Monday, July 8, 2019

"Show Me How To Fix It!" - Part Two: Parts Phase-In/Phase-Out

It's still amazing to me that even today, many Parts Managers have not been exposed to the basics of Parts Inventory Management, which I refer to "Parts 101". The basics of "Parts 101" means those Parts Managers that have never had the opportunity to learn and "manage" industry guidelines, or how they came about in the first place. In their minds, they are just there.

Many may have had the opportunity to attend some Parts Manager Training offered by the manufacturer, or perhaps even from the various 20 Groups across the country, but many Parts Managers still don't know the basics. More importantly, how to "fix it" when it's broken. 

Even though we may receive an award or "certification of attendance", the only information provided by these various sources are guidelines and numbers on where we should be. In other words, they can tell you where you rank compared to industry guidelines, or what you're doing wrong, but there aren't many that can "Show Me How To Fix It!"

This actually reminds me of a commercial by a major corporation about the Dental Monitor Person who confirms the patient has a huge cavity and when asked by the patient..."Well, aren't you going to fix it Doc?"...the answer, of course was..."Oh no, I'm just the Dental Monitor and that is a huge cavity!"...or even about the one with the Bank Security Monitor declaring that there is a bank robbery.

Lastly, in this opening monologue and before we move on to Part Two of "Show Me How To Fix It" on Parts Phase-In/Phase-Out, I just want to say that many, if not all Parts Managers that I have met and worked with are very intelligent and talented. 

The only thing missing, in my opinion is information. No one has ever "shared" the right information to Parts Managers that I have been so fortunate to receive over the years. In addition to not receiving this valuable information, many of these "basics" have gone "under the radar" and even controlled to some degree by various manufacturers.

This is especially true with Parts Phase-In & Phase-Out Parameters. How a part enters in to the inventory and eventually phases out of our inventory is controlled primarily on these parameters, no matter who is controlling them, or even if they are correct or not.

Either way, the Parts Manager MUST know how these parameters work and how they may need to be modified from time to time. They are not set ups that we "set and forget" as I will expand further as to why these, or any other parts set ups need to be modified from time to time.

Onward and Forward to Part Two!....Parts Phase-In/Phase-Out Parameters!

The first thing that we need to establish and not assume is the actual definition of Parts "Phase-In" and Parts "Phase-Out". Even though it may seem like common sense to most "Smart Parts" Readers, there are still Parts Managers out there that just don't know as I mentioned earlier. One of my favorite sayings is..."How do I know what I don't know?"...

Let's start out with Parts Phase-In:

"Demand or total number of demands, (sales and lost sales) reported in a period, (days or months) over a desired total number of periods, (days/months)"

In other words, if I wanted my "phase-in" period to be so many demands, or demand within a month of any kind, (sale or lost sale) over a course of a certain number of months, this would give me sufficient "evidence" to if I want to consider those parts that meet the criteria and to be considered "Normal Stocking Parts", or "Active Parts".

That be said, and with many different options out there as to how much demand, or demands within a number of days, or months over a course of time is where "Parts 101" comes in. We have to know the differences on how much, how often and how long we need to measure this information.

Most importantly, we need know how aggressive, or how moderate we want these parameters to be in the first place. We also have to remember that even though a part phases in, not matter what these parameters are, these parts do not simply "jump on the shelf". 

Although they may appear on a  Parts Phase-In Report, or on a D.M.S. Suggested Stock Order, the Parts Manager is the one who will ultimately make the choice on whether to stock the part(s) or not. The key thing to remember here is that we cannot manage what we cannot see and having this information in front of us is most important.

We also have to remember that the key word in Parts Phase-In and Phase-Out for that matter is "demand". The are only two types of "demand" or "hits" out there and that is the posting of Sales and Lost Sales. So now we see the importance of posting Lost Sales which we fixed in Part One of this series. 

