July 2023: Monthly Parts Inventory Reconciliation: "How Important Is It?"

As we move on into July, we will complete our three-part series on "back-to-basics in the Parts Department with Monthly Parts Inventory Reconciliation. We started first in this "back-to-basics" series with Proper Parts Posting & Receipting, and then in our second, we focused on having the right Pricing Strategies & Practices.

The first two actually lead into our third and final part of the series because both have an impact on how we "balance the books" in the end. We have featured Monthly Parts Reconciliation in the past, but we did not focus on how Parts Reconciliation gets impacted in the first place. The ramifications could be costly and these impacts all start with our first two in this thee-part series.

Even though reconciling the Parts Inventories to the Financial Ledger Balance is extremely important and, in my opinion, should be done each month, many dealers still do not have a basic, Parts Reconciliation Practice in place. 

Many may have a "once a year" Parts Inventory Adjustment after they have the Parts Physical Inventory performed, but that's not actually the same thing, or even what we are referring to. A once-a-year adjustment is just that as we just make a journal entry to whatever the final parts inventory count revealed whether positive, or negative.

In my opinion, that's just taking the easy way out and doesn't really explain why we have variances in the first place, especially if that variance is in the wrong direction where the Ledger Balance shows more than the Controlled Balance in the D.M.S.

In theory, shouldn't these balances be the same?...Shouldn't a part be billed out at the cost we paid for it?...and finally, how can we be so far off in either direction?...

Let's find out!

Let's start with defining the Parts Inventory Ledger Balance and the Controlled Inventory Balance in the Dealer Management System, (D.M.S.). Each one has a very specific role in the dealer's second highest asset next to the Used Vehicle Inventory in most dealerships today.

The Ledger Balance Inventory is just basically a dollar amount as it represents what we actually paid for these parts. The Ledger Balance really has no tangible, physical aspect to it as we cannot put our hands on this dollar amount that we paid for our parts inventory, as it's basically just that...a number.

The Controlled Inventory Balance in the D.M.S. is a different inventory because it is tangible, and we can put our hands on it. We can count it, we can add up the total worth of these based on the current price of that inventory, and we can see it. It represents a commodity with a "perceived" worth, or value as this worth is not realized until the part sells. 

The "perceived" worth of any commodity, or inventory is only perceived until we actually sell that commodity, or inventory at a cost, whether the cost is what we paid for that part, or not...and that is the whole reason for reconciling the Controlled Inventory Balance to the Accounting in the first place.

"But why wouldn't we bill out a part at the cost we paid for it?"

Although, the "number" on the Accounting Ledger Balance is extremely important because it sets the baseline to our profitability on the parts we sell. We paid a certain amount for a part, we bill that part at a higher amount and the difference is the profit we make on the sale of that part....pretty simple, right?

Not Necessarily!

The are several legitimate reasons that parts are not always billed out at a cost of what we paid for it. This is the whole reason behind the accountability that reconciliation brings out. The "legitimate" cost variances and other "not so legitimate" cost variances have to be reconciled because it's 100% positive or negative profit.

An example of a "legitimate" cost variances are obsolete parts being sold at a lower cost than our purchase price. Also, the Manufacturer Price Updates each month can change the cost of what we paid for parts versus the higher cost of what we sell that part eventually. These cost variances need to be "reconciled" as a positive or negative gross profit each month.

Another "legitimate" cost variance, and perhaps the most common is what I refer to as "Cross Accounting" where parts are received in one inventory account but sold out of another inventory account. The most common of these occurrences happen in the gas, oil & grease and tire inventories.

Tires, for example may be receipted in the main parts inventory by default, but then sold out of the tire inventory account in the Accounting Department. The cost of sale and sale accounts will relieve the Accounting Tire Inventory as a debit, but the inventory credit amount was receipted in the Main Parts Inventory.

This also happens often with the Gas, Oil & Grease Inventory as well as Bulk Oil may be receipted into the Gas, Oil & Grease Inventory, but sold out of the Main Parts Inventory. This often happens with "Packaged Oil" being a part, and "Bulk Oil" considered as Gas, Oil & Grease.

Unfortunately, there are many more "not so legitimate" cost variances that go unnoticed and unaccounted for each day such as parts purchases made at a lower or higher cost, which should be adjusted right up front as "Discounts & Allowances", but often are not adjusted, resulting in reconciliation variances.

There also tends to be a lot of "wheeling & dealing" in the Parts Department, trying to buy parts at a lower cost than stated in the Manufacturers Pricing Guide. If not adjusted for properly, the Controlled Parts Inventory Value goes up higher than the Ledger Balance Inventory, creating an "uplift" in the Controlled Parts Inventory with the positive difference going 100% to profit.

Trying to keep up with price cost changes each month is very hard and will often lead to inventory variances in the Controlled Inventory versus the Accounting Ledge Balance Inventory. This is why we should always make our adjustments, whether positive or negative right up front and sell the parts at the cost listed Manufacturers Pricing Guide each month.

The only exception given on changing the cost of a part is if we are paying more for a part on a Customer Pay Repair Order or Counter Ticket where we pass the additional cost down to the consumer and increase our sale price, again the exception, not the rule.

"So!...what is the proper and correct procedure for Monthly Parts Inventory Reconciliation?"

Let's start with the Accounting Ledger side, which is the easiest of the two inventories to set up properly and accurately. Due to the fact that we are not dealing with a "tangible" commodity as we are working with dollar amounts, we just have to make sure when we pay for these parts, they are being debited and credited to the "right" parts inventory.

Some of the common Ledger Balance Inventory Accounts are the Main Parts Inventory, Gas, Oil & Grease Inventory, Tire Inventory with some Manufacturers even requiring a separate account for Accessories and "Other Makes". On the other hand, some Dealers and Manufacturers may combine any of the above into the Main Parts Inventory.

The most important thing is that we, in Parts, have to match whatever is on Ledger Balance on Page 1 of the Financial by separating our Sources, or Stocking Groups in Parts. These Sources, or Stocking Groups have to be "mapped" to the Sales and Cost of Sale Accounts on the Financial for each separate Parts Inventory. 

This is exactly why Proper Posting & Receipting in our first of this three-part series was so important. It's also why in part two of this series on having the Right Pricing Strategies & Practices is equally as important leading up to part three on Monthly Parts Inventory Reconciliation.

On the Controlled Balance Parts Inventory side in the D.M.S., we have a lot more to do than the folks in the Accounting Department. On our side of the Monthly Parts Inventory Reconciliation Report, we have a lot to break down.

In Accounting, they don't care about Sources, or Stocking Groups or anything else as they just want a dollar amount to see how close the Accounting Ledger Balance is on what we paid for these parts versus what we actually have.

Now, let's break down our side of things on what we have to report each month on the Monthly Parts Inventory Reconciliation Report. First, we have to have the mindset that we have to account for everything! We want to make sure that we have at least what shows on the Ledger Balance, or more each month. Anything less would be like it went out the back door and we lose money.

Here are the items that we, in the Parts Department have to account for each month, using the inventory dollar values and other reports listed in the D.M.S., and/or by physical counts via Perpetual Inventories, or end of month physical counts in the Gas, Oil & Grease Inventories and Tire Inventories.

