September 2016: Special Order Parts "A Necessary Evil?"

As far back as I can remember, I have always thought of Special Order Parts as "A Necessary Evil" that I had to deal with each and every day. It was just one of my duties & responsibilities as a Parts Manager...it was just part of my job.

What I didn't realize though was the differences, in my opinion, dealing with Special Order Parts "back in the day" being so much different than it is today. Back then, Special Orders Parts represented the majority of all parts orders as proper stocking levels were much harder to maintain.

Longer lead times, greater intervals between stock order due dates and lower manufacturer "fill rates" highly contributed to the daily dilemma of having the right parts at the right time for our customers. In addition, Dealer Management Systems, (D.M.S.) didn't provide the necessary data to phase-in parts to inventory, or maintain a proper days supply.

Fast forward to today, with all our technology, information and even lead times less than two days in many dealerships, we are still dealing with this "Necessary Evil". In many cases, Special Order Parts has gotten even worse than it was "back in the day."

In my opinion, it all started years ago, first with "dedicated delivery" being offered by many manufacturers. Follow that with what I call the "nail in the coffin" when manufacturers started to provide their own stock replenishment programs, or "Vendor Managed Inventories", (V.M.I.)

There are many great advantages to both programs with some Manufacturers' V.M.I. Programs perhaps better than some others. One common thread in these programs though is that it's obvious that many Parts Managers have "lost control" on the basic fundamentals of Parts Management, which is protecting and maximizing the dealers investment.

Before we get to our main topic on Special Order Parts, let's work our way down to the how we got to the point of Special Order Parts becoming the "New Necessary Evil". After all it didn't happen overnight it appears that it's not going away soon.

First, let's start with the manufacturers offering "Dedicated Delivery" in order to cut down "lead times" and offer the customer a higher "Level Of Service". This was obviously a winner right from the start and most other manufacturers followed suit once introduced.

Dealers and Parts Managers alike "jumped on the bandwagon" with our first major contributor to increased Parts Special Orders. "Dedicated Delivery" provided an alternative to higher inventory values as parts were now available overnight. No need to stock as much because worse case scenario, we can get it overnight without added shipping and holding costs.

Even though this may have not been the intent of the manufacturer, the opportunity swung into the favor of the dealer, while the manufacturer absorbed the added cost of delivery and maybe even higher inventory holding costs.

Net result?...potentially more Parts Special Orders due to lower dealer stocking levels. Even though lead times were shortened, shop productivity is lowered as more and more vehicles are "tied up" overnight waiting for parts.

One other problem was born when "Dedicated Delivery" came about and that is that "Special Order Parts" seemed to disappear! All of a sudden, "Special Order Parts" got added to the overnight Stock Order and thus....got receipted as Normal Stocking Parts because these "Special Orders" were added to the Stock Order.

I noticed this "epidemic" soon after "Dedicated Delivery" started when researching various D.M.S. Monthly Management Reports. All of a sudden, I'm seeing Parts Departments that have NO Customer Orders recorded and a 99.9% Level of Service and Stock Order Performance, or Sales From Stock Ratios also near 100%!....Wow!...the perfect Parts Department!

So now, not only are we lying in our reporting on the D.M.S., we are are now reporting inaccurate "First Time Off Shelf Fill Rates" and "Stock Order Performance". This, of course also leads to false "Gross and True Turn" numbers. Eventually, it will also lead to higher obsolescence as the epidemic continues.

Now, let's move on to the second phase of what will lead us to the "Necessary Evil" part of Special Order Parts and that is the Manufacturers Stock Replenishment Programs, or "Vendor Managed Inventories", (V.M.I.). 

Here's where, in my opinion, the score sheet gets balanced between the manufacturer and the dealer. Dedicated Delivery provided the dealer overnight parts at no added delivery expense or added holding costs, so now the manufacturer will "manage" the dealers inventory....part two of how to increase Special Order Parts, our "Necessary Evil".

Even though "some" of these V.M.I. Programs work well, we have to remember one important thing. They do not completely replace the dealers own Inventory Management System, (I.M.S.) as both the V.M.I. and I.M.S. programs need to be managed properly.

To support my theory, I've asked the following two questions to many Parts Managers who rely solely on the manufacturers V.M.I. Programs;

Question One: "Have you ever had your V.M.I. Program recommend stocking parts that have not met your own Phase-In Criteria with little or no sales activity?"

Question Two: " Do you have active parts in your I.M.S. System with normal or high sales activity that you do not stock and are not "qualified" in your manufacturers V.M.I. Program?"

I have yet to meet a Parts Manager that has not answered "Yes" to both questions. As a matter of fact, I have seen "Lost Sales" Reports that have lost sales recorded on "Normal Stocking Parts" with very active parts life cycles, but due to the fact that these parts were not "qualified" V.M.I. Program parts?...you guessed it!...Now, these parts become Special Order Parts!

