Tuesday, October 5, 2021

October 2021: Parts Department Training: "Is Your Staff Fully Trained?"

In most automotive dealerships today, and unfortunately, the Parts Department is the last department on the list when it comes down to training priorities. At best, Parts Department Staff may be required to complete certification status with various manufacturers, but these certifications are not a substitute for basic training requirements.

Working in the Parts Department also requires a certain personality that is detail oriented along with a logical thought process in order to manage and process all the information and transactions that occur each day in the Parts Department.

Recruiting and hiring the right Parts Department Staff and much like in any other dealership department, requires the same routine background checks, employment history and experience. The difference though in hiring Parts Department Staff is that there are a lot of other factors that have to be considered in the hiring process.

First and foremost, all Parts Department Employees have to be trustworthy and responsible in protecting and maintaining the dealers parts inventory. These two characteristics can not be trained and have to be a prerequisite for all Parts Department Employees.

Once we pass through the recruiting and hiring milestone, positioning and training become the next two priorities. Obviously, when hiring Parts Counter Staff, experience and work history usually dictates the parts counter positions with entry level parts employees filling the shipping, receiving, stock person and delivery driver positions.

All these positions require proper training, even at the entry levels as all parts department employees are responsible for protecting, maintaining and securing the parts inventory. Training on OSHA Requirements, (Occupational Safety & Health Administration) is important for all dealership employees, especially in the Parts Department.

On that same subject, all employees, including parts employees need to be trained and familiar with the Dealers Material, Safety and Data Sheets, (MSDS) and it's full contents including locations of Eye Wash and Medical Stations.  

Along with basic "housekeeping" practices, all the above apply to all parts employees and as well as all dealership employees. Taking pride in our work place environment seems to have slipped away over the past several years and needs to be a common practice again.

Once "basic training" for all parts employees is completed, individual training on all Parts Job Descriptions is the next requirement. Without a Job Description, training for any position would have no accountability or purpose.

Let's Get Down to Parts Department Training in all the Specific Categories...

Entry Level: Shipping/Receiving/Stock Person/Driver

As you can see from all the different Parts "Entry Levels" above, most of our parts employees got their start in the Parts Department in one of these areas. As they progress in these roles, they often end up in parts counter positions or even management.

Training is still just as important in these entry level categories and we will start with the Parts Driver. The parts driver, believe it or not is the "face" of the dealership when on the road delivering parts. This means that the parts driver should be trained and skilled in verbal communication.

A friendly smile, handshake and a warm greeting should be the norm on every stop on the route while delivering and/or picking up parts. The parts driver should be recognizable in dealership attire and be well versed in current wholesale promotions and special offers.

Our next entry level parts position that requires specific training is the Shipping & Receiving Clerk. Shipping & Receiving parts is an extremely important position. It requires a degree of "reconciliation" and "accounting" experience from order numbers to packing slips right on down to the parts invoices.

This is where I was referring to parts staff having the right Personality Profile that is detailed, organized and logical thinking. Reconciling all these parts and paperwork has to be accurate in order to reconcile the Controlled Parts Inventory, (DMS) and the Accounting Ledger Balance Inventory.

Inaccurate and improper posting of parts can also lead to an inaccurate Off Shelf Fill Rate and most important, the First Time Off Shelf Fill Rate as parts have to be receipted in the proper stocking categories of Normal Stocking Parts and Non-Stock Parts such as Special Orders.

This could ultimately lead to inaccurate inventory investment numbers, gross and true turn rates and overall obsolescence. Who would have thought that all this training on proper posting and receipting could lead to so much in the end? As the old saying goes..."Garbage In, Garbage Out!"

Insuring the right bin locations for parts is also a skill that requires training in bin management and computer skills to continuously update the current stocking position of all parts and in proper order, space availability with the part number facing forward for proper identification.

Bin positioning is also very important as fast moving parts need to be shelved closer to the front counter for efficient dispatching of parts to technicians. Slower moving parts can be binned according to size, or individual part group identification as needed.

The Shipping/Receiver, or Stock Person has a key role into what eventually happens out front with the Front and Back Counter Staff and Parts Manager. You might even say that they are the "set up" people that make it happen from behind the scenes and their position should never be taken lightly.

Front & Back Counter Staff:

When I was growing up in the parts business, the "Parts Counter" was the elite position, both in the dealership and the aftermarket. This is where you wanted to be and hopefully some day, grow into the Parts Manager Position. In most dealerships today, most Parts Manager "grew" into their management position by their tenure on the Parts Counter.

That being said, training is of the utmost importance in being a successful Parts Counter Person. The unique skills required encompass many personality traits from being a salesperson, cashier, research analyst and yes...even a psychiatrist when it comes down to listening to technicians every day.

The Parts Counter Person is also a "diagnostician" in many cases as technicians often ask the Parts Counter Person what they need to fix a vehicle and like most Parts Counter Persons, they always offer their advice based on experience in looking up parts.

This "shifting" degree of personality traits starts with an analytical mind that can shift from customer to customer, technician to technician and stay on a logical point while communicating with all types of personalities. There is no training that can change who we are, but adapting to different environments is a task by itself.

The Parts Counter Person must also be trained in Accounting to some degree where "checks and balances" are an every day occurrence and must always be accurate. The Parts Counter Person also has to be trusted in all Pricing Strategies & Policies implemented by the dealer.

The Parts Counter Person also MUST have good "phone skills", which unfortunately is not trained enough in many automotive dealerships today. The standard "Parts Hold" response is still the number one response on in-coming calls to the Parts Department. In my opinion, parts phone skills training is the number one training topic.

With so many transactions throughout each day in the Parts Department, it's a wonder that more mistakes don't happen as each part has to be billed individually for the most part and every part has to be accounted for on the shelf with an average 4.000 to 5,000 part numbers in the average inventory. 

Lastly, the Parts Counter Person must be trained on basic salesmanship in "relative" selling on related parts that the customer may be inquiring about. In other words, selling a set of brake pads could also include a bottle of brake fluid needed to bleed the brakes.

The Assistant Parts Manager:

The Assistant Parts Manager position is not a position in all Parts Departments, but if it is, it's the "catch all" of all other Parts Department positions. The Assistant Parts Manager has to fill all roles in the Parts Department efficiently and to the expectations of the Parts Manager position.

Training in this position requires Parts Management Training as well as Parts Staff Training, which can be a "juggling act". In my opinion, the most important training attribute of any "Assistant Manager" position is Communications Training.

The Assistant Parts Manager, or any Assistant Manager for that matter, is the "binding thread" between management and subordinates. Meaning that they are the "in-between" person and often times get caught up between the two.

That being said, the Assistant Parts Manager has to be uniquely skilled and knowledgeable in all aspects of the Parts Department Operations, plus that added level of communications training that binds the department as one department.

This is one position that needs to include experience, past work history, the right personality and work ethic that can lead others, just like the Parts Manager. Training for the Assistant Parts Manager should be no different from the Parts Manager.

Dealer Management System, (DMS) training is a must on all the "proper" Set Ups & Controls, including Phase-In/Phase-Out Criteria, Stocking Levels, Obsolescence Control, Pricing Policies and Account Management all applies to the Assistant Parts Manager. 