• Main Parts Inventory Value
• Gas, Oil & Grease Inventory Value
• Tire Inventory Value
• Accessory Inventory, (if separated on the Financial, Page 1)
• Other Parts Inventories, (if any)
• Dirty Core Value on Hand
• Clean Core Inventory Value, (if not part of the Main Parts Inventory Value)
• Parts Work-In-Process on Repair Orders
• Manufacturer's Parts Pricing Update Variance (+/-)
• Outstanding Parts Credits or Returns
• Parts Pre-Billed by the Manufacturer, but Not Received

As you can see, we have a lot more to be accountable for each month, which is why we need to do practice on a monthly basis, and not just once annually. It's much easier to capture errors over the course of 30 days than it is trying to go back a whole year to find variances and errors.

The Monthly Parts Inventory Reconciliation Report should share both inventories, the top half dedicated to the Accounting Ledger Balance Inventory and the bottom half dedicated to the Controlled Inventory Balance on the D.M.S., with the positive or negative variances listed at the very bottom.

How important is the Monthly Parts Inventory Reconciliation?

The old saying goes that there is really never a problem until the numbers go in the wrong direction and now it's a problem! Do it correctly each month and it will never be a problem and the end results will be natural profit "uplifts" at the end of the year...

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

June 2023: Having The Right Pricing Strategy: "How Important Is It?"

As we move on into June and the second of our 3-part Series on going "back-to-basics" in the Parts Department, we have yet another topic that's not really anything new as we all have to have some sort of Pricing Strategy in order to be profitable.

What's really new here is the "news" that many, many dealers are failing to achieve industry guidelines on their Parts Department Retained Gross Profit Percentages. If this is just Parts Department 101, or just basics, how can this happen? How can such a simple task of building a Parts Pricing Strategy that will retain the gross profit that we want be so difficult?...after all, it's just basic math right?

Of course, if it were really that simple and easy, we wouldn't have all these dealers out there failing to achieve these industry guidelines. These guidelines cover all of our parts sales categories from customer pay, warranty and internal parts sales.

Of these three though, only one sales category is totally under our control, which is customer pay. We can control our gross profit though on two of these categories and that would be customer pay and internal. Warranty Sales & Gross stand alone pretty much out of our control as sales and gross profits are dictated for us.

So, if for the most part, we do have control of the majority of our gross profit retention, how do we not only come up with the right Parts Pricing Strategy, how do we follow it through to the end where the results are predictable and to industry guidelines?

Like most processes, we have to start out by building the plan, while overcoming any of the obstacles and/or objections, and then hold ourselves accountable to that plan going forward. Sounds pretty simple but, like any other Action Plan, how do we prepare ourselves for the unexpected or the unknown that can, in this case, "kill" our parts gross profit?

Parts Gross Profit "Killers" are out there and if we don't know what they are, or don't have a plan to prevent them, a Parts Matrix is not going to fix it. Believe it or not there are more of these Parts Gross Profit "Killers" out there than you may think.

We all know that Parts Discounts & Overrides can reduce our parts gross profit, but what about the "not so obvious" Parts Gross "Killers" out there? What leads to these discounts & overrides in the first place? Secondly, if we have a Parts Matrix, what would drive a Parts Manager, or Parts Counter Person to change that price we created?

All the answers to these and more coming up!

Let's Get Started!..

The Parts Matrix:

Let's start out by answering one of the above questions as to why people override the Parts Matrix. Even though there are times for a legitimate Parts Matrix override, most Parts Matrix overrides are due to human instincts. In other words, our "belief system" kicking in and telling us when we think something costs too much so we have to override the matrix.

Another reason is that the matrix wasn't designed correctly in the first place with the right "cost plus" percentages in the right "cost ranges". There is actually a proper methodology that goes into building the right Parts Matrix and takes some time to do the research and math on where our sales come from and in what price ranges.

I have seen so many Parts Matrices that have the wrong percentages in the wrong price ranges, thus leading to countless overrides. Many of these overrides are also generated from the Service Department as many Service Advisors "feel" that some of these parts are priced too high. Believe it or not, there are more Service Advisors complaining about parts prices than there are customers complaining about parts prices. 

Bottom Line is the Parts Matrix has to make sense where there is no desire to override it in the first place. The right Parts Matrix doesn't get overridden and produces predictable gross profit retention percentages.

Competitive Priced Parts:

Our completive priced parts, often called "Menu Priced Parts", or "Flat Price Parts" are those parts we often see on our Service Menus for Interval Vehicle Maintenance. Engine oil, oil filters, air filters, cabin air filters, wiper blades, brake pads & rotors, etc. are some of the most common competitively priced parts that are often "flat priced" in order to "flat price" the complete job including labor.

The problem here that I see often times is that the parts are not "flat priced" correctly in the first place. And now, our first "Gross Profit Killer" is revealed before we even have the chance to override the Matrix in the first place. Overriding the parts matrix is one thing, but "flat pricing" a part to a lower gross right out of the gate is another. 

Most "flat prices" that I see in dealerships today were developed from a simple market survey, or "Competitive Market Analysis". In other words, let's just call around and see what others are charging for the same parts, not matter what gross we keep, as long as we stay in the same price range.

What most may not know is that it only takes an extra dollar or two on the oil filter and maybe $.50 a quart on the oil to not only stay competitive, but also retain the right gross profit. In other words, all we have to do is add another $5.00 to $7.00 on our oil change price to retain the right parts gross.

In my opinion and in most dealerships, adding another $5.00 to $7.00 on our basic gas oil change shouldn't result in losing customers as we are still remaining competitive, even though we may not be the cheapest. If we lose customers over a few extra dollars, then, in my opinion, we have other issues on retaining our customer base.

The proper way of determining the right "flat price" that should be used is done by "Weighted Parts Averaging" where we poll our top five to ten oil filters, in this case, then we "weight" the average of all those filters polled by annual piece sales and cost. Essentially coming up with one big oil filter part number to one average cost and then determining the sale price with the right gross retention.

Parts Gross Profit "Killers":

Now that we know that we need the "Right Parts Matrix" and the "Right Flat Price" utilizing Weighted Parts Averaging in order to get us to a pre-determined, acceptable retained gross profit outcome, we now have to learn how to keep it.

We have to know where these Parts Gross Profit "Killers" are and prevent them from happening as best we can. Building the right Pricing Strategy above won't matter if we let these Gross Profit "Killers" get in and steal all the work we did developing the right Parts Pricing Strategy.

1.) Overrides/Discounting:

As mentioned earlier, overrides and discounts by far are the Number One killer of parts gross profit. We have to have the right Matrix and Competitive Pricing Policies that don't attract human interference leading to discounts, in both the Parts & Service Departments. The Parts & Service Managers should be running a Parts & Service Override, or "Exception" Report off the D.M.S. to monitor these discounts & overrides.

It doesn't matter what the Matrix is "supposed" to do in order to increase parts gross, if it's set too high, they are just going to override it anyway. A "moderate" Parts Pricing Matrix ultimately nets more gross profit than the "aggressive" Parts Pricing Matrix due to less overrides.

