April 2017 - Financial Management: "Five Steps To Sustained Profitability"

In part one of our three part series, (March 2017), we focused on Personnel Management, which I feel is first and foremost in running a successful, profitable Parts Department. Our people are our most important asset and having the right people in the right positions is where it all starts.

As we move on to part two of our series, knowing after part one that we have the right people, it's time to focus on the business at hand. Managing sales, gross, expense and assets, (inventory) is where it all comes down to in determining the overall success of the Parts Department.

We will focus on "asset management", which is the parts inventory in part three of our series next month, (May 2017).

In my opinion, there are five key ingredients, or "steps" that ultimately lead to "Sustained" Parts Profitability, month in and month out, year after year.

I also believe that the most successful and most profitable Parts Departments also follow these same five steps, no matter the size or location.

So let's run down the list of the "Five Steps To Sustained Profitability"!

Step One: TRAINING

My partner, Guy Salkeld has always said that..."Training is the Key that Leads to Knowledge and Skill and Desire is the Key that Leads to Success".

Quite simply, if we don't have the knowledge and the skills to perform the tasks at hand, success cannot be achieved. Sustained Profitability starts at the top with Parts Manager Training and trickles down from there with parts staff training.

Unlike other departments in the dealership, the Parts Department Manager is required to have a unique set of skills and knowledge in order to be successful. Even though some of these skills and some of this knowledge can be applied to the Sales Department, in my opinion, it goes much more "in-depth" and "detailed" than the Sales Department.

First and foremost, the Parts Manager must have a fair degree of knowledge in Business Accounting, including accounting integration, sales and cost of sales accounts, expense and asset management and reconciliation. On top of that, the Parts Manager also has to know the Parts Departments' role in overall "Service Absorption" and/or "Fixed Coverage".

If any of these terms are unfamiliar to some Parts Managers, then this is where you need to start if you are looking for on-going, sustained parts profitability. This training is more available today than it ever has been in the past and at a reasonable price, including a great curriculum now being offered by NADA, (National Automobile Dealers Association).

It's not just about managing a parts inventory and pushing parts over the counter anymore, the Parts Department is now a huge part of the dealers' overall business and profitability.

Unfortunately, many Parts Managers attained their position without the proper training as many were "promoted" into the position because they were next in line or perhaps, a parts counter person for many years and the owner thought they deserve the opportunity.

On top of skill and knowledge of basic accounting, managing a parts inventory that averages 5000 - 6000 part numbers in most dealerships is not an easy task.

Skill and knowledge in inventory management which includes managing inventory turns, sales activity, obsolescence, first time off shelf fill rates, stock order performance, level of service, etc. are also basic requirements. As mentioned, we will go in much more detail on inventory management next month in part three of this series.

In my opinion, this is one of today's automotive dealers' biggest "under sights" and most "passed over" areas of training and opportunity within the dealership. Due to the fact that most Parts Departments are already profitable, why the need for added expense of Parts Manager Training?

The part that most dealers miss though is how much more is out there and most importantly, how the Parts Department could be "negatively" impacting other departments, especially the Service Department.

Step Two: BUSINESS PLAN

In most successful businesses today, whether retail or any other business for that matter, having a "Business Plan" is a necessary part in going forward.

Determining items such as how much inventory we should stock, overall inventory value, market share, new and used sales volume, service capacity and area location are just a few items, or "ingredients" in putting together a viable, achievable forecast, or "business plan".

Creating a Business Plan also involves and requires our people achieving their goals and capabilities. Having a Business Plan that doesn't encourage our people to grow and achieve their goals will ultimately insure the failure of the overall Business Plan.

As I have mentioned in previous blogs, these targets for the Business Plan also need to be S.M.A.R.T. This simply means that the overall Business Plan needs to be Specific, Measurable, Attainable, Realistic and Time Focused.

Near the end of each year, the "Smart Parts" Manager should be involved in the Parts Departments' and Dealers' annual Forecast Meeting to determine the new year's Business Plan along with other dealer departments to ensure that the Business Plan is fair, achievable, and....Oh Yes...S.M.A.R.T.! 

So, as you can see, the Parts Manager has to be a business minded person, much like running their own business within a business with risks and challenges. Again, not like in the old days where the Parts Manager was just an administrative person that pushes parts over the counter and perhaps performs and inventory once a year.

Once again, if you have, or are a Parts Manager that has not had the proper training in business management, or as we used to call back in the day...Management By Objective, (MBO), you could be missing out on great future opportunities and Sustained Profitability.

Step Three: GUIDELINES/BASE LINE BUDGET

In order to even create a Business Plan, the Parts Manager must have some basic goals and guidelines that will manage sales, gross profits and expenses to achieve a desirable net profit for the Parts Department.

Basic knowledge in industry guidelines in the following areas are necessary in operating to a standard that is acceptable;

• Sales and Gross Per Employee
• Inventory Days & Months Supply
• Inventory Gross & True Turn
• Gross Profit Retention, (Customer Pay, Warranty & Internal)
• Net to Gross Profit %
• Level of Service
• Off Shelf Fill Rates, (Including "First Time" Off Shelf Fill Rates)
• Sales Activity, Inventory Aging, Obsolescence
• Parts to Labor Ratios
• Parts Department Absorption %

These are just a few industry guideline categories that may differ from industry analysts as well as manufacturer, but they all have one thing in common and that is they all require a basic minimum standard and achievement levels.

Baseline "budgeting" as I called it back in the day required a different frame of mind in my opinion. My "frame of mind" when it came down to managing expenses was just like managing expenses, or "budget" in my own home.

You can't spend what you don't have and if the money wasn't in the bank, I couldn't write the check. Getting "credit" or "charging" anything wasn't an option with my dealer back in the day.

Unfortunately, in many dealerships, managers seem to have the mindset that the dealer has this never ending supply of money that can never go dry. Even though a department can lose money, another department still has to absorb the losses of each individual dealer department.

This is why having a good "Service Absorption" rate is critical. "Service Absorption" is the ability of the Fixed Operations to cover the dealership expenses, minus owner salaries and variable expense.

Service Absorption is as important today as it was years ago. The very survival of many dealerships today requires an overall Service Absorption rate well above 75%, in order to bring down the number of "break even" units, or new vehicle dependency each month.

The ability of the fixed operations to not only be profitable, but profitable to the point of expected guidelines of the individual manufacturers' and industry on "net to gross" percentage is crucial.

The "Smart Parts" Manager also needs to maintain expense guidelines in all three key expense categories of personnel, semi-fixed and fixed expenses. Even though fixed expenses are not controllable 100% by the Parts Manager, personnel and most semi-fixed categories are and require daily, weekly and monthly controls.

This means that the Parts Manager has to have access to accounting and financial information on a daily basis. 

Unfortunately, there are still many dealers today that will not give up the information that is needed on a daily basis for any dealer manager to manage their profits and expenses. Then they wonder why they are losing money in some departments.

You can't control what you can't see and measure, especially after the time has already passed. We can't go back to fix what has already happened, whether planned or unplanned.

Step Four: DEALER SUPPORT/MARKET 

There is no doubt that the overall success and profitability most often relies on the sales and gross support from other dealer departments such as Outside Sales Markets, Service, Collision Center and the Sales Department. 

Some may debate support from other areas should move this ingredient" or step higher on my list, but in my opinion, without the first three, it would be very tough to manage a high degree of sales and gross volume. It would also be much tougher to manage expenses and sustain profits without the proper training, business plan and guideline compliance.

