Wednesday, August 9, 2017

August 2017: "Is Your D.M.S. Monthly Management Report Telling The Truth?"

If I were to make a comparison of the importance of the Dealer Management System, (D.M.S.) Monthly Management Report to the parts manager, I would compare it to the actual Dealer Financial Report to the dealer.

The performance of the parts inventory, which is the dealers second highest asset can only be analyzed through the "accuracy" of these D.M.S. Monthly Management Reports.

The question I have is..."Is Your D.M.S. Monthly Management Report Telling You The Truth?" 

The reason I ask this question often of parts managers after I have reviewed their D.M.S. Monthly Management Report is because it just doesn't make sense. After reviewing literally thousands of these reports with various systems and dealers, I can tell if the information on these monthly reports is actually "truthful".

Here are some of the most common questions I have asked parts managers after a thorough review of their D.M.S. Monthly Management Reports; 
  • "How is it possible that you haven't had any Emergency Purchases?"
  • "You really don't have any Lost Sales?"
  • "You really don't have any Customer Special Orders?"
  • "Your First Time Off Shelf Fill Rate shows you at do you do it?"
  • "How is it that your True Turn is 10.0 Turns, but you have all these Special Orders?"
  • "Do you really have over $50,000 in Outstanding Orders with an Inventory of only $125,000?"

I could go on and on, and of course I already know the answers to these questions because each one is due to the lack of, or improper D.M.S. reporting. Unfortunately, in many cases, it's not the parts managers' fault directly as most often times it's due to a lack of proper training.

Another actor that is a major contributor to inaccurate information on the D.M.S. Monthly Management Report is the parts manager's "belief system". As a matter of fact, having the right "belief system" is the Number One Habit in our Smart Parts "Eight Habits of Highly Successful Parts Managers" Training Program.

The "belief system" I'm referring to is that the parts manager must "believe" in reporting to the D.M.S. correctly and accurately in order to take advantage of what the D.M.S. has to offer. Could you imagine what would happen if the Dealer's Financial had inaccurate information as I mentioned in my earlier comparison?

Honest and proper input leads to accurate information in these monthly management reports. If the information revealed is accurately reported, even if the results are not up to standards and guidelines, proper actions can be taken to achieve predictable results.

Following basic, honest reporting practices is not the only issue some parts managers have to deal with today. With some of the new Dealer Management Systems out there today, it's a challenge to even find some of this vital information that we would expect to see on an end of month inventory analysis report. 

Over the past three years, I have had to learn and absorb three new Dealer Management Systems, (D.M.S.) with various dealer clients. It seems that more and more D.M.S. Vendors are jumping into the automotive dealership arena due to increased competition, primarily due to pricing.

It's no secret that D.M.S. Vendors such as Dealertrack, AutoMate, AutoSoft and Adams have increased their dealer market share by offering a D.M.S. product with a lower cost than the top two vendors, which are Reynolds & Reynolds and ADP/CDK.

With the availability of more choices for dealers with far many more pricing options, it appears that there are more dealers "switching" D.M.S. Vendors than ever before. This means that more and more dealers have to deal with change as all departments have to learn a new system, which doesn't really go over very well at first.

I have personally assisted and witnessed many of these dealer parts managers fight through the actual transition from one system to another. All of a sudden, what we were normally accustom to suddenly changes and now we are cast into unfamiliar territory.

Switching over to new systems has never been easy, but what it does do is "wake us up" as we are forced revisit basic parts Set Ups & Controls, Parameters, Pricing Levels & Strategies and Specification Listings, etc. Most, if not all of these areas are rarely revisited, unless modifications are required from time to time.

So now, if a parts manager is on a new D.M.S., not only do they have to focus on proper input to get accurate results on these monthly reports, they have to know where to find where this monthly information is compared to their previous Dealer Management System.

It is in this area that dealers really need to do their homework by including their managers from all departments to participate in the actual decision that is made before switching over to a new D.M.S. Vendor. We all know the old saying that we get what we pay for and that phrase is definitely true with some of the D.M.S. Vendors.

Without naming these vendors specifically, some don't even provide the vital information that is needed on a monthly basis. Other D.M.S. Vendors may provide this vital information, but it's not all on one report as the parts manager would need to run several different reports just to get the information they were accustom to getting on one monthly inventory analysis report.

As I mentioned earlier, the D.M.S. Monthly Analysis Report is to a parts manager as the dealer financial is to the dealer. The information on these reports, if properly reported, "tells the truth" on just how well the parts inventory is performing.

