Wednesday, May 6, 2020

May 2020: "Preparing The Parts Department Beyond Covid-19"

First and foremost, ACG "Smart Parts" is wishing and hoping that all of our customers and ACG "Smart Parts" Readers are safe and healthy during this health crisis. Even though we all are going through something that we never expected, we will all prevail, including our automotive industry in general.

In this month's issue of ACG "Smart Parts", we are interrupting our current five part series on the Five Top Key Performance Indicators, (K.P.I.'s) to bring our "Smart Parts" Readers and exclusive issue dealing with our current health crisis with the Covid-19 pandemic.

We will bring our "Smart Parts" Readers our last part of our K.P.I. Series in our June issue and hopefully, we will be on our way to recovering and perhaps beginning a new era in the way we do business in our industry.

In my opinion, I don't think anyone of us was prepared for what we are dealing with, but I do know that this will shape our thought processes, our business models and believe it or not, challenge us to new opportunities in the future.

For me, the reaction to this crisis is the most important step that we all have to take in order to prepare and succeed moving forward. Our positive attitudes and motivations have to take center stage with the proper planning and business models, taking in all the variables and potential "New Norms" that may lie ahead of us.

In times like these, I am reminded of a motivational quote by Epictetus that really doesn't just apply in these times as the quote really should apply throughout our lives and it reads as follows;

 "It's not what happens to you, but how you react to it that matters"

                                                                                              - Epictetus

The parts department is not exempt from all these reactions and changes moving forward, and quite frankly, in many ways our reactions, planning and preparation going forward can highly impact the profitability and investment of the parts department in the future.

It's hard enough just to deal with what's going on in the present, but in my opinion, preparing for what lies ahead cannot be overlooked and now is the time to get ready as we approach the many phases of reopening our economy.

In this issue of ACG "Smart Parts", we will list and detail our "Top 10 Action Items" that will help us prepare for what lies ahead. We may not know it now, but what is happening right now is impacting how we will bring parts into the inventory, our stocking levels, future obsolescence, employee staffing metrics, marketing,  and much, much more.

So, as we fight to get through this crisis, the real battle will begin as we continue to recover. Is there a "New Norm" ahead?...How do we plan and prepare for what lies ahead, especially when we really don't know what lies ahead?

"Let's start to prepare NOW with our "Smart Parts" Top 10 Action Items to prepare our parts departments for what lies ahead, beyond Covid-19"

We are going to start our "Top 10 Action Items" to Covid-19 Recovery in the order of importance to insure that we keep focused on prioritizing the preparation process. If there is one thing that we have as an advantage to help us through this preparation is history.

Even though history is changing each day, our "parts history" and our Dealer Management System, (D.M.S.) provides a vehicle to moving forward and insuring that we make the right decisions regarding inventory management in the future, beyond Covid-19.

Number One: Parts Demand

First and foremast, "Parts Demand" is the fuel for our parts inventory engine when it comes down to stocking the right parts at the right time and at the proper inventory levels. Over the past couple of months, "Parts Demand" has been negatively shaken heavily with "stay at home" recommendations and "social distancing" reducing our in-dealership traffic counts tremendously.

With reduced service traffic and reduced overall parts business in general, our "Parts Demand" is constantly recalculating our stocking levels, or days supply to different levels, (in most systems) over the last twelve months, including those from our manufacturers Vendor Managed Inventories, (V.M.I.), if applicable to your dealership.

We cannot have a mindset of what "Parts Demand" used to be and to keep stocking parts because of what parts history told us even three months ago. We have to operate in the "now" mindset and be looking at "Parts Demand" over the last 30 - 60 days versus the last twelve months. 

Number Two: Parts Phase-In Criteria

If we haven't looked at this set up in a while, it's now time to take another look at just how parts "phase-in" to our D.M.S. Inventory. Especially those dealers that are utilizing the manufacturers Vendor Managed Inventories, (V.M.I.) as most V.M.I.'s use "group criteria" for how parts are qualified for their respective programs.

Just like in our own D.M.S., the V.M.I. parts "phase-in" criteria is most likely still set to "prior Covid-19" settings which requires parts demand, (usually 2-3 demands) over a period of months, (usually 6-8 months) which takes us back to times that don't reflect our current or even future status beyond Covid-19.

Parts Phase-In Criteria should immediately be changed to a shorter time span to reflect current sales over the past two or three months with proper recording of all demands which includes Sales and yes...Lost Sales.