With that said, the sales and gross environment can definitely impact the amount of sales and gross volume from one dealer to another, but on a percentage perspective, it really doesn't matter the size of sales and gross volume. What matters most is the Absorption Percentage, how it's managed and what's left on the bottom line. 

In most dealerships, the Parts Department is dependent on the Service Department for their sales and gross volume in excess of 60%, with the exception of high volume Parts Wholesale Dealers. In most dealerships, the Service Department accounts for the majority of the parts sales and gross volume in customer pay, warranty and internal parts sales areas.

On the reverse side of things, the Parts Department can and does highly impact the overall Service Department sales and gross volume as well.

Service productivity can impacted a great deal from the Parts Departments ability to provide a high level of service, with high "First Time Off Shelf Fill Rates". In the Service Department, it's all about productivity and cycle times that allows the Service Department to run efficiently.

The support from the Sales Department cannot be overlooked as well as a healthy front end Sales Department, both new and used keeps the "iron on the road" and provides on going customer retention and sales for the Service, Parts and Collision Center Departments.

The last area of support that can highly impact the overall Parts Department goal in Sustained Profitability is location, location, location. Although, it's no guaranty that having the right dealership location will sustain profitability, it still can make an impact in overall sales and gross volume.

We also have to understand that a prime location with higher sales and gross volume can also impact cost and expense in a negative direction.

It's not uncommon that higher volume dealers actually miss out on the more opportunity than smaller volume dealerships. This is because there can be so much sales and gross going on at a high rate that added cost, waste and missed opportunities go unnoticed.

I've always believed that the time to "dissect" and "drill down" opportunities should be when sales and gross are at their highest levels. We always tend to only do our "drill downs" when sales drop below expectations.

It's easy to overlook and not pay attention when we are "satisfied" with current sales and gross volumes. Once again, more evident in higher volume dealers as opposed to the average sized dealership.

The same holds true in high volume wholesale parts dealers as cost aren't usually measured thoroughly to include acquisition and holding costs, insurance and added personnel expense. All should be measured on a scale that represents all sales, gross and overall expense, including the parts inventory assets and purchase discounts and allowances.

Overall support from all these areas are extremely important, but the most important factor is that all the previous three steps need to be applied, no matter the size, location, and overall sales and gross volume in any particular dealership.

Step Five: DESIRE!

As I mentioned in Step One with my partner Guy Salkeld's quote on Knowledge and Skill, without the Parts Manager's "desire" to succeed, sustainable profits cannot be achieved. Even though training to acquire the skill and knowledge is necessary, we all have to have the confidence and desire to succeed. 

Desire comes from within, but there are many ways to increase that desire if the Parts Manager is "goal oriented". The successful, "goal orientated" manager in any department or business have many things in common. One major commonality that I have witnessed and experienced is that they all have a passion for what they do.

They are also self motivated, reading and studying from noted authors, speakers and industry analysts. They don't approach each day as "just another day" as each day, week, month and year has a goal to be achieved. Once each goal is achieved, the challenge begins all over again with new goals and heights to attain.

If the Training that allows us to acquire knowledge and skill, along with the right Business Plan, which includes the proper Guidelines, Budget and Support, we can and will achieve Sustained Profitability month in, month out, year after year.

After all, as my partner Guy Salkeld also says..."We only do things for two different reasons....either by Desire or Fear!"...which basically means...either I WANT to do it...or, I HAVE to do it! Question is....What's your reason?....

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

March 2017: Personnel Management: "Five Steps To Developing An All Star Team"

For many Parts Managers, including yours truly, March has always meant the end of the first quarter of any given year. The first parts inventory activity cycle of the year and the first opportunity to evaluate what I call the three most important management categories for a parts manager.

These three categories I am eluding to include personnel performance, sales and gross trends in the first quarter as well as the first inventory activity cycle of the year. All of which provide the Parts Manager an overall "performance rating" of the parts department in general compared to expected dealer goals and projections.

Over the next three months, starting with this issue of "Smart Parts", we will provide our readers a five step "blue print" in managing these three categories which include; Personnel Management, Financial Management and Inventory Management. In my opinion, managing each category plays a critical role throughout the year, but no more critical than in the first quarter of each year, our first indicator to what the rest of the year will bring.

The first of our three part series is titled; Inventory Management; "Five Steps To Developing An All Star Team".  It takes an "All Star Team" with a Parts Manager with great leadership skills along with a "road map" to success that the overall team can achieve and believe in.

So, Let's Get Started With Part One and the "Five Steps To Developing An All Star Team!"

Step One: "First Things First" - Staffing Metrics

The first step in building our "All Star" Team is to determine the right staffing metrics, or in other words, the right number of people to be employed in the parts department. In addition to "how many", we need to know the positioning of these employees, or "staff members".

How many back counter people?....front counter?...shipping and receiving?...inventory clerks?...do I need an assistant? These are all questions that can answered very easily.

Determining the overall number of parts employees and their positioning requires research into industry guidelines and a little math. For example, NADA, (National Automobile Dealers Association) Guidelines indicate that the average "sales per parts employee" should be approximately $36,000 per employee and "gross per parts employee" at approximately $12,000 per employee. Some European franchises may be slightly higher in each category.

That pretty much sums up the total number of employees, buy what about the position of the parts employees? The answer to that question is also an industry guideline that many Parts Managers either don't know about, or never thought about it in the first place.

Much like in the service department, the guideline of having a 2:1 sales to support ratio, (productive vs. non-productive) needs to come into play. Based on the NADA statistics above, we have to take into consideration that not all parts employees are responsible for their portion of the "sales & gross per parts employee" category. Parts shipper/receivers, delivery drivers, inventory clerks and even some Parts Managers are not directly involved in the selling of parts.

This means that the "front and back" counter staff have to absorb these average sales & gross per employee numbers themselves at a 2:1 sales to support ratio. So, if we do the math, the overall number of parts employees is dictated by total sales and gross per employee number and the total number of "sales staff" versus "support staff" is determined by this 2:1 sales to support category.

An example of this, using NADA's "sales per parts employee" as a guideline, if I were running a parts department that averaged approximately $145,000 in monthly parts sales, then I would need four total staff members, with two of my four supporting my front and back counter sales positions, considering $36,000 per parts employee and a 2:1 sales to support ratio. Each would have to absorb approximately $72,000 in sales to cover the other two "non-productive" parts employees.

The other two "support" positions in the above example would usually be filled by the Parts Manager and a shipper/receiver that may also handle deliveries and stocking shelves. Often times, multi-tasking is utilized with the Parts Manager filling in at the counter, or supporting other positions.

One of the last two indicators in Step One that the Parts Manager has to consider in building this "All Star" Team is to know the Parts Departments role, or portion of total dealer expense, or "Absorption", which may range from 20% - 30%, depending the manufacturer and if the dealer has a collision center or not. The Parts Manager also has to maintain a total personnel "expense to gross" percentage, within industry and dealer guidelines.

Lastly, the Parts Manager has to provide a "true" Level Of Service over 90% to the dealer customer base while insuring annual Gross Turns eight times a year and annual True Turns five times a year, no matter what the overall inventory amounts are.

Step Two: Recruiting The Right People:

After determining the right number of parts employees and the positions required, now the Parts Manager has to have a recruiting process that will not set the dealer or the potential employee up for failure. In my opinion, dealers lose many employees because we either hired the wrong person in the first place, or the dealership didn't provide the proper training and/or career path for the employee. 

