February 2018: Vendor Managed Inventories: "Compliance Or Obedience?"

Picture if you will, or imagine if you will, being a parts manager twenty or so years ago and not having a Vendor Managed Inventory, (V.M.I.) controlled by the manufacturer. As a matter of fact, there are still many manufacturers that do not offer Vendor Managed Inventories.

Whether the manufacturer offers a Vendor Managed Inventory or not, pretty much all the manufacturers are getting their hands into controlling, to some degree, the dealers parts inventory.

 Additional discounts, return accruals, or even penalties for not reaching compliance and loyalty levels can impact how a parts manager "manages" their parts inventory.

But, what is really happening here?...what is so different today versus twenty or so years ago when the manufacturers didn't have their hands in controlling our dealers parts inventories? How have these V.M.I.'s and manufacturers changed our culture, or way of thinking as parts managers?

Before I answer those questions, I do know what it has cost in many dealerships that I have visited over the past several years since these V.M.I.'s first came on board. Many parts managers have abandon their own Dealer Management System, (D.M.S.) when it comes to utilizing and generating their own stock orders.

Many don't even know there own basic setups, or even how to go in and see what they currently are, let alone know how they even work, or modify any of these basic setups.

Not to be misunderstood, it's really not the parts managers fault as it's just become the new way of managing our parts departments with the manufacturers pretty much running the show.

Basic setups such as Phase-In/Phase-Out, Low and High Days Supply, or Best Reorder Points, (BRP), or Best Stocking Levels, (B.S.L.). Other basic parts department responsibilities such reporting Lost Sales and Emergency Purchases have literally gone out the window.

So, when I ask why?...I often get answers such as..."because our manufacturer's Vendor Managed Inventory, (V.M.I.) provides all that for us".....and that's where the problems begin. It's also the main reason I get called in by the dealer to come in and fix it.

I mentioned earlier that I believe the whole parts manager culture and way of thinking has changed in many dealers as I have witnessed. It seems that in these situations, the parts manager really feels more of an obligation to the manufacturer than they do their own dealers.

They seem to feel more "loyal" and "obedient" to their Factory Rep than the one signing their paycheck, but again...not their fault as this is the new norm.

As I write each month on various topics, I often refer to many things as "opinion versus fact" and I want to make sure I separate the two appropriately each month. With that said, the following trends are "facts" that I have witnessed in many dealerships that rely solely on their Vendor Managed Inventory, provided by their manufacturer.

All have these same issues, no matter who the manufacturer is;

• Overstocked Inventory Levels Beyond Sales Demand Within a 12 Month Period
• Parts In Stock That Have Not Met Dealer Phase In Requirements
• Lost Sales and Emergency Purchases Not Reported To Minimum Guidelines
• Low "First Time Off Shelf Fill Rates", (less than 40%)
• Higher "Stock Out" Situations
• Excessive Obsolete Inventory Levels Beyond V.M.I. Protection Guidelines 

The only Vendor Managed Inventory, (V.M.I.) System out there that I have not experienced these trends as much is PartsEye, which is provided to several import manufacturers. I would also add that PartsEye is one of the few V.M.I.'s that actually penalize the parts manager for overstocking inventory levels beyond nine months and fifty days supply.

Toyota also has a similar program that actually helps the parts manager keep their inventory levels within guide and with fewer limitations and restrictions on parts returns. Parts managers also have more control of their inventories with plenty of incentives offered by their manufacturer.

This is probably why I rarely run into an Toyota dealership, or any import dealer utilizing PartsEye with an obsolescence problem, or overstocking situations. Many of them above NADA Guide on Gross and True Turn Calculations and very "liquid" inventory amounts and no frozen parts assets.

Most of the dealerships that I have been called into and had to "reinvent the wheel" so to speak were and still are General Motors and Chrysler dealerships that utilize their Retail Inventory Management, (RIM for GM) and Automatic Replenishment Ordering, (ARO for Chrysler) V.M.I. Programs.

Both programs have similar basic setups regarding parts phase-in as each use algorithms on a higher dealer group level while trying to maintain individual dealers stocking levels.

The only problem is that many parts managers accept parts on their V.M.I. orders, even if they have not not phase-in requirements for their own, individual dealers Dealer Management System, (D.M.S.).

In other words, it's very possible for a parts manager to accept a suggested part in RIM, or ARO that may have only sold once over the past twelve to twenty four months! If not caught and "deselected", the parts manager just bought a part that will sit on the shelf until it reaches it's qualified return date.

On the other hand, there are many parts that are not RIM or ARO qualified that dealers DO sell on a frequent basis, but are not stocked because they are not qualified and will not be protected. Personally, I have never been one to buy parts to protect them, as I would much rather buy parts to sell them, regardless of the "protection"....that's why we have phase-out parameters.

Two cases in point, first one being Chevrolet Cruzes, and apparently, they have turbo issues and are being replaced at a pretty good clip. As a matter of fact, in my last three Parts Installations in Chevrolet stores, these Cruze Turbos sold anywhere from 17 to 30 times over the past 12 months.

In each of these stores, each one had to be special ordered as this turbo is not a RIM qualified part.

In my opinion, this is where the culture has changed over the past twenty or so years, or, this is where parts managers today have not been given the proper information or training that they need. Regardless of this turbo being protected or qualified, it should be on the shelf, ready for sale.

Just think of the lost shop productivity that this causes. Back before RIM, most parts managers would have that turbo on the shelf without a doubt.

Case in point number two, Dodge Ram Diesels have a very popular breather that sits on top of the engine. My last two Chrysler dealer Parts Installations showed sales history on this breather as well, one with 24 sales over the last 12 months, the other dealer with 30 over the last 12 months.

Do you think we should stock this breather? Both of these dealers did not stock, or had "stock out" issues on this breather because it is not an ARO qualified part.

The other sad thing about this is that I have been told by several parts managers out there that their manufacturer discourages them or, in some cases said they can't run their own stock orders on their respective D.M.S systems.

Also adding and stressing that whatever parts they purchase outside of their V.M.I. guidelines are not protected and will go against their compliance and loyalty guidelines.

These, are to me, scare tactics being passed down by, unfortunately people that may not have any parts management experience, other than what is taught them by their manufacturer.

If true, than how are other dealers that have no V.M.I.'s provided by their manufacturer getting their stock replenished? My guess would be their own Dealer Management Systems, (D.M.S.) 

Let's tackle that one right now as here is a list of Dealer Management Systems, (D.M.S) that I am familiar with and very verse in that do have the capabilities of creating system generated stock orders based on individual dealers' parts demands with proper phase-in/phase-out parameters and proper days supply;

• Adams
• AutoMate
• AutoSoft
• CDK, (formally ADP)
• Dealertrack
• Reynolds & Reynolds
• Quorum

As a matter of fact, Dealertrack and Quorum offer automated parts sourcing based on annual piece sales for individual ranking utilizing algorithms to rank each part individually, versus utilizing ABC Source Ranking for annual piece sales ranges, which is just awesome. 