Training never stops, as one of my clients has said to me several times, and the Parts Department is no different. Parts Department Training needs to move up the ladder in priority in the dealerships training agenda for obvious reasons...

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

 

 

 






 

 

 


 

 

 


Wednesday, September 8, 2021

September 2021: Breaking News: The Current State Of Our Industry

It's been a while since I focused our ACG "Smart Parts" topic on the "State Of Our Industry" as I normally do at the end and beginning of each year. Even though it's only our September issue, so much has and is happening that I just couldn't wait until the end of the year.

Another reason for not waiting to the end of the year is, in my opinion, things are happening so fast in 2021, especially if we compare what's happening now versus just over 18 months ago when this whole Pandemic started. 

But!...it's not just the Pandemic that's causing what we are seeing today versus just a year and a half ago, even though it may have just been the "catalyst" of what we are seeing now and more importantly, what's to come.

Who would have ever thought that dealers would be making more "Front & Back" Gross Profit on New and Used Vehicles than ever before? Especially when we have the microchip shortage that has impacted dealers new vehicle inventory, which we will also cover further down in this article.

Who would have also thought that the Dealers Fixed Operations would rebound from Covid-19 at record levels in many dealerships? How could all this happen after such a serious health crisis that we are still dealing with even today with the Delta Variant?

The answer to these and many other questions that we will be exploring in this issue of ACG "Smart Parts" has to do with much more than the average person might think. Even though the "cause and affect" on these topics we discuss are not unfamiliar, it's the immensity of these topics that has had such a huge impact.

We have all heard the terms of Global Domestic Product, (GDP), The Economy, Covid-19, Global Issues, Unemployment Rates, Inflation, Industry Guidelines and Results, and most familiar and right down to earth for us "Smart Parts" Manager...Back Orders!

That being said, and if we have all heard these terminologies before...then why are they impacting us so much more than ever before in our history?...and not just in our industry as all retail markets are being affected right down to going to the grocery store and filling up our tanks.

"Could This Be The Perfect Storm, or...Could It Perhaps Be The New Normal?" 

Let's Read On To Find Out!...

As mentioned, we will be exploring all of these "cause and affect" areas that are impacting what we are seeing and experiencing today. Each category will have a detailed correlation to our Parts Industry and our whole Auto Industry in general. 

We will also include industry information through the first half of this year from NADA and their Chief Economic Advisor, Patrick Manzi. This information from the first two quarters of 2021 will lead us into all the other "cause and affect" areas that shape where we are today.

The following information provided by NADA and Patrick Manzi and readily available in full detail at:

nada.org/nada-Q2-2021-auto-sales-analysis

Time to Kick Things Off with our September Issue of ACG "Smart Parts"!...

Breaking News: The Current State Of Our Industry

NADA Auto Sales Analysis - June 2021:

As mentioned , we will start with some statistics from our friends at NADA and Patrick Manzi, Chief  Economics Advisor. Also keep in mind as we review these results that the current and on-going concern on the microchip shortage continues to play a role in the current new vehicle inventories in our dealerships today.

We won't get into the global and/or political aspects of this microchip shortage, rather we will look at the overall impact and the "trickle down" affect on how this has impacted our Parts Department Operations today.

Through June of 2021, 76.9% of New Vehicle Sales came from Light Truck, SUV's and Crossover Vehicles which is not a surprise. Of which, 17.6% of that percentage came from Light Truck, which is down from 20.0% from 2020.

This is pretty much due to "Lost Production" according to Auto Forecast Solutions from the drop in microchip inventories. As of June 2021, new vehicle production was down 4.6 million units from 2020, of which, new light truck production was down 1.5 million, with projections to be down to 1.8 million by the end of this year.

This all equates to a very common term for "Smart Parts" Managers which is overall Days Supply. As in the Parts Department, a 45 Days Supply of parts in dollar value is the current NADA Guideline. The same goes for new vehicle inventory, but with this microchip shortage, new vehicle inventories have dropped down to just 25 Days Supply.

Actually, the normal new vehicle inventory Days Supply would be approximately 60 Days Supply at 2.6 million in new Lt. Truck Inventory, but with projections going down to approximately 1.4 million in new Lt. Truck Inventory, the Days Supply will drop even lower than a 25 Days Supply.

New vehicle production is expected to rise in 2022, but even with this rise back to somewhat normal, fleet inventories such as rentals, commercial and government vehicle production orders will be filled before dealer inventories get filled.

High demand and low dealer inventories have also caused the average price of a new vehicle to rise to a record average of $40,206.00. This has also raised the new vehicle average monthly payment from $576.00 per month to $598.00 per month as more and more new vehicles are being sold at MSRP or higher.

With higher trade in allowances and lower, sustained interest rates, or at least until a projected 2023 timeframe, demand keeps pushing the price upwards, for both new and used vehicles. Even though manufacturer incentives are declining, dealers are realizing that less on the lot is actually more when it comes down to profit.

Could this be the "New Norm" going forward for dealers?...especially with the Floor Plan Expense Savings that dealers are experiencing now?....Only time will tell!...

The Economy:

The economy always has an affect on our industry, but in my opinion, not as much as it has to this point in 2021. Again, putting politics and world economics aside, the rise in inflation has been the highest in a such a short period of time than I have experienced in my lifetime.

Let's look at the month to month inflation rate since December 2020, which had us at an inflation rate of 1.6%. All percentages below provided by www.usinflationcalculator.com...

  • January 2021: 1.6%
  • February 2021: 1.7%
  • March 2021: 2.6%
  • April 2021: 4.2% (biggest jump!)
  • May 2021: 5.0%
  • June 2021: 5.4%
  • July 2021: 5.4%
With these numbers on the rise, it's not a surprise to see the new vehicle sales numbers as they are, especially with higher demand and less inventory as people are driving again. More people driving again also means a higher demand on parts and service.

Dealership Service and Parts Departments are bouncing back like never before and setting new records. This is especially ironic with the health crisis that we are still going through for the last 18 months. Demand on parts has never been higher and at a time when supply chains are being stressed more than ever. 

We will explore more on those last couple of comments even further in this issue!...

Employment: "Let's Get Back To Work!"

This is a big issue as everyone one of us have felt the blow of trying to hire the right people, or even in some cases, a "body" to fill the void of the overstressed and higher demand work environment. It's never really been easy to find the right person for the right job, but it's never been more difficult than it is now.

Unemployment numbers and percentages are falling, but still to this day, 14.7 Million Americans continue to receive some form of unemployment and/or pandemic compensation. The good news is that this number is down 54% from a year ago. Currently, 70% of the jobs in our industry lost due to Covid-19 are back and have been filled on a national level.

On the dealer level, employment has improved to nearly 1.1 million, but it's still hard to find the right individuals to fill this growing demand, especially in the area of Fixed Operations. On top of that, even if we do find the right individuals, the compensation expense for our employees is rising at an astronomical rate.

Global Economy & Events:

On a global scale, the United States still remains strong as the number one leader in Global Domestic Product, (GDP), even though long term projections having the United States dropping in their percentage share of the GDP market.

