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D.M.S., getting much higher return allowances and discounts, easier parts return policies from the manufacturers have been replaced by manufacturer-controlled inventories, lower discounts and return allowances, and program compliance, or "obedience" as I prefer to call it.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





 

Thursday, April 7, 2022

Supply Chain Issues: "Managing Our Way Through"

If you talk to any "Smart Parts" Manager, they will all tell you how difficult it is to manage through these Supply Chain Issues. From the "trickle down" affects, all the way down to what's causing it and the stress of trying to find parts in general. 

You may hear about the causes from the chip shortage, shortages of supply containers, truck drivers, Covid related shutdowns, struggles to find employees, employees out sick and so on. They will tell you about the never-ending backorder situation and how much time they are spending on the phone seeking alternative sources to fill parts demands.

We all also know about the increased demands on replacement parts due to new vehicle manufacturing, which has dropped by 7.7 million units worldwide, up from the 3.9 million predicted in the middle of 2021. The increased demand of replacement parts could have been pretty much expected as customers are keeping their vehicles longer than they would have if new units were available.

We have also seen an increased demand on used vehicles with prices skyrocketing to levels none of us would have ever imagined. Our whole world from a parts perspective has flipped upside down and one thing for sure is that almost all "Smart Parts" Managers have told me that it's not like it used to be "back in the day".

All the above being said, I would just like to pose this question...

"Can anyone tell me what I don't already know about this Parts Supply Chain Issue?"

Being in the car business has never been easy and there will always be something that will cause us to change from the normal and force us to adapt to what's going on now. Dealing with this Supply Chain Issue is no different and we have to do what we have to do in order to survive.

Even though as "Smart Parts" Managers, we have already adapted in many ways, but I still believe there is much more that we have to do. We have to have a positive mind set in dealing with this issue and we also have to expand our minds to the next level and not just accept the status quo.

So, let's get started...enough about talking about the problem, let's get down to the solutions to the problem"!

Let's start this solution process by mentioning one important thing. If we are relying solely on the manufacturer to get us through this, we will not succeed in surviving this current Supply Chain Issue. As previously mentioned in our February issue of ACG "Smart Parts", current DMS utilization factors are less than 25%, which means many Parts Managers are relying solely on the manufacturer for their stock replenishment needs.

That being said, let's start this solution process right here and continue with surviving and succeeding through this current Supply Chain Issue. Keep in mind that this Supply Chain Issue will be with us for some time and will require us to "think outside the box".

DMS Utilization:

Our DMS is the only tool that will determine what our individual stock replenishment needs are based on individual dealership demand and sales history. No matter what source we choose to buy for stock replenishment, our DMS will tell us what our demands are for phase-in and then ultimately, what stocking levels we need to sustain for our individual customers by posting Lost Sales and Emergency Purchases to industry standards.

With the right Set Ups & Controls, based on the math, our DMS, as it always has in the past, will provide the right information. Most importantly, we can easily manage our own demand as opposed to letting the manufacturer determine what we need based on a group of dealers.

The first step in overcoming these issues is to realize what we need and what resources we have to accomplish the task. In my opinion, we are not utilizing all of our options in getting our shelves refilled. It's just that we have grown accustomed to our current way of doing business and have blinded ourselves to what's available.

Supply Chain Options:

Aside from "factory specific" parts which are the exception to the rule, the majority of the parts that we are dealing with in this Supply Chain Issue can be obtained from other sources. Even though not all manufacturers offer another source such as AC Delco, Motorcraft, Marelli, or Mopar, there are still many other options.

When you think about it, there aren't a whole lot of parts vendors out there that actually make replacement parts as they just end up getting packaged differently to support the individual manufacturer. This translates to many other options including aftermarket vendors, suppliers and search options such as OEConnect, eBay, Rock Auto, O'Reilly's, AutoZone, Advantage, etc.

If properly set up, our DMS is telling us what we need, and our job is to get these parts at whatever means and yes...even if we have to shop other vendors. Even though we represent the manufacturer with factory parts and certified technicians, and if given the option, I would bet most customers just want their vehicle fixed if we would just give them the option.

Even through this crisis, some manufacturers are even honoring their warranties if factory parts are substituted with aftermarket parts if factory parts are not available. In some cases, even used, or remanufactured parts are allowed due to this Supply Chain Issue.

Dealing With Backorders:

The first thing that I want to mention about backorders is that it's a "state of mind". Don't misunderstand, I'm not referring to the fact that we have these backorders, it's just that we have to have a different frame of mind when we experience them. In other words, when we receive a backorder notice, it's not the end, it's actually just the start as the search begins in finding these parts by other means or sources.

In many cases, when a backorder notice is received, we may just have to upgrade or change the order status in order to get the backorder released and shipped. Even though we may incur added costs, I would much rather give up a little gross as opposed to losing all the gross, both parts and labor.

Even if there are no other options on a backordered part from the manufacturer, it just means that I will have to search harder, whether from another dealer, vendor or online ECommerce site, OEConnect, PartsVoice or even eBay to get the part, even if I have to pay a little more.

The only thing about this Supply Chain Issue that we really, really do not have control over are those VIN Specific Parts Orders that are limited to how many we can get and are tied to a specific vehicle, whether a recall part or high demand parts.

When you think about though, compared to all the Supply Chain Issues that we are dealing with, these VIN Specific Parts are more the exception versus the rule even though it seems that we are seeing more and more every day. In my opinion, all other options on Supply Chain Issues need to be utilized better. 

Batteries, Oil & Filters:

These items to me are a "no brainer" as these three most popular part items are the most universal and all three are uniquely manufactured or refined for all manufacturers aside from packaging and labeling. This means that no matter what the brand is, or what the label looks like, I am not running out of these three basic items.

As long as the oil meets API oil weight standards, the batteries are the right group size and the oil filters meet quality standards for filtration, check valves, etc., we can't run out of these basic items. Again, even if I have to purchase them from another dealer, outside vendor, etc., we have to get the customer in the door on these basic services. We have to offer and have more options to keep them coming back.

Paying The Price:

This is another category that should go without saying...Yes!...we may have to pay the price to get these parts and reduce or eliminate stock run out. If you haven't noticed already, the "trickle down" affect in our current economy from fuel and food prices to outside services, everything is going up and we, the consumer are paying the price.

If given the choice in most cases, the consumer will pay the price for goods and services. Don't be mistaken, even the consumer is passing it on to other consumers.  Depending on what we do for a living, or applying for wage increases in our jobs, consumer costs keep being passed down. People are job searching for higher wages at a rate now more than in recent history in order to do whatever it takes to survive in these times.

Parts Hoarding:

This is definitely a practice that many Parts Managers have enacted since this all began. Notice that I didn't say "Smart Parts" Managers when it comes to "hoarding" parts. One definition of hoarding is..."Amassing, hiding or storing valued objects".