There are still many manufacturers that do not provide a V.M.I. Program option and it would just make sense that all of these Dealer Management Systems have to offer a system generated stock order program to replenishment parts to their proper stocking levels as well as proper phase-in/phase-out guidelines that qualify parts for normal stocking status in the first place.

It just seems that this new culture has changed many parts managers' priorities as they are more concerned about meeting compliance and loyalty levels to achieve discounts and accruals that even at their highest achievement levels only provide half of the incentives that we used to have twenty or thirty years ago and without all these restrictions and program guidelines.

Even though it appears that I am "bashing" certain Vendor Managed Inventory Programs, I'm actually just trying to let Smart Parts Managers know that their V.M.I. Program is not their only option. I actually like lots of what these programs have to offer, but they have to be utilized in conjunction with the individual dealers D.M.S. options.

Vendor Managed Inventory Systems not only offer incentives, they also offer information on parts demand in certain markets. They also provide key information for parts managers on possibly stocking parts that they may not have in the past with the protection that if they do not sell, they can be returned to the manufacturer.

In addition, some of these V.M.I. Programs are tied into overall dealer programs leading to many more dealer incentives on each new unit sold in the front end. Definitely worth taking advantage of if the dealership qualifies on all levels of sales, service and overall customer satisfaction.

The problem is, many dealers have become stocking warehouses for these manufacturers as they may feel, with the benefit of protection, the risk is lower. Although, what most parts managers do not realize is that there are holding and acquisition costs. 

There are also lost gross profits not being realized from parts that may sell five to eight times a year in that same shelf space where the part currently occupying that same space doesn't sell at all. Once you add in the lost service shop productivity, there are lots of missed opportunities.

Like many things in life, there needs to be a balance, especially in this situation where there is more than one single option in maximizing the dealers overall sales, profitability and inventory investment. When just utilizing the manufacturers' V.M.I. Program, and not including the dealer's Dealer Management System, (D.M.S.), we are not getting what could be the "best of both worlds".

Final words...I believe Smart Parts Managers should take advantage of every option, system and information out there in order to get the best benefits from all their sources. Don't settle for just what the manufacturer wants....after all, last I knew...the manufacturer doesn't pay the parts manager...the dealer does...

With that said....are you a parts manager that's being "compliant" and "loyal"to the manufacturer, or are you just being "obedient?"...

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 2018: "Moving Forward Into The New Year...Or Are We?"

As we put another year behind us and move forward into the new year, I found it very interesting, when doing my research that many industry analysts and economists in general having many varied opinions and predictions about what we can expect in the coming years in our industry.

In my opinion, when doing my research last month, I would have expected a pretty similar year as we had in 2017, with pretty much an even line, with no real gains, or losses in overall sales.

In 2017, we did see that the seven year climb on vehicle sales was coming to a halt, but other than that, with the economy on the rise, GDP on the rise and unemployment going down, things would appear to stay pretty steady in 2018.

This seven year climb coming to an end is really no big surprise to most of us who have been "in the business" for many years, as we all know that this industry has been "cyclical" in nature, every seven or so years.

To me, sales climbing for a period of years and then leveling out is not the real concern as much as what happens AFTER the sales hit that peak.

Do they start to slide down a slippery slope, or do they remain steady for a period of years before going back up again? I know we all don't want to take that ride on the slippery slope, but this is where the research may have some confused as we reveal this info shortly.

After we review some of this research, whichever way the opinions sway, I believe one thing is for certain and that is the future sales of automotive parts will remain strong.

We will start out with research on automotive sales in general as it relates to our current economic conditions, and then segue into our automotive parts industry.

The first area of research that I went to were the facts as I wanted to know what our annual sale of new vehicle units were and expected to be at the end of December 2017. Then I wanted to compare that number to the past seven years initially, then compared to the overall trends for the last decade or so.

By looking at the facts first, I thought that they would keep me from swaying one way or another as to what the industry analysts and economists are predicting. I also realized that even though I knew the facts, I had to let the facts take a back seat when it comes to predicting the future.

That's an area where "the experts" are supposed to come in and that, in my opinion, is where the confusion starts.

The first article I came across was a recent one by slate.com which compares..."the auto industry as an indicator to a slowing economy", while another one right after that by chicagofed.org. in mid-2017 states that we can expect..."solid and steady economic growth in 2017 and 2018". Quite a variation as I read through both articles.

It seems though that much of these varied opinions and prediction comes right back to the facts that I initially researched.

The peak of new automotive unit sales was approximately 17.5 million units in 2016 and they expect that number to drop to 16.9 million once the counting is done in 2017. New unit sales are predicted to be the same 16.9 million in 2018.

First of all, in my opinion, 2018 isn't really here yet and if the numbers are correct, going from 17.5 million new unit sales to 16.9 isn't that much different if my math is correct. So, I guess this may be the reason for the opinion swings in either direction. 

It is a decline, but it is still a far cry from when the bottom dropped out back in 2008 when new unit sales fell to approximately 10 million, now that's a number to be concerned about. Since 2008, the new unit sales have steadily climbed each year to it's peak at 17.5 million in 2016. One again, our seven year cycle proving itself yet again.

In prevedere.com's. 2018 Automotive Outlook states..

"U.S. auto sales experienced record numbers from 2008 - 2016, but the industry is seeing a steady decline in 2017 for the first time in eight years. And there is no reason to believe that sales will continue to drop in 2018."

According to Andrew Duguay, key economist for prevedere.com, goes on saying in his key webinar "takeaway"...

Despite a healthy economy and wage growth, cars have reached significant saturation among consumers and will be buying fewer cars in 2018. Due to this saturated market, there will be fewer customers despite wage growth. Auto dealers must get the full value out of every sales and cannot afford to incentivize customers through promotions. Marketing campaigns should be focused on baby boomers who have continued wage growth, disposable income and still value their expensive cars". 

In contrast, the Federal Reserve Bank of Chicago, (chicagofed.com), says some very key indicators lead them to believe that we will see steady economic growth, including the automotive industry. Key indicators such as;

• Real Gross Domestic Product, (GDP) to grow at 2.3, (June 2017), other estimates @ 3.2 in 2018
• Real Residential Investment 3.4 to 6.3, (2017,2018 vs. 1.1 in 2016)
• Car and Lt.Truck Sales to 16.9 million vs. 17.5 million in 2016 & 17.1 million in 2017
• Housing Starts growing from 1.18M units in 2016, 1.26M units in 2017 to 1.32M units in 2018
• Consumer Price Index 1.8 to 2.3, (2016 vs. 2018)
• Ten Year Treasury Rate from 2.13 in 2016, 2.70 in 2017, to 3.11 in 2018 

Confused yet?.....here's more!

