November 2023: Electric Vehicle, (EV) Sales: "Rising or Falling?"

For the past couple of months, we have been focused on the latest UAW Strike from a "Parts Perspective". As Parts Managers, this is pretty obvious, but how is this UAW Strike effecting New Vehicles Sales from the interruption of New Vehicle Production & Manufacturing?

Parts Distribution is not the only interruption caused by this latest walkout as it also included assembly line workers as well. You would think that this assembly line interruption would eventually lead to fewer and fewer new vehicles on our lots at the dealership, much like we felt during Covid-19 and the computer chip shortage.

In this month's issue of ACG "Smart Parts", we are going to focus how this UAW Strike is affecting our New Vehicle Sales and especially how it's effecting Electric Vehicle, (EV) Sales in particular as new EV Sales have been on the rise even before the UAW Strike.

In a recent article in NADA Headlines, written by Automotive News, our dealers' New Vehicle Inventories are continuing to build despite these production interruptions from the UAW Strike. 

The article also reports that consumer new vehicle shopping has also remained robust through the third quarter of this year. Cox Automotive estimated that automakers began October with 2.1 million vehicles, up 150,000 from September.

Seems like the Automakers did pretty much what we did and stocked up before the UAW Strike hit in mid-September. That being said, it looks like, for now anyway, that dealers have an ample supply of New Vehicles for customers to choose from.

But, when you break this number of New Vehicles down, from Combustion Powered Vehicles versus Electric Vehicles, (EV's) and Battery Electric Vehicles, (BEV's), there appears to be some very different perspectives in the marketplace happening right before our eyes.

So!...What About Electric Vehicle, (EV) Sales?....Are They Rising or Falling?

Back in March of 2022, ACG "Smart Parts" focused on the Parts side of this EV Revolution with our issue titled "The Parts Department in the EV Revolution". In that issue, we focused on just what parts we may be stocking for these EV and Hybrid Model Vehicles.

Now, in this issue, we are going to focus where this "EV Revolution" is, and where industry analysts are saying it may be headed from a few different perspectives. We will see that there are very different takes on this and from there, we can come up with our own conclusions.

There is no doubt that EV's are and have been on the rise over the last several years. A recent article published by cleantechnica.com shares the following....

"With more electric vehicle choices than ever, EV Sales in the U.S. are hitting new heights. In just the first half of 2023, over 670,000 EV's were sold with over 80% of those being fully-electric battery electric vehicles, (BEV's) . It took over 8 years for the first million EV Sales, but now more than a million have been sold over the last 12 months."

From this statement alone, one would believe that this EV Revolution is going to keep rising and rising each year. We would also perhaps believe that we will see EV Charging Stations continue to rise as well.

But could this rise of the EV Revolution perhaps be rising a little too fast?

As we all know, there are always two sides to every story as the Wall Street Journal also reported in the latest edition of NADA Headlines as follows...

"The auto industry's push to boost sales of electric vehicles is running into a cold hard reality that buyer's interest in these models is proving shallower than expected. While EV Sales continue to grow, rising 51% through September of this year, the rate has slowed from a year earlier and unsold inventory is starting to pile up for some brands..."

Business Insider.com even adds their take on the current EV market and where it may be going with these statements...

"Car dealers have a warning for their manufacturers: the day of early-adopter electric vehicle sales are all but over. For years, early EV adopters are more fickle. More and more often they are comparison shopping EV's against hybrid and gas-powered vehicles.

That's leading dealers to use more aggressive sales tactics on "plug-in" models. They warn this could make EV demand appear more robust than reality, and make it harder for car manufacturers to predict demand"...

 "More dealers now are really pushing EV's off their lot, which probably distorts the reporting manufacturers are looking at says Vince Sheehy, a car dealer in the Washington, D.C. area, told Insider. Vince Sheehy also went on to say that he believes EV Sales are even lower than they actually understand them to be"...

"The warning bell from dealers is the latest sign that after years of exponential growth, the electric car segment is facing a looming plateau. Already, car companies seem to be reacting to changes in demand, after overshooting their EV predictions for this year."

Overall, when combining all New Vehicle Sales thus far this year, and according to Kelley Blue Book, in an article at NPR.com, the average transaction price for a new vehicle in July was $48,334.00, a slight dip from June and only a 0.4% year-over-year increase.

The article continues to say that this could present an opportunity for those who have been waiting for prices to cool before purchasing their next ride, even as interest rates remain high.

All of this said, many are saying that we are headed into a "deflationary market" where patience may be rewarded. If we wait to buy tomorrow, we may actually get a better price than if we purchase today.

It appears that we definitely have two sides of this story and a few different perspectives for sure. The UAW Strike appears to be a non-factor thus far as we look at New Vehicle Sales in general, and how EV Sales have weathered all these up and down swings in the current marketplace.

That being said, Charlie Chesbrough, Senior Economist and Senior Director of Industry Insights at Cox Automotive, which owns Kelley Blue Book in this same article at NPR.com warns...

"Be aware of what are the offers out there, do your homework, because manufacturers are certainly going to be more willing to negotiate on price today than they were a year ago"...

So I guess when we asked the question early on if Electric Vehicle, (EV) Sales are Rising or Falling?....I guess that answer would be a resounding Yes!

And don't forget "Smart Parts" Readers, you can download and read any of our past 163 Monthly Articles, dating back to 2010 at our website at:

www.smartpartstraining.com

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...

October 2023: "Why Does It Take a Strike to Spark the Fire?"

Striking a match to light a fire is a pretty common thing, but when referring to the current on-going UAW Strike, this word can be used as a noun and a verb. In last month's issue of ACG "Smart Parts", we released our September issue a little earlier so we could all get prepared for what was to come.

We discussed how we could use our Dealer Management Systems, (D.M.S.) to actually add extra "Days Supply" to extend our inventory coverage for however long we needed to endure the UAW Strike. Much like preparing for a storm as we all hit the stores for added "Days Supply" of the necessities such as food and water.

Now here we are, in the midst of this current UAW Strike and it's time once again to endure another crisis like we did with Covid-19 and the previous UAW Strike. To me, what's most important is not to just endure the current crisis, but what we learn from it.

In this month's issue of ACG "Smart Parts", we are going to do a little follow up to last month's issue, but with a little twist. I have actually witnessed a "Culture Change" within our automotive dealerships this time around.

After talking with and working with literally hundreds of dealerships via online webinars, or in-dealership training, I've actually noticed quite a few things during this Strike Preparation. A shift in how we actually operate and consider the Parts Departments role in the dealership.

I've never seen actual dealer participation in the overall Parts Operations as much as I've seen these last couple of months in anticipation of the UAW Strike. Don't misunderstand, I'm not saying that the dealer doesn't "drill down" the Parts Department like any other department in the dealership, it has just gone much further than that.

What have we learned so far in this UAW Strike and how much more will we learn as we progress through it?

Let's look at the "Seven Culture Changes" in the Parts Department since we started preparation and are now experiencing in our latest automotive industry crisis. Seven Culture Changes that most may not even be aware of.

Let's begin once again "Smart Parts" Managers!....

The first of these Seven Culture Changes that I have noticed is that we, in the Parts Department are no longer at the bottom of the Totem Pole. For years, the Parts Department just existed as a "Necessary Evil" for the dealer.

