"What Do We Do Now?"...Dave's Top 10 Indicators

As we all know, the success and profitability of the Parts Department relies primarily on a knowledgeable Parts Manager with the support of upper management and the dealer principal. Beyond that, the Parts Manager also has to have a plan that will lead to "desired results".

We also have to begin with focusing on key areas, or "indicators" that will impact these "desired results" and that will be the focus of our study as we "drill down" these top 10 indicators.

I also realize that some may agree or disagree on the order of these indicators, but I do believe we will all agree that as we move down to "Number One", each and every indicator effects the previous.

You may also see as we count down to number one, that many Dealers and Parts Managers seem to focus on these "Top 10 Indicators" in reverse as opposed to focusing on the "root causes" that effect our overall profitability.

So!...Are you ready?....Here We Go!

NUMBER 10: Net Profit as a % of Gross Profit (Guide: at least 25%)

Often times, we tend to look at the results on the financial statement from the "bottom up" and that is quite common. After we see the "bottom line", we start to dissect the numbers even further and if we do not see the desired results, we start looking at the expense side first, followed by the sales and gross numbers.

Next, we start "finger pointing" to certain areas, trying to justify the means, knowing all the time that we can't change what has already happened.

Our "Number 10" Indicator is a direct result of failed processes, poor expense management, improper I.M.S. Set Ups & Controls, improper guidelines, etc. "Number 10" is the "catch all" of all the indicators to follow.

NUMBER 9: Customer Pay Gross Profit as a % of Sales (Guide: 42%)

Obtaining the proper Customer Pay Gross Profit percentages is probably one of the easiest guidelines to achieve. I realize that demographics and market areas play a big role, but when you think about it, if the proper escalation matrix is in place, you can have the best of both worlds.

Remaining competitive is always important, but having the "right pricing mix" on both captive and competitive parts is easily maintained in most Dealer Management Systems (D.M.S.).

NUMBER 8: Expense Management 

Expense to Gross Percentage Guidelines vary from each manufacturer, ranging from 50% - 75% and can also be broken down by Personnel, Semi-Fixed and Fixed expenses. 

The most important guideline, or "thought process"  that I've always had was..."you can't spend what you don't have".

The Parts Manager has to also be very familiar with reading, understanding and dissecting the parts financial pages in order to properly manage the department. Understanding the numbers and how they got there is imperative for all managers, not just the parts manager.

 If we take on the mindset of what expenses we can control versus what can't control and stay within the guidelines set by the dealer and the manufacturer, we will achieve expected net profits. 

If you run your department like it was your own business...you WILL be profitable!

 NUMBER 7: Inventory Gross and True Turns (Guide: 8 Gross, 5 True)

This category is a key indicator in "Part Management 101" as the experience and knowledge of the Parts Manager comes first and foremost in managing one of the dealers' highest assets. 

The ability to "roll over" the parts inventory the proper amount of times annually is not an easy task, but contributes greatly to the overall parts profitability. 

This indicator also illustrates the "liquidity" and overall resale value of the parts inventory. It will also expose obsolete inventory as lower gross and true turns factors in all parts in inventory at cost, whether it moves or not.

NUMBER 6: Sales Activity 0 - 3 Months (Guide: 75%)

Our "Number 6" indicator ties in directly with our previous indicator on inventory gross and true turns. The parts movement activity cycle is a HUGE indicator on how well balanced the parts inventory is, especially in the 0 - 3 month category. 

In other words, three quarters of the total parts inventory value should be active in the last three months.

Once again, the experience and knowledge of the Parts Manager along with proper system management comes into play. This guideline CAN NOT be taken for granted and should be at guide or better without question.

NUMBER 5: Special Order Parts Aging (Guide: 30 Days or Less)

At "Number 5", Special Order Parts Aging probably goes down as the most "unnoticed" indicator in the countdown. It a very important indicator because it's a "return reserve killer"! 

As we all know, most manufacturers' provide a "return  reserve account" for the parts department based on stock order purchases. The intent of this this accrual account is to allow the dealer to return obsolete parts and to maintain proper inventory levels.

Most often times, this accrual account is "sucked up" by special order parts returns over 30 days and never gets utilized for the actual intent.