It is not uncommon for any employer to be looking for experience as part of the recruiting process, but that can also sometimes lead to failure. Often times, training new employees without experience can prove more beneficial than hiring experienced employees as they have no bad habits. The training provided would be the only way they know as opposed to hiring someone that has, let's say twenty years experience, which could actually be defined as one year, twenty times.

For this reason, I am a big fan of utilizing a personality profile index when considering new hires. As mentioned earlier, often times we set up our new employees for failure when we hire them for a position that doesn't suit their personality and behavior patterns. Even though utilizing a personality profile index cannot be the ultimate reason for hire, it's still a great tool in hiring employees for positions they are more likely to succeed in.

Another key element, in my opinion to getting the right people is to have compensation plans with comprehensive incentives to encourage employee growth and development. It's hard to evaluate personnel performance without incentives as salaries and hourly wages only reveal the employee 's timeliness, not their performance. It's just human nature that people work their pay plans, so why not have a pay plan that rewards both parties.

Lastly, where to find, or look for the right parts employee has always had it's traditional path. Placing help wanted ads, posting a sign in front of the dealership, checking local parts stores and "word of mouth" have been some of the primary resources used to find applicants and candidates.

With social media and the internet, our resource base has grown tremendously over recent years, giving the Parts Manager a greater source for hiring the right people. It also can't go understated that each potential hire needs to follow dealer background tests along with "cross interviewing" between dealer managers to get a different views. Sometimes the best potential hires slip between our fingers because we tend to want to hire an image of ourselves instead of what the position requires.

Step Three: Orientation - Employee Success Starts Here!

I am a true believer that the success of all new hires is determined by how we greet them into our dealership, our "culture" and how we provide a career path for them. Unfortunately, many dealers do not have a "Dealer Orientation Process" to begin with and often times, great employee opportunities are wasted because we hire them and throw them into the position, expecting results immediately.

The first part of the Orientation Process should be between the Parts Manager and the employee to review the employee's job description, pay plan as well as what expectations both the Parts Manager and the employee intend to accomplish in this "learning period". This will give the Parts Manager ample time to observe and evaluate how the new employee interacts with other employees.

In my opinion, a new parts employee, or any employee for that matter needs at least 2 - 4 weeks of dealer orientation before actively taking on any position. The new employee has to learn company policy & procedures, inter-departmental training with time spent in other departments, manufacturer certification & training, employee "shadowing", etc. 

In addition, all new employees should receive the dealers' "Employee Handbook" along with a complete explanation of benefits with all their options including health care, 401K's or other retirement programs, disability insurance, vacations, employee functions, group organizations, etc. These are just a few of the orientation priorities I believe need to be addressed before entering any position 100%. 

Step Four: Employee Goals & Guidelines

Once the employee has completed the Orientation Process, it's time to get started. An initial meeting between the Parts Manager and the new employee needs to take place to review the Parts Manager's guidelines and expectations as well as the new employee's individual goals. It's important "right out of the gate" to get the employee's individual expectations of goal achievement.

I didn't invent the term, but I learned a long time ago that every employee needs to have individual goals, and these goals had to be S.M.A.R.T. Simply put, the goal had to be Specific, Measurable, Attainable, Reasonable and Time Focused. Lastly, the goals need to be written down and signed by the employee. It's been proven over and over again that individuals that have clear, "written goals" succeed far more often than "unwritten goals".

As mentioned earlier, it is critical to provide a career path for all employees, creating an expectation that most of these goals are based on. In my opinion, it's the responsibility of the Parts Manager, and all managers for that matter, to always be developing their employees. Providing a career path that includes on-going training, semi annual and annual reviews, pay plan and incentive potential, position advancement potential, timely critique with positive reinforcement can only lead to "predictable results" for both the manager and the employee.

Perhaps most importantly, achieving personal goals while following company guidelines cannot happen without accountability, both personal and by the Parts Manager. Developing personal accountability in our employees can be considered a skill by some, but I've always found that if I give the employee more responsibility, they will become more accountable to themselves.

In my opinion, personnel development is one of our biggest duties and responsibilities as managers. I've always felt that it was my job to "train myself out of the job", not only for my own career advancement, but also for those following in my footsteps. We all had to start somewhere and we have all had someone that took us under their wing.


Step Five: "Promoting From Within"

One of the best compliments that can be made to any manager is when they are able to "promote from within". It is the best testimony of all four steps prior to this one, and a sign of success that will continue in the on-going, overall success of any department. Promoting from within provides an opportunity for department growth, as well as an opportunity to delegate more responsibility. Lastly, an opportunity for employees to expand on new goals and expectations.

Employee goal accomplishment always leads to new goals and new heights of achievement for the whole department. Individual goals also lead to team goals and when the Parts Manager promotes from within, in most cases, the trust within the team also rises to a new level.

Promoting from within also projects a sense of security from others within the department as opposed to employees coming and going. This sense of security can also be felt by customers, especially repeat customers who like to see the same faces when they come into the dealership.

Promoting from within also saves the dealer money as the cost to hire and train employees goes beyond just the money spent as future revenue can be affected from lower customer retention numbers. Training costs alone could mean the difference of being profitable or not in any given month, depending on the size of the department and the overall cost of training, both internal and from the manufacturer.

Promoting from within encourages employees to engage more as a group and to provide positive input with individual ideas and recommendations. If the first four steps are followed correctly, more opportunities to promote from within materialize. Future advancement with the opportunity for financial growth is one of the most important items that dedicated employees are looking for today.

Lastly, there is a right way and a wrong way to promote from within. If we promote from within and follow the prior four steps to "Developing An All Star" Team, success is limitless and perpetual. If we promote from within just on the basis of tenure, or perhaps because "they are the next in line", without following the first four steps on building our "All Star Team", we would just be illustrating the definition of insanity, doing the same thing over and over and expecting different results.

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

February 2017: "How Truthful Is Your D.M.S. Monthly Management Report?"

The first couple of months of each year, as "Smart Parts" Managers, we have a tremendous opportunity to purge and "refresh" our parts inventories. In addition to the physical inventories that are usually performed in December of the previous year, we also have the opportunity to "reset the clock" on key inventory management areas.

Once we enter into a new year, "annualized" calculations such as Gross and True Turns, "First Time" and Overall Off Shelf Fill Rates, Stock Order Performance, Level Of Service, Demand Filled From Stock Ratios, Rates Of Change and Sales Activity Cycles are all highly impacted from the first couple of months of each year.

As the year progresses, annualized calculations kind of settle in, especially around June and July where it becomes much more difficult to positively impact some of these Key Performance Indicators, (K.P.I.) from an inventory management perspective.

This "refreshing" of the parts inventory can be a great thing, but if we don't act, or "stop the bleeding" in some of these key areas, we will just see this new year repeat the results of the previous year. More importantly, if we don't understand how these numbers are calculated in the first place, we can pretty well assure ourselves that the results will repeat themselves, year after year.

First of all, we have to know industry guidelines in all these above mentioned areas of Key Performance Indicators. We also have to know and understand how to do these calculations ourselves and not relying solely on our Dealer Management Systems, (D.M.S.). 

Before we get into how these Key Performance Indicators, (K.P.I.) can be misconstrued, incorrect and misleading, let's first look at some of these industry guidelines set by various industry groups such as NADA, Mike Nicoles, NCM and ACG.

Once we know and understand these guidelines, we will then look at how to calculate these Key Performance Areas, (K.P.I.), without utilizing our own Dealer Management System, (D.M.S.)