2.) Parts Kits/Op Codes:

Here is one Parts Gross "Killer" that many are not aware of, especially when utilizing Parts Kits. Parts Kits are designed to make it easier in billing out certain menu parts, or even recall parts. By "joining" up a few part numbers, we can create one overall kit part number at one price that will combine all the individual part numbers and prices.

What many Parts Managers do not realize is that in many Dealer Management Systems, (D.M.S.), the Op Code can override any kit price and they wouldn't even know it. Even though on our end it looks right when we bill out the parts kit, the Op Code total parts price for that Op Cope wins out.

In other words, in an Op Code total parts price is set at, let's say at $100.00 for the total parts price allotment, and we bill out $150.00 in parts, the Op Code wins out and drops the total parts on that repair line to the "out the door" price dictated by the Op Code's total parts price allotment.

Sad thing is that on the Parts Department side, it all looks accurate and great, but when the repair order is invoiced by the Service Advisor, it will automatically adjust to the Op Code Parts Prices. This means that the Service Department ultimately controls the parts sales and gross from their end.

Technically, if the Service Advisor chooses the wrong Op Code on a 6-quart oil change, instead of an 8-quart oil change with a more expensive oil filter, we will see a "negative" parts gross profit after it's all been said and done. Even though this is an extreme example, we could actually bill out a transmission and the parts price for that Op Code would still control the outcome.

This is where "head scratching" time comes in when we look at the overall parts gross and it's much lower than expectations. We look at the Matrix, we look at our Flat Prices set at the desired levels and we can't figure out what happened...how can the Pricing Strategy not be working?!

If we don't know what we are looking for, situations like this are hidden and will not show anywhere other than on our Daily DOC's, or Daily Sales & Gross Reports. We could enter in a part number inquiry into our system and it shows the right sale and cost amounts, so why the negative results?

It's kind of like the old scenario of scissors cuts paper, paper covers rock and rock breaks scissors. In this case Op Code, (paper) covers rock, (parts) and rock breaks scissors, (parts gross). We need to know how our D.M.S. works and how these Op Codes and Parts Kits can be a Parts Gross "Killer".

D.M.S. System Defaults:

Our last Gross Profit "Killer" is also one that goes under the radar and much like the Op Codes and Parts Kits mentioned above, we may be losing parts gross and we don't even know it. Once again, pending on the D.M.S., parts "can" be defaulting to a lower price. We could actually bill out a part that we "think" is going to bill out at retail, but ends up billing out a wholesale price, or even lower.

Set ups in our Customer Information Files don't often get updated as well as pay types, automated discounts, promotions, etc, that may be set up with the "set it and forget it" mentality and before we know it, we are billing parts out as retail, but ending up with wholesale or lower.

I've been in dealerships where the customer files have not been updated in years and upon discovery, in this one dealership in particular, we found out that the dealer had been giving wholesale prices to the public. The blame was, of course put on the Parts & Service Managers for discounting and overriding parts prices.

This end result had this dealer pulling his hair out, wondering why his Retail Parts Gross Profit Percentage had always been at least 10 percentage points or lower than industry guidelines for months and years, while the Parts & Service Managers insisted that there were no unusual discounts & overrides. 

Upon our "drill down", we discovered that many, many of their customers were set as Price Code 3, which was wholesale, or "Trade Price", instead of Price Code 1, which is Retail in the System Defaults on Parts Pricing. Unaware of all this, parts kept being billed out accurately, but to a different result.

Once it was revealed that a combination of these customer pricing set up defaults and some Op Code Prices that hadn't been updated in years, the mystery was finally revealed. After just a couple months, this dealers Retail Parts Retained Gross Profit is now at industry guidelines.

Bottom line is that this is all math and irrefutable. If we have a Pricing Strategy that includes a Parts Matrix that is set up with an "out of grid" Gross Retained Profit of let's say 45%. Then, we also have our "Flat Price" parts also set to retain 45%...how can the end result be any different?

The answer is rather simple....we have Parts Gross Profit "Killers" out there that we have get under control and managed properly. Parts Gross Profit should be the easiest thing that we control as Parts Managers, but ultimately, it always seems to come down to the following question...

Like the old saying goes..."How do we know what we don't know?"

"I guess...when it comes down to managing our gross profit...we really need to know!"

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

May 2023: Proper Ordering & Receipting: "How Important Is It?"

Over the next few months, ACG "Smart Parts" will be going "back to basics" as we review some topics that we may have taken for granted. After all, there's nothing new here when we drill down this month's topic of the simple procedure of ordering, receiving and posting parts into inventory.

The topic may not be new, but why then are there so many dealerships out there with Parts Accounting Issues such as high variances between the Parts Ledger Balance Inventory and the Controlled Balance Parts Inventory on the Dealer Management System, (D.M.S.)?

Why are there so many dealerships out there with inaccurate numbers on their D.M.S. Parts Monthly Management Reports?...and why are there still many Parts Department's out there with substandard numbers on their Industry Composites on Parts Inventory Management?

You would think that this basic function of ordering, receiving and posting parts into inventory would be a pretty simple process that we all know and perform pretty much every day. Why should it even be a topic of discussion in the first place?

One of the main reasons and the answer to all the above questions is a lack of knowledge, training and understanding of Accounting and Managing Parts. The unique relationship, or partnership between the Parts Manager and Office Manager/Comptroller has to be one of total understanding on how this process works on both ends.

Let's start with the relationship, or partnership between the Parts Manager and the Office Manager/Comptroller...

The Parts Manager has to have Basic Accounting Training and Experience on Managing Asset Accounts, Expense Accounts, Payables & Receivables, Sales & Cost of Sales, etc. and convert that language over to Parts Sourcing, Ordering, Receiving & Pricing, as well as both Sales and Cost of Sales.

The Office Manager/Comptroller has to have Basic Parts Manager Skills & Abilities in the areas of matching Sales & Cost of Sales to Parts Sources, or Stocking Groups. The Office Manager/Comptroller also has to be able to identify credits and debits to the proper Ledger Inventory Accounts that match the Parts Inventory Controlled Inventory Sources.

All these have to be set up properly to begin with even before we order our first part number as all these so called "lines of communication" have to be connected accurately and understood by both the Parts Manager and the Office Manager/Comptroller.

Now that we have our basic partnership, or relationship established, we now have to get all the ingredients together and get them in the right order even before we start ordering, receiving and posting parts. Who would ever have thought that there would be so much going into this process before we even ordered our first part?

Here are the ingredients that we will need to start our "Proper Ordering & Receiving" Process...

Parts Sources/Stocking Groups:

All Parts have to be in their proper Parts Source, or Stocking Group separated and "connected" to the proper Inventory Ledger Balance Inventory Account. The Main Parts Inventory, Tire Inventory, Gas, Oil & Grease Inventory and perhaps Accessories need to be separated by Source, or Stocking Group in order to be accounted for properly on the Accounting Ledger and Financial Statements.

This is where things can go haywire right off the bat as parts may be ordered from one Source and receipted into a different Source. This may result in a receipt into one inventory account but then sold out of another inventory account. Most Dealer Management Systems are set up to "default" to one overall Main Source, or Stocking Group.