As a matter of fact, back in the day, many dealers wish they didn't even have a Parts Department, or even a Service Department for that matter as all they were interested in was selling New & Used Vehicles. They didn't even want to deal with the customer after the initial sale.

Over the years, dealers have evolved to a degree as "Service Absorption" became a key part of the dealer's profitability. The "back end" now needs to carry much of the dealers' overall expenses with less New Car Dependency.

So, we have actually climbed the ladder quite a bit since those older days, but we have actually gone up a few more rungs on the ladder since Covid-19 and now this current UAW Strike.

I am actually seeing dealers, (which I never have before) take part in learning how Parts Set Ups actually work. They are now looking at the math and how Phase-In/Phase-Out works, and Reorder Points, (BRP) and Best Stocking Levels, (BSL).

I've never seen dealers go that far in the past as they are even looking at the Parts Managers Stock Orders! I've even seen some dealers actually "run" the Stock Order in their D.M.S. and going another step further by looking at how the Vendor Managed Inventories, (V.M.I.) works, such as RIM, ARO, PartsEye, etc.

The second "Culture Change" that I have witnessed is that Parts Managers in general are finally "getting it". Again, not saying that Parts Managers are not doing their job, it's just that they are gaining more confidence as dealers get more involved in their dealership roles.

So many Parts Managers are "gun shy", worrying about overall Parts Inventory Amounts, especially with the burden of carrying too much obsolescence. Unfortunately, many Parts Managers feel that the Parts Inventory is an expense, not an asset that needs to have several "Annual Turns".

Therefore, they tend to hold back from the parts they actually need in fear that the owner will get on them for spending too much on Parts Inventory. When in actuality, I haven't heard of many dealers preventing, or limiting the Parts Manager from ordering any parts.

Of course, the dealer wants his/her Return on Investment, but they really don't prevent the Parts Manager from ordering any parts. In the Parts Manager's mind though, he or she knows that ultimately, they are responsible for their actions and choices.

The third "Culture Change" that I have witnessed is that Parts Managers are getting more informed about their overall Stocking Levels. They are getting more aware of what the "math" tells them and adjusting where necessary, especially now with the current UAW Strike.

Kind of a contrast of what we thought before versus now as dealers are actually encouraging Parts Managers to come out of their shell and get the parts we need, no matter what the cost. After all, there is so much at stake in our Service & Collision "Cycle Times" waiting for parts.

Number four Cultural Change is Parts Managers are getting more "proactive" instead of "reactive". One example is parts backorders today versus in the past when a part went on backorder, we, as Parts Managers just said that the part is on backorder, and we would have to wait until it became available.

Now, fast forward to today, especially because of the UAW Strike, when a backorder hits, our job is just beginning, not ending. In other words, we have to take action when that backorder hits, we can't just sit and wait to see when it ever comes in.

Our Number Five Cultural Change is a follow up to our Number Four Cultural Change is that Parts Managers need to address parts backorders before they need them for the customer. In other words, when a part goes on backorder on the initial Stock Order, that's the best time to address it. 

Why wait until the customer needs that part before we address it. If we chase down that backordered part when it comes up on the Stock Order, we will have it when we need it when the customer has demand for it.

I can tell you from experience that it's always easier to handle a backordered part on a Stock Order versus when the pressure is on when the customer vehicle is tied up in the shop. The pressure is always on us when Service is held up for a parts issue.

Stocking Parts to "Avoid" Backorders...What a Concept!

Our sixth Cultural Change that Parts Managers are now getting hungry for Gross Profit! Again, not saying that they never were concerned about being profitable, it's just that they seem to be more "bought in". 

Overall Parts Profitability as far as Retained Gross Profit Percentage is at its highest peak, in my opinion then it ever has! Just achieving the basic industry guidelines of let's say 40% on Customer Pay Parts Sales is now going to the next level up towards 45%!

I guess they key word is that it seems that more and more Parts Managers are taking "ownership" of their departments. Dealers are learning more and more of the importance of how much the Parts Department plays a role in all other dealer departments.

Dealers are also incentivizing more Parts Managers to achieve higher levels and giving them more "clout" in their dealership operations. Parts Managers are no longer hiding in the back are are becoming more a part of the overall dealer operations.

This is why we are seeing more and more Parts Managers attending 20 Group Meetings as the excuses piled up. Service Departments saying that they couldn't achieve their goals because they simply didn't have the right parts.

Finally!...the Parts Department Means Something!...What an Eye Opener!

Lastly, our Number Seven Cultural Change is that more and more women are becoming Parts Managers which is a huge, welcome change. Even though it doesn't matter to me who the Parts Manager is as long as the qualifications are there, I have noticed that more and more women are becoming Parts Managers.

Not only does this add diversity, but it also most importantly adds another wealth of the people available for this position! Now, the Parts Manager position, as opposed to years ago, is not just a position that we give to for the next person in line because they have been with the dealer for many years.

It's not a position that we give to a Counter Person because they are loyal and after all, we are just talking about Parts here. Handing out parts can't be that difficult...anyone can do it...Right?

Finally, I welcome all this "deserved" attention to today's Parts Manager and what it actually takes and means to get through these times or even normal daily operations. It's about time that Dealers and Dealer Principles actually see what it takes and what's involved with managing their second highest asset.

The Parts Manager Position is one the most important manager positions in the dealership...especially today.

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...

September 2023: Pandemics, UAW Strikes, Backorders..."How Do We Deal with All of This?"

Here we go again with yet another crisis, especially for Parts Managers as we face this impending UAW Strike. In my opinion, this is actually much worse than what we dealt with during the Pandemic. 

During the Pandemic, we all had to deal with the effects of what Covid-19 dished out with employee shortages, supply shortages, and prices sky-rocketed effecting our whole economy and daily lives, whether at home or at work.

In retrospect, comparing this impending UAW Strike to the Covid-19 Pandemic has a much different feel to it as it will put the Parts Manager on center stage. The Covid-19 Pandemic had everyone on center stage as we all had to bear the brunt of effects, whether in Sales, Service or Parts.

On the other hand, from a Parts perspective, we will most likely have to handle this UAW Strike much like we did during the Covid-19 Pandemic. We are actually still feeling that Parts impact as we are still dealing with Supply Chain Issues and never-ending Back Order Situations.

Hard to believe that things may actually get worse as the projected 45 - 60 Day UAW Strike predicts that Back Orders will multiply. Chasing parts once again will be the normal each and every day during this UAW Strike.

How we manage our way through this may have us looking back a few years ago to see how we did it the last time, but in my opinion, we have to be much smarter than the last time. History should have told us that we need to prepare better when these times hit us.

So!...How Do We Deal with All This?...Again!

Let's Begin!...Again!

One thing for sure is that the lessons of the past should always help us in preparing better in the future, even though this particular crisis puts Parts Managers on Center Stage with the fingers only pointing in our direction.

That being said, we have to keep logic on the forefront in managing our way through this and fortunately we have math on our side. Unlike other dealership departments, the Parts Department's Inventory Performance is highly dependent on history, math and algorithms.

Much like preparing our families for impending storms, whether hurricanes, winter storms, or any other impending weather issue, preparation is key. Once we get wind of what's coming, we all head to the grocery store for extra supplies and food.

