Here we are in October and down to our last in our five parts series titled: "Show Me How To Fix It!" and in my opinion, THE most important Parts Key Performance Indicator, (KPI) which is "First Time" Off Shelf Fill Rates. Other than parts profitability, this one stands alone in determining just how well the parts inventory asset is performing.
Having the "Right Parts At The Right Time" is crucial not only for parts profitability, it is also crucial to supporting the Service Department's Overall Productivity, Customer Satisfaction and Overall Dealer Retention.
In many dealerships today, Parts Departments fail to meet expected "First Time" Off Shelf Fill Rates of 85% or higher. As a matter of fact, many fail to even achieve a "First Time" Off Shelf Fill Rate of even 35%.
So, what does this mean?...
Quite simply, it means that the customer, or technician is only getting their parts on first visit approximately 35% of the time. The time spent bringing a vehicle in the shop, racking the vehicle and diagnosing the vehicle all comes to a halt if the part is not on the shelf on first visit.
Unlike parts, time is a perishable inventory that we can never get back so all the time spent right up to acquiring the part is gone. At this point, the vehicle is either taken off the rack, pushed or driven outside, only to bring it back in at a later time or day to repeat the process.
Studies have shown that low "First Time" Off Shelf Fill Rates of 30% - 50% can impact Service Productivity in a negative way anywhere from 15% to 25% overall. Not only that, if we are losing productivity, we are also losing Parts & Labor Sales and Gross Profits.
When we do the math to those percentages in Lost Productivity, then tack on our Parts to Labor Ratio numbers, Sales & Profitability, the Lost Gross Profit Annually can add up to hundreds of thousands of dollars in many dealerships today. I know this because I have done the math in many dealerships.
Now that we know how the end results can negatively impact all these areas, we now come to the all important million dollar question....
"How Do We Fix It?"....
As I have mentioned in many previous articles, in order to "fix" any problem or concern, we first have to identify the problem or concern first. How did we get to this point?, or even...How do I even start to move the needle upwards in achieving desired "First Time" Off Shelf Fill Rate Levels?
I believe it all starts by the fact that we are really confusing the issue in the first place. There are so many "fill rate" definitions, acronyms, opinions, calculations and terminologies out there, so why wouldn't we all be confused?
Here is a sampling, or list of terminologies out there given to us by various Dealer Management Systems, (DMS), industry analysts, consultants, parts managers, etc.
- Off Shelf Fill Rate, (OSF)
- Sales to Stock Ratio
- Sales to Cost Ratio
- Purchase to Sales Ratio
- Stock Order Performance
- Demand Fill Analysis
- Same Day Fill Rate, (SDF)
- Level of Service
- Purchase to Fill Ratio
- Fill Rate Analysis
Who wouldn't be confused?....which one of these is my "First Time" Off Shelf Fill Rate?
There are probably a lot more that I haven't mention, but I think you understand my point. Unfortunately, many dealer owners and even Parts Managers don't even know which one actually indicates the "First Time" Off Shelf Fill Rate. Actually, only a couple of the above examples come somewhat close to the actual "First Time" Off Shelf Fill Rate.
The first thing that we have to determine is....
"What parts actually qualify to be even considered parts that sell on a first time basis and CAN be considered into the calculation of "First Time" Off Shelf Fill Rate?"
Here's my common sense approach to all this confusion...
In the first place, there are only two reasons why we don't have the parts on the shelf. The first one is that we never stocked the part in the first place and the second one is that we do stock the part, but we ran out. We definitely don't want the second one to happen as running out of a Normal Stocking Part is a very bad thing and embarrassing for the Parts Manager in my opinion.
If the above is factual information, which I believe it is, the parts that I am most likely to sell on a "first time" basis would be my Normal Stocking Parts on the shelf unless I experience a "stock out" situation. That being said, I would definitely consider these parts sales in my "First Time" Off Shelf Fill Rate Calculation, less those "stock out" situations.
If I am posting correctly and I do experience a "stock out" situation on a Normal Stocking Part and have to purchase a Normal Stocking Part as an outside purchase, whether another vendor or the manufacturer, I should be recording an Emergency Purchases on those rare occasions. Then I can subtract my Emergency Purchases from my "First Time" Off Shelf Fill Rate Calculation.
There are always going to be "exceptions to the rule" when calculating "First Time" Off Shelf Fill Rates. One example would be a part that I Special Ordered for a customer and they never picked the part up for whatever reason, thus becoming a Non-Stock part on the shelf.
Then, another customer comes in and needs that same part down the road and I "technically" had the part on first visit, but because it is a Non-Stock Part, it will not figure into my "First Time" Off Shelf Fill Rate, but it will figure into my Same Day Fill Rate, (SDF)
Another example in reverse, I run out of a Normal Stocking Part and have to order it from the manufacturer, or vendor and I DON'T record an Emergency Purchase, technically that part is sold and recorded into the "First Time" Off Shelf Fill Rate calculation, even though it wasn't there on first visit.
