Dave's Top 10 Indicators: Number Seven: "Inventory Gross & True Turns"

As we get closer and closer to our top indicator, our number seven indicator is probably one of the most important indicator in determining just how "healthy" the parts inventory is. Inventory Gross & True Turns have two distinctive meanings, even though their formulas of calculation may be somewhat similar.

Ironically, many Parts Managers don't even know the difference between Gross & True Turns or even how they are calculated. In this issue, we will not only review the proper definitions of Gross & True Turns, we will also review their individual meaning in determining just how "healthy" the parts inventory is.

First, let's review the definitions;

GROSS TURNS  (N.A.D.A Guide: 8 Turns Per Year) 

Total Sales (at Cost) for the Last Twelve Months, Divided By, Average Inventory Investment for the Last Twelve Months.

TRUE TURNS (N.A.D.A Guide: 5 Turns Per Year)

Total Order Receipts for the Last Twelve Months, Divided By, Average Inventory Investment for the Last Twelve Months.

Many of the Dealer Management Systems, (D.M.S.) automatically calculate Gross & True Turns on the Parts Monthly Analysis Report. Although, it is extremely important for Parts Managers to know their individual meaning and how to calculate their own Gross & True Turn.

First, let's look at Inventory Gross Turns;

The biggest difference between the two is that "Gross Turns" focuses on parts sales at cost. Unlike the True Turn calculation, Gross Turns only calculates and focuses on the sale of parts at cost on an annual basis. 

Technically, we could maintain a guide level of 8 Gross Turns Per Year without even stocking a single part. All inventory purchases, whether in stock or not, are measured in the Gross Turn calculation, including outside purchases.

To explain further, Gross Turns measures my total sales at cost which really represents my inventory marketability. In other words, with a guide of 8 turns per year, that means I should have a 45 days supply, whether on the shelf, or available to meet the sales demand.

As in new and used vehicle sales, a 45 days supply has been a standard in meeting market demands. This 45 days supply also equates to our Gross Turn Guide of 8 Turns Per Year. "Turning" the inventory every 45 days equates to 8 gross turns per year. There are also potential concerns for Gross Turns that may be too high or too low.

If my Gross Turn is too high, (Over 8 Turns Per Year, Less Than 45 Days Supply), it could indicate that I don't have enough inventory available to meet the demands of my market. This may result in chasing more parts at a higher cost, lost sales and lost productivity, just name a few.

In vehicle sales, a high Gross Turn or Low Days Supply could lead to more than desired "vehicle locates", lower gross or even lost vehicle sales. In either example, Gross Turns determines my marketability and just how much inventory VALUE needed and available to meet customer demands.

Now, let's look at Inventory True Turns;

Now that we know how to determine our marketability and just how much we can spend on inventory, it's time to measure our inventory investment. The True Turn calculation will help us determine how much of that "market potential" should be on the shelf to meet immediate demand.

True Turns also determines the overall "health" of the parts inventory. An "active" inventory should have 75% of sales at cost within the last three months, as we reviewed last month with our Number Six Indicator. Stocking the right parts, the FIRST time increases sales and gross potential as well overall service shop productivity.

Just as in the front end of our business, it is always easier to meet sales demands if the vehicle is on the lot. Having the most popular makes and models available always leads to higher vehicle sales and gross as well as higher vehicle turnover. It's no different in the parts department. 

Obsolete parts inventory, just like older aged units, freezes assets and reduces the amount of cash available to acquire the proper inventory in order to meet market demands. Measuring the Parts Inventory True Turns is the Number One measurement in protecting the overall investment.

Lastly, the Parts Manager's understanding of Gross & True Turns, by definition or meaning can easily be determined by reviewing the Dealer Management System's, (D.M.S) Parts Monthly Analysis Report. Unlike the Sales and Service Departments, Parts is "Black & White"...it either is, or it isn't with no grey areas.