Preparing for this UAW Strike is no different in nature, except for the fact that we are looking at a Parts Inventory of anywhere between 3,000 to 8,000 different parts numbers that sell at various Annual Piece Sale Rates.

That's much different than making out a grocery list and increasing our normal supply of milk, eggs, bread, water and other supplies in preparation of upcoming weather events. Having that many part numbers to prepare for in this event requires the right math on Lead Times and Days Supply.

It also requires proper modifications in the DMS to accommodate the added Days Supply needed to survive, in this case, an additional 45 - 60 days of the UAW Parts Strike Shutdown. In comparison, we have to plan on an extra 45 - 60 days of food and supplies to get through this storm.

Talk about preparing for a storm!...

The only way to prepare for this accurately is to use our DMS to do the math for us. Problem is, most dealership DMS Set Ups do not have ABC Source Ranking Set Ups installed into their DMS.

Even if they do, often times the math is not set up correctly based on Annual Piece Sales. Most DMS's are set up to one overall default settings on Low Days Supply, or Best Reorder Point, (BRP), and High Days Supply, or Best Stocking Level, (BSL).

ABC Source Ranking allows us to set the proper Best Reorder Points and Best Stocking Levels of all parts that sell at different rates throughout the year with the proper math. Parts sell at different rates and numbers, thus requiring different Reorder Point and Best Stocking Levels.

Having just one Default Setting for Best Reorder Points and Best Stocking Levels does not allow for parts that move at a different rate. For example, a part that sells 100 times a year is due to sell on average every 3.65 days or rounded up to every 4 days.

In other words, if an oil filter sells an average of 10 a day, that would mean that when this oil filter gets down to a 4 Days Supply of 40, the DMS would kick in at the Best Reorder Point and order that oil filter back up to it's Best Stocking Level of at least 100% at 80 for the Best Stocking Level.

Compare that to a part that sells only 12 times a year, with an average sale every 30 days, which requires a different BRP and BSL, (see above). In other words, that particular part can sell down to zero before ordering back to a Stocking Level of one based on current Lead Times.

The whole key is Lead Time Days as we have to allow at least 4 Days of Lead Time. One day to order, one day to receive, one day to stock the shelf and one day of Safety Stock. Even though in most cases, we receive them overnight, or in a couple of days.

If the dealer only has one "Default Source", then only one set of Stocking Levels can be applied, which is usually set to a Low Days Supply, (BRP) of 15 Days and a High Days Supply, (BSL) of 30 Days.

Having just one set of these Stocking Level Parameters leads to stocking too much of what we don't need and not enough of what we do need. This makes this whole UAW Strike battle even worse to overcome.

Having ABC Source Ranking allows the Parts Manager to simply add the number of Days Supply predicted in the UAW Strike. In other words, and using the above example of the oil filters, we would just need to add 45 - 60 days to our High Days Supply, (BSL).

Even though the Reorder Point never changes based on how many Annual Piece Sales, we can adjust the High Days Supply, (BSL) to include the added days of the UAW Strike Shutdown. 

So, instead of when those oil filters get down to a 4 Days Supply of 40 and reorder up to 80, (100%), we would just add another 45 - 60 Days, bringing the High Days Supply, (BSL) to 85 - 100 to allow for the Extra Days needed during the UAW Strike.

This math would apply to all ABC Source Ranked Piece Sale Ranges, especially the Fast-Moving Piece Sale Ranges above 50 Piece Sales Annually. These ranges include 50 - 74 Annual Piece Sales, 75 - 99 Annual Piece Sales, and 100+ Annual Piece Sales.

We can now see how important ABC Source Ranking is, especially when preparing for this impending UAW Strike, but what do we do if we don't have ABC Source Ranking installed into our DMS? How do we adjust all the Annual Piece Sale Ranges with only one Default BRP and BSL?

Well?...if you haven't figured that one out yet, then you might as well just plan on doing the added Days Supply needed during this UAW Strike manually. Although, I'm not just saying to use the SWAG method that I mentioned earlier.

There is a "right" way of doing it, even though we may not have ABC Source Ranking installed into our DMS. That method would be what we did "back in the day" and that's setting Minimums & Maximums, otherwise referred to as MIN/MAX Set Ups.

By reviewing history for each of the Faster-Moving Parts, which I would recommend running a Parts Piece Sales Ranking Report which is available in most systems to determine which parts are selling the most annually.

After determining these faster moving parts in Parts History, we can then pull up each individual part number and set the MIN/MAX numbers, (especially the minimum) to accommodate the added predicted Days Supply needed during the UAW Strike.

Keep in mind though, whether we add the Days Supply via the MIN/MAX method or adding Days Supply via ABC Source Ranking, we need to "reset" these parameters back to their original settings after creating the Stock Orders to accommodate the UAW Strike.

This is definitely a procedure that we don't want to "set & forget" because the ramifications after this crisis could get even worse in an adverse effect as adding more inventory when it is not needed may lead to over stocking and additional obsolescence.

As mentioned, preparation is the key to success and surviving yet another crisis depends on the math in this case and should never rely on guessing our way through which may just lead to over stocking and future obsolescence as mentioned.

We got through this before and we can do it again!

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...

August 2023: Today's Parts Manager/Service Manager Relationship

It wasn't uncommon years ago to hear many people in our industry say that they had a "wall" between their Parts Department and their Service Department. Even though, unfortunately, there are still some walls between these two departments in some dealerships today.

I will say though that today, we are seeing this relationship building more and more as one Fixed Operations Unit with both the Parts Manager & Service Managers "crossing over" to the other side, getting more involved with each other's Duties & Responsibilities.

Over the years, I have seemed to witness this transformation a little more each year all the way up to as recent as last week. As I was training in my last dealership a week ago, and the owner told me that he had just one department he called his Fixed Operations Department, run by two managers.

This would also explain why the Service Manager took part in this dealership's Parts Manager Training for the whole three days last week. This is actually not something new as I'm actually seeing more and more "other" Department Managers participating in our Parts Training Program, including some owners believe it or not!

So, why all the fuss over the Parts Department and why all the fuss about these two Fixed Operations Managers learning more of what the other ones does? Why do we need "dual" Fixed Operations Managers as each one has their own unique skills that should be applied in their own "skill" area?

In my opinion, it's about time that we join these two forces, or departments and actually call them one Fixed Operations Team. Over the years, I have always welcomed other managers opinions, suggestions and ideas into my role, whether I was the Parts Manager, Service Manager, or Fixed Operations Director.

So, let's get down to basics, shall we? 

If we are going to "join up" our forces to create one mega Fixed Operations Department run by two skilled experts, what are the areas that we need to focus on together? Who will take the overall "lead role" and be the "Boss" of the Fixed Operations?

The answer to those two questions and more will be explained as we move on down through our ACG Smart Parts "Fixed Operations Essential 10 Areas of Joint Leadership". I think after we run through our list of 10 Essentials, we will know who the boss is...

Let's Get Started!...

Coming up with the "Fixed Operations Essential 10 Areas of Joint Leadership" was actually pretty simple as we will see moving down our list. We will see that these two managers already manage these two departments together. It's just a matter of putting two minds together with perhaps some different, but often valid ideas & opinions.

That being said, this already answers the question of "Who's Boss?" There is only one word that can make these dual roles work and that word is "respect". There is no room for pride when it comes down to dual management roles as skill, ability and knowledge have to be a given fact.