As of mid-year 2021, here are the Top 5 GDP countries around the globe with GDP listed as well in the trillions...
  • United States: 25.3 Trillion
  • China: 20.6 Trillion
  • Japan: 5.6 Trillion
  • Germany: 4.9 Trillion
  • India: 4.9 Trillion
As you can see, there is quite a gap after the number two GDP country which is China, which is our biggest competition and unfortunately, holds much of our debt. This global economy is going to go more and more "global" in the years to come as we already see with the current microchip situation.

So, how does all the above affect the Parts Department?...

Supply Chains - Vendors:

I saved the best for last as after all...ACG "Smart Parts" is supposed to be about Parts! The overall affect of what we have drilled down above boils down to parts shortages. Shortages that have never been experienced before in our country since the Depression.

So, what's causing all this in the first place?...

First of all, the microchip issue is different from the overall issue of parts shortages with almost all the manufacturers across the country. The parts shortages go much further than the microchip shortage that's affecting new vehicle inventories and sales.

The parts shortages are due to a wide variety of issues and reasons that started with the pandemic, with the exception of General Motors who suffered through a strike right before the pandemic hit in early 2020. The result for General Motors was a "double whammy" with the strike and then the pandemic.

We often mention the phrase "trickle down" in our issues and none is more true than the "trickle down" we have experienced with parts shortages. The parts shortage overall is impacting automotive dealers as well as the parts aftermarket as many vendors provide parts for both markets and are just branded with different logos.

The first thing we have to determine on the "cause and affect" of this parts shortage is..."Who's making these parts and where do they come from?"...

This is our first clue as you may have noticed that most of these parts shortages have mostly affected the domestic branded vehicles such as GM, Ford and FCA, (Chrysler, Dodge, Jeep & Ram) with minimal affects on imports from a replacement parts manufacturing standpoint. 

Of course with the pandemic, there were warehousing and distribution issues with any commodity or product getting to it's final destination, right down to toilet paper, but we are looking into this even further.

Many of the replacement parts for domestic vehicles come from not only the United States, but other countries such as Mexico, Taiwan, Canada and others that have to deal with plant shutdowns, reductions in employees and even transportation issues as the result of the on going affects of Covid-19.

We also have to look at what these replacement parts are made of, which for the most part are petroleum based. For example, we are still feeling the affects of the winter/spring ice storm that hit Texas and shut down plants for months.

Petroleum products in these factories that were shut down in Texas include plastics, foam for car seats, modules, trim, filters and many other replacement parts that include petroleum as a main byproduct were affected by the storm shutdown.

Replacement parts manufactured in Mexico and other countries also had to deal with and are still dealing with Covid-19 restrictions for travel and commodities crossing borders which includes many other products including appliances, clothing, food, etc.

Along with truck driver shortages, cost of fuel rising, and lack of workers in the work force, it's no wonder that we are feeling the blow in the Parts Department with trying to provide, in some cases, normal stocking parts such as oil filters.

Adapting to change has never been more critical than now for "Smart Parts" Managers. Relying on the manufacturer to replenish our shelves with the simplest of parts such as filters, oil and other fast moving parts on their Vendor Managed Inventories, (V.M.I.) and overnight dedicated deliveries can not be trusted.

Now is the time to stock up and add a few more Days Supply, or "safety stock" to avoid future back orders and "out of stock" situations. We need to rely more on our own D.M.S., (Dealer Management Systems) with the right set ups to track our own demand on the most common parts which will in turn be the difference maker.

We also need to look at our current Pricing Policies and start thinking about modifications in that area as well. As mentioned earlier, prices are going up in every aspect of our economy, so why don't we do the same? Have we made the same adjustments or modifications to our parts prices, especially our price matrix to keep up with higher costs and inflation?

In my opinion, everything is going up in cost as illustrated due to higher demand and lower inventory levels which leads to new opportunities and new challenges. We have to meet these challenges head on in order to adapt to change and move to the next level.

"The State Of Our Industry remains strong, but the next "Breaking News" is just around the corner and we have to do what we always do....and that is...whatever we have to do be successful "Smart Parts" Managers!"


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




 














 
















 






Wednesday, August 4, 2021

August 2021: Parts Sales Activity: "What Does It Really Mean?"

Measuring the "Performance" of the Parts Inventory can only be detailed and illustrated by the Dealer Management System's, (D.M.S.) Parts Monthly Management Reports. Depending on which D.M.S., these reports have many titles and may or may not contain the same information, or in some systems, not enough information.

In addition, with some Dealer Management Systems, the end of month parts analysis information may be on more, or perhaps several end of month parts reports. The important thing is to know what we are looking for and what we are measuring in the area of "Parts Inventory Performance".

The other important aspect of measuring what we see on these reports is accuracy. What we see on these reports may not be accurate as it depends on how information is entered into the D.M.S. that dictates the outcome on these reports. As the old saying goes...garbage in, garbage out.

Other than what we see as far as sales and gross profit information on the dealer financial, there are several Key Performance Indicators, (K.P.I.'s) that need to be measured and tracked on these end of month parts management reports. 

The true "Performance" of the parts inventory asset cannot be seen on any financial page and can only be measured by an accurate, detailed Parts Monthly Analysis Report, Inventory Management Report, Benchmark & Trends Report, or whatever name the D.M.S. labels it as.

Industry Guidelines actually dictate what these Key Performance Indicators, (K.P.I.'s) are, telling us what we should be looking for on these Monthly Analysis Reports. Even though there is a "ton" of information on some of these reports, the most important are as follows;

  • Overall Off Shelf Fill Rates, or Level of Service
  • Cost of Sales Analysis, (normal stock parts vs. non-stock parts)
  • Inventory Analysis, (normal stock vs. non-stock)
  • Lost Sales & Emergency Purchases Reports
  • Stock Order Performance
  • Inventory Adjustments, (plus/minus)
  • Annual Parts Gross & True Turns
  • Parts Sales Activity
You may notice that there is no mention in the above list about "First" Time Off Shelf Fill Rates as the Dealer Management System does not calculate First Time Off Shelf Fill Rates and has to be calculated manually, even though some systems will calculate "Same Day" Off Shelf Fill Rates.

Last but not least on our above list, and the topic of this issue is "Parts Sales Activity" which, in my opinion, is the most misunderstood Key Performance Indicator in the above list. The key word to keep in mind as we move forward is that word "activity".

Before we get into "breaking down" Parts Sales Activity, let's take a look at the industry guidelines for Parts Sales Activity. Almost immediately, you may see some confusion between the industry guidelines and what the D.M.S. actually calculates in this category.

Let's start off with the industry guidelines from NADA, which by the way just changed in 2021. Prior to this update in 2021, the previous NADA Guidelines for Parts Sales Activity reflected a much closer match to most Dealer Management Systems.

Here are the new NADA Guidelines for Parts Sales Activity, as well as prior to 2021...