Guidelines - Definitions - Formulas

Stock Order Performance/Demand Filled From Stock Ratio:

Overall Stock Order Performance, or Demand Filled By Stock Ratio, indicates how well the stock order purchases compare to overall purchases, or "demand". The formula to calculate Stock Order Performance, or Demand Filled From Stock Ratio is:

YTD Sales, (at cost) of *Processed "Normal Stocking Parts" - Divided By - YTD Total Sales at Cost.

Industry Guideline: 75% - 85%

(*Parts ordered and receipted as "normal stocking parts" and have met basic stocking criteria)

Level Of Service/Sales Closing Ratio: 

Level Of Service, or Sales Closing Ratio is defined as the ability of the parts department to provide parts from stock to customers. As you can see from that definition, this category can be misleading in itself. 

Technically, if I receipt my "Customer Orders" as normal stocking parts, I could actually score well in this category, but never even have the parts on the shelf to begin with.

In addition, as you will see from the formula below, if the parts manager doesn't record Lost Sales and Emergency Purchases, it will also lead to false calculations on this particular Key Performance Indicator, (K.P.I.)

It all depends how these parts are ordered and receipted in the first place and how the D.M.S. is calculating the information that is entered by the parts manager.

This is the main reason why I am a huge advocate of measuring "First Time Off Shelf Fill Rates". The formula to calculate Level Of Service, or Sales Closing Ratio is:

YTD Sales, (at cost) Minus YTD Emergency Purchase Receipts - Divided By - YTD Total Sales, (at cost), plus YTD Posted Lost Sales.

Industry Guideline: 85% - 95%

Gross Turnover Ratio:

Here's  another Key Performance Indicator, (K.P.I.) that, if not understood, can also be misleading. The formula to calculate Gross Turnover Ratio is:

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

Industry Guideline: 8 Gross Turns Per Year

As you can see and read from the formula, Gross Turns is just an indicator that measures inventory "dollars" turning in the parts inventory. Technically, I could have a Gross Turn Rate of 8 or better and not even have a single dollar of inventory on the shelf. It's just a measurement of gross dollars of inventory receipted and sold through the parts inventory account, including outside purchases.

Measuring Gross Turns is extremely important though as it's a measurement of the proper inventory amount and "Days Supply" of any given inventory. In other words, if you take the average cost of sales monthly, multiplied by twelve, then divide that total by "8 Gross Turns", that will equal the proper inventory amount with a (45) Days Supply.

True Turnover Ratio:

True Turnover Ratio is more of a direct measurement of how the "stocking inventory" is performing. This Key Performance Indicator, (K.P.I.) can also be misleading if not totally understood. The formula to calculate True Turnover Ratio is:

Total Sales, (at cost) of Stocking Parts for the Last Twelve Months - Divided By - the Average Inventory Investment for the Last Twelve Months.

Industry Guideline: 5 True Turns Per Year

Once again, just by reading the formula, you can see that this measurement "keys on" parts that are supposed to be "normal stocking parts". That means these "normal stocking parts" must meet basic stocking criteria set by the Dealer Management System, (D.M.S.). Criteria such as Phase-In and Phase-Out Parameters, Best Reorder Points, (B.R.P.) and Best Stocking Levels, (B.S.L.).

Here's where it gets tricky and potentially misleading...

The Dealer Management System, (D.M.S.) is only going to reveal results as entered. In other words, if the Parts Manager receipts in Special Order Parts for example, as "normal stocking parts", this will give us a misleading True Turnover Ratio. 

Just because the Special Order Parts were ordered on the Stock Order, it doesn't mean they qualify as "normal stocking parts" because they haven't met basic stocking criteria as mentioned above. Also, if we don't utilize the D.M.S. Special Order Parts Program, these parts could also be considered as "normal stocking parts" by the D.M.S., depending on which system is utilized. 

So even though the D.M.S. Monthly Management Report says one thing, it doesn't necessarily mean these Key Performance Indicators, (K.P.I.) are actually true and realistic. This is why the Parts Manager's "Belief System" has to be truthful and accurate when reporting this information into the Dealer Management System, (D.M.S.).

True Turnover Ratio can only be measured "truthfully" if we follow the proper procedures in basic reporting practices and utilizing the Dealer Management System, (D.M.S.) as intended. We all know the old saying...."Garbage In?....Garbage Out!"

Another big contributor to misconstrued, misleading and incorrect information comes from our manufacturers and their Vendor Managed Inventory, (V.M.I.) Programs. So, not only did we have enough problems already with the above mentioned situations, let's get the manufacturer in there to really cause mass confusion to our Monthly Management Reports.

To start with, Vendor Managed Inventories, (V.M.I.'s) combine individual dealer set up criteria along with "group" criteria to define what the dealer should stock, or in their minds, the dealers' "normal stocking criteria". Problem with that is, no one's telling the various Dealer Management Systems, (D.M.S.) that these V.M.I. Parts should be considered as "normal stocking parts".

Parts receipted on the Vendor Managed Inventory, (V.M.I.) are coming into most Dealer Management Systems, (D.MS.) as "non stocked parts" instead of "normal stocking parts". The reason for this is quite simple as many these V.M.I. Parts have not met the individual Dealer Management System's, (D.M.S.) basic stocking criteria.

This means that even if the manufacturer is considering these parts as "normal stocking parts", they are not considered as such by your own system until they have had enough demand. All of which will impact the D.M.S. Monthly Management Report in a negative way when measuring True Turns, Stock Order Performance and "First Time" Off Shelf Fill Rates.

Parts purchased on the manufacturers' V.M.I. Programs should be considered as "normal stocking parts" and should be included when measuring the above mentioned Key Performance Indicators, (K.P.I.). The only way they can be measured properly is by positive actions taken by the Parts Manager.

One way to do this is to insure that the manufacturers Vendor Managed Inventory, (V.M.I.) parts are receipted into a "default parts source" that brings these parts in as "normal stocking parts". If the particular Dealer Management System, (D.M.S.) is unable to perform that task, then the Parts Manager would have to manually receipt these parts as "normal stocking parts".

As you can see, there's even more potential today for misleading and inaccurate information to find it's way to the D.M.S. Monthly Management Report. Unfortunately, too many parts managers trust what their D.M.S. Monthly Management Report tells them as many have never "done the math" themselves.

In my opinion, there IS too much misleading and inaccurate information on the D.M.S. Monthly Management Reports today. This is mostly due to the manufacturers' Vendor Managed Inventories, (V.M.I.'s) parts not being receipted with the proper stocking status. That one item alone effects so much on the Monthly Management Report as mentioned above.

There is no better time than the beginning of a new year to correct these inefficiencies in reporting to the Dealer Management System, (D.M.S.). The sooner we get these issues corrected, the sooner we will see accurate "annualized" information on the Monthly Management Report going forward.

It's time "Smart Parts" Managers, for us to get back to basics and "do the math" ourselves in order to get the right information on these Monthly Management Reports. Most importantly, it's time to give our dealers accurate information that will "truthfully" inform them on how their parts investment is performing. 

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

  

Ranking Dealer Management Systems, (D.M.S.) in 2017

One area of our industry that is definitely moving at a high rate of speed going into 2017 are Dealer Management Systems, or often times referred to as the "D.M.S." System. The options are growing and the competition is increasing more and more each day.

Recent articles and blogs by Automotive News and MotiveRetail.com agree that competition between D.M.S. vendors and providers has skyrocketed over the past few years and will continue to grow well into 2017 and beyond.