In my opinion, there is a difference in "hoarding" versus having an "ample supply" of certain parts. The reason I say this is because at some point, the pendulum will swing the other way and if I'm "hoarding", I will end up with more obsolescence and overstock that I may not be able to get rid of.

After all, we are not in the business of "hoarding", protecting, or holding parts, we are in the business of selling parts. Having an "ample supply" of parts based on proper DMS Set Ups & Controls will give us a few Extra Days Supply, based on our individual "lead times" is the right way to avoid stock out situations and without the fallout and risk of overstocking and future obsolescence.

Our individual DMS Stocking Guidelines, or "Levels" can be easily managed day in and day out and adjusted to current Supply Chain Issues. Leaving that job up to the manufacturer will only lead to not having the right parts at the right time and more of the parts we don't sell all the time.

After all, what did we do before the manufacturer took control of our inventory and at what levels? The answer is simple as we ran our own Stock Orders and managed our own Stocking Levels based our own demand and sales history. Seems to be a lost art these days, but one that we should live by as Inventory Protection starts "in the house" and not "outside the house".

The Bottom Line:

In my opinion, we all have to ask ourselves if we are "in it to win it". Ask yourself if it were your own parts business, what would you do? Would we just be complacent and tell our customers that we are sorry, but your part is on backorder and we don't know when it will arrive? If your own personal vehicle was tied up and you had no other means of transportation, would you be upset?

Last question and most important...

"Are we going to lie down, waiting and watching what happens, or are we going to be the one who makes things happen?"

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, March 1, 2022

March 2022: An ACG Smart Parts Exclusive - "The Parts Department in the EV Revolution"

It's not surprising to any of us in the automotive industry today that the "revolution" of Electric and Hybrid Vehicles continues to grow and "evolve" each year. In addition, many automotive manufacturers are already setting future dates to "retool" their plants and going fully electric on all their vehicles.

Each year going forward, we will be seeing new models, platforms and even more manufacturers getting into the Electric Vehicle Industry worldwide. There are currently over 5.6 million EV's on the road today worldwide as 2018 experienced the biggest EV surge of 2.2 million units alone, up from 3.4 million up until then.

Electric Vehicle Charging Stations are also on the rise with a Compound Annual Growth Rate, (CAGR) of 38% in 2021 alone. In addition, Bloomberg Energy Finance is predicting that by 2040, 58% of the vehicles on the road predicted to be Electric Vehicles, leaving just 42% of the vehicles predicted on the road as combustion engine vehicles.

So, how does this new EV Revolution translate down to our role in the Parts Department? 

There are still many questions out there for many of us as to what parts we will be selling with all these new component driven vehicles hitting the road. Many Parts Managers believe that we will be reduced to selling just batteries, tires, brakes and a few filters as there will be fewer moving parts on these Electric Vehicles.

In all actuality, that thought couldn't be further from the truth as EV's will still require maintenance and replacement parts. In addition, for at least the near future, there will still be combustion engine vehicles on the road requiring the same maintenance and repair parts.

This new technology will also require skilled technicians to provide the maintenance and repairs, just at a higher level. That being said, the diversity and "breadth" of the parts inventory will, in my opinion, be even more important than it ever has. 

No matter what parts we stock, we will still have to "do the math" and stock the right parts at the right time even though they just may cost more. Every vehicle requires a power source and way to transmit that power down to a driveline to make it move and that requires parts and components.

So!...What kind of parts are we talking about in this EV Revolution?

Let's start with the Anatomy of the Electric and Hybrid Vehicles...

All Electric Vehicles are manufactured with the same components required to enable the power source to be transferred to a powertrain and/or differential with some additional components required for Hybrid Electrical Vehicles. 

Whether a combustion engine with gas or diesel fuel, electric motor, or power inverter, power still has to be generated from a source and transferred to a driveline or differential to make the vehicle move. The idea has always been the same and it's just the source of where the energy, or fuel comes from.

Here's the basic list of components required for all Electric Vehicles...

  • Power Electronics Controller
  • DC/DC Converter
  • Electric Traction Motor
  • Transmission, or Power Converter
  • Traction Battery Pack
  • HV Batteries/Wiring/Cables
  • Auxiliary Battery
  • Thermal/Cooling System
  • On Board Charger
  • Charging Port
In addition to the above, Hybrid Vehicles require...
  • Electric Generator
  • Internal Combustion Engine - Spark Ignited
  • Exhaust/Emission System
  • Fuel Tank/Fuel Filler
The basics of the anatomy are the same even though other features, or parts may be involved such as regenerative brake systems, electric emergency brakes, electric drive motors, battery refrigeration system, inverters, chargers, clutch actuators, vacuum pumps, radiators, and electric steering pumps to name a few.

The transmission in the Electric Vehicle is also unique due to the electric motor, or "power inverter", which can generate up to 15,000 RPM's and up to 100Kw of power, resulting in a sport like acceleration with only one transmission gear ratio.

Higher end EV's may also have their own Battery Management System, (BMS) such as Tesla to monitor all the battery storage, capacity and condition of all power sources that operate all onboard systems such as self-drive computers, command center functions, etc.

Both Electric and Combustion Engine Vehicles have the "rubber on the road" which requires drive axles, wheel bearings, various brake systems, tires and fluids. All of which require maintenance at certain intervals, or repairs on a needed basis.

Steering and suspension is also an area that will require interval maintenance and needed repairs as these components take up a lot of wear and tear on any vehicle, whether EV, or combustion engine. Whether electronically assisted rack & pinion steering, constant velocity joints, air springs, dampers or steering mounts, they will all take a beating. 

They will all be subject to normal, or abnormal wear and tear, requiring replacement parts. It won't be a question of parts needing to be replaced inasmuch as the cost of stocking these parts when needed. There will be a lesser need for smaller parts in the EV as larger components will carry the higher price tags.

In a way, it's almost like deja vu when "back in the day", we used to rebuild wheel cylinders, starters, alternators, generators and brake master cylinders just to name a few, with smaller parts. Now all those parts are sold as one component, whether new, rebuilt or remanufactured.

Computers, modules, actuators and control units have already impacted our combustion engine vehicles over the past fifty plus years. Once again, parts are always required to keep the "iron on the road" with cost, quantity and parts lifespan as the only variables.

Over the years, vehicle manufacturing has required fewer and fewer moving parts, which is kind of ironic as we are talking about manufacturing a vehicle that "moves", with fewer "moving parts", whether a combustion engine or electric vehicle.

The biggest issue, in my opinion, is not the fact that we will need our parts department to supply our need for replacement parts, no matter what power source we prefer, it's the issue of "risk versus reward" and our own personal preference.

All fuel, or "power sources" such as gasoline, diesel, lithium-ion batteries, hydrogen cells may all carry safety and environmental risks. All it takes is a fuel source and oxygen to cause ignition, no matter what the fuel source is.

Whether it's how fossil fuel vehicles affect the environment, or how we dispose of lithium-ion batteries, there will always be environmental impacts from our transportation industry. In my opinion, it's not a question of if there will be an impact, it's more of a question of how we control these impacts.