This "Default Source" is usually where all the problems begin because if we don't receipt the part into its proper source, it will automatically be receipted into this "Default Source". This Source is where all parts initially come into the D.M.S. until manually moved to a different, desired Source. This "Default Source" is also the Source that the Manufacturer recognizes in system integration.

Parts could be ordered and receipted in the wrong Source, or Stocking Group, causing the Sale & Cost of Sale going to the wrong inventory account in Accounting leading to inventory variances as well. An example would be a quart of oil that was ordered perhaps out of the Gas Oil & Grease Source, or Stocking Group, but then got receipted to the Parts Main Inventory Source, or Stocking Group.

The results of ordering and receipting in two different Sources means the receipt on the oil "added" to the dollar value to the Gas, Oil & Grease Inventory, but the sale "debited" the Parts Main Inventory. This leads to the variances in the Accounting Ledger Balance in the Sales & Cost of Sales Accounts.

If the person ordering and receipting the parts does not catch the proper Sourcing right up front, the snowball begins to roll and get bigger. The Parts Source, or Stocking Group and Ledger Balance are not the only problem as price can also be affected as Sales & Cost of Sales will hit wrong accounts.

Parts Order Types:

Depending on the D.M.S. brand, there can be several "Order Types" which determines our Overall Fill Rates, First Time Fill Rates, Gross & True Turns, Stock Order Performance, Emergency Purchase Amounts, Sales from Stock versus Non-Stock and Inventory Investment of Stock and Non-Stock Parts.

Some of the most common Order Types are...

• Stock Order
• Supplemental Stock Order, (Forced Order - Dealertrack Dealers) 
• Customer Order
• In & Out Purchases, (NG - Dealertrack Dealers)
• Other Orders
• Emergency Purchases

Here is another area where things can go haywire as often times, the wrong Order Type is applied to the order and is often receipted as ordered. Proper use of these Order Types is crucial to accurate reporting on Parts Monthly Management Reports as well as 20 Group Composite information. Utilization should be as follows...

Stock Order/Supplemental Stock Order:

We only order parts for two reasons, which is either for stock or a customer. That being said, no matter what source or vendor we order the parts from, if it's for the shelf, it should be either a System Generated Stock Order, or Supplemental/Forced Order from other Stocking Vendors.

Customer Order:

Even though this one is pretty obvious, as to when we should use it, it still gets confused with Emergency Purchases at times. All Customer Orders should be separated from Stock Orders even though some Customer Orders may be added to the Stock Order when transmitting the order. Adding Customer Orders to the Stock Order also results in false Stock Order Performance Percentages.

In & Out/NG Orders/Other Orders:

In & Out, Other Orders, or NG Orders, (terminology pending which D.M.S.) should only be used on Aftermarket, or Other Makes Parts Purchases that we do not intend to stock. 

This Order Type will record the sale and show up in Sales History, but they will not track these sales demands for potential future Phase-In. This Order Type is basically an "in & out" function that will record the Sale & Cost of Sale for Accounting Purposes.

Emergency Purchases:

Emergency Purchases should only be used for tracking "Stock Out" situations, meaning that we normally stock the part, but ran out and had to chase for a customer. This information is vital to managing, and /or modifying Stocking Levels. It does not mean that we use it for buying "Emergency Stock" due to Supply Chain Issues as those purchases should be Supplemental Stock Orders.

Receipts:

As we receipt these above Order Types, it's just as important to receipt them as ordered and not manually. Back Orders, Cross Ship Orders and Cancelled Orders should also be updated during this receipting process in order to maintain the proper "linking" of these orders by Order Type and Order Number, or Control Number.

All Stock Order Receipts need to be matched up to the Proper Source, or Stocking Group to ensure proper billing for Sales & Cost of Sales as well as relieving the Proper Parts Inventory on the Ledger Balance Inventory in Accounting and the Controlled Balance Inventory in the D.M.S.

As you can see, there is a lot more to the "Proper Ordering & Receipting" Process than perhaps meets the eye. In my opinion, this detailed breakdown is necessary for accurate reporting on Parts Monthly Management Reports, 20 Group Composites and most importantly, our Parts Inventories "Checks & Balances" on the books and in the D.M.S.

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

April 2023: Industry Forecast Update: Second Quarter 2023

Once again, it's time to bring our ACG "Smart Parts" Readers an industry update. Actually, it's been well over a year since we did the research and shared our "State of the Union" so to speak as it pertains to just what's happening as well as what we, and other experts are forecasting, or "predicting" as far as future industry trends.

Now that we have one quarter down in this year and a previous year to catch up, we can actually provide, in my opinion, a qualified and fact-based forecast on what we can potentially expect looking forward to this year and perhaps even the next few years.

As we usually do, we will start this forecast where it all starts with our New & Used Vehicle Sales, then moving on to the "trickle down" affect in our Fixed Operations with Parts & Service. The automotive industry's "after sale" business still remains strong even though we have all weathered many past & current events and conditions.

After all, we are still feeling the effects from the pandemic and now the flu, inflation with a possible recession in the wake, global conflicts and wars that are all still on the table as we continue forward. Even though I have mentioned in the past that our industry is somewhat "resilient" to all the pre-mentioned, it doesn't mean that we will survive individually in our competitive industry.

From the front side of things in our Sales Department, we have definitely seen the results from these past few years. You don't have to be an industry expert to see when you drive by any New Car Dealership that the lots are basically empty. Scary feeling for sure, especially for us that have worked in this industry for years.

If I were the consumer, my first thought would be is this the beginning of the end? Are we headed to a time where we are going to be rationing vehicles again? Will we be sitting in long gas lines again and will food be next?

Even though some of this may sound like "doom and gloom" with history repeating itself, it's not like that at all...

Let's Begin...

I realize that many "Smart Parts" Readers out there may not realize that this is what really happened back in World War II, even though I wasn't around then, my parents and history recorded these events. Keep in mind, that we are by no means predicting history repeating itself here as these empty dealership car lots were predicted and for specific reason.

Although, one fact is for sure is it hasn't been since World War II since we experienced more new vehicle production shutdowns. Even though the reasons are different today versus sixty plus years ago, some of the effects are still the same today.

"Supply In Demand" has always affected our economy, whether it be the overall price of goods, our lifestyle, or just our means of survival, as our Supply Chain feeds the engine of our economy. When supply is cut off, demand drives price up and when price goes up, so do the profits and that's what we have witnessed for the last couple of years.

Let's start taking a look at some recent history trends and facts that will lead us to what we might expect, or "forecast" into the rest of 2023 and perhaps beyond. Keep in mind that we already know about what we are currently dealing with as we don't want to make any excuses for what we already know. 

It's kind of like dealing with parts back orders as we already know we all have them and, in my opinion, it's time to get over it and deal with them. Our job is not done when a part goes on back order, it's just beginning, much like dealing with everything else in our business.

Let's start with some recent facts and data...

According to Forbes Wheels at forbes.com, Used Vehicle mark ups are starting to ease up a bit as Used Vehicle Financing is going up with interest rates rising, thus making it tougher for getting potential Used Vehicle Owners to purchase. Also, New Vehicle Lease Interest Rates are also rising, therefore making Lease Options even more difficult. As a matter of fact, Vehicle Lease Purchases are down almost 50% since Covid-19 first hit.

