July 2016: "What Are You Waiting For?"

Have you noticed the Service "Waiting Area" lately?...or have you just passed by it, hoping not to have to talk to anyone on your way back to the Parts Department?...

Seriously though, have you ever actually counted the number of customers at the beginning of each day and maybe even right after lunch, that are sitting in the "Waiting Area" while their vehicle gets serviced or repaired?

I believe these are legitimate questions to ask the Parts Manager, not just the Service Manager because each time we have the opportunity to experience a "one-on-one" relationship with the customer, we have the opportunity to increase sales and gross profits.

For years, from a Service perspective, we have tried and tried to limit the number of Service Customers who would rather "wait" for their vehicle to be serviced as opposed to dropping their vehicle off for service.

We have also known for years the reason for limiting customer "waiters" was because average sales per repair order drops drastically when the customer chooses to "wait" versus leaving the vehicle for the day. Even though this has been the "norm" for many years, we are now seeing that trend start to shift in the other direction.

Customer convenience has and always will play a big role in customer retention and overall customer satisfaction. In many cases, it's the number one reason for the customers' overall choice in not only a vehicle brand, but also the dealer the choose to buy from.

More and more customers are "demanding" to wait than ever before, making it even tougher for Service Departments to control the overall  number of "waiter slots" available on the appointment schedule. 

Many manufacturers are offering and in some cases, mandating their dealers offer Express Service to their customers in order to provide added convenience and to increase overall customer retention and customer satisfaction. Once again...adding more and more pressure for the Service Department with more and more "Waiter" Customers.

In addition, customers are choosing to "wait" for more than just oil changes and other minor services. With more and more dealerships offering more and more conveniences, more and more customers are taking advantage of those conveniences by choosing to wait even more!

It has also led to longer and longer average "wait times" as many customers are "choosing to wait", even if it takes hours to complete their service and/or repair. They actually don't mind the longer wait, or maybe they drove quite a distance to get there and they have no choice but to wait.

Dealers have added conveniences like wireless internet, child play areas, big flat screen televisions, comfortable seating, various refreshments, up to date reading material, work stations, cafes, etc....you name it!

 I'm just waiting to see which dealer will be the first to offer "rest stations" next, like in many major airports where they can actually take a nap while waiting for their vehicle!

So how does this become a new opportunity for increasing overall parts sales and gross?

First of all, in my opinion, this is a "game changer" and we really have to redefine today's "Waiter Customer". To me, whether a customer "chooses" to wait in the "Waiting Area" for four to five hours, or they "choose" to wait in their own home, or even at the mall, that vehicle is a "Drop Off" in my mind.

What used to be considered a "waiter" is now a "drop off" in many situations and should change the job priority when dispatched. Services and/or Repairs that can be completed inside of the average, accepted "wait" time of an hour or less will have a higher priority over "waiters" left for longer periods of time.

Once the new "Waiter Categories" have been established, we now have new opportunities in front of us. We now have new opportunities to build customer relationships as they are in the dealership already for a longer period of time.

 More opportunities for "one-on-one" interactions will lead to more trust, which in turn leads to increased sales and gross profits.

Here are a few of the opportunities that I'm referring to and suggesting;

1.) Reviewing the Service Departments "next day" appointments in the Parts Department can reveal many opportunities for accessory sales on lower mileage vehicles scheduled as "waiters". We all know that there isn't a lot of gross percentage in accessory sales already, but there is gross opportunity. 

Why not introduce yourself as the Parts Manager while they are "waiting" and compliment their vehicle they recently purchased and offer a 10% discount on accessories? Have they even seen an accessory catalog or brochure on the accessories available for their vehicle in the first place? 

It is a known fact that most of the money customers spend on added vehicle accessories is done in the first year of ownership. This gives me, the Parts Manager at least two, if not three opportunities in their first year of ownership, while they are "waiting" to get their vehicle serviced, for accessory sales opportunities.

2.) After reviewing these "next day" appointments, as the Parts Manager, I can review all the appointments, especially the "Waiter Customers" to see what their concerns are to make sure that the more common concerns with higher "First Time Off Shelf Fill Rate" parts are available. 

Just like in New Vehicle Sales, sales are much higher if we have the vehicle on the lot with higher "point of purchase" opportunities. It's much easier for the Service Advisors to make their presentations on primary items and additional services and/or repairs if the parts are in stock. 

Believe it or not, to a customer, having the part(s) in stock is another convenience as it may save an additional trip back to the dealership, or even without their vehicle, down in the shop waiting for parts.

 It also increases overall shop productivity and efficiency as the vehicle services and/or repairs can be completed immediately, without waiting for parts.

3.) If logistically possible, as the Parts Manager, I would build my retail parts area to support my Service "Waiting Area". I'm not talking about just a few display items with some accessories, jackets, hats, miniature cars, etc...I'm talking about making my retail area "alive! 

I want to "draw" those customers into my Parts Retail Area with movement, such as television monitors, or maybe even a fan on low speed moving streamers or signs that show activity. Depending on the logistics and layouts, I would have to find a way to get traffic down over to the Parts Retail Area.

4.) Don't be shy!...and don't hide in the Parts Department all day! Get out there and meet those "Waiter Customers"! It's not just the Service Managers' responsibility to insure Customer Satisfaction, it's every employees duty and responsibility!

Take advantage of this opportunity to create a relationship, which has already been provided for you by the customer. They "chose" to come in and all we have to do is cease the opportunity. Dealers spend thousands upon thousands of dollars just trying to get customers to come into the dealership. 

