Tuesday, February 9, 2021

February 2021: The Five Steps To Taking "Ownership" Of The Parts Department

Welcome to ACG "Smart Parts" for February 2021, our second issue of the New Year. In this issue, we will be taking a different look at how we need manage our Parts Departments going forward and beyond the Covid-19 Pandemic. 

In my opinion, the Covid-19 Pandemic has taken many Parts Managers, and other dealership managers for that matter, out of the normal comfort zones and complacency. That being said, I believe it's time to put a different spin on how we manage our Parts Departments.

Imagine if you will that you are no longer the Parts Manager of the dealership and you are actually the owner of let's say "Bill's Auto Parts Store". You are no longer a part of the dealership chain of individual businesses within a business. You are no longer tied into the other departments and you are now a "stand alone" business.

Even though in this analogy you may not be affiliated with the vehicle manufacturers, even though you may be affiliated with other corporate vendors such as Napa, Autozone, O'Reilly's, etc., which we could consider as the vehicle manufacturer in this "Ownership" analogy. 

You no longer have to deal with Service Managers, Collision Center Managers, Office Managers, or even the owner anymore because "you are it". You run the show and you are responsible for operating a "stand alone" business entirely on your own.

Some things wouldn't change though as you will still have to get up each day, deal with the "ins & outs" with different customers, answering phone calls, computer systems and working with employees, ordering parts for stock and customers, only this time, they all work for you.

In my opinion, now that we have a consensus of where we are going with this "Ownership" analogy, there has to be some questions that perhaps we never considered in the past in our roles as Parts Manager and not necessarily "Ownership".

We would perhaps ask the initial question on what we may do differently, but more specifically, we would perhaps ask ourselves a few more questions such as...

"What Are The Risks Of Ownership...Both Assets And Liabilities?"

"Will I Be Able To Pay Stock Replenishment Bills From The Vendor?"

"Will I Be Able To Pay The Bills, Get A Paycheck This Week For Myself And My Employees?"

"Do I Have Too Many Employees, Or The Right Employees?"

"What About Parts That Are Going Obsolete, How Will I Protect Myself?"

These are just a few questions that I know that I would be asking myself and probably quite a few more. Just from these questions above, I believe "Smart Parts" Managers are now seeing a different light of where we are going with this analogy of taking "Ownership".

In our current roles as Parts Managers, we don't have to ask any of these questions because these responsibilities fall on the dealer owners and we don't have these risks or liabilities, but perhaps we should and here's why...

First of all, in most dealerships today, the Parts Inventory is the second highest dealer asset next to the Used Vehicle Inventory. That in itself is reason to take more "ownership" because, if not managed properly, it can put the dealer under water.

The Parts Manager and the Used Vehicle Manager are the two people that could put the dealer out of business if these assets are mismanaged. The "mind set" of taking ownership has just begun in our analogy.

Now, we need to ask ourselves the biggest and most important question of all...

"How Can We Take Ownership Of The Parts Department?"

Let's get started...

 Step One: "It's Your Money!"

First and foremost, it's your investment and as a business owner, you are in it for a reason and that reason is profitability. You are in it to make money and further your careers, family, life style and with that comes the risks of ownership.

The inventory investment has to provide this profit so you have to make sure you have the "right parts at the right time", (where have I heard that one before!). You also have to be able to afford it when it comes down to managing expenses, assets, personnel and the "bottom line".

Some other differences from being the Parts Manager to being the owner is how you buy, what you buy, your pricing strategies, and the biggest one in my opinion is how you service your customers. As a business owner, you are now in the front line with your customers.

As a Parts Manager, we are, for the most part, behind the scenes and primarily, not dealing directly with the customer as most customer interaction in most dealerships is done in the Service Department, Sales Department, or Collision Center.

The only exceptions would be Counter Wholesale and Retail where we do interact with customers directly and ironically, in these two areas, and in many Parts Departments, we seem to be more willing to give discounts, resulting in lower profitability.

In many Parts Departments today, the "over-the-counter" Retail Sales Gross Profit Margins are lower than the Customer Pay Repair Order Parts Retail Gross Profit Margins, which should be the same. If we were in our "Ownership" mode, would we be discounting those parts just because they are "face-to-face" customers?...Probably Not!