Both Toyota and Nissan have committed to expanding their D.M.S. network providers from two up to eight over the next few years. Like other manufacturers, both Toyota and Nissan are now seeing the need for more support integration to reduce overall dealer cost and to better support their dealer base with more options.

For years, we have basically seen just a couple of options, or choices as to which D.M.S. provider dealers ultimately ended up with. Not surprisingly, their choices were either Reynolds & Reynolds or ADP, now referred to as CDK, even though there were a few other smaller D.M.S. companies available.

The difference today is that technology has expanded to a point where dealers are looking at these other options even closer. Now, it appears that Reynolds & Reynolds and ADP/CDK aren't the only ones out there that can provide all the necessary applications for all dealer departments.

Most importantly, dealers now have better pricing and contract options without feeling "locked in" to any one vendor for long periods of time. High monthly fees, costly updates, hardware costs and lack of support are common concerns that have existed for years.

Some of the main reasons that dealers have put up with being "locked in" are fear of change, interdepartmental system preferences and accounting integration. Once a system has been in place for years, dealers tend to shy away from starting all over again along with the ramifications that go along with a major system change.

Before we  get into the "ranking" of today's D.M.S. Systems, let's take a look at who the "players" are in this industry verses just a few years back. It's not just a one or two player field anymore as there are at least six, in my opinion that are in the game now and one in particular that is moving up the ladder at a high rate of speed.

As I mentioned earlier and not to anyone's surprise, Reynolds & Reynolds and ADP/CDK have been industry standards when it comes to choosing a D.M.S. System that offers all the necessary applications in the areas of Accounting, Sales, Parts and Service Department Operations. Both have pretty much "perfected" their programs to the utmost in efficiency and usability.

In my opinion though, both have failed to stay up on technology, especially when it comes to updating existing programs and applications to today's Windows based technology. Even though Reynolds & Reynolds introduced "Ignite" and ADP/CDK introduced their version called "Drive", they still have not fully disconnected with their older operating systems.

Even though both "Ignite" and "Drive" have been out there for quite some time, I still see Fixed Operations personnel using the Reynolds & Reynolds "blue screen" and ADP/CDK's "green screen" almost 100% of the time. For those not familiar with this terminology, it just basically means that users prefer using their old screens instead of the newer Windows based option.

So now!....Let's meet the "New Players" in town!

The first two D.M.S. providers, other than Reynolds & Reynolds and ADP/CDK that I want to mention aren't really new to the game, but have been gaining market share over the past few years are "AutoMate" and "AutoSoft". Both have found their way into more dealers primarily due to dealer cost savings over Reynolds & Reynolds and ADP/CDK.

Keep in mind during all these D.M.S. Rankings, I will be measuring how each system stacks up in the areas of Parts Inventory Management and Service Applications, even though I will be making comment here and there when it comes down to Accounting Integration and overall efficiency.

In my opinion, one of the biggest advantages to AutoMate and AutoSoft coming into the marketplace was a more "user friendly" application system. Both seem to very easy to navigate through applications with easy to follow menus with Windows Bases "Action Buttons". Compared to Reynolds & Reynolds and ADP/CDK, this made it much easier for new users to adapt and learn D.M.S. applications.

On the other hand, what these two systems did lack, in my opinion, was the "in-depth" application software and options in the parts areas of set ups and controls, source ranking by piece sales, days supply options and matrix escalations.

In the area of service applications, I also felt that even though both are very user friendly for Service Advisors to navigate through the repair order process, both AutoMate and AutoSoft seemed to have limited "customized" reporting options for management to track overall productivity, sales and profitability.

Actually, even though Reynolds & Reynolds and ADP/CDK have the edge, in my opinion in these areas, all D.M.S. Systems out there need to do a better job providing more "customized" reporting options on "drilling down" specific areas related to parts and service applications.

The reason for my opinion is if D.M.S. providers were doing a better job in the above mentioned areas, there wouldn't be so many other vendor companies out there providing these customized reports and "drill down" options for dealers.

This is why so many of these outside companies need to acquire "Incription Rights" from various D.M.S. providers in order to gain access into the dealers' D.M.S. System. Once into the D.M.S., these outside vendors can provide dealers the information and reporting options needed to manage their Fixed Operations. 

Many of these outside companies specialize in follow up programs, specialized reporting options, marketing and other various retention programs. Most importantly, they provide dealers and managers information in a moments notice without having to spend time building these specialized reports and programs on their own D.M.S., if available in the first place.

Another player that has entered the Dealer Management System market is a company called "Adams". When I was first introduced to this D.M.S. System, I was pretty skeptical, as I'm pretty sure anyone else would be as well when diving into a system pretty much unheard of.

Although, from a parts perspective, I was pretty impressed as the Adams D.M.S. System allowed for most, but not all the necessary applications needed in order to manage a parts inventory. Keep in mind, every one of these systems are being measured up to our industry standard systems like Reynolds & Reynolds and ADP/CDK.

On the service side, the Adams D.M.S., much like all the others, can manage through the service repair order process, but once again, lacked the "in-depth" management reporting applications that, in my opinion are necessary in managing the service department.

Items such as op code utilization drill downs, technician productivity, exception reports and sales and gross analysis are very basic at best. Once again, side by side against Reynolds & Reynolds and ADP/CDK, a lot more to be desired.

The more I get familiar with these "new guys" in the D.M.S. provider market, the more I see how price and contract options are playing into the dealers' ultimate choice in which provider they choose. It seems that more and more dealers are willing to give up a little here and there as far as how "in-depth" a system can be versus the overall cost of the system.

The last Dealer Management System that I want to include in my "Top Six" is not last by any reason. In fact, I believe this system is by far one of the newest and biggest players to go up against all the others. This new D.M.S. System that's taking the market by storm, in my opinion and that system is DealerTrack.

When I was first introduced to DealerTrack a couple of years ago, once again, I was skeptical, as I am with any new system out there. Knowing what a "good" D.M.S. System should provide, especially in parts, service and accounting. Once again, another new system and lots of questions to be asked. 

In the beginning, in my opinion, I felt that DealerTrack had some great "basic" applications that I thought were at first, user friendly and second, state of the art technology that would take us away from those old "green and blue screens" days that most of us grew up with.

Although, what they did lack was "research and development", or "R & D", which, in my opinion, is where I lost interest initially. Even though the package looked great, it lacked many of the basic parts and service applications that most "Smart Parts" Readers are accustom to and familiar with.

Fast forward to today, I have had the privilege of seeing the "research & development" of this D.M.S. product grow to what I believe will be the new industry standard going forward. DealerTrack has taken it to the next level in parts, which I'm usually the staunchest of critics as to what a system needs to provide today's parts managers.

In service, I also believe that DealerTrack has gone to the next level in all service applications along with "user friendly" software that doesn't require service advisors to take tests, or on line tutorship's in order to navigate the system while trying to build customer relationships, which should be the primary goal for service advisors.

Their management reporting functions are "adequate" when comparing to other D.M.S. Systems. Although, I believe all D.M.S. providers need to do a better job by making it easier for managers, spending less time building reports, and more time managing the information on the reports.

All of the D.M.S. Systems in this ranking provide adequate accounting integration software and applications, with the exception of a couple areas of account security. By this, I mean that some of the accounting integration set ups have to be initiated in various parts and service applications, as opposed to being initiated and controlled in the accounting functions. All above mentioned D.M.S. Systems are guilty to some degree in this category.