Utilizing these measurement terms wisely can maximize market share as well as maintaining a "healthy" parts inventory investment. How "healthy" is your parts inventory? 

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

Dave's Top 10 Indicators: "Number Six: Sales Activity 0 - 3 Months"

Measuring sales activity in the parts department has always been, in my opinion, one of the key areas where we can see just how "healthy" the parts inventory is.

We can also break down our dealers investment in these categories which lead to our gross and true turn numbers. Here in lies some of our first "clues" to what these numbers really represent overall.

First of all, we have to keep in mind that many Dealer Management Systems, (D.M.S.) may list these sales activity categories differently. Some may have all the information we need readily available while other systems may require us to "do the math" ourselves.

I also want to start out with the guidelines that I have followed for years for these sales activity categories set forth years ago. The following guidelines by Mike Nichols and the National Automobile Dealers Association, (N.A.D.A). are as follows:

• Sales Activity 0 - 3 Months:       75%
• Sales Activity 4 - 6 Months:       23%
• Sales Activity 7 - 12 Months:       2%
• Sales Activity Over 12 Months:   0%  

This would mean that 75% of our total "inventory value" should have sales movement in the 0 - 3 month category. To take it one step further, 98% of our total "inventory value" should have movement in six months or less! Now THAT's a "healthy" inventory with lots of return on investment!

To accomplish this goal, we have to look at our inventory "face value" and how it plays into the guideline percentages. For example, if my obsolete or "idle inventory" over twelve months is excessive, then it will change the percentages in all of the sales activity categories.

On the other hand, if the sales activity in the 0 - 3 month category is HIGHER than the guide, it could indicate another issue. If this is true, than it could indicate that a "lack" of proper inventory or amount could be evident which may lead to lost sales, emergency purchases and lost shop productivity.

With both of these scenarios in mind, we have to be aware of the consequences from both sides of the perspective. Keep in mind that these "indicators" illustrate a different set of circumstances and follow up action plan.

Let's look at the first scenario which is Sales Activity in the 0 - 3 month category that is BELOW the guideline of 75%...

In most cases obsolescence is the culprit as all inventory dollar amounts are included in the sales activity cycles. It's quite possible that the obsolescence or "idle inventory" amounts of the inventory are excessive and may be "dipping into" the all the sales activity cycles, not just the 0 - 3 month category.

We not only have to measure this amount, we also have to keep it in perspective to the overall sales activity amounts.

For example, if the amount of obsolete or "idle inventory" over 12 months exceeds 10% of the total inventory value and the sales activity in the 0 - 3 month category is less than 75%, it is quite possible that the sales activity in the 0 -3 month category is well within guide.

If you "back out" the obsolete "idle inventory", the sales activity in this and all other sales activity categories could be well within guide.

Although, this is not an excuse or a solution to the problem, we still have to have an action plan to make these numbers real. Many dealers choose to keep obsolete or "idle inventory" on hand because in their mind, it's paid for, or..."it's gotta be worth something and I'm not going to just throw it out"!!...Sound familiar?

Problem is that most dealers don't realize that holding obsolete parts that have less than a 2% chance of ever selling again COSTS them in the long run. Never mind the acquisition and holding costs, carrying these "dead items" cost much more than they may think.

Those "inactive parts" could be costing dealers thousands as these parts take up the inventory value and space of "active parts" that may sell or "turnover" 5 - 8 times a year on average if not more!

Just like an "aged vehicle" whether new or used, get rid of it or at least, separate it from the active inventory. There are many avenues to market obsolete parts inventories with today's technology.

Now, let's look at the second scenario where perhaps the 0 - 3 month Sales Activity is ABOVE the guideline of 75%. It is quite possible for the pendulum to swing the other way, with sales activity moving too fast.

 Moreover, if the inventory sales activity is moving, or "turning" too quickly, the missed opportunities will rise as "out of stock" and "lost sales" activities increase. This will also result in lost productivity in the service shop and lower "First Time Off Shelf Fill Rates".