 It's also a huge indicator of "lack of process" on how parts get ordered in the first place without proper guidelines on special order deposits, customer follow up, etc. 

Just like in the Used Car Department, if we have a bunch of "aged units"....or in this case, "aged special ordered parts"...we've got other problems as well.

NUMBER 4: Lost Sales Reporting (Guide: 10% of Total Sales at Cost)

Defining "Lost Sales" has always been a big controversy and can be defined many different ways. First of all, I wish they would change the terminology from "Lost Sales" to "Potential Missed Opportunity". 

Posting "Lost Sales" is a "good thing" and is one of the biggest assets for a parts manager. Posting "Lost Sales" also creates a "demand" in the Inventory Management System, (I.M.S.) and allows the Parts Manager to see potential new parts to add to the regular stocking inventory. 

Posting these "Potential Missed Opportunities" are the "eyes" of future sales and should be posted whenever possible. 

When in doubt?...Post It! It can only help the Parts Manager see what's out there. Bottom line is...you can't manage what you can't see! "Number 4" in our countdown is "Number 4" for a big reason.  

NUMBER 3: Sales/Gross Per Employee (Guide: $38,000/$14,000)

One of the foundations in the Parts Department is having the right number of employees to meet the demands in all sales areas. 

From counter staff, shipper/receivers, delivery drivers and wholesale sales people...we not only have to "measure up" to these guidelines, we have to have the right person in the right seat on the Parts Bus. 

We can't accomplish any of our goals or guidelines without the right staff of people in the right positions.

NUMBER 2: Level of Service or Overall Fill Rate (Guide: 90 - 95%)

Overall, we have to provide a "service" to our customers. Our "Number 2" indicator could be debatable, but I chose this category as "Number 2" for one simple reason...if we do not provide an extremely high "Level of Service", which simply means that we provide the part(s) 90 - 95% of the time, we will lose customers. 

All would be lost if we didn't pay direct attention to customer retention and loyalty. 

The only variation in this percentage guideline would be "Lost Sales"...that is, of course, IF we report "Lost Sales" in the first place. 

If we don't post "Lost Sales", our "Level of Service" or "Fill Rate" would show on our Monthly Analysis Report close to 100%....which, of course, would not be a true.


And Here We Are!!....our "Number One" Indicator!...(Drum Roll Please!)


NUMBER 1: "First Time Off Shelf Fill Rate" (Guide: 75 - 80%)

When you stop and think about it, it all starts here. The ability to provide your technicians and ultimately, your customer the right part(s) on the  "first visit" to the counter 75% of the time. 

If we accomplish this one goal of 75 - 80% "First Time Off Shelf Fill Rate", most of the other "Top 10 Indicators" fall right into line automatically.

Not only will the most of the other indicators fall into line, we will highly impact and increase our overall service shop productivity. 

Excessive time at the parts counter; moving vehicles in and out waiting for parts; bringing vehicles back in the shop tomorrow when they could have been done today are all examples that contribute to lower shop productivity. 

With the exception of proper staffing, pricing structures and expense management, all of the other indicators would take care of themselves. 

Level of Service, Inventory Turns, Less Special Orders, Fewer Lost Sales, Higher 0 - 3 Month Sales Activity and Higher Gross Numbers are all achieved by this ONE indicator.

It's pretty amazing how one "key indicator" can impact so much overall  I am also quite sure there may be other indicators that we could add to the list of "Top 10" items. 

The most important items tend to go unnoticed but highly contribute to our "Number 10" indicator on this list which is Net Profit.

Stay tuned to "Smart Parts" each month this year as we "drill down" each and every one of our "Top 10" indicators starting with Number One: "First Time Off Shelf Fill Rates" in March. We will continue up the ladder all the way to higher Net Profits in December.  

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com

"Balancing The Books"

In most Parts Departments, the Annual Parts Inventory Count is performed at the end of each year for legal and accounting purposes. As in any business that manages an inventory, it is mandatory to account for inventory assets and it's overall value.

In most automotive dealerships, the Parts Inventory is one of largest assets that the dealer has to account for, especially when it comes down to "tax time" at the end of the year.

Even though Office Managers, or Controllers perform this similar function at the end of each month throughout the year, the "end of year" parts inventory balance must be reconciled between the Accounting Ledger and the Controlled Inventory Balance.