Up to 2020:

0 - 3 Months Sales Activity: 75%
4 - 6 Months Sales Activity: 23%
7 - 12 Months Sales Activity: 2%
Over 12 Months Sales Activity: 0%

New NADA Guidelines for 2021:

0 - 6 Months Sales Activity: 85%
7 - 12 Months Sales Activity: 10% - 15%
Over 12 Months Sales Activity: 5% or Less

This is where the confusion begins as in most Dealer Management Systems break down Parts Sales Activity in different ways. Some systems break down Parts Sales Activity by the guidelines listed above up to 2020, and yet some other systems will break Parts Sales Activity as follows;

0 - 3 Months Sales Activity
4 - 6 Months Sales Activity
7 - 9 Months Sales Activity
10 - 12 Months Sales Activity
13 - 23 Months Sales Activity
Over 24 Months Sales Activity

There are also some Dealer Management Systems out there that actually break down Parts Sales Activity by individual months and confuse Parts Sales Activity with Parts Aging Analysis.  Even though the two are similar, they are actually two different categories.

Even though we all can do the math on our D.M.S. to add up to the previous and current NADA Guidelines, the problem, or confusion starts with the definition of "Activity". Parts Sales Activity often gets confused with "Parts Aging Analysis" and "Parts Movement Analysis".

All three categories are usually broken down by the same above guidelines, which already confuses things because even though all three may look the same, they are completely different, especially the "Part Movement Analysis".

So, which one of these Dealer Management System Reports are we supposed to use?...and which one is the "true" Parts Sales Activity Report that NADA is looking for in the current or previous guidelines?..no wonder we are all confused!

Let's Begin and End all this Confusion on Parts Sales Activity and "What Does It Really Mean?"

Let's start by breaking down all of these categories that can be labelled as Parts Sales Activity. Keep in mind, we will be reviewing "Activity" as mentioned earlier because when we talk about sales activity, it doesn't mean that we have the part currently on the shelf

For example, I could have a very popular oil filter that is active in the 0 - 3 Month Parts Activity Cycle, but I am currently out of stock. I could also have a Special Order part that I ordered yesterday and sold today, which leaves me a zero quantity, but will also be considered an active part in the 0 -3 Month Parts Sales Activity Cycle.

So, before we break down all these different terminologies mentioned above, I wanted to clarify and simplify what "Activity" really means before start looking at which reports are accurate in various Dealer Management Reports that we mentioned previously.

Let's break down the various reports we mentioned....

Parts Aging Analysis:

Just by the title of this report, we should already see the difference of what we are looking for in "activity" versus how long a part has been on the shelf. Even though this report can be broken down the same as the actual Parts Sales Activity Report, it represents two different categories.

Although, there is a "crossover" here as the Parts Aging Analysis does list those parts on the shelf by date of last sale, so by definition, the last time a part sold does indicate age and last "activity". Thus meaning, some parts could be on both reports, if there is quantity on the shelf.

In the case of one D.M.S., (Dealertrack) where the only place we can get any Parts Sales Activity is on their "Parts Aging Analysis" Report. This report can be used for Parts Sales Activity, but it needs to include "zero on hand" sales by months to include all Parts Sales Activity.

All other Dealer Management Systems, with the above exception in Dealertrack, the Parts Sales Activity Report should be used and not the Parts Aging Analysis Report.  We need to stay focused here on "Activity" and not age of a part in stock, if the part is on the shelf or not, or whether it's a stocking part or a non-stock part.

If we stay focused on the above line in bold print, we will better understand what we are looking for...let's move on to the next category...

Parts Movement Analysis:

The Parts Movement Analysis does have some similarities to the Parts Sales Activity category, but with a few different "twists". In Dealer Management Systems that use this terminology, they usually break it down in parts with sales movement in the various month cycles as well as no sales movement in the various month cycles.

The one that matches the Parts Sales Cycle the closest is the parts that do sell in the various months cycles, but only on those parts that have quantity on the shelf. Those parts that are at a zero quantity are often left out as this movement category tracks current inventory amounts.

The other movement category, parts with no sales movement over a course of various months covers those parts that have quantities on the shelf and no quantities on the shelf. Those active parts that have no quantity on the shelf are just being tracked for history purposes.

In the case of those Dealer Management Systems that offer a "Parts Movement Analysis" versus a Parts Sales Activity Analysis, I would use the Parts Movement Analysis Report with sales activity of those parts with inventory amounts by date of last sale.

Last, but surely not least, let's look at the Parts Sales Activity Report and "What Does It Really Mean?"

 Parts Sales Activity:

As I mentioned early on, the best way to understand Parts Sales Activity is to focus on the word activity. Parts are "positioned" in a particular month category based on the date of last sale and can move up based on current sales activity or move down based on inactivity.

In other words, if a part does not have any sales activity for over 12 months, the dollar amount of the last sale at cost will be in the "Over 12 Months" Parts Sales Activity. If this particular part does have a sale today, it will increase the dollar amount at cost of that part in that category of "Over 12 Months" Parts Sales Activity on the end of month analysis report.

The following month, and when the D.M.S. performs "month end" calculations on the Parts Monthly Management Report, the above part is "moved" or "placed" into the "0 - 3 Month" Parts Sales Activity and decreases the dollar value of that parts sale from the "Over 12 Months" Parts Sales Activity and increases the dollar value act cost in the "0 - 3 Month" Parts Sales Activity category.

So, in essence, selling a part in the "Over 12 Months" Parts Sales Activity category and seeing the dollar value at cost rise in that category is a good thing. On the other hand, seeing a rise in that "Over 12 Months" category can also mean that parts in "7 - 12 Months" Parts Sales Activity are falling down into the "Over 12 Months" Parts Sales Activity, which is not a good thing.

Basically, one reason for a rise in any of the month categories means that a sale at cost has happened and the system is just calculating the cost of that sale and increasing the total sales activity at cost in that category, even if the sale results in bringing a particular part to a zero quantity. 

The other reason for a rise in dollar value at cost in any month category would be parts with date of last sale falling out of the current month range. In other words, a part with date of last sale was in the "7 - 12" Month" Parts Sales Activity just hit 13 Months and is now placed into the "Over 12 Months" Parts Sales Activity category.

This is why often times the total Parts Sales Activity at cost does not match the total parts inventory at cost. As mentioned in the previous example with the air filter, it's "activity", and not an indication of what we may have on the shelf.

All the confusion comes down to separating "activity" from "inactivity", as Parts Sales Activity only gives us a timeline of when the last date of sale happened. Even though that date may be over 12 months, it's still just an indicator of date of last sale.

This is why we should not use the Parts Sales Activity Analysis to measure our obsolescence because part of the rise in the "Over 12 Months" Parts Sales Activity could actually be parts that we are "buying down" from our obsolescence, which is a good thing. 

Again, it's "sales activity" at cost and the D.M.S. is going to record that sale of that part at cost from the month category that it is currently in, which in this case we are referring to the "Over  12 Month" Parts Sales Activity category. The following month, the D.M.S. will move that part back into the "0 - 3 Month" Parts Sales Activity category as mentioned earlier.

So, now that we know that an increase of Parts Sales Activity "Over 12 Months" can be a good thing and a bad thing, we cannot be using this category to calculate our true parts, on hand obsolescence. Different D.M.S. reports need to be used for obsolescence which all of them have to create reports on parts inactivity, or no sales over 12 months.

Parts Sales Activity is one of the Key Performance Indicators, (K.P.I.'s) on most Dealer Management Systems and a very important category when measuring where most of our sales come from. As the current and previous NADA Guidelines indicate, most of our sales activity should be in the 0 - 6 Month Sales Activity Cycle.