Step Two: Parts Purchasing Guidelines

Here's another big one when considering our "mind set" between being the Parts Manager opposed to being a business owner. As a Parts Manager, we may be dealing with many manufacturers' that require us to maintain certain compliance levels on parts purchases. As a business owner, we just may have a different "mind set" on what parts we actually purchase to stock on our shelves.

Even though Corporate Vendors such as Napa, AutoZone and O'Reilly's may also have Stocking Policies and perhaps a better Return Policy, we still have to pay that parts bill at the end of each month. whether as a Parts Manager, or a Business Owner.

So, I guess my question here is....

"If I'm paying the parts bill, whether as a Parts Manager, or a Business Owner...would I buy parts just to have them sit there, or would I be buying parts that are going to sell?"

It just seems that when we are in the role of Parts Manager, we never seem to get the big picture. If we aren't the ones actually paying for those parts, we tend to be complacent with whatever the manufacturer wants us to stock, even though it's so called "protected".

Maybe if we were the ones who are actually signing those checks to our parts vendors, or the manufacturer, we just may have a different take on what we stock, whether protected or not, that's cash flow going out.

That being said, we may also want to "trust" our own Dealer Management System, (D.M.S.), with the proper settings of course, more than we trust someone else with our money, in this case, the manufacturers, or corporate vendors.

With that in mind...this leads right into Step Three...

Step Three: Protecting The Investment

"Ownership" really takes the front stage in this category if you are an "owner" versus being a Parts Manager. The parts inventory investment now becomes the most critical asset and the performance of this asset even more critical. 

As a business owner, your assets and liabilities come to the forefront and the performance of this asset and the lesser the liability will determine the success of the business. No longer will these assets and no longer will these liabilities fall on the shoulders of the dealer. You are now in the forefront of all ramifications, whether positive or negative and no one but you will assume the risks.

That being said, and if you are responsible for the asset of the parts inventory, you need to protect this inventory asset. Now, we again may look at things differently from the Parts Manager side versus the "Ownership" side because now...it's your asset.

As a Parts Manager, do we look at protecting the dealers asset like we should?...are there open doors to the Parts Department?...can technicians walk in and out as they please?...are the back doors to shipping and receiving secured?...are parts going out the back door without accountability? 

Housekeeping is another issue when thinking about taking "Ownership" of the Parts Department. Once again, if you had your own store and you had "Ownership"?...would you tolerate what you see in your own Parts Department as a Parts Manager?

Here again...if you are a business owner, would you let these basic security issues go unattended? Of course we wouldn't, but it's amazing how many dealership Parts Departments that I have visited even recently in the last year or so that literally have no security when it comes down to protecting the investment.

Unfortunately, the reason for this lack of security and investment protection is simply because the Parts Manager is not directly liable, or held accountable. Sorry to say, but it's true and if you had "Ownership" of this parts inventory asset, this would never happen.

Another thing that should never happen in taking ownership as opposed to just being the Parts Manager is obsolescence. As a business owner, in my opinion, I would never tolerate parts obsolescence as the acquisition and holding costs, frozen assets and lost profits would threaten my existence in business.

Turning inventory, which leads to profitability is what it's all about when you have an inventory, whether parts, clothing, electronics or any other type of inventory. It's all about turning that inventory, no matter what the inventory in order to make a profit and lower your liabilities while keeping your assets liquid. 

So, as a Parts Manager, should we just keep on trusting the manufacturer with your inventory asset, or should we take more control of that parts inventory asset and making sure that our D.M.S. Set Ups & Controls are working the way they should?

After all...what did we do before we had all these Vendor Managed Inventories, (V.M.I.'s) offered by the manufacturer? Did we not create our own Stock Orders on our own D.M.S.? Did we not fall into the trap of letting the manufacturer control our Stock Orders?

More importantly...and if you had ownership and if you were a private business owner of your own parts business...would you ever let someone else control you inventory asset and cash flow? The answer to that one is..."I think not!"

Step Four: Financial Responsibility

We mentioned earlier about the initial parts inventory investment, turning the inventory, managing assets, expenses and the overall responsibility of "Ownership" and running a business, but if we are to be a business owner, we need to know the basics of managing a Financial Statement and Basic Accounting.