The "Controlled Inventory Balance" is defined as the inventory balance after the physical inventory is counted, completed and authorized. This inventory balance is also represented in the D.M.S. (Dealer Management System) after the inventory count and variances are posted.

So, what happens if the "Controlled Inventory Balance" amount doesn't match the Accounting Ledger, or Financial Statement Inventory amount?

First of all, the "final" Controlled Inventory Value MUST match the Accounting Ledger Value, or the Financial Statement Inventory Value.

In a sense, we have to "balance" the Controlled Inventory amounts to the Accounting Ledger by way of adjustments. This will also be reflected on the Financial Statement as "Adjustments to Inventory" and considered 100% as profit, either as a credit or a debit.

The second thing we have to realize is that "variances" after the physical inventory are common, but should also be within an acceptable range. Many inventory analysts suggest that this acceptable range be within two to four percent of the total inventory value on the Accounting Ledger.

Keep in mind that acceptable amounts should be to the positive side of the overall balance which means that the Controlled Inventory Value should be larger than the Accounting Ledger, or the Financial Statement Value.

Many dealers are primarily concerned about pilferage or theft and rightly so, but in most cases, there are usually many other causes for these discrepancies.

Here are some common variances that may lead to discrepancies between the Controlled Inventory Value and the Accounting Ledger Value:

• Manufacturers' pricing updates not posted
• Cost posting errors or overrides throughout the year by parts personnel
• Pilferage or Theft
• Parts "work-in-process" issues
• Gas, Oil & Grease bulk adjustments
• Tire Inventory adjustments
• Damaged or Scrapped Parts not accounted for
• Outstanding credits and/or debits from all parts vendors
• New and used core inventories

These are just a few areas that can lead to discrepancies between the Controlled Inventory Values and the Accounting Ledger.

Most Parts Managers and Inventory Management Companies are well aware of these items mentioned, but inevitably, these are the most common areas that lead to discrepancies.

So, how can we limit these discrepancies to a manageable level each year? Here are few tips that may lead to some helpful solutions:

• Make sure your "house" is in order by using good housekeeping practices
• Conduct daily, weekly or monthly bin checks and post adjustments to D.M.S.
• Insure proper security throughout the Parts Department.
• Post manufacturers pricing updates monthly and provide D.M.S.documentation to Office Manager
• Provide End of Month Parts Inventory Analysis Report to Office Manager for potential discrepancies between the Controlled Inventory and the Accounting Ledger on a monthly basis.
• Conduct a monthly physical on "other" inventories such as Tires, Gas, Oil & Grease, etc. 
• Review "Cost Override" and "Minus On Hand" D.M.S. Reports Daily
• Manage Parts "Work-In-Process" and Special Orders to less than (30) days

Lastly, we have to keep a mental mind set that closing out our "End Of Year" should be no different than closing out our "End Of Month".

It's much easier to manage what happens over the course of a month as opposed to trying to manage what happens over the course of a year in the parts department.

 Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com

Smart Parts 2012: The Year In Review

Here we are, winding down yet another year in our ever-changing world of the automotive industry. We have seen changes ranging from many new model introductions with advanced fuel economy without sacrificing horsepower to the on-going advancement of the hybrid and electric vehicles leading the way into a new age of technology.

With all this said, how much does all this really impact the way we have always conducted our business as Parts Managers? Do we really have to change with the times or should we stick with proven methods that have gotten us to where we are today?

In our final issue of "Smart Parts" 2012, we are going to take a look back at this years past issues and blogs to see if we have really maximized on what we know as "good practices" in conjunction with setting the bar for the future.

We will highlight each issue's topic with some key points that have impacted the way we do business in the Parts Department. We will close each following month with a "challenge question" that relates to the topic and hopefully lead to our own self-evaluation.

Here we go "Smart Parts" readers!...it's a long blog, but it may prove worthwhile! If you have missed any of our past issues, visit our website for more information...

January 2012: 2012: "A New Beginning"

In January, 2012, we focused on our Parts Set Ups & Controls. Each year, our inventory resets to what I refer to as "Ground Zero". All of our inventory analysis information ranging from True & Gross Turns, Stock Order Performance, Level of Service, "First Time" Off Shelf Fill Rates, etc. resets to ZERO.

