Wednesday, June 3, 2020

June 2020: First Time Off Shelf Fill Rates: "Is Yours Accurate?"

As we wind down our four part series on Parts Key Performance Indicators, (K.P.I.'s), there is none more important than measuring "First Time Off Shelf Fill Rates". As a matter of fact, it takes all of our first three K.P.I.'s along with a little common sense to accurately measure "First Time Off Shelf Fill Rates".

Our previous three K.P.I.'s included Parts Stocking Status, True Turns and Stock Order Performance. Each play a key role in our last K.P.I. Even though we have featured "First Time Off Shelf Fill Rates" in the past, we haven't really "dissected" the topic as we will in this final Parts K.P.I.

Most Dealer Management Systems, (D.M.S.) don't even measure "First Time Off Shelf Fill Rates" and even if they did, they wouldn't be accurate. Most systems will measure Level Of Service, Overall Fill Rate, Same Day Fill Rate, Demand Fill Analysis, or just plain Fill Rate.

Problem is, all the above with the exception of Same Day Fill Rate, only measure "overall" Fill Rate minus Lost Sales and maybe Emergency Purchases. It doesn't matter if the order was filled today, tomorrow, next week or even next month.

The same goes with Same Day Fill Rates as it doesn't matter if the order was filled in the morning or afternoon, or even how the order was filled, whether from Stock, Outside Purchase, Emergency Purchase, or even if we purchased the part from an aftermarket source.

In all these case scenarios, there is one key part missing as none of the above have no indication as to how well the parts inventory is performing. In other words, we don't even have to stock a single part in our inventory to be in any of the above fill rate measurement categories.

That's right!...we could buy ALL of our parts from outside sources and we could still get high ranking percentages in all Fill Rate categories, no matter how the D.M.S. defines it. And...depending how we are reporting into the D.M.S., these percentages can be skewed or manipulated.

"So Why Is It Important To Even Measure First Time Off Shelf Fill Rates In The First Place?"

The answer that question has many answers attached to it as "accurately" measuring "First Time Off Shelf Fill Rates" can lead to the following results;
  • Higher "Cycle Times" in the Service Department
  • Higher Parts Gross and True Turns
  • Higher and Increased Profit Margins
  • Higher Return on Investment
  • Reduced Obsolescence
  • Increased Stock Order Performance 
So, as you can see, there are many good reasons to measure "First Time Off Shelf Fill Rates" and to my knowledge, there is no D.M.S. out there that can "accurately" measure it because we have to do the math ourselves.

My reasoning for this is that the D.M.S. has to rely on "accurate" input in order to display results and measuring "First Time Off Shelf Fill Rates". There are too many ingredients that can lead to inaccurate results. Even though there is a formula for measuring it, there can be too many discrepancies in the calculation.  

Let's start with the formula for measuring "First Time Off Shelf Fill Rates" and then we can "break down" these discrepancies and insure accurate results. Keep in mind, we have to do the math as well as reporting accurately into the D.M.S....

"Total Parts Sales (at cost) of Normal Stocking Parts Minus Emergency Purchases"

Sounds simple right?....not so fast as it is not that simple!

Here's why....

There are some key words in the formula itself that can lead to inaccurate results when measuring "First Time Off Shelf Fill Rates". Normal Stocking Parts and Emergency Purchases are the keys and unfortunately, that's where inaccurate reporting begins.

The reason for using Normal Stocking Parts as our guideline to measuring "First Time Off Shelf Rates" is because Normal Stocking Parts are more likely to sell on a first time basis minus Emergency Purchases when there is a "stock out" situation.

There are only two reasons why we don't have the part...either we never stocked the part in the first place, or we ran out. Thus the reason for subtracting out Emergency Purchases as we should be recording Emergency Purchases only on Normal Stocking Parts that we ran out of.

We also have to keep in mind that posting Emergency Purchases on parts that we do not stock yet, or haven't met parts Phase-In Criteria will reduce "First Time Off Shelf Fill Rates". Posting Lost Sales will not affect "First Time Off Shelf Fill Rates" as only the sales of Normal Stocking Parts are calculated.