5.) As the Parts Manager, I would develop a "Parts Department Brochure" that would be colorful and loaded with all the conveniences, benefits and commitments that I would offer. Think about it, do your customers know what conveniences and benefits you offer?....Here are a few examples;

• Current Inventory Amount
• Advertised Specials
• Parts Warranties
• In-Stock Accessories
• List and Pictures of Parts Department Employees, Tenure, etc.
• Parts Department Awards
• "Car/Truck Clubs" depending on Vehicle Model/Manufacturer
• Newsletters/ Social Media
• New Vehicle Owner Parts "Over-The-Counter" 10% Discount Card

The more "ownership" and "membership" that you offer your customers, the more likely you are to retain them. We can't do it by hiding "in the closet" every day, we have to be proactive and have the "want" to develop better customer relationships.

After all, they are already there, in your "Waiting Area" and growing more and more each day. We can either complain about it or we can seize this great opportunity for building better customer relationships. The results will positive if we have a positive mindset as increasing parts sales and gross profits are just a handshake and a smile away!

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

June 2016: Gross Profit: "A State Of Mind"

Many of us have heard this term before as to gross profit being just a "state of mind"...but what does it really mean, or even better....what does it imply?

In my opinion, this simple phrase of gross profit being a "state of mind" has always been just that...a mindset and a thought process that has always led me to "predictable and desired results" each month throughout my career.

Even though there have been times when the results were  not so desirable, or predictable, just having that "state of mind", the predictable and desired results far outweighed the few times that they were not achieved.

We could also carry this "mindset" into our sales and net profit categories as well and not just the gross profit "state of mind".

For example, in order to remain competitive, sales prices may have to be reduced, sacrificing the gross percentage in order to gain higher overall gross amounts. After all, we really can't spend a percentage, but we can spend overall gross dollars.

Quite simply, I would much rather have a parts gross of 35% of $100,000.00 as opposed to 45% of $50,000.00. Volume sometimes will send us into a gross "state of mind" leaning towards volume as opposed to the appropriate gross retention percentage.

I would prefer both of course, but that may not always be the case in certain circumstances.

Another example in parts would be accepting a much lower gross, or perhaps even "no gross" up front on the sale in order to gain the "back end" gross from volume purchase discounts and achieving overall sales goals....much like in the "front end" sales departments.

As a matter of fact, having a gross "state of mind" is very evident in the front end sales departments, especially with used vehicle sales.

Most used vehicle sales prices are usually priced "cost up", meaning whatever the cost of the unit is, along with reconditioning costs will ultimately be the determining factor of what the unit ultimately sells for.

This is not unusual, or even uncommon as the sales department also has their own guidelines as to average gross per vehicle, both "front and back". This is why the term "MSRP", (Manufacturers' "Suggested" Retail Price) is a common term today and not just in our business.

The Manufacturers Suggested Retail Price, (MSRP) is basically available to set guidelines for the consumer to shop and compare.

Living in a "free market" environment and economy allows competition to play up to it's potential and ultimately, better consumer prices and better products. To me, this is why, still to this day, people are always shopping for the "best deal", in all retail environments.

We also feel this gross "state of mind" in our Service Departments as well with overall labor gross percentages versus overall labor gross. Once again...would you prefer an overall gross percentage of 68% of $100,000.00, or 75% overall gross percentage of $50,000.00?...same "state of mind" applies.

Once again, I would prefer both and have always been a "goals & guidelines" type of manager, but we still have to keep things in perspective. We also have to have reasons for everything we do and having a true understanding always precedes the particular "state of mind".

We also have to be careful not to fool or confuse ourselves in our accounting practices as well. A good example of what I'm referring to was a recent question and comment that I received from one my customers concerning overall labor gross profit.

This particular dealer was very happy with his customer, warranty and internal labor gross percentages, which was well over guide in the the mid-70% range, but he didn't understand why his "overall" gross percentage was in the low-60% range.

I explained to him that there's this little thing, or account called "adjusted cost of labor" that was way out of control and even though the initial percentages were great.

Unapplied time, straight time technicians, tech incentives, guarantees, etc. were taking a big toll on his "desired result" area, which is of course, overall labor gross dollars.

In my opinion, any amount paid technicians, other than vacations, benefits, etc. should be considered a "cost of labor" and should be accounted as such. Whatever the gross comes in at is a real number and a real percentage.

If the gross attainment percentages or levels fall short of guide or "desired and predictable" levels?....then we fix it.

Adjustments or modifications may need to be made in overall service pricing such as competitive labor versus maintenance and captive, repair labor. Maybe dispatching is an issue or even the right mix of tech skill levels have to be addressed.

The most important thing is that we don't hide these things from ourselves just to make it "appear" to look better than it actually is.

It's also very difficult achieve "predictable and desired" results when we are not honest with ourselves, or perhaps we just didn't know to, in this case, have the proper accounting practices in place that can be measured accurately.

There are also many areas and accounts in the dealers' financial that is subject to not only personal preference, but also scrutiny and questions as to what is an expense versus a cost of goods or labor.

Should a straight time technician's "unapplied time" be expended in Service "Other Salary & Wages?"...or perhaps "Adjusted Cost of Labor?"...or lastly, the "Cost of Labor" account?...

If a clock hour tech works 40 hours and only produces 20 hours?....where does the time go? How is it accounted for? This is where just by having all these different options leads to different opinions and different results on various dealer financial statements.

This is where everyone is right and everyone is wrong, depending on the dealer, manufacturer or office manager.

Having the right "state of mind" also has to be communicated and understood by everyone as one "state of mind" for the group, team or dealership department. Everyone has to be on the same page, with the same goals and guidelines that can be measured.

Also, by having a unified "state of mind", everyone understands the numbers and percentages that these goals and guidelines represent and set for to begin with. Ultimately, this better understanding and honesty leads to hitting those "predictable and desired" results more often than not.

"Having the proper "state of mind" on gross profit isn't anything new for most of us...the real question is...what's your expectation?...because it's your "expectation" that ultimately determines your "state of mind"....

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

May 2016: "Is Your Parts Inventory Overweight?"

