Tuesday, August 6, 2013

Dave's Top 10 Indicators: "Number Six: Sales Activity 0 - 3 Months"

Measuring sales activity in the parts department has always been, in my opinion, one of the key areas where we can see just how "healthy" the parts inventory is.

We can also break down our dealers investment in these categories which lead to our gross and true turn numbers. Here in lies some of our first "clues" to what these numbers really represent overall.

First of all, we have to keep in mind that many Dealer Management Systems, (D.M.S.) may list these sales activity categories differently. Some may have all the information we need readily available while other systems may require us to "do the math" ourselves.

I also want to start out with the guidelines that I have followed for years for these sales activity categories set forth years ago. The following guidelines by Mike Nichols and the National Automobile Dealers Association, (N.A.D.A). are as follows:
  • Sales Activity 0 - 3 Months:       75%
  • Sales Activity 4 - 6 Months:       23%
  • Sales Activity 7 - 12 Months:       2%
  • Sales Activity Over 12 Months:   0%  
This would mean that 75% of our total "inventory value" should have sales movement in the 0 - 3 month category. To take it one step further, 98% of our total "inventory value" should have movement in six months or less! Now THAT's a "healthy" inventory with lots of return on investment!

To accomplish this goal, we have to look at our inventory "face value" and how it plays into the guideline percentages. For example, if my obsolete or "idle inventory" over twelve months is excessive, then it will change the percentages in all of the sales activity categories.

On the other hand, if the sales activity in the 0 - 3 month category is HIGHER than the guide, it could indicate another issue. If this is true, than it could indicate that a "lack" of proper inventory or amount could be evident which may lead to lost sales, emergency purchases and lost shop productivity.

With both of these scenarios in mind, we have to be aware of the consequences from both sides of the perspective. Keep in mind that these "indicators" illustrate a different set of circumstances and follow up action plan.

Let's look at the first scenario which is Sales Activity in the 0 - 3 month category that is BELOW the guideline of 75%...

In most cases obsolescence is the culprit as all inventory dollar amounts are included in the sales activity cycles. It's quite possible that the obsolescence or "idle inventory" amounts of the inventory are excessive and may be "dipping into" the all the sales activity cycles, not just the 0 - 3 month category.

We not only have to measure this amount, we also have to keep it in perspective to the overall sales activity amounts.

For example, if the amount of obsolete or "idle inventory" over 12 months exceeds 10% of the total inventory value and the sales activity in the 0 - 3 month category is less than 75%, it is quite possible that the sales activity in the 0 -3 month category is well within guide.

If you "back out" the obsolete "idle inventory", the sales activity in this and all other sales activity categories could be well within guide.

Although, this is not an excuse or a solution to the problem, we still have to have an action plan to make these numbers real. Many dealers choose to keep obsolete or "idle inventory" on hand because in their mind, it's paid for, or..."it's gotta be worth something and I'm not going to just throw it out"!!...Sound familiar?

Problem is that most dealers don't realize that holding obsolete parts that have less than a 2% chance of ever selling again COSTS them in the long run. Never mind the acquisition and holding costs, carrying these "dead items" cost much more than they may think.

Those "inactive parts" could be costing dealers thousands as these parts take up the inventory value and space of "active parts" that may sell or "turnover" 5 - 8 times a year on average if not more!

Just like an "aged vehicle" whether new or used, get rid of it or at least, separate it from the active inventory. There are many avenues to market obsolete parts inventories with today's technology.

Now, let's look at the second scenario where perhaps the 0 - 3 month Sales Activity is ABOVE the guideline of 75%. It is quite possible for the pendulum to swing the other way, with sales activity moving too fast.

 Moreover, if the inventory sales activity is moving, or "turning" too quickly, the missed opportunities will rise as "out of stock" and "lost sales" activities increase. This will also result in lost productivity in the service shop and lower "First Time Off Shelf Fill Rates".

Not having enough parts inventory is similar to not having enough new and used vehicle inventory. The added cost of parts emergency purchases, lost sales and shop productivity is no different than vehicle swaps and dealer locates.

Even though we "may" save the sale, we will lose gross in the long run!

All dealer inventories have to be measured in a similar way based on days supply, sales activity and inventory turnover. Too many turns will indicate a lack of sufficient inventory and increased lost sales opportunities even though it may insure a higher return on investment for the short term.

Having the right "balance" of parts inventory will always be based on proper sales activity. The right balance will also be determined on how many times the inventory "value" turns. All of which will lead to higher gross profits as well as predictable results and a "healthy" parts inventory.

Last question...."What's your SMART PARTS Action Plan"?

Contact Dave @ www.smartpartstraining.com

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 dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com