Wednesday, September 16, 2015

September 2015: "Managing Parts Department Net Profit"

As I mentioned in the intro, I believe that managing the Parts Department Net Profit requires a daily routine to insure a predictable "bottom line" each month. Not to say that managing Parts Department Gross Profit and Expenses doesn't also require managing on a daily basis.

Generally speaking, many Parts Managers don't even have a daily routine on managing the Parts Department Net Profit. Most often, in the last week of each month there seems to be more of a mad rush on getting as many sales in as possible before the month closes.

This is not unusual of course because we have to get sales in first before we even have gross and net profit. Although, sometimes this attention to sales and gross can effect the net as expense seems to take a "back seat" during this mad rush to the finish.

In order to have a predictable net profit, we must have a daily routine on how we manage sales, gross and expense. This daily routine cannot happen without forecasting as well as setting goals and guidelines. Much like managing our households, we have to know how much is coming in and how much we spend.

We have to have a budget and manage it daily in order to afford a home, possibly raise a family and have all the nice things in life, including saving for retirement. Much like managing the Parts Department Net Profit, we have to have a plan and live by that plan each day.

So!....where do we start and how can we manage a monthly "predictable" net profit on a daily basis?....

First of all, we have to have the skill, ability and knowledge to understand dealer financial information. We also have to have access to this information with open lines of communication between the Parts Manager, Dealer Principle and Office Manager.

Many years ago, dealer managers were not allowed to have access to financial information as it was considered to be a forbidden practice. Times have definitely changed as it would be next to impossible for a dealer manager to manage net profit without this information.

Second, the Parts Manager needs to have D.M.S. (Dealer Management System) accounting information in regards to all sales, gross and expenses entered each day. Most times, this information is available on the D.O.C. (Dealer Operating Control) Report.

Even though many Parts Managers already have access to this information on a daily basis, I wonder just how many actually look at these entries on a daily basis. Here are a few questions to ask yourself...

  • How many Parts Managers have actually challenged or questioned certain expenses?

  • Have they ever "drilled down" any expense by looking at a "detailed journal" as opposed to just the total expense?

  •  What is a "detailed journal" anyways?....

Having access to the "detailed journals" of each account allows the Parts Manager to "drill down" certain expenses that may be questionable. For example, if I was to question, let's say the Office Supply expense and I notice that mid-month, it's way over budget already. 

Looking at the "detail journal" of that account would break down each Office Supply expense entry. Often times I have found that I got charged for an Office Supply expense that was supposed to be charged to a different department altogether.

If I had waited until after the financial was completed at the end of the month to notice this incorrect expense entry, it would have too late. Can't go back now and change it as the month is over and perhaps I have to beg for a credit next month.

Being able to monitor and understand each and every sales, gross and expense account daily is crucial to managing Parts Department Net Profit. If you don't get and understand the information, you will never have predictable results in the end.

The third key part of managing the Parts Department Net Profit is the Parts Manager must know and budget for fixed expenses and some semi-fixed expenses each month. Knowing beforehand what to expect on certain expenses going into each month allows the Parts Manager to factor in those expenses on a "per day" basis, or average.

In other words, if I break down my "known expenses" per day, then I can set my sales and gross goals accordingly. Managing the "unknown expenses" is where it gets tricky as close communication with the Office Manager and the Dealer is required.

Often times, Parts Managers seem to find it easy to spend other people's money, in this case, the dealer's money. Managing the dealer's "check book" should be just like managing our own. Believe it or not, there isn't a "never ending" balance to the dealer's check book.

Managing personnel expense is also key to insuring a healthy "bottom line" as this expense carries the most weight out of all expense categories.

Managing the "metrics" on proper staffing, not only in total number, but also each parts department job category. Areas such as counter staff, inventory clerks, drivers and management all come into play.

Having the right people and the right number of people to perform every day department duties & responsibilities can be quite a juggling act. Most importantly, we must make sure that the total Parts Department Personnel Expense falls within guidelines set by the manufacturer or other industry guideline.

Lastly, we have to have Parts Department Expense Controls to insure that only "qualified" individuals have access to make purchases. The "purchase order" book, or computerized  purchase order system is the dealer's check book and should be treated as such.

 I prefer using the D.M.S. (Dealer Management System) Purchase Order Process as it has full accountability.

I believe that all Parts Department personnel should have at least a basic knowledge of how expenses can impact net profit. They should also know the overall department's goals, guidelines and expectations and be accountable to them.

The "bottom line" is that if we want predictable results on Parts Department Net Profit each month, it starts with managing it on the first of each month and each day after. As we all know, the dealer looks at his financial from the bottom up, so we should start there as well....

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