This is also where proper posting has to come in as often times, Parts Managers use other methods of posting what should be Emergency Purchases. Other receipting practices such as Outside Purchases, Other Orders and I.O.'s, (in & out) are used instead of Emergency Purchases.

Quite simply, Emergency Purchases should be used in receipting only those parts that we normally stock, but ran out and Other Purchases, Other Orders and I.O.'s in those cases where we are ordering those parts that we do not stock such as aftermarket parts not within our franchise(s).

Reporting Emergency Purchases in only those "stock out" situations of parts we normally stock will give us accurate information when calculating "First Time Off Shelf Fill Rates". Mixing in all the other Non-Stock Purchases will just lead to inaccurate results.

The other main factor in calculating an accurate "First Time Off Shelf Fill Rates" is defining Normal Stocking Parts. Believe it or not, this basic Stocking Status is not accurate in many dealership's parts department. The only way parts can meet this Stocking Status is through the D.M.S. Parts Phase-In Process, whether automatically or manually.

Having the right Phase-In Criteria is critical to bringing parts into the inventory and obtaining the proper Stocking Status in order to figure into the "First Time Off Shelf Fill Rate" percentage. Recording the proper amount of demands, (Sales & Lost Sales) over the appropriate period of time is crucial to proper Parts Phase-In.

Another reason why the Stocking Status of "Normal Stocking Parts" listed in the D.M.S. can be inaccurate is because of Vendor Managed Inventories, (V.M.I.) provided by the manufacturers. Some parts that are recommended by the manufacturer and purchased by the Parts Manager may have not even met the dealers criteria for Phase-In, even though these parts may have met "group" Phase-In Criteria.

If we receipt these parts into the inventory that have not met the D,M.S. Phase-In Criteria, they will be automatically carry a Stocking Status of "Non-Stock". Thus, not calculated in the "First Time Off Shelf Fill Rate" calculation, unless the Parts Manager manually changes the Stocking Status to "Normal Stocking", which is recommended.

After all, any part that is purchased to replenish shelf stock should carry the proper status of "Normal Stocking", regardless of the source these parts where purchased from. We also have to insure that we are not receipting Special Order Parts that have not met Phase-In Criteria and get mixed into stock orders and receipted as Normal Stocking Parts.

Case in point, I met a Parts Manager that ordered and receipted ALL his parts on his Daily Stock Order, thus revealing 99.9% of his parts in inventory were considered Normal Stocking Parts in the D.M.S., which of course was inaccurate. No Customer Orders, no Emergency Purchases, no Lost Sales and no Outside Purchases...I had finally met the Perfect Parts Manager!

As you see, there are a LOT of factors to consider when accurately reporting and calculating "First Time Off Shelf Fill Rates". Proper ordering and receipting practices are the top two ingredients to get an accurate percentage.

Even though there is no 100% accurate way to calculate "First Time Off Shelf Fill Rates" due to all these variables, but we can definitely come with a very small margin of error that if we are consistent and honest in how we record information into the D.M.S.

We will always have those times when we have a Special Order part, (non-stock) that was never sold, sitting on the shelf and eventually sells on a "first time basis", but doesn't get figured into the First Time Off Shelf Fill Rate" calculation because it was a Non-Stock part.

Or maybe we ran out of a part that we normally stock and had to chase the part from an outside source, AND forgot to report the part as an Emergency Purchase resulting in an inaccurate sale considered into the "First Time Off Shelf Fill Rate" calculation.

In my opinion, the ONLY Fill Rate that we should measure is "First Time Off Shelf Fill Rates" as it is the only fill rate calculation that measures the Parts Inventory Performance as all the other fill rate calculations can be manipulated and give the dealer an inaccurate analysis of the parts inventory performance.

Having the right Phase-In Criteria that leads to the Proper Stocking Status of parts, and separating those Emergency Purchases in those "stock out" situations is the only way we can get close to an accurate "First Time Off Shelf Fill Rate". Doing the math ourselves along with common sense will give us our most important Key Performance Indicator.