In our May issue of ACG "Smart Parts", we focused on preparing our Parts Departments for and beyond Covid-19. Now, after months into this health crisis, it's time to see what we have learned and what the effects and results have been for "Smart Parts" Managers and more importantly, the effects on the parts department.
Also in our May issue, we highlighted our "Top 10 Action Items" that parts managers should prioritize in preparation for Covid-19 and beyond. These action items have already played a key role in what we are seeing now, just three months later, since our May issue.
In general, the effects this virus has had on our industry is quite staggering, from the manufacturers, automotive vendors and of course, each one of us in all aspects of our lives. Some of these effects will be temporary, although, some may change our industry and our lives for many years to come.
In my opinion, even though these effects and results from Covid-19 have obviously been negative, there has been some positive effects and results as well. In some ways, this pandemic has forced us back to our roots on managing the basics in all departments.
In this issue of ACG "Smart Parts", we will look at what we have learned these last three months since we prepared ourselves back in our May issue. Believe it or not, there has been more damage done to our parts inventory than you might expect.
Manufacturers limited availability, supply chain issues, delivery issues, factories and warehouses closing, etc, have all contributed, (and still contributing) to the overall "trickle down" effect of reducing our abilities to be profitable while still trying to provide the products and services our customers expect.
We've all heard the term..."One thing leads to another"...and in the area of the parts department, that term is more evident than one might think as we "drill down" the "trickle down". In this process of measuring the effects, and/or results from Covid-19, we should all ask ourselves this one question....
"What have we learned and what are we doing about it?"
Let's look at some of the effects and results over these past several months. These results are from my own experiences over the last three months, working, training and coaching many dealers through this pandemic. Keep in mind as we walk through this "drill down" that time moves on no matter what happens and parts age, no matter what happens.
Believe it or not, in just three months, which is one "parts cycle", ALL of our parts inventories have increased obsolescence, no matter how well we were managing obsolescence prior to this health crisis. Sales movement has been shifted automatically one level lower.
First, let's look at the industry guidelines for Sales Movement:
Sales Movement 0 - 3 Months: Industry Guideline - 75%
Sales Movement 4 - 6 Months: Industry Guideline: - 23%
Sales Movement 7 - 12 Months: Industry Guideline: - 2%
Sales Movement Over 12 Months: Industry Guideline: - 0%
The one thing that we all have to agree on is that managing parts is all logic..."black & white", it's all math, algorithms and most important, there are no opinions, it is what it is. We can look at these above guidelines and know for a fact, lower sales during this crisis will impact our Sales Movement over time.
After evaluating many dealership parts departments since this all started, the last six months, (two "parts cycles") EVERY dealership parts department has had a "downshift" in all four sales activity categories. Especially in the last two categories, seven months and beyond.
So, what does this all mean?
Basically, it means we have a problem as if we didn't have enough obsolescence before this crisis, we have now increased it by 10% - 15% in these dealerships that I have evaluated. Even though individual dealerships numbers all over this country may vary, this evaluation sampling has revealed some interesting results.
This is where the "trickle down" effect starts as not only did our sales suffer since the beginning of this crisis where we couldn't generate the expected sales and gross numbers, we now have increased our cost of doing business and freezing up more assets.
On top of that, many dealership parts managers couldn't even get many parts they did need from their manufacturers due to plant closures and had to buy from other sources at a higher cost, just to fill their customer needs, all of which resulted in a negative, "trickle down" effect.
Now, as I mentioned earlier, there were some positives from these effects as some dealers were actually able to "rid" themselves from some of their overstock quantities and obsolescence due to this crisis. Parts that were not selling with slower sales activity were now moving again.
Plant closures and parts source reductions forced parts managers to use many parts locator systems to find their parts at other dealers, whether for their customers, or even to replenish depleted stocking quantities. Even if they had to pay more, they still had to provide for their customers and in many cases, added fees were passed down to the consumer.
Another area that has been impacted heavily from this pandemic during these dealer evaluations is our Dealer Management System's, (D.M.S.) posting & receipting practices. The impacts have "trickled down" to even our basic Accounting Practices.
Stock Order receipting became Emergency Purchases receipting, adjustments for additional costs of parts purchases were not being accounted for, Lost Sales not being reported, Outstanding Orders not being cancelled or deleted impacting future suggested orders, lack of proper management on back ordered parts...the list goes on and on.
Let's take a look at some of these areas of normal, regular, daily routines that have been impacted and disrupted our lives as parts managers. Keep in mind, changing our normal daily routines as parts managers will have an impact going forward if we don't fix it now.
Ordering & Receipting Practices
The simple procedure of ordering parts and receipting parts during this pandemic has simply been disrupted and changed. Parts that we would normally order for stock replenishment, whether through the manufacturers Vendor Managed Inventory, (V.M.I.), or even through our own D.M.S. has been disrupted.
Many parts managers are trying to reorder parts to replenish stock and when they receive the back order, or cross ship answer back with no scheduled delivery date, they are forced to seek other sources. Problem is, many parts managers who order from other resources, tend to receipt these normal stock order parts as Emergency Purchases, or perhaps Other Purchases.