Now, let's take a look at some of items that a typical D.M.S. Monthly Analysis Report should contain. Keep in mind, that in some systems, all of the following items may not be available, or may require the parts manager to run several different reports to gain access to the information;

Cost of Sales Analysis: This report breaks down all of the parts sales at cost. It also provides the parts manager a breakdown of the stocking status of these sales including; stocking parts, non-stocked parts, phased-out parts, etc. as well as providing information that will determine our "True Turn" calculation.

Investment Analysis: This analysis breaks down the status of all the parts in the inventory, including stock parts and all other categories of non-stock parts. Once again, this analysis is crucial as it gives us a percentage of the parts inventory that is classified as normal stocking parts, which should represent 75% - 85% of the parts inventory.

In some Dealer Management Systems, this is also where the parts manager would see the overall days supply of inventory as well as overstocked and "over valued" inventory. Industry guidelines for total days supply of inventory is 45 Days, or 1.5 Months.

Sales Activity: In this report, we find just how well the inventory is moving over the course of twelve months. According to industry guidelines, the majority of the parts inventory should have 75% movement in the 0 - 3 month category, 23% in the 4 - 6 month category and only 2% in the 7 - 12 month category and zero over 12 months.

Sales Activity over 12 months also represents the obsolete parts inventory, or in some Dealer Management Systems, it could be referred to as "idle inventory". Extremely vital information as this category determines just how "liquid" the parts inventory asset is as well as how healthy the True Turn number really is.

Emergency Purchases/Lost Sales: Another crucial report, that is of course, IF the parts manager reports Emergency Purchases and Lost sales. If the parts manager does not report any, that wouldn't be "telling the truth" and would give us false first time and overall off shelf fill rates.

Even with today's dedicated delivery service from manufacturers, there is still opportunities out there that reporting Lost Sales and Emergency Purchases that can benefit the parts manager. Lost Sales to me have always defined as "Potential Missed Opportunities".

Even if a sale was eventually realized, it doesn't hurt to post Lost Sale, just to insure that the demand is recorded.

Order Processing: This report breaks down all parts orders processed, receipted and those orders still outstanding. In some systems, this report also breaks down those orders that are for stock versus customer special orders.

This is another area that I find that parts managers don't "tell the truth" as customer special orders are ordered on a stock orders as stocking parts which gives us incorrect True Turn numbers as well as incorrect first time off shelf fill rates.

Inventory Adjustments: This is a great report as it tells the parts manager just how many plus or minus adjustments were made throughout the month. This is where the parts manager can find the inventory's "rate of change".

A parts manager can calculate the "rate of change" by adding all the plus and minus adjustments, multiplied by 12, (annualized) and then divided by the total part numbers in inventory. The current industry guideline for the parts inventory's rate of change should be 5% or less.

Gross and True Turns: Two of the most important calculations on a monthly management report, but in many cases, the two most incorrect calculations on the monthly management report. If the parts manager does not properly order, receipt and sell stocking parts versus non-stocking, the True Turn especially will not calculate properly in the D.M.S.

Most systems will calculate stocking parts in the True Turn calculation, but if the parts manager is ordering, receipting and selling non-stock parts such as customer special orders as normal stocking parts, the system will not "tell the truth" as these parts have not met phase-in requirements.

Off Shelf Fill Rates: This category is highly skewed in many systems, especially if the parts manager is not reporting Lost Sales and Emergency Purchases correctly and honestly. There is also more than one "Off Shelf Fill Rate" as we have "First Time Off Shelf Fill Rates" and "Overall Off Shelf Fill Rates".

The most important of course is the "First Time Off Shelf Fill Rate" as it this calculation represents the percentage of times that the parts order is filled the first time. The "Overall Off Shelf Fill Rate" just means the parts order was filled, regardless of how long or how many days it took to fill the parts order.

Depending on the D.M.S., the Off Shelf Fill Rate categories can be called Demand Filled From Shelf, Level Of Service, Sales From Stock Ratio, Stock Order Performance, or even just plain old Off Shelf Fill Rate. The important thing to remember is how to separate the two fill rate categories, both first time and overall fill rate.

These are just a few of the categories that I feel are extremely important for a parts manager to have access to each month. Equally important is understanding what these numbers, percentages and calculations actually mean.

Many systems also provide much more information such as clean and dirty core values, opening and closing inventory balances, sales trends, appreciation & depreciation amounts, etc. All represent great information for the parts manager to stay on top of each month.

Even though there are many systems out there to choose from, the one the parts manager has is the most important system and the one they have to work with. Being honest to the D.M.S. by reporting accurately is the only way that all this information can be an asset to the parts manager.

Many "Smart Parts" Managers out there may not know this, but many years ago, the dealers' financial statement used to be called the dealers' "facts sheets". In my opinion, that's how all "Smart Parts" Managers should treat their D.M.S. Monthly Analysis Reports.

It all starts by being honest with the D.M.S. and it will work for you instead you having to work the system.

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