Wednesday, March 6, 2013

Dave's Top Ten Indicators: "Number One: First Time Off Shelf Fill Rate"

Last month we published, what I referred to as the "Top Ten Indicators" to a successful and profitable Parts Department. As we counted down to Number One, it was kind of ironic how each how each "previous" indicator was impacted by the next one down the list. 

For example; the number ten indicator which is "Net Profit As A % Of Sale" became impacted by number nine and so on down the list.

Actually, our "goal" is to impact number ten the most, with all the others playing a specific role in the overall success and profitability of the Parts Department. So, here we go with the number one indicator...."First Time Off Shelf Fill Rate"!

In any business that generates its' profit from buying, stocking, warehousing and selling an inventory; the ultimate success relies primarily on how well and how often the inventory "moves" or sells.

In my opinion, managing the automotive dealership parts inventory versus other types of inventories has many disadvantages right from the start. 

After many different parts are there on a vehicle today versus even..."yesteryear"? Even though it is not "new news" that we need to stock the right parts at the right time...nowadays, it's the "right time" that's the challenge!

Parts sales activity cycles have diminished quite extensively over the years. For example; I remember when one part number's application cycle would fit multiple years. Now, you could have many different part numbers for the same application within the same year!

The first thing that we have to establish is the "true" definition of the First Time Off Shelf Fill Rate as opposed to just plain "Fill Rate". 

The actual overall fill rate simply means that the parts order was "filled" and not necessarily from my own inventory. Technically, I could have a 100% overall "fill rate" without even stocking a single part number! That is of course, if I'm not recording or have any "Lost Sales".

The "First Time Off Shelf Fill Rate" refers to parts orders filled from "stocking parts" that have met stocking criteria such as Phase-In/Phase-Out, Days Supply and Source Ranking by Piece Sales. 

The guideline for this criteria should be a minimum of 75% - 80% and NOT confused with the overall "Fill Rate" or "Level Of Service".

One other important practice that is crucial to achieving a goal of 75% - 80% "First Time Off Shelf Fill Rate" is separating "Customer Orders" from actual "Stock Orders". 

This is one BIG area that hinders Parts Managers' from achieving their goals, especially with many manufacturers offering overnight dedicated delivery service.

This added benefit can actually be a double edged sword as "Daily Customer Orders" get placed along with "Daily Stock Orders" and receipted as stock, instead of being receipted as a "Non-Stock" part, ordered for a specific customer. 

The first step is to be honest with our "Belief System" on how we use out Dealer Management System, (D.M.S.)

If we do not enter the information correctly to begin with, I can guaranty that a TRUE "First Time Off Shelf Fill Rate" of 75% - 80% will never be achieved. 

By this, I mean that every time a tech pulls up to that back counter, he or she receives that part on the first visit, 75% - 80% of the time. This also leads to higher productivity in the shop and higher parts gross as more stock order discounts and accruals are realized.

Once we have our "Belief System" in check, we can now proceed to one of the key ingredients to achieving a high First Time Off Shelf Fill Rate which is "Source Ranking By Piece Sales".

Today, to my amazement, there are many Parts Managers still utilizing just one parts source within a given automotive franchise.

Defining "Source Ranking By Piece Sales" simply means that we would create separate parts sources, or separate "little inventories" by how fast, or how slow they move, or "sell". 

Each source would have different criteria on how a part phases into the system as well as when it will phase out over a period of time without any activity. 

Each source would also have a different number of days supply in order to avoid "over stocking" and "run out" situations.

Fast moving parts need less days supply because they get replenished more often and slower moving parts need more days supply because they don'y sell as often. Believe it or not, many get confused about my last statement, so let me explain;

If I have a part that sells only twelve times a year, or once every thirty days on average, then I would need only a "thirty days supply" of that specific part because it's only due to sell, on average, every thirty days.

 Fast moving parts need less days supply, maybe two to seven days supply, depending on stock order acquisition and lead times. Low and High Days Supply can be adjusted as needed depending on seasonal or promotional items.

The last ingredient to achieving a "First Time Off Shelf Fill Rate" is the proper posting of Lost Sales and Emergency Purchases. 

I like to define Lost Sales as "Potential Missed Opportunities" as many Parts Managers tell me that they don't have any Lost Sales. They just chase or order the part(s) over and over again if they don't have it.

Posting more "Lost Sales" or "Potential Missed Opportunities" will create more parts demands and give the Parts Manager more insight to potentially stocking more of the right parts. 

More demands will lead to more of the right parts on the shelf, controlled in their own source by their own movement cycles with specific criteria such as phase-in/phase-out and days supply.

Lastly, we can't stop the bleeding of obsolescence or parts inactivity until we set a proper foundation on how we stock parts in the first place. 

We also have to be honest about how we use our Dealer Management System, (D.M.S.) in order to get the best results in our "First time Off Shelf Fill Rate" category. 

You can't manage what you can't see and having the correct information on our Management System Reports is our first line of offense and defense.

Final Question: 

"Are your technicians getting the right parts on the FIRST visit to the parts back counter at least 75% of the time"?

If not, don't kid can do better and our "Number One Indicator" is a good place to start climbing the ladder up to our "Number Ten Indicator" which is higher "Net Profits As A % Of Gross" and ACG "Smart Parts" can help you get there!    

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTMThe 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