In our 75th edition of ACG "Smart Parts", I decided to wrap this month's topic around my analysis, comments and overviews on my visit to the NADA Convention, March 31st - April 3rd in Las Vegas, Nevada.

The timing of the convention couldn't have been better as I had already decided on this month's topic before attending and wanted to research the causes and possible solutions to what I believe is one of the biggest "epidemics" in the automotive dealers parts departments today.

We will expand more on the NADA Convention and how it plays into the root causes and solutions to this "epidemic" later in this article. The convention provided lots of information that I want to pass on to "Smart Parts" Readers.

The "epidemic" that I refer to, in my opinion is "overweight" and "overvalued" inventory in the parts department. Many parts departments are becoming "overweight" in the mid-section and is resulting in higher inventory carrying costs, (acquisition & holding), reduced dealer "cash flow" and lower inventory gross and true turns.

The "mid-section" I refer to is the sales activity in the 7 - 12 months category which often gets overlooked by parts managers and dealers alike. After all, aren't we more concerned about obsolete inventory OVER twelve months?

With today's shorter parts life spans and activity cycles, we have to get a handle on what's "coming down the pipe" far before parts in-activity hits twelve months. I'm "all in" on helping dealers with their obsolescence, but I am more concerned about "stopping the bleeding" first.

Even though many manufacturers offer "inventory protection" for obsolescence, they really don't offer any assistance in inventory "carrying costs", or sometimes referred to as acquisition and holding costs. My question is..."How much is that "inventory protection" costing the dealer in the long run?"

As I mentioned in last month's issue of "Smart Parts", the latest industry calculations on acquisition and holding costs are in excess of 25% - 30% of the total inventory value at cost! If you do the math on your own inventory, unless you are at or above industry guidelines on gross and true turns, you could be in a heap of trouble.

The biggest area of "lack of control" that I see from parts managers is that they seem to "trust" the manufacturers' daily suggested orders. They seem to believe that they "have to" accept these suggested orders because of compliance percentages, loyalty requirements and overall program utilization.

I'm totally okay with all of that and maximizing discounts, allowances and accruals, but not to the degree of  "over consumption" of spending the dealers money on parts and/or quantities we don't really need to meet demand.

Quite simply, we only need a 1.5 months supply, (45 days) of inventory value to meet demand and maintain industry guidelines on gross turns. True turns are another issue that compliments first time off shelf fill rates and stocking criteria, but we still have to "hold the line" on the total inventory value.

For example, if my average monthly parts sales at cost is $100,000 annualized, I only need to have an average inventory balance of $150,000, which equates to eight "gross turns" a year. In order to determine if your inventory is "overweight", you first have to determine your inventory's "desired weight".

The inventory "desired weight" or "value" is very easy to figure out. Basically, all you have to do is take your total average months cost of sales, (annualized) and divide by eight, which is the industry gross turn guideline. The net result from that equation should be your average months inventory value, or "desired inventory weight".

Any amounts over that are the result of obsolescence and "over stocked" inventory values, plain and simple. The truth of the matter is that if the math indicates "over valued" inventory, then we need to look at who is really benefiting from these "additional" purchases....the dealer, or the manufacturer?

Reviewing the stock orders whether in house, or combined with the manufacturers' stock replenishment programs, cannot be taken for granted. The suggested orders from the manufacturer are based on multiple dealer demands and not necessarily your own.

Sure, you may gain discounts and allowances, but is it really "tangible" if we are just padding our inventory? My "kudos" to those "Smart Parts" Managers that are realizing these benefits while having great gross and true turn numbers. That's the only way these "dollars" can be realized and tendered.

Now, for the good news!!!....here's some solutions that may help those "Smart Parts" Readers that may have parts inventories that may be "overweight!" 

As I mentioned earlier, I was looking to get some answers and solutions to this "epidemic" when I visited the NADA Convention in Las Vegas. Not only did I find some of the causes to the "epidemic" (thumbs down!)...I also teamed up with many to provide solutions to the "epidemic", (thumbs up!).

Thumbs Up!....

In general, the NADA Convention had some good things to offer for "Smart Parts" Managers and Readers in the way of getting the proper tools and industry help to do a better job in managing parts inventories. I thought that the NADA Academy offered lots of training in their parts curriculum, especially in the areas of inventory and financial management.

I was also pleased to get an invite to the NADA Parts "Round Table" this upcoming September. I will be visiting with other Parts Managers, NADA Academy Instructors as well as other respected parts industry experts and I appreciate the invite from Chris Bavis and Mark Michalski from NADA.

One company in particular, Bob Palcher and Dealer Solutions, Inc, (DSI), in my opinion, is the industry standard in the inventory management process as it relates to physical inventories, bar code scanning, perpetual inventories, bin set ups, etc...you name it...they can do it!

"Parts Eye", is in my opinion THE BEST manufacturers' stock replenishment program, far outweighing any other manufacturers' program. The "Parts Eye" Program allows for the utmost in program utilization and inventory protection while controlling Days Supply and On Hand Values over 9 months. The best of both worlds...inventory "breadth" without adding "over valued" inventory.

I was also pleased to get with Mark De Lucia from DealerMine Corporation as he had some really decent obsolescence buy back programs available.

 That's a tough business as dealing with this expensive dealer asset is never easy and turning frozen assets into cash can definitely be an option for some dealers who need to lose that parts inventory excess "weight" fast.

It's obvious there is a need for more training and information out there for many parts managers. Many parts managers I meet are obviously intelligent and have the skill.

They just haven't been given the opportunity or proper training, information, guidelines and tools for success as many were "thrown" into the parts manager position.

Thumbs Down!...

Just in general before I talk about the "parts related" portion of NADA that I observed...the 99th Annual NADA Convention, although extravagant, seemed a little over the top. Many of the same products and services all just dressed up a little differently.