As we break down each one of our "10 Essential Areas", we will include the Parts Manager's and Service Manager's role, or "part" of each one of the essential areas. Thus, not requiring any "boss" or "role leader" as each has their own responsibility in each essential area.

Also, please keep in mind that these "Fixed Operations Essential 10 Areas of Joint Leadership" are not listed in any order of priority as all of these areas are a priority at it's right time. Inclusion is the key to the success or outcome of any essential area.

Service Absorption/Profitability:

Parts Manager: The Parts Manager is responsible for the profitability of not only the Parts Department, but also covering its "share" of the overall Fixed Operations Service Absorption. Depending on the manufacturer and if the dealer has a Body Shop or not, the Parts Department can be responsible for "covering" 20% - 30% of the dealer's expense absorption.

In most dealerships today, the Parts Department is the most profitable department by percentage of all other dealership departments. The Parts Manager must maintain the dealer's guideline for gross profit percentage while managing expenses to achieve a net to gross profit percentage of anywhere from 35% - 45% depending on the manufacturer.

Service Manager: Just like the Parts Manager, the Service Manager must also cover his/her share of the dealer's Service Absorption percentage, but at a higher percentage than the Parts Department. As in most dealership's the Service Department usually generates more overall gross than the Parts Department does.

In most dealerships, the Service Department has to cover anywhere from 30% - 40% of the overall absorption percentage, once again, depending on the manufacturer. The Service Manager also has a huge role compared to the Parts Manager as he/she has to start it all with enough Service Productivity to generate Labor & Parts Sales.

Service Productivity/Parts Productivity:

Parts Manager: Yes, in my opinion there is a thing called "Parts Productivity". The Parts Manager has to do their job by having the "Right Parts at the Right Time" at least 75% - 85% of the time on a first-time basis. Having the right D.M.S. Set Ups & Controls with the right math is the only way to achieve these First Time Fill Rate Percentages as we have mentioned several times in past issues.

In the Service Productivity "crossover" role, the Parts Manager has to do their due diligence to get those cross-ship parts and backorder parts as efficiently as possible to reduce Service Shop "down time" and increase "cycle time". Time is money and effects both the Parts & Service Departments Overall Profitability.

Service Manager: The Service Manager has to ensure that Service Shop Productivity is running at peak capacity and at a productivity level set by the dealer and the manufacturer. Expected productivity levels can range from 120% - 150% depending on the manufacturer and technician skill levels. Having the right mix of technicians also insures labor gross percentages at or above industry guidelines.

In the Parts Productivity "crossover" role, the Service Manager should be involved with the Parts Manager reviewing Parts Stock Orders as the Service Manager and Parts Managers look at Stock Orders differently.

The Parts Manager looks at the parts history, parts cost, number if overall demands, parts space restrictions, etc. and may actually "over-think" the Stock Order. The Service Manager has a different set of eyes and views on the Stock Order.

The Service Manager is looking at the type of part and what parts are holding up the shop, no matter what the parts cost, history or year, make model usage...the Service Manager just wants the part. This is why this process or "essential" deserves two sets of eyes and joint leadership.

 Special Order Aging, (30 Days or Less):

One might think that this is strictly the Parts Manager's job, or role, but as you will see, both the Parts Manager and Service Manager are equally responsible.

Parts Manager: The Parts Manager's role in this one is to simply stick to the Special Order Guidelines and hold all those responsible for ordering parts accountable. There must be deposit guidelines, pre-payments, and especially, parts should not be Special Ordered unless they are attached to an Open Repair Order, or a Future Appointment.

All returned parts to the manufacturer also have to have consequences in the way of handling fees being expensed to the appropriate department or person responsible for the part being returned. Technicians do not order parts as they can tell us what parts the vehicle needs, and only authorized personnel can actually order the parts such as management, advisors, or the customer.

Service Manager: The Service Manager has a huge dual role in this essential area as not only authorizing these Special Orders in the Service Department, as they are also responsible for getting these parts on the vehicle. Both the Parts Manager and the Service Manager have to be one when it comes down to scheduling these Special Order Customers.

Work In Process:

Parts Manager: The Parts Manager plays a big role in this essential area also. You would think that when we mention "work-in-process", we are referring mostly to a Service terminology because it involves "adjusted cost of labor".

Actually, the Parts Manager is just as responsible for the "work-in-process" as the Service Manager is. Often times, the repair order is on the WIP Report because of a part that is on backorder, and they can't complete the job. The Parts Manager must do all they can do to process these repairs orders through and off the WIP Report.

Service Manager: The Service Manager is responsible for the "flow through" of all repairs in the Service Shop and has to work closely with the Parts Manager to combine all the assets from having the parts on site and the technicians available to complete the repairs.

Both the Parts Manager and the Service Manager have to communicate on areas such scheduling issues, part arrival times, customer availability and shop capacity. All of which takes a team effort from both in managing this essential area.

Menu Pricing:

Parts Manager: The Parts Manager starts this essential area as the parts pricing has to be determined first, before the labor portion gets applied to come up with our final, "out-the-door" price to the customer. 

The Parts Manager has to break down all the parts required for each menu package and perform what's called "weighted average pricing" to allow one price for each category of parts such as oil filters, air filters, cabin air filters, wiper blades, etc.

Service Manager: The Service Manager then has to apply the right labor time and labor sale amount that will achieve the desired labor gross and effective labor rate. Once combined the "weighted average parts price", they can now have one, "out-the-door" menu price that will satisfy all sales and gross targets and be competitive.

Pricing Strategies:

Parts Manager: Once the Parts Manager and Service Manager have developed the menu packages and pricing, they now have to have a Pricing Strategy for the Retail Service Shop Repairs and Over the Counter Retail Parts on those "captive" repairs and parts.

Applying the "right" Cost Plus Parts Matrix is the only way to ensure the parts gross profit margins to balance out those menu and competitive price parts and to achieve industry retained gross profit percentages.

Service Manager: The Service Manager's "Matrix" so to speak is called a "Labor Grid", which works much like a Parts Matrix. Each increment of labor time can add a "gradient" percentage which slowly increases the effective labor rate as the overall labor time for each repair job increases.

Together, the Parts Manager and Service Manager have developed an overall Pricing Strategy that includes a competitive Menu Package Pricing Strategy and a Retail Pricing Strategy that will achieve expected sales and gross margins on parts and labor.

Marketing:

Parts Manager: Marketing is another really important "Essential Area" that the Parts Manager and Service Manager must work together on. For years, advertising, from the Parts side, has been an area that we were not usually involved in as Upper Management and the Service Manager pretty much handled it.

Nowadays, this old way of marketing without Parts involvement is just that...old thinking. With many manufacturers offering what I call "back end funny money", these incentives for advertising often times weighs heavily on Parts Department performance.

Service Manager: Developing any market promotion, or advertising in general relies on "open-minded", or "out-of-the-box" thinking. In my opinion, the more minds the better as capturing new customers and retaining them requires value, integrity, experience, and a trust that can't be left to one person making these marketing decisions.

Housekeeping/Security:

Parts Manager: Out of all of our "Essential Areas", this one has always seemed to fall on the shoulders of the Parts Manager. After all, which department needs to be secure the most, and be organized and orderly?