Not having enough parts inventory is similar to not having enough new and used vehicle inventory. The added cost of parts emergency purchases, lost sales and shop productivity is no different than vehicle swaps and dealer locates.

Even though we "may" save the sale, we will lose gross in the long run!

All dealer inventories have to be measured in a similar way based on days supply, sales activity and inventory turnover. Too many turns will indicate a lack of sufficient inventory and increased lost sales opportunities even though it may insure a higher return on investment for the short term.

Having the right "balance" of parts inventory will always be based on proper sales activity. The right balance will also be determined on how many times the inventory "value" turns. All of which will lead to higher gross profits as well as predictable results and a "healthy" parts inventory.

Last question...."What's your SMART PARTS Action Plan"?

Contact Dave @ www.smartpartstraining.com


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

Dave's Top 10 Indicators: "Number Five: Special Order Parts"

Our number five indicator takes us to the halfway point of our ten part series to higher success and profitability in the Parts Department. In this issue, we will be focusing on "Special Order Parts" from all angles, from  "necessary evil" to "managed chaos".

The first thing we will have to determine is what really defines a "Special Order Part"? One Parts Manager's special order part just may be some other Parts Manager's stocking part.

In actuality, ALL parts have to be ordered for a first time at some point, but it's what happens from there that determines the stocking status of a part.

This is where the Special Order Part is born. It happens when there is a demand on a part that either has no previous history, or it may be a stocking part, but there is "stock out" situation for one reason or another.

 The demand requires immediate action and depending on the severity of the demand, may even incur added costs to acquire.

The decisions that Parts Managers make at this point can determine many different outcomes. They could order the part along with an existing daily order to reduce added costs, or they may try and locate the part the same day with potential added costs.

This decision can ultimate effect other departments in the dealership from service and sales. Customer satisfaction may also be impacted as well as service productivity, vehicle deliveries and promise times.

We've discussed over and over how a part comes into the inventory with phase-in/phase-out criteria, days supply, source ranking and so on. We've also discussed how demands are tracked in our Dealer Management Systems (D.M.S.) by sales and lost sales, but sometimes we are just not going to stock certain parts.

Over the past thirty years or so, I have seen the evolution of the "Special Order Part" go from REAL special to NOT SO special. Back then, it wasn't unusual to see Special Order Parts lead times in the weeks, not just days! That had to be a REAL special part to take that long to get!

Today, most manufacturers have better fill rates and offer dedicated delivery to their dealers, thus reducing lead times to two days or less in most cases. We can get almost any part within a few days now, thus me labeling them NOT SO special now, as they are all treated equally.

Even though the manufacturer's are doing a better job with better PDC fill rates, dedicated delivery and reduced lead times, there is an added cost for this increase in service to the dealer.

 Many manufacturers invoke penalties and/or fees if Parts Managers don't maintain compliance with "their" stocking levels. They may also invoke fees for parts ordered "outside" their basic parameters.

Most Parts Manager want to maximize any discounts even if it's a Special Order Part. They may receive that discount from the manufacturer and that's a good thing, but unfortunately seeking those added discounts may not always benefit the customer in the long run.

Maximizing the discount may not maximize the repair turnaround time. Unfortunately, time is a "perishable" inventory in the service department that we can never get back.

This evolution has also created another "double edged" sword as many Parts Managers are stocking less and changing their stocking criteria because many parts are available over night. Even though some Customer Special Order parts are ordered on a stock order, they are still Special Orders.

Many Service Departments are experiencing lower productivity numbers as well due to this "double edged" sword. Repairs that would normally be done today have to wait until tomorrow to complete the repairs due to needed parts that have to be "Special Ordered" overnight on the Daily Stock Order.

The pendulum does swing in both directions though! One of my worst pet peeves as a Parts Manager was when a technician, advisor or manager "has to have the part right away"!!...Only to see it sit on the shelf for a week or so collecting dust.

