Wednesday, September 7, 2016

September 2016: Special Order Parts "A Necessary Evil?"

As far back as I can remember, I have always thought of Special Order Parts as "A Necessary Evil" that I had to deal with each and every day. It was just one of my duties & responsibilities as a Parts was just part of my job.

What I didn't realize though was the differences, in my opinion, dealing with Special Order Parts "back in the day" being so much different than it is today. Back then, Special Orders Parts represented the majority of all parts orders as proper stocking levels were much harder to maintain.

Longer lead times, greater intervals between stock order due dates and lower manufacturer "fill rates" highly contributed to the daily dilemma of having the right parts at the right time for our customers. In addition, Dealer Management Systems, (D.M.S.) didn't provide the necessary data to phase-in parts to inventory, or maintain a proper days supply.

Fast forward to today, with all our technology, information and even lead times less than two days in many dealerships, we are still dealing with this "Necessary Evil". In many cases, Special Order Parts has gotten even worse than it was "back in the day."

In my opinion, it all started years ago, first with "dedicated delivery" being offered by many manufacturers. Follow that with what I call the "nail in the coffin" when manufacturers started to provide their own stock replenishment programs, or "Vendor Managed Inventories", (V.M.I.)

There are many great advantages to both programs with some Manufacturers' V.M.I. Programs perhaps better than some others. One common thread in these programs though is that it's obvious that many Parts Managers have "lost control" on the basic fundamentals of Parts Management, which is protecting and maximizing the dealers investment.

Before we get to our main topic on Special Order Parts, let's work our way down to the how we got to the point of Special Order Parts becoming the "New Necessary Evil". After all it didn't happen overnight it appears that it's not going away soon.

First, let's start with the manufacturers offering "Dedicated Delivery" in order to cut down "lead times" and offer the customer a higher "Level Of Service". This was obviously a winner right from the start and most other manufacturers followed suit once introduced.

Dealers and Parts Managers alike "jumped on the bandwagon" with our first major contributor to increased Parts Special Orders. "Dedicated Delivery" provided an alternative to higher inventory values as parts were now available overnight. No need to stock as much because worse case scenario, we can get it overnight without added shipping and holding costs.

Even though this may have not been the intent of the manufacturer, the opportunity swung into the favor of the dealer, while the manufacturer absorbed the added cost of delivery and maybe even higher inventory holding costs.

Net result?...potentially more Parts Special Orders due to lower dealer stocking levels. Even though lead times were shortened, shop productivity is lowered as more and more vehicles are "tied up" overnight waiting for parts.

One other problem was born when "Dedicated Delivery" came about and that is that "Special Order Parts" seemed to disappear! All of a sudden, "Special Order Parts" got added to the overnight Stock Order and receipted as Normal Stocking Parts because these "Special Orders" were added to the Stock Order.

I noticed this "epidemic" soon after "Dedicated Delivery" started when researching various D.M.S. Monthly Management Reports. All of a sudden, I'm seeing Parts Departments that have NO Customer Orders recorded and a 99.9% Level of Service and Stock Order Performance, or Sales From Stock Ratios also near 100%!....Wow!...the perfect Parts Department!

So now, not only are we lying in our reporting on the D.M.S., we are are now reporting inaccurate "First Time Off Shelf Fill Rates" and "Stock Order Performance". This, of course also leads to false "Gross and True Turn" numbers. Eventually, it will also lead to higher obsolescence as the epidemic continues.

Now, let's move on to the second phase of what will lead us to the "Necessary Evil" part of Special Order Parts and that is the Manufacturers Stock Replenishment Programs, or "Vendor Managed Inventories", (V.M.I.). 

Here's where, in my opinion, the score sheet gets balanced between the manufacturer and the dealer. Dedicated Delivery provided the dealer overnight parts at no added delivery expense or added holding costs, so now the manufacturer will "manage" the dealers inventory....part two of how to increase Special Order Parts, our "Necessary Evil".

Even though "some" of these V.M.I. Programs work well, we have to remember one important thing. They do not completely replace the dealers own Inventory Management System, (I.M.S.) as both the V.M.I. and I.M.S. programs need to be managed properly.

To support my theory, I've asked the following two questions to many Parts Managers who rely solely on the manufacturers V.M.I. Programs;

Question One: "Have you ever had your V.M.I. Program recommend stocking parts that have not met your own Phase-In Criteria with little or no sales activity?"

Question Two: " Do you have active parts in your I.M.S. System with normal or high sales activity that you do not stock and are not "qualified" in your manufacturers V.M.I. Program?"

I have yet to meet a Parts Manager that has not answered "Yes" to both questions. As a matter of fact, I have seen "Lost Sales" Reports that have lost sales recorded on "Normal Stocking Parts" with very active parts life cycles, but due to the fact that these parts were not "qualified" V.M.I. Program parts? guessed it!...Now, these parts become Special Order Parts!

Not only are "Special Order Parts" on the rise, controlling them is another major problem. You would think that after all these years, we would have this situation under control, but that is definitely not the case in many Parts Departments today.

"Special Order Parts" are still ending up op on the shelf, in hopes that they will sell one day, but to no avail, they just add to the obsolescence problem. Lack of controls in dealing with "Special Order Parts" is still the major reason these parts end up on the shelf.

If you are a Parts Manager that is fortunate enough to have a manufacturer that accepts monthly returns on these parts, it is, of course much easier to limit the damage that these "Special Order Parts" can have overall.

Having a system in place, or process in handling "Special Order Parts" is crucial to minimizing the negative effects in the first place. In fact, most Dealer Management Systems, (D.M.S.) offer programs to electronically control "Special Order Parts", making it much easier to manage this "Necessary Evil".

Whether you have a system to electronically control these "Special Order Parts" or not, there are still some basic guidelines that are required to manage them properly. Customer deposits, prepayments, future service appointments, handing and return fees are just a few basic guidelines used by most Parts Managers to control the "Necessary Evil".

In my opinion, the "bottom line" is that even though we have some of the best technology and services available to us today, the problem still exists. In some respects, it's gotten even worse with so many more part numbers today needed to service so many makes and model vehicles.

One thing is for sure though, as "Smart Parts" Managers, we cannot overlook our basic fundamentals in managing our dealers parts inventory. We cannot let the manufacturers totally control our ordering procedures and most importantly, we cannot lose control of one of our dealers biggest assets.

Regardless to what some might think today...our dealers' still want their Parts Departments to be very profitable, with an expected high return on investment, limited or no obsolescence and a high customer level of service...the more things change, the more they stay the same...

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