Many Dealers today are actively involved in various National 20 Groups whether NADA, NCM, or perhaps others. One thing for sure though whether they are or are not, they all have expectations, or "guidelines" that we all have to measure up to.
These "Industry Guidelines" are set for every dealership department and the Parts Department is no exception. In March of this year, we actually "drilled down" our Parts Industry Guidelines.
We went through all of these Parts Guidelines as well as providing the definitions of each one. We also touched on how many of them are related and how they tend to "trickle down" in measuring our overall Parts Performance.
What we did not focus on in March was how important it is to have the right numbers in the first place before we even start to compare and measure these Parts Industry Guidelines. After all, if our initial Parts Setups & Controls aren't accurate, there's no point in trying to "measure up" to our Parts Industry Guidelines.
In my opinion, there is one Parts Category that is Number One in determining so many Parts Industry Guidelines and that one is "Parts Stocking Status". In this issue of ACG "Smart Parts", we will go through all the Parts Industry Guidelines that can be impacted by Parts Stocking Status.
First, let's list out the Parts Categories & Industry Guidelines that can be impacted by our Parts Stocking Status. Keep in mind when I talk about "Parts Stocking Status", I'm referring to what parts are considered Normal Stocking Parts, Non-Stock Parts, Active Parts and In-Active Parts.
- Normal Stock Parts in Inventory: 75% - 85%
- Non-Stock Parts in Inventory: 15% - 25%
- Stock Order Performance: 75% - 85%
- Overall Off Shelf Fill Rate: 90% - 95%
- First Time Off Shelf Fill Rate: 75% - 85%
- Lost Sales Reporting: 5% - 10% of Total Sales at Cost
- Emergency Purchases: 10% or Less
- Inventory Gross Turns: 8 Turns Annually
- Inventory True Turns: 5 Turns Annually
After looking at all these Parts Industry Categories & Guidelines, you have to ask yourself one simple question:
"How Can Our DMS's Parts Stocking Status Impact ALL of These Parts Industry Guidelines?"
Let's Begin!
In my opinion, there is no better place to start then at the beginning, and in the case of determining "Parts Stocking Status", the beginning starts with the initial DMS System "Default" Settings, and then the Parts Phase-in and Parts Phase-Out Parameters.
Every DMS has to be set up initially with System "Default" Settings with a Primary Source or Stocking Group for parts entering into the system from the Manufacturer. An analogy would be to consider your Parts Inventory as your "house" and all parts have to enter in through the front door.
The address on that front door is "100 Parts Drive", with the number 100 considered as our Main Parts "Default" Source or Stocking Group. This primary "Default" Source or Stocking Group also has to be set up as the main "Non-Stock" Source or Stocking Group.
When a part is born into the system, it's usually a "Non-Stock" Part purchased for the first time, it needs a place to go in the house. If the main "Default" Source or Stocking Group is set up as "Normal Stock" instead of "Non-Stock", (which I have witnessed), Stocking Status is incorrect right from the start.
Parts need to default to a "Non-Stock" Status initially before Parts Phase-In and Phase-Out can begin. They have to enter into the "house" as "Non-Stock", go into the Main "Default" Source or Stocking Group, or primary "room" in the house. From there, they have to wait for instructions on where to go next, determined by the Phase-In & Phase-Out Criteria.
The Phase-In Criteria is the Number One setting that will determine if a part will be considered a Normal Stocking Part, (Family) or a Non-Stock Part, (Visitor) in the house. After we have the proper address on the front door, (Main "Default" Source or Stocking Group), we can set our Phase-In Parameters.
The Phase-In Parameters measures the total demand required, (Sales & Lost Sales) for a part to become part of the family, (Normal Stock Parts). This total demand is measured for a period of days or months until demand has been met.
Once demand has been met, the Parts Manager then determines if they want to accept that part as a Normal Stock Part with the appropriate Stocking Status. If a part has not met the Phase-In Parameters, it will remain as just a visitor in the house, or a Non-Stock Part.
As you can see from this analogy, if the initial "Default" Source or Stocking Group is not set up as "Non-Stock" from the beginning, Stocking Status is already inaccurate. Secondly, if the Phase-In Parameters don't have the proper number of demands required over a period of time, parts can Phase-In either too early or too late.
Either one, (too early or too late) will determine the Stocking Status of that part and may be adding parts too early as Normal Stock or prevent them from ever being considered a Normal Stock Part.
The Phase-Out Parameters have to be set up accurately as well and after the initial Phase-In Period. If the Phase-Out Parameters are set up "within" the Phase-In Cycle, parts will never Phase-Out, thus remaining a Normal Stock Part forever. This example would lead to parts that are actually obsolete but still considered as Normal Stock Parts.
So!...What would be the "Impacts" on all these Parts Industry Guidelines if we don't have the right Set Ups & Controls we just mentioned?
Normal Stock Parts, (or Active): 75%-85%
If the Parts Phase-In Parameters are not set up correctly with the right number of demands over a period of days or months, early Phase-In could happen. If incorrect, parts could phase-in to a Normal Stocking Status instead of remaining a Non-Stock Part.
In addition, if the Phase-In Parameters require too many demands over too long of a period, parts that we should consider as a Normal Stock Parts remains in the Non-Stock Status. Parts that are kept in this "prison", would never have a chance to qualify as a Normal Stock Part.
Non-Stock Parts, (or In-Active): 15%-25%
This opposite effect often happens when the "DMS Language" isn't defined properly. Measuring "total parts demand" over 8 months for Phase-In is totally different from measuring "demand of at least one" in 3 separate months over a period of 8 months.