All this adds up to one thing....Special Order Aging!

Many industry guidelines suggest and I would agree that Special Order Aging should always remain at thirty days or less. In most cases, thirty days is more than sufficient to complete the cycle from diagnosis to repair and satisfy the Special Order requirement.

In a perfect world, this would make sense, but it is not often the case. Special Orders tend to sit for months until the Parts Manager decides to return the parts, (if returnable!) and use up valuable return reserve monies that was designated for return of phased out, obsolete parts. This is why I often refer to Special Order Parts as "Accrual Killers"!

So, once again, this leads us to "How Do We Fix It?".....

Here are a list of items and/or processes that need to be implemented:

• Proper Set Ups & Controls have to be installed on the Dealer Management System, (D.M.S.). Criteria such as Phase-In/Phase-Out, Days Supply, Source Ranking By Piece Sales, etc. have to be set to maintain a minimum 75% FIRST Time Off Shelf Fill Rate or Stock Order Performance. Proper Set Ups & Controls will reduce the need for Special Orders.

• The Special Order Process should include a deposit or prepay option on Retail Parts Counter. Special Order Parts on Service Customers should be preassigned or prebilled to a Repair Order. All Special Orders should also be controlled in the Dealer Management System, (D.M.S.) as opposed to manual hand written Special Orders for proper follow up.

•  Special Order Parts should be "shelved" by days on hand, color coded and updated weekly to draw attention. Shelf One, (green side marker) would be for Special Order Parts received within seven days. Shelf Two, (yellow side marker) for Special Order Parts eight to fourteen days in stock. Shelf Three, (red side marker) for Special Order Parts fifteen to twenty one days in stock. Shelf Four, (black side marker) for Special Order Parts over twenty one days. Special Order Parts listed on shelf four referred to management for final decisions and/or fees assessed.

• Technicians do not order parts! They can requisition parts to a repair order as to what parts would be needed to complete the repairs, but they do not order them. Parts are only Special Ordered by customer approval via way of service advisors, managers or the customer themselves utilizing current pre-billing and/or deposit guidelines.

• Special Order Parts Reports should be generated daily on the Dealer Management System, (D.M.S.). Report should be generated by advisor and counterperson for management follow up. Advisor and/or counterperson updates Special Order by contacting customer and/or setting future appointment. Reports are then turned back to management after notes and updates are completed. 

Special Order Parts may be a "necessary evil" but we can manage them and protect our inventory at the same time. Controlling just who is able to order Special Order Parts is also crucial to maintaining this process.

Most importantly, keeping these parts to a "thirty day or less" standard will keep your obsolescence accrual protected and used for it's intent.

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

Dave's Top 10 Indicators: "Number Four: Lost Sales Reporting"

Our fourth "Top 10 Indicator" takes us into June of 2013 and I believe, it is one of the most highly discussed and "over interpreted" indicators of all....Lost Sales Reporting.

Some may say that I have beaten this indicator to death, but in all actuality, there isn't a better way to seek out potential sales in the Parts Department without reporting a good number of "Potential Missed Opportunities", which is my interpretation of "Lost Sales".

I also believe that it has become even tougher to properly identify Lost Sales these days due to better delivery and lead times from today's manufacturers.

Many even offer factory sponsored stock replenishment  programs that they totally manage, with the added benefit of discounts and inventory protection over a period of time.

In addition, many "out of stock" items are readily available from other sources within a reasonable amount of time, often even the same day.

So, it's no wonder that Parts Managers are posting less Lost Sales as there are "technically" less incidents that the sale was actually lost, or at least...it would appear so!

So what's my point?....

First of all, there are only two ways that may cause an "out of stock" situation. Either we never stocked the part to begin with, or we simply ran out of that stocking item. This "juggling act" has been on going for years and still continues today.