Don't misunderstand, I felt that NADA put on quite a "gala" event and I was proud to be part of it as well as being a part of this great industry, but I felt that there was much more "solicitation" this year as compared to past years. It was surprising the methods used to get the dealers attention to say the least.

It seems that there was a LOT of money spent to lure dealers into the booth to see the latest that these industry vendors had to offer. I know that this is not unusual, but it seemed to be more obvious and extravagant this year to me for some reason...

From a parts perspective, I was really quite shocked that there wasn't much out there other than NADA Academy, Mike Nicoles and "yours truly" that even offer parts management training out there.

Even though it's always a big topic of discussion, especially when we talk about obsolescence, first time off shelf fill rates, parts purchasing programs, etc. 

Even though there is training available from the above mentioned, parts training compared to sales and service training is very minimal at best. I believe there are a couple reasons for the drastic difference in training opportunities for parts versus sales and service training opportunities.

For one thing, there aren't a lot of us "parts trainer guys" out here that really even know parts!...I mean really know parts! The second reason I believe there aren't many is that dealers seem to have a preconceived notion that......"Parts is parts and anyone can do it!...Who needs to be trained in parts anyways!"

Until there is a problem of course...obsolete inventory, improper inventory balances from the ledger to the controlled inventory, poor CSI due to parts not in stock, poor shop productivity due to low off shelf fill rates....the list could go on and on....

It just seems that more time, money and effort is spent on "cleaning up the mess" than it is being spent on proper parts manager training to "stop the bleeding" first! In my opinion, there wouldn't be any obsolescence out there if parts managers were trained properly in the first place. 

There would be no "overweight" parts departments with "out of control" inventory amounts out there if the proper training had been offered or utilized.

 Proper training on managing and/or modifying the proper set ups and controls, especially when it comes to the manufacturers having their hand in controlling stock orders and the dealers' money. 

Having the "right part at the right time" does not require having all the parts "just in case" they might sell according to someone else's "demand" and not my own.

Most importantly, we can't be buying parts just to get a check back from the manufacturer, unless the proper gross and true turns are achieved.

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

















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April 2016: "Is Wholesale Really Worth it?"

Here we are in April 2016 and still, this age old question is still one of the most common questions I get asked today. Even though many Parts Managers have "opted out" of even trying to compete with the "big guys", wholesale parts is still one of the profit centers in the automotive dealership.

Though I still get asked this age old question. my answer has always been the same. It's definitely worth it for some, but for most, it is not profitable to compete in the wholesale parts market when you add it all up.

We all know that the profit margins dealing in wholesale are far less than the profit margins we receive in all other parts gross profit categories such as counter retail, repair order parts sales in service, collision and internal departments.

So when we look at this lower gross margin, it becomes quite obvious that we have to focus on volume sales in order to obtain an overall "fair" amount of wholesale gross profit dollars.

 The volume of overall wholesale gross dollars can far outweigh the focus on gross retention. After all, we can only spend gross profit dollars and not the percentage itself.

In my opinion, it really doesn't matter the amount of wholesale sales and gross profit a parts manager can achieve, it's all about the headline question...

"Is Wholesale Really Worth It?"

So...let's take a look at the advantages of dealing in wholesale in the first place. Manufacturers offer incentives for parts purchases, which is nothing new, but obviously, a parts manager can earn far more on incentives on a volume level.

Notice I said parts purchases and not sales as the manufacturer sells two things...vehicles and parts....which we will expand on further down in this article.

Earned discounts and allowances, return reserve accruals, wholesale compensation for some and even more discounts for volume sales are obviously great profit builders. In many cases, these additional "back end" wholesale purchase profit makers are what generates most or even all of the overall parts wholesale gross profit in some dealerships.

For example, many larger wholesale parts dealers may sell at very little, or in some cases, no initial wholesale gross profit just to gain all the other benefits from volume purchases with the manufacturer.

The discounts, accruals and other benefits can actually allow the high volume wholesale parts dealer to generate massive amounts of additional gross revenue.

Although, one of the most important things to remember here is that these parts "purchase" gross dollars are only realized if the overall parts inventory has a healthy gross and true turn number. If the gross and true turns are not at guide or better, these discounts & allowances, return reserve accruals and other wholesale compensation is just "paper profit" that we can't tender.

If a "high volume" parts wholesale dealer has their "house in order", there is another great advantage in their favor...and that is buying power! If the parts manager has a strong and healthy gross and true turn along with these massive return accruals, in many cases, they can actually "buy up" other dealers obsolescence for less than fifty cents on the dollar!

On top of that, these "other dealer" obsolescence purchases just may not be obsolete in their own inventory! Thus, even stronger gross profit numbers can be obtained by these high volume wholesale parts dealers.  

For the dealer, having a strong, healthy and highly profitable parts department largely from wholesale gross dollars can and does positively impact the overall fixed coverage, or service absorption.

 In addition, all other internal dealership departments benefit as well because of the high inventory gross and true turns as well as high "First Time Off Shelf Fill Rates".

Earlier, I had mentioned that in my opinion it really doesn't matter the amount of wholesale sales a parts manager achieves. In other words, it doesn't matter if a parts manager is a "big player" or not because in the end, if the inventory is not "turning"....it's a losing proposition.

There are many determining factors to whether a dealer parts manager even attempts to be a big player in wholesale. Obviously, market area plays a big role as well as demographics, brand image and a healthy sales "front end". 

The dealer also has to have the capital and space to inventory, or "warehouse" the necessary inventory "on demand" in order to turn inventory efficiently. "First Time Off Shelf Fill Rates" are crucial as well as minimized or ZERO obsolescence. With this said, it doesn't matter how big, or how small, any dealer can be "successful" in wholesale.

In my opinion, being "successful" in parts wholesale means "profitable", plain and simple. So, in order to know if we are successful, or profitable in this case, we have to measure the "true cost" of dealing in parts wholesale.