One of the best articles that I found was from McKinsey & Company's "The Road To 2020 And Beyond" 24-page PDF, downloadable article subtitled, "What's Driving The Global Automotive Industry". Their in-depth research offers a great perspective on where the automotive industry is headed.

Their analysis implicates a very huge and optimistic outlook which surrounds itself by one narrative and that is...

"...the global automotive industry is about to enter a period of wide ranging and transformative change, as sales continue to shift and environmental regulations tighten..."

It appears that this article takes our industry into a vast worldwide market that can impact all of us here in the U.S. Their overall findings indicate that "the global automotive industry is in better shape than it was five years ago...and by 2020, global profits for automotive OEM's are expected to rise to almost 50%"...

With this shifting landscape in the global markets, automotive OEM's will grow even bigger and stronger worldwide with further opportunities in trade and commodities with world countries. So, even though the U.S. market may remain steady, or maybe experience very slight declines, the automotive industry will continue to grow.

Let's not forget the internet either when forecasting into 2018 and beyond. According to Carpark & McKinsey, not only are unit sales increasing on through the internet increasing, "internet connected" vehicles are on the rise.

By 2020, it is predicted that we will realize a 30% increase since 2012, of new vehicles with network solutions capabilities. By 2020, it is estimated that 1.32 billion units will have internet connectivity on a global level.

The outlook and opportunities seem to be growing each year with new technology connecting the world to much closer parameters. New areas of front end sales growth can also only mean one thing....more future parts sales!

So, how do these forecasts and predictions, either positive or negative impact "Smart Parts" Managers in 2018 and beyond?

The best research I saved for last of course as parts managers, we should want to know what to expect in the coming year and perhaps beyond. The good news is that there is a lot of "good news" for parts managers and fixed operations managers in general.

First of all, with market implications leaning to more of a flat sales market in the U.S., even though noty drastic, implies that vehicles are being kept longer and lasting longer than ever before. Average ownership is now reaching double digits in vehicle aging, thus requiring more service and parts. 

Even though vehicle maintenance requirements are getting less and less every year, the secondary dealer and aftermarket sales are increasing as sales on used vehicles remain strong and parts sales demands grow higher and higher.

My last bit of research comes from a recent Hedges & Company blog titled; "Car Industry Trends: Online Parts Sales to Reach $8.9 Billion in 2017", which is an increase of 16% over 2016 and expected to rise to over $10 Billion in 2018 and over $13 Billion by 2020.

Also, according to Hedges & Company, Ecommerce parts sales are projected to grow by 15% in 2018. Also, the Automotive Aftermarket Suppliers Association, (AASA) projects total aftermarket sales to have a compound growth rate of 3.6%, which is the same growth rate predicted for the "Do-It-Yourself", (DIY) retail sales growth.

Amazon still remains the auto aftermarket's single largest retailer, challenging other big players like Advanced Auto Parts, Autozone and O'Reilly's Auto Parts. Amazon also boasts a most recent Barron's article which states that Amazon auto parts prices were 22% less than the other chain auto parts stores. 

Hedges & Company goes on to say that it is no secret that the "brick & mortar" parts stores are having a rough time as their sales only grew at a 2.9% rate in 2017 and predicted to drop to a 2.8% growth rate in 2018 and 2019. So, online sales are not only growing....they are accelerating!

Not only are online parts sales accelerating, parts sales are shifting to mobile as well. Mobile parts sales added up to a minimum of $4 Billion in auto parts sold online in 2017 and also expected to grow in 2018.

And lastly....here's the big one that should put all of our "parts minds" to rest. Also according to Hedges & Company.....

"Total Ecommerce parts sales in the U.S., as tracked by the U.S. Census Bureau, had a year over year growth of about 16% in 2016. They estimate that total Ecommerce parts sales to be 7.7% of TOTAL U.S. Retail Sales, (all retail sales, not just auto parts)."

I guess my only question is...

"2018 is right in front of us...how much of this growth do we want as Smart Parts Managers?"....

Happy New Year From ACG Smart Parts!!!

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

December 2017: "The Year In Review"

It's that time of year again when we take a look back over the past year here at ACG "Smart Parts" and evaluate the events, the changes, the "wins" and the "losses", and most important...the learning experiences and opportunities.

Along with looking back at our personal experiences in our dealerships, we will also take a look back at what our industry has experienced throughout the year with some pretty interesting facts and trends reported by our friends over at the National Automobile Dealers Association, (NADA)

I also mentioned in the introduction that we have a few of our own "headliners" that seemed to be a commonality in many dealerships that I have visited over the past year. All of which indicate to me that dealers in general are getting even sharper with expense management, but ironically, even more willing to spend in the right areas that will bring the highest return on investment.

We will go more in depth on what I'm referring to later in this blog as I want to start with some interesting facts, trends and overall information reported thus far this year by NADA. Some of the data and information that I will bring to the forefront are mid-year 2017 composites and trends, while other information will be right up to date through November 2017.

2017 was another great year for up front sales, in both passenger car and light trucks, but what surprised me the most was U.S. Commercial Truck Dealers sales were and are up substantially over previous years. A side of the industry that has just seemed to creep right up there into the limelight.

According to NADA's ATD Division, (American Truck Dealers), "employment at U.S. commercial truck dealerships has reached it's highest point in five years....up 5.6 percent in 2016 over the previous year". These trends will obviously increase the career opportunities for many, especially those just getting into our industry as far as Fixed Operations positions.

As a matter of fact, according to ATD/NADA Economist Patrick Manzi,

"Commercial truck dealerships contribute to their communities with jobs that pay well and offer opportunity for advancement. In the Service Department, demand for technical positions remains high, as dealerships help maintain the commercial vehicles that are a vital part of the U.S. transportation infrastructure".

Commercial truck dealership's repair order counts went up drastically to nearly 8% over the past year os so, while sales and profits rose to nearly 6%. These drastic increases has led to a growth in U.S. commercial truck technician staffing to over 15%!

More repair orders and more technicians definitely leads to more demand for parts and the right parts staffing to meet the demands of the U.S. commercial truck fleet. The cost of one "downed" commercial vehicle for just one day could cost the consumer thousands and thousands of incoming dollars to their business.

Increased dealership employment didn't just affect the U.S. commercial truck dealerships, as new car and light truck dealership employment has also risen over the last couple of years. The numbers aren't in yet for 2017, but the trends we see from 2016 indicate that the average dealer employment went from 66 to 69 employees with average payroll increases up nearly 5% annually.

Much like the U.S commercial truck dealers, new car and light truck dealerships also showed increases in new dealership openings over the past couple years, approaching 17,000 in total dealerships in the U.S.

Even with the decrease in overall truck sales and minor increases in new car sales, overall dealer sales and profits continue to rise as the dealers' fixed operations continue to increase service absorption numbers to support the "front end" of the dealership.