Special Order Parts will always be there as first time demands all have to have a "first time" before they begin their cycle, but there in lies the problem. Even though a sale creates a demand automatically, what about those "parts inquiries" that go unsold AND un-posted?

Here's another scenario...what happens if one counter person gets a request for a part that is not on stock, then enters the "Lost Sale" only to have that same customer return to order that same part from another counter person?

Now we have just created TWO demands on that same part! Now what are we supposed to do?

If the Parts Manager does not have a "Potential Missed Opportunities", (Lost Sales) Reporting System, there will definitely be times where either in-coming phone call parts requests and counter parts requests on "out of stock" items will not be posted as "Lost Sales"....GUARANTEED!

So how do we find a "Happy Median"?

The answer is much simpler than anyone would think. When in doubt?...post the "Lost Sale"! Here are the reasons for my simple answer.

First of all, as the Parts Manager, I see all the "Potential Missed Opportunities" on Phase-In Reports, Suggested Stock Order Reports and Lost Sales Reports.

I determine whether I want to stock a particular part or if I want to manage quantities. These parts don't just arrive on the shelf automatically, that's why I'm the Parts Manager.

On the other hand, I can't manage what I can't see if these "Potential Missed Opportunities" don't get entered! They will not show up on any report for me to make proper decisions whether to stock or not to stock. Any Parts Manager can make decisions on parts that sell, I just want more parts to get into that category. 

Second, if I have to adjust my Phase-In criteria in number of demands over a period of days, weeks or months, pending the Dealer Management System, (D.M.S.), then I can do so.

 I can also create a "Test Phase" Source, specifically for these "Potential Missed Opportunities" just to take a glance at what demands are out there that may be worth stocking.

I can also go one step further by controlling the Phase-Out criteria on these "Test Phase" Parts to insure obsolescence protection.

Lastly, if my manufacturer offers a stock replenishment program, I will still run my own Phase-In Reports and  Suggested Stock Order Reports in addition to theirs.

Many of these programs operate in the same way as our own Dealer Management System, except that their stocking criteria based on a number of dealerships. I want to make sure that my stocking criteria meets the demands of MY customers, not everyone else's.

All of this will result in higher "First Time Off Shelf Fill Rates" and much higher Service Shop Productivity as "down time" is reduced.

I will also reap higher profits from the buying power gained from stocking more of the right parts. Seeing is believing and by seeing more demands, I'm able to stock more of these "right parts".

Managing a parts inventory today is far more difficult than it was years ago, although the same principles apply today as it did then. Don't let YOUR "Potential Missed Opportunities" get away from you because if you are...someone else is cashing in on those opportunities right now!

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

Dave's Top 10 Indicators: "Number Three: Sales & Gross Per Employee"

Welcome to May "Smart Parts" Readers as we continue on up the ladder of our Top Ten Indicators that will lead us to higher success and profitability!

This month, we will will "drill down" our Number Three Indicator which is "Sales & Gross Per Employee". This category is one of the most important as it lays down the foundation to our Parts Department operations.

Having the right amount of employees to carry out the daily operations and to achieve proper sales and gross numbers goes beyond just this one guideline.

Depending on which franchise or manufacturer, the guideline for "Sales & Gross Per Employee" is approximately $38,000.00 in sales per employee and $14,000.00 in gross per employee.

Gross per employee should be approximately one third of the sales number as overall parts gross profit to sales should be in the vicinity of 33% to 35%.

Overall, this is is a good measurement to the total amount of parts staff that we should employ, but it really doesn't break it down enough. The "Sales & Gross Per Employee" guideline includes ALL parts employees, but in order to maintain a proper "bottom line", we have to have the right amount of employees in the right position as well.

Technically, we could achieve the proper "Sales & Gross Per Employee" guidelines, but still NOT achieve the overall personnel expense to gross guideline on the balance sheet.

The amount of overall parts employee compensation for specific positions within the department has to be addressed as well.