This means that this would be the best time of the year to review and modify these Set Ups & Controls as they will yield immediate results at the end of the first month of the year. Most Parts Managers rarely review and/or modify these Set Ups & Controls on a periodic basis which often leads to unwanted obsolescence and reduced "First Time" Off Shelf Fill Rates.

January's Challenge Question: Did you review and/or modify any of these Set Ups & Controls?  

February 2012: Hope Or Change: "We have To Make A Decision!"

In February, 2012, we continued to focus on our Set Ups & Controls by reviewing the results of the changes or modifications we made in January of 2012. If no changes were made?...then how can we expect a different result?

If changes or modifications were made, then what did the results reveal and how can we use this information moving forward? Do we just "hope" that the same Set Ups & Controls will lead us forward, or do we "change" for the future? Remember, the "life cycle" of parts isn't anywhere near what it was years ago.

February's Challenge Question: Have you been doing the same thing for several years, or have you really been just doing the same thing every year, several times and expecting a different result?

March 2012: What Is My Parts Department's "Rate Of Change?"

The March issue of "Smart Parts" was one of our "most read" blogs of the year as this term is not often heard of, or referred to in the Parts Department.

I've found that the majority of Parts Managers haven't even heard of the term "Rate Of Change" Quite simply, it's the number of "add and delete" adjustments that have been made in our Inventory Management System versus the total number of part numbers in the Inventory Management System (I.M.S.).

Too many adjustments may lead to inventory discrepancies and dollar values between the controlled inventory values versus what's on the dealers financial statement. It could also indicate pilferage or accounting issues in the Parts Department if the "Rate Of Change" exceeds 10%.

March's Challenge Question: What's your Parts Department's "Rate Of Change"?

April 2012: Dealing With "The Cycle Of Change"

In April, it was the end of the first quarter of 2012, so we focused on the first "Activity Cycle" of our parts inventory as every three months completes one parts inventory "Activity Cycle".

 What did the first three months indicate? What did the business ratios such as True & Gross Turn, Stock Order Performance, Level Of Service and "First Time" Off Shelf Fill Rate reveal? Do I need to go back and review or modify any of my Set Ups & Controls moving forward? Are my profit structures in line to my first quarter goals and expectations?

April's Challenge Question: Do you perform an inventory evaluation after each "Activity Cycle" in 2012?

May 2012: Maximizing Parts "In-Coming Phone Calls"

May's "Smart Parts" article also drew a lot of attention as many dealers and parts managers DO NOT track in-coming parts phone calls. How many in-coming parts phone calls are received where there is just information given with no follow up?

How many of these calls could be transferred to the service department for potential service appointments? An insurmountable number of calls are received each day by parts departments everywhere that go without an accountable follow up system.

May's Challenge Question: Do you have a follow up system in place to track in-coming parts calls?

June 2012: Is Your Dealer Management System, (D.M.S) "Telling The Truth?"

June's "Smart Parts" blog may have "touched a nerve" with some, but it was one of my personal favorites in 2012. As an industry consultant and trainer, I perform many parts department evaluations and it is quite interesting to see some of these dealers Parts Monthly Management reports.

Many dealers don't even know how to read their D.M.S. Parts Monthly Analysis reports. They tend to believe what they are reading, even though the parts manager isn't reporting the information correctly. As the old saying goes..."garbage in, garbage out"!

I could go on and on with this subject, but for more information, read the June 2012 "Smart Parts" article! For you dealers out there...it's a MUST READ!

June's Challenge Question: Is YOUR Dealer Management System, (D.M.S.) Telling The Truth?

July 2012: "Shrinking Parts Gross: Who's To Blame?"

In July, we explored parts gross in general, but with the main focus on our increasing "Express Service" business. With more and more manufacturers "mandating" an independent express service department within our existing fixed operation, it has led to many challenges.

 Many vehicles manufactured today are requiring less and less maintenance with fewer dealer visits.We have to remain competitive, but we also have to have the right pricing in parts that can balance these "competitive items" along with the "captive items" in order to retain proper gross margins.

The parts escalation matrix should be utilized "wisely" and like other Set Ups & Controls....reviewed and modified often.

July's Challenge Question: How often do you review your parts pricing guidelines and escalation matrix?

