Wednesday, August 1, 2012

Guidelines to Sidelines...Where DO We Draw the Line?

I have always been intrigued by our industry standards and guidelines because it seems to some point back in time, or maybe even perhaps more recently, someone had to "set the bar" on performance in our various fixed operations departments. 

I guess we have all just grown accustom to these guidelines and run our dealership operations focused on these target initiatives.

Personally, I believe that we should all have individual standards, guidelines and goals in our stores based on the manufacturers' and industry experts expectations, but I also think that we should keep them in perspective to our individual situations.

I recently received an "Ask Dave" question from one of our "Smart Parts" Readers that I would like to share. I have also consulted with this particular Parts Manager in the past, so I am familiar with his unique situation as well as his Inventory Analysis.

This may shed some light to what I believe is how we should  use these industry guidelines, but with respect to the "individuality" of each dealer. 

The question and response are as follows:


"Dave, you know my inventory pretty well by now, but even though my First Time Off Shelf Fill Rate is doing very well and my Over Twelve Months Inventory is virtually non existent, My Gross and True Turns are still below my goals of 7.0 and 4.0 respectively. My current averages are approximately 6.0 and 3.0 for 2012 and my Stock Order Performance remains below 40%! Am I missing something here?"


Actually, all the facts that you state make perfect sense...let me explain...
First of all, the key thing that you stated was that your "Over Twelve Month" inventory is pretty much non existent. This combined with your lower than desired Gross and True Turns, low Stock  Order Performance can only mean one thing. 

You are overstocked with your most common  items which is really not a bad thing because you are on a  "Weekly Stock Order" as opposed  to a "Daily Stock Order" as many other dealers are on. This also allows you to take advantage of your factory promotions in order to gain additional discounts and allowances.

This is kind of a "double edged" sword because on one hand, you are taking great advantage of factory promotions, gaining those extra discounts and allowances. On the other hand, you are overstocking your inventory, even though, overall it's not hurting your investment as these items  have an activity cycle less than twelve months. 

In your case, you have "earned" the ability to overstock your inventory to gain additional profit without sacrificing the "liquidity" of the investment, which will always bring your dealer a great return on his or her investment.

You can slowly manage the increase of your Gross and True Turns as well as your Stock Order Performance by systematically cutting back on your Days Supply of those "fast moving" items in order to get these numbers up. 

Keep in mind that you are on a Weekly Stock Order and you  may incur "stock out" situations. The main reason that your Stock Order Performance is lower than expectation is because you have more than an ample supply on hand, thus requiring less stock order replenishment.

Lastly, if I were in your shoes, with the fact that you are on a Weekly Stock Order Program, I would make my OWN Guidelines on where YOU should target Stock Order Performance  as well as Gross and True Turns. Your overall investment is solid and "liquid" as long as you  maintain a "zero" tolerance policy on over twelve month obsolescence.

In your case, I am reminded of the "old days" when the Guideline for "Gross Turns" was 6.0 turns per year and the "True Turns"  Guideline was 3.0!...and the reason was?...Back then, most of us were on a Weekly or Bi-Monthly Stock Order as in your case at your dealership today! 

Most of these "Guidelines" were increased over time as more and more manufacturers' began overnight "Dedicated Delivery" which is not an option for you.

Keep up the great work, I know most dealers would LOVE to have those "First Time Off Shelf Fill Rate" numbers AND a solid "Return On Investment"!!! 
Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at Vist our Website at