Not only are "Special Order Parts" on the rise, controlling them is another major problem. You would think that after all these years, we would have this situation under control, but that is definitely not the case in many Parts Departments today.

"Special Order Parts" are still ending up op on the shelf, in hopes that they will sell one day, but to no avail, they just add to the obsolescence problem. Lack of controls in dealing with "Special Order Parts" is still the major reason these parts end up on the shelf.

If you are a Parts Manager that is fortunate enough to have a manufacturer that accepts monthly returns on these parts, it is, of course much easier to limit the damage that these "Special Order Parts" can have overall.

Having a system in place, or process in handling "Special Order Parts" is crucial to minimizing the negative effects in the first place. In fact, most Dealer Management Systems, (D.M.S.) offer programs to electronically control "Special Order Parts", making it much easier to manage this "Necessary Evil".

Whether you have a system to electronically control these "Special Order Parts" or not, there are still some basic guidelines that are required to manage them properly. Customer deposits, prepayments, future service appointments, handing and return fees are just a few basic guidelines used by most Parts Managers to control the "Necessary Evil".

In my opinion, the "bottom line" is that even though we have some of the best technology and services available to us today, the problem still exists. In some respects, it's gotten even worse with so many more part numbers today needed to service so many makes and model vehicles.

One thing is for sure though, as "Smart Parts" Managers, we cannot overlook our basic fundamentals in managing our dealers parts inventory. We cannot let the manufacturers totally control our ordering procedures and most importantly, we cannot lose control of one of our dealers biggest assets.

Regardless to what some might think today...our dealers' still want their Parts Departments to be very profitable, with an expected high return on investment, limited or no obsolescence and a high customer level of service...the more things change, the more they stay the same...

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

August 2016: "Maximizing Order Efficiency"

Some of you "Smart Parts" Managers out there utilizing your Manufacturers Stock Replenishment Program may think you are already maximizing your order efficiency, but in my opinion, if you are not utilizing your own Inventory Management System, (I.M.S.) to compliment their programs, you just may be missing the boat.

I believe the question I asked in the introduction is a legitimate one because it appears that we, as "Smart Parts" Managers may have forgotten our roots. In the past, we relied solely on our own Inventory Management System, (I.M.S.) to generate and send our Stock Orders.

I believe there are great advantages and disadvantages to these programs that we all need to be aware of. Advantages such as order simplicity, added discounts, allowances, return reserves and inventory protection may sound great, but I would have to add...."at what cost?"

These advantages have kind of spoiled us to some degree because we just feel we "have to do it" because we won't be in compliance, miss added discounts and cash rewards for our dealer. In some cases, being compliant to these programs is directly tied into overall dealer programs from sales to service.

Dealer status and compliance to these programs that may tie in sales, service and parts can add up to a lot of "dealer cash" and in some dealerships, it may even be the difference of being "black or red" on the bottom line of the dealers' financial statement.

We have to be careful though when our overall "state of mind" is being controlled by the manufacturer because, before you know it, we aren't just being compliant...we are becoming "obedient" to the manufacturer.

Let's take a closer look at what I'm referring to...

After looking at some of these advantages, let's take a look at the possible disadvantages and risks that we could be encountering by being "obedient" to these programs. After all, the manufacturers only sell two things...vehicles and parts...and they have no problem with selling you more of each than you really need as far a days supply guidelines go.

More and more Parts Managers today in these programs are overstocking their inventories because they are being 100% "obedient" to their manufacturers' suggested stock orders. Many may think it's okay to utilize their suggested stock order as they are utilizing your own Inventory Management System, (I.M.S.) Set Ups & Controls to create these suggested orders in the first place. 

On the contrary, there's a lot that many "Smart Parts" Managers don't know about these programs, or how these systems even calculate individual and overall demand. How does the manufacturer know what your individual needs are to begin with?... 

Before we get into what you may know or may not know about how these programs work in the first place...I have another question to ask "Smart Parts" Managers out there...

"If it were your own money, coming out of your own back pocket...would you still just accept and place these suggested orders that they are recommending?"

Most of these programs offered by the manufacturer utilize a combination of basic Set Ups & Controls that ultimately determine what you see on these suggested stock orders. They combine individual dealer demands along with other dealer demands to generate these stock orders and determine overall days supply.

If you are a "Smart Parts" Manager in one of these programs, there is one very important thing to know and remember, especially if the program your are enrolled in is stocking your inventory based on your own Inventory Management System, (I.M.S.)

One of the main reasons, if the the biggest reason for Parts Managers ending up with "overstocked" and "over valued" inventories is because of a lack of control when it comes down to managing Days Supply and how parts are Phased In in conjunction with these manufacturer programs.