This is where the Parts Department "staffing metrics" comes into play. In order to attain the "Sales & Gross Per Employee" guideline AND achieve the proper personnel expense to gross guideline, we have a few questions to consider:

• How many "total" parts employees should I have on staff based on current sales and gross numbers?
• How many of these staff members should be front and back sales counters?
• How many drivers should we have on staff?
• How many shipper/ receivers do we need?....or do I need any?
• Do I need to have an inventory clerk and/or stock person?
• Do I need an assistant manager? 

All these questions should come into play when we are trying to achieve and maintain the proper staffing.  It will allow us to not only hit our target on the "Sales & Gross Per Employee" guideline as well as maintain the proper expense to gross numbers on personnel expense management.

Keep in mind that in most dealerships, personnel expense represents over 40% of the total expense each month in the Parts Department.

So!...How do we do this?

Proper "staffing metrics" begins with one simple item and that is our "sales to support" ratio. Just as we measure "sales to support" ratio in service and sales, the same applies in the parts department. The "sales to support" ratio in parts is 2:1, just as it is in the service department. 

That being said and using a little basic math, each counter "salesperson" should achieve one and a half  times the sales and gross numbers to account for one half the expense of support staff. Also, "support staff" employees usually earn about half as much as "sales staff" employees with the exception of management.

Here's an example Parts Department "Staffing Metrics" based on an average parts department sales & gross numbers:

Average Month's Sales: $200,000.00

Average Month's Gross: $70,000.00

Total Parts Employees Based on "Sales & Gross Per Employee" Guideline: 5

Staffing Metrics:  Parts Manager: (1)  Sales Staff: (3)  Support Staff: (1)

This example could also have a little "shift" within itself as some "support" staff members may play duel roles in working the front and/or back counters during peak times.

Parts Managers may also play in this scenario as well playing multiple roles. The most important part of this example is the proper "sales" staffing is crucial to meeting ALL the guidelines and net profit expectations.

Achieving the proper "Sales & Gross Per Employee" guideline is just a piece of the puzzle. Building the proper "people" foundation in the Parts Department is critical and proper "staffing metrics" have to implemented in order to achieve "predictable results" on the bottom line. 

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

Dave's Top Ten Indicators: "Number Two: Level of Service (Overall Fill Rate)

Our series on the "Top Ten Indicators" to a more successful and profitable Parts Department continues this month with our second indicator, which is "Level of Service" or as some refer to as "Overall Fill Rate". Keep in mind, each month we are climbing the ladder to our overall number one goal which is higher net profits.

Last month, we featured our number one indicator which was "First Time Off Shelf Fill Rates", not to be confused with this months "Top Ten Indicator", though quite often it does.

Having the part on the first visit to the counter is extremely important, but we also have to meet the overall demand 85% - 90% of the time and that's where "Level of Service" comes in.

The "Level of Service" (Overall Fill Rate) is an important indicator because it measures how well we are meeting the demands of the customer and not losing sales opportunities. The problem is, often times Parts Managers don't post all their demands properly which leads to an unrealistic measurement percentage on the Monthly Management Report.

In my opinion, filling the overall demand is not the main issue. Any Parts Manager can order a part and fill the customer demand...I can do that without even stocking a single part.

To me, the real issue here is to make sure the Parts Manager is "seeing" all the demand opportunities in the first place. Many opportunities go "unseen" and the Parts Manager doesn't even get a chance to fill the demand, such as "Lost Sales Posting" or as I refer to them as "Potential Missed Opportunities".

If there is one issue that I get challenged on the most, it's definitely the "Lost Sales" category. More and more Parts Managers are telling me that they don't post "Lost Sales" because they either don't have any, or they are concerned about posting too many demands to their Dealer Management System, (D.M.S.).

I can understand why many parts managers feel that way, but I would challenge those who do to the following little  task.

Devote about an hour each day, preferably in the morning, just to listen to your parts staff when they answer the phone. Not only listen to how they answer the phone, but also "listen, watch and see" if they are just giving out information, or if they actually make the sale.

