

You would be surprised at how much parts storage space can be freed up when obsolete parts are out of the current active parts inventory storage space. Once completed, active parts can be re-binned in a closer area to the front and back parts counters. Even bulk items can be repositioned closer and more efficiently.

Fast Moving Parts:

As we move on from the slowest, or obsolete parts that don't sell, we have to position our fasted moving parts closer to the front and back counters. These parts will not only be more available for efficient sales, they will also be in a position where Perpetual Inventories can be performed on a monthly basis.

Fast moving parts that are positioned closer to the front and back counters can also provide the "Smart Parts" Manager a much better view on Stocking Levels. After all, stock out situations are more apt to happen on faster moving parts.

"Back To Front" Mentality:

Now that we reviewed that slowest and fastest moving parts, it's the "in-between" parts that cause the most confusion. After taking care of the slowest and fasted moving parts, the "back to front" mentality must take over, meaning that the biggest go to the back and the smallest to the front.

This also includes any overstock items such as packaged oil, filters and bulk fluids. Each of these items should carry two bin locations, both primary and secondary. The primary location would precede with only sufficient shelf space given. There is no need to have one part number, let's say an oil filter occupying several bin locations.

Fast moving parts need only occupy a four days sales supply and can be replenished from secondary locations as needed from either back locations or outside parts storage facilities rather easily. Many Parts Departments may not have ample interior bin space, but if researched, outside parts storage via Pods or Storage Trailers are simple solutions.

Adjustable Bins/Parts Drawers:

These "in-between" parts should also occupy 80% of the active part number inventory as adjustable shelves and parts drawers offer the highest of ease in adjustability. These parts are constantly moving, changing in size and quantity as well as utilizing as much "air space" as possible.

These adjustable shelf bins and drawers are also much easier to manage around the front and back parts counters and can be moved much more easily as needed. These "in-between" parts are also much easier to access and perform Perpetual Inventories, or regular bin counts.

Mezzanines & Second Level Parts Storage:

Mezzanines and Second Level Storage space seems to always be primarily a dealership dumping ground from Accounting Documents, older computer equipment, take off wheels and tires from New & Used Vehicles, older office furniture, etc....we've all been there.

Upper level storage should be for parts only and other dealership items mentioned above should be maintained in outside storage facilities, plain and simple. If these other items mention do not carry any asset risk, they don't need to be taking up the space of a liability asset.

Upper level parts storage is also where warranty parts on hold should be maintained. Even though these exchange warranty parts are not necessarily parts sales items, they still need to be maintained for warranty payment purposes and secured properly.

These upper level parts should be bulk items, overstock, accessories, (other than accessory display items) and slower moving parts. Also, these parts in upper level areas should not present any safety or health risks such as tires, engines, transmissions, etc. unless proper equipment is used such as forklifts, elevators, etc. and must meet weight restriction requirements.

Accessories:

Stocking Accessories can be a nightmare, not only do they have a short lifespan, they retain lower profits and become obsolete much quicker than normal stocking parts. Accessory displays are very popular, but unfortunately, many Parts Departments do not update their Accessory Displays often enough.

In fact, in many, many dealerships that I have visited, there is a ton of dust on these accessories that are outdated usually by a few years. Stocking Accessories has always been a challenge, whether the manufacturer has prepaid them on sold units, or if we actually purchased them for stock.

All that being said, all Accessories should be stocked in a "visual" area where the Parts Manager can keep an eye on them. Much like Special Order Parts, these Accessories can become obsolete rather quickly and often times, they are not returnable.

Accessories also come in all shapes and sizes and should not take up the space of active parts. The should only be on display and at a visual point from the Parts Manager, perhaps also near the Shipping & Receiving Area. In view, but not taking up valuable shelf space of our "in-between" parts stocking areas.

 Special Ordered Parts:

Prior to contrary belief and in my opinion, Received Special Ordered Parts should be closer to the Parts Front & Back Counters and not out of sight from the Parts Manager. Special Order Parts are the number one contributors to obsolescence and should be under the watchful eye of the "Smart Parts" Manager at all times. 

Especially when you consider that Special Order Parts represent sold work and should be watched daily by the Parts & Service Managers. Special Order Parts must be managed and kept to an aging of 30 Day or Less. This active visual each day by the Parts & Service Managers is crucial to on going awareness.

Shipping & Receiving Area:

Even though most shipping & receiving areas are at the back of the Parts Department, it's represents the first and foremost important areas of the Parts Department. The shipping & receiving area is where it all starts. Verifying parts orders, packing slips and invoices is where parts reconciliation starts.

Reconciling the Parts Controlled Inventory on the D.M.S. and the Accounting Ledger Balance is where the parts inventory can make or break a dealer on this very important asset. Training is crucial on proper receipting and posting parts inventory into the proper inventory accounts starts here.

The shipping & receiving area is also where most heavier bulk items such as engines, transmissions, tires, or perhaps drums of oil, transmission fluid, overstock on batteries or coolant should be stored if space allows. If space is not available, these heavier bulk items should be stored in waterproof outside storage units.

As an added note on tires, and if you have a Service Drive, this would be a great place to stock tires. They can be secured by locks and chains, easily inventoried and your Service Customers can now see that you are in the tire business. The more tires they see, the more tires that the customer perceives you sell.

If we use common sense and work "back to front", it will be much easier to perform on going Perpetual Inventories. Perpetual Inventories work great, but only if implemented after a physical inventory is performed.

Lastly, and if your Parts Department simply does not have the space, there are many Parts Shelving Companies out there that can consolidate your current Parts Storage Space down to as much as 60% with your current parts inventory. 

With all the technology and space consolidation options out there, they can "map" your current Parts Department with an onsite evaluation and provide sensible alternatives. You would be surprised on how much "air space" is available!

Mapping out the Part Inventory Floor Plan should be just that...a plan. Working with existing Parts Floor Plans that have been there for years may just continue the frustration of not having enough space for the right parts and who knows?...you just may have more space than you think!

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...