This, of course, comes without mention, but when you add in the Service Manager in the mix, security doubles with another set of eyes. The Parts Manager, of course is front and center in this area that requires an "inside manager", but let's see what the Service Manager can bring to the table.

Service Manager: Believe it or not, there is a lot of responsibility that the Service Manager has in this category as well. When you think about the housekeeping side of this category, you might as well just add the word safety in as well.

Keeping the shop clean is keeping the shop safe as poor housekeeping practices can lead to accidents in the shop and much worse. Security is also huge for the Service Manager when you look at all that expensive shop equipment which could be the same as the Parts Manager protecting the inventory.

Items ranging from lift equipment, alignment machines, cameras, technician and advisor tablets, wheel balancers, engine & transmission hoists, special tools, etc. as the list goes on and on. In many dealerships today, the Service Shop has more invested in equipment than the total value of the parts inventory.

Pay Plans:

No need for separating roles in this one as both the Parts Manager and the Service Manager are equally a part of both departments pay plans. Fixed Operation Pay Plans in general are becoming "one" that includes both departments.

This category in general is getting more and more popular today as more Fixed Operations Pay Plans are "crossing over" from the Parts Department and the Service Department. Parts being paid on Service and Service being paid on Parts is becoming more of an incentive option for managers and owners.

Parts personnel getting incentives on either Labor Sales and/or Service Productivity is a welcomed addition, in my opinion. For years, the basic, old-fashioned Parts Pay Plan was pretty much an hourly wage, or weekly salary with maybe a little bonus at the end of the month.

Now, when we add in some of those Service incentives, all of a sudden, the attitude in the Parts Department changes to doing whatever we can to get the part, or perhaps delivering parts to the technician, or whatever we have to do to get the job out the door.

Same goes for Service getting incentive on Parts Sales as we see more emphasis on the "right" repair that may involve replacing parts, instead of "repairing", or "overhauling" because perhaps their pay plan leans more towards the labor side.

These "crossover" pay plans definitely involve both the Parts Manager and Service Manager as each departments sales and gross profits rely on each other. Coming up with the right "crossover" pay plan incentives requires research, sales history and shared overall dealership goals by both managers.

Customer Satisfaction:

Our Number 10 and last "Essential Area" goes without saying as having great Customer Satisfaction is where the rubber hits the road. Without it, all else fails as it won't matter what the Parts Manager and Service Manager do with our other 9 "Essential Areas" because we won't be in business without customer retention.

I will say though that out of the two Fixed Operations Managers, the Service Manager is the one mostly in the limelight. The Parts Manager is usually behind the scenes, and they are not often exposed directly to the customers coming in for Service.

This is where, in my opinion, the Parts Manager needs to play a huge support role for the Service Manager. Taking time to track down and acquire back-ordered parts, talking directly with customers on parts delays, and not putting these tasks on Service Personnel as these are parts issues.

In order for all these "Fixed Operation Essential 10 Areas of Joint Leadership" to succeed, this last area is the most important. In my opinion, Parts Managers need to be more visible, even in the Service Drive greeting customers.

In the same way, Service Managers need to be more available to review Parts Stock Orders with the Parts Manager. They also need to help locate some of these hard to find, or "back-ordered" parts in the way of providing more resources they may have used in past.

Lastly, and perhaps the success of this new era of Fixed Operations Team Managers relies mostly on that wall coming down. Each manager needs to have the same respect for each other. They need to rely on each other and be another set of eyes over each department with equal management authority.

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...

July 2023: Monthly Parts Inventory Reconciliation: "How Important Is It?"

As we move on into July, we will complete our three-part series on "back-to-basics in the Parts Department with Monthly Parts Inventory Reconciliation. We started first in this "back-to-basics" series with Proper Parts Posting & Receipting, and then in our second, we focused on having the right Pricing Strategies & Practices.

The first two actually lead into our third and final part of the series because both have an impact on how we "balance the books" in the end. We have featured Monthly Parts Reconciliation in the past, but we did not focus on how Parts Reconciliation gets impacted in the first place. The ramifications could be costly and these impacts all start with our first two in this thee-part series.

Even though reconciling the Parts Inventories to the Financial Ledger Balance is extremely important and, in my opinion, should be done each month, many dealers still do not have a basic, Parts Reconciliation Practice in place. 

Many may have a "once a year" Parts Inventory Adjustment after they have the Parts Physical Inventory performed, but that's not actually the same thing, or even what we are referring to. A once-a-year adjustment is just that as we just make a journal entry to whatever the final parts inventory count revealed whether positive, or negative.

In my opinion, that's just taking the easy way out and doesn't really explain why we have variances in the first place, especially if that variance is in the wrong direction where the Ledger Balance shows more than the Controlled Balance in the D.M.S.

In theory, shouldn't these balances be the same?...Shouldn't a part be billed out at the cost we paid for it?...and finally, how can we be so far off in either direction?...

Let's find out!

Let's start with defining the Parts Inventory Ledger Balance and the Controlled Inventory Balance in the Dealer Management System, (D.M.S.). Each one has a very specific role in the dealer's second highest asset next to the Used Vehicle Inventory in most dealerships today.

The Ledger Balance Inventory is just basically a dollar amount as it represents what we actually paid for these parts. The Ledger Balance really has no tangible, physical aspect to it as we cannot put our hands on this dollar amount that we paid for our parts inventory, as it's basically just that...a number.

The Controlled Inventory Balance in the D.M.S. is a different inventory because it is tangible, and we can put our hands on it. We can count it, we can add up the total worth of these based on the current price of that inventory, and we can see it. It represents a commodity with a "perceived" worth, or value as this worth is not realized until the part sells. 

The "perceived" worth of any commodity, or inventory is only perceived until we actually sell that commodity, or inventory at a cost, whether the cost is what we paid for that part, or not...and that is the whole reason for reconciling the Controlled Inventory Balance to the Accounting in the first place.

"But why wouldn't we bill out a part at the cost we paid for it?"

Although, the "number" on the Accounting Ledger Balance is extremely important because it sets the baseline to our profitability on the parts we sell. We paid a certain amount for a part, we bill that part at a higher amount and the difference is the profit we make on the sale of that part....pretty simple, right?

Not Necessarily!

The are several legitimate reasons that parts are not always billed out at a cost of what we paid for it. This is the whole reason behind the accountability that reconciliation brings out. The "legitimate" cost variances and other "not so legitimate" cost variances have to be reconciled because it's 100% positive or negative profit.

An example of a "legitimate" cost variances are obsolete parts being sold at a lower cost than our purchase price. Also, the Manufacturer Price Updates each month can change the cost of what we paid for parts versus the higher cost of what we sell that part eventually. These cost variances need to be "reconciled" as a positive or negative gross profit each month.

Another "legitimate" cost variance, and perhaps the most common is what I refer to as "Cross Accounting" where parts are received in one inventory account but sold out of another inventory account. The most common of these occurrences happen in the gas, oil & grease and tire inventories.

Tires, for example may be receipted in the main parts inventory by default, but then sold out of the tire inventory account in the Accounting Department. The cost of sale and sale accounts will relieve the Accounting Tire Inventory as a debit, but the inventory credit amount was receipted in the Main Parts Inventory.