NADA's forecast for new vehicle sales remained strong in 2017 as demand for new vehicles remains healthy and overall economic growth continues in a positive direction. Even though there has been some deterioration in consumers' credit scores for new vehicle sales, strong employment growth still makes credit less risky for lenders.

The used vehicle market still remains strong and is expected to continue growing as more and more vehicles come off lease going forward into 2018. All of which suggests that 2018 will continue to be a progressive year in all vehicle sales markets, including commercial vehicle sales.

All that said, it is quite obvious that the dealerships' fixed operations will be very strong going forward into the new year. Signs of a stronger economy and increased overall employment will definitely impact our share of the gross domestic product, (GDP) in 2018.

Lastly, as I mentioned earlier, I want to drift back over this past year from my own perspective and share what I believe are the three most prioritized areas that dealers focused on in 2017. All of which, made it a very busy year for us here at ACG "Smart Parts".

Number one was the overwhelming drive for dealers to "jump ship" and change Dealer Management System, (D.M.S.) Vendors. I can say honestly that I have been more active this year, compared any other year, working with dealers and parts managers, installing, modifying, or even changing basic parts set ups and controls.

Along with these transitions, I have experienced several new D.M.S. systems, some very good and some not so good, but overall, most of these new D.M.S. systems provide the features and functions needed to perform basic, daily parts operations. Some even going above and beyond what we have been exposed to for many years with previous systems.

Number two is the increased awareness and need for more training, particularly in the area of parts management. Dealers in 2017 have seemed to become more aware of the parts department role in the fixed operations and especially when it comes down to overall Service Absorption.

Parts Management training has also become more affordable, or at least here at ACG "Smart Parts" with newer technology allowing remote training without even entering the dealership. Remote access into many Dealer Management Systems, (D.M.S.) has allowed interactive training from thousands of miles away!

This innovative, ACG "Smart Parts" Training Model has allowed dealers who may have not even considered parts manager training due to the high training costs, to providing many new parts managers an opportunity to receive the best "one-on-one" parts training available at a reasonable cost.

Lastly, 2017 also peaked training up in all fixed operation levels, especially in the U.S. Commercial Truck Service Market. As I mentioned earlier, the U.S. Commercial Truck Sales & Service markets have skyrocketed over the past few years.

Increases in front end sales, back end service and parts sales, technician staffing, and more and more new facilities opening their doors is creating a "vacuum" of demand that will feed our industry even more in the coming years.

I don't know about you, but if you aren't excited about where we are and where we are going in the years to come, you may want to stop and take a breath. Take a look at what's happening right now because if you are not prepared and well trained for what's ahead....you just may be leading from behind in 2018....

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

November 2017: Parts Ranking Analysis: "Why Is It Important?"

For a Parts Manager, winding down the year usually means getting the year end physical inventory completed, annual parts reconciliation with Accounting and perhaps, preparing forecasts for the upcoming year.

One task that I feel is often overlooked, especially at year end, is running the Dealer Management System's, (D.M.S.) Parts Ranking Analysis Reports by Piece Sales, Cost of Sales and Gross Profit Retention Percentage. Even though it is important to run these reports each month, none can be more important than running them at years end.

The Parts Ranking Analysis Report really isn't anything new to many "Smart Parts" Managers as most Dealer Management Systems, (D.M.S.) offer these reports to some degree. What may be new is the important information that is provided in these reports that may get overlooked by the Parts Manager.

The Parts Ranking Analysis Report can be generated in most D.M.S.'s by either total sales at cost, individual piece sales, or even by sales and gross margins. Whether the report is generated by total cost of sales, piece sales, sales, or gross margins, the information provided is crucial to many areas of inventory management and overall sales and profits.

So....Why Are The Parts Ranking Reports So Important?

For me, these Parts Ranking Analysis Reports are helpful in at least five areas that can help the "Smart Parts" Manager get peak performance from the parts inventory while maximizing part sales and profits. I'm sure there are more, but let's take a look at the five top Key Performance Indicators, (K.P.I.) that can be managed from the information provided in these Parts Ranking Analysis Reports.

Days Supply:

Generating a Parts Ranking Analysis Report by Piece Sales, (descending, top down)) can reveal top moving parts which is extremely helpful when determining the correct days supply of parts in all piece sale ranges. 

As a matter of fact, in some D.M.S.'s such as Dealertrack, each part can be broken down to proper algorithms and weighted sales on low and high days supply, or best reorder point, (BRP), and best stocking levels, (BSL).

Also, current overall days supply can be calculated to prevent "stock out" situations as current piece sales demands will show if the current stocking levels match current demand activity. Some D.M.S.'s will calculate current demand activity, but for those systems that don't, these levels can be calculated manually.

For example, if the current days supply of a given part number is 34.6 days and NADA Guide is 45 days, adjustments may need to be made in that piece sales stocking criteria, or stocking group on the high days supply, or best stocking level, (BSL)

Gross Profit:

Generating the Parts Ranking Analysis Report, (descending, top down) based on sales at cost is a great tool in creating the proper parts "cost plus" escalation matrix. Other than our competitive parts sales, we all pretty much know that there are many opportunities to offset the lower gross, competitive parts sales with parts that are more captive and can carry a "cost plus" escalation matrix.

We can also determine where the majority of our parts sales at cost are actually coming from. For the most part, the majority of our parts sales at cost is coming form the $10.00 - $25.00 cost range. With this information provided by the Parts Ranking Analysis Report, we can properly manage our "cost plus" escalation matrix on captive parts.

In addition, the Parts Ranking Analysis Report, (descending, top down) can be generated on our highest grossing parts in order to insure the proper combination of gross profit retention and parts movement by piece sales. 

Some of our highest grossing parts may not necessarily be our fastest movers as well as the other way around. One thing for sure though, we definitely don't want our slower moving parts to also be our lower grossing parts. The right combination of movement and price will determine maximum inventory efficiency and profits.

More importantly, if the parts sales at cost are source ranked by piece sales, or stocking group criteria, we can separate the competitive parts from captive parts. This allows all parts to be priced accordingly to maintain proper gross retention margins, while remaining competitive in the marketplace.

Service Productivity:

Here's one category where the Parts Ranking Analysis Report by Piece Sales can provide great information for our Service Department. First of all, there are only two reasons why the Parts Department doesn't have the part, they either never stocked the part in the first place, or, they ran out. 

This report also illustrates trends on piece sales movement over a shorter period of time to help avoid "stock out" situations. Even though some systems have "out of stock" reports, I prefer not to wait until I run out and potentially lose shop productivity waiting for parts.

The Parts Ranking Analysis Report, (descending, top down) on the top gross profit part numbers can also help the Service Manager insure that the Service Menu Parts are not over priced, with gross margins not respective to a competitive market. 