Safety is always a concern in all vehicle manufacturing as it has been for many years and will still play a huge role in how all vehicles are made going forward. From the day when the first seat belt was introduced, advancements in vehicle safety has been impressive over the last 50+ years.

Whether it's new technology on airbags, impact sensors, vehicle rollover sensitivity, weight distribution, passenger air quality, or vehicle crumple zones, advancements in these safety technology areas will always continue on the path of new innovation.

Bottom line is that innovation, technology and evolution has never come without risk and that to me is progress and moving forward. Change is inevitable and will always be at the forefront of advancement, especially in our automotive and transportation industry.

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...









Thursday, February 3, 2022

February 2022: D.M.S. Utilization: "Are You Getting You Money's Worth?"

Since the evolution of Computerized Dealer Management Systems, (D.M.S.) way back in the 70's, many Parts Managers weren't even born yet. Even though new systems continue to evolve, D.M.S. Utilization Factors still fail to reach expected levels.

In my opinion, the main reason for these low percentages is a lack of training, understanding and overall Parts Manager Training. Even though new systems offer more and more depth to what the D.M.S. can offer, the basic D.M.S. capacities are under utilized.

Up to this point, I am fluent in over 10 different D.M.S. "languages" and the one common denominator with all of them is that they all provide the basic necessities in Parts Set Ups & Controls, even though some are better than others.

Unfortunately, many Parts Departments have the wrong Set Ups & Controls because the D.M.S. Vendor doesn't even know what the proper Set Ups & Controls should be. Installers and Trainers most often haven't even worked in the dealership environment and basically just get the system up and running without doing the math, especially in the Parts Department.

It seems like the only dealership department that gets set up even close to accurate is the Accounting Department as "integration" is key in making all the dots connect in the dealership. However, in the Parts Department, basic, standard Set Ups & Controls are "cookie cutter" at best, including D.M.S. Parts Manager Training.

All of the above has led us where we are today, which is no further than we were back in the 70's when the first system was introduced. Well over 40 years and dozens of Dealer Management Systems out there to choose from and we are still under utilizing the D.M.S.

In the Parts Department, under utilization can't be more evident as Parts Managers have so much information at their fingertips to manage their Parts Department more efficiently, but they still scratch their heads when I show them what they have available. Over and over, the response I receive after revealing the D.M.S. capabilities is..."I didn't know my D.M.S. could do that!"

The key to understanding and learning any D.M.S. is actually "knowing" what you are looking for in a D.M.S. to begin with. They all have the basics from Phase-In/Phase-Out Set Ups, Stocking Levels, Min-Max Set Ups, Source Ranking by Piece Sales, Lost Sales & Emergency Purchases Reports, Stocking Status such as Normal or Active vs. Non-Stock and In-Active, etc.

All that being said!...."What Are We Missing?!"

Let's Begin!....

Based on our experience in hundreds of automotive dealerships, we have compiled quite a list of "under utilized" D.M.S. Functions and Reports. Each of the following "under utilized" D.M.S. Functions and Reports provide vital information in managing the Parts Department to it's fullest potential even though they are not listed in any particular order.

Each of the following "under utilized" Functions and Reports are available in all D.M.S Systems, even though they may just have a different name to the function, or report. The most important thing to remember is that we need to know what we are looking for and if we can't find it?...ask someone who does.

 Here We Go!

Ordering/Receipting Practices:

It all starts here as the way we order and receipt parts determines the outcome on our Monthly Parts Inventory Management Reports. For example, if we order a Special Order Part on a Stock Order, it will give us inaccurate reporting as to what parts we have on the shelf that are considered Normal Stocking Parts or Non-Stock Parts, or otherwise referred to as Active, or In-Active Parts.

Every D.M.S. has different order types and receipting options that will determine the actual status of each part. Order and Receiving type codes are easily accessible and should be utilized properly. Emergency Purchases, Outside Purchases, In & Out Purchases, Special Order Purchases and Stock Order Purchases need to be utilized accurately.

Lost Sales & Emergency Purchases Reports:

Believe it or not, and even though we are all familiar with these reports, many Parts Managers still do not run these reports often enough in order to see if we are within industry guidelines, or even reporting them accurately. Both reports are crucial in the Parts Phase-In Process as well as managing "stock out" situations.

Zero Stock Reports:

This report is another report that should be run often, especially those parts at zero quantity and considered as Normal Stocking Parts, or Active Parts. Especially in these times with all the supply chain issues. The last thing we want to see or hear is that we ran out of a part that we normally stock at "point of purchase".

Override/Exception Reports:

This is one report that I hardly ever see a Parts Manager run. Does it not make sense to look at this report daily to see if anyone is overriding parts prices, changing bin locations, and most importantly, removing parts from a Repair Order or Invoice?

Demand Fill Analysis/Piece Sale & Cost Analysis:

Once again, another extremely important report as each D.M.S. will "rank" our sales from a cost of sales perspective, or a piece sales perspective. This information provides the Parts Manager vital information on the parts we sell the most and at what cost range in order to adjust Stocking Levels, and/or adjust our Parts Matrix.

Source Ranking By Annual Piece Sales:

I know these items are not listed in any priority, but if we did, Source Ranking By Annual Piece Sales would be right at the top. Setting the proper Stocking Level of each part we have on the shelf by Annual Piece Sale Ranges determines having the right amount of parts on the shelf at the right time.

Every...and I mean every Parts Department I have visited has the wrong Stocking Level Set Ups. This is not an opinion, this is a fact as the math does not lie. Even if we are enrolled in a Vendor Managed Inventory, (V.M.I.) offered by the manufacturer, they are pulling our own individual D.M.S. data to determine our Stocking Levels.

Inventory Plus/Minus Adjustments:

This report category really goes without an explanation or reason as these plus/minus adjustments can play a huge role in Parts Reconciliation with the Accounting Inventory Ledger Amount. Simply allowing parts to be added in or taken out of the parts inventory is a scary subject. These adjustments, which can and do happen from time to time need to be done by the Parts Manager only.

Multiple/Duplicate Bin Reports:

Unfortunately, in most dealerships, this report only gets run once a year in most Parts Departments when the annual physical inventory is performed. This report should be run monthly and proper adjustments made in order to get accurate inventory counts when the physical inventory is actually performed.

Multiple, or Duplicate Bin Locations may also cause an overstocking issue if the Parts Manager is not aware of these secondary bin locations when ordering. It may also cause inaccurate plus/minus adjustments if not corrected.

Parts On Repair Orders/Work-In-Process Parts:

Whoa!...I shouldn't even have to mention this one, but believe it or not, there are many, many Parts Managers out there that don't even know how many parts they have billed out, but haven't been paid for yet as they are still considered "Work-In-Process". This report should be run daily and reviewed with the Service Manager.