The "true cost" of being a player in the parts wholesale game is quite often overlooked by parts managers and dealers alike.

Costs such as acquisition and holding costs from insuring and maintaining the parts inventory, performing annual physical inventories, pilferage, damaged inventory and other personnel costs are just a few.

Actually, a most recent study by REM Associates, a respected management consulting company has this to say in their "Methodology of Calculating Inventory Carrying Costs"....

• Over 65% of most companies do not compute inventory carrying costs, as they use rough estimates.
• Leading logistics experts place the costs of carrying inventory between 18% and 75% per year depending on the types of products or goods sold.
• The standard "rule of thumb" for inventory carrying costs is 25% of the total inventory value.
• The "cost of capital" is the leading factor in determining the percentage of inventory carrying costs.

So, as you can see, it's not just about massive amounts of gross profit generation, discounts and allowances, return reserve accruals and any other manufacturer wholesale compensation that determines the "NET" wholesale parts profit. You can now also see it really doesn't matter how big, or how small your wholesale business is.

Even though the manufacturers have set up similar programs for parts purchases as they have for new car dealer purchases and sales, we still have to weigh out all the "pros and cons". As in new car purchases and sales, the manufacturer has made it much easier and tempting to purchase inventory, whether new vehicles or parts.

It's a competitive market out there and it's tough to compete with high volume dealers in both categories, new vehicle sales and parts sales. It's very hard to compete with dealers selling at or just above cost, but let it be known...it doesn't go without risk and costs that are not always factored in the equation.

In conclusion, it doesn't matter if you are a big player or just dabbling in wholesale, it takes a "Smart Parts" Manager to factor in all areas of "Net Profitability" when dealing in the risky game of parts wholesale.

Need to know if dealing in wholesale is really worth it for you?

Just email your request for my FREE Take Away this month and get you ACG "Smart Parts" Wholesale Gross & Net Profit Calculator! Make sure you include "FREE Wholesale Calculator" in the email subject line!

Email: dave@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

March 2016: "Who's Controlling Your Days Supply?"

As we approach the end of the first quarter,  ACG's "Smart Parts" will continue to focus on "getting it right" in 2016. In my opinion, controlling parts inventory has never been more important than it is today.

Over the past several months, I have seen more and more dealership Parts Departments getting caught up with out of control inventory amounts. Excessive inventory values, idle inventory, obsolescence and overstocked inventory are becoming "commonplace" once again.

The weird thing about these observations over the past several months is that along with all the above, there has also been a dramatic shift in some other key areas. Increases in "out of stock" situations, along with lower "First Time Off Shelf Fill Rates" and lower Gross & True Turns have also become "commonplace".

How can this be as many of these dealership Parts Departments are experiencing all this excess inventory value? How can this be if we are utilizing all the manufacturers' stock replenishment programs, if offered?

Before I answer those questions, I just want to point two "common threads" in my observations over the past several months. Most, if not all of these Parts Departments that I have visited and are now asking for help, participate in a manufacturer stock replenishment program and/or lack "proper", basic Parts Manager training.

The irony of all this is that I don't see these issues with excess inventory values any where near as much in dealership Parts Departments that do not have, or the Parts Manager doesn't participate in these manufacturer stock replenishment programs.

Relying primarily on "their own" Inventory Management System, (I.M.S.) set ups to manage their inventories, these Parts Managers tend to be more "hands on" in managing their inventory and not having to rely on the manufacturers' set ups and controls.

Let me first state, that before we start "drilling down" these issues, that I am not "bashing" these manufacturer stock replenishment programs. Like anything else we have to weigh the "pros & cons" in order to utilize these programs properly and to get the full benefits offered in these programs. 

We also have to understand that these programs DO NOT replace some of the most basic, important duties & responsibilities of a dealership Parts Manager. Being compliant, or "obedient" to these manufacturer programs should never take over duties and responsibilities such as;

• Proper Phase-In/Phase-Out Set Ups & Controls
• Source Ranking by Piece Sales
• Proper Days Supply Set Ups within Each Source
• Generating Suggested Stock Orders Consistently
• Properly Reviewing the Manufacturer's Suggested Daily Stock Order                  

Compliance, or should I say "Obedience" to these manufacturer programs has taken over some of the most basic Parts Manager functions. This, by the way is fact and not my personal opinion which I will point out as we move along.

One of the most common questions that I receive from Parts Managers concerning these manufacturer's stock replenishment programs is....

"Dave, I special ordered this part for the first time the other day, as I don't have any history of demands, but why is the manufacturer recommending me to stock that part now?"

Hmmmm....took me a little bit to figure this one out when at first, I just figured that it was a "qualified" part and was "phased-in" by the manufacturer's set ups. I found myself digging in a little further as this question was coming up more frequently as time went on.

After checking various Inventory Management Systems, (I.M.S.), I found something in common with many initial I.M.S. computer set ups. Like in most systems, when a part initially enters into the I.M.S. systems, a "test phase" source is set up. The "low" days supply, (Best Reorder Point, BRP) is set up to "zero" and the "high" days supply, (Best Stocking Level, BSL) is set at "one"

Lo and behold, there inlies the answer to the question above as the manufacturer's stock replenishment program is just working as designed. If the set ups are as previously stated, that part, even though only selling once, went to "zero" (BRP), and now needs to be ordered to the BSL of "one".

These initial set ups can be modified in order to avoid stocking parts that have not met "in-house" phase in criteria. Minimums and Maximums can also be set up to help control these situations as well. In my opinion though, nothing should ever replace the Parts Manager's overall review of every stock order, whether in-house or otherwise.

The next question that I get asked VERY often is....

"Dave, why is it that I often have parts that sell like crazy off my shelf, but they aren't qualified parts on the stock replenishment program?...and why are they telling me to stock parts that I don't sell"?