Inventory True Turn:

In the category of Inventory True Turns, creating the Parts Ranking Analysis Report in what I call "both directions", (descending, top down & ascending, bottom up) can provide very important information for the "Smart Parts" Manager in the area of Inventory True Turns.

Even though there are other reports that our D.M.S. can provide in the area of True Turns, including our own calculations, what these other reports don't provide is trends. The other D.M.S. Reports on True Turn, as well as our own calculations are all after the fact and final. We can't go back and fix something that's already happened.

By generating these Parts Ranking Analysis Reports in both directions by Piece Sales, we can actually see the movement ascending from the bottom and descending from the top. Descending from the top, on the faster moving piece sales, we can take steps to insure proper stocking levels are in place, or Best Stocking Levels, (BSL)

Ascending from the bottom on the slower moving piece sales, we can take the proper steps to avoid "overstocking" which can inflate the overall inventory value, leading to a negative effect on the inventory True Turn numbers.

Controlling Obsolescence:

Last, but surely not least, the Parts Ranking Analysis Report by Piece Sales, (ascending, bottom up) can illustrate trends on parts sales starting to drop off and headed in the obsolete direction. Other D.M.S. Reports on obsolescence are also available, but they don't provide ascending and descending trends with part numbers.

Much like most D.M.S. Reports, we get the final information, after the fact which leads us to ask "What Happened?", versus "What's Happening?" with the information we can see in these Parts Ranking Analysis Reports. 

If these Parts Ranking Analysis Reports are created consistently every month, and especially at year end, in the area of obsolescence, we can actually see the parts that are headed down in both movement and gross profit retention much sooner than waiting for an end of month report, or end of year report.

Lastly, one of my favorite Parts Ranking Analysis is the Piece Sales Report, (descending, top down) which gives me all the information to determine Best Reorder Points and Best Stocking Levels in all piece sales ranges.

All the algorithms, weighted days supply over the last month, or even the whole year can be found right in the these Parts Ranking Reports. Depending on the D.M.S., we can actually break each individual part number down to it's own individual BRP and BSL as well as the recommended overall days supply.

No matter which particular D.M.S. you may have, most do provide, to some degree, these Parts Ranking Analysis Reports. Unfortunately, in my opinion, they don't get utilized enough in the above areas. Why are there Parts Ranking Analysis Reports important?....I guess that's a question we all need to ask ourselves...

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

  

October 2017: "It's Time To Do The Math Ourselves!"

As many "Smart Parts" Managers know, I have written many past articles on the importance of having the right parts Set Ups & Controls. I have also touched on how not having these proper Set Ups & Controls can and could lead to problems in the areas of obsolescence and over stocked inventory amounts.

As we enter the last quarter of 2017, I felt it very appropriate to "dig into" these topics again, but with a different twist and a more detailed approach into how these Set Ups & Controls continue to be a "monkey on the back" for many parts managers today.

Even though Dealer Management Systems, (D.M.S.) vendors continue to improve on their products, I think it is actually working against many parts managers. Many, many parts managers today still don't even know how to calculate the proper Days Supply, or True & Gross Turns.

The effect of just "not knowing", has and still does lead to unacceptable obsolescence and overstocked inventory amounts. Then, once you add in manufacturers who offer Vendor Managed Inventories, (V.M.I.), the problem is actually growing in many dealerships today, in my opinion.

In this issue of ACG "Smart Parts", we are going to highlight four specific areas that are, in my opinion, the biggest contributors to obsolescence, over stocked inventories, and most importantly, low "First Time Off Shelf" Fill Rates.

The first area that we will attack is "Days Supply", which some may not know, but actually have two different meanings when managing a parts inventory. It's not just a calculation for how many days of supply to carry on a specific part number. 

The first "Days Supply" definition that we will review is one that I have to say is perhaps one of the biggest misconceptions that some parts managers have today. Many parts managers still confuse "Days Supply" with the inventory "quantity" that should be stocked of a given part number. 

In other words, a "Day's Supply" of a particular part could be 1, 2, 10, or even 20 or more per day. A "Days Supply" of any given part is just that, the number of parts needed of a given part number to get through a single day, or even over a course of days throughout a month, or number of months.

"Day's Supply" of an oil filter can be many in one day, as opposed to "Day's Supply" on a valve cover gasket, which may only sell once a month. This would equate to just one gasket over a thirty day period, thus, a thirty "Day's Supply" of the the valve cover gasket.

To properly calculate the proper "Day's Supply" of any given part, we first have to "do the math ourselves". An example of this would be if a part sells only twelve times a year, which averages out to once a month, the "Low Days Supply", or "Best Reorder Point", (B.R.P.) would be thirty days.

The "High Days Supply", or "Best Stocking Level", (B.S.L.) would be anywhere from 50% to 150% of the "Low Days Supply", (B.R.P.) according to Mike Nicoles guidelines, which I agree with as well. The percentage utilized, (50% - 150%) would be determined on how fast the part moves.

The less a part moves, a lower percentage the "High Days Supply", (B.S.L.) should be applied, and the faster a part moves, a higher percentage should be applied to the "High Days Supply", (B.S.L.) to avoid "out of stock" situations.

On the "Low Days Supply", (B.R.P.) calculation, vast moving parts will have fewer Days Supply, while slow, or slower moving parts will carry a higher "Low Days Supply", (B.R.P.). This may sound confusing, or even backwards to some, but this is how the math works.

Here is the formula to properly calculate the proper "Low Day's Supply", (B.R.P.) of any given part;

Total Annual Days, (365) - Divided By - Total Annual Piece Sales of a Particular Part = Low Days Supply, (B.R.P.), Best Reorder Point.

Example on a part that sells (24) Times Annually;

365 Days - Divided By - 24 Annual Piece Sales = 15 Days Supply, (B.R.P.), Best Reorder Point

Keep in mind that the the "High Days Supply", or Best Stocking Level, (B.S.L.) is calculated from the "Low Days Supply," Best Reorder Point, (B.R.P.) at Mike Nicoles guidelines of 50% - 150%, pending on overall average annual movement.

If a part tends to get overstocked, a lower "High Days Supply" percentage should be used, and if a part is in an "out of stock" situation, even though the "Low Days Supply", (Best Reorder Point, or B.R.P.) math is still correct, then the "High Days Supply" percentage, (Best Stocking Level, or B.S.L.) should be increased.

With all this said, I'm not at all surprised at how some parts managers may be confused on how all this math works because it may appear to be backwards in a way. This is why we need to "do the math ourselves", and we will see that the math doesn't lie, just "black and white" facts. 

What I can't understand is why some of the "Low Days Supply" Set Ups in many Dealer Management Systems are so far off. If we just "do the math ourselves", we would see that these "Low Days Supply" set ups just don't add up, especially if all parts are in a single "standard parts" source.