This also happens often with the Gas, Oil & Grease Inventory as well as Bulk Oil may be receipted into the Gas, Oil & Grease Inventory, but sold out of the Main Parts Inventory. This often happens with "Packaged Oil" being a part, and "Bulk Oil" considered as Gas, Oil & Grease.

Unfortunately, there are many more "not so legitimate" cost variances that go unnoticed and unaccounted for each day such as parts purchases made at a lower or higher cost, which should be adjusted right up front as "Discounts & Allowances", but often are not adjusted, resulting in reconciliation variances.

There also tends to be a lot of "wheeling & dealing" in the Parts Department, trying to buy parts at a lower cost than stated in the Manufacturers Pricing Guide. If not adjusted for properly, the Controlled Parts Inventory Value goes up higher than the Ledger Balance Inventory, creating an "uplift" in the Controlled Parts Inventory with the positive difference going 100% to profit.

Trying to keep up with price cost changes each month is very hard and will often lead to inventory variances in the Controlled Inventory versus the Accounting Ledge Balance Inventory. This is why we should always make our adjustments, whether positive or negative right up front and sell the parts at the cost listed Manufacturers Pricing Guide each month.

The only exception given on changing the cost of a part is if we are paying more for a part on a Customer Pay Repair Order or Counter Ticket where we pass the additional cost down to the consumer and increase our sale price, again the exception, not the rule.

"So!...what is the proper and correct procedure for Monthly Parts Inventory Reconciliation?"

Let's start with the Accounting Ledger side, which is the easiest of the two inventories to set up properly and accurately. Due to the fact that we are not dealing with a "tangible" commodity as we are working with dollar amounts, we just have to make sure when we pay for these parts, they are being debited and credited to the "right" parts inventory.

Some of the common Ledger Balance Inventory Accounts are the Main Parts Inventory, Gas, Oil & Grease Inventory, Tire Inventory with some Manufacturers even requiring a separate account for Accessories and "Other Makes". On the other hand, some Dealers and Manufacturers may combine any of the above into the Main Parts Inventory.

The most important thing is that we, in Parts, have to match whatever is on Ledger Balance on Page 1 of the Financial by separating our Sources, or Stocking Groups in Parts. These Sources, or Stocking Groups have to be "mapped" to the Sales and Cost of Sale Accounts on the Financial for each separate Parts Inventory. 

This is exactly why Proper Posting & Receipting in our first of this three-part series was so important. It's also why in part two of this series on having the Right Pricing Strategies & Practices is equally as important leading up to part three on Monthly Parts Inventory Reconciliation.

On the Controlled Balance Parts Inventory side in the D.M.S., we have a lot more to do than the folks in the Accounting Department. On our side of the Monthly Parts Inventory Reconciliation Report, we have a lot to break down.

In Accounting, they don't care about Sources, or Stocking Groups or anything else as they just want a dollar amount to see how close the Accounting Ledger Balance is on what we paid for these parts versus what we actually have.

Now, let's break down our side of things on what we have to report each month on the Monthly Parts Inventory Reconciliation Report. First, we have to have the mindset that we have to account for everything! We want to make sure that we have at least what shows on the Ledger Balance, or more each month. Anything less would be like it went out the back door and we lose money.

Here are the items that we, in the Parts Department have to account for each month, using the inventory dollar values and other reports listed in the D.M.S., and/or by physical counts via Perpetual Inventories, or end of month physical counts in the Gas, Oil & Grease Inventories and Tire Inventories.

• Main Parts Inventory Value
• Gas, Oil & Grease Inventory Value
• Tire Inventory Value
• Accessory Inventory, (if separated on the Financial, Page 1)
• Other Parts Inventories, (if any)
• Dirty Core Value on Hand
• Clean Core Inventory Value, (if not part of the Main Parts Inventory Value)
• Parts Work-In-Process on Repair Orders
• Manufacturer's Parts Pricing Update Variance (+/-)
• Outstanding Parts Credits or Returns
• Parts Pre-Billed by the Manufacturer, but Not Received

As you can see, we have a lot more to be accountable for each month, which is why we need to do practice on a monthly basis, and not just once annually. It's much easier to capture errors over the course of 30 days than it is trying to go back a whole year to find variances and errors.

The Monthly Parts Inventory Reconciliation Report should share both inventories, the top half dedicated to the Accounting Ledger Balance Inventory and the bottom half dedicated to the Controlled Inventory Balance on the D.M.S., with the positive or negative variances listed at the very bottom.

How important is the Monthly Parts Inventory Reconciliation?

The old saying goes that there is really never a problem until the numbers go in the wrong direction and now it's a problem! Do it correctly each month and it will never be a problem and the end results will be natural profit "uplifts" at the end of the year...

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...

June 2023: Having The Right Pricing Strategy: "How Important Is It?"

As we move on into June and the second of our 3-part Series on going "back-to-basics" in the Parts Department, we have yet another topic that's not really anything new as we all have to have some sort of Pricing Strategy in order to be profitable.

What's really new here is the "news" that many, many dealers are failing to achieve industry guidelines on their Parts Department Retained Gross Profit Percentages. If this is just Parts Department 101, or just basics, how can this happen? How can such a simple task of building a Parts Pricing Strategy that will retain the gross profit that we want be so difficult?...after all, it's just basic math right?

Of course, if it were really that simple and easy, we wouldn't have all these dealers out there failing to achieve these industry guidelines. These guidelines cover all of our parts sales categories from customer pay, warranty and internal parts sales.

Of these three though, only one sales category is totally under our control, which is customer pay. We can control our gross profit though on two of these categories and that would be customer pay and internal. Warranty Sales & Gross stand alone pretty much out of our control as sales and gross profits are dictated for us.

So, if for the most part, we do have control of the majority of our gross profit retention, how do we not only come up with the right Parts Pricing Strategy, how do we follow it through to the end where the results are predictable and to industry guidelines?

Like most processes, we have to start out by building the plan, while overcoming any of the obstacles and/or objections, and then hold ourselves accountable to that plan going forward. Sounds pretty simple but, like any other Action Plan, how do we prepare ourselves for the unexpected or the unknown that can, in this case, "kill" our parts gross profit?

Parts Gross Profit "Killers" are out there and if we don't know what they are, or don't have a plan to prevent them, a Parts Matrix is not going to fix it. Believe it or not there are more of these Parts Gross Profit "Killers" out there than you may think.

We all know that Parts Discounts & Overrides can reduce our parts gross profit, but what about the "not so obvious" Parts Gross "Killers" out there? What leads to these discounts & overrides in the first place? Secondly, if we have a Parts Matrix, what would drive a Parts Manager, or Parts Counter Person to change that price we created?

All the answers to these and more coming up!

Let's Get Started!..

The Parts Matrix:

Let's start out by answering one of the above questions as to why people override the Parts Matrix. Even though there are times for a legitimate Parts Matrix override, most Parts Matrix overrides are due to human instincts. In other words, our "belief system" kicking in and telling us when we think something costs too much so we have to override the matrix.

Another reason is that the matrix wasn't designed correctly in the first place with the right "cost plus" percentages in the right "cost ranges". There is actually a proper methodology that goes into building the right Parts Matrix and takes some time to do the research and math on where our sales come from and in what price ranges.