Hmmm....once again! First of all, most manufacturer's stock replenishment programs are set up to "their" recommended set ups and controls and not your dealerships I.M.S. set ups and controls. Even though there are a few programs that allow individual dealer set ups and controls.

The scary thing is, I have seen where many Parts Managers haven't even run a suggested stock order in their own system for weeks, months or even years! In almost all the instances where I have witnessed this, I have suggested that the Parts Manager run a suggested stock order on their "in-house" and the look on their faces was priceless!

There were MANY parts on these suggested stock orders that have a very active life cycle, selling multiple times annually, but not stocked. These parts were not stocked, but had many manual special orders because these parts were not "qualified" on the manufacturers stock replenishment program.

In each case, after running the "in-house" stock order, I asked the Parts Manager if there were any parts on this stock order that they would normally have on the shelf and the answer was and is always predominately...yes! Sad thing is that if we didn't run this stock order, these parts would only be ordered as a Customer Special Order, or Emergency Purchase...time and time again.

Some Parts Managers actually said to me that if they stocked those parts that weren't "qualified", they would not be "protected". I couldn't believe what I was hearing because, as for me, I could care less if it's "protected" or not because I plan on selling lots of those parts, not returning them!

I have to wonder if many Parts Managers remember what we used to do on a daily basis BEFORE these programs were introduced. This is why I believe it's a "double edged" sword as even though there are many benefits to these programs, there is still a lot of "asset" risk to the dealer.

Couple of questions I have often pondered..."Do the benefits, or added discounts, allowances and return accrual outweigh the additional "frozen" assets on the shelf?"....and "Are we just buying parts to sit on the shelf in order to gain a little cash at the end?"

One example I witnessed recently in one dealership was, even though the dealer was going to receive a nice check for almost $7,000.00 at the end of the program, the "cost" was an additional $50,000.00 in overstocked parts inventory. 

To me, that sounds like buying extra new vehicles for the lot in order to gain factory incentives, only to throw my floor plan "out of whack" and too many days supply of vehicles overall. Just doesn't make sense to me, but the analogy works because, just like vehicles, parts are an asset, not an expense. This is often why much of this "cash flow" gets overlooked in the first place.

"So....how does the question of  "Who's Controlling My Days Supply" have anything to do with all this?"

The answer is to who's controlling it is quite simple:...."Not You!"....if you are a Parts Manager that is letting the manufacturer do all his/her work on managing one of the dealers highest assets. 

Having the proper "Days Supply" should only be controlled by "in-house" I.M.S. Set Ups & Controls. Having the right parts on the shelf is controlled by the number of part demands, (sales & lost sales) which initially is controlled by the proper parts phase-in set ups.

After a part enters the system, by either proper sales and lost sales recording, the "Days Supply" set ups and controls take over from there until the part reaches phase-out status. Of course, the key word to all these set ups and controls is the word "proper"!

The total number of each individual part numbers on the shelf is then determined by the "low" days supply, (Best Reorder Point, BRP) and "high" days supply, (Best Stocking Level, BSL). These two parameters are simply calculated by measuring average annual piece sales. This is why I recommend a minimum of six different sources based on six different annual piece sales ranges.

For example, if a part sells an average of twelve times a year, or once a month, then the "low" days supply, (BRP) should be set at...you guessed it!...thirty days! The "high" days supply, or BSL, is set anywhere from 50% - 150% of the "low" days supply, pending over or under stock conditions. The "low" days supply always remains a constant pending annual piece sales averages.

With all this said, it's all basic math and it's no wonder I see so many Parts Departments either under stocked on the parts they sell the most and over stocked on the parts they sell the least. Why?...because most, if not all of the parts inventory is in one or two sources with various annual piece sales averages.

Most Inventory Management Systems, (I.M.S.) offer "Source Set Ups By Piece Sales" options to control "Days Supply". These set ups are also easy to manage as daily, weekly and/or monthly updates will move these parts from source to source automatically, based on updated annual piece sales averages.

So, if you are experiencing overstocked and understocked situations AND are enrolled in a manufacturer's stock replenishment program, or even if you are not and still having these situations, it might be time to "get back to basics"! 

You can have the "best of both worlds" with the benefits offered by the manufacturer AND getting back to basics the way we used to before these programs were offered. Keeping these programs "in check" by reviewing and matching their programs to your own individual dealers actual needs is just "Smart Parts" managing!

It's Never Too Late To "Get It Right" in 2016! 

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

February 2016: Reconciling Parts Inventory

In my opinion, the last month of the year and the first month of each new year are the most important two months in the whole year for a parts manager. The overall "cleansing" that comes from year end physical inventory counts to starting fresh in the new year with a clean slate was always a great feeling of accomplishment for me.

Over the years, as most of us do, I learned a lot that helped me have more of the "feelings of accomplishment" as opposed to dreading those end of year physical inventories. Items such as expected variances, inventory write offs, inventory "write ins", duplicate bin lists and accounting differences were not fun experiences for sure.

Reconciling the parts inventory, for many parts managers, including myself years ago was pretty much a "once a year" thing. It wasn't something we worried about month in and month out "back in the day" because inventory values were much more stable with longer life cycles and fewer obsolescence situations.

Today, with the increase of vehicle manufacturers and models compared to even twenty five years ago is astronomical! The overall number of parts and part numbers has skyrocketed to a point where managing the parts inventory has become more of an art and at times, or maybe even a  full time job in itself! 

Parts are becoming idle and obsolete much faster today than ever before while customer demand has increased. The demand on the parts manager to have the "right part the first time" is crucial to the overall success of the parts department. Not only that, this "trickle down" effect also impacts the whole fixed operations including overall shop productivity.