Parts On Order/Back Order:

This is yet another report that Parts Managers don't run enough, especially in these times. What many Parts Managers may not know is that the D.M.S., or even the Manufacturer's Vendor Managed Inventory will not reorder parts that have an "Outstanding Order"status in the D.M.S.

In other words, if I have a part number out there with a quantity of four that still shows "on order", or  on "back order", and we run out of that part, the system will not suggest, or reorder because we still have four coming...eventually. 

This report should also be run at a minimum of once a month and "purged" of Outstanding Orders sitting out there that may have actually been receipted manually. If a part is not receipted to the correct order and control  number, the Outstanding Order on that part is not really "relieved", even though we received it.

Perpetual Bin Count Reports:

Here is another report that doesn't get used enough because many Parts Managers don't run Perpetual Inventories. Even though we may have a annual, physical inventory performed, we should still have constant bin checks performed each day. Constant bin counts each day, week and month can make the annual physical inventory go much smoother.

Most importantly, when it comes down to "balancing the books" between the Accounting Ledger Balance Inventory and the Controlled Inventory Balance on the D.M.S., it's much easier to keep the variances between the two at a minimum.

Dirty Core Reports:

Most D.M.S. Vendors now have Dirty Core Reports to help us "reconcile" the cores we receive back from technicians and customers. In other words, when we bill a part that has a new core amount attached to it and then taken off the repair order when the technician returns the old core, that core amount will be added to the Dirty Core Inventory.

Problem is...many Parts Managers just return their Dirty Cores once they build up and don't actually "relieve" the Dirty Core Amounts from that Dirty Core Inventory,  thus the Dirty Core Inventory just keeps climbing. This also gives false "positive" Dirty Core Inventory Amounts for Monthly Reconciliation with Accounting.

 Daily Operating Control, (D.O.C.) or, Sales and Gross Analysis:

If we are not looking at our sales and gross numbers each day, the end result at the end of each month will be what it is as we can't go back. We should be tracking our sales and gross numbers each day, along with our expenses in order to achieve the dealers expected results at the end of the month.

Believe it or not, there are still dealers out there that will not provide this information to their managers while still expecting these same managers to achieve their expectations. We can't manage what we can't see or measure and these daily reports are the only way we can meet expectations.

In conclusion, we may not know what we don't know, but we do need to know what we are looking for in our D.M.S. and what it has to offer. The challenge is to dig deep and if we don't get the right answer from our D.M.S. Vendor, keep digging as there is an answer out there and lastly...

"Yes...Your D.M.S. CAN Do That!"

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, January 4, 2022

January 2022: The Top 10 "Do's" And "Do Not's" For 2022

In our last issue of ACG "Smart Parts", we focused on our "Top 5 Parts Focal Points for 2022". In that issue, we highlighted some key areas of Parts Management where, if we would just "think outside the box" a little more, we may just achieve even better results in 2022.

We looked at some industry guidelines in a different light where if we did raise our expectations, we could achieve new heights. We also looked at possibly more Accounting Training, D.M.S. Utilization, managing Stocking Levels more aggressively and even thinking "outside the box" on our Pricing Strategies.

Now, as we move into 2022, we have to take a hard line look at what we seem to accept versus what we shouldn't accept. We can't accept the status quo anymore if we want to be profitable in the dealership and especially in the Parts Department.

As we move on down from our Number 10 down to our Number 1 "Do's" and "Do Not's", some "Smart Parts" Managers may to do a little "self evaluation", or perhaps a "reality check" on how we conduct our business each day. As I've mentioned often times, we have to take ownership of our Parts Departments as if we were the owners.

Each category will have a section on what we should do and what we shouldn't do, or perhaps what we are doing versus what we should be doing. The big question is...

"Are We Willing To Make The Appropriate Changes To Do What We Should Be Doing?"...

Even if some may agree or disagree with the overall Top 10 "Do's" and "Don'ts" for 2022 as far as how they are ranked, most will agree on the topics. Once again, we should all keep an open mind as we count them down and know that all the solutions, or "Do's" are more than feasible, they are realistic.

Here We Go!

Number 10: Managing Special Order Parts

We all know that Special Order Parts are are part of what we do. However, we can manage them in a way that they can be minimized and controlled much better than perhaps they are right now. Let's take a look at the "Do's" and "Don't" on Special Order Parts.

Do Not:

Do not take Special Order Parts lightly by not having specific guidelines on how Special Order Parts are ordered, receipted, and shelved in tghe first place. If the Special Order Policy has loose, or have no guidelines where anyone can order Special Order Parts, the results will be obvious as Special Order Parts Aging will just continue to climb and freeze up assets.

Do not order "extra" Special Order Parts for technicians "just in case" they may need them. Do not have an attitude where if the part doesn't sell, we can just put in on the shelf in hopes that someone else will come along and buy those parts.

Do:

Do set guidelines for Special Order Parts to include, deposits or prepayments required when applicable, "future" Service Appointments should be set before the part is ordered, and only authorized Parts Personnel and Management can order Special Order Parts...technicians do not order parts!

Do have another key component to the process by having a "Special Order Parts Policy" that has consequences. Handling and return fees need to be applied to all Special Order Parts over 30 Days, including other dealer departments that authorized the Special Order Parts initially.

Number Nine: Proper Ordering, Receipting and Accounting Practices

Proper ordering, receipting and accountability of parts cannot be taken lightly. We can't just "assume" that the Parts Personnel responsible for these tasks are doing it correctly. Managing a Suggested Stock Order, receipting and posting correctly to the correct order numbers and order types is crucial.

Do Not:

Do not let these practices go unsupervised if not actually done by the Parts Manager. Do not let parts be given out to technicians prior to the full or partial receipt of the parts into inventory as often happens in many dealership Parts Departments.

Do not let any packing slips, receipts or invoices go unchecked or verified before any paperwork is turned into the Accounting Office with the proper Account numbers applied and signed by the Parts Manager.

Do:

Do conduct proper parts personnel training on Ordering, Receipting and Accounting Practices if not done by the Parts Manager. If the Parts Manager is not training properly, then the dealer should provide the proper training in all aspects of ordering, receipting, posting and most importantly...basic, standard Accounting Training.

Do have a secure area to properly check in, receipt and post all parts with proper security to insure non authorized personnel have the freedom to walk in and out of the Parts Department. Do have a proper filing system to file all order slips, packing slips, receipts and invoices for proper parts reconciliation into Accounting.

Number Eight: Managing Stocking Levels

Managing Parts Stocking Levels is an on-going task each day, week, month and year. Unfortunately, many Parts Managers have the "set it and forget it" attitude. Last month we mentioned that the recent supply chain shortage has increased "stock out" situations in many dealerships this past year.

That being said, we need to manage our Stocking Levels more frequently to decrease these "stock out" situations. The problem is that many Parts Managers don't even know how to manage their own Stocking Levels on the Dealer Management Systems, (D.M.S.), or their Vendor Managed Inventory, (V.M.I.) from the manufacturer.