I have seen so many Parts Matrices that have the wrong percentages in the wrong price ranges, thus leading to countless overrides. Many of these overrides are also generated from the Service Department as many Service Advisors "feel" that some of these parts are priced too high. Believe it or not, there are more Service Advisors complaining about parts prices than there are customers complaining about parts prices. 

Bottom Line is the Parts Matrix has to make sense where there is no desire to override it in the first place. The right Parts Matrix doesn't get overridden and produces predictable gross profit retention percentages.

Competitive Priced Parts:

Our completive priced parts, often called "Menu Priced Parts", or "Flat Price Parts" are those parts we often see on our Service Menus for Interval Vehicle Maintenance. Engine oil, oil filters, air filters, cabin air filters, wiper blades, brake pads & rotors, etc. are some of the most common competitively priced parts that are often "flat priced" in order to "flat price" the complete job including labor.

The problem here that I see often times is that the parts are not "flat priced" correctly in the first place. And now, our first "Gross Profit Killer" is revealed before we even have the chance to override the Matrix in the first place. Overriding the parts matrix is one thing, but "flat pricing" a part to a lower gross right out of the gate is another. 

Most "flat prices" that I see in dealerships today were developed from a simple market survey, or "Competitive Market Analysis". In other words, let's just call around and see what others are charging for the same parts, not matter what gross we keep, as long as we stay in the same price range.

What most may not know is that it only takes an extra dollar or two on the oil filter and maybe $.50 a quart on the oil to not only stay competitive, but also retain the right gross profit. In other words, all we have to do is add another $5.00 to $7.00 on our oil change price to retain the right parts gross.

In my opinion and in most dealerships, adding another $5.00 to $7.00 on our basic gas oil change shouldn't result in losing customers as we are still remaining competitive, even though we may not be the cheapest. If we lose customers over a few extra dollars, then, in my opinion, we have other issues on retaining our customer base.

The proper way of determining the right "flat price" that should be used is done by "Weighted Parts Averaging" where we poll our top five to ten oil filters, in this case, then we "weight" the average of all those filters polled by annual piece sales and cost. Essentially coming up with one big oil filter part number to one average cost and then determining the sale price with the right gross retention.

Parts Gross Profit "Killers":

Now that we know that we need the "Right Parts Matrix" and the "Right Flat Price" utilizing Weighted Parts Averaging in order to get us to a pre-determined, acceptable retained gross profit outcome, we now have to learn how to keep it.

We have to know where these Parts Gross Profit "Killers" are and prevent them from happening as best we can. Building the right Pricing Strategy above won't matter if we let these Gross Profit "Killers" get in and steal all the work we did developing the right Parts Pricing Strategy.

1.) Overrides/Discounting:

As mentioned earlier, overrides and discounts by far are the Number One killer of parts gross profit. We have to have the right Matrix and Competitive Pricing Policies that don't attract human interference leading to discounts, in both the Parts & Service Departments. The Parts & Service Managers should be running a Parts & Service Override, or "Exception" Report off the D.M.S. to monitor these discounts & overrides.

It doesn't matter what the Matrix is "supposed" to do in order to increase parts gross, if it's set too high, they are just going to override it anyway. A "moderate" Parts Pricing Matrix ultimately nets more gross profit than the "aggressive" Parts Pricing Matrix due to less overrides.

2.) Parts Kits/Op Codes:

Here is one Parts Gross "Killer" that many are not aware of, especially when utilizing Parts Kits. Parts Kits are designed to make it easier in billing out certain menu parts, or even recall parts. By "joining" up a few part numbers, we can create one overall kit part number at one price that will combine all the individual part numbers and prices.

What many Parts Managers do not realize is that in many Dealer Management Systems, (D.M.S.), the Op Code can override any kit price and they wouldn't even know it. Even though on our end it looks right when we bill out the parts kit, the Op Code total parts price for that Op Cope wins out.

In other words, in an Op Code total parts price is set at, let's say at $100.00 for the total parts price allotment, and we bill out $150.00 in parts, the Op Code wins out and drops the total parts on that repair line to the "out the door" price dictated by the Op Code's total parts price allotment.

Sad thing is that on the Parts Department side, it all looks accurate and great, but when the repair order is invoiced by the Service Advisor, it will automatically adjust to the Op Code Parts Prices. This means that the Service Department ultimately controls the parts sales and gross from their end.

Technically, if the Service Advisor chooses the wrong Op Code on a 6-quart oil change, instead of an 8-quart oil change with a more expensive oil filter, we will see a "negative" parts gross profit after it's all been said and done. Even though this is an extreme example, we could actually bill out a transmission and the parts price for that Op Code would still control the outcome.

This is where "head scratching" time comes in when we look at the overall parts gross and it's much lower than expectations. We look at the Matrix, we look at our Flat Prices set at the desired levels and we can't figure out what happened...how can the Pricing Strategy not be working?!

If we don't know what we are looking for, situations like this are hidden and will not show anywhere other than on our Daily DOC's, or Daily Sales & Gross Reports. We could enter in a part number inquiry into our system and it shows the right sale and cost amounts, so why the negative results?

It's kind of like the old scenario of scissors cuts paper, paper covers rock and rock breaks scissors. In this case Op Code, (paper) covers rock, (parts) and rock breaks scissors, (parts gross). We need to know how our D.M.S. works and how these Op Codes and Parts Kits can be a Parts Gross "Killer".

D.M.S. System Defaults:

Our last Gross Profit "Killer" is also one that goes under the radar and much like the Op Codes and Parts Kits mentioned above, we may be losing parts gross and we don't even know it. Once again, pending on the D.M.S., parts "can" be defaulting to a lower price. We could actually bill out a part that we "think" is going to bill out at retail, but ends up billing out a wholesale price, or even lower.

Set ups in our Customer Information Files don't often get updated as well as pay types, automated discounts, promotions, etc, that may be set up with the "set it and forget it" mentality and before we know it, we are billing parts out as retail, but ending up with wholesale or lower.

I've been in dealerships where the customer files have not been updated in years and upon discovery, in this one dealership in particular, we found out that the dealer had been giving wholesale prices to the public. The blame was, of course put on the Parts & Service Managers for discounting and overriding parts prices.

This end result had this dealer pulling his hair out, wondering why his Retail Parts Gross Profit Percentage had always been at least 10 percentage points or lower than industry guidelines for months and years, while the Parts & Service Managers insisted that there were no unusual discounts & overrides. 

Upon our "drill down", we discovered that many, many of their customers were set as Price Code 3, which was wholesale, or "Trade Price", instead of Price Code 1, which is Retail in the System Defaults on Parts Pricing. Unaware of all this, parts kept being billed out accurately, but to a different result.

Once it was revealed that a combination of these customer pricing set up defaults and some Op Code Prices that hadn't been updated in years, the mystery was finally revealed. After just a couple months, this dealers Retail Parts Retained Gross Profit is now at industry guidelines.

Bottom line is that this is all math and irrefutable. If we have a Pricing Strategy that includes a Parts Matrix that is set up with an "out of grid" Gross Retained Profit of let's say 45%. Then, we also have our "Flat Price" parts also set to retain 45%...how can the end result be any different?

The answer is rather simple....we have Parts Gross Profit "Killers" out there that we have get under control and managed properly. Parts Gross Profit should be the easiest thing that we control as Parts Managers, but ultimately, it always seems to come down to the following question...