On the other hand, even though New Vehicle Prices are rising, and less available, interest rates are lower on New Vehicle Purchases, so it may be more cost effective to buy a New Vehicle versus a 2 to 3-year-old Used Vehicle at a lower overall cost, but eventually much higher after interest rates kick in. This is not unusual and has happened many times over the years.

Also, we have to factor in what we didn't have to in the past and that is the EV Revolution. Electric Vehicle purchases continue to rise from 326,000 in 2019 to over 724,000 in 2022. This number would have risen even further if it weren't for Supply Chain Issues that continue to affect these EV Purchases today.

There are still long wait lists for the Ford F150 Lightning, Tesla Model Y, EV SUV's in general, and new models from new Manufacturers such as Rivian, VinFast, and Lucid. Although higher prices for these EV vehicles continue to rise due to higher cost of lithium, cobalt and nickel. 

The only lower cost EV Vehicle is the Chevrolet Bolt & Bolt EUV which has actually lowered their cost by approximately $6,000.00 to become the most affordable Electric Vehicle in the market. Overall, these higher prices for these EV's have tempered the overall excitement of new purchases.

Here's another little tidbit as Automotive Industry Principal Peter Maithel at Cloud Computing Firm INFOR told Forbes Wheels that the on-going chip shortage could affect the production of up to 3 million vehicles this year. Many are designated for SUV's and EV's, but overall EV's require up to 30% more chips than gas, or diesel-powered vehicles.

Lastly, and in closing on this topic on EV's, as many as 70% of the Electric and Plug-in Hybrid Vehicles that were formally eligible for tax credits will lose that incentive due to strict rules concerning battery and vehicle price caps.

Even with all the above mentioned, and with prices still soaring at the pump, the American Automobile Association's, (AAA's) recent poll indicates that 25% of Americans are still considering an Electric Vehicle for their next purchase.

So!...What's the Forecast on Parts & Service Aftermarket Sales?

Here's what it boils down to from a Fixed Ops perspective...

Our first resource contributor on this topic is marketwatch.com., where they start off by saying that even though Covid-19 and the current war between Russia and Ukraine are still affecting the Global Supply Chain Relationship and Precious Metals Industry, the Global Parts Automotive Parts Manufacturing Market is still expected to rise.

With this rise comes a new breakthrough in the development of parts manufacturing which is the manufacturing "split" by segment and type. Even though we have seen this "split" to some degree over the years, we will be seeing much more.

Some Parts Manufacturing Splits which will include...

• Driveline & Powertrain
• Interiors & Exteriors
• Electronics
• Body & Chassis
• Seating
• Lighting
• Wheels & Tires

This split will allow for more competition and overall production, but it could also cause overall delays in production if one of the wheels are not turning in this split due to production plant, labor and product vendor issues, global economic issues and the like. Even though there could be many benefits to solving Supply Chain issues, there could be other underlying issues going forward.

Key market players in this mix include Robert Bosch, Denso, Delphi, Magnetti Marelli, AC Delco, Continental and Hella just to name a few familiar names out of the 30 or so other parts manufacturers on the list in this split.

Now that we know how and who is involved, let's take a look at where we are going...

The future of Parts & Service Sales has never been stronger as the jobs availability for automotive technicians and parts personnel keeps rising. Automotive Tech Schools as other Trade School Facilities are on the rise as the need, or demand has increased beyond the availability.

Parts sales are continuing to rise according to Hedges Company, (www.hedgescompany.com) with some of their latest numbers. Here are some of the latest ECommerce numbers as of this year and looking forward.

Consumer spending updates on Light Duty Parts Sales are expected to reach 374 billion in sales in 2023, with overall sales including Medium and Heavy Duty Parts Sales expected to reach 497 billion this year according to Autocare/AASA Channel Forecast Models.

ECommerce Parts Sales were at approximately 38 billion in 2022, of which, 19.4 billion was from ECommerce Websites, or "first party, 1P" Sales, and 18.2 billion from "3rd party, 3P" Sales from companies such as eBay and Amazon. These total "1P & 3P" Sales are expected to reach 47 billion by 2025.

Parts Distribution has also expanded and has increased extensively, not only recently, but over the years. We have always been used to having a "two-step" Parts Distribution System where the Manufacturer sold parts to the Warehouse Distributor, (WD), then the WD to the Retailer, or "Jobber", then ultimately to the Consumer.

All this has now given way to a "multi-step" Parts Distribution System as the internet has given pretty much open access from the Manufacturer all the way down to the Consumer, but with many added levels. There are now as many as 10 Distribution Channels leading up to 6 Consumer Destinations in our Automotive Parts Industry.

The immediate forecast looks great for our industry as technology is leading the way for new and more exciting vehicles, with more competition from more, new manufacturers. This will also mean that there will be more vehicle components that will require more skilled technicians and yes....even more of the "right parts at the right time"!

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

March 2023: " Is Anyone Fact Checking Your Stock Order?"

As we move on to March of this fairly new year, we are going to ask a question that has probably never been asked before of the Parts Manager. Why would any Parts Manager have to ask this question which is the title of this month's issue of ACG "Smart Parts"?

After all, it is one of the primary duties and responsibilities of the Parts Manager to "manage parts", which includes ordering, stocking and receipting automotive parts to sell.  One of the main differences in managing a Parts Department today versus years ago is that there are many more factors that come into play in having the right mix of parts.

For one, there are many, many more part numbers to manage in today's automotive parts inventory in order to provide for many more vehicle applications and manufacturers. Also, the life span of automotive parts today is much shorter than it ever used to be.

We have to trust the "facts" when creating and reviewing our Stock Orders. This means we have to trust the initial set ups and parameters that go into creating an accurate Suggested Stock Order to begin with. Are these set ups and parameters "factual" in giving us the results we want to see?

Even if these set ups and parameters are "factual" and accurate, are we going to trust that information and make the right decisions? Are we going to override what we see, or are we going to go with what we see? The answer to these questions have many variables that lead us to our final Suggested Stock Order decision.

Here's just a few questions that run through the Parts Managers mind...

• What if the part doesn't sell and becomes obsolete?
• Is the part too expensive or too big to stock?
• Do I need to stock that many of that part when I can get it overnight?
• If the part is on Back Order, do I wait until it becomes available?
• What if I get stuck with those "package quantity" parts that I can't return?
• I know I've sold a few of those, but do I really need that part?

If any one of these questions looks familiar, then you are not alone because these are some of the most common Parts Manager questions that run through their minds as they review their Stock Orders, especially if we are running our own Stock Order on our DMS.

The sad thing though is when the Manufacturers Vendor Managed Inventory, (VMI) Suggested Stock Order comes up, we tend to let it go through because it's so called "protected". The myth there is that many Parts Managers don't realize that they are just buying many of these parts just to hold and send back down the road.

Whether all of the above mentioned is either truth or speculation, then why do these two following questions come up over and over again in the Parts Department?...

"Why don't we stock these parts that we are selling all the time?"

"Why do we keep running out of this same part we are selling all the time?"