It's so obvious in many cases that I see that no one...no one has "done the math themselves" as so many part numbers with various annual piece sales differences have the same Low and High Days, (B.R.P. & B.S.L.). There is no logical way that one "Low Day's Supply" calculation can satisfy all parts with so many different movement cycles.

How can a part that sells only 6 times a year be put into the same "Low Day's Supply" category as a part that sells over 100 times a year? If you are a dealer, it would be like carrying the same number of individual model vehicles on the lot, regardless of how each unit sells individually.

The same holds true for parts, as varied parts annual movement cycles requires the right "Low Days Supply" calculations. This is also the reason why parts should be in "part sources" that are ranked by their piece sales movement.

Now, let's take a look at the other "Days Supply" definition, or dilemma as it equates to how many total "Days Supply" that we should have in the parts inventory in the area of total dollars. Keep in mind that this just illustrates how much the total dollar amount of the parts inventory should be, whether active, idle or obsolete.

I'm sure that many "Smart Parts" Managers have heard the term of carrying a 45 "Days Supply" of parts inventory, or a 1.5 Months Supply. This is what this terminology of "Days Supply" represents. Much like new and used vehicle inventory, where the overall "desired" vehicle inventory dollars would equate to a 30 - 45 "Days Supply".

Enough inventory in this case, whether vehicles, or parts to "satisfy" customer demand for a 30 - 45 day period, without replenishment, based on inventory dollar value, not necessarily individual demand of a particular part or vehicle. It's strictly a dollar value number used to base overall "desired" inventory amounts in the marketplace.

Here's how to calculate your "desired" parts inventory amount;

Total Parts Sales at Cost for the Last Twelve Months - Divided By - 8 Gross Inventory Turns = Total "Desired" Inventory Amount

Here's the Example:

Total Annual Parts Sales at Cost = $1,200,000.00 - Divided By - 8 Gross Inventory Turns = $150,000.00, (Desired Inventory Amount)

The last two areas that I feel that "It's Time To Do The Math Ourselves" is calculating parts Gross and True Turn. Especially with many manufacturers offering Vendor Managed Inventories, (V.M.I.'s). It actually comes down to what parts we define as "Normal Stocking Parts".

I've always defined a "Normal Stocking Part" as a part that has met MY Phase-In Stocking criteria and ends up in a normal stocking class. That appears to all be changing now as many of our so called "Normal Stocking Parts" are entering into our inventory as "Non-Stock" parts.

Now, with manufacturers' offering Vendor Managed Inventories, (V.M.I.'s), parts are actually being ordered as "Normal Stocking Parts", when they haven't met our own Phase-In criteria. Thus, unless the parts manager makes manual changes to the stocking status, they will enter in as "Non-Stock" parts as they haven't met Phase-In criteria into the D.M.S. yet.

All this confusion just adds to the "improper" calculation of the parts inventory's True Turn capabilities and accuracy. The True Turn calculation can be highly impacted, both negatively and positively by improper stocking class updates by either the D.M.S., or the parts manager.

So, let's "do the math" and calculate proper True and Gross Inventory Turns, starting with Gross Turns. I will provide the true definition, and then I will give you my "Layman's Term" definition....

Gross Turns Definition;

Total Sales at Cost for the Last Twelve Months - Divided By - Average Inventory Investment for the Last Twelve Months. (NADA & Mike Nicoles Guide: 8 Gross Turns)

A "Layman's Term" Example;

Total Cost of Sales for Last Twelve Months, ($1,200,000.) - Divided By - Average Inventory Investment for the Last Twelve Months, ($150,000.) = 8 Gross Inventory Turns.

Keep in mind that this above calculation represents inventory sales at cost over the period of a year and not necessarily the inventory that we actually stock. In other words, I can sell $100,000 in inventory at cost and technically, none of it has to be actually in stock. 

It just represents inventory "dollars" passing through the inventory asset account and the actual "marketability" and necessary dollar amounts needed to meet customer demand. Gross Turns does not indicate, or represent how well the "stocking" inventory is performing. 

The only true measurement of how well the actual "stocking" inventory, meaning parts that have met Phase-In Stocking Criteria for "Normal Stocking" parts in in the area of the parts inventory's True Turn capabilities.

True Turns Definition;

Total Stock Order Receipts for the Last Twelve Months - Divided By - Total Sales at Cost for the Last Twelve Months - Divided By - Average Inventory Investment for the Last Twelve Months.

This one is very confusing as the actual industry definition refers to "receipted" stock order parts and then calculating total sales at cost, then dividing by the average inventory for the last twelve months. That's the "true" definition, but I've always felt it much easier to calculate the sales of "normal stocking parts" as a percent of total sales at cost, divided by the last twelve months average monthly inventory.

Here's my "Layman's Example", which usually comes extremely close;

Total Annual Cost of Sales on Normal Stocking Parts, ($600,000.) - Divided By - Average Monthly Inventory Investment, ($120,000.) = 5 True Turns

Much simpler calculation, especially with the fact that it's very difficult calculating "Stock Order Receipts" these days with the manufacturers' Vendor Managed Inventories, (V.M.I.'s) and Customer Special Orders not getting receipted properly in the first place. The "Smart Parts" Manager must determine the proper receipting practices and stocking categories.

To this day, I'm still seeing many Dealer Management Systems, (D.M.S.) with the same Set Ups & Controls as they had when first installed by the D.M.S. Vendor. The problem is, often times, the D.M.S. installers and trainers don't even have a clue on what the proper Set Ups & Controls should be in the first place.

Perhaps even worse than that, many parts managers have not even checked, researched or even modified these very important set ups in a very long time, if at all. The simple fact is, if the D.M.S. is not working for the parts manager, than the parts manager has to work the for D.M.S. with countless overrides, adjustments and corrections.

Quite simply, if you are not seeing, or getting the right results from your Dealer Management System, (D.M.S.), or you are having to constantly make adjustments to suggested order amounts, that may just be your clue into getting it fixed and getting it right.

It's time to "Do The Math Ourselves" and make your Dealer Management System work for you...and not the other way around!

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

September 2017: Pricing Strategies: "Do You Have The Right Recipe"?

It's not that often that I run across a topic that never seems to stop intriguing my mind and is perpetual in subject matter. Staying on top of managing our "Pricing Strategies" is a never ending process and requires consistent maintenance.

Coming up with the right "Pricing Strategy", whether it's selling automotive parts and service, smart phones, or food products requires an on-going strategy to achieve a product's or service's maximum sales and profitability potential throughout the sales cycle.

Business Dictionary defines the meaning of "Pricing Strategies" as follows;

"Activities aimed at finding a product's optimum price, typically including overall market objectives, consumer demand, product's attributes, competitor's price, and market and economic trends."

