Thursday, February 6, 2020

February 2020: Stocking Status: "Is Yours Accurate?"

As we continue on into this New Year, we will be focusing on many parts "Key Performance Indicators", (K.P.I.'s) and more importantly, we will be looking at how these K.P.I.'s are calculated and if they are really accurate.

In my opinion, one of the biggest and probably one of the most talked about Parts K.P.I.'s is "First Time Off Shelf Fill Rates". Next to Lost Sales, "First Time Off Shelf Fill Rates" is one category that I receive more questions about and how we measure it correctly.

Most Dealer Management Systems, (D.M.S.) contain information that "should" lead us to our "First Time Off Shelf Fill Rate" percentage, but unfortunately, even though the information may be available, it's most often times inaccurate.

As a matter of fact, many Dealer Management Systems, (D.M.S.) don't even calculate "First Time Off Shelf Fill Rates". One of the main reasons is that many Dealer Management Systems are not set up to calculate this K.P.I. with the proper information needed to calculate this percentage in the first place.

The first key element to calculating "First Time Off Shelf Fill Rates" is which parts "qualify" to be even considered in this K.P.I. This is where it gets tricky because how do we really know what parts were sold on the first visit?

The most common answer to that question should be the parts that are considered "Active", or "Normal Stocking Parts". So, the next question should be..."How does a part become Active or a Normal Stocking Part and what exactly is the criteria?"

In my opinion, when calculating "First Time Off Shelf Fill Rates", only those parts that we normally stock should be part of the equation. Even though, technically, I could have a "Non-Stock" part sold on the first visit such as a Special Order part that was never sold initially.

I could also have a Normal Stocking, or Active part that was not on the shelf on first visit because I ran out and had to make an Emergency Purchase. Thus, giving us inaccurate results when calculating "First Time Off Shelf Fill Rates".

This is where "Stocking Status" comes into play as every part number in our system has to have a classification, or "Stocking Status" whether we normally stock the part or not. So, if we are to even begin to calculate our "First Time Off Shelf Fill Rate", we have to have the separation between normal stock parts and non-stock parts.

To even get close to an accurate "First Time Off Shelf Fill Rate", we need to have some guidelines and the only guideline we have, in my opinion is "Normal Stocking or Active Parts". That being said, the only way these parts can meet that guideline is to meet the individual dealer's D.M.S. guidelines for parts Phase-In.

"So, why do I believe that the "Stocking Status" in many stores is inaccurate?"

As I just mentioned, in order for a part to achieve "Normal Stocking Status", or "Active Status", these parts must qualify and meet the D.M.S. Phase-In Criteria. If parts do not meet Phase-In Criteria, they are considered as "Non-Stock" Parts. Much like Special Order Parts, or maybe parts manually forced in by the Parts Manager.

Total demands meaning Sales or Lost Sales less than the Phase-In Criteria selected for potentially stocking parts. Normally, we would like to see some activity, (Sales and/or Lost Sales) of at least a few times over the course of selected months before considering parts for potential normal stocking status.

Now, here's where it gets a little dicey and it's also the reason why I believe that many, if not most Dealer Management Systems, (D.M.S.) "Stocking Status" is inaccurate. If it's true that parts need to meet the D.M.S. Phase-In Criteria in order for a part to meet "Normal Stocking", or "Active" status, then we have a problem.

This problem will also "trickle down" to properly calculating a true "First Time Off Shelf Fill Rate" if we are using the calculation of sales, (at cost) of "Normal Stocking" and "Active" parts. We must have an accurate "Stocking Status" in order to even come close to an accurate "First Time Off Shelf Fill Rate" K.P.I.

The first "inaccuracy" is if the D.M.S. Phase-In Criteria isn't set up properly as I have witnessed even most recently. In other words, I have seen D.M.S. Phase-In Criteria set for just one demand, (Sale or Lost Sale) in just ONE month over the course of twelve months in order to qualify for Parts Phase-In and "Normal or Active" Stocking Status.

I'm quite sure that just ordering a Special Order Part one time will not convince me to stock that part, but the D.M.S. only does what it's designed or programmed to do. So, if this was the case, every part would qualify for "Normal or Active" Status and all these sales at cost would be considered in the "First Time Off Shelf Fill Rate" K.P.I., which, of course would not be accurate.

