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Category Archive: Parts & Accessories

Lycia Jedlicki

WHO Thinks We’re Overpriced?

Torso of a businessman standing with folded arms

I recently held a luxury brand parts and service manager 20 Group meeting, and one of the parts managers was proud of the fact that his counter gross retail percentage had increased by 3% that quarter. When the group asked how he achieved this, he told them something that stunned the room. He had reduced his pricing so his employees would stop discounting and overriding parts prices for their customers.

In the past, when his employees saw the cost of the part, for example, $1.25 for a fuse, they thought it was entirely inappropriate that the dealership marked it up and charged the customer $8.00. However, before you yell, “Fire that parts team,” realize that this is happening all over YOUR dealership and you may not even be aware. Many times, employees take it upon themselves to “right the wrongs” or “cheat” in business, so they can make the sale, reach the goal, gain the customer, or earn the SPIFF. Fostering an environment of open and honest communication, appropriate encouragement to meet goals, and a little room to make decisions to sink a sale can make all the difference.

The 20 Group proceeded to ask the parts manager if he thought the customer was going to leave their dealership without purchasing the fuse because it was $8.00. I’m willing to bet the answer is “No.” This scenario led me to remember an article I had just seen that says, “We are not going to be the least expensive, we are going to be the BEST and deliver the BEST experience possible.” Instead of the parts counter person discounting the part to $4.50, or another “acceptable” amount, he/she could say to the customer, “Let’s take this fuse out to your car and try it, just to make sure it works before you buy it.” I guarantee the customer would be pleasantly surprised and wouldn’t think twice about paying $8.00 for the fuse. Your employee ensured it worked correctly and solved their problem before they left our parking lot, so why would they question it? Taking the extra time to qualify the sale and genuinely help the customer has been linked to increased customer retention. As a consumer, don’t you enjoy shopping at and returning to businesses who care about you and your reasons for buying?

We also need to remind our employees how many complimentary things we do for our customers. Coffee and food in the waiting rooms, topping off vehicle fluids, safety inspections, car washes, battery checks, rental cars, shuttle services … the list is endless. Remind your employees of the value your dealership offers so they can project this value onto customers during the sales process. Instruct them to point out the complimentary amenities and casually offer them whenever possible. Emphasizing the value of a product or service, and the value your business brings, is another helpful retention strategy and continues to build the business/customer relationship.

Let me leave you with one last scenario: you hire a rookie salesperson and do a great job training him or her, and what do they do? They do exactly what you taught them to do. They sell the oldest vehicle for the most amount of money and retain a happy customer. 2017 is the year to train our employees to be the best, demand it even, to ensure both our businesses and team members thrive, and our customers leave happy and keep coming back. Which dealership do you want to be? The least expensive? Or the best?

Help your team become the best with training from the NCM Institute and membership in a manager 20 Group like Lycia’s.

Permanent link to this article: http://blog.ncm20.com/2017/08/who-thinks-were-overpriced/

George Gowen

Give the Big Dogs a Run for Their Money

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Advance, NAPA, O’Reilly, Auto Zone, and Carquest all have something in common—they are in the parts business. More than that, though, they sell 100 times more parts and make 100 times more money than franchise car dealerships that sell parts. These parts businesses do not have OEM support. They do not have a service department at their store out of which they sell parts. And, they do not have a continuously growing customer base to prospect to. So how are they growing and building new stores across the country?

As car dealers, you support their businesses with millions of dollars of purchases. How many OEM parts did they buy from you? Are you content to let them be in the parts business without competition? What do they offer that you can’t? How many dealers have opened a stand-alone parts store? Take a moment to brainstorm what you can do to be competitive and, more importantly, make money …

Think of anything? Here are some ways to stay competitive with your existing parts department.

What’s your turn strategy?

At 20 Group meetings, the least interesting subject to dealers and general managers is always “the parts discussion.” Yet, it is the number one or two cash investment in any dealership (used vehicles may be an exception in certain cases). If we think of the parts department in terms of cash, we need to ask ourselves: Why don’t we focus on it more? I’m sure you have a turn policy on your used cars; do you know what your turn policy is for your parts inventory? Do you have a used car on your lot 9-12 months before you start to figure out an exit strategy? But that’s what we do with parts. Why?

Stock what you need, when you need it.

Having the part you need on the shelf when requested is more important than having the used car your customer firsts asks for. You can always switch the used car buyer to a different car, but not so with parts. If the part is not on the shelf when requested, it’s a lost sale. Most parts managers don’t count these as lost sales if they can get the needed part within 24 hours via a factory order or an outside purchase from a competitor. The fact is, having the part in stock when you need it will not only increase your margins but dramatically increase your service departments’ efficiency. What is the amount of monthly lost productivity in your shop because you don’t have the right parts on the shelf? If this metric was measured and multiplied by your labor rate, it would astound you.

