Sunday, July 7, 2013

Dave's Top 10 Indicators: "Number Five: Special Order Parts"

Our number five indicator takes us to the halfway point of our ten part series to higher success and profitability in the Parts Department. In this issue, we will be focusing on "Special Order Parts" from all angles, from  "necessary evil" to "managed chaos".

The first thing we will have to determine is what really defines a "Special Order Part"? One Parts Manager's special order part just may be some other Parts Manager's stocking part.

In actuality, ALL parts have to be ordered for a first time at some point, but it's what happens from there that determines the stocking status of a part.

This is where the Special Order Part is born. It happens when there is a demand on a part that either has no previous history, or it may be a stocking part, but there is "stock out" situation for one reason or another.

 The demand requires immediate action and depending on the severity of the demand, may even incur added costs to acquire.

The decisions that Parts Managers make at this point can determine many different outcomes. They could order the part along with an existing daily order to reduce added costs, or they may try and locate the part the same day with potential added costs.

This decision can ultimate effect other departments in the dealership from service and sales. Customer satisfaction may also be impacted as well as service productivity, vehicle deliveries and promise times.

We've discussed over and over how a part comes into the inventory with phase-in/phase-out criteria, days supply, source ranking and so on. We've also discussed how demands are tracked in our Dealer Management Systems (D.M.S.) by sales and lost sales, but sometimes we are just not going to stock certain parts.

Over the past thirty years or so, I have seen the evolution of the "Special Order Part" go from REAL special to NOT SO special. Back then, it wasn't unusual to see Special Order Parts lead times in the weeks, not just days! That had to be a REAL special part to take that long to get!

Today, most manufacturers have better fill rates and offer dedicated delivery to their dealers, thus reducing lead times to two days or less in most cases. We can get almost any part within a few days now, thus me labeling them NOT SO special now, as they are all treated equally.

Even though the manufacturer's are doing a better job with better PDC fill rates, dedicated delivery and reduced lead times, there is an added cost for this increase in service to the dealer.

 Many manufacturers invoke penalties and/or fees if Parts Managers don't maintain compliance with "their" stocking levels. They may also invoke fees for parts ordered "outside" their basic parameters.

Most Parts Manager want to maximize any discounts even if it's a Special Order Part. They may receive that discount from the manufacturer and that's a good thing, but unfortunately seeking those added discounts may not always benefit the customer in the long run.

Maximizing the discount may not maximize the repair turnaround time. Unfortunately, time is a "perishable" inventory in the service department that we can never get back.

This evolution has also created another "double edged" sword as many Parts Managers are stocking less and changing their stocking criteria because many parts are available over night. Even though some Customer Special Order parts are ordered on a stock order, they are still Special Orders.

Many Service Departments are experiencing lower productivity numbers as well due to this "double edged" sword. Repairs that would normally be done today have to wait until tomorrow to complete the repairs due to needed parts that have to be "Special Ordered" overnight on the Daily Stock Order.

The pendulum does swing in both directions though! One of my worst pet peeves as a Parts Manager was when a technician, advisor or manager "has to have the part right away"!!...Only to see it sit on the shelf for a week or so collecting dust.

All this adds up to one thing....Special Order Aging!

Many industry guidelines suggest and I would agree that Special Order Aging should always remain at thirty days or less. In most cases, thirty days is more than sufficient to complete the cycle from diagnosis to repair and satisfy the Special Order requirement.

In a perfect world, this would make sense, but it is not often the case. Special Orders tend to sit for months until the Parts Manager decides to return the parts, (if returnable!) and use up valuable return reserve monies that was designated for return of phased out, obsolete parts. This is why I often refer to Special Order Parts as "Accrual Killers"!

So, once again, this leads us to "How Do We Fix It?".....

Here are a list of items and/or processes that need to be implemented:

  • Proper Set Ups & Controls have to be installed on the Dealer Management System, (D.M.S.). Criteria such as Phase-In/Phase-Out, Days Supply, Source Ranking By Piece Sales, etc. have to be set to maintain a minimum 75% FIRST Time Off Shelf Fill Rate or Stock Order Performance. Proper Set Ups & Controls will reduce the need for Special Orders.
  • The Special Order Process should include a deposit or prepay option on Retail Parts Counter. Special Order Parts on Service Customers should be preassigned or prebilled to a Repair Order. All Special Orders should also be controlled in the Dealer Management System, (D.M.S.) as opposed to manual hand written Special Orders for proper follow up.
  •  Special Order Parts should be "shelved" by days on hand, color coded and updated weekly to draw attention. Shelf One, (green side marker) would be for Special Order Parts received within seven days. Shelf Two, (yellow side marker) for Special Order Parts eight to fourteen days in stock. Shelf Three, (red side marker) for Special Order Parts fifteen to twenty one days in stock. Shelf Four, (black side marker) for Special Order Parts over twenty one days. Special Order Parts listed on shelf four referred to management for final decisions and/or fees assessed.
  • Technicians do not order parts! They can requisition parts to a repair order as to what parts would be needed to complete the repairs, but they do not order them. Parts are only Special Ordered by customer approval via way of service advisors, managers or the customer themselves utilizing current pre-billing and/or deposit guidelines.
  • Special Order Parts Reports should be generated daily on the Dealer Management System, (D.M.S.). Report should be generated by advisor and counterperson for management follow up. Advisor and/or counterperson updates Special Order by contacting customer and/or setting future appointment. Reports are then turned back to management after notes and updates are completed. 

Special Order Parts may be a "necessary evil" but we can manage them and protect our inventory at the same time. Controlling just who is able to order Special Order Parts is also crucial to maintaining this process.

Most importantly, keeping these parts to a "thirty day or less" standard will keep your obsolescence accrual protected and used for it's intent.

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