Do Not:

Do not take Stocking Levels for granted as parts is a "moving target" and Stocking Levels can change day in and day out. Do not have the "set it and forget it" attitude and think that they will always level out as they are constantly moving from season to season and supply chain issues.

Stocking Levels can be adjusted as needed based on these supply chain issues and seasonal trends. Especially in these times where we need to actually "overstock" on our fastest moving parts while trimming down Best Stocking Levels on parts that have reached 8 to 9 months with no sales movement and on their way out, falling into the obsolescence category.

Do:

We do need to manage our Stocking Levels more frequently, whether in our own D.M.S. and/or the Manufacturers Vendor Managed Inventory, (V.M.I.). Many Parts Managers also may not know that we can provide weekly, updated Stocking Level changes to the manufacturer so "they" can stay up to date on "our" current Stocking Levels.

We do also have to keep an eye on our Phase-In and Phase-Out Criteria in order to see what parts may be meeting the necessary criteria to possibly "Phase-In" even earlier. On the "Phase-Out" side, we also need to stay focused on those parts that have less activity over 8 months.

Number Seven: "Manage" The Obsolescence

The key word here is to "manage" the obsolescence as parts will drop down into the obsolescence category each year at a rate of at least 2% - 3% minimum. The questions isn't that we will have obsolescence, it's more a question as to what we do with it.

Parts that don't sell quite simply "freezes up" the dealers assets and ties up cash that could be spent on parts that are fast moving and can "turn" much more frequently on a annual basis. Keeping the dealers cash moving is as important as turning the New & Used Vehicle Inventories.

Do Not:

Do not take obsolescence lightly either by just collecting obsolete parts each year and adding to the overall parts inventory. Do not collect over aged, (30 days or more) Special Order Parts, (refer to our Number 10) and just adding them to inventory.

Do not set your Phase-Out Parameters at 12 months and beyond as parts that reach that point have a 98% chance of never selling again. Even if you are utilizing the Manufacturer's Vendor Managed Inventory, (V.M.I.) that may require us to keep these parts for 12 months or more, we still need to set our own D.M.S. Phase-Out Parameters at no more than 8 months.

Do:

Do set your Phase-Out Parameters at no more than 8 months as these parts, once reaching that point of 8 months with no sales will at least alert the Parts Manager that these parts have reached pretty much their high peak in sales. Once they reach that point and perhaps do sell, they won't be reordered again unless they meet Phase-In Criteria all over again.

Do have an overall "Obsolescence Prevention" Plan in place with a combination of outside vendors in which to "sell off" the obsolescence, even if at $.50 cents on the dollar or even a little less. Also, we do need to have an "in-house" Parts Scrapping Program. If you need more information on setting up an "in-house" Parts Scrapping Program, please contact me.

Number Six: On-Going Pricing Strategies

The key word in our Number 6 is "on-going" as we all have experienced price changes over the last couple of years. Whether due to supply chain issues, increased demand and cost, or even recent economic changes in the market.

Setting up and maintaining a consistent pricing strategy is also one of those categories that we can't have a "set it and forget it" attitude. Parts pricing, like any other commodity requires constant attention to what the market can bear. 

I'm quite sure that when we visit the grocery store, or perhaps the hardware store we are seeing constant price changes, but why is it that we keep our same pricing strategies for the most part, never even giving it a second look from time to time?

Do Not:

Once again...do not have a "set it and forget it" attitude when it comes down to parts pricing. Costs are always changing and we do not want to miss opportunities while keeping competitive with our parts prices. We often conduct competitive price surveys on our Service Pricing Menus, but when have we shopped around for pricing on our "captive parts"?

We also do not want to keep our eyes off of industry guidelines of parts retained gross profit or even a little higher. We do not want to just accept what we achieve on parts retained gross profit at a lower percentage, and just settling for what we get for the part. Customers will always pay a fair price if we give them the service they desire.

Do:

We do need to adjust our pricing strategies whether our matrix or our "flat price" parts on a consistent basis which I recommend once a quarter at least. So many Parts Departments that I've visited haven't even reviewed or adjusted their pricing strategies for months or even years. It almost seems like it's a chore no one wants to tackle on a consistent basis.

We also do need to adjust "down" our prices from time to time to remain competitive and not lose customers. It's a "fine line" that we have walk always in order to achieve our goal which is at least 40% overall parts retained gross profit in all sales categories.

Number Five: Parts Monthly Reconciliation

We've talked about this quite often in past articles where we need to make sure that our Parts Controlled Inventory balances to the Accounting Ledger Balance Inventory to 2% or less. The only way we can do this is to perform a Parts Inventory Reconciliation each month.

In many dealerships, this reconciliation function is only performed on a annual basis after the Parts Physical Inventory is performed. Times are definitely different today as dealer profits rely on every profit category including Asset Management.

Do Not:

Do not rely on the dealers "Balance Sheet" and carry over amounts each year such as LIFO methods, (last in, first out) to "balance out" v ariances between the Parts Inventory Controlled Balance and the Parts Ledger Balance Inventories. I'm sure we do not do the same exercise with the New and Used Vehicle Inventories, especially when the New Vehicle Inventory Floor Plan comes into play.

Do not trust the Dealer Management System, (D.M.S.) totally when conducting end of month Parts Analysis Reports. It has to make sense month to month on what we actually see on these reports, especially when we consider proper ordering, receipting and posting practices. (refer to our Number 9.)

Do:

Do implement a Monthly Parts Reconciliation each and every month to "capture" any posting mistakes, whether in the Parts Department, or the Accounting Department. It's much easier to trap any posting mistakes over the last thirty days as opposed to a whole year with an Annual Parts Reconciliation.

Do provide the proper Parts Manager training required in Basic Standard Accounting. As I mentioned last month, the Parts Manager and the Office Manager need to be on the same page and speak the same language when it comes down to account numbers and parts sources in all inventories.

Do implement a Parts "Perpetual Inventory Count" System where parts are constantly being "bin checked" each month in order to reduce variances between the Parts Controlled Inventory, (D.M.S.) and the Accounting Ledger Balance Inventory each month. Studies have shown that when we implement a "Perpetual Inventory Count" System, variances end up at 2% or less each month.

Number Four: Posting Emergency Purchases "Correctly"

Emergency Purchases has always seemed to be the "Lost & Forgotten" category as it's often not used correctly or even utilized at all. When  in all actuality, it's one of the most important tools in the Parts Managers Tool Box.

Emergency Purchases, when utilized correctly can alert the Parts Manager on "stock out" situations on parts that are normally stocked. These "stock out" situations, in my opinion are the most embarrassing situations that a Parts Manager can experience.

If we have to chase a part that we would normally stock, we are losing money in both Parts and Service for time lost that we can't get back. Posting Emergency Purchases "properly" can reduce those "stock out" situations and increase profits.