This in itself will disrupt the D.M.S. and send false signals on Stock Order Performance, First Time Off Shelf Fill Rates and Parts True Turn. No matter where we buy our parts to replenish stock, they always need to be receipted as Normal Stocking Parts.
The source of where we buy our parts to replenish stocking levels does not determine an Emergency Purchase. This is crucial and perhaps a little difficult to understand, but in normal circumstances, Emergency Purchases should only be recorded on parts we run out of and have to chase down for a customer.
The key thing to remember here is if I'm chasing down a Normal Stocking Part that I ran out of for a customer, which is an Emergency Purchase...OR!...if I'm chasing down a Normal Stocking Part to replenish stock because I can't get it from the manufacturer...it's still a Stock Order Receipt. Just because the vendor changed, the reason didn't, therefore it's still a Stock Order Receipt.
Lost Sales Posting
Since this pandemic began, many of the dealership parts departments have pretty much stopped posting Lost Sales. In one sense, I can understand with all the confusion and the prime focus becoming..."Just get me the part no matter where you have to go!"...normal process and procedure seems to go by the wayside.
In all actuality though, this is one area that we really need to hold firm and stick to our guns. After all we are not talking about those parts that we already stock and ran out of because of restocking issues, Lost Sales Reporting is key on those parts we never had and we need to record that demand.
We also have to remember that people, pandemics, customer affordability, time of year or any other objection does not determine a Lost Sale....the vehicle does. If the vehicle needs it, whether it gets done or not, that's a demand and requires the posting of a Lost Sale, if not sold.
Lastly, let's keep it simple...there are only two reasons why we don't have the part...either we never stocked it because it hasn't met Parts Phase-In Criteria, (Post Lost Sale), or...we ran out of a Normal Stocking Part that has met Phase-In Criteria, (Emergency Purchase). Both are crucial and need to be recorded appropriately and accurately.
Recording each Lost Sale and Emergency Purchase accurately will allow "Smart Parts" Managers to reduce "run out" situations while posting more demands from Lost Sales to bring in those new parts that our customers need at the right time.
In my opinion, this category alone has had the most overall impact and perhaps still continues and many parts managers don't even know it. Outstanding Orders in my recent evaluations has skyrocketed since this whole thing started and for good reason.
Obviously, with plant shut downs, "forever" back orders, cross ship parts, delivery issues, vendor issues...the list goes on and on resulting in higher than usual Outstanding Order numbers on our D.M.S. Management Reports.
Here's the problem and why I say this category has had the most impact....
If we do not "relieve" those Outstanding Orders with proper receipting practices, meaning if I manually receipt parts that arrive without "relieving" that particular order control number, it will still remain "outstanding" on the D.M.S. even though that part was technically receipted.
The reason this is more evident now is because many parts are arriving weeks and perhaps months after they were ordered so many of these parts get receipted "manually" with the original order or control number omitted.
Another reason for Outstanding Orders rising is because we haven't received the part that we originally ordered and eventually had to find another source to acquire the part, which is fine, but we need to "cancel" the original order for those parts.
Bottom line as to why this is huge...
The D.M.S. will not reorder, or suggest reorder of a part that it sees with Outstanding Order quantities pending, When you think about it, that makes sense as the system is basically telling us..."Why should I order more of the same part that you already have on order?"
In my opinion, we should clear out all Outstanding Orders over 30 days so we can allow our D.M.S. to do it's job when we run our D.M.S. Stock Orders, which I hope all "Smart Parts" Managers do. Don't just rely on your manufacturer to do your job for you. Even if a part does arrive from over 30 days, I can still track it down and receipt it manually.
This is also a category that has gone wild since the pandemic started and is still one of the hottest topics that I receive questions on today. With all the additional sources that parts managers have had to purchase parts, whether from other dealers or vendors, there is almost always a cost adjustment that has to be accounted for.
Problem is, many of these cost adjustments are not being properly accounted for all the way to the Accounting Department. Cost is cost when it comes down to billing out a part and if we do not make the adjustment on the repair order or counter ticket, then we have just started a Parts Reconciliation Nightmare with the Accounting Department.
Sad thing is in many dealerships today, they won't be aware of this issue until end of year when most parts departments perform their Annual Physical Inventory. Performing a "Monthly Parts Reconciliation" between the Controlled Inventory, (D.M.S.) and the Accounting Inventory, (Financial) is crucial and should be a normal, monthly practice.
If your dealership does not perform a Parts Monthly Reconciliation as opposed to one Annual Parts Reconciliation, I would strongly recommend to do a "trial run" through July because I can pretty much guaranty that this year especially will bring nightmares if you wait until the end of the year to try and reconcile the parts inventory.
Lastly, it's great to see in all of these evaluations that we are definitely on the upswing, climbing out of an event that none of us would ever expect, but we still go on, as we always do...we adapt and we move on in this industry that is ever changing and ever growing stronger each day, month and year.
So!...What Have You Learned "Smart Parts" Managers!...More Importantly...What Are You Doing About It?".....Stay Strong!
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...