I can guaranty you that you will be amazed on how many "Potential Missed Opportunities" go unrealized.

• Did the customer on the other end of the phone just call for prices? 
• Did we have the part they were asking about in stock? 
• Are they really going to call back to order or buy the part? 
• How many phone calls do we take on a given day? 

Here's the worst part, we never even know how many opportunities are missed because they don't get posted.

So, what does the proper posting of all demands have to do with our "Level of Service" or "Overall Fill Rate"? First of all, a "demand" is defined as a "Sale" or a "Lost Sale" and the posting or reporting of these two lead to the "Level of Service" or "Overall Fill Rate" calculation.

With that said, I would have to ask this question:

"Are we really posting ALL of our Potential Missed Opportunities"?

With this thought in mind, I'm wondering if our number of demands could be increased and filled instead of being more concerned about the Level of Service or Overall Fill Rate percentage.

The NADA guideline for this category is 85% - 90% and most often times, I see Parts Monthly Management Reports in the mid to upper 90% bracket. When I see these high percentages, I often wonder if the Parts Manager is reporting ALL "Potential Missed Opportunities".

Personally, I would much rather be at the lower end of that percentage with more demands than I would at the higher end with less demands entered. In other words, I would much rather fill 85% of 100 opportunities instead of maybe filling 95% of 50 opportunities.

If I don't enter ALL of my potential demand opportunities, I would really never know what my market potential is.

By posting as many demands possible, I would not only have a better "vision" of my marketability on my Monthly Management Report, I would also increase my potential Gross Turn numbers.

Gross Turns are also a big indicator of market potential as it determines the inventory "dollar value" needed to meet demands and maintain a (45) days supply available. We will explore more about Gross and True Turns when we reach our Number Seven Top Ten Indicator in a few months down the road.

As you can see, being true and honest in our posting and reporting procedures can make a huge impact in planning our marketing strategies. Whenever I see a Monthly Management Report that shows a "Level of Service" or "Overall Fill Rate" higher than 95%?...I know that there are "Potential Missed Opportunities" not being posted.

One of the biggest indicators that can measure our market opportunities and impact the size of our customer base is our "Level of Service" or "Overall Fill Rate".

Increasing the number of demands posted along with the right Phase-In/Phase-Out and Days Supply Criteria can and will increase market potential. Don't let these "Potential Missed Opportunities" slip away from sight as they will ultimately lead to higher sales and profits!

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

Dave's Top Ten Indicators: "Number One: First Time Off Shelf Fill Rate"

Last month we published, what I referred to as the "Top Ten Indicators" to a successful and profitable Parts Department. As we counted down to Number One, it was kind of ironic how each how each "previous" indicator was impacted by the next one down the list. 

For example; the number ten indicator which is "Net Profit As A % Of Sale" became impacted by number nine and so on down the list.

Actually, our "goal" is to impact number ten the most, with all the others playing a specific role in the overall success and profitability of the Parts Department. So, here we go with the number one indicator...."First Time Off Shelf Fill Rate"!

In any business that generates its' profit from buying, stocking, warehousing and selling an inventory; the ultimate success relies primarily on how well and how often the inventory "moves" or sells.

In my opinion, managing the automotive dealership parts inventory versus other types of inventories has many disadvantages right from the start. 

After all...how many different parts are there on a vehicle today versus even..."yesteryear"? Even though it is not "new news" that we need to stock the right parts at the right time...nowadays, it's the "right time" that's the challenge!

Parts sales activity cycles have diminished quite extensively over the years. For example; I remember when one part number's application cycle would fit multiple years. Now, you could have many different part numbers for the same application within the same year!

The first thing that we have to establish is the "true" definition of the First Time Off Shelf Fill Rate as opposed to just plain "Fill Rate". 