Do not:

Do not post Emergency Purchases on aftermarket parts as those purchases should be posted as "other" purchases", or "In & Out", (I.O.'s). After all, we are trying to make the proper Stocking Level adjustments on those parts we would normally stock as opposed to those aftermarket parts we chose not to stock.

On the other hand, if we do chose to stock aftermarket parts for whatever reason, then we should apply the same principles of posting Emergency Purchases of Normal Stocking Parts from the manufacturer. Emergency Purchases allow us to research and find out why we ran out and adjust the Stocking Levels accordingly.

Do:

We do need to separate these purchases from all others as the information will be valuable and making the correct and proper modifications in our Stocking Levels. By posting these Emergency Purchases accurately, we can measure these purchases versus normal purchases, which the guideline is 10% or less.

Number Three: Lost Sales Reporting

Well "Smart Parts" Readers!...we knew that this topic was going to come into play sooner or later and it falls into our Number Three slot. Reporting Lost Sales goes without saying as the D.M.S. only records parts transactions in two ways. One is Sales of course, and the other is Lost Sales Recording.

Lost Sales plays an integral part in seeing what parts could be eligible for Normal Stocking Status. If we don't report Lost Sales, we are missing a big part of that picture. We need to know what is out there and reporting Lost Sales is nothing more than a "good thing".

The more we have demands on a part, the more likely that we will be able to see what's out there in potentially stocking more "breadth" in our Parts Inventory. In my opinion, we can never report too many Lost Sales on Non-Stocking Parts as we "can't manage what we can't see".

Do not: 

Do not "over think" what a Lost Sale is and what is not a Lost Sale as these parts will not just "jump on the shelf" as they will still have to meet Phase-In Criteria to "potentially" meet the Parts Manager's approval to consider a Normal Stocking Part.

Do not restrict your Parts Counter Staff from the actual definition of a Lost Sale. Posting a Lost Sale should be simple and require no real thought process. If an inquiry is made on a non-stock part that we do not stock and it isn't going to be ordered or chased down, it's a Lost Sale.

Do not restrict your Parts Counter Staff for "double posting" a "potential" Lost Sale. Even if there is a "double posting" of a Lost Sale, it still has to meet Phase-In requirements for demand in separate months, regardless of how many times it was posted in a single month. We can also control our "total demand" in most Dealer Management Systems today.

Do:

Do enable Lost Sales posting without any restrictions because the bottom line is...we can't manage what we can't see. I would much rather see too many Lost Sales posted and make my own decisions as the Parts Manager on demands posted.

Do encourage Lost Sales Reporting with all Parts Staff Members, letting them know that you need their help with as many Lost Sales they can find so we can better stock our Parts Inventory with more "breadth" and less time spent on the phone chasing parts.

Do keep an active Lost Sales Record on the parts counter to make it as easy as possible for the Parts Counter Staff to write down and/or record Lost Sales. It's busy enough for Parts Counter Staff to keep up with all their daily transactions and the last thing we want them to do is to take extra steps in order to post Lost Sales.

Number Two: Parts Training

As I have mentioned several times, the Parts Department is the least trained staff in all the dealership next to Administrative Staff, but the the difference is that Parts people are in Sales! Would we ever consider not training our Front End Sales Staff?

The average "back counter" Parts Person generates as much gross profit as a Front End Salesperson does when selling 10 - 15 New and Used Vehicles. Shouldn't Parts Training be more of a priority than it is and shouldn't Parts Training be a requirement before and after we hire them?

Do not:

Do not make Parts Training an option and let's require them to take the necessary training and certifications necessary to perform their duties and responsibilities, especially when they have access to the dealers second highest asset.

Do not disregard the Parts Staff when it comes down to suggestions, opinions and recommendations when it comes down to making the Parts Department more profitable or more successful. They are part of the team and they need to be heard.

Do:

We do need to encourage them to take part in all aspects of training and certifications available to them and required by them. We also do need to give them a "career path" on what's available to them in the future, whether growing into the Parts Manager position, or other positions that may come available in the dealership.

We do need to hold them accountable for what they are in control of and to achieve the overall goals of the dealership. Let them know what their job description is and have annual reviews to their perspective goals and potential achievement levels.

Number ONE!: Parts Pay Plans & Incentives

Some may disagree with our Number One choice for "Do's" and Do Not's" for 2022, but I will say that most of us just want to succeed and have a passion for what we do. That being said, and being that we are in a Sales Position, money can be a driving force.

For some reason, the Parts Department Staff in many dealerships today is also the least incentivized of all Sales Positions. Much like training, many dealers just don't consider the Parts Counter position as a Sales Position.

News Flash!...they are Sales People and they can be motivated and driven to increase sales and gross profits in the Parts Department. As I mentioned in our Number Two, the average "back counter" person can generate as much gross profit as a Front End Salesperson that sells between 10 - 15 vehicles each month.

Question is..."Do we consider them as Salespeople and are we willing to treat them the same way?"

Do not:

Do not underestimate the value of your Parts Staff, especially the Front & Back Counter Parts "Sales" People. In many dealerships today, As mentioned, the Parts Counter Staff is the least "incentivized" Sales Staff in the dealership. Although, even if the dealer does offer an incentive for their Parts Sales People, the incentive percentage is much lower than other dealership Sales Staff in Front End Sales or their Service Advisors.

Do not make your Parts Department Sales Incentives so low that they are treated more as a "bonus" and not a considerable amount of their total compensation package. If they treat their "bonus" as a "bonus", they may never have the desire to achieve it.

Do:

Do give them achievable goals that are realistic, measurable, and most importantly...time focused. Give them incentives that will benefit the dealer and the employee so everybody wins. Do give them daily, weekly, monthly and annual goals and update them constantly on their progress.

Do include incentives that "crossover" to other departments such as the Service Department, Collision Center and the Sales Department on Accessory Sales. Drive them to the overall goal for all Sales Departments to the point where if they achieve their goals, everybody wins.

Do train them to achieve their goals and coach them to desired results and personal achievement. Keep in mind always that they are Sales People and play a huge role in other department's goals. The faster they get the part, the faster we achieve our sales and gross profit goals, especially in the Service Department.

Bottom line is this...in 2022, the Fixed Operations will continue to be the driving force to overall dealership profitability and success. We need to DO what we should be doing and DO NOT accept the status quo going forward.

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at (786) 521 - 1720...After all, not knowing is not worth not "fixing" it...



Tuesday, December 7, 2021

December 2021: Moving On To 2022: "The Top 5 Parts Focal Points"

One thing for sure is that we have definitely weathered a storm these last couple of years and hopefully, we are winding down and settling in to what appears to be the "New Norm" going into 2022. The past always seems teach us new lessons on what we need to do going forward.

With many economists and industry indicators making bold predictions in 2022, the one thing that seems to be a constant is that 2022 will be a continuation of 2021 in our industry. That being said, we can only look forward and make one of two decisions.