Source Ranking by Piece Sales has never been more important than it is today when you factor in these manufacturers' programs along with the Dealer Inventory Management System, (I,M.S.). Unfortunately, not all Inventory Management System Vendors offer Source Ranking by Piece Sales.

Source Ranking by Piece Sales for those out there who may not be familiar, is basically an I.M.S. function that allows parts to automatically move parts to different sources based on sales movement. Parts movement is what determines the proper Days Supply after initial Phase In.

We will get back to Source Ranking by Piece Sales in a moment, but first, let's look at how parts are "phased in" to your system from the point of view of the manufacturer. Keep in mind what I said earlier about the manufacturers utilizing your own Inventory Management Systems Set Ups & Controls along with other Dealers' Set Ups & Controls.

This combination of Set Ups & Controls with all these dealers is what ultimately determines what you see on your manufacturers suggested stock order. This is why I have Parts Managers asking me this common question when it comes to these manufacturers programs...

"Why are they sometimes suggesting parts on my stock order that I have never sold while other times NOT suggesting parts that I do sell on a regular basis and aren't even qualified?"

That's just one of the dilemmas I hear quite often as the biggest dilemma is yet to come. Having the proper Days Supply after "Phase-In" is far and above the biggest concern a "Smart Parts" Manager should have when utilizing these manufacturers programs. This is where having the option of Source Ranking by Piece Sales come back into play.

So!...Let's do the math!...

For example, if I have a part that sells only 6 times a year, my Low Days Supply, or Best Reorder Point, (BRP) would be 60 Days Supply as the part only sells every other month on average. My High Days Supply, or Best Stocking Level, (BSL) may be set 75-90 Days Supply.

Now, let's compare that to a part that sells 24 times annually where my Low Days Supply, or Best Reorder Point, (BRP) would be 15 as this part sells on average every 15 days. My High Days Supply,

Best Stocking Level, (BSL) may be set at 100% of my Low Days Supply, which would be 30 days.

A part that is fast moving and sells in excess of 100 times per year will actually have a Low Days Supply, or Best Reorder Point, (BRP) of maybe 5-7 days, based on lead times and a High Days Supply, (Best Stocking Level, (BSL) of 10-14 days.

As these parts move through their life cycle and movement changes, this Source Ranking by Piece Sales option automatically controls the source which has the proper Days Supply at all times. This helps the "Smart Parts" Manager to control "overstocked" and "over valued" inventory situations.

This is why I suggest that Parts Managers run their own Inventory Management Systems, (I.M.S.) stock orders at least twice a week right along side of their manufacturers recommended stock order. This is also why I referred to this as having the "best of both worlds". 

Having both stock orders in front of you helps to keep the manufacturer "in check" on suggested quantities as well as making sure that parts aren't missed or maybe not "qualified" by the manufacturer's suggested stock order.

I've actually had some Parts Managers say to me..."But, if I buy a part based on my own stock order and not theirs, it may not be qualified and won't be protected!"

Each time I hear that question I have to cringe because personally?...I could care less if it's protected because if these parts have met demand in my I.M.S., I plan to "sell" these parts and not "protecting them, or "returning" them once they are obsolete.

Here's the sad part, many "Smart Parts" Managers do not have this option of Source Ranking by Piece Sales which is the huge dilemma I was referring to earlier. Keeping in mind the Days Supply examples I gave earlier, without the option to rank parts in separate sources based on their movement, all parts are then "created equal".

In other words, no matter how many times different parts move whether 6 times a year or over 100 times a year, they will have the same Low Days Supply, or Best Reorder Point, (BRP) and High Days Supply, or Best Stocking Levek, (BSL) which is normally defaulted to 15 and 30 respectfully in most stores I run into that don't have the option to rank parts by piece sales in separate sources.

This means running out of parts that you need most and overstocking parts you don't need as much of, even though they have met "Phase-In" criteria. Thus, the dilemma I mentioned earlier and of course, one of the biggest disadvantages in utilizing these programs.

Maximizing Order Efficiency is more complicated today than ever before. It was much easier "back in the day" as it was as simple as ordering as much as you could on your stock order to gain the best discounts, allowances and return reserves. There were no "compliance" levels or program criteria just to get even half of the discounts we used to get years ago for just ordering efficiently.

Maximizing Order Efficiency now requires "Smart Parts" Managers to utilize all their resources to squeeze whatever they can to earn discounts, allowances, return reserves and overall dealer compliance for additional profits for the whole dealership.

Maximizing Order Efficiency doesn't mean you have to be "obedient" in order to be "compliant"...it just means that you have to know how to play the game and play it wisely...you have to be a "Smart Parts" Manager.....

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

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