Wednesday, November 8, 2017

November 2017: Parts Ranking Analysis: "Why Is It Important?"

For a Parts Manager, winding down the year usually means getting the year end physical inventory completed, annual parts reconciliation with Accounting and perhaps, preparing forecasts for the upcoming year.

One task that I feel is often overlooked, especially at year end, is running the Dealer Management System's, (D.M.S.) Parts Ranking Analysis Reports by Piece Sales, Cost of Sales and Gross Profit Retention Percentage. Even though it is important to run these reports each month, none can be more important than running them at years end.

The Parts Ranking Analysis Report really isn't anything new to many "Smart Parts" Managers as most Dealer Management Systems, (D.M.S.) offer these reports to some degree. What may be new is the important information that is provided in these reports that may get overlooked by the Parts Manager.

The Parts Ranking Analysis Report can be generated in most D.M.S.'s by either total sales at cost, individual piece sales, or even by sales and gross margins. Whether the report is generated by total cost of sales, piece sales, sales, or gross margins, the information provided is crucial to many areas of inventory management and overall sales and profits.

So....Why Are The Parts Ranking Reports So Important?

For me, these Parts Ranking Analysis Reports are helpful in at least five areas that can help the "Smart Parts" Manager get peak performance from the parts inventory while maximizing part sales and profits. I'm sure there are more, but let's take a look at the five top Key Performance Indicators, (K.P.I.) that can be managed from the information provided in these Parts Ranking Analysis Reports.

Days Supply:

Generating a Parts Ranking Analysis Report by Piece Sales, (descending, top down)) can reveal top moving parts which is extremely helpful when determining the correct days supply of parts in all piece sale ranges. 

As a matter of fact, in some D.M.S.'s such as Dealertrack, each part can be broken down to proper algorithms and weighted sales on low and high days supply, or best reorder point, (BRP), and best stocking levels, (BSL).

Also, current overall days supply can be calculated to prevent "stock out" situations as current piece sales demands will show if the current stocking levels match current demand activity. Some D.M.S.'s will calculate current demand activity, but for those systems that don't, these levels can be calculated manually.

For example, if the current days supply of a given part number is 34.6 days and NADA Guide is 45 days, adjustments may need to be made in that piece sales stocking criteria, or stocking group on the high days supply, or best stocking level, (BSL)

Gross Profit:

Generating the Parts Ranking Analysis Report, (descending, top down) based on sales at cost is a great tool in creating the proper parts "cost plus" escalation matrix. Other than our competitive parts sales, we all pretty much know that there are many opportunities to offset the lower gross, competitive parts sales with parts that are more captive and can carry a "cost plus" escalation matrix.

We can also determine where the majority of our parts sales at cost are actually coming from. For the most part, the majority of our parts sales at cost is coming form the $10.00 - $25.00 cost range. With this information provided by the Parts Ranking Analysis Report, we can properly manage our "cost plus" escalation matrix on captive parts.

In addition, the Parts Ranking Analysis Report, (descending, top down) can be generated on our highest grossing parts in order to insure the proper combination of gross profit retention and parts movement by piece sales. 

Some of our highest grossing parts may not necessarily be our fastest movers as well as the other way around. One thing for sure though, we definitely don't want our slower moving parts to also be our lower grossing parts. The right combination of movement and price will determine maximum inventory efficiency and profits.

More importantly, if the parts sales at cost are source ranked by piece sales, or stocking group criteria, we can separate the competitive parts from captive parts. This allows all parts to be priced accordingly to maintain proper gross retention margins, while remaining competitive in the marketplace.

Service Productivity:

Here's one category where the Parts Ranking Analysis Report by Piece Sales can provide great information for our Service Department. First of all, there are only two reasons why the Parts Department doesn't have the part, they either never stocked the part in the first place, or, they ran out. 

This report also illustrates trends on piece sales movement over a shorter period of time to help avoid "stock out" situations. Even though some systems have "out of stock" reports, I prefer not to wait until I run out and potentially lose shop productivity waiting for parts.

The Parts Ranking Analysis Report, (descending, top down) on the top gross profit part numbers can also help the Service Manager insure that the Service Menu Parts are not over priced, with gross margins not respective to a competitive market. 

Inventory True Turn:

In the category of Inventory True Turns, creating the Parts Ranking Analysis Report in what I call "both directions", (descending, top down & ascending, bottom up) can provide very important information for the "Smart Parts" Manager in the area of Inventory True Turns.

Even though there are other reports that our D.M.S. can provide in the area of True Turns, including our own calculations, what these other reports don't provide is trends. The other D.M.S. Reports on True Turn, as well as our own calculations are all after the fact and final. We can't go back and fix something that's already happened.

By generating these Parts Ranking Analysis Reports in both directions by Piece Sales, we can actually see the movement ascending from the bottom and descending from the top. Descending from the top, on the faster moving piece sales, we can take steps to insure proper stocking levels are in place, or Best Stocking Levels, (BSL)

Ascending from the bottom on the slower moving piece sales, we can take the proper steps to avoid "overstocking" which can inflate the overall inventory value, leading to a negative effect on the inventory True Turn numbers.

Controlling Obsolescence:

Last, but surely not least, the Parts Ranking Analysis Report by Piece Sales, (ascending, bottom up) can illustrate trends on parts sales starting to drop off and headed in the obsolete direction. Other D.M.S. Reports on obsolescence are also available, but they don't provide ascending and descending trends with part numbers.

Much like most D.M.S. Reports, we get the final information, after the fact which leads us to ask "What Happened?", versus "What's Happening?" with the information we can see in these Parts Ranking Analysis Reports. 

If these Parts Ranking Analysis Reports are created consistently every month, and especially at year end, in the area of obsolescence, we can actually see the parts that are headed down in both movement and gross profit retention much sooner than waiting for an end of month report, or end of year report.

Lastly, one of my favorite Parts Ranking Analysis is the Piece Sales Report, (descending, top down) which gives me all the information to determine Best Reorder Points and Best Stocking Levels in all piece sales ranges.

All the algorithms, weighted days supply over the last month, or even the whole year can be found right in the these Parts Ranking Reports. Depending on the D.M.S., we can actually break each individual part number down to it's own individual BRP and BSL as well as the recommended overall days supply.

No matter which particular D.M.S. you may have, most do provide, to some degree, these Parts Ranking Analysis Reports. Unfortunately, in my opinion, they don't get utilized enough in the above areas. Why are there Parts Ranking Analysis Reports important?....I guess that's a question we all need to ask ourselves...

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