Unfortunately, many of today's Parts Managers lack basic Accounting and Financial Training, which I put the blame solely on the dealer. After all, and as I mentioned earlier, Parts Managers and Used Vehicle Managers are primarily the only managers that can put a dealer out of business.

These two managers control the two biggest assets in dealerships today and next to the Office Manager, or Comptroller, should be the two most trained managers in the area of basic Accounting and Asset Management without question.

If you look at how Parts Managers got their positions today in the first place, you will find that they ended up in their position because of tenure in the Parts Department, or perhaps they were the next in line, or even someone from another department that has been a loyal employee.

It's sad, but true, especially when you consider that this position as Parts Manager is one of the most critical positions in the dealership, even though many dealer owners may disagree because of overall dealer sales and profits...after all...Parts Is Just Parts!

In my opinion, the Parts Manager and Office Manager should work "hand-in-hand"  and have the same training in Dealer Accounting. They should be "cross-trained" in many areas such as Parts Sourcing Integration, Sales & Cost of Sales Accounting, Parts Inventory Reconciliation, Inventory Ledger and Controlled Parts Inventory Balances.

I'm quite sure that if we had "Ownership" of our own parts business, we would be well trained and up to speed on Basic Accounting, "Checks & Balances", Financial Statements, etc....which leads to my next question which is...

"Am I A Business Owner Or A Parts Manager?...Or, Should I Be Both?"

Step Five: Training

Even though it's our Number Five Step...I can't understate how important Parts Training is. Think about it...if you had "Ownership" of your own parts store, would you think that having the right staff with the right training was important?...of course!

We would definitely want to employ a staff that was properly trained, with the right parts knowledge and most importantly...retain them and pay them according to their skills and abilities. I would also want to "incentivize" them because...believe it or not...they are in sales!

How different is that concept?...As Parts Managers, how often do we think about incentivizing our parts staff? In most dealerships today parts employees are paid a salary, or hourly with little incentive, or bonus. Most are just "punching in & punching out", collecting a paycheck and working the clock.

If you had "Ownership" of  "Bill's Auto Parts Store", would you rather have your employees selling, or just putting their time in, punching in and punching out each day? In my opinion, this is something to consider when taking "Ownership" of the Parts Department.

Another point to consider in this area of training is...

"Are We Training To Grow, Or Are We Training For Show?"

Quite simply...if we are a business owner, we should always be training to "grow" the business, and not so much training someone "for show" just to fill the position. After all and once again...if I'm the Parts Manager and not the business owner...the dealer is paying for this position and not me. 

In my opinion, training is the key to successful "Ownership" as we can't do it alone and people are our biggest asset. More importantly, and as a business owner, we all need to "do our job" and hold each other accountable. 

We are in the retail business and there are no guarantees, subsidies, grants, or charities that will supplement our industry. We sink, or we swim and the strong once again will survive, even during and beyond a pandemic.

It's time to take "Ownership" in our roles as Parts Managers and manage the Parts Department as if it were our own and provide our dealers the support they need from us, especially in these times. After all, the strong will prevail and will grow stronger going forward.

  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...







Sunday, January 3, 2021

January 2021 - An ACG Smart Parts Perspective: Parts E-Commerce Going Forward

Welcome to 2021 and our 130th Edition of ACG "Smart Parts!"

First and foremost, ACG "Smart Parts" wishes all of our readers a very safe and prosperous New Year. As we "hopefully" wind down from the Covid-19 Pandemic, we look forward to new horizons along with new opportunities in 2021 and beyond.

Our first issue of the New Year will be focused on a topic that is not new, but as time goes on, E-Commerce Marketing is becoming the "new wave" going forward. Even though E-Commerce has been out there for approximately 30 years, it has grown even stronger in the last 10 years.

In my opinion, even though many of us have heard or have been well aware of this new phenomenon, many also don't really know enough about it or have a clear understanding of what it really is or means. Even though some are already active, or have participated, we still may not have a clear understanding.

In this issue of ACG "Smart Parts", we will go into the details of E-Commerce and how it really works. Also, we will look at the inception and history of E-Commerce, and perhaps most importantly, we will define and interpret it's true meaning.

We have gathered data from various industry analysts and "bloggers" to break down E-Commerce Marketing along with our own perspectives here at ACG "Smart Parts". With this combined research and perspective, we hope to provide our readers a better understanding of how it all works.