The reason is simple as all parts will become obsolete and the most opportune time to sell parts is in that six month sales window before the percentages, or chances for selling those parts diminish at a very rapid pace. 

Lastly, having an "Active" Parts Inventory that meets or exceeds the industry guidelines leads to higher Inventory Gross & True Turns, higher Sales & Gross profits, higher Service Productivity, and higher "First Time" Off Shelf Fill Rates. 

"How Important Is Understanding Parts Sales Activity?..."

I think we all know the answer to that one!

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, July 15, 2021

July 2021: "The Cost Of NOT Reporting Lost Sales"

Lost Sales Reporting is not a new topic that we have featured in the past here at ACG "Smart Parts". Although, in my opinion, it should be the number one topic and priority of any Parts Manager as the primary focus of any Parts Manager is stocking the "Right Parts At The Right Time".

First and foremost, the only way that parts become Normal Stocking Parts is by recording parts demand. There are only two ways that demands are recorded and that is "Sales" and "Lost Sales". Sales will always happen eventually, but Lost Sales is an "elective" practice, or process.

If we choose not to record Lost Sales to industry guidelines of 5% - 10% of total sales at cost, we lose those recorded demands that can impact having the right parts at the right time and additional profits. After all, and just like in the Sales Department, it's much easier to sell vehicles we stock on the lot versus those vehicles we do not stock.

So, before we get into the cost and lost gross profits for lack of Lost Sales Reporting, we have to look at the definition of what qualifies as a Lost Sale. The right definition is also one of the reasons for lack of reporting in the first place. If you would ask ten different people what their definition of a Lost Sale is, you would most likely get ten different definitions.

In my opinion, the definition of a Lost Sales is an easy one as it all boils down to recording "Potential Missed Opportunities" as "demand reporting versus outcome" can truly make a difference. In other words, if there is an inquiry on any part, there should be an expected outcome. 

First of all, if there is a part inquiry, there must have been a vehicle out there that needed the part, whether the part is sold from stock, special ordered or located. If none of the previously mentioned happens, or the customer declines, it is a Lost Sale. 

Even if a Lost Sale is posted on a part that is not a Normal Stocking Part and the customer declines initially, but eventually does special order the part with a previous Lost Sale recorded, the "double demand" of a Lost Sale and eventual sale does not cause an issue.

In those occasions when "double demand” posting of a single part, it just "“ensures”" that the demand was posted, and Parts Phase-In occurs after demand in months criteria has been met. Total demand is affected but is controlled by the Parts Manager as parts do not just jump on the shelf.

It’s much easier to control those parts that do phase in to be considered Normal Stocking Parts as we can’t manage what we can’t see. After all, it’s the parts that we don’t see on the phase in report that could be missed and become Normal Stocking, Active Parts. 

So, What Are The Costs And Lost Gross Profits From NOT Posting Lost Sales?

Let’s get started…

First and foremost, the two major contributors for getting an idea of what we are missing out on from not reporting enough Lost Sales are parts “First Time Off Shelf Fill Rates” and “Time”. In other words, what percentage of the time do we have the "right part at the right time" and how much time are we losing.

Time is money as we all know and the added cost for not having the right part at the right time affects our Service Productivity and adds Acquisition & Holding Costs in the Parts Department. We don’t need a calculator to figure that there are added costs and lost gross profits as a result.

To get started, we will have to use some basic data to come up with approximate costs and lost gross profits. This basic data will include the typical, average dealership with current averages compared to industry guidelines and we will “do the math” to come up with the costs and lost gross profits.

Also used in this exercise is compiled dealership parts data from ACG “Smart Parts” over the past 10 years in approximately 100 dealerships throughout the United States and Canada. Data acquired by ACG “Smart Parts” listed below is prior to training and implementation.

Data also listed by ACG “Smart Parts” are approximations. Results after training, implementation and follow up resulted in at or above industry guidelines in all key areas listed below with Lost Sales Reporting at or above 10% of total cost of sales.

·       Average Parts Sales Per Month: $160,000.00

·       Average Parts Cost of Sales Per Month: $100,000.00 (37.5% GP Retention)

·       Average Number of Technicians: 10

·       Average Service Productivity: 100%

·       Average Customer Pay Effective Labor Rate: $100.00

·       Average Service Labor Gross Profit Percentage: 100%

·       Average Repair Order Count Per Month: 1200

·       Average Parts to Labor Ratio: 90% (Guide: 100%)

·       Average Customer Pay Parts Gross Profit Percentage: 40%

·       Average Service Labor Gross Percentage: 70%

·       Average ACG “Smart Parts” Data First Time Off Shelf Fill Rate: 40% (Guide: 75% - 85%)

·       Average ACG “Smart Parts” Data On Total Parts Purchases: $75.000.00 to Maintain a Industry Guideline of 45 Days Supply

·       Average ACG “Smart Parts” Data Stock Order Performance: 40% (Guide: 75% - 85%)

·       Average Lost Sales Reporting: 1.2% of Total Cost of Sales (Guide: 5% - 10%)

All the data compiled by ACG “Smart Parts” also have one thing in common, and that is a lesser than desired reporting of Lost Sales of 1.2%. As a matter of fact, many of these stores did not report any Lost Sales and are included in the above average.

The results of this lack of reporting and the “trickle down” affect comes into play on all the “Lower Than Guide” Percentages listed above in the ACG “Smart Parts” data categories. All can be traced back to little or no Lost Sales Reporting.

The lack of demands that could have been reported by Lost Sales posting is definitely evident as fewer parts actually “phase-in” to even get in front of the Parts Managers eyes to make the right decisions on what parts to accept on phase-in as Normal Stocking Parts.

Now, let’s do the math and the results of the “trickle down” affect of the lack of Lost Sales Reporting, keeping in mind that time is a big factor to added costs and lost gross profit as time is a “perishable” inventory, especially in the Service.

Service Productivity:

If we use the data provided above and if First Time Off Shelf Fill Rates are at 40% versus the guide of 75% - 85%, and utilizing the data, the Service Department would have a net loss of a minimum of 15% in productivity due to low First Time Off Shelf Fill Rates from chasing and ordering parts.

Part of the reason for the First Time Off Shelf Fill Rates at a below average of 40% in these dealerships used in this study is manufacturers that offer a Vendor Managed Inventory, (V.M.I.). Most manufacturers that offer a V.M.I. only cover approximately 48% - 52% of their total parts numbers.

Much of the 48% - 52% are parts considered to be "A" and "B" ranked parts which are considered to be "fast moving" parts. But what about all those "C" and "D" ranked parts that may sell anywhere from 12 - 36 times annually? Those parts tend to be missed or not included as V.M.I. qualified parts.

These parts missed or excluded from V.M.I. qualified parts are also the "meaty" type parts. Parts such as gaskets, hoses, switches, modules, head bolts, lifters, fuel system parts, etc. These are also usually the parts that carry a higher gross profit margin as they are usually "captive parts".

If the Parts Manager solely relies on utilizing the Manufacturer's V.M.I., all those other parts not qualified are not usually stocked. The only way to pick up those "meaty" parts is to utilize the Dealer Management System with the proper set ups.