The actual overall fill rate simply means that the parts order was "filled" and not necessarily from my own inventory. Technically, I could have a 100% overall "fill rate" without even stocking a single part number! That is of course, if I'm not recording or have any "Lost Sales".

The "First Time Off Shelf Fill Rate" refers to parts orders filled from "stocking parts" that have met stocking criteria such as Phase-In/Phase-Out, Days Supply and Source Ranking by Piece Sales. 

The guideline for this criteria should be a minimum of 75% - 80% and NOT confused with the overall "Fill Rate" or "Level Of Service".

One other important practice that is crucial to achieving a goal of 75% - 80% "First Time Off Shelf Fill Rate" is separating "Customer Orders" from actual "Stock Orders". 

This is one BIG area that hinders Parts Managers' from achieving their goals, especially with many manufacturers offering overnight dedicated delivery service.

This added benefit can actually be a double edged sword as "Daily Customer Orders" get placed along with "Daily Stock Orders" and receipted as stock, instead of being receipted as a "Non-Stock" part, ordered for a specific customer. 

The first step is to be honest with our "Belief System" on how we use out Dealer Management System, (D.M.S.)

If we do not enter the information correctly to begin with, I can guaranty that a TRUE "First Time Off Shelf Fill Rate" of 75% - 80% will never be achieved. 

By this, I mean that every time a tech pulls up to that back counter, he or she receives that part on the first visit, 75% - 80% of the time. This also leads to higher productivity in the shop and higher parts gross as more stock order discounts and accruals are realized.

Once we have our "Belief System" in check, we can now proceed to one of the key ingredients to achieving a high First Time Off Shelf Fill Rate which is "Source Ranking By Piece Sales".

Today, to my amazement, there are many Parts Managers still utilizing just one parts source within a given automotive franchise.

Defining "Source Ranking By Piece Sales" simply means that we would create separate parts sources, or separate "little inventories" by how fast, or how slow they move, or "sell". 

Each source would have different criteria on how a part phases into the system as well as when it will phase out over a period of time without any activity. 

Each source would also have a different number of days supply in order to avoid "over stocking" and "run out" situations.

Fast moving parts need less days supply because they get replenished more often and slower moving parts need more days supply because they don'y sell as often. Believe it or not, many get confused about my last statement, so let me explain;

If I have a part that sells only twelve times a year, or once every thirty days on average, then I would need only a "thirty days supply" of that specific part because it's only due to sell, on average, every thirty days.

 Fast moving parts need less days supply, maybe two to seven days supply, depending on stock order acquisition and lead times. Low and High Days Supply can be adjusted as needed depending on seasonal or promotional items.

The last ingredient to achieving a "First Time Off Shelf Fill Rate" is the proper posting of Lost Sales and Emergency Purchases. 

I like to define Lost Sales as "Potential Missed Opportunities" as many Parts Managers tell me that they don't have any Lost Sales. They just chase or order the part(s) over and over again if they don't have it.

Posting more "Lost Sales" or "Potential Missed Opportunities" will create more parts demands and give the Parts Manager more insight to potentially stocking more of the right parts. 

More demands will lead to more of the right parts on the shelf, controlled in their own source by their own movement cycles with specific criteria such as phase-in/phase-out and days supply.

Lastly, we can't stop the bleeding of obsolescence or parts inactivity until we set a proper foundation on how we stock parts in the first place. 

We also have to be honest about how we use our Dealer Management System, (D.M.S.) in order to get the best results in our "First time Off Shelf Fill Rate" category. 

You can't manage what you can't see and having the correct information on our Management System Reports is our first line of offense and defense.

Final Question: 

"Are your technicians getting the right parts on the FIRST visit to the parts back counter at least 75% of the time"?

If not, don't kid yourself...you can do better and our "Number One Indicator" is a good place to start climbing the ladder up to our "Number Ten Indicator" which is higher "Net Profits As A % Of Gross" and ACG "Smart Parts" can help you get there!    

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