August 2012: Guidelines To Sidelines: "Where DO We Draw The Line?"

In August, we kind of went back to basics with a review of industry guidelines versus the goals and guidelines we set for ourselves in each dealership.

It's important that we are measuring ourselves with a combination of individual standards along with our individual manufacturers' as well as national guidelines set by the National Automotive Dealers Association, (NADA) for example.

The most important lesson in this particular issue is, if in fact we ARE measuring our performance constantly and do we set goals above normal or reasonable expectations"?

August's Challenge Question: Do you set performance goals and guidelines and most important, do you hold yourself and your staff accountable to these expectations?

September 2012: Express Service: "The Parts Impact"

September's issue was kind of a follow up to the July issue of "Smart Parts" We focused on how we can overcome some of the issues of shrinking parts gross due to the "Express Service" impact by embracing it instead of fighting it.

As we know, gross pays the bills and we have to look at this new found opportunity with some different perspectives on what our expectations should be concerning retained parts gross. Quite simply, would you rather have 30% of $20,000.00 or 40% of $5,000.00?

By selling more in volume at a more competitive rate, maybe, just maybe, we can attract and retain more business opportunities.

September's Challenge Question: Are you really maximizing the "Express Service" parts opportunity?

October 2012: Parts Inventory: "Active, Idle or Obsolete?"

Our October issue of "Smart Parts" also caught the eyes of many as we explored the three most common parts classifications. The most interesting part of these classifications is how "Idle" and "Obsolete" are often confused, or even how long an "Active" part is actually considered "Active".

By drilling down these classifications in this issue, we were able to properly identify each of these categories and how to properly manage them to maximize True Turns and most importantly, get the highest parts Return On Investment.

October's Challenge Question: Do you know the difference between "Active, Idle and Obsolete" inventory? 

November 2012: O.E.M. VS. Aftermarket Parts: "The Choice Is Simple"

Last month we explored another "hot" topic that's really been around for years and that is the choice of offering aftermarket parts versus O.E.M. parts as a viable competitive option.

For the most part, we all "stick to our guns" by maintaining the image and belief that there really is no replacement for the manufacturers' replacement part and I would have to agree. With that said, I also agree that our customers deserve a choice on certain competitive repairs or maintenance where, quite honestly, the aftermarket option has similar quality, but at a more affordable price to the consumer.

I believe that if we offer more options to our customers, we have a better chance of keeping them. After all, if a vehicle needs brakes...someone is going to get the repair job...why not you?

November's Challenge Question: Do you provide other parts options to your customers on qualified, competitive repairs and maintenance?

In conclusion, for this December issue, I have one last question:

"Did you answer NO to any of the above Monthly Challenge Questions"?

If you did answer "NO" to any of this years challenge questions, maybe it's time to make a commitment moving forward into 2013. Contact ACG's "Smart Parts" and make 2013 your "Best Year Ever!"

Happy Holidays from "Smart Parts" and We Wish All a Very Prosperous New Year!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com

O.E.M. vs. Aftermarket: The Choice Is Simple

For many years, dealer parts managers have had to play a "juggling" act when comes to choices between stocking only Original Equipment Manufacturers parts, (O.E.M.) to mixing in some aftermarket parts into their inventories. There are many reasons for both sides of the argument, pending on market areas, demographics, competition or just plain common sense decisions.

First of all, I am a true believer that O.E.M. parts are best for the overall performance of the vehicles manufactured today. They also provide the best "fit" and in most cases, are backed by the best warranties in the industry. Most would also agree that O.E.M. parts are the top choice of most technicians when it comes to the overall quality of repairs.

With the infiltration of many "counterfeit" parts vendors today, parts managers have to consider the quality of the parts manufactured as well, which makes the choice rather easy for those "O.E.M. Only" parts managers. It is also much easier from an accounting standpoint with manufacturer invoicing, discounts and return allowances as well inventory protection programs.

This all sounds good except that we have left "choice" out of the above equation, thus leading to the title of this article..."The Choice Is Simple". I believe that in some cases, we need to give our customers more of a choice, when it comes to their vehicle repair options. Many of the manufacturers' pricing policies on some highly competitive parts are much higher than aftermarket competitors parts of equal quality.