In my opinion, Same Day Fill Rates are important, but if I have to wait 4-5 hours for that part, even though it's filled the "same day", I still lose valuable time inventory in the shop. That being said, achieving the correct "First Time" Off Shelf Fill Rate percentages is my prime objective as Parts Manager and not necessarily just focusing on "Same Day" Fill Rate, (SDF).
Measuring Same Day Fill is good, but not good enough in some circumstances when we start drilling down and measuring Overall Shop Productivity. If the stall is down for a time and not producing, even measuring Same Day Fill Rate doesn't matter in many cases.
Okay!...Now Let's look at the definitions of "Fill Rates" in general!...
Overall Off Shelf Fill Rate:
The Overall Off Shelf Fill Rate can also be called Level of Service, Demand Fill Analysis, OSF, or any other acronym or definition that various Dealer Management Systems, (DMS) may call it. The definition though should still be the same, which is as follows;
"Total Sales at Cost Minus Lost Sales and Emergency Purchases"
As you can see with this simple definition, it doesn't matter whether the order gets filled today, tomorrow, next week or next year, the definition just indicates that the "demand" was filled, less Lost Sales and Emergency Purchases.
Bad part of this equation, or "Smoking Gun" if you will is that if I don't report Lost Sales and/or Emergency Purchases, I could look like a hero, but I would be just fooling myself with a very high and inaccurate (almost 100%) Overall Off Shelf Fill Rate. This category, unfortunately gets confused with "First Time Off Shelf Fill Rate numbers.
If and when that happens and I'm looking like a hero, you really have to ask yourself a question....
"Am I really providing parts to my customers on a First Time basis almost 100% of the time?"
The obvious answer is "No"....
Same Day Fill Rate:
The definition of Same Day Fill Rate is pretty obvious as these parts sales, whether Normal Stocking or Non-Stocking parts have to be filled in the same day of the request and invoiced on a repair order or counter sales ticket.
"Total Parts Sales at Cost Invoiced and Sold the Same Day of Request"
Again, an important measurement that we should monitor, but not the prime objective. Filling the demand the same day is a good thing, but how much time did it take to fill that order that same day. Plus, Same Day Fill Rates also include "First Time" Off Shelf Fill Rate Parts which could mask my overall objective.
"First Time" Off Shelf Fill Rate:
Okay!....here's where some may differ from my definition of "First Time" Off Shelf Rates, but I have to look at this in a common sense approach and not from the perspective of a particular Dealer Management System, (DMS). Keep in mind that proper posting of Emergency Purchases are crucial to getting the right "First Time" Off Shelf Fill Rate calculation.
"Total Sales at Cost of Normal Stocking Parts Minus Emergency Purchases at Cost Divided By Total Sales at Cost"
Another extremely important thing to keep in mind is that all parts need to be in the proper "stocking status" category of Normal Stocking Parts and Non-Stock parts in the first place. Normal Stocking Parts meaning that these parts have met the DMS Phase-In Criteria and Non-Stock Parts that have not met Phase-In Criteria.
Lost Sales do not figure into this equation because Lost Sales only play a part in the "demand" category which means that Lost Sales are part of the Phase-In Process and not the sales category. Once a part phases in from total demands, (Sales and Lost Sales), then the "First Time" Off Shelf Fill Rate takes over from Sales at Cost of Normal Stocking Parts less Emergency Purchases.
Emergency Purchases DO play a heavy role in the proper "First Time" Off Shelf Fill Rate Calculations as Emergency Purchases of especially Normal Stocking Parts that we run out of need to be "backed out" of "First Time" Off Shelf Fill Rate Calculations for obvious reasons....After all, I did not have it the first time...whether I normally stock the part or not!
Bottom line is that if we do want to measure our TRUE "First Time" Off Shelf Fill Rates, we need to have a common sense approach in order to get common sense results. Don't let your Dealer Management System, (DMS) dictate results that may not be true.
Make sure that your DMS has ALL your parts categorized properly as Normal Stocking Parts vs. Non-Stock Parts, especially if you are utilizing a Manufacturers Vendor Managed Inventory, (VMI) which allows parts to enter your inventory as "Non-Stock" inventory.
Accepting these parts into inventory that have not met your DMS Phase-In Criteria will result in adding more "Non-Stock" Parts into your inventory that will not qualify in "First Time" Off Shelf Fill Rate Calculations as they are technically "Non-Stock" Parts, even though you are purchasing these parts to replenish inventory.
If you do accept VMI Parts into your inventory, you MUST manually change the stocking status to "Normal Stocking Parts" in order for the system to properly calculate your TRUE "First Time" Off Shelf Fill Rate. Keep it simple and keep it right....
If you want accurate "First Time" Off Shelf Fill Rate Results, and have the "Right Parts At The Right Time"....85% - 90% of the time?...you have to "Get It Right And Do It Right The First Time!"
If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at (786) 521 - 1720...After all, not knowing is not worth not "fixing" it...