That being said, if the Parts Manager is relying solely on the Manufacturer's V.M.I., they can only achieve a First Time Off Shelf Fill Rate of approximately 50% if the V.M.I. is maximized. It seems the overall goal becomes being compliant, or "obedient" to the manufacturer just for the sake of "protecting" the inventory.

We end up just holding parts to eventually return while missing out on opportunities. We should be buying parts to "sell" and not to just protect and hold for 12 months or more. Achieving "First Time Off Shelf Fill Rates" to industry guidelines can only be achieved by maximizing both the Manufacturers V.M.I. and our own D.M.S. with the right set ups.

So, what does this all add up to?...

A loss of an average of 7.3 Billed Hours would be lost combined with 10 technicians due to “down time” and overall Service “Cycle Times”. The Lost Productivity adds up to at least 45 minutes per day, per tech. I have actually had many Service Managers say that time goes much higher than the 45 minutes stated.

Net Results: A loss of approximately $800.00 in Parts & Service Gross Per Day, $17,000.00 Per Month and over $200,000.00 annually.

Are we awake yet?...

Parts Discounts & Allowances:

Once again, utilizing the data provided above, if the Stock Order Performance Guideline is 75% - 85% and the average data collected by ACG “Smart Parts” indicates that the average dealer, prior to training and implementation was at 40%, there is a deficiency of at least 35%.

This deficiency adds up as well for those "unrealized" discounts, allowances and return reserve that is supposed to be used for reducing obsolescence, but unfortunately, those return reserves get used up for returning Special Order Parts. 

And with the average manufacturers’ parts discounts being at 3.5% on Stock Order Purchases and another 3.5% for Return Reserve, the average parts gross loss can be staggering. That’s not even counting the additional cost of Parts Special Orders and Handling.

Net Results from Lost Gross on Stock Order Performance: $2,450 Per Month, $29,400.00 Annually.

Special Orders – Acquisition & Holding Costs:

Utilizing the above data once again, if we are Special Ordering Parts 60% of the time, the Acquisition & Holding Costs on those additional Special Orders can add up rather quickly. On top of the lost time and gross profit in the Service Department from lost “Cycle Time”, the problem just gets worse.

Let alone that many of these Special Orders don’t get billed out and returned, they are actually in our inventory with NO Demands posted as the sale didn’t happen and the Lost Sale wasn’t recorded as we “assumed” that the part would be installed and billed. As an added note, approximately 10% or more of all Special Orders are scrapped or returned to the manufacturer.

Lastly, many manufacturers charge a handling fee for all Special Order Parts Returns and if our Return Reserves are low due to low Stock Order Performance, the cost is on the dealer, no matter which department pays for it.

Net “Cost” Result from Special Orders Above Guide:  $2,625.00 Per Month, $31,500.00 Annually.

Obsolescence Accrual:

We all know about this one, but just how much is it costing us and how much gross are we losing for carrying too much obsolescence? We also know that all parts will eventually become obsolete, but the big question is how much MORE obsolescence are we accumulating from the lack of Lost Sales Reporting?

We do know one thing though and that is that the more we Special Order Parts, the more the obsolescence grows. So, I guess my question is…Why do we want to add to the frustration, cost and lost gross profit from Special Orders?

There of course is a cost from all obsolescence, whether by natural causes, or if we created the mess in the first place. That cost is also represented in the Inventory Acquisition & Holding cost calculation which is 25% - 30% of the total inventory cost, whether Active or Obsolete.

Net Cost of Obsolescence with Data Provided: Minimum of $25,000 Annually, Obsolescence Only

Overall, we just focused on just these four areas, but the cost of not reporting Lost Sales to industry guidelines or better, reveals that the impact on gross profits and costs are very evident. I know that there are many other factors that we could add into the equation over and above Acquisition & Holding Costs.

Costs such as mistakes in ordering, pay plans including commissions, other gross retention issues, staffing, etc. can also be added into the mix, but those are all speculations, which in my opinion do not really hold a true dollar value when it comes down to looking at the true expense and lost gross profit from not reporting Lost Sales to industry guidelines.

All the above information does have a direct connection to Lost Sales that ultimately affect the dealer’s investment and gross profit opportunities, including Parts Gross and True Turns. Return on Investment is our primary function as Parts Managers along with being profitable.

Not only the Parts Department Profits are affected as we impact the profits of all dealership departments. Lost Sales Reporting is the only category that can impact all areas of the Parts Department including profitability, performance and ultimately, the Parts Inventory Investment.

The above exercise with the average dealership reveals that there are approximately $261,000.00 good reasons in dollars that we should consider, or perhaps “reconsider” on just how important Lost Sales Reporting is...Question is...

"How Important Is Lost Sales Reporting To You?"

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, June 9, 2021

June 2021: Winding Down From Covid-19: "What Have We Learned?"

If I was to say that it hasn't been a challenge over these last 18 months during the Covid-19 Pandemic, I would be far from the truth. Even though we aren't through the woods just yet, we are definitely winding down and there has definitely been some great lessons that we all have learned.

In our own personal lives, we have weathered trials, tribulations and turmoil that hopefully, we never have to endure again. On the other hand, we have also weathered and survived, (hopefully) a very difficult time in our industry.

This is especially true for "Smart Parts" Managers as our everyday routines have been turned upside down as even the simplest of tasks such as keeping our shelves adequately stocked with Normal Stocking Parts has been a challenge.

We have had to "think on the fly" just to provide the level of service that our customers expect as well as keeping our dealership owners profitable while protecting and "turning" their second highest business asset.

Of course, the Parts Department isn't the only dealership department that has suffered as supply chains have been interrupted as well in the front end New and Used Vehicle Inventories. Even our Service Department sales and retention has been interrupted as the customer's overall buying power has been reduced during this pandemic.

The first two questions that has to be on everyone's mind is...when will this pandemic end and how will it affect our industry going forward? And probably the most important question should be...

"What Are We Going To DO Going Forward?"

The one thing that has been a constant throughout this pandemic after working with several dealerships, both in-store and remotely is that dealer owners are resilient and will do what it takes to not only "survive" these times...they are are actually "growing" in many ways during these times.

As for the Parts Department, we have adapted and made the necessary modifications and adjustments throughout the pandemic as life goes on as we continue to do the what we do, which is stock and sell parts no matter what the situation.

After the initial impact months of Covid-19, and in my opinion, we have actually grown and gotten busier in our industry. Some of our dealers have actually had record months during this pandemic as they met this crisis head on found ways to even grow during these times.

In this issue of ACG "Smart Parts", will look at five key areas that have significantly changed in our Parts Departments due to the Covid-19 Pandemic. Perhaps some of them will be changed for good and be the new "normal" going forward.

All this being said, and with our focus on how we manage our automotive dealerships going forward...it's time to ask the Million Dollar Question...

"What Have We Learned From Covid-19 And What Are We Doing Different Now?"

Here We Go!...


Number One: Health & Wellness

I think it goes without saying that this has to be our Number One area that has impacted all of us, whether at home, at work, traveling, going to the grocery store, or any other form of social contact. It has changed us all and perhaps for the rest of our lives.