One case in point that comes to mind is the pricing of brake parts with some manufacturers. I'm not going to single out any particular manufacturer, but I do believe a better job can be done in order to be more competitive. Standard brake repairs can vary by hundreds of dollars, thus resulting in "lost repair opportunities" and more customer "price shopping" at aftermarket facilities.

Even though some manufacturers offer some "good, better, best" parts options, in some cases, a high quality aftermarket part can out perform the lesser of these manufacturer options. Even though many of us believe that price shouldn't be an issue, we still have to be competitive and be somewhere "in the ballpark".

Another little tidbit that we all have to be aware of is that many parts are made by only a few different vendors and labelled by the individual manufacturer for re-distribution. Each year, vehicle manufacturers constantly bid with outside vendors on many replacement parts as well as original equipment parts.

We have to look back at how we lost so much of our repair and maintenance business to aftermarket vendors in the first place. We all know how much convenience, quality service and value has played in getting some of that business back, now we have look closer at providing those same three principles with even more competitive pricing.

Giving our customers more of a "choice" in some of these basic repair and maintenance items will lead to more sales because we are giving them options "within" our stores. In many cases, we have only given them the option of choosing "where" they will have their vehicle serviced.

So, the choice IS simple when it comes to some of these basic repair and maintenance items...give your customers more of a choice. We need to think "OF" our customers, not "FOR" our customers!

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com

"Parts Inventory: Active, Idle or Obsolete?"

The final quarter of 2012 is upon us and as I mentioned in the introduction, many Parts Managers are getting ready to perform their end of year Parts Physical Inventories. In my opinion, he "Physical Inventory Process" goes well beyond just counting part numbers and quantities.

In most cases, it's an overall evaluation of how well we have managed our dealers' number two asset, second only to the Used Vehicle Inventory.

A recent article by the Management Study Guide (M.S.G.) states that "Inventory Management is a very important function that determines the health of the supply chain as well as impacting the financial health of the balance sheet"...

As a former Parts Manager, this is a pretty overwhelming statement that draws my attention to just what factors may determine my overall "financial health" of my parts inventory. In order to determine this, I would first need to define and identify the "breakdown" of my inventory value and potential "Return On Investment".

Next, I would need to separate and categorize my inventory into three basic areas which are determined by movement in order to maximize the "Return On Investment" and "Inventory True Turns".

These three areas are categorized as "Active, Idle & Obsolete" and if I were to ask ten parts managers to define each of these three categorized areas, I would most likely get ten different definitions.With that said, we need to turn to some basic facts and industry guidelines in order to define these areas.

For many years, I have referred to guidelines set by Mike Nichols, the National Automotive Dealers Association (NADA) and individual manufacturers' to set the standard on these areas. The interesting thing is that not much has changed over the past several years except for "Parts Activity Cycles".

Approximately thirty years ago, the "Parts Activity Cycle" for an "active part" was anywhere from twelve to eighteen months as many parts fit many models for several years, thus extending the "active life cycle" of a part much further than today.

Today, with so many manufacturers and so many models available, the average "active life cycle" of many parts has been reduced to six months or even less!

With all this in mind, let's define these three category areas:

ACTIVE PARTS

"Active Parts" should have movement within six months or less. Mike Nichols and NADA both agree that 98% of the parts inventory should have "active movement" in the 0 - 6 month category. To define it a little further, 75% should have "active movement" in the 0 - 3 month category and 23% "active movement" in the 4 - 6 month category.

• FIRST FACT: If a part has not sold within this six month time frame, there is a 49% chance of NO FUTURE SALES.

IDLE INVENTORY

First of all, in my opinion, Idle Inventory" is a "non-category"! No disrespect to any that use this term, but this is where I believe "common sense" has to come into play as I explain further. I believe that ALL parts inventory is idle, with the exception of some special orders that do not experience any "shelf time", thus, no holding costs are attributed, even though acquisition costs may be higher. Others believe that "Idle Inventory" may be parts with an "activity cycle" over six months and beyond. Mike Nichols and NADA also agree that parts with an "active movement" cycle of 7 - 12 months should represent only 2% of the total inventory annual "activity cycle".

• SECOND FACT: If a part has not sold between nine and twelve months, there is a 75% chance of NO FUTURE SALES.

