Inflation in itself is an interesting topic that we are all familiar with as the economy is one of the biggest concerns for all of us in this country. It affects each and every one of us every day and "coping" with it is a struggle in itself. It's also one of the biggest topics, discussions and conversations that everyone can relate to.
On the receiving end of Inflation, we really don't have much we can do in the way of preparation as it's more of how we deal with it and make the necessary adjustments purchasing goods and managing our own expenses. Being "frugal" and watching our pennies is our primary means of preparation.
On the other hand, and from a retail perspective, we are on the other side of Inflation as a free market provider of goods and services, especially in the Parts Department. Preparation for Inflation takes on a whole different meaning as we have to consider many other different factors.
One might think that just adjusting our prices to Inflation is all we have to do as the "trickle down" effect takes center stage. After all, we just have to adjust our prices as our costs increase and then just pass the added cost down to the consumer to remain profitable.
In all actuality, it goes much further than that as just merely adjusting our prices to meet the added costs we incur is one of the last factors in preparing the Parts Department for these inflationary times. We have to have a different mindset with a "preparation to meet expectation" attitude and focus.
In this issue of ACG "Smart Parts", we are going to list out our "Top 10 Factors" in preparing the Parts Department for these inflationary times. Some might think that there can't be that many factors in inflation preparation in the Parts Department, but I believe that all these "Top 10 Factors" play a huge role.
We are not alone in the Parts Department as most other businesses that offer retail goods and services are going through the same thing, having to consider many factors in inflation preparation. As a matter of fact, and as we review our "Top 10 Factors", you may see that these factors may apply in any business.
We will review all these factors in order of importance from an ACG "Smart Parts" Perspective, starting with our Number One all the way up to our Number 10 factor in "Managing Through Inflation In The Parts Department". Preparation is also the key to success and if we aren't prepared, we won't meet the expectations.
We all know Inflation is already here and we have been dealing with it for a couple years now, but are we really prepared? Are we really considering all the right factors that we should be in order to not only survive Inflation, but succeed and prosper through it?
"What's Your Answers to These Questions?"
Let's Begin with our "Top 10 Factors" in Succeeding through Inflation!...
Number One: Goal Setting/Guidelines
First and foremost, and if we haven't done it already, we have to have a plan. We all know that we have to meet or exceed industry guidelines, but the bar has been raised as we mentioned last month. Dealers have been "raising the bar" over the last couple of years and to some degree, the demands have increased from the status quo.
Not only do we have to "raise the bar", most importantly, we have to communicate these new goals and guidelines all the way down to our parts employees as no one should be left out of the overall objectives. Everyone has to be on the same page and understand what each staff members duties & responsibilities are.
Number Two: Training
Parts Training has become more important than ever as I can attest to over these last couple of years from the Parts Manager down to counter staff, shipper/receivers and parts delivery staff. Every position is crucial from proper receipting of parts, posting Lost Sales and Pricing Policies.
Parts Manager Training on the Proper Set Ups & Controls on the D.M.S. in conjunction with the Manufacturers Vendor Managed Inventory, (V.M.I.), if offered, is crucial to understanding and maintaining proper Stocking Levels and the process of Phasing In the right parts at the right time.
If you don't know it already, Parts Counterpersons are "salespeople", and they have to be trained in selling skills. They have to also have a personality that accommodates the sales environment and be dressed appropriately to represent the dealer's profile.
The Front Parts Counter area needs to display accessories, apparel, etc. and have a "store front" feel to it to invite customers. It cannot have a "service counter" look to it and should be updated frequently with new products and displays as opposed to old, outdated accessories that just collect dust over time.
Number Three: Proper Staffing/Employee Incentives
Proper staffing in the right position in the Parts Department is key to providing efficient service to technicians and front counter customers. Technicians standing in line waiting for parts is a "Productivity Killer" as time is a perishable inventory.
If a technician is waiting for parts for even 15 minutes can cost $50.00 to $100.00 in parts and service sales that we can never get back. Unfortunately, many dealers under staff the counter staff based on sales resulting in Lost Service Productivity.
Parts employees should also have sales incentives as they are salespeople after all. Incentives based on Overall Sales, and/or Service Productivity promotes higher sales and team effort in increasing Service "Cycle Times". It also incentivizes the Parts Department to have the right part at the right time and much faster.
Number Four: Controlling Expenses
Controlling expenses is not a new thing, or is it any less important at any time, especially during these inflationary times. But what is more important now more than ever is reviewing our vendor invoices on a monthly basis. Most often times, we just pay the bill each month from the same vendors without batting an eye.
In addition, payables and receivable staff don't often communicate with managers on the bills we are paying each month. All Managers, and not just Parts Managers should authorize all semi-fixed expenses each month and "sign off" legibly so that there is no confusion as to what is being paid and who's paying for it.
Paying for employee overtime has also been an issue the last couple years between the pandemic and rising inflation. More and more dealers are cutting back on hourly and/or salary-based compensation as a means of controlling overall dealer expense as our employees are our biggest expense.
This can be a "Catch-22" though as we can't expense our way into profit in most situations and we don't want to cut our staff and hours too low where it effects overall sales and gross. We need to staff properly based on industry guidelines and in sales, our sales staff needs to perform as well to industry guidelines.
Number Five: Purchasing
This category of purchasing goes beyond just buying part in the Parts Department as we are referring to all purchasing controlled by the Parts Department. Sublet Purchases, Shop Supplies, Cleaning Supplies, Waste Oil & Hazardous Waste Removal, etc. are just a few of examples of the "purchasing power" of the Parts Department above and beyond just parts purchases.