It's time to do some "Fact Checking"...

Let's start out with some "facts", or perhaps you could also say "truths" about our automotive parts industry, which doesn't make it any easier for the Parts Manager. Whether we are managing a Parts Department today, or many years ago...

1.) We will never have, or stock all the parts we need at any given time. That's why we report Lost Sales to begin with in order that we may achieve a First Time Off Shelf Fill Rate, (FTFR) of 75% - 85%. Reporting those Lost Sale Demands is the only way to achieve the right inventory "breadth" and FTFR.

2.) All parts will eventually become obsolete as obsolescence is and has always been a thorn in the side of most Parts Managers. It's not a matter of parts becoming obsolete, it's more a matter of how we manage obsolescence before and after it happens.

3.) There have always been and will always be backordered parts, even though we have more now than ever before. In my opinion, backorders are becoming more of an excuse for not doing our jobs as Parts Managers. Though frustrating and time consuming, managing backordered parts has to be a mindset where when they happen, our job has not ended...it's just beginning.

4.) Having the Proper Set Ups & Controls in any DMS, or Manufacturers Vendor Managed Inventory, (VMI) is crucial to getting the right "facts" out of any Suggested Stock Order. Phase-In/Phase-Out Parameters along with the right Source Ranking by Piece Sales Set Ups is where the math meets "facts" in determining accurate results, no matter today or many years ago.

And now...the million-dollar question!

"I'm the Parts Manager, why do I need anyone Fact Checking my Stock Orders?"

Earlier, I mentioned six common questions that go through the Parts Managers while reviewing a Suggested Stock Order, even though there are perhaps many more. As Parts Managers, our thought process, or Behavior Patterns are generally different from other department managers. We tend to be Critical Thinkers and perhaps "over-think" many things.

This most common Parts Manager "Behavior Pattern", or Personality Profile is both a blessing and a curse when reviewing any Suggested Stock Order. Reviewing all this Suggested Stock Order data requires a lot of research and math before making the right decision.

A blessing in a way that a Parts Manager has to be a Critical Thinker when managing the Parts Department as it involves managing several thousand part numbers as well as managing the dealers second highest asset in most dealerships. There are more transactions in the Parts Department in a single day than in the entire dealership in whole month.

It's also a blessing because we tend to be overprotective, non-trusting, cost conscious, and anti-obsolescence minded and that's a great thing! Especially in the eyes of the dealer because the dealer has to trust the Parts Manager, just like the Office Manager, or Comptroller.

On the other hand, our personality could be a curse as Parts Managers with this Personality Profile tend to "over-think" many things as logic tends to weigh heavily in their decisions. If things aren't "black & white", this tends to lead into "over-thinking" many decisions, which isn't a bad thing, it's just the way it is.

This "over-thinking" is very evident in the six questions I mentioned earlier that run through a Parts Managers mind when reviewing their Suggested Stock Orders. The "what if" always comes into play when trying to predict outcomes that we haven't experienced yet.

So!...Who should be fact checking the Stock Order with the Parts Manager?

Being that many Parts Managers look at things one way as we have reviewed, we need another set of eyes to get a different perspective. What better choice than the Service Manager, or perhaps the Lead Counterperson? The Service Manager tends to see trends of what jobs are selling and the Lead Parts Counterperson because of the several number of transactions they experience each day.

In order for this to be a success though, the relationships between the Parts Manager, Service Manager, and/or the Lead Parts Counterperson has to be one of trust and openness. Personally, I have always welcomed that second pair of eyes in order to get the best results from what I'm stocking on the shelves.

Many Parts Managers are reviewing their Stock Orders, primarily looking at total demands, history, price, type of part, make, model and year usage, return status, etc., but the Service Manager looks at what they are selling up front and overall Service Cycle Times.

Just to be clear though, we are not suggesting that the Service Manager be the final say as to what the Parts Manager should be ordering, we are just looking for another set of eyes to give the Parts Manager a second opinion on the facts that lie within the Suggested Stock Order.

The Lead Counterperson is looking at repetition, trips to the same bin location, stock outs situations, Lost Sales entries, chasing the same parts, in-coming phone calls, etc. All of which play a big role in what we are experiencing each day versus what we are seeing on that Suggested Stock Order.

Ultimately, it should definitely be the Parts Manager that has the last say on what the final verdict should be when actually placing the final edit version of the Stock Order. Offering suggestions, adding input, listening to our customers, and communicating back to the Parts Manager is where the "fact checking" is defined as "assisting" in the Stock Order Review.

The same goes for the Service Manager when developing, adding or modifying their Labor Ops and Service Menus. The Parts Manager should be "fact checking" and assisting in those decisions as well, especially on final "out the door" pricing on Service Menus and Labor Ops. 

In my opinion, we need to humble ourselves and let our pride out the window and welcome these other sets of eyes, even though we are ultimately responsible for the parts inventory asset, controlling obsolescence and parts profitability. We cannot be closed minded when it comes to maximizing our opportunities.

After all, Parts Inventory is not an expense that we need to trim down, it's an asset that the dealer expects to turn several times a year, especially Parts True Turn. In my opinion, it's time to share this information and stop trying to predict potential future results that we have no control over.

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

 

February 2023" The "Origin" of Lost Sales

Reporting Lost Sales, or even the mention of Lost Sales is not "unfamiliar" to any of us, but what is "peculiar" about this topic is, if it's supposed to be so important, why aren't we reporting any or enough Lost Sales? If reporting Lost Sales is supposed to be one of the most basic duties as Parts Manager, why are these results so low?

We will answer these two basic questions and more as we move on with our February issue of ACG "Smart Parts", but before we do that, we will have to trace this whole issue of reporting Lost Sales back to it's origins and how we got to this point.

Even though there are many "Smart Parts" Managers out there that do a great job on reporting Lost Sales, it appears that they are still the minority, even though they are reaping the many benefits from these reported Lost Sales.

Whether these negative results are due to lack of proper training, definition, accountability, or even the sense of urgency, there is a "common thread" in all this. Our "Belief Systems" is where it all starts as most Parts Managers learned from previous Parts Managers how to become the manager in the first place.

Even though our "Belief Systems" do not lead us back to the "Origin" of Lost Sales, our "Belief Systems" can prevent us from going back to where these Lost Sale opportunities all start and how we can improve these numbers.

Unfortunately, and in my opinion, the lack of basic training plays a big factor in these less than desired results in Lost Sales Reporting. Even the basic terminology on what a parts "demand" is and how these demands play a huge role in having the right inventory at the right time.

Let's get started on this journey back to where Lost Sales originate and how we will learn why it isn't really any surprise that even though we know what they are, we will learn "why" they aren't being posted at all or even close to enough.

That being said, let's start it all off by asking the big question...

"What is the true "Origin" of Lost Sales and why aren't we seeing the results that we should be"?

The "true" origin of a potential Lost Sale actually doesn't come from any person, whether in the Parts Department, Service Department, or a phone call with someone checking on a part. It all actually starts, or "originates" with a "vehicle" in need of repairs and requires a replacement or added part such as an accessory.