I have witnessed these Phase-In Parameters being totally "misread" in the DMS. In one case, after it was all said and done, a part would have to have at least 3 demands in 3 consecutive months for a total of 9 demands in order to Phase-In.
Not only that and in case of the above scenario, these 9 demands would have to happen in 3 consecutive months. In other words, if we miss one month of at least 3 demands, the process will have to start all over again.
This scenario actually "prevents" parts from phasing in as they remain in prison and will never get out and become a Normal Stock Part, (part of the family). This will also show a lower amount of Normal Stock Parts and would have to be Special Ordered as they will not show on a Suggested Stock Order.
Stock Order Performance: 75%-85%
In our above example when a part is kept in prison because it has not met the "incorrect" Phase-In Parameters, they will not show up on a Suggested Stock Order as they have not "technically" met the Phase-In Parameters.
On the other hand, we could have parts recommended that don't meet the "correct" Phase-In Parameters, but do meet the Manufacturers Vendor Managed Inventory, (VMI) Stocking Guidelines.
In this case, we could be buying parts we "think" ae considered Normal Stock Parts from these VMI Programs, but they are in our DMS as Non-Stock Parts. We may have purchased them for stock, but because they don't meet the DMS Phase-In Parameters, they come in the "house" as Non-Stock.
Overall Off Shelf Fill Rate:
First thing to note on this one is the word "Overall" and does not mean that this is your "First Time Off Shelf Fill Rate". Overall meaning that we sold the part whether today, tomorrow, next week or next month. We could also "fill" the order from someone else's inventory.
Quite simply, it just means that we "filled" the order minus any Lost Sales Reported at Cost. Overall Off Shelf Fill Rate includes all Parts Sales, whether Normal Stocking Parts or Non-Stock Parts which include Special Ordered Parts.
Lastly on Overall Off Shelf Fill Rate, we don't even have to have a Parts Inventory at all to measure Overall Off Shelf Fill Rate. Parts Sales can be filled from anywhere and any inventory, even if not our own.
First Time Off Shelf Fill Rate: 75%-85%
The only way we can measure our Parts Sales on "First Visit" is to determine what parts we tend to sell on first visit which are Normal Stock Parts. This one is easy when we consider the "Overall Impacts" of having the Proper Stocking Status in order to measure First Time Off Shelf Fill Rate.
How can we accurately know what our First Time Off Shelf Fill Rate is if we don't even know what a Normal Stock Part is? We could be looking really good or really bad depending on the initial Set Ups back in the beginning.
Lost Sales Reporting: 5%-10% of Total Sales at Cost
Whether we are reporting Lost Sales or not, these demands, like a parts sale have to meet the initial Parts Phase-In Parameters. If the Phase-In Parameters are not set up properly, posting Lost Sales won't even matter.
Second, if the initial Phase-In Parameters are set up correctly, posting Lost Sales won't matter if we don't use these demands to run our Suggested Stock Orders. This goes back to my reasoning that it's not really the actual Posting of Lost Sales that's important, it's what we do with the information that's most important.
What's most important than even the definition is the reason and purpose of reporting Lost Sales to begin with. The purpose and reason are to simply track Non-Stock Parts for potential Phase-In, if of course we have the right set ups to begin with on Normal Stock Parts vs. Non-Stock Parts.
Emergency Purchases: 10% or Less
Posting "EP's" is extremely important but is not intended for posting EP's on Non-Stock Parts. Emergency Purchases are simply "Stock Out Purchases for a Customer" and not for chasing parts that are considered Non-Stock. Once again, Proper Stocking Status matters in all these equations.
If we are chasing a Non-Stock Part to begin with, maybe we should post a Lost Sale to ensure that demand is recorded. Even though the demand may be recorded when that part is eventually sold, there is no guaranty that sale will happen. What is guaranteed is the fact that we didn't have the part initially.
Parts Gross Turns: 8 Turns Annually
Technically, Gross Turns effects all Parts Sales as it measures Total Parts Sales at Cost, whether we have the parts on the shelf or not. However, it does give us a measurement of what our inventory value should be based on a 45 Days Supply.
Measuring Parts Gross Turns can help us determine what our "desired" Parts Inventory Level should be. After determining our "desired" Parts Inventory Level should be, we can break that down to what percentage should be Normal Stocking Parts. Here again, if the Stocking Status is accurate.
Parts True Turn: 5 Turns Annually
First and foremost, you can never determine your "true and accurate" Parts True Turn if Stocking Status is inaccurate, plain and simple. For example, if the initial Parts Default Settings are set to Normal Stock Parts instead of Non-Stock Parts, we would look like a hero on Parts True Turns.
On the other hand, if the Parts Phase-In requires too many demands over too many periods, (months), then these parts will never get out of prison. They will remain Non-Stock, even though we sell them as if they were Normal Stock Parts.
In this above scenario, Parts True Turn would be lower than it actually is. Many parts that perhaps should be considered Normal Stock Parts, are actually in the system as Non-Stock Parts thus not calculated in the True Turn Measurement.
They will never figure into the Overall True Turn Rate of Sales of Normal Stock Parts annually divided by the average month's inventory value over the same period. in this case, the dealer will never know how "fluid" their asset is performing.
So amazing how one simple thing as "Parts Stocking Status" can impact so many other Parts Industry Guideline Categories right from the beginning. We should always question what we see to confirm what make sense and what doesn't make sense and fix it.
So, when we are filling out our 20 Group Questionnaires, perhaps you should first understand where these numbers and percentages come from. Second and most important, they should make sense compared to the Industry Guidelines. If they don't, maybe, just maybe, your Stocking Status is not accurate...
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...
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