First and foremost, we will start out with the history of E-Commerce and then move onto the definition from industry analysts. We will look at the E-Commerce industry in general and how it relates to the parts industry.

Our definition and breakdown comes from semanticsscholar.org with their great article titled; "The History of E-Commerce", written by Yan Tian, from the University of Missouri and Concetta Stewart, from Temple University and reads as follows;

"E-Commerce or Electric Commerce, also known as E-Business, refers to the transaction of goods and services through electric communications. Although the general public has become familiar with E-Commerce only in the last decade or so, E-Commerce has actually been around for over 30 years"...

They go on to say...

"There are two basic types of E-Commerce which we may or may not be familiar with. The first is "business-to-business", often referred to as "B2B" and the second is "business-to-consumer", or referred to as "B2C".

Another definition comes from a recent blog from www.nChannel.com, which defines E-Commerce as follows;

"E-Commerce encompasses any commercial transaction that involves the transfer of information across the internet".

Now that we have a basic definition, it's time to move on to how E-Commerce plays a huge role in the automotive parts industry and more importantly, how does it affect the everyday Parts Manager in our automotive dealership today.

Are you ready "Smart Parts" Readers?...because "Here We Go!"

First and foremost, in order for us to put all this into perspective in our world, we have to know how E-Commerce has entered into our automotive parts market. Our first clue comes from an E-Commerce website that deals in automotive parts in general in the aftermarket.

The website is "websitemanager.com" and here are some of the "features and benefits" while shopping for auto parts at their website;

  • Individual Year/Make/Model Lookup
  • Mobile Friendly Design
  • Guided Searches Which Allows Filtering & Keyword Searches
  • Automatic Data Updates
  • Affordable Pricing

If you think about it, the one thing that has kept us separate from the rest is "cataloging". Sure, price can be an issue when we talk about competition, but we have always had the "goods" because we would have to look the parts up in order to get the part number in the first place.

Now, cataloging has pretty much gone public and the everyday parts entrepreneur can go online with their computer or smart device to look up their own parts. This leaves the only a few items left, which is cost, availability and how quick can I get it.

With the exception given to those manufacturer specific, dealer only applications that only a true parts expert can handle, (which I know many and truly respect), the majority of parts applications can now be researched by pretty much anyone who has a computer or smart device.

And this, in my opinion is where E-Commerce comes into play in our automotive parts industry from a manufacturer and dealership standpoint. With the partnership of E-Commerce Platforms, along with the manufacturer, and dealership encryption rights, it has all become "full circle".

Automotive dealerships can now sign up with an E-Commerce company that can bring more opportunity to reach a much bigger market than ever before. With affordable E-Commerce pricing, automotive parts departments can expand their sales and gross profit opportunities.

Not only that, automotive dealerships can also utilize these E-Commerce companies to reduce and perhaps rid parts obsolescence entirely. But like anything else there comes that old proverbial phrase which is "risk versus reward".

Dealership Parts Call Centers are also expanding due to E-Commerce websites, or perhaps even with their own E-Commerce websites to increase their marketing platforms. Volume parts sales has definitely found a partner with the concept of E-Commerce.

Question: "What Are The Risks And Rewards From E-Commerce?"

To me, this is what it all boils down to...when we consider the investment, the cost of maintaining the investment, turning parts inventory, profit margins and overall profit...is E-Commerce the way to go? Let's look at some of these "advantages and disadvantages" of E-Commerce;

Once again, our research comes from www.nChannel.com and we appreciate their contribution to this month's article...

Let's start with some of the Advantages from E-Commerce Marketing...

  • Fast "Go To Market Time"
  • Low Start Up and Monthly Costs
  • Shoppers Shop Online First Up to 87% Of The Time
  • Ability To Target Specific Customers 

Disadvantages from E-Commerce Marketing...

  • Lower Profit Margins
  • Operating on "Rented Land", (i.e. operator rules, additional fees)
  • Higher Competition
  • Added inventory costs, (i.e. acquisition and holding costs)

The bottom line is that most shoppers are doing their shopping, searching, and comparing before they buy most products and services. The result is that in order to be "profitable" utilizing E-Commerce, volume has to be first and foremost, much like front end vehicle sales.