Phase-In criteria should be looking out over a period of days or months not to exceed 90 days, or three months. Demand should be set at two or three demands to reflect demands over this recent period. 

Now should be the time to be looking at the D.M.S. Phase-In Criteria as well as keeping a watchful eye open on just what the manufacturer is proposing on new parts added to their V.M.I. stocking programs. I always suggest to check your own D.M.S. demand history before stocking new parts recommended by their programs.

Number Three: Stocking Levels

Maintaining the proper Stocking Levels which can be defined as Best Reorder Points, (B.R.P.) and Best Stocking Levels, (B.S.L.) has always been an art, but there is no better time than now to maintain and control these Stocking Levels. 

It has always been important to maintain a 45 days supply of parts from a dollar standpoint, but if we don't maintain these proper levels, it will only lead to overstocking and adding to parts obsolescence. Parts algorithms never change on our Best Reorder Points, (B.R.P.) as math dictates, but the Best Stocking Levels, (B.S.L.) is always up to the parts manager's discretion.

Once again, trusting your own D.M.S. is always the best way to manage these Best Stocking Levels as they dictate YOUR sales demand and not the V.M.I.'s demand. Over stocking and under stocking of V.M.I. Parts is not uncommon as group demand varies compared to individual dealer demand.

Lastly, on this subject, many D.M.S. programs measure stocking levels on an annual piece sales basis and not necessarily over most recent days or months. Caution has to be taken on parts that sell on a seasonal basis and managed properly.

For example, a part that sells 12 times annually may have those sales happen over a three month period which dictates a 30 day supply, but...looking at these parts on an annual basis could lead to overstocking in low sales months and under stocking in peak months. 

Number Four: Obsolescence Prevention 

I hate to say this but this crisis has already started a new wave of obsolescence. Lower current sales combined with previous higher sales volume and stocking levels are a definite recipe for new obsolescence. Common sense would tell us that if my sales drop dramatically, I will have increased parts on the shelf that will become obsolete.

Keep in mind that every part will become obsolete, so we have to do our best to "stop the bleeding" before it's too late. Just as we mentioned in our "Phase-In" Criteria, we also need to set, or reset our "Phase-Out" Criteria to at least 7-8 months.

Phasing out these parts at an earlier month or days will change the Stocking Status of these parts to Phase-Out and not to reorder unless they meet Phase-In Criteria all over again. This is also why we have to be careful not to overstock parts as they will just add to the problem.

Lastly...on this subject, don't be fooled by "Inventory Protection" as it's a never ending, perpetual process that we can never win. Even though we can return parts after a certain number of months, there is always at least nine to fifteen months right behind it.

In other words, even if I could send back $20,000.00 in parts that have not sold and are "protected", there is always ten times that amount that has not sold built up right behind it over a number of months. It never's perpetual and you will never catch up from a dollar standpoint as well as the expense in inventory acquisition and holding costs.

Number Five: Lost Sales Posting

Here we go again!....Lost Sales is always a part of the picture and it comes in at Number Five for a reason. If you remember our Number One Action Item being "Parts Demands", then you already know why posting Lost Sales has to be a Top 10 pick. 

Parts Demands, as I mentioned early on, are the "fuel" for the parts department inventory engine and without demand, we wouldn't even have a parts inventory. Lost Sales plays as big a part in "Parts Demands" as Parts Sales do. Parts Sales happen, but "Lost Sales" posting doesn't always happen.

In order for us to "meet the demand" of our customers down the road, especially now during this crisis, we have to record our "Parts Demand" as best as possible right now. Reporting "Lost Sales" to me is like "Email Capture Rate", which we all know is valuable and will be going forward.

Parts Demand is always current and tells us what's going on now so we can plan on our future based on parts sales history, which gives us our proper parts to phase-in, proper stocking levels and eventually a higher First Time Off Shelf Fill Rate and higher profits...and so on and so on....

Number Six: Our Employees

It pretty much goes without saying that our employees are our biggest asset, but in my opinion our employee "Staffing Metrics" may be changed going forward beyond Covid-19. For years, we have lived and operated our businesses by a set of guidelines set by our industry.

These guidelines have been set based on "Sales Per Employee", and other guidelines that are required to service our customers in an environment that hasn't really changed for years. Now that our future business is in question as far as where it will come from and what the market directs us to, much is still unknown.

