In this issue of ACG "Smart Parts". we will continue with a theme, although similar to last month's theme of "The Lifespan of a Part Number", we will actually break down that "Lifespan of a Part Number into different stages, which is referred to as "Parts Life Cycles".
Much like our own lifespan where we tend to go through different cycles, or "stages" of life that consists of "peaks and valleys", "good times and maybe not so good times", and times in our lives where we are more active than others.
The "Parts Life Cycle" is very similar over the course of the "Lifespan of a Part Number", which we featured last month. In continuing with last month's theme, we will actually break it all down and transform these different "Parts Life Cycles" as how they tie into our current Industry Guidelines on Parts Inventory Management.
Managing the Parts Inventory much like any other department in today's Automotive Dealership requires a certain skill for sure. Although, when it comes down to managing the dealers' assets, only the Sales Department and the Parts Department are involved.
That being said, and as in the Sales Department, certain Industry Guidelines are applied that do not affect other dealership departments. But when you break it down even further, managing the Parts Department Inventory gets even more complicated and involved as compared to managing the New & Used Vehicle Inventories.
Managing the New & Used Vehicle Inventories involves a much shorter "lifespan" and fewer "life cycles". It would be kind of like comparing the lifespan of a fly compared to our own lifespan as the fly has a much shorter lifespan.
Therefore, the fly is less likely to have as many "life cycles" as we have in our own "life cycle". Thus, the "Parts Life Cycle" stands alone in comparison and requires their own specific measurements and guidelines as to how we manage the dealers second highest business asset.
The "Lifespan of a Part Number", as we discussed last month is broken down into "Parts Life Cycles". As "Smart Parts" Managers, we have to maximize these "Parts Life Cycles" in order to "turn" the Parts Inventory to Industry Guidelines.
"So What Industry Guidelines are Directly Impacted by Parts Life Cycles?"
As we go through our own lives and our own life cycles, one thing is for sure is that there will be change in each life cycle. Much is the same for parts as there will be "peaks and valleys", but in the case of the parts life cycle, we have more control of how we shape that "Parts Life Cycle".
As opposed to our own "Life Cycles" where we may not have as many choices, in Parts, we can choose our Stocking Levels, our Pricing Levels, and we can choose when and how much of a part we want to stock during these "Parts Life Cycles".
As we mentioned earlier, the "Lifespan of a Part Number" is broken down into "Parts Life Cycles" that are "governed" by a certain number of Industry Guidelines" that will help us maximize our parts sales and gross profits over the course of this parts lifespan.
All this being said, we now have to ask....
"What is a Parts Life Cycle Anyway?...and How Are These Life Cycles Measured?"
The first answer to the above two questions is a "Parts Life Cycle" is measured in 90-day periods, or three months. That doesn't mean that the part is only alive for three months, it just means that a "part" cycles through or cycles out every three months.
We will provide evidence of this as we go through the following Industry Guidelines and how they revert back to these three-month periods. Whether the part is "phased-in", or "phased-out", these cycle times play a huge role in the overall "Lifespan of a Part Number".
Number One: Parts Phase-In
The first "Parts Life Cycle" measurement, or Industry Guideline starts with the Parts Phase-In Criteria. Normally, parts are "phased-in" by a number of parts demands, usually 3 hits over a course of 3 different months over a certain number of months, usually 3, 6, or 9 months.
Here is our first bit of evidence of the 3-month Parts Cycle of every 3 months. In other words, parts "cycle through" every three months, or "trimester". Once total parts demand meets the initial phase-in criteria, it now has to survive the next "Parts Life Cycle".
Number Two: Parts Sales Activity
Parts Sales Activity Guidelines are another piece of evidence of the "Parts Life Cycle" periods of 90 days, or three months. Industry Guidelines for Parts Sales Activity starts with 0-3 Months, 4-6 Months and then 2 cycle periods in the 7-12 Months Sales Activity.
Although, Industry Guidelines have been recently updated in the first two Sales Activity, combining the 0-3 Month Sales Activity and the 4-6 Month Sales Activity into one Sales Activity range of 0-6 Months. Once again, measurement guidelines in 3-month, or 90-day increments.
Each Sales Activity segment with Industry Guidelines of 85% in the first 0-6 Month Sales Activity, then 10%-15% in the 7-12 Month Sales Activity, then finally 0%-5% Over 12 Months Sales Activity. Over 12 Months Sales Activity is also measured in 3-Month Increments in many Dealer Management Systems...12-15 Months and so on.
Number Three: Seasonal Parts Sales
Another bit of supporting evidence to these 3-Month "Parts Life Cycles" are Seasonal Parts Sales, even though seasonal parts sales may not be the same everywhere. Even though that may be true, parts demands do tend to follow a seasonal trend, regardless of yearly temperature swings.
In other words, no matter where you are, summer is summer, and winter is winter, and we tend to see more seasonal sales in the peaks of these seasons. It may just be that some experience more demand than others depending on the location.
Number Four: Parts Phase-Out
Once the "Lifespan of a Part Number" reaches its final "Parts Life Cycle", it is extremely important to "let it go". Parts Phase-Out is also triggered in stages of 3-month cycles as previously mentioned in our Sales Activity segment.
Once a part reaches that "In-Active" point of either 6 months, or even 9 months, the chances of selling those parts drops drastically. To the point that if a part does not sell after 6 months, it's a 50-50 chance that it will never sell again.
At 9 months, pretty much a 67% chance it will never sell again, and then finally at 12 months, pretty much a 100% chance of no future sales. Once again, statistics carried in 3-month intervals.
Number Five: Gross & True Turns
Even though Gross & True Turns are measured annually, we always tend to break down each year into "quarters"...first quarter, second quarter, third and so on. Even Gross Domestic Product, (GDP) is measured on a quarterly basis, or every 90 days. Most businesses are measured and forecasted in 4 periods of 90 days, or every 3 months.
Annualized Gross & True Turns are key factors in determining how well the dealers Parts Asset is performing from an investment standpoint. It's also an indicator of how "fluid" the asset is, and how much the asset is truly worth and profitability potential.
All in all, managing the Parts Department and the dealers' number two asset requires the knowledge and skill in managing every part. From the time it's born, through the "cycles of life" and throughout the parts "lifespan" in order to maximize the investment.
If we do this, we will be more able to provide the "right part at the right time" through the "peaks and valleys" in the life span of a part number. Much like our own lives, we have to enjoy life while we can and make the best of all our opportunities.
"Everything Goes in Cycles...So Does the Life of Today's Automotive Part..."
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...