There are actually quite a few definitions available on the internet and they all appear to be similar, but beyond just the basic definition, there are actually four basic descriptions of "Pricing Strategies" that some "Smart Parts" Managers may not be aware of. 

For as far back as I can remember in my parts manager days, parts pricing was pretty simple and were mostly dictated by the manufacturer, local competition and demand. Back in the day, we didn't really care to even "delve into" the topic of "Pricing Strategies".

I do believe that all of that has changed in today's automotive parts marketplace. A couple of month's ago, I wrote about how competition between the Original Equipment Manufacturer, (OEM) and Aftermarket Parts Manufacturers' has grown into a multi-billion, world-wide industry that is responsible for a considerable percentage of our overall Gross Domestic Product, (GDP).

I believe all this growth, competition and demand requires "Smart Parts" Managers to take a leap forward in today's marketplace to take a serious look into our "Pricing Strategies". This also requires the "Smart Parts" Manager to know the four basic pricing strategy descriptions. 

The best place that I would recommend to get educated on "Pricing Strategies" is a website called marketingteacher.com. The website actually breaks down the "Pricing Strategies" matrix on these four basic descriptions, which are as follows;

Premium Pricing: Product or service is considered at a premium, which allows the product or service to be marketed at a higher price and is of higher quality. 

Penetration Pricing: Product or service is designed or considered to sell at a high penetration rate with higher quality at a lower price resulting in higher volume sales.

Economic Pricing: Product or service is considered or designed for the market at lower quality and at a lower price. This pricing strategy is generally attracts all consumers in all marketplaces.

Skimming Strategy: Product or service is designed or considered to sell at a higher price, even though the product or service is of lower quality. Most often utilized in products or services that are "captive" in nature and less competition.

I think most of us can visualize, or think of many products and/or services that fit each one of these four basic descriptions listed above. In my opinion, we could also apply these pricing strategy descriptions in all areas of automotive parts sales.

To make these pricing strategy descriptions come to light for "Smart Parts" Managers, let's actually apply these pricing strategies with a few examples of where they would fit in the automotive parts world that we live in today;

Premium Pricing: In the premium pricing category, we could perhaps include "factory specific" parts, or even "captive parts" such as Body Control Modules, (BCM), Wiring Harnesses, Interior Trim, Instrument Control Modules, etc. 

We could even include "factory specific" parts at lower cost prices such as certain bolts, fasteners, clips, retainers, etc. where an escalation "cost plus" matrix can be applied to maximize gross profits to offset parts sold at lower gross margins. 

Penetration Pricing: In this pricing strategy, we could definitely include our OEM oil filters, air filters, cabin filters and wiper blades where quality is an expectation from our customers at a competitive price. Most of these parts are usually "flat priced", utilizing a weighted price averaging calculation.

Most competitive parts, or menu parts could also fall into this pricing strategy description with the end results being high sales volume and gross profits, not necessarily focusing on gross profit retention percentages.

Economic Pricing: Appropriately named, in this pricing strategy description, there is perhaps a lesser chance of "Smart Parts" Managers utilizing the strategy due to the customers' expectation of quality service and products provided by the automotive dealer. 

This pricing strategy is more often used by independent automotive service facilities as quality is not as important and price is the driving force. Although, with more and more dealerships offering "good, better and best" options on some services and repairs, this pricing strategy could come into play.

Skimming Strategy: Not one pricing strategy that I would recommend that often, but it could come into play in some low cost accessory or display items in the Parts Department, which I refer to as "trinkets".

Items such as key fobs, key chains, air fresheners, license plate frames, some wearable items, or any other "point of purchase" item that usually attracts the impact buyer. 

Quality of product is not usually questioned in lieu of the desire to buy because it doesn't cost that much and can relieve that "itch to buy" which we have all experienced from time to time.

Quality of product may also not be a factor in some other "NPN" part numbers such as nuts, bolts, screws, some chemical products, etc.

In my opinion, having a pricing strategy which helps sorting parts into these individual descriptions makes it much easier to distinguish how parts are priced in the first place. 

It would also make it much easier to categorize parts that need to have an escalation matrix, flat price or carry the manufacturer's suggested retail list price.

Most importantly, we need to realize that parts can move from one pricing strategy description to another at any time based on movement, demand or competition.

Knowing which "Pricing Strategies" to use at the right time is always a good recipe for achieving expected results in sales and gross profits.

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

August 2017: "Is Your D.M.S. Monthly Management Report Telling The Truth?"

If I were to make a comparison of the importance of the Dealer Management System, (D.M.S.) Monthly Management Report to the parts manager, I would compare it to the actual Dealer Financial Report to the dealer.

The performance of the parts inventory, which is the dealers second highest asset can only be analyzed through the "accuracy" of these D.M.S. Monthly Management Reports.

The question I have is..."Is Your D.M.S. Monthly Management Report Telling You The Truth?" 

The reason I ask this question often of parts managers after I have reviewed their D.M.S. Monthly Management Report is because it just doesn't make sense. After reviewing literally thousands of these reports with various systems and dealers, I can tell if the information on these monthly reports is actually "truthful".

Here are some of the most common questions I have asked parts managers after a thorough review of their D.M.S. Monthly Management Reports; 

• "How is it possible that you haven't had any Emergency Purchases?"
• "You really don't have any Lost Sales?"
• "You really don't have any Customer Special Orders?"
• "Your First Time Off Shelf Fill Rate shows you at 99.9%...how do you do it?"
• "How is it that your True Turn is 10.0 Turns, but you have all these Special Orders?"
• "Do you really have over $50,000 in Outstanding Orders with an Inventory of only $125,000?"

I could go on and on, and of course I already know the answers to these questions because each one is due to the lack of, or improper D.M.S. reporting. Unfortunately, in many cases, it's not the parts managers' fault directly as most often times it's due to a lack of proper training.

Another actor that is a major contributor to inaccurate information on the D.M.S. Monthly Management Report is the parts manager's "belief system". As a matter of fact, having the right "belief system" is the Number One Habit in our Smart Parts "Eight Habits of Highly Successful Parts Managers" Training Program.

The "belief system" I'm referring to is that the parts manager must "believe" in reporting to the D.M.S. correctly and accurately in order to take advantage of what the D.M.S. has to offer. Could you imagine what would happen if the Dealer's Financial had inaccurate information as I mentioned in my earlier comparison?

Honest and proper input leads to accurate information in these monthly management reports. If the information revealed is accurately reported, even if the results are not up to standards and guidelines, proper actions can be taken to achieve predictable results.

Following basic, honest reporting practices is not the only issue some parts managers have to deal with today. With some of the new Dealer Management Systems out there today, it's a challenge to even find some of this vital information that we would expect to see on an end of month inventory analysis report. 

Over the past three years, I have had to learn and absorb three new Dealer Management Systems, (D.M.S.) with various dealer clients. It seems that more and more D.M.S. Vendors are jumping into the automotive dealership arena due to increased competition, primarily due to pricing.