Even though there are other D.M.S. providers out there and more coming on board, in my opinion, these are the top six that are most widely utilized in automotive dealerships today. Choosing the top D.M.S. depends on the individual dealers needs, size and various applications.

I do know that overall cost and contract terms have been a leading reason for more and more D.M.S. providers coming into the market. Competitive pricing and comparable, available applications definitely gives the dealer more options in choosing their D.M.S. provider. More importantly, for the industry, it will eventually lead to better product applications and even more competitive pricing.

Overall, my preferences as to which D.M.S. provider is leaning towards the future after seeing what these newer providers are offering, especially DealerTrack. After working with all the above D.M.S. Systems and growing up in this business a Reynolds & Reynolds advocate, it's time to open my eyes to change and new innovation.

All of these providers are working diligently with the manufacturers to provide dealers better products with better support integration. Other affiliated vendor acquisitions by Reynolds & Reynolds and ADP/CDK will also provide newer and better software applications related to customer follow up and customer retention.

Once again "Smart Parts" Readers!...we have a lot to look forward to in 2017 and the options for dealers are expanding with better technology at competitive prices. In my opinion, it's time to "get out of the box" in 2017, instead of just "thinking outside of the box"....

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

2017: "What Can We Expect?"

In December of every year, things get pretty busy, not only in our dealerships, but in our home lives as well as the holiday season approaches. With the hustle and bustle of both, we seem to get more consumed with the everyday stuff and before we know it....Boom!...here comes 2017!

With that said and looking ahead to 2017, I believe this coming year will not only be prosperous, it will be a "break out" year for our industry. As I mentioned in the intro, I believe there are a lot of indicators out there to support my opinion, including some stats and analysis from some prominent industry experts.

Each year, as many "Smart Parts" Readers already know, I take the time each December to do my research on what the current year has revealed as well as what it means looking ahead to the new year. Consistent to the past few years, 2016 showed continued growth in auto sales, even though it looks like it will fall a little shy of the new vehicle sales records of 2015.

My first question, or should I say concern is...when will we reach the peak and start the downward slide? Many of us in the industry know that our business seems to go in seven to eight year cycles where we experience a down slide in vehicle sales. This "trickle down" of lower vehicle sales can be felt dealer wide and all of a sudden, the fixed operations becomes even more of a necessity in dealership profitability and survival.

Are we at that point in history again? Could we have already seen the peak of new and used vehicle sales in 2015 and now be looking at that dreaded period in time again? Most importantly, if true, are we ready to survive the pitfalls and struggles yet once again?

To find the answers to these and perhaps many other questions and concerns looking forward, I once again turned to a source that has consistently led our industry, celebrating 100 years of service in 2017 and that source is the National Automobile Dealers Association, (NADA)

In November of this year, NADA Chairman, Jeff Carlson wrote an article that is available to all on the nada.org. website titled "The Next 100 Years of Evolution is Here". In his article, he expands on the future of our industry and how NADA "will continue to be proactive and forward looking in it's mission to advocate for the franchise system and provide dealers with the resources they need to succeed."

As part of NADA's commitment and on their behalf, Glenn Mercer, a highly regarded automotive consultant is currently conducting a thorough and researched look at what our industry has to look forward to by the year 2025. Not only will this study look at our end of the industry, it will also give us a perspective of what automotive retailing will look like from the dealer, consumer and manufacturers standpoint.

In Mercer's preliminary findings, he believes that we will see more evolution, but not revolution over the next 10 years with sales remaining consistent, while direct sales efforts will be focused on higher end vehicles. He also believes that private dealer ownership will continue to dominate in a slightly shrinking overall dealership total of approximately 16,500 by 2025.

Forecasts also indicate that light vehicle sales will be in the approximately 17-18 million with a continued decline in profit margins, much like today which will require dealers to focus, once again on the fixed operations to provide necessary revenue to survive and prosper. Mercer's research and perspectives are scheduled to be completed early in 2017. 

Chief Economist for NADA, Steven Szakaly predicts likewise as far as the projected light vehicle sales at 17.1 million units, thus predicting a "stable market" ahead and not a growing market. He also believes that the industry has "achieved record sales and pent up demand is effectively spent".

Szakaly continued with his economic outlook for 2017 as remaining strong with projected gross domestic product, (GDP) growth at 2.6 along with employment numbers increasing and gasoline prices remaining stable. He also added that increased infrastructure spending and certain tax cuts from an incoming administration could also mean a better long term outlook.

Some areas of concern he has though looking forward is rising interest rates, increased loan terms to an average of 68 months may lead to a slower, but still strong sales pace. This may also impact and increase new vehicle lease purchases and declining residuals and used car values.

Overall, the future is stable, with a potential for even higher growth pending any changes that may be implemented by the new administration. In my opinion, we just may "dodge a bullet" this time around as to our cyclical patterns of the past have proven.

So what does all of this have to do with us "Smart Parts" Managers?

Quite simply, once again, our dealers are going to look to us and all the fixed operations to "foot the bill" and to remain profitable overall. Fixed Coverage, or Service Absorption percentages are going to be the main topic in training from in-dealership all the way up to the NADA University level.

Here at ACG, we have already seen a drastic increase for training at all levels and most of all...parts training. The Parts Department has one of, if not the highest "net to gross" percentages in most dealerships today. As a dealer, if makes perfect sense to insure my Parts Department Managers and Staff have all the necessary training to maximize department profitability.

We experienced a very high training demand this year at ACG, with the highest increases in Parts Management Training. The demand was so much higher that it was felt all the way up to the NADA University level. I was fortunate enough to participate in the NADA University's first, but not last Parts Summit this past September to address this very issue of expanding parts training overall

Partnering up with NADA, along with other distinguished industry parts experts was definitely a great recipe for advancing the agenda and curriculum going forward. Opening this "round table" forum to new ideas was, as I mentioned in previous articles, one of the best ideas put forth by Chris Bavis and Mark Michalski, University Instructors at NADA.

The future looks very bright in my opinion for "Smart Parts" Readers and Managers! The upcoming year of 2017 could actually be a record year for training and overall fixed operations growth. With a steady sales forecast, projected strong economic growth and strong consumer confidence levels, 2017 could just be your "Best Year Ever!"....and ACG "Smart Parts" can help get you there!

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

Vendor Managed Inventories: Could The Manufacturers Really Be "Missing The Boat?"

As I do in many of my articles, I start out by referring to how things were "back in the day" and once again, I find it very apropos to start that way again in this month's issue of ACG "Smart Parts" when referring to how we get our stock replenished today versus years ago.

The one thing I do know is that "back in the day", we only received what we ordered, with very little intervention, or interference from the manufacturer. We may may not have had all the ways track parts history, trends or demands that we do today, but it was much simpler back then. Although, I will say that having the right mix of parts on the shelf was very difficult.

In many ways, Vendor Managed Inventories, (V.M.I.'s) were and are a welcome sight as we now have a way to somehow get a "consensus" as to what we should stock and what we shouldn't stock based on all this demand being recorded by the manufacturer. We can even earn added discounts by keeping within program "compliance" as well as spending less time creating and sending our stock orders.

Vendor Managed Inventories, (V.M.I.'s) also gave the dealer an added sense of security by "protecting" these purchases of qualified parts over a period of time. So how can we go wrong?....less effort, inventory protection, added discounts, allowances and much more!