The automotive dealership is no exception as dealerships in general are cleaner, more sanitized, safer and more accommodating for customers and employees. Health and Wellness, in my opinion, has always been taken for granted and this is one area that I see that will not change going forward.

We are all much more aware of our surroundings and perhaps even a little kinder to others as we respect everyone's "space" even though "social distancing" was and is a tough thing for all of us to adapt to, but we all did what we had to do and from this experience, we all learned valuable lessons going forward. 

Lastly, in my opinion, the biggest lesson that we learned and one good "takeaway" on this area is respect for others. Providing a clean and safe environment has gone to new heights and for good reason, even though I believe we are ready for choice on the mask thing.

Number Two: Expense Management

One thing for sure that Covid-19 has led to is dealer owners are now running "leaner" than ever before. Surviving this pandemic led to perhaps the biggest sales drop in the automotive dealership than ever before. Dealers had to do what they had to do to survive, even if it meant lowering employee counts.

Dealer managers in every department had to "slim down" their departments from an employee standpoint. Even if it meant more duties & responsibilities for those remaining on staff, including all the managers. Multi-tasking became the new normal as expense management came to the forefront with declining sales.

The re-structure of the dealers employee base, which is the highest expense category also led into more expense management in semi-fixed and fixed expense areas as well as dealers tightened their belts wherever necessary.

This is another category that I think will remain a focus going forward as dealers. For the most part, we started to see sales and profits rise as we pulled out of the initial crisis after five or six months. In many dealerships, the rise in sales and profits saw record net profits due to dealers lowering their expense categories along with the rise in demand from customers.

The net result is that dealers realized that they can actually "get more with less", and that's a good reason to continue with the same mind set going forward. Many dealer have actually told me that they should have done this years ago, but it took a pandemic for them to realize they could actually do more with less.

Number Three: Adapting To Change 

Since the Covid-19 Pandemic began, we started to see a major shift in the way we operated our Parts Departments. All of a sudden, even keeping the simplest supply of the parts we need the most was not so easy anymore. Supply chains from the manufacturers and other vendors were interrupted as the "trickle down" affect began.

Even though we are still feeling the impacts, "Smart Parts" Managers had to "think on the fly" in order to keep up with demand. This also meant that we had to make changes in our Dealer Management Systems, (D.M.S.) to adapt to new "lead times" and even reach out to other suppliers to restock our shelves.

Even though we felt a drop in sales initially, slowly the demand raced back as the automotive industry in general is an "essential business". Overall, our transportation industry, though interrupted and modified, still needed to go on in every capacity.

Making the appropriate changes in our D.M.S. was essential and unfortunately, some of these necessary changes were not made resulting in a back log of backorders and delays. The overall results were staggering as service traffic suffered immensely, even though demand was beginning to rise as we all adapted to life during the pandemic.

For those "Smart Parts" Managers making the right decisions "on the fly" has resulted in record months in the Fixed Operations in many dealerships. With the combination of running leaner and meaner, as well as doing what it takes to provide the best customer service possible, no matter what the odds, has ironically resulted in some of the best increases ever.

Number Four: Increased Need For Training

In my opinion, there is one thing in common for those dealers that have actually increased their sales and gross profits over previous years prior to the pandemic is that they knew their staff had to work "harder and smarter".

Managers in every department not only had to adapt with less staff during the pandemic, they also had to think of better ways to grow. They knew they had to be smarter and have a better "quality" of employees instead of "quantity" of employees.

We have experienced this first hand here at ACG Smart Parts & Smart Service Training as the influx of dealers coming on board for training in the Fixed Operations has never been higher. Not only Fixed Ops Training, but the "right" training whether live or remote with expected results.

A big portion of this training had to also adapt to providing training remotely as travel was reduced during the early stages of Covid-19. Developing a program that would fit the dealers needs while abiding to Covid-19 Guidelines provided new opportunities in training for dealers going forward.

In the area of "Smart Parts" Training, the need for Parts Managers to know every aspect of even the basics of how managing parts goes beyond just how long we've been a Parts Manager. It requires knowing the basic concepts and the math of managing the parts inventory.

Having a Dealer Management System, (D.M.S.) and perhaps the Manufacturers Vendor Managed Inventory, (V.M.I.) to manage our parts inventory isn't enough. We have to understand how they operate in order to have "the right part the first time". Parts is a "moving target" and requires constant management as no system is designed to "set it and forget it".

Number Five: The Parts Department's "Elevated" New Role

In my opinion, our role as "Smart Parts" Managers has never been higher than it is right now. With up front New & Used Vehicle Sales diminishing from the impacts of the pandemic and vendor supply chain issues, Service Absorption is where dealers are turning even more attention to than ever before.

Even though, for the most part, Parts Departments are very profitable, they are actually the most profitable department by percentage in most dealerships today. Even though most dealers already know this, what many didn't realize is how the Parts Department impacts the overall dealership profitability, especially in the Service Department.

With all that Covid-19 brought us, one thing it definitely exposed was Service Department Productivity  being reduced due to lack of parts, or should I say the lack of the "right parts at the right time". In my opinion, this exposed the need for more parts training as previously mentioned.

We couldn't just rely on our experience as Parts Managers to "manage" parts as we always have, we had to go further and find out how the math really works in the Parts Department. We found out that we can't just rely on our computers, we have to know how the Set Ups & Controls really operate.

Unfortunately, in many, many dealerships today, the D.M.S. Set Ups and Controls are simply wrong and don't follow basic math. The best thing about math is that it doesn't lie and there are no opinions, whether in the D.M.S., or in the Manufacturers Vendor Managed Inventory, (V.M.I.).

Parts Managers need to know how to calculate Gross and True Turns, how to read our Inventory Management Reports in general and most importantly, how obsolescence happens in the first place as obsolescence has to be controlled "before" it happens.

Lastly, our dealers need us now more than ever before and they realize that we have to "elevate" our Parts Department's role in the Fixed Operations to a new level. Being profitable in the Parts Department is one thing, but this "elevated" new role goes much further.

In my opinion, Covid-19 exposed the need for our "elevated" role as dealers realized that it's not just important for their Parts Departments to be profitable, they found out how the Parts Department actually impacts the overall dealership profitability, especially in the Service Department.

Let's welcome this elevated role and take these lessons we have learned from the most recent past and take our Parts Department to new heights with even higher expectations than just profit. Let's help carry the load for our dealers and take what we have learned and used it.


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, May 6, 2021

May 2021: Protecting The Parts Inventory Investment

In any business that includes product, goods, or "inventory", having good "Asset Management" practices is essential to the overall success of any business and that can't be more true than in the automotive dealership. 

In the case of the automotive dealership, these assets include the two biggest "assets", which are the Used Vehicle and Parts Inventories. In most dealerships, the Parts Department is the second highest asset, but then again, in some dealerships, the Parts Department is the highest asset in total stated value.

The real question is as in any inventory asset is...

Is this inventory asset really "liquid", meaning...is it really "worth" the dollars represented on the dealer financial? 

Even though we show specific amounts of these parts inventories on Page One of the Financial, could we really "exchange" that figure into real cash? One thing for sure though is that we have to insure that amount shown as well as all the other "acquisition and holding costs" that go along with that amount shown.