The second "inaccuracy" on Stocking Status are the many, many parts that we purchase utilizing the manufacturers' Vendor Managed Inventory, (V.M.I.) such as GM's RIM Program, FCA's ARO Program, Parts Eye, etc. to manage and replenish their parts inventories.

Many, if not most of these manufacturer V.M.I.'s manage individual dealers' parts inventories based on dealer group criteria including Parts Phase-In and Overall Stocking Levels. In other words, if the Parts Phase-In Criteria is met on a group level, then it becomes a "qualified" V.M.I. part. 

Here in lies the problem....even though a part may meet the "group" criteria, they may recommend a particular dealer to stock the part just because it has met the "group" criteria, and not necessarily the individual dealer's Parts Phase-In Criteria. Once you "pull the trigger" on that part one time, maybe on a Special Order, now that part is recommended for normal Stocking Status.
I don't know about you, but before we even had the manufacturers' controlling our stock orders, I know I wouldn't stock any parts that didn't meet "my" D.M.S. Stocking Criteria, Stocking Status and Stocking Levels. As I have often said...I am not buying parts to hold and protect...I am buying parts to sell and meet proper gross and true turn numbers.

Even if the part hasn't met the individual dealer's recommended Phase-In Criteria, it has met the "group" criteria, these parts end up on the shelf, even though they may be "protected" by the manufacturer for return down the road if these parts don't sell.

What many Parts Managers don't know is if they purchase ANY part on the manufacturers' V.M.I. "that has not met" their own individual D.M.S. Phase-In Criteria, those parts will come into the parts inventory and D.M.S. as a "Non-Stock" part and will not be included in any "First Time Off Fill Rate" calculation.

This would mean that the Parts Manager must change the Stocking Status of these parts over to "Normal or Active" Stocking Status manually. I'm quite sure that we are buying these V.M.I. parts to replenish and/or stock and not ordered as Special Orders for certain customers.

I have visited many dealerships, even to this day where as much as 70% of their parts inventory was in a "Non-Stock" Status because many of their V.M.I. parts purchases were receipted as "Non-Stocked" because these V.M.I. purchases did not meet the dealer's D.M.S. Phase-In Criteria, which was also inaccurate in many of these dealerships.

I have personally assisted Parts Managers in changing the Stocking Status of literally thousands of part numbers from a "Non-Stock" Status back over to a "Normal or Active" Stocking Status because so many of their part numbers were purchased under the Manufacturer V.M.I. Program that did not meet their own D.M.S. Phase-In Criteria.

Calculating an accurate "First Time Off Shelf Fill Rate" can only be accomplished if the Stocking Status of all parts are accurate to begin with. Even though I believe that there is no 100% accurate "First Time Off Shelf Fill Rate" calculation because there will always be exceptions as I have mentioned above.

I DO believe though that we can be very close to 100% if the Stocking Status of all parts are accurate and correct, properly accounted for, including those parts purchased on the Manufacturer's V.M.I., (if offered). We also have to be "honest" and report "Emergency Purchases" on those parts that we normally stock, but run out of on occasion.

Emergency Purchases should only be posted on those parts we normally stock, but run out of. Now we can calculate an accurate "First Time Off Shelf Fill Rate" that is as close as it can be. Even though it is also true that we could have an Emergency Purchase and a Lost Sale on the same transaction, we can still benefit from posting both.

Only the Emergency Purchase "receipt" will separate the two and still allow us to record the Lost Sale for the added demand, while accounting for the "out of stock" situation that eventually needs to be "backed out" of our "First Time Off Shelf Fill Rate" calculation.

We must also ensure that we are only reporting Emergency Purchases on those "Normal or Active" parts supplied by our manufacturers' and not those parts purchased from outside, or aftermarket vendors as those parts purchases should be posted as "outside" or as "in and out" purchases.

If we do follow these principles and guidelines, we can pretty much use this following formula to "properly" calculate our "First Time Off Shelf Fill Rate"....

Total Sales, (at cost) of Normal or Active Parts Divided by Total Sales, (at cost), Minus Emergency Purchase Receipts

If we are going to measure any Parts K.P.I., we need to make sure we are not just "believing what we see" on our D.M.S. Monthly Management Reports, we need to make sure that we are reporting, receipting and recording all of the necessary information accurately and correctly in order to achieve desired results.

"Is Your Stocking Status Correct?"

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...