As I mentioned in the introduction, I have written on this topic several times and have answered many of the common questions that Parts Managers have concerning Vendor Managed Inventories, (V.M.I.'s), but I haven't really "dug deep" into the "why" and "how" these programs work in the first place.

The first question is how a particular part becomes "qualified" to be a part included in a particular V.M.I. Program. That seemed to be a pretty simple one as just like most other parts in our own Dealer Management Systems, (D.M.S.), criteria must be attained in order to be a "qualified" part. The only difference is that a "collective" of demands have to be met by a number of dealerships in order for parts to qualify for the most part, but not all.

Knowing this going in, that answered the question to me as how parts are "phased-in" to any particular V.M.I. Program, but it didn't answer the question as to which dealers are to stock certain parts and which ones weren't. On top of that, what would be the determining factors to the Best Stocking Levels, (B.S.L.) and Best Reorder Points, (B.R.P.)?

This was where the research came in as I found that many Parts Managers were receiving Recommended and Suggested Stock Orders on parts that may only have one "hit" or "demand" in the last seven or eight months. 

How could this be that any V.M.I. Program should suggest stocking parts that have not even met my own phase-in, phase-out criteria? How could they possibly even know what my Best Stocking Level, (B.S.L.) and my Best Reorder Point, (B.R.P.) be on a part that doesn't really even qualify or even have enough history to know the answers to any of these questions?

Now, at this point, I'm really getting intrigued and inquisitive as to the "hows" and the "whys" these parts are ending up on more shelves than ever before. I do know that the pressure being put on Parts Managers in this case study by the manufacturers to meet and exceed "compliance" levels was very apparent. It almost seemed like they didn't even care whether or not the dealers' inventory levels on this "asset" were skyrocketing and actually adding to the dealers obsolescence numbers.

Even though these V.M.I. Inventories are protected and all can be sent back after a period of time at no additional cost, (not counting acquisition and holding costs, of course) we have to ask ourselves one important question....

"Why would I even buy parts to "test them" over a period of time, just to send them back at a later date?...I thought we were supposed to buy parts to sell them at a high rate of turn?"

Hmmm....interesting question, especially when I thought, as a Parts Manager, that I was supposed to be trying to have the right mix of parts with a high "First Time Off Shelf Fill Rate" and high True Turn numbers.

Not to be misunderstood, I do realize that these Vendor Managed Inventories DO help Parts Managers with those parts that are good or fast movers, but I am only referring to what's missing and that's why I believe the manufacturers' could be "Missing The Boat".

Let Me Explain...

During my research, I started to take down some notes as to the similarities in all these ten stores and I noticed a few things;

• All had excess inventory amounts in the 7 - 12 Months, "No Sales" Activity Area.
• All had inventory amounts in the over 12 Months, "No Sales" Activity in excess of 25%
• All had "Non Stocked" inventory amounts in excess of 50% of their total inventory
• All had at least 30% of these "Non Stock" were added parts from their V.M.I. Program.
• All of these added V.M.I. "Non Stock" Parts had a B.S.L. and a B.R.P. of ZERO!
• All of these Parts Managers DO NOT generate D.M.S. Stock Orders on a regular basis.
• All of these Parts Managers make little, if any adjustments to their V.M.I. Stock Orders.

With all of this information, it's no wonder how so many Parts Managers got to the point of "over valued" inventories, lower gross and true turn numbers, lower First Time Off Shelf Fill Rates and even lower Service Shop Productivity.

Here's What's Missing...

The one thing that was consistent in all these parts departments was when I asked them to run a D.M.S. Stock Order, they either forgot how, or they hadn't run one for a LONG time. Once we created the "in-house" D.M.S. Stock Order, lo and behold....look at all those great part numbers that we need on the shelf!

Why aren't they already on the shelf you might ask?....well!...these parts that are selling at a high rate in this particular store are not qualified, V.M.I. parts! So, rather than stock them and have no protection, let's just special order them when we need them, thus tying up the shop once again to wait for a part to arrive overnight that we should have had on the shelf in the first place.

The other thing that was missing that I hadn't figured out to this point was..."How can a part be suggested on my V.M.I. order and come into my inventory with a 0/0 B.S.L. and B.R.P.? In most D.M.S. Systems, this isn't possible unless these 0/0 B.S.L. & B.R.P. parts are actually forced in by the Parts Manager.

So, how does this happen?...

I recently figured out, or at least in my opinion, that parts that are on a particular V.M.I. suggested order that may have only one demand in my D.M.S. System, may actually have several, "qualified" demands in the V.M.I. Group as a whole. Even though the part hasn't met my criteria, it has met the group criteria and if I don't catch it before it gets ordered?...you guessed it!...I have now bought that part to sit on my shelf until it's reached it's qualified return period.

Even though there is no technical B.S.L. or B.R.P. in my system for these parts, they are forced in as a B.R.P. of zero and B.S.L. of one by the group criteria. Overall B.S.L. and B.R.P. is determined by either the V.M.I. criteria as a group for the B.S.L. and B.R.P., or the my own Dealer Management System's, (D.M.S.), whichever is greater.

So, if you are not watching or paying attention these V.M.I. Suggested Orders, it won't take long for it to get out of hand and overload you with lots of inventory as well as acquisition and holding costs that will skyrocket.

If the manufacturer really wanted to maximize on their parts sales, they would encourage Parts Managers to use both programs to get the best stock order efficiency from their V.M.I. and the dealers' D.M.S. Systems. 

In the last few months, I have actually created and generated over twenty D.M.S. Stock Orders for Parts Managers that had a wealth of part numbers that they all said they would normally stock. Only because they had stopped running their own stock orders on their own systems caused these great "stock out" situations. In fact, I found that many of these D.M.S. stock orders had many more suggested order lines than the V.M.I. suggested order had!

One other item I noticed in my research was that Parts Managers were actually "running out" of V.M.I. Parts! Once I explained to them that just because the V.M.I. Suggested Order has your fast moving part listed, it's very possible that the Best Reorder Point, (B.R.P.) may need to be adjusted as the V.M.I. Program for the most part, is only picking up your "Default" Source Settings on Low and High Days Supply and not your Source Ranking by Piece Sales Settings.

I believe that the manufacturers are missing out on additional sales as they are now steering Parts Managers away from their normal duties and responsibilities when it comes to basic parts ordering procedures. In order to have the right mix of parts, we have to use all of our tools in our tool boxes, both vendor managed and in-house programs.

In my opinion, there is no substitute for plane old, good Parts Manager skills, reporting Lost Sales, Emergency Purchases, doing Bin Checks periodically, running "in-house" Stock Orders, etc. I guess you could say that we had it pretty good "back in the day" and just maybe, it wouldn't hurt if we carried some of those "good practices" on into today's Parts Manager's day!

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 2016: Inaugural NADA Parts Summit - September 27-28, 2016

Back in April of this year I had the privilege to meet with Chris Bavis and Mark Michalski, both NADA Academy Instructors in their booth at the NADA Convention in Las Vegas. As "Parts People" do, it wasn't but a minute or two when we were in deep discussions about parts in general.

It was at that time they both mentioned that they were putting a meeting, or "summit" together at the NADA Academy with a format that I think was not only a great idea, but also much needed. A format that would invite those of us working and training "in the trenches" along with the people responsible for most of our industry standards today.

I was not only fortunate enough to get invited to this inaugural event, but I was also encouraged to contribute and bring my own ideas from ACG "Smart Parts". I can't remember a time or if I've ever seen a time where the people responsible for our industry standards "opened the door" to new ideas and concepts.