Whether we can turn that amount into cash or not, these acquisition and holding costs still apply. Industry acquisition and holding costs on any inventory, including in this case, the parts inventory, can be as high as 25%-30% of the total parts inventory investment each year.

When calculating these acquisition and holding costs on the average dealers parts inventory, these costs include, but not limited to are;

  • Labor to manage the parts inventory
  • Storage space costs & rent
  • Insurance costs
  • Inventory maintenance costs, i.e. physical inventory counts, cataloging, data processing, etc.
  • Depreciation & Obsolescence
  • Lost opportunities
That being said, "Protecting The Parts Inventory Investment" has to start with Asset Management, which leads us to breaking down just how we manage this asset. Just like our own personal assets that most of us have such as our homes, automobiles, boats, etc., they all have to be managed to protect the investment.

Believe it or not, we all have "acquisition and holding costs" with our personal assets and I'm quite sure we are all well aware of those costs. So why wouldn't we also consider these costs when managing the dealers second highest asset?

That being said and most importantly, we have to take "ownership" in managing the dealers assets just like we do with our own assets. All the practices in managing our own personal assets need to be applied to the dealers assets. This simple "mind set" will lead to better results in "Protecting The Parts Inventory Investment". 

"Now it's time to break it all down and find out how we are going to protect this valuable asset AND give our dealers the highest return on investment expected profit levels..."

Here We Go!...

Investment Security:

First and foremost in protecting the parts inventory investment is securing the investment. Even though securing the investment may sound simple and obvious, ask yourself these questions...
  • Are all my entrances and exits to the Parts Department locked and secure at all times?
  • Can anyone access the Parts Department other than approved personnel?
  • Do technicians walk in and out of the Parts Department throughout the day?
  • Are all outside parts storage units locked and secured?
  • Are there any parts outside of the Parts Department, including dirty cores?
  • Is your Parts Department a general storage area for filing, used office furniture, tire and wheel take offs from the Sales Department, etc.?
  • Are parts delivery drivers coming and going in loading areas without management supervision?
  • Are parts employees monitored when leaving the Parts Department daily?
  • Do you have a camera monitoring system installed in and outside the Parts Department?
  • Do I have parts reconciliation issues and variances at the end of each year?
These are just a few questions we all need to ask ourselves because I'm quite sure that we all follow these practices when protecting our own personal assets in our homes. Once again, why aren't we applying these same practices in our Parts Departments?

I think anyone of us can ask these above questions about protecting our own assets in our homes and I  would suspect that we all have these basic practices in place in order to protect our own personal assets. Protecting assets of any kind require basic principles and most important is accountability.

Housekeeping:

Here is another practice that most of us follow each day in our personal lives. Unfortunately, in many dealerships Parts Departments that I visit, basic housekeeping practices are not followed. Parts on the floor, shipping and receiving areas untidy, damaged inventory, paperwork scattered and unorganized, safety guidelines not followed, etc.

This is usually a sign that parts inventory accountability and reconciliation is also a problem. If we can't "account" for what we have on our shelves, then most likely there will be parts inventory variances between the Ledger Balance and Controlled Balance Inventories.

Poor housekeeping practices also leads to safety issues as these hazards of parts on the floor, entrances and exits partially or totally blocked can lead to injury and perhaps worse in case of fire or other unexpected occurrences. 

In my opinion, the problem with all this is not just a lack of accountability, but also just simple complacency, as each day just seems to repeat itself and we overlook these same things each day. I believe we should have the mindset that each day, we might have "company" over and we want our homes to be tidy and presentable.

Lastly and most important on this subject, if we have good housekeeping practices, it is much easier to insure accurate inventory counts when reconciling the two parts inventory amounts, both the Controlled Balance and the Ledger Balance in the Accounting Department. 

Obsolescence:

When it comes down to "Protecting The Inventory Investment", it's not a surprise that we have to include parts obsolescence in the overall equation. Quite simply, if we don't control our parts obsolescence, we are not protecting the dealers' initial parts investment.

Once parts become "obsolete", meaning those parts with no sales after twelve months, there is a 98% chance that those parts will never sell again. Thus resulting in essentially no return on the dealers investment and no real inventory protection on those obsolete parts because they have little or no value.

Even though all parts will eventually become obsolete, we have to control these amounts from getting down into that category in the first place. In order to control the obsolescence, we have to have the proper Dealer Management System, (D.M.S.) Set Ups & Controls.

These proper Set Ups & Controls include parts "Phase-In" and "Phase-Out" Parameters, Stocking Levels such as Best Reorder Points, (B.R.P.), Best Stocking Level, (B.S.L.) that follow the math based on current and annual piece sale ranges.

Plus, if we utilize a Vendor Managed Inventory, (V.M.I.) from the manufacturer, if offered, we have to especially be aware of not just accepting every part and the amount that they recommend because the V.M.I. group demand may not match the dealers D.M.S. demand.

By the way, on the topic of letting the manufacturer control my parts inventory with their Vendor Managed Inventory Set Ups & Guidelines, I'm quite sure that the the dealer does not let the manufacturer control their new vehicle inventory.

 So I guess my question is..."Why Do We Let Them Control Our Parts Inventory?"

If not properly managed, these recommended and perhaps excessive V.M.I. amounts alone can add to the dealers parts obsolescence, resulting in a lack of parts inventory investment protection. Parts obsolescence not only increases our inability to protect the inventory investment, it also adds to the dealers "acquisition and holding costs".

Increased obsolescence also lowers the dealers Gross & True Turns which affects not only the dealers Return On Investment as it also impacts the dealers parts profitability as well. The added "acquisition and holding costs" from obsolete inventory still carries the previously mentioned costs detailed earlier in this category.

Accountability & Training:

Even though this subtopic is our last one, it's most likely the first and foremost essential in "Protecting The Parts Inventory Investment". Unfortunately in many dealerships today, the Parts Manager is not trained properly in Standard Dealership Accounting Practices. 

In order to have accountability, we have to be first trained in how we "account" for this asset in our daily operations. Proper ordering, receipting and posting practices have to be followed and in the right order to meet reconciliation requirements between the Controlled and Ledger Balance Inventories .

Also, all the previous subtopics have to be followed and adhered to in order to have accountability and reconciliation. Our parts staff also has to be trained in these basic accounting practices if in the positions of shipping, receiving and posting parts inventory.

Cost adjustments both in receiving and billing parts can highly impact inventory amounts that can ultimately affect our ability to protect the parts inventory investment and parts profitability. Basic training on specific guidelines in all the above categories can not be overlooked or assumed.

Proper "paper flow" between the Parts Department and Accounting Office has to be controlled, reconciled and authorized by the Parts Manager each day without exception. Verifying vendor parts invoices with the proper amounts and to the proper accounts is where it all starts in order to insure the two inventories are reconciled to minimal or no variances. 

As we can all see, "Protecting The Parts Inventory Investment" goes far beyond just "standing guard" over the parts inventory, it requires that we all "take ownership" of the dealers investment, just like we would with our own personal assets.

Now that we see what it really takes, can we honestly answer this original question?....

"Am I Really "Protecting The Parts Inventory Investment", or Am I Really Just Standing Guard Over It?"

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...