OBSOLETE INVENTORY

Bottom line is...if the part doesn't sell within the above parameters?....it's basically obsolete! It doesn't get any simpler than that! The Mike Nichols and NADA guideline on parts with an "activity cycle" over twelve months should represent 0% of the total inventory annual "activity cycle".

• THIRD FACT: Inventory with an "activity cycle" over twelve months has a 98% chance of NO FUTURE SALES! 

Of these three categorized areas, I believe that "Idle Inventory" is most confused by parts managers. Many manufacturers and consultants still use this term and to me, I believe they still use this term because it leaves much to their discretion.

This discretion allows them to determine what is actually "active" or "obsolete" based on manufacturers data, not the dealers. Many manufacturers offer "Stock Replenishment Programs" where they maintain control of what dealer parts managers have on their shelves, not regarding the individual dealers Dealer Management Systems, (DMS) stocking criteria.

ALL inventory is idle for a period of time as even an "active part" can be "Idle" for three months before it sells, but may still remain "Active" because it has sold in the 0 - 3 month category.

If a part has not sold for twelve months?...it's "Obsolete" with close to no chance of selling...plain and simple, regardless of what definition you use for "Idle Inventory"!

In conclusion, I'm QUITE sure that the dealer is more concerned about what's selling and what's NOT selling in order to gain the highest "Return On Investment" as well as maintaining proper annual Gross and True Turn numbers.

I'm also QUITE sure that the dealer will not be pointing the finger at the manufacturer, or anyone else if the inventory and stocking criteria hasn't met the expectation. Each parts manager has to take ownership for their individual dealers parts inventory investment.

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com

Express Service: The Parts Impact

One of the most "debatable" topics that I have heard from dealers and managers this year has definitely got to be the idea of automotive dealers offering their customers "Express Service", even though each manufacturer has their own "tag name" for the process. The question is..."How does it impact the Parts Department"?

Though "Express Service" is not really new in our dealerships, a few manufacturers introduced this concept or process as far back as the late 80's and early 90's. Much was learned in those early years, some good and some not so good as well as the overall impact that it had from the beginning.

I believe that one of the biggest impacts that "Express Service" has had on our Parts Departments is the shift in the main three customer pay sales categories. These categories are usually defined as Competitive, Maintenance and Repair and for years, we have seen percentage breakdowns led by Repair, followed by Maintenance and Competitive carrying the lowest percentage of the customer pay sales mix.

Today, we are seeing many dealerships experiencing a "total reversal" of their customer pay sales mix shifting over to the Competitive and Maintenance category. One of the most obvious reasons is the quality of the vehicles manufactured today versus "yesteryear" has significantly improved. We are also seeing this trend by watching our warranty parts sales diminish slowly year after year.

So how does this all play out for the Parts Department and what is the next step? I believe that the old phrase "go with the flow" has to be the number one "brutal fact" that we have to deal with. We have to realize this shift and rethink once again where we need to focus our marketing strategies, profit margins and most importantly...our support to the "Express Service" Department.

Even though I see many dealers now offering this service, they seem to forget that if "competitive" and "maintenance" are now the leaders within the overall customer sales mix, why aren't they competitive?

In many cases, parts managers are still pricing these competitive and maintenance items much like their repair or "captive" customer sales with the exception given to the oil & oil filter. Many parts managers seem to have it "bred" into them that they have to retain at least a 40% gross margin on all customer pay sales.

I realize that in many cases, price is not necessarily the issue, but I DO believe we need to be at least "in the ballpark" on these prices. I have performed many pricing comparisons as part of the training I provide and I have personally seen prices vary on the SAME parts and services up as much as 100%!

In an "apples to apples" comparison, that would be like paying twice as much for that same apple! People will notice and then it becomes a "trust" issue and they will feel like they are being taken advantage of. Many more of our customers are doing their research and may know more than we think they do.

One of the best ways to get our prices in line is to have all these competitive and maintenance parts "weighted" to one price and at a "competitive" price. We should accept a lower gross margin on these items even though we don't want to be the cheapest, we DO want to be the best with the right quality parts.

Here's a question I have..."Why is it that many parts managers are okay with  "wholesale" gross margins anywhere from 18% - 22%, but don't have that same belief in these "competitive" customer sales?" Are we not in "competition" with our wholesale customers? Why not "wholesale pricing" to the public on these "competitive" parts and services?