Number one, we can either continue "going with the flow" and react to each day, week or month ahead, or, number two...we can make some bold decisions and plan ahead to making 2022 our Best Year Ever. What we've experienced in the past seems to always impact what we do going forward, so making the right decision from these two choices, in my opinion will determine our results.

In the Parts Department, we have definitely been impacted by all that's happened these last couple of years. Rising costs of doing business, employee shortages, supply chain issues, increased customer demand and protecting the dealers investment just to name a few.

We have learned to adapt and survive much like everyone else during a pandemic that continues to haunt us going into yet another year. But, beyond all these issues that we have had to deal with in the past, the most important question still remains unanswered....

"Are We Going To Continue Doing What We've Done The Last Couple Of Years, OR...Are We Going To Be More Proactive Going Forward?"

This one simple question has prompted me to take the "proactive" approach looking ahead into 2022 and do some research on what we need to be focusing on as "Smart Parts" Managers. Also, I felt that we need to "think outside the box" even more than we ever have.

In my opinion, we can't just keep doing the same things, over and over and expecting different results as we all know that's the definition of insanity. That being said, what can we do differently and what should we be focused on in the year ahead?

Our "Top 5 Parts Focal Points" for 2022 are, in my opinion, what "Smart Parts" Managers need to not only focus on in 2022, they need to expand their minds and "Think Outside The Box" and go beyond just the "status quo" industry guidelines, training and parts policies and procedures.

We will list these "Top 5 Parts Focal Points" for 2022 in order from top down along with an added "Think Outside The Box" section for each focal point that will be listed. As we move on down to our number one parts focal point for 2022, I would challenge all "Smart Parts" Managers to answer this one question...

Should We Just Accept The "Status Quo" And Just Keep Doing What We Are Doing?...OR!..Do We Move On And Not Only "Think Outside The Box"...And To Get "Out Of The Box!

Here We Go!

Number Five: Parts Accounting Training

One of the most overlooked part of the of the daily routines in the parts department is posting and receipting parts. Sounds pretty simple, but this tedious task has to be one of the most important tasks that the Parts Manager must perform "accurately" each day, week, month and year.

Even though most Parts Managers go through this process each and every day, the real question is..."Are we actually posting and receipting parts accurately?" What I'm referring to is...do these numbers "match" in the Accounting Office?

As we mentioned in last month's issue of ACG "Smart Parts", when we focused on comparing the two parts inventories, both the Accounting Ledger Balance Inventory and the Parts Controlled Inventory in the D.M.S., reconciling these two inventories each month and each year begins with "accurate" ordering, receipting and posting parts each and every day.

We seem to take for granted that this daily function, if not "reconciled" properly could lead to thousands and thousands of lost dealer profit by the end of each year. This is why our Number Five Top Focal Point is Accounting & Receipting Practices.

These past two years have turned parts inventories "upside down" for many dealers because of inaccurate posting and receipting in both the Accounting Ledger Inventory and the Parts Controlled Inventory. Manufacturer parts shortages, new parts vendors, parts cost variances from dealer cost to actual cost, improper accounting on cost adjustments are just a few factors.

This "upside down" shift, in my experience and opinion, has caused the biggest Parts Reconciliation nightmare between the Accounting Ledger Balance Inventory and the D.M.S. Controlled Inventory than ever before. In many dealerships, it has been a huge loss of parts gross profit that we can not afford in these times.

So!...what do we do about it?

"Think Outside The Box"!

Many parts managers do not have enough training in basic Dealership Accounting and needs to be a top focal point going forward in 2022. Unfortunately, many dealers do not consider parts training of any kind is that important. In my opinion, the Parts Manager and the Office Manager should have one of the most important relationships in the dealership.

Recommendation: Provide Parts Manager Training in Basic Accounting Skills. This training is available from the D.M.S. Vendor and/or Dealer 20 Groups if enrolled. This relationship will only grow if the Office Manager and the Parts Manager speak the same language.

Number Four: D.M.S. Utilization

Many may not know, but in most Dealer Management Systems, (D.M.S.), the "Utilization Factor" is less than 30%. In other words, no matter what system we have, it is only "utilized" to it's potential at a 30% rate at best.

This D.M.S. Utilization Factor is especially true in the Parts Department. Countless times, I have worked with Parts Managers and each time I show them something that their system can provide, the response I usually receive is..."I didn't know that!"

D.M.S. capabilities such as, "Specific" Reporting, Cost & Piece Sales Rankings, Movement Analysis, Source "Batch" Moves, Receipting & Posting Options, Dirty Core Reports, and even a better way to track and Post Lost Sales just to name a few.

Most often when I mention some of these capabilities, not only did the Parts Manager not know that the D.M.S. could go above and beyond their expectations, they also tell me that often times their D.M.S. vendor just tells them that the system "can't do that".

Unfortunately, many of the Call Centers, when called on specific issues whether in Accounting, Sales, F & I, Parts or Service, often times don't have an answer and seem to always revert to..."No, the system can't do that" and move on to the next call.

After working with, and being fluently verse in over 10 Dealer Management Systems, (D.M.S.), I can assure you that these systems pretty much have the same capabilities, especially in Parts. Problem is, many Parts Managers don't know what they are missing out on and most importantly, what to demand out of their D.M.S.

So!...what do we do about it?

"Think Outside The Box"!

Recommendation: First and foremost, we have to use common sense and not just take "No" for an answer and research further. Ask other Parts Managers that utilize the same D.M.S. if they may know the answer, or if they had ever run into this situation before.

Also, call into the Call Center again and ask for a Supervisor to assist as many "initial" Call Center Agents may only know the basics in the D.M.S. concerning Parts. It's much like when we switch to a new D.M.S., the Installers don't even know what the proper Parts Set Ups & Controls should be.

I can also attest to that one as I have had to "fix" so many D.M.S. Set Ups & Controls that were set up to "Defaults" that didn't even follow basic math. They basically make the D.M.S. "functional" on the Installation and we have to do the rest.

Lastly, in order to "trust" the D.M.S., we have to "know" the D.M.S. in order to get out what we put into it. This is also the reason many Parts Managers don't trust their D.M.S., especially when creating a System Generated Stock Order as the results don't make sense and prints off several pages of "recommended" parts we wouldn't even stock.

Want to learn more about your D.M.S.?......

Call Me...

Number Three: Managing Stocking Levels - Supply Chain Issues

Every "Smart Parts" Manager is well aware of the Supply Chain issues that we've had to face over these past couple years, but my question is...

Are We Being "Proactive" or "Reactive" To This Supply Chain Issue?

In other words, have we just reacted to whatever the "flavor of the week" is when we can't find the simplest of parts to restock our shelves, or are we taking steps to prevent from happening in the first place? If I was to guess...I would say that many Parts Managers react to the situation and deal with each situation as it happens.

What if I was to tell you that these situations can be managed "proactively" through your own D.M.S. and Manufacturer's Vendor Managed Inventory, (V.M.I.)? This is done by increasing the Stocking Levels, or Days Supply and Best Stocking Level, (B.S.L.).