So, not only do we need to make sure we have the correct set ups and controls, Proper phase-in/phase-out parameters, days supply, in house and manufacturer sponsored ordering procedures, etc., we also have to insure that all of the inventory amounts balance when it's all said and done every month.

Reconciling the parts inventory on a monthly basis as opposed to reconciling on an annual basis CAN and WILL make the parts inventory more profitable with higher gross and true turns. Monthly inventory accountability also reduces obsolescence and will increase overall service productivity.

So!...how can simply reconciling the parts inventory on a monthly basis accomplish all this?

First of all, reconciling the parts inventory on a monthly basis "requires" quite a few prerequisites in order to even qualify for monthly parts reconciliation. Obsolescence has to be dealt with along with proper set ups and controls to insure that obsolescence doesn't reoccur. 

We have to stop the bleeding before we just "write it off" and have the same problem next year. After all, there has to be a reason these parts got in the obsolescence category to begin with. As you will see in the next prerequisite, it wouldn't make much sense to count the same, obsolete parts every month.

The second prerequisite is to implement a "perpetual inventory" process where all parts bins are counted on a monthly basis.

An example would be if there are a total of one hundred bins within the Parts Department, then approximately five bins a day would need to be counted and reported. Most Inventory Management Systems provide this option as part of the physical inventory options.

Next, we have to insure proper posting of receipts to the proper accounts on a daily basis. Some of the most common areas with posting discrepancies are outside purchases, tire account, inventory core values, both clean & dirty and finally, the gas, oil & grease account.

Reconciling the tire inventory accounts as well as gas, oil & grease accounts have become nightmares of late due to the vehicle manufacturers getting into the tire and motor oil business.

 Many of these purchases that are indirectly billed from tire and oil vendors through the vehicle manufacturer who, often times, have the improper account posted on their invoice. 

The tire inventory account as well as the gas, oil & grease account have always had separate inventory accounts. Even though they still do, many of these tire and motor oil purchases that involve the manufacturer are being "inventoried" to the parts inventory account, instead of the appropriate inventory account for tires and gas, oil & grease. A huge problem if not watched, managed and reconciled properly.

If a tire, or a quart of oil gets charged out on a repair order utilizing the manufacturers' applied part number that matches what's on the manufacturers' master pricing guide....guess what happens? That tire or quart of oil just got "relieved" and "costed" out of the main parts inventory account, even though the tire and/or oil was receipted into the separate tire and gas, oil & grease inventory accounts.

One other big discrepancy that often occurs when trying to reconcile the parts inventory is the "new" and "dirty core" inventory. Even though most Dealer Management Systems account for the "new core" inventory value on the Parts Monthly Management Analysis Report, many systems do not have an option as to managing the "dirty core" inventory.

Managing the "dirty core" inventory requires manual, monthly physical inventories to be performed as well as managing the returns with "outstanding credits" pending. All of which, must be reconciled with the dealer account and/or office manager.

Here are just some of the advantages to Monthly Parts Inventory Reconciliation;

• Higher Gross and True Turns due to monthly managed obsolescence, bin variances.
• Lower Inventory Management Fees due to Perpetual Inventory practices.
• Higher "First Time Off Shelf" fill rates due to monthly managed obsolescence.
• Increased 0-3 Month Sales Activity from reduced obsolescence.
• Less cost incurred from end of year physical inventory variances.
• Decreased potential for parts pilferage, damage or loss due to accounting errors.

In the beginning of this blog, remember when I mentioned that "cleansing" feeling as well as that feeling of accomplishment at the end of each year and the beginning of the next?...Imagine having that feeling each and every month!

It all starts with getting our house in order and meeting all the prerequisite requirements. Each and every dealership Parts Department that I have either trained and coached in, or managed myself that made it a Standard Operation Procedure, (S.O.P., not Special Order Parts) to reconcile the parts inventory each month also had many things in common......

1. Consistently "at or above" NADA Guide on Gross and True Turns
2. Stock Order Performance or Sales From Stock Ratio above 80%
3. "First Time Off Shelf Fill Rate" above 80% (replicates # 2 above)
4. Obsolescence less than 2% annually (12+ months No Sales)
5. Parts Gross Profit at or above NADA Guide
6. Overall Level Of Service above 90%
7. Annual Physical Inventory Variance Less Than 2% (reported monthly)
8. Service Shop Productivity above 95% - 125%

As you can see, simply reconciling the parts inventory has quite an impact or "trickle down" effect on many areas in the dealers' fixed operations. The advantages are obvious, but in order to ultimately accomplish the task, we have to have a measurement of accountability and perhaps a guideline to implementation.

ACG's "Smart Parts" Monthly Inventory Reconciliation Report may just be that motivation for "Smart Parts" Managers to "get it right" going forward. I can speak from experience when I said that "cleansing" feeling along with starting off fresh each month is a reality.

It's been quite a while since I've offered a FREE "Takeaway" just for being avid, loyal "Smart Parts" Readers and so I decided that this is the month! If you would like a FREE Excel Copy of our ACG "Smart Parts" Monthly Inventory Reconciliation Report with up to five inventories included to reconcile "controlled" versus "accounting inventory, simply email your request to:

dave@smartpartstraining.com 

Don't forget to enter "FREE Reconciliation Report Takeaway" in the subject line of your email request!

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

January 2016: "A Look Ahead and a Look Back"

Once again it's that time of year where we devote our first issue of ACG's "Smart Parts" to what lies ahead in the New Year. We will also take a back at results and trends from last year that just may support forecasts and predictions for what lies ahead in 2016.

As I mentioned in the intro, this is one of my favorite issues each year because it gives me a chance to reflect back on my own personal performance as well as looking ahead to what I can do better in the new year. In order to do this year end assessment and future forecast, I need to start with some facts and trends from reliable sources to support my own future goals.

Normally, when I do my year end assessment and future forecast, I would always take a look back at what history and the latest trends to get an idea of what lies ahead.