One thing for sure is that we will still need skilled and trained employees to compete and succeed going forward. I do believe though that the training and skill requirements will be much more in demand with social media and online services getting stronger and more popular.

I also believe that dealers will develop and pursue all avenues available to streamline their expenses overall, especially in the area of personnel expense. Hopefully, all these avenues will continue to lead our industry as one of the most prosperous career opportunities. 

Number Seven: Parts Marketing 

Even though internet online parts marketing has been on the rise for the last few years, I believe that going forward, social media, online marketing and internet sales will come closer to home. Up to this point, E-Commerce and Aftermarket Parts Sales has been for the big players only and has grown substantially in recent years.

Individual dealer parts departments may be heading in that same direction, no matter what size dealership as "social distancing" may be with us for an undetermined amount of time and require other means to increase parts sales overall.

"Do-It-Yourself" customers may also revert to other means to acquire parts opposed to taking a ride to the local dealer parts department such as online orders, kiosks and perhaps other prepaid delivery methods. 

As our Number Seven "Action Item", I believe it's time to make sure that our dealer websites are up to date with the ability for customers to buy parts online and navigate easily to make parts purchases. Most dealership websites that I have seen are very difficult to navigate, or even contact the parts department.

Most dealership websites do have links and portals that connect to the parts department, but when you click through to the parts department section to inquire on a part, it simply says..."Contact Us". Usually, they will ask for your name, phone number and what part(s) your are inquiring about and they will get back to you.

I would even go as far as to include parts cataloging availability on the website to help parts customers look up their own parts and order online with parts availability, special order options, proper payment methods and delivery options available, thus eliminating contact with the parts department altogether. 

Number Eight: Pricing Strategies

Believe it or not, in my opinion, I think there is a huge opportunity to change the "status quo" going forward as it pertains to parts "Pricing Strategies". As previously mentioned in our Number Seven "Action Item" concerning new concepts in Parts Marketing, offering the customer more convenience and adhering to potential "social distancing" guidelines can be offered with a price.

For years, we have lived by our guidelines set by the industry, especially on sales, gross numbers and percentages, but who's to say that we can't capitalize our profit margins by providing special services as mentioned earlier?

Providing conveniences such as online cataloging, parts availability, special order and delivery options could make convenience outweigh price. I'm not suggesting of course that we go overboard and charge "out of market" pricing, but it does leave a lot out there to think about.

Service pricing on our parts could also be impacted positively if we offer more of these convenient services that allow the customers more options in getting their vehicles serviced with "pick up and delivery service". This service is already being offered in many service departments with all the Covid-19 restrictions.

All that said and in my opinion, competitive pricing should always be practiced on the most common maintenance parts and services offered regardless the situation, whether crisis or no crisis. Good business practices and community involvement is part of what we should always maintain. After all, customer loyalty and retention will never change.

Number Nine: Pick Up & Delivery Service

Our Number Nine "Action Item" pick should be a real "no brainer" and is already in practice in many dealerships since the crisis began. I believe we should take it a step further and continue this service always.

Many upper line vehicle manufacturers have been using this service all along and though some dealers may think the cost may outweigh the return, I also believe this is one that will stick and be part of our normal features and benefits that we offer. Remember when shuttle rides were thought to be a waste of money?

Parts delivery is not offered in all stores as parts delivery is and was mostly offered to dealers who are into wholesale parts sales. Keep in mind, parts delivery doesn't have to mean we hire a bunch of drivers as there are other options such as Uber Delivery, UPS and the U.S. Postal Service, etc.

It all comes down to the "potential" and new ways to operate our parts departments going forward as none of us really knows how far this will go, or if "New Norms" will be created. But I know one thing for sure...we will adapt as we always have in the past.

Number Ten: Be Positive & Remain Positive

Our Number Ten "Action Item" should actually be a constant and a "state of mind" throughout this health crisis, or any other crisis or obstacle we may face, or have faced in the past. Thinking "outside the box" and "getting out of the box" is what it's all about.

I believe that's what makes us unique, especially what makes our business and industry unique. Keeping a Positive Mental Attitude will take us through thick and thin. With that, I will leave you with this quote from a very well known Major League Baseball Player....

" A positive attitude causes a chain reaction of positive thoughts, events and outcomes. It is a catalyst, and it sparks extraordinary results"
                                                                                            - Wade Boggs

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...