It's no secret that D.M.S. Vendors such as Dealertrack, AutoMate, AutoSoft and Adams have increased their dealer market share by offering a D.M.S. product with a lower cost than the top two vendors, which are Reynolds & Reynolds and ADP/CDK.

With the availability of more choices for dealers with far many more pricing options, it appears that there are more dealers "switching" D.M.S. Vendors than ever before. This means that more and more dealers have to deal with change as all departments have to learn a new system, which doesn't really go over very well at first.

I have personally assisted and witnessed many of these dealer parts managers fight through the actual transition from one system to another. All of a sudden, what we were normally accustom to suddenly changes and now we are cast into unfamiliar territory.

Switching over to new systems has never been easy, but what it does do is "wake us up" as we are forced revisit basic parts Set Ups & Controls, Parameters, Pricing Levels & Strategies and Specification Listings, etc. Most, if not all of these areas are rarely revisited, unless modifications are required from time to time.

So now, if a parts manager is on a new D.M.S., not only do they have to focus on proper input to get accurate results on these monthly reports, they have to know where to find where this monthly information is compared to their previous Dealer Management System.

It is in this area that dealers really need to do their homework by including their managers from all departments to participate in the actual decision that is made before switching over to a new D.M.S. Vendor. We all know the old saying that we get what we pay for and that phrase is definitely true with some of the D.M.S. Vendors.

Without naming these vendors specifically, some don't even provide the vital information that is needed on a monthly basis. Other D.M.S. Vendors may provide this vital information, but it's not all on one report as the parts manager would need to run several different reports just to get the information they were accustom to getting on one monthly inventory analysis report.

As I mentioned earlier, the D.M.S. Monthly Analysis Report is to a parts manager as the dealer financial is to the dealer. The information on these reports, if properly reported, "tells the truth" on just how well the parts inventory is performing.

Now, let's take a look at some of items that a typical D.M.S. Monthly Analysis Report should contain. Keep in mind, that in some systems, all of the following items may not be available, or may require the parts manager to run several different reports to gain access to the information;

Cost of Sales Analysis: This report breaks down all of the parts sales at cost. It also provides the parts manager a breakdown of the stocking status of these sales including; stocking parts, non-stocked parts, phased-out parts, etc. as well as providing information that will determine our "True Turn" calculation.

Investment Analysis: This analysis breaks down the status of all the parts in the inventory, including stock parts and all other categories of non-stock parts. Once again, this analysis is crucial as it gives us a percentage of the parts inventory that is classified as normal stocking parts, which should represent 75% - 85% of the parts inventory.

In some Dealer Management Systems, this is also where the parts manager would see the overall days supply of inventory as well as overstocked and "over valued" inventory. Industry guidelines for total days supply of inventory is 45 Days, or 1.5 Months.

Sales Activity: In this report, we find just how well the inventory is moving over the course of twelve months. According to industry guidelines, the majority of the parts inventory should have 75% movement in the 0 - 3 month category, 23% in the 4 - 6 month category and only 2% in the 7 - 12 month category and zero over 12 months.

Sales Activity over 12 months also represents the obsolete parts inventory, or in some Dealer Management Systems, it could be referred to as "idle inventory". Extremely vital information as this category determines just how "liquid" the parts inventory asset is as well as how healthy the True Turn number really is.

Emergency Purchases/Lost Sales: Another crucial report, that is of course, IF the parts manager reports Emergency Purchases and Lost sales. If the parts manager does not report any, that wouldn't be "telling the truth" and would give us false first time and overall off shelf fill rates.

Even with today's dedicated delivery service from manufacturers, there is still opportunities out there that reporting Lost Sales and Emergency Purchases that can benefit the parts manager. Lost Sales to me have always defined as "Potential Missed Opportunities".

Even if a sale was eventually realized, it doesn't hurt to post Lost Sale, just to insure that the demand is recorded.

Order Processing: This report breaks down all parts orders processed, receipted and those orders still outstanding. In some systems, this report also breaks down those orders that are for stock versus customer special orders.

This is another area that I find that parts managers don't "tell the truth" as customer special orders are ordered on a stock orders as stocking parts which gives us incorrect True Turn numbers as well as incorrect first time off shelf fill rates.

Inventory Adjustments: This is a great report as it tells the parts manager just how many plus or minus adjustments were made throughout the month. This is where the parts manager can find the inventory's "rate of change".

A parts manager can calculate the "rate of change" by adding all the plus and minus adjustments, multiplied by 12, (annualized) and then divided by the total part numbers in inventory. The current industry guideline for the parts inventory's rate of change should be 5% or less.

Gross and True Turns: Two of the most important calculations on a monthly management report, but in many cases, the two most incorrect calculations on the monthly management report. If the parts manager does not properly order, receipt and sell stocking parts versus non-stocking, the True Turn especially will not calculate properly in the D.M.S.

Most systems will calculate stocking parts in the True Turn calculation, but if the parts manager is ordering, receipting and selling non-stock parts such as customer special orders as normal stocking parts, the system will not "tell the truth" as these parts have not met phase-in requirements.

Off Shelf Fill Rates: This category is highly skewed in many systems, especially if the parts manager is not reporting Lost Sales and Emergency Purchases correctly and honestly. There is also more than one "Off Shelf Fill Rate" as we have "First Time Off Shelf Fill Rates" and "Overall Off Shelf Fill Rates".

The most important of course is the "First Time Off Shelf Fill Rate" as it this calculation represents the percentage of times that the parts order is filled the first time. The "Overall Off Shelf Fill Rate" just means the parts order was filled, regardless of how long or how many days it took to fill the parts order.

Depending on the D.M.S., the Off Shelf Fill Rate categories can be called Demand Filled From Shelf, Level Of Service, Sales From Stock Ratio, Stock Order Performance, or even just plain old Off Shelf Fill Rate. The important thing to remember is how to separate the two fill rate categories, both first time and overall fill rate.

These are just a few of the categories that I feel are extremely important for a parts manager to have access to each month. Equally important is understanding what these numbers, percentages and calculations actually mean.

Many systems also provide much more information such as clean and dirty core values, opening and closing inventory balances, sales trends, appreciation & depreciation amounts, etc. All represent great information for the parts manager to stay on top of each month.

Even though there are many systems out there to choose from, the one the parts manager has is the most important system and the one they have to work with. Being honest to the D.M.S. by reporting accurately is the only way that all this information can be an asset to the parts manager.

Many "Smart Parts" Managers out there may not know this, but many years ago, the dealers' financial statement used to be called the dealers' "facts sheets". In my opinion, that's how all "Smart Parts" Managers should treat their D.M.S. Monthly Analysis Reports.

It all starts by being honest with the D.M.S. and it will work for you instead you having to work the system.

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