 This year, I decided to "flip it around" and take a look at what industry analysts are forecasting for 2016.  After a review a their forecasts, I can then look at last years' results to see if the they support these forecasts made by industry analysts.

One of the best resource providers that I have always relied on is the N.A.D.A., (National Automobile Dealers Association) for the latest and most accurate industry guides, data and trends. Plus, with such a massive dealer participation and membership rate, it is an obvious choice to gather resource information.

One of NADA's most recent "state of the industry" presentations in November 2015 featured one of their top industry analysts and economist, Steven Szakaly. Steven is currently NADA's chief economist and has held this position since October 2013. His resume is very impressive with many years as an economist in the automotive industry

His forecast for 2016 starts with an increase in new vehicle sales in 2016 from 17.3 million in 2015 to 17.7 million in 2016, which represents a 2.3% increase. If true, this would be the seventh straight year of new vehicles sales growth.

Not only has this trend been growing over the last seven years, I was rather surprised that the gap between new light duty truck sales versus new car sales is at an even bigger gap with new light truck sales accounting for 56% of overall new vehicle sales to new car sales at 44%.

Some of the positive indicators for this growth forecast are; projected increases in employment, rising new vehicle sales trends, consumer confidence and stable oil prices. Some other "neutral" indicators are the equities market and industrial production. 

After the GDP, (Gross Domestic Product) crash in 2008 and 2009 where the GDP fell to approximately -3.0%, the GDP percentage rate has slowly risen back to it's current rate of 2.5% and is predicted to be hitting as high as 2.9% over the next four years. 

A much stronger U.S. Dollar is also a major contributor to Steven's forecast as indicated in the rise of our U.S. Dollar in Trade Major Currencies worldwide. This steady rise over the last seven years has also been consistent to other trends mentioned earlier.

What does all this mean to the average consumer though?...there has to be more than just lower gas prices! To me, it appears that new vehicle prices just keep rising and that doesn't add to my consumer confidence. Most importantly, what does all this "stuff" mean to our Fixed Operations Departments as we forecast the year ahead?

Even though Steven's Szakaly's forecasts for 2016 look great and with much great research to back it up. How do these forecasts play into our roles in the Dealers' Fixed Operations Departments? Last I heard, Customer Pay Repair Order Counts have been dropping at a rate of almost 10% since 2014.

In order to bring this all together, it's now time to look back into 2015 to see where we have been with some data and information once again provided by N.A.D.A.'s Dealer Financial Profile for 2015.

The following information was provided to N.A.D.A. by dealer members through October 2015. Not the complete year, but still a very good sampling with great information.

Let's start out with the average life span of a new vehicle today which is almost twelve years. That in itself is pretty amazing, but just why is that number growing and growing? Better vehicle manufacturing can't be the only reason.

A few other reasons for this longer vehicle life span are; longer lease terms, higher vehicle prices, higher vehicle average payments, ($550 Monthly) and higher extended service contract penetration. Extended service contracts are up from 23.5% in 2000 to 41.7% through October 2015.

Quite simply, people are being forced to keep their vehicles longer. As a matter of fact, over the past few years, retail prices are out pacing peoples wages! Worst part about that though is that those higher retail prices aren't going to the dealer as one might think.

Even though new retail vehicle prices are getting higher, the dealers' profit margin is shrinking. Through October of 2015, new vehicle retail selling price has increased 2.5% over the same period in 2014 while new vehicle gross, excluding F & I has decreased, -3.3% over the same period.

Increasing regulatory costs is one of the major contributors for this increasing gap over the past few years. It's not getting any easier for new car dealers and that's where we come in from the Fixed Operations side. Even with all the above adversities, here are a few facts from NADA's Dealer Financial Profile through October 2015 compared to the same period, through October 2014;

• Total Dealer Total Gross Up 6.3%
• Total Dealer Total Net Profit Up 8.8%
• New Vehicle Sales Up 7.7%
• Used Vehicle Sales Up 6.6%
• Total Dealer Expense Up 5.7%

So just how can these dealers be doing so well with less net gross opportunity on new and used vehicle sales?

Quite simply, New Vehicle Sales Incentives, Used Vehicle Sales, Finance & Insurance, (F & I) and Fixed Operations Departments are where most the gross is created in today's automotive dealership. As profit margins continue fall in New Vehicle Sales, the strongest needed gross producer from the above mentioned is the Fixed Operations.

Even though I mentioned earlier that Customer Pay Repair Order count is steadily dropping, to the tune of almost 10% over the last few years, the Dealers' Fixed Operations are still growing from a sales and gross perspective.

The increases in Express Service, Warranty Repairs and higher customer loyalty numbers have given dealers the "shot in the arm" needed to sustain these rather impressive results in growth as well as healthy forecasts looking ahead in 2016.

Looking ahead to 2016 and beyond, I believe customer loyalty, or "retention" will replace our industry standard "Customer Satisfaction Index", (C.S.I.) as to how dealers and manufacturers are measured in the near future. 

With longer new vehicle "life spans" due to higher average monthly payments, longer lease terms and on going higher new vehicle retail prices, it just makes sense to me that customer retention needs to be the number one factor in overall dealership profitability.

I guess the old saying is still true today...."the more things change, the more they stay the same"....

Take care of your customers and they will take care of you. Also, don't discount the fact having strong Fixed Operations Departments with strong Service Absorption percentages is even more important today than it has ever been. 

Are you ready for 2016?....Is your staff trained and prepared? Are you ready to achieve "Predictable Results"? The competition has never been stronger or better and all the market indicators seem to point in a very positive direction. Maybe that's why we have been extremely busy here at ACG!...Training and Coaching never stops....

Wishing All a Happy, Healthy and Prosperous New Year "Smart Parts" Readers from ACG!!....Make It Your Best Year Ever!

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