If we don't post Lost Sales, we are missing a ton of demands and opportunities for potential future "Normal Stocking" or "Active Parts", which increases our "First Time Off Shelf Fill Rate". Actually, the proper posting of Lost Sales or lack of posting Lost Sales plays a key role in our initial Phase-In Parameters.

If our Lost Sales reporting is less than the required guideline of 5%-10% of total sales at cost, we would then set the parameters with a "lower" total demands required for phase-in. If my Lost Sales Reporting is at or above the 5%-10% of total sales at cost, we would then require "higher" total demands for phase-in as there would be more overall demands reported on Total Sales and Lost Sales.

Here are a few samples of "Phase-In" Parameters...

Aggressive Phase-In Parameters:

Parts with demand in 2 "separate" months out of the last 3 months with a "total" demand of 3.

Moderate Phase-In Parameters:

Parts with demand in 3 "separate" months out of the last 7 months with a "total" demand of 4.

Average Phase-In Parameters: (* Non-Aggressive)

Parts with demand in 2 "separate" months out of the last 6 months with a "total" demand of 3.

* Phase-In Parameters most often used by the manufacturer on their Vendor Managed Inventories, (V.M.I.), if offered.

Phase-In Parameters NOT to use:

Parts with demand in 3 "separate" months out of the last 12 months with a "total" demand of 4.

The danger with this last one is that you could possibly "phase-in" a "phase-out" part right out of the gate! One example is a part that may have demand in January and February, then another demand in December of the same year. 

The problem with this example is the other 9 straight months, the part has NO demand and in many cases, "Phase-Out" Parameters usually start anywhere from 7 months with no demand or more. Especially with the average parts life span of Normal Stocking Parts today is less than one year.

Believe it or not and unfortunately, these Phase-In Parameters are still widely used in many Parts Department today. Sadly, many of these Parts Managers don't even know it, and/or don't even know the ramifications to these parameters in the long term.

Lastly, and perhaps most important, if we are only using the manufacturer's guidelines on Parts Phase-In on their Vendor Managed Inventories, (V.M.I.) parameters AND don't even run our own D.M.S. Suggested Stock Orders, we are turning over total control on what we should be stocking.

Now onto Parts Phase-Out Parameters:

"Parts with no demand, (sales or lost sales reported) over a specific period, (days/months)."

Even though Parts Phase-Out Parameters are much simpler, they are extremely important. Knowing when we should be "alerted" on a part that hasn't had any demand over a certain period of time, (days/months) is as important as to when we should be "alerted" when we should possibly phasing-in a part.

The trick is...when should that "alert" time be and when should we consider actually return these parts to the manufacturer, or perhaps even scrap these parts that meet the Phase-Out period? I know what we DON'T want and that is the "alert" time period to be at 12 months.

If we wait until one year with no demands, it's too late. The chances of no future parts sales on these parts rises to an astonishing 98% chance according to Mike Nicoles, who is the most respected and revered Parts "Guru" for many years.

Quite simply, we should set our "alert" period, or Phase-Out Parameters anywhere from 7 to 10 months, pending the return policies from individual manufacturers. Even if the particular manufacturer requires a specific stocking period before return eligibility,  "Smart Parts" Managers still need to be "alerted" when parts hit the desired Phase-Out period.

"Fixing" our Parts Phase-In and Phase-Out Parameters can only happen if we know what these parameters represent in the overall picture of what parts we need to stock. Once these parts meet phase-in stocking requirements, the next step is "how much" and "how many" we should have on the shelf.

Speaking of "Stocking Levels", that will the subject in our August issue of ACG "Smart Parts". In Part Three, we will be "fixing" our Parts Stocking Levels. Fixing our Parts Phase-In and Phase-Out Parameters is just the beginning to having the Proper Set Ups & Controls in our Dealer Managements Systems, (D.M.S.).

If you haven't looked at these Set Ups & Controls in a while and/or you don't know where or how to manage might want to ask yourself this one question....

"Who's Managing YOUR Parts Inventory?"... 

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