There are only two reasons why we don't have a needed part as we either ran out of the part or we never stocked the part in the first place. This is where our Lost Sale "opportunity" starts as we now discover that there is a "need" for a part at the time of inquiry and one of four things are going to happen... 

1.) We either have the part and the customer chooses to buy, or not buy the part.

2.) We don't stock the part and the customer chooses to Special Order the part.

3.) We don't stock the part and the customer wants us to chase the part.

4.) None of the above three happens and results in a Lost Sale Opportunity

The next step requires human decision making and this is where we start to see the lack of Lost Sales Reporting that dates way back as far as I can remember and for many reasons. This "human decision" process that leads to a lack of Lost Sales Reporting are listed as follows and not in any particular order.

1.) Lack of Proper Lost Sales Training & Definition:

Even though we just listed the proper definition, in my opinion, there really hasn't been any proper training on Lost Sales Reporting for years. We have learned from our predecessors how to become a Parts Manager and for many years, there hasn't been really any "sense of urgency" in reporting them in the first place.

Many Parts Managers and Parts Counter Staff don't even know what a parts "demand" really is, which is either a Sale or a Lost Sale and both can trigger a "hit" on a part. So that means that a Sale of a part is the same as a Lost Sale in the Dealer Management System, (DMS). Each of these two demands are necessary for gathering enough history on a part for potential stocking of the part.

2.) Fear of "Double Posting" Parts:

This one is big one as many Parts Managers I have spoken to do not report enough Lost Sales as they fear that a single part may be "double posted", meaning that we recorded a Lost Sale, and then the customer eventually purchased that same part, resulting in two "hits" on one eventual transaction.

They seem to have this fear that if we post more Lost Sales, eventually this will end up with more parts "jumping" on the shelves that we will never sell and eventually become obsolete. What many of these Parts Managers don't know is that "double posting" the same part happens more often than they would think.

Case in point, we may have a customer that comes to our counter to check on a part that we don't stock and doesn't order the part, basically just inquiring to see if we have it or not, and rightly so, we post a Lost Sale. That afternoon that same customer comes back and Special Orders that same part we posted as a Lost Sale earlier from a different Counter Person, thus resulting in a "double posting" of the same part.

News Flash!...it doesn't matter! We could "double post", or even "triple post" that same part as the parts Phase-In Criteria requires two or three separate "events", in different months over the course of several months before it even triggers for Phase-In. Even then, it doesn't "jump" on the shelf as the Parts Manager decides whether to accept the part or not for normal stocking.

3.) Added D.M.S Steps in Lost Sales Reporting:

This is also another big one as many Dealer Management Systems require way too many steps just to post a Lost Sale, which results in many Missed Opportunities for posting Lost Sales. This is probably the most common reason for lack of posting, so this is why I recommend having a simple Lost Sales Log right next to the computer so when in doubt, we just right it down.

This is also the way we used to record Lost Sales "back in the day" before we had computers to begin with. Difference is, of course we didn't have a computer to record these Lost Sales, so we just collected the data on these sheets and manually added them up to see if there was enough Lost Sales demand over a period of time and added them to stock.

At the end of the day, the Parts Manager can review these Lost Sales Logs from the Parts Counter Staff and enter them all in at one time. Also, the Parts Manager can review these lists to see if he or she wants to even post some of these Lost Sales for those possible exceptions such as sheet metal, engines, transmissions, or any other part that we would not stock.

Now that we have traced the "origin" of where Lost Sales begin, it's now time to seek out the "source" of where we can actually "find" Lost Sales. Keep in mind that reporting Lost Sales is a good thing and we shouldn't worry about double posting, or whether it is a Lost Sale or not. I would much rather see it and not need it versus needing it and not seeing it.

Lost Sales Opportunity Sources:

1.) Incoming Phone Calls:

These calls from customers inquiring about on a non-stock part that doesn't result in either a Special Order, or purchase from another dealer or vendor should be posted as well. Best time is the first time to enter that "Potential Missed Opportunity", or Lost Sale, even if they do come back to order the part.

2.) Service Department Quotes:

Big, BIG resource for gathering these "Potential Missed Opportunities" for recording Lost Sales. Basically, we just need to print off an extra copy of the Service Department Quote and keep one in the Parts Department. 

At the end of the day, we simply match up these quotes as to what was purchased and wasn't purchased and if these parts not purchased were not in stock, all should be entered in as Lost Sales. We shouldn't even question these missed opportunities, especially in our Service Department as in most dealerships, over 70% of our parts sales are from Service.

3.) Sales Department Opportunities:

Yes, we do have Lost Sales Opportunities from our Sales Department whether in Accessories, or just basic inquiries from those Sales Customers as it once again provides another resource as customers that are shopping for a New or Used Vehicle are in a "buying mode" and we shouldn't let those opportunities slip away.

4.) Technicians & Service Advisors:

If we are not utilizing our techs and advisors as a resource for Lost Sales Opportunities, we are truly missing the boat. They are the ones that are most involved and most exposed to our customer base, and we should be encouraging them to provide us with as much information as possible and giving them positive feedback for their participation.

Posting Lost Sales is no different today than it was "back in the day" even though they have become much easier to post. Though some of these reasons for not posting them hasn't changed, we still have to have that sense of urgency. 

Lastly, it is a fact that posting Lost Sales is the Number One ingredient in expanding our parts inventory breadth and increasing our "First Time Off Shelf Fill Rate" to at or above industry guide of 75% - 85%. That being said, if we are not posting at least 10% of our total cost of sales, we just aren't getting it done.

This why Lost Sales still tops the charts in most 20 Group Meetings across the nation when we start talking about Parts. The question is always why we aren't reporting enough and oddly enough...these are the same Parts Departments that have low "First Time Fill Rates", lower percentage of Normal Stocking Parts and higher obsolescence...seems to be a pattern here!

Find & Report Them!...Don't Ignore Them!

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...

January 2023: 2023 - A New Era of Parts Managers

Happy New Year "Smart Parts" Managers and I want to welcome in the New Year with my first question to all past, present and future "Smart Parts" Managers out there...

"So!...what made you want to become a Parts Manager, or perhaps become a Parts Manager?"

You don't have to answer right away because I've often asked myself that same question. For most of us "back in the day", we most likely fell into the role by happenstance. Maybe we didn't go onto college, or military service and we were just looking for a job. Then perhaps, we stumbled onto a parts counter position and then down the road...Voila!...we became the Parts Manager.

Believe it or not, many of us "old timers" did wind up as Parts Managers just as mentioned above and we learned from the previous Parts Manager. We also learned just the way they taught us and may have or may not have been a good thing. We never asked why, and we just did it the way they did and when asked why we do it that way, we simply said..."That's the way we've always done it!"

Problem with that statement is, we never knew if what we were doing was right or wrong, as long as we got the parts. Some of us were fortunate enough to get the proper training and knowledge as I was able to receive and attain. 

For many Parts Managers though, they just did it the same way every year. To the point that many Parts Managers would have perhaps 30 years of Parts Manager experience, which was actually one year, thirty times, never actually knowing what it took to be a successful Parts Manager.

This leads me to my second bold question of the New Year...

"What's so different today and perhaps coming in the future versus many years ago and what does it take to be a successful Parts Manager today and going forward?"

