Wednesday, November 6, 2019

November 2019: Managing Parts Returns

It's hard to believe that after almost ten years of ACG "Smart Parts" issues, I haven't focused on one of the most important duties & responsibilities of a "Smart Parts" Manager and that would be Managing Parts Returns.

Even though Managing Parts Returns isn't anything new to us, I do believe that it has become much more important than it ever has before. One the main reasons that I believe that it is more important now than ever before is simply because parts obsolescence is growing at higher levels than ever before.

First and foremost, when we start talking about Managing Parts Returns, we have to understand that we had to "order" the parts first place, thus requiring the "return" of the parts in the end. This is why we have to start out the process of Managing Parts Returns with the root causes that lead to parts returns.

In order to manage parts returns, we must have "parts order" policies & procedures first that will limit and control the potential for parts returns. After all, the costs of having to return parts should be reason enough to want to limit and control the overall number of parts returns in the first place.

Managing Parts Returns "back in the day" was much simpler as parts in general had a much longer "life span" than parts do today. For example, the part  number for a set of front brake pads would fit several different vehicle models and for a longer period of time.

Now, we have several different brake pad numbers for the same year and make vehicle model, and for a much shorter period of time, thus reducing the "life span" of these parts in general. Therefore, we can't afford to keep these parts any longer than we have to and "phasing out" these parts much sooner then we ever did in the past.

Not an easy job anymore for sure, but whether we are talking about today or yesteryear, we still have to limit and control the number, amounts, and types of parts returns and it all starts with analyzing the "root causes" of how these parts end up as returns in the first place.

Let's start out by looking at the "types" of parts returns that today's "Smart Parts" Manager has to deal with and then we will look at some of the "root causes" for these returns in the first place. Keep in mind that Parts Returns are always going to be there, but if we can limit and control them, we are saving valuable gross dollars for the dealer, while protecting this valuable asset.

Common Types of Parts Returns: 

Daily Returns:  

These parts returns are usually those parts that we order "as needed", mostly from outside vendors for our Service and Collision Center Customers. Process also includes Standard Accounting Practices and a high degree of communication with the Office Manager to ensure proper sales, cost of sales accounting is maintained.

Weekly Returns:

Weekly parts returns can also include parts that may also include local outside vendors, but it may also be parts ordered more often to replenish "other inventories" other than prime inventory items filled by the manufacturer. Other types of returns may also include batteries, chemicals, tires, dirty core inventories, Collision Center Vendor returns, and perhaps even Special Order Parts with return requirements from the manufacturer.
Monthly & Annual Returns:

These are the parts returns that tend to cost the most as they tend to be controlled mostly by the manufacturer. They are also the parts returns that tend to go unnoticed with the least amount of control on how they got to the "return pile" in the first place.

Monthly and Annual Returns can also expose many weaknesses within the Parts Department such as; Improper Dealer Management System Set Ups & Controls, "Obedience", not "Compliance" to the manufacturers Vendor Management System's Guidelines, overbuying and overstocking of inventory,  and manual returns of Special Order Parts.

Bottom line is...if we are holding parts for returns, or have an excessive quantity and amount of these parts returns, we need to look at how they got there to begin with. It can also be an area that exposes how the dealers' obsolescence is revealing undesirable results. In order to "Stop The Bleeding" of obsolescence,  we have to stop how it gets there in the first place.

So!...Let's Look At Some Of The "Root Causes" For Parts That We Need To Return

In my opinion, if we really got down to the basics and wondered how we got to the point of having to return parts in the first place, we probably wouldn't have as many. Of course, we will always have to deal with this process of returning parts, but do we really need to have as much as we do now?

In order to limit and control these returns, let's first look at some of the reasons that we have them in the first place.... 
  • Mistakes in Ordering Parts, Whether by Parts Counter Staff, or Improper Information.
  • Parts Manager Training on Proper Dealer Management System Set Ups & Controls such as Phase-In/Phase Out Parameters, Stocking Criteria, (Best Reorder Points & Best Stocking Levels).
  • Parts "Over Ordering" above Best Stocking Levels to take advantage of Manufacturers' Promotions, or trying to avoid "Stock Out" situations.
  • No Parts Ordering Policy on who can order parts in the first place.
  • Lack of a Special Order Policy that doesn't require deposits or prepayment on Customer Pay Special Orders or presetting Service Appointments on all Special Orders.
  • Manufacturers' "Vendor Managed Inventories", (if applicable) setting Stocking Criteria that may meet the manufacturers' Stocking Criteria but not necessarily the dealer's Stocking Criteria.
  • Ineffective, or lack of use of the dealer's Dealer Management System, (DMS) to create in-house stock orders, thus relying solely on the manufacturer for stock replenishment.
  • Manual orders to replenish stocking inventories.
These are just a few areas that can impact the number and amount of parts returns that may be required. Keep in mind, that we haven't even started to talk about the costs and ramifications to the number and amount of these parts returns.

The costs of the number and amount of these parts returns can highly impact and add to parts inventory acquisition and holding costs which alone can amount to 25% - 30% of the total inventory value each year. On top of that, these "root causes" can "chew up" valuable accrual amounts earned through the manufacturer.

Other costs may include "dealer cash" from poor management of parts core returns, warranty parts held for approved return dates and discounts and allowances on parts purchases. Although, the biggest cost to the dealer is yet to be revealed with my next big question...

"Are We Buying Parts Just To Hold Them For Return Down The Road?"   

You heard the question right!...are we just buying parts that the manufacturer may recommend, or maybe that we order ourselves just to gain additional earned discounts & allowances? Only to hold them for a required period of time while it may be "protected" and send them back at no cost? Don't be fooled...there is a severe cost.

One of the biggest "untruths" of buying parts to earn additional discounts is that we really never realize the earned discounts until the parts sell. Even though it may show as 100% profit on the Dealer's Financial is just "paper money", unless the the Parts Departments' Gross & True Inventory Turns are at or above industry guidelines of 8 Gross Turns and 5 True Turns respectively.

Which leads me to my next question...

"Are We Buying Parts Without Regard Because They May Will Be Protected By The Manufacturer Anyway?"

First of all, I would never buy parts to hold them for a period of time, just in case they may sell. Even though protected, there are acquisition and holding costs and valuable shelf space cost compared to parts that turn 5 - 8 times a year. Most important, my job as Parts Manager was to buy parts to "sell" and not to "hold" them.

Acquisition and Holding Costs Include, (but not limited to); 
  • Computers, Data Transmission, & Software Required to Access Inventory.
  • Facilities Access to Obtain Inventory.
  • Personnel to Facilitate and Acquire Inventory.
  • Required Office Supplies to Review, Edit and Record Inventory
  • Storage Space & Maintenance to Store Unsold Inventory
  • Insurance Costs of Inventory Value
  • Price of Damaged Inventory
  • Less Cash Available for Other Business Costs
  • Ordering and Shortage Costs
  • Rent or Equivalent to Maintain Inventory 
The process of "Managing Parts Returns" cannot be taken lightly, but as you can see, it can also be an indicator to a lot more than we may think. In my opinion, the worst thing we could do when it comes down to "Managing Parts Returns" is to add to the already existing procedure that we can't avoid.

Final Question....

"Are You Buying Parts Only To Return Them Down The Road?"

"I don't know about anyone else out there, but that just doesn't make logical sense to me..." 

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @, or...just pick up the phone and call me at (786) 521 - 1720...After all, not knowing is not worth not "fixing" it...