Friday, May 8, 2015

May 2015: "Do I Really Need To Post Emergency Purchases?"

Here we go again!...

Another one of those great questions that I hear from Parts Managers quite often. Much like Lost Sales, reporting Emergency Purchases carries many different "perceived" definitions by Parts Managers.

What is an Emergency Purchase anyway....and why should we even have any nowadays? You would think that with today's technology, dedicated deliveries by the manufacturer, stock replenishment programs and a vast array of inventory resources that we should never have an Emergency Purchase.

Not only that, why even bother with posting Emergency Purchases when it really doesn't have any effect on my I.M.S. (Inventory Management System)? No effect on inventory turns, overall off shelf fill rates, sales activity cycles or even phase-in/phase-out why bother?

I once had a conversation with a Parts Manager on this topic of Emergency Purchases. I had to first determine what his definition of an Emergency Purchase actually was. To do this, I had to actually create a scenario of a "stock out" situation and ask him if these particular scenarios qualify as Emergency Purchase situations.

These scenarios, which I will detail shortly as Scenario A and Scenario B, will have only one minor difference within the same particular situation. The amazing thing is how the outcome changes with this one minor difference within the scenarios.

Here we go......

Scenario A:

Technician comes to the back parts counter and requests a set of front brake pads for a particular vehicle model that the parts department does not stock. The vehicle is technically in a "car down" situation and the Service Advisor wants the parts department to try and locate the brake pads.

The parts counter person locates the set of brake pads at another dealer location within an acceptable distance and "chases down" the brake pads. So my obvious question to this Parts Manager was..."Does this situation qualify for receipting and posting the brake pads as an Emergency Purchase?"

His answer was an obvious "Yes". Great!....we both agree...

Scenario B:

Every part of this second scenario is the same as the first except that when the parts counter person starts calling around to try and locate the brake pads, no other dealer stocks the brake pads.

The Service Advisor asks the counter person if they can get these brake pads overnight on the daily stock order and the answer was "yes", so the brake pads are ordered overnight.

So now....I ask this Parts Manager the same question as in Scenario A. "Does this situation qualify for receipting and posting the brake pads as an Emergency Purchase?"

This time his answer was "No". Hmmm....this time we disagree....

I asked him why it wasn't an Emergency Purchase in this case and he simply said that it was no longer an Emergency Purchase because it was being ordered on his daily stock order. Now I'm really confused because in my opinion, the situation didn't really change, only the source of where the part was coming from changed.

So why does this matter anyway?

First of all, there are only two reasons why we don't have a part on the shelf. Either we stock the part and ran out, or we never stocked it in the first place because the part never met phase in criteria.

In  my opinion, this is where it all starts with our definition of what an Emergency Purchase truly is. Current NADA guidelines indicate that Emergency Purchases should be only 10% or less of total our parts purchases at cost.

We all know that we do have Emergency Purchases and posting these receipts honestly and properly can give Parts Managers a world of information even though posting them will not change a lot of information on the Inventory Management System.

Whether I stocked the brake pads and just ran out, or even if I never stocked the brake pads in the first place, receipting them as an Emergency Purchase could provide valuable information.

 Information that could eventually lead to my future decision making process going forward concerning possible adjustments to my days supply or even my phase-in criteria in various parts sources.

Even though the demand was still filled and there was no real lost sale, shouldn't I be concerned about the "car down" situation and lost productivity in the shop while waiting for these brake pads to arrive? These are the questions that should concern me. Maybe having that added information could be vital.

If I am honest and have a clear definition of these situations, I can manage my Emergency Purchases Report and gain some insight as to any changes or modifications that may be necessary in my Set Ups & Controls. Especially if these Emergency Purchases exceed the NADA guidelines of 10% or less.

In my opinion, reporting "potential" Emergency Purchases is just as important as reporting "actual" Emergency Purchases. Common sense is not so common sometimes as we seem to get caught up with all these restrictive definitions instead of throwing caution to the wind and just getting the information into the system where we can make logical determinations and decisions when needed.

One other thing is for sure...a failure to report Emergency Purchases honestly will definitely impact your "First Time Off Shelf Fill Rate". There should be no debate in the fact that not having the part the first time upon request, this rate will drop and so will shop productivity.

To me, it's all about the customer and providing the best customer service as possible. Actually, after reviewing the above scenarios, I don't think that customer really cares if I ran out of those brake pads or if I even stocked them in the first place. They just want their vehicle repaired and back on the road within a reasonable time frame.

In conclusion, Emergency Purchases do cost us money in lost gross profits and lost shop productivity so it does make sense to track and control them as much as possible. It all begins with an honest and direct reporting system. If we don't, we are only fooling ourselves in order to make the numbers look good.

So, if your Emergency Purchases are non existent, or at a very low percentage, you might want to reconsider what this information can really provide. Don't fool yourself or your dealer if you think you don't have Emergency Purchases because they are there, whether they are reported or not.

Honest reporting leads to honest results...

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