That being said, there should only be authorized parts personnel that have the "power" to create and authorize a purchase order, whether buying parts or any other of the above examples. In addition, all purchases, invoices and purchase order numbers need to be "married up" for Accounting Reconciliation.
Parts purchases also have to be reconciled to ensure that the price we pay is the price we cost out on the repair order or parts invoice unless there are adjustments to be made in Discounts & Allowances to balance with the Parts Ledger Inventory in Accounting.
Number Six: Shopping Vendors
This category kind of "dove tails" into our Number Four on Controlling Expenses, but with a little twist. Not only should we be authorizing only what we purchase, we should also be "shopping" our vendors at least twice a year to keep them honest.
One example is that I just changed my Auto Insurance Company after being with them for over thirty years. The increases in rates over the last year have been astronomical and they just thought I would go along with it.
They took for granted that I had been with them so long and that I would just accept these crazy rates. The end result was a huge savings with a top insurance company with even better coverage. All I got for excuses from my previous auto insurer was..."prices are going up everywhere".
We have to do the same thing in our Parts Department as our dealer's "purchase agent". As mentioned, we need to keep them honest and shop, compare and barter with other vendors who are trying to make it through these inflationary times as well. You may be surprised at what some of these vendors may offer in order to get our business!
We just don't have to settle for the status quo when it comes down to spending the dealer's money. We just have to be diligent and do our homework and take the time to do the research. After all, and as in my auto insurance example, if it was your money...what would you do?
Number Seven: Stocking Levels
Some may feel that our Number Seven should have higher priority, but when you think about it, and other than our Number Four on Controlling Expenses, all the other factors have to come into play in order to properly manage our Stocking Levels.
One thing for sure that we all have experienced Supply Chain Issues over the past couple of years and to some degree, we still are going through it. That being said, it becomes even more imperative to have the right Stocking Levels while battling Inflation.
Not only the right Stocking Levels, but the right Stocking Levels on the "right parts" and that can only come from our D.M.S. with the Proper Set Ups & Controls based on the math and our own individual demand history from Sales and Lost Sales.
The last thing we need is to increase our Stocking Levels while adding to the obsolescence problem. We have to have the right parts at the right time while "Phasing-Out" the part that have no demand in over seven or eight months while we still have a 35% - 40% chance of selling those parts and not restocking them, unless they meet Phase-In Criteria all over again.
Number Eight: Controlling Obsolescence
This category just makes sense as a follow up to our Number Seven on Proper Stocking Levels. Obsolescence is also a category that is no stranger whether managing through Inflation or not, but what is different now is we cannot afford to hold on to it.
The IRS Standard Depreciation of any commodity or inventory is half of the cost of what is displayed on the D.M.S., which is approximately $.50 cents on the dollar. Acquisition & Holding Costs alone add up over the years and for the most part, the dealer has already made money on those obsolete parts over the years just on price increases alone.
The cash back from selling the obsolescence for whatever we can get can be reinvested on parts that sell, or "turn" several times a year on faster moving parts. Unfortunately, the old theory that many dealers still have today that "it has to be worth what it costs" is old school. These dealers still don't realize the ROI that can come from selling it for $.40 - $.50 cents on the dollar.
Lastly, we have to "stop the bleeding" and control obsolescence from happening in the first place which can come from having the right D.M.S. Set Ups & Controls along with an "In-House" Scrapping Program, (an ACG "Smart Parts Exclusive").
An "In-House" Scrapping Program also frees the dealer from the clutches, controls and dependency on the manufacturer for trying to build return allowance from purchasing more parts for that little bit of protection that never matches the obsolescence build up each year.
Number Nine: Pricing Policies
Wow!...we finally got to the meat!...our Pricing Policies to combat Inflation!...
Even though pricing is the final "end game" in battling inflation, we absolutely cannot have the "right" Pricing Strategies unless we do all of the above first. Developing the right Pricing Strategies while maintaining, or even growing our customer base is absolutely crucial.
The amazing thing is that developing the right Pricing Strategies is the easiest thing we can do because it's all about the math. The key ingredient to developing these strategies is our cost factors, as cost is constant. What we pay for parts is what we pay, and we have to structure our gross profit from "cost up".
We also have to keep up with our cost factors as most manufacturers have already had two major parts price increases this year alone. They are passing the ball down to us and we have to pass it on down as well to ensure our gross margins. Gross pays the bills, and we have to be able to afford our Number One Asset, which is our employees.
Developing and maintaining our Pricing Strategies is not a "set it and forget it" category as we need to review, modify and update, if necessary, each month to ensure our gross margins. We have to compare our results each month to industry guidelines and make the necessary modifications.
Number Ten: Accountability
Our Number Ten is the "glue" to all of our "Top 10 Factors" in our battle against inflation. Everyone, and I mean everyone needs to be held accountable to their Duties & Responsibilities. We cannot achieve our goals if we deviate from the process and dealer guidelines listed above.
Parts gross killers include discounting, price overrides, costing errors, pilferage, parts security, lack of training, housekeeping, accrued obsolescence, accounting errors, improper reconciliation, etc. and I could go on and on. We have to maintain control and accountability at all times.
As mentioned, parts is all about the math and if we don't achieve our gross numbers, then somebody is overriding the math, it's that simple. If we don't receive the results we expect, there has to be a logical reason.
Inflation is just another period in time that we have to adjust to. Getting through it and prospering through it are two different things....
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...