Lastly, we all know that no matter how well the vehicles are manufactured today, they will still break down at some point. The average vehicle ownership is surpassing ten years so the "repair" side of the mix will always be there.

The question is, do we want to offer the best service and price on the first two categories in order to gain and earn that customers' "repair" business? Or, do we "price" ourselves out of the opportunity in the first place, only to lose that "repair" business down the road.

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Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com

Guidelines to Sidelines...Where DO We Draw the Line?

I have always been intrigued by our industry standards and guidelines because it seems to me...at some point back in time, or maybe even perhaps more recently, someone had to "set the bar" on performance in our various fixed operations departments. 


I guess we have all just grown accustom to these guidelines and run our dealership operations focused on these target initiatives.

Personally, I believe that we should all have individual standards, guidelines and goals in our stores based on the manufacturers' and industry experts expectations, but I also think that we should keep them in perspective to our individual situations.

I recently received an "Ask Dave" question from one of our "Smart Parts" Readers that I would like to share. I have also consulted with this particular Parts Manager in the past, so I am familiar with his unique situation as well as his Inventory Analysis.

This may shed some light to what I believe is how we should  use these industry guidelines, but with respect to the "individuality" of each dealer. 

The question and response are as follows:

Question:

"Dave, you know my inventory pretty well by now, but even though my First Time Off Shelf Fill Rate is doing very well and my Over Twelve Months Inventory is virtually non existent, My Gross and True Turns are still below my goals of 7.0 and 4.0 respectively. My current averages are approximately 6.0 and 3.0 for 2012 and my Stock Order Performance remains below 40%! Am I missing something here?"

Response:

Actually, all the facts that you state make perfect sense...let me explain...

.

First of all, the key thing that you stated was that your "Over Twelve Month" inventory is pretty much non existent. This combined with your lower than desired Gross and True Turns, low Stock  Order Performance can only mean one thing. 


You are overstocked with your most common  items which is really not a bad thing because you are on a  "Weekly Stock Order" as opposed  to a "Daily Stock Order" as many other dealers are on. This also allows you to take advantage of your factory promotions in order to gain additional discounts and allowances.

This is kind of a "double edged" sword because on one hand, you are taking great advantage of factory promotions, gaining those extra discounts and allowances. On the other hand, you are overstocking your inventory, even though, overall it's not hurting your investment as these items  have an activity cycle less than twelve months. 


In your case, you have "earned" the ability to overstock your inventory to gain additional profit without sacrificing the "liquidity" of the investment, which will always bring your dealer a great return on his or her investment.

You can slowly manage the increase of your Gross and True Turns as well as your Stock Order Performance by systematically cutting back on your Days Supply of those "fast moving" items in order to get these numbers up. 


Keep in mind that you are on a Weekly Stock Order and you  may incur "stock out" situations. The main reason that your Stock Order Performance is lower than expectation is because you have more than an ample supply on hand, thus requiring less stock order replenishment.

Lastly, if I were in your shoes, with the fact that you are on a Weekly Stock Order Program, I would make my OWN Guidelines on where YOU should target Stock Order Performance  as well as Gross and True Turns. Your overall investment is solid and "liquid" as long as you  maintain a "zero" tolerance policy on over twelve month obsolescence.

In your case, I am reminded of the "old days" when the Guideline for "Gross Turns" was 6.0 turns per year and the "True Turns"  Guideline was 3.0!...and the reason was?...Back then, most of us were on a Weekly or Bi-Monthly Stock Order as in your case at your dealership today! 


Most of these "Guidelines" were increased over time as more and more manufacturers' began overnight "Dedicated Delivery" which is not an option for you.

Keep up the great work, I know most dealers would LOVE to have those "First Time Off Shelf Fill Rate" numbers AND a solid "Return On Investment"!!! 

             

Dave Piecuch is the Vice President of Automotive Consultants Group Inc. and is the Head Coach for Smart PartsTM. The only "Results Based" High Return Training, Coaching, and Consulting company in the world!  Dave can be reached at Cell 786-521-1720 or E-mail at dave@smartservicetraining.com Vist our Website at www.smartpartstraining.com