Once these Set Ups in the D.M.S. are increased by a few extra days, the Manufacturer's V.M.I. will pick up these modifications in the D.M.S., if updated as recommended by the V.M.I. Source. The "trick" is doing the proper math on the proper Annual Piece Sale Ranges and increasing the Best Stocking Level, or High Days Supply.

So!...what do we do about it?

"Think Outside The Box"!

We need to manage our Stocking Levels more often as these settings as they are not a "set it and forget it" deal. Supply Chain Issues are real, but we always seem to find a vendor to fill our needs and that's what we have to manage in our Stocking Levels.

Once we find the vendor who has the parts, or perhaps the manufacturer starts releasing back orders, we need to "stock up!"...but NOT by guessing. We need to manage these changes through the D.M.S., which will also update the Manufacturer's Stocking Levels for you dealership.

For example: If a part sells on average 100 times annually, then that part is due to sell, on average, every 3.65 Days, (365 days a year divided by 100 annual piece sales). That makes the Best Reorder Point, (B.R.P.) to be at 4 Days. The Best Stocking Level, (BSL) is usually set at at least 100% to 150% of the B.R.P.

That being said, and if we use the 100% factor, then the Best Stocking Level, (B.S.L.) in the above example would be 8. But...if we just added a few extra days to that Best Stocking Level, we would have more "Safety Stock" to help with Supply Chain issues.

THE most important thing to remember when Managing Stocking Levels is the the Low Days Supply, or Best Reorder Point does not mean quantity, it just means that's the reorder point. We never change the reorder point, we only increase the Best Stocking Level, or High Days Supply.

In the above example, the reorder point is at 4, whether we sell 10 of those parts a day, or 20 of that part a day, the reorder point would be when the parts gets down to a total of 40 or 80 it will reorder to 40 or 80 or even higher. If we change the reorder point to a higher number, we would actually run out of that part.

Number Two: Protect The Parts Inventory Investment!

Protecting the dealers investment, or asset, has always been a top priority for the "Smart Parts" Manager, but it's even more important today than ever before. As we mentioned in our "Number 5 Parts Top Focal Points" for 2022, keeping the Ledger Balance Inventory and Controlled Inventory Balance as close as possible.

Protecting the dealers investment means that we have to keep our eyes focused on total inventory amounts, keeping obsolescence controlled and not "over buying" parts inventory. Just because the Parts Inventory is an asset, it doesn't mean that it doesn't represent "cash flow".

In the past, and in many dealerships, carrying obsolescence was normal, even if we carried a substantial amount, we just considered parts obsolescence as just a "cost of doing business". Especially in these times, we cannot afford to tie up the dealers cash in parts that most likely will never sell again.

If we are going to tie up more of the dealers "cash flow", it should be invested in fast moving parts that we don't want to run out of, especially with all the supply chain issues. Controlling the obsolescence means utilizing all options from the manufacturer and vendors that will "buy up" this obsolescence.

Whether we get 50 cents on the dollar or lower, it is still the right thing to do as any cash we receive back and re-invested in parts inventory that turns 8, 10, 12 times a year or higher is still a "win-win" situation. Once again, the proper Set Ups & Controls in the D.M.S. are critical.

So!...what do we do about it?

"Think Outside The Box"!

In order to protect the dealer's investment, we need to modify our Parts Set Ups & Controls once again and reduce our Parts Phase-Out Parameters. In many dealerships today, the Phase-Out Parameters are set at 12 months, which is too late.

Once a part reaches that 12 month, no sales threshold, there is only a 2% chance that those parts will ever sell again. We need to be "alerted" much sooner when we have a better chance of selling those parts that are dropping down before they hit 12 months.

If we reduce our Parts Phase-Out Parameter to perhaps 7 or 8 months, we would have at least a 35% chance or better to sell those parts. Once sold, they would not be reordered as they would "phase-out" and not be suggested on the next Stock Order.

This especially critical if we use the Manufacturer's Vendor Managed Inventory, (V.M.I.) as one of their main selling points is that they will "protect" the dealers parts inventory. Problem is...they may be protecting those parts that didn't sell a year ago, meanwhile, we have purchased another 11 months of parts inventory that may not sell.

Don't Become The Manufacturer's Second Warehouse!

Number One: Parts Gross Profit!

If you haven't figured out by now what our "Number One Parts Focal Point" for 2022, don't be surprised. Even though it's an obvious choice as we all know that we are all in business to make money and to survive, especially in these times.

Although, you may be surprised when we get to our "Think Outside The Box" recommendations as to what we need to be focused on in the coming year. Keep in mind that the Parts Department is the most profitable dealership department by percentage.

We have also lived by our industry guidelines for years and we have also been satisfied when we reach industry guide levels in both parts gross retention and "net to gross" percentages. For years, achieving a Customer Pay parts gross retention percentage of 40% - 42% was the accepted goal.

Same goes for Wholesale at approximately 23% and parts sold on Internal at the retail gross percentage of 4-%-42%. On our "Bottom Line", our "net to gross" percentages, pending on the manufacturer and allocated expenses, would also come in anywhere from 25% t0 40%.

We Need To Do More!

News Flash!...prices are going up everywhere!...Have you seen the price we are paying at the pump?...How about your grocery bill?...Have you priced out a Used Vehicle lately?...

So!...what do we do about it?

"Think Outside The Box"!

Just think for a moment...what if we changed our expectations on the parts gross profit guidelines on the one and only parts gross profit margin that we have total control on, which is customer pay? Warranty and Internal gross margins are pretty much set by the manufacturer and the dealer.

What if we increased our parts gross expectation from the normal 40%-42% to let's say 50% on Customer Pay Parts Sales and Internal Parts Sales? How would that not only change our thought process when creating pricing strategies and the overall "Bottom Line"?

Think about it for a moment, other than Competitive Parts, if I was to sell a part that cost $10.00 and sold it at $16.70 for a 40% profit margin, why couldn't I sell that part for $20.00 for a 50% gross profit margin? After all, it's only a net difference of $3.30!....Hmmmm

Let's go one step further and multiply this out to a monthly and annual gross profit difference with an average Parts Department that sells approximately $50,000.00 in Customer Pay Part Sales, (at cost). How much would that impact be going from 40%-42% to 50%?...

Let's Find Out!

The net result of selling those parts at cost for $50,000.00 would result in a total sales number of $83,500.00 at a 40% gross retention for a gross profit dollar amount of $33,500.00. If we sold those same parts at cost at a 50% gross profit margin, we would end up with a gross profit dollar value of $50,000.00

That's a increase of $16,500.00 per month and $198,000.00 annually, over and above the normal, "accepted" gross profit margin of 40%! One thing for sure in the Parts Department is that we may not have total control of where our sales come from, but we do have total control of our Customer Pay Parts Gross Profit!

Something to think about....

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...