This means that we have to have a different perspective when comparing overall gross dollars versus retained gross percentages. After all, we can't spend a percentage, but we can spend gross dollars and that's the difference in my opinion with E-Commerce Marketing.

Speaking of price, I believe that there will be an "added" pricing level moving forward. In other words, when we look at our pricing policies, including the manufacturer, we always see a Suggested List Price, Trade Price, (Wholesale) and a Cost Price.

With E-Commerce, I think we can also add another price in that equation, which would be much like a "Distributor Price" which would lower gross percentages across the board. Now, we have to consider, perhaps new guidelines between List, Trade and Cost by adding another pricing level.

Current guidelines dictate that Retail Retained Gross Profit Margins at 40%-42%, 23% for Trade, or Wholesale with Cost as the constant. Now, with E-Commerce, higher competition, demand and higher volume, these guidelines that we have used for years may have a much lower retained gross percentage expectation moving forward.

With E-Commerce added into the mix, it wouldn't surprise me if the wholesale parts gross retention percentage guideline of 23% moving even lower if E-Commerce comes into play with the added customer reach and higher competition.

Or maybe, the wholesale parts gross retention percentage guideline stays at the 23% we are all familiar with and another parts gross retention percentage guideline is added at perhaps 15% for "volume parts" dealers that achieve specific sales numbers and levels that qualify and meet criteria in parts wholesale.

If this perspective becomes reality, this is where, in my opinion, those that do "dive into" E-Commerce for increased sales volume and the added "back end" money need to consider the added costs and risks that we haven't even mentioned yet.

The one key element that has to be considered is Inventory Gross and True Turns. If we are actively involved in Parts E-Commerce, the parts inventory must turn at industry guidelines or better. After all, purchase discounts posted into the "Discounts & Allowances" line on the dealer's financial are actually never realized until we sell the parts.

In other words, if I were to purchase a part that normally costs $10.00 for $8.00, resulting in a $2.00 discount, I never really receive that additional $2.00 profit, or discount until I sell that part. If that part doesn't sell, it would just result in a $10.00 increase to my parts inventory asset and a fictitious $2.00 profit of my financial.

If the parts inventory doesn't meet annual parts turn guidelines, acquisition and holding costs have to be considered into the "risk versus reward" category. Acquisition and holding costs are often overlooked as they don't appear on any financial page. Current industry acquisition and holding costs, (for any type of inventory) can exceed 25%-30% of the total inventory value annually.

On the other hand, this actual "back end" money can be realized as money back to the dealer when incorporated into the overall dealer's incentives offered by the manufacturers including front end sales and if all compliance levels have been met in the front and back end.

One last key element to an E-Commerce partnership, or developing your own E-Commerce website is "flow through" which includes Parts Call Centers, Warehousing and Distribution to meet customer demand. Availability, Delivery Efficiency and Customer Service will always lead over pricing, even though price plays a huge factor.

Amazon Prime is a great example of Customer Service and Availability as many of us experienced through the holidays and all the way through the Covid-19 Pandemic. They maintained all the key elements to a successful E-Commerce Business while always expanding their customer reach.

Here are some key questions, in my opinion that should be considered before "diving into", or venturing into E-Commerce Marketing....

  • How much sales volume would have to be obtained to make it profitable?
  • What would be the "True Cost" of Parts E-Commerce Marketing?
  • What factors need to be considered when measuring this "True Cost"?
  • How much is it costing to hold and maintain this added inventory?
  • Is this E-Commerce profit "tangible", or just discounts that we don't see until these parts sell?
  • Who are we competing with and what customers are we trying to reach?

In my opinion, volume will be the key in the successful E-Commerce Marketer as the old saying or term that relates to "risk versus reward" may now become "risk versus reach" because E-Commerce will require a much bigger and wider market base in order to benefit and achieve desired profit levels.

"Who's got it and when can I get it?" will be the future with price coming in third in this new race into this new decade. Having the right part at the right time has always been the key. Now, the new focus will perhaps be..."Who's got all the parts all of the time?"...

One thing for sure and in my opinion will never change, no matter what technology brings, or how the internet has expanded us globally, and that is "delivering the customer promise". Competition and expanding markets will always grow, and even if demand increases, the customer remains the same.

2021 is here "Smart Parts" Readers!....Let's Get Busy!