Chris Bavis and Mark Michalski, NADA Academy Instructors facilitated the summit along with a host of NADA Instructors, 20 Group Facilitators, Directors and Marketing Staff. NADA was well represented right from the start and as I noticed from day one, this was going to be great! NADA's vision for the summit was as follows;

"To invite leaders in the parts consulting and education venues to NADA to discuss the critical issues facing today's dealers in their Parts Departments, so we can collectively provide current and relevant answers to those critical items and improve all educational offerings to NADA members."

I want to start out with listing the other names of those attending and contributing to this Inaugural NADA Parts Summit along with their affiliations to our industry. Some came with presentations to share on various topics and some, like myself, came to listen, share and comment on all topics.

Invited Attendees;

Robert C. Davis, CPA & Partner at Dixon, Hughes & Goodman, (DHG), Memphis, TN
Mark De Lucia, Inventory Management Specialist, Dealermine Corporation, Clackamas, OR
Keith Ely, Commercial Dealership Consultant, KEA Advivors, Lawrence, KS
Carroll "Scooby" Barbre, Commercial Dealer Consultant, KEA Advisors, Lawrence, KS
Kent Ely, Commercial Dealer Consultant, KEA Advisors, Lawrence, KS
Greg Finn, Commercial Dealer Consultant, KEA Advisors, Lawrence, KS
Frank Burrows, Partner, Automotive Business Solutions LLC, Haymarket, VA
Kevin Burkhimer, Partner, Automotive Business Solutions LLC, Haymarket, VA
Mark Garafoli, Consultant, ADMI, Inc.
Richard L. Owen, Regional Fixed Operations Director, Group 1 Automotive, Kennesaw, GA
Dave Piecuch, Vice-President, Automotive Consultants Group, Inc., Pembroke Pines, FL

Topics of discussion and individual presentations included the following;

Obsolescence - How we got it in the first place, how do we get rid of it and how do we keep it from happening over and over again? Mark De Lucia's presentation illustrated how to actually turn dealers' "garbage into gold" by reinvesting cash received from bought up obsolescence back into active inventory that turns at a much higher rate.

Vendor Managed Inventories, (V.M.I.) - Chad Royston from NADA provided us all with great information on how to get the most out of individual manufacturer vendor managed inventory programs. Further discussions with those attending also brought out that too many Parts Managers are relying exclusively on the manufacturers' to control their inventories through these various programs and excluding their own Dealer Management Systems. Combining both the manufacturers' V.M.I. Programs AND the dealers' D.M.S. for optimum ordering procedures was the general consensus in the group.

E-Commerce & Wholesale - Is it right for me?...and just who benefits? This open topic for discussion brought out a LOT of information in my opinion. Many, including myself, offered various calculators to see if wholesale and/or utilizing companies like E-Commerce and Ebay are actually worth it to begin with. Are we actually considering all the costs including acquisition and holding costs?....obsolescence?....personnel?, etc. Great topic with great results from the group as the answer to this question can be easily determined and available to those "Smart Parts" readers out there.

Obsolescence in "Buy/Sell" Agreements - If anyone would have told me going into this Summit that I would be totally "blown away" by talking about obsolescence in a "Buy/Sell" Agreement, I would have bet against it. Robert Davis from D.H.G. had a great presentation loaded with factoids, information and comment on the "legal" side of things when it comes down to dealers in a "Buy/Sell" Agreement. I also didn't realize how evaluating and putting a cost on inventory that includes obsolete parts inventory could be so intense. Great stuff and great job Robert!

Parts & Labor Pricing/Inventory Mix/Guides/Theories - Another great set of topics were discussed on how we price our services, both parts and labor as well having the right mix of parts inventory in order to achieve a high "First Time Off Shelf Fill Rate" level. Richard Owen from Group One Automotive provided some great examples of utilizing a labor and parts matrix to maximize profitability while remaining competitive in the market. Even though this topic is not new to most of us, it was a great topic to discuss as far as which and what matrix works best as a general consensus in the group.

Parts Inventory Reconciliation - This topic wasn't really supposed to be a topic in the first place when I looked at the agenda, but when the topic came up?....Wow! Parts Inventory Reconciliation ended up being one of, if not the top topic when it came down to training needs. In most dealerships, the Parts Manager and the Office Manager do not speak the same language when it comes down to parts and accounting integration. There will definitely be more to come on this topic in the future as NADA, along with those at the Summit will be adding this topic to their training and educational curriculum.

Hiring and Managing the Millenneal Generation - Another great topic that was extremely informative with this presentation made by Jim Phillips and Chad Royston from NADA. As I learned from the information and facts provided, we can't take this generation lightly as it is growing each and every day. As in my "baby boomer" generation, there are characteristics to each generation and we tend to only look at how we do business through our own eyes, or "generation". Once again, information now available to "Smart Parts" Readers from any of us in attendance. 

Parts Bar Coding - Some may call "bar coding" the way of the future, but as Frank Burrows and Kevin Burkhimer from Automotive Business Solutions, LLC explained, it's actually been out there for over 35 years! Think about it, we all know what UPC Labels are, (Universal Price Code) as we see them in supermarkets, department stores and other retail outlets. It only makes sense that this technology needs to grow in our industry as well when it comes down to efficiently managing our parts departments. Great presentation and great stuff once again...I highly encourage "Smart Parts" Readers to research and check out Frank and Kevin's product.

Lost Sales Reporting & Special Order Parts - I purposely saved these two topics for last on purpose. If you can imagine, on Lost Sales for example, how many definitions we have all heard over the years? Now, can you also imagine a room full of industry leaders in the area of parts coming to a united consensus on the definition of a parts "Lost Sale"?...of course not! 

One of the most fun times at the Summit was discussing this topic and believe it or not, some left with a different definition than what they came in with. The bottom line on reporting Lost Sales, which I define as "Potential Missed Opportunities" is if whatever the definition the Parts Manager puts on it AND gets the results in at least 5% - 10% reporting (as a cost of sales), then THAT's the correct definition for him or her.

Getting that extra "demand" recorded is critical and that's really the most important part of recording these "potential missed opportunities" in the first place. Recording "questionable" or "maybe" Lost Sales won't hurt in the long run as these parts don't just jump on the shelf. They just get in front of the Parts Manager's eye in order to make the proper decision whether to stock them or not.

Special Order Parts was also a surprise to me as it's not really anything new, but it was amazing that it drew a lot of conversation in the group. It was also amazing to hear how many dealerships struggle with controlling Special Orders and how much they impact obsolescence. 

Many simple controls and processes were discussed and I believe the general consensus on this topic was to have a process and controls with consequences in the first place. As discussed, most failed Special Order Programs in dealers were actually a result of not having one at all.

In Conclusion:

In closing out this special edition of ACG "Smart Parts", I once again want to say "Thanks" to not only Chris Bavis and Mark Michalski, but also all those attending and the information shared among all of us. I know that there will be more of these to come in the future and I hope I'm fortunate to get invited as well. 

I believe that getting our biggest leader in setting our industry standards, that being NADA and those of us "in the trenches" working with you each day is definitely a recipe for success going forward. A first in my opinion, especially in a "round table", Summit format.

I know for a fact that new education and training programs from NADA in cooperation with those of us in the field will be coming soon and I recommend all of NADA's Members, especially to the dealers out there, to keep an eye on what's ahead and how you can make your Parts Department more profitable and a more "liquid" asset in the future.

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