Like the old saying goes..."How do we know what we don't know?"

"I guess...when it comes down to managing our gross profit...we really need to know!"

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...

May 2023: Proper Ordering & Receipting: "How Important Is It?"

Over the next few months, ACG "Smart Parts" will be going "back to basics" as we review some topics that we may have taken for granted. After all, there's nothing new here when we drill down this month's topic of the simple procedure of ordering, receiving and posting parts into inventory.

The topic may not be new, but why then are there so many dealerships out there with Parts Accounting Issues such as high variances between the Parts Ledger Balance Inventory and the Controlled Balance Parts Inventory on the Dealer Management System, (D.M.S.)?

Why are there so many dealerships out there with inaccurate numbers on their D.M.S. Parts Monthly Management Reports?...and why are there still many Parts Department's out there with substandard numbers on their Industry Composites on Parts Inventory Management?

You would think that this basic function of ordering, receiving and posting parts into inventory would be a pretty simple process that we all know and perform pretty much every day. Why should it even be a topic of discussion in the first place?

One of the main reasons and the answer to all the above questions is a lack of knowledge, training and understanding of Accounting and Managing Parts. The unique relationship, or partnership between the Parts Manager and Office Manager/Comptroller has to be one of total understanding on how this process works on both ends.

Let's start with the relationship, or partnership between the Parts Manager and the Office Manager/Comptroller...

The Parts Manager has to have Basic Accounting Training and Experience on Managing Asset Accounts, Expense Accounts, Payables & Receivables, Sales & Cost of Sales, etc. and convert that language over to Parts Sourcing, Ordering, Receiving & Pricing, as well as both Sales and Cost of Sales.

The Office Manager/Comptroller has to have Basic Parts Manager Skills & Abilities in the areas of matching Sales & Cost of Sales to Parts Sources, or Stocking Groups. The Office Manager/Comptroller also has to be able to identify credits and debits to the proper Ledger Inventory Accounts that match the Parts Inventory Controlled Inventory Sources.

All these have to be set up properly to begin with even before we order our first part number as all these so called "lines of communication" have to be connected accurately and understood by both the Parts Manager and the Office Manager/Comptroller.

Now that we have our basic partnership, or relationship established, we now have to get all the ingredients together and get them in the right order even before we start ordering, receiving and posting parts. Who would ever have thought that there would be so much going into this process before we even ordered our first part?

Here are the ingredients that we will need to start our "Proper Ordering & Receiving" Process...

Parts Sources/Stocking Groups:

All Parts have to be in their proper Parts Source, or Stocking Group separated and "connected" to the proper Inventory Ledger Balance Inventory Account. The Main Parts Inventory, Tire Inventory, Gas, Oil & Grease Inventory and perhaps Accessories need to be separated by Source, or Stocking Group in order to be accounted for properly on the Accounting Ledger and Financial Statements.

This is where things can go haywire right off the bat as parts may be ordered from one Source and receipted into a different Source. This may result in a receipt into one inventory account but then sold out of another inventory account. Most Dealer Management Systems are set up to "default" to one overall Main Source, or Stocking Group.

This "Default Source" is usually where all the problems begin because if we don't receipt the part into its proper source, it will automatically be receipted into this "Default Source". This Source is where all parts initially come into the D.M.S. until manually moved to a different, desired Source. This "Default Source" is also the Source that the Manufacturer recognizes in system integration.

Parts could be ordered and receipted in the wrong Source, or Stocking Group, causing the Sale & Cost of Sale going to the wrong inventory account in Accounting leading to inventory variances as well. An example would be a quart of oil that was ordered perhaps out of the Gas Oil & Grease Source, or Stocking Group, but then got receipted to the Parts Main Inventory Source, or Stocking Group.

The results of ordering and receipting in two different Sources means the receipt on the oil "added" to the dollar value to the Gas, Oil & Grease Inventory, but the sale "debited" the Parts Main Inventory. This leads to the variances in the Accounting Ledger Balance in the Sales & Cost of Sales Accounts.

If the person ordering and receipting the parts does not catch the proper Sourcing right up front, the snowball begins to roll and get bigger. The Parts Source, or Stocking Group and Ledger Balance are not the only problem as price can also be affected as Sales & Cost of Sales will hit wrong accounts.

Parts Order Types:

Depending on the D.M.S. brand, there can be several "Order Types" which determines our Overall Fill Rates, First Time Fill Rates, Gross & True Turns, Stock Order Performance, Emergency Purchase Amounts, Sales from Stock versus Non-Stock and Inventory Investment of Stock and Non-Stock Parts.

Some of the most common Order Types are...

• Stock Order
• Supplemental Stock Order, (Forced Order - Dealertrack Dealers) 
• Customer Order
• In & Out Purchases, (NG - Dealertrack Dealers)
• Other Orders
• Emergency Purchases

Here is another area where things can go haywire as often times, the wrong Order Type is applied to the order and is often receipted as ordered. Proper use of these Order Types is crucial to accurate reporting on Parts Monthly Management Reports as well as 20 Group Composite information. Utilization should be as follows...

Stock Order/Supplemental Stock Order:

We only order parts for two reasons, which is either for stock or a customer. That being said, no matter what source or vendor we order the parts from, if it's for the shelf, it should be either a System Generated Stock Order, or Supplemental/Forced Order from other Stocking Vendors.

Customer Order:

Even though this one is pretty obvious, as to when we should use it, it still gets confused with Emergency Purchases at times. All Customer Orders should be separated from Stock Orders even though some Customer Orders may be added to the Stock Order when transmitting the order. Adding Customer Orders to the Stock Order also results in false Stock Order Performance Percentages.

In & Out/NG Orders/Other Orders:

In & Out, Other Orders, or NG Orders, (terminology pending which D.M.S.) should only be used on Aftermarket, or Other Makes Parts Purchases that we do not intend to stock. 

This Order Type will record the sale and show up in Sales History, but they will not track these sales demands for potential future Phase-In. This Order Type is basically an "in & out" function that will record the Sale & Cost of Sale for Accounting Purposes.

Emergency Purchases:

Emergency Purchases should only be used for tracking "Stock Out" situations, meaning that we normally stock the part, but ran out and had to chase for a customer. This information is vital to managing, and /or modifying Stocking Levels. It does not mean that we use it for buying "Emergency Stock" due to Supply Chain Issues as those purchases should be Supplemental Stock Orders.

Receipts:

As we receipt these above Order Types, it's just as important to receipt them as ordered and not manually. Back Orders, Cross Ship Orders and Cancelled Orders should also be updated during this receipting process in order to maintain the proper "linking" of these orders by Order Type and Order Number, or Control Number.

All Stock Order Receipts need to be matched up to the Proper Source, or Stocking Group to ensure proper billing for Sales & Cost of Sales as well as relieving the Proper Parts Inventory on the Ledger Balance Inventory in Accounting and the Controlled Balance Inventory in the D.M.S.

As you can see, there is a lot more to the "Proper Ordering & Receipting" Process than perhaps meets the eye. In my opinion, this detailed breakdown is necessary for accurate reporting on Parts Monthly Management Reports, 20 Group Composites and most importantly, our Parts Inventories "Checks & Balances" on the books and in the D.M.S.

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...