Let's begin our journey to the past, present and future...

Parts Managers in the Past:

I guess I fall into this category all the way to the present, but as I mentioned earlier, the qualifications on being a Parts Manager in the past was completely different than today, and perhaps in the future. Primary qualifications included being a trustworthy employee, maybe some tenure in the Parts Department before becoming the Parts Manager with a basic education background.

We weren't required to have a Financial or Accounting background as we were basically paid an hourly wage, or salary and we would never see a Dealer's Financial. As years went on, we may have received a "paste and cut" version of the Parts Sales & Gross Page as we may have achieved a bonus on total sales and gross. 

We never saw an Expense or Net Profit number to actually see how we ended up from a profit or loss standpoint. This was considered privileged information that we were not allowed to see or focus on as Parts Managers. 

We learned basic duties on how to look up parts in a catalogue and micro fiche well before computers came of age. We learned how to keep track of those parts we sold by writing them down as they sold and walking the aisles to see what we needed.

We checked our inventory to see what we stocked on a "counter pad", or we just walked to the bin to see if it was there. We usually had it as many parts fit many applications for many years and we just remembered the part numbers and where they were on the shelf, (pretty weird huh?)

We then learned how to order parts for restocking the shelves and customers by "mailing in" our parts orders, or perhaps via phone, or teletype machine, until eventually, on very primitive computers. We often picked those parts up ourselves at our local Parts Distribution Center, (PDC), or waited for them to come via mail, or UPS.

As we transitioned into the role of Parts Manager over the years, we were fortunate enough to witness change along with new innovations and new computers. We watched vehicle parts transitioning to vehicle components and computer chips becoming the brain of the automobile. Today, most vehicles have anywhere from 30 to 50 or more microchips controlling nearly every vehicle function.

Overhauling transmissions, engines, alternators, starters, rear ends, wheel cylinders, etc. have become a thing of the past as component replacements has become the new normal. Overhauling and actually "repairing" a component was how it was done "back in the day".

Lastly, and before we move on, electronics, computer software and fiber optics started controlling many moving parts that used to be driven via hydraulic pressure, vacuum assist, pumps, manual levers, air and even gravity. 

Parts Managers in the Present:

First and foremost, and as a Parts Manager from the above category, the most dynamic and "welcome" change from past to present is more and more women are becoming Parts Managers. Not only are they becoming Parts Managers, but they are also great Parts Managers!

I've had and still have the privilege to train and work with many women Parts Managers and their personality types and behavior patterns are well suited for the position. Not only that, but it also seems that all the women Parts Managers that I have worked with have or have had a more extensive educational background as opposed most of my Parts Manager gents out there.

Overall, today's Parts Manager, whether a guy or a gal, has to have a more extensive educational background than we did in the past. Today's Parts Manager should have an educational background that incudes Basic Standard Accounting, especially Automotive Standard Accounting.

Parts Managers today also have to be verse in both parts inventories, the Controlled Balance Inventory that we manage on the DMS side, and the Accounting Ledger Balance Inventory listed on page one of the Financial. These inventory variances were never a concern years ago that could be devastating to a dealer if not managed properly today. 

Other educational skills include computer software training to include Excel, Word, and other Microsoft Office Applications. Even more important is Financial and Personnel Management Training as managing the Parts Department has become "managing a business". Each dealership department has to stand on its own and be profitable, especially in these times.

We are now required to not only "manage the business", but also be a "profitable" business where we have to manage sales, gross and expenses to a desired net profit amount. We have to know, achieve and maintain industry guidelines on all sales, gross, expense and net profit categories.

Lastly, and not to be left out of today's Parts Manager's educational background is Inventory Management Skills Training as the parts inventory is one of, if not the most important dealer asset. It's much more difficult today to manage the parts inventory compared to years ago.

Managing proper inventory Stocking Levels today requires that certain skill of "balancing" between what the manufacturer wants us to stock versus what we should stock based on our own customer demand in order to maintain proper First Time Off Shelf Fill Rates.

Parts "life cycles" are much shorter as manufacturers increase their inventory breadth with more parts and more applications than years ago. A parts life cycle years ago would often see one part number fitting many applications for many years. 

Today, it's quite the opposite as many parts will only fit one application depending on vehicle options and for a shorter time span of year and model usage. Stocking the right part at the right time, along with eliminating obsolescence before it happens has become a high priority in protecting the dealer's investment.

In addition, today's Parts Manager has to "multi-task" and "juggle" through this ever-changing supply chain and back-order issues just to provide the service our customers' demands in this high pace world we live in. I can honestly say that we never had to deal with these issues in the past that we are experiencing today.

Today, we also have to be "network savvy" as E-Commerce purchases and sales continue to rise. Our parts purchases and sales are coming from a much more diverse network of online sales and purchases websites and warehouses. We continually have to use all our available resources to find parts and get rid of parts at a marketable price.

I have spoken to many Parts Managers that have been out there as long as I have, or even longer and they are spending many more hours a day managing these issues than ever before. We also joke about how so much has changed over the years and how much fun it used to be years ago.

Parts Managers in the Future:

Even though the future Parts Manager will experience all the above mentioned in the present, I believe it's going to get even more intense for the Parts Manager of the future. More and more electric vehicles will be hitting the market which means even more technology and "knowledge" that the future Parts Manager must have.

Mandatory training and education will be, in my opinion, a big player into managing the parts inventory in the future with algorithms taking over stocking levels, seasonal parts sales along and with even more "manufacturer control" on parts inventories in general.

I also believe that supply chain issues will be somewhat of a new normal as component replacements such as auxiliary batteries, control units, DC converters, motor drives, on board chargers, etc. become more in demand. These types of parts don't sound cheap to me and will most likely have limited supplies, manufacturers, vendors and warehouses all over the world.

Managing the parts inventory, in my opinion, is going to change drastically in the future as we spend less time "managing" parts inventory and more time "processing" parts inventory. Even though we will always need those maintenance and "wear and tear" parts, most other component parts will not be stocked and have to come from outside sources.

That being said, this is why I believe that these supply chain issues will only increase in the future as most dealers will not want to invest in a more expensive parts inventory with less movement at higher acquisition and holding costs. Who knows...we may be more of a Parts "Acquisition" Department in the future.

Online parts purchases and sales will also continue to grow as we will do what we have to in order to provide the service our customers demand. As mentioned in previous issues, E-Commerce sales and purchases are expected to continue rising and supply chain issues grow.

Even though we will always have to stock the right parts at the right time by any means, we will have to see what those parts are. In my opinion, only parts demand will dictate what we have on the shelf, which means, we should never go back on our basic Parts Manager instincts and processes which starts with the continued process of posting Lost Sales.

What lies in the future is definitely a mystery, but what we do know now is that we are seeing signs of what's to come. We have to constantly train ourselves and our staff in order to keep up with change and evolution. It all starts with our willingness to learn as we go, accepting and growing with the environment in order to achieve our goals.

If you want to learn more about ACG Smart Parts "Eight Habits of Highly Successful Parts Managers", visit our website @ www.smartpartstraining.com, or...just pick up the phone and call me at :

(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...