Wednesday, January 11, 2012

January 2012: "A New Beginning"

Here we are!...January 2012!...A New Beginning, or as I like to refer to "Net Zero"! A chance to rewind the clock and start over again. Whether you achieved your goals or not in 2011, we all get to start anew where we go from "hero to zero", just like that!

For parts managers though, it means much more than the obvious and much different from other dealership managers. In most dealerships, the parts manager controls the second highest dealer asset and quite honestly, the most difficult. 

I know that I would get some argument from some new and used car managers and with due respect, but the parts inventory consists of thousands and thousands of part numbers with an active lifespan of less than 9 months in most cases. 

That's a lot to manage, especially when dealer owners, manufacturers and industry experts DEMAND a high return on that investment, with true turn expectations at or above five turns a year in most cases.

With all this said, January is the absolute BEST time of the year to make changes or modifications to the D.M.S. (Dealer Management System) Set Ups & Controls. As a matter of fact, I would go as far as to say these Set Ups & Controls NEED to be looked at for a number of reasons. 

One of the main reasons why we need to review these Set Ups & Controls is because of what I referred to earlier..."Net Zero"! 

Most, if not all, Dealer Management Systems (DMS) calculate monthly sales activity, receipts, purchases, returns, pricing updates, etc. on a monthly and year-to-date basis, but the "Business Ratios" which include True & Gross Turns, Sales to Stock Ratios, Stock Order Performance and Level of Service for example are "annualized" throughout the year. 

This means that any changes or modifications to the Set Ups & Controls that effect these business ratios are most impacted in the first part of the year. 

Any changes or modifications to Source Set Ups, Days Supply, Phase-In/Phase-Out Criteria or Price Escalation Matrix will be realized and seen in these "business ratios" at the end of January as month-to-date AND year-to-date numbers and percentages.

As the year progresses, these ratios are averaged out by the current number of months in the year and then annualized over twelve months to give us "average" inventory returns on investment. 

Often times, I've seen positive modifications made by parts managers, only then to get discouraged because fluctuations and improvements seem to go unrealized because they are calculated on an annual basis. 

For example, if I were to make some real aggressive modifications in the month of July in my Phase-In/Phase-Out Criteria or my Days Supply, I would probably be a little  frustrated because my gross and true turn numbers hardly moved. 

If I would have made these modifications in January of the new year, my "Monthly Analysis" clock would have been reset to "Net Zero" and I could have measured any modifications with DIRECT results in these business ratios at the end of January.

Here's another reason why we need to "get this done now" moving forward in 2012 and beyond....probably the BIGGEST "Business Ratio" percentage or number that is going to be watched and monitored closer than ever is "FIRST TIME" Off Shelf Fill Rates! 

As a matter of fact, I'm going to go out on a limb, (that might hurt!) and say that we will all probably see more definitions as to "how to" calculate or "what is" the true definition of "FIRST TIME" Off Shelf Fill Rate. 

Many manufacturers and industry "gurus" are already calling for these First Time Off Shelf Fill Rates to be over 90%! Let me ask everyone these two questions: 

1.) "When was the last time the manufacturer provided 90% of the parts on your Stock Order or Supplemental Order from your local Parts Distribution Center the FIRST TIME? 

2.) What is their FIRST TIME Off Shelf Fill Rate?" 

I believe what they really mean to say is that they want to meet the "DEMAND" 90% of the time or better, without Lost Sales and Emergency Purchases. This is quite different from First Time Off Shelf Fill Rate.

To me, our goal should be to provide our customers a "FIRST TIME Off Shelf Fill Rate" of 75% - 80%. In order to achieve this goal, we need to, first of all, properly calculate "First Time Off Shelf Fill Rates" where the part needs to be "on the shelf", in stock, in the first place, on FIRST demand. 

Second, we need to be calculating "Normal Stocking Items", NOT Special Order Parts, Emergency Purchases and Non Stock Parts if your going to use the words "Off Shelf". Here's a simple way to calculate your "First Time" Off Shelf Rate:

"Total Sales at Cost of Normal Stocking Items (Parts) Divided By Total Sales at Cost" 

One of the main reasons why this topic has become relative and extremely important is Service Shop Productivity as time is a perishable inventory which we can never retrieve. 

Saving the number steps and the number of times the tech is spending to and from the parts counter, waiting for parts they probably should have received on the "first visit" is going to be a prime focus in maximizing productivity and our overall fixed operations gross profits.

Lastly, we have a brand new fiscal year with brand new financial statements to review at the end of January. It's the ONLY month that the month-to-date AND year-to-date numbers are the same. We can make our biggest impact on the year and on our inventory investment this one time of the year.  

Don't let it pass without taking advantage of the "mathematics" of the first month of the year! Most importantly, take advantage of the Common Sense and Logic that can make the difference in making 2012 your "Best Year Ever"!!!   

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM.  Dave can be reached at Cell 786-521-1720 or E-mail at Vist our Website at