The Math: $300,000 in outside parts purchases equals $300,000 in labor sales, divided by $100 per hour labor rate, comes to 3,000 labor hours. Assuming 1.5 hours per RO, we can say you had 2,000 ROs that had been delayed 30 minutes each waiting on parts. That comes to 1,000 hours of lost productivity, times your $100 per hour rate, equals $100,000!

Doesn’t it seem worthwhile to have the part on the shelf?

Training is a must.

How much training did your parts manager participate in last year, or ever? How can you get best practices in your parts department? TRAIN them. The NCM Institute offers outstanding parts manager training and NCM has two parts management 20 Groups whose numbers are constantly improving due to their openness to share ideas and best practices. Either or both will yield a huge ROI.

It’s time to get into the parts business and beat the competition.

Permanent link to this article: http://blog.ncm20.com/2017/07/give-the-big-dogs-a-run-for-their-money/

Steve Hall

We’re All On The Same Team: Parts & Service – Helping Each Other Succeed

Parts and Service

Have you ever wondered why Service and Parts Managers don’t get along? In reality, don’t they need each other to succeed? As we examine this, let’s start with some generalizations from dealing with thousands of Service and Parts Managers along with General Managers throughout my career. The overwhelming consensus is that Service and Parts just don’t get along. That’s not to say that there aren’t dealerships where they do get along very well, but those are definitely in the minority.

If you think about it, it’s easy to see why these managers can be at odds. Here are just a few reasons:

  • Service Managers are typically extroverts, whereas Parts Managers are typically more introverted.
  • Service Managers typically have a “whatever it takes” attitude towards resolving issues. At that moment, they just want the customer handled. In the same situation, the Parts Manager will typically revert back to the processes to work through the issue, looking for the reasons why it happened.
  • Parts Managers like to have a place for everything and everything in its place. Service Managers generally don’t.
  • Parts Managers work from an inventory of parts. If a part doesn’t sell today, it will still be on the shelf to sell tomorrow. Service Managers work from an inventory of time. If they don’t utilize an hour today, it’s gone forever.

I’m not saying that one is right and the other is wrong; it’s just that they’re wired differently. That’s what makes each of them good at what they do; they have different mindsets for different types of positions. Unfortunately, these different mindsets can often times cause friction and impede them from effectively working together.

Rather than belabor the differences, let’s work on why and how they must align to achieve their departmental goals.

Did you know that, in a typical dealership, 85% of the Parts Department gross profit is generated from their internal customers, meaning the Service Department (and the Collision Department, if they have one)?

Or, have you ever thought that the Parts Department doesn’t really sell anything? They fill orders and requests. On occasion, they may “sell” an additional item when filling a request, like when a front counter customer is purchasing a timing belt and, at that time, the counterperson suggests drive belts or a timing belt tensioner and the customer purchases them. But most of the time, they are filling requests. Again, this is not an indictment; it’s reality.

Why is it so important? Because it all comes down to knowing what truly affects your department’s numbers. Realizing that 85% of your Parts gross profit is generated from your Service and / or Collision Departments (and that they are truly the salespeople for the Parts Department) is vital in building a growth strategy for your Parts Department.

Let me explain a key correlation for your Parts and Service Departments.

When dealers are asked how much total gross profit they generate for every dollar of labor they sell, we generally hear an answer like this: “We have a gross profit on labor of 75%, so that would mean we earn 75 cents of gross profit for every $1.00 in labor that we sell.”

While that answer will appear accurate on the surface, it actually is incorrect. Remember, I said the Service Department is the salesforce for the Parts Department, and when I asked how much total gross profit is generated from every $1.00 in labor sales, this changes the previous answer. Because there is a relationship of Parts to labor sales, for every $1.00 in labor sold, a typical dealership will generate approximately $1.25 in total gross profit. You have to remember that when you sell labor, Parts will naturally be sold with it.

Realizing that the Service Department generates the vast majority of the Parts Department gross profit, what would be the most effective way to grow both your Parts and Service Departments?

You need to sell more billable flat-rate hours! Both departments must be focused on this primary goal.

Are you starting to see how these managers must start working together for the good of their departments? So far, I’ve focused on why the Parts Department needs to get along with Service. You may be asking, “Why does service care?” It still comes back to the driving factor for both departments — producing more billable flat-rate hours. The Service Department can’t produce as many billable flat-rate hours if they aren’t working well with the Parts Department. Parts can slow down or even stop production, thus costing the Service Department the ability to produce gross profit for themselves.

What we need to find is common solutions that allow the Service Department to bill more flat-rate hours and the Parts Department to achieve more Parts sales through those hours billed. So, how do both managers find ways to increase the amount of flat-rate hours billed? Let’s start with what the Parts Department can do to help. Here are some thought starters:

1) Stock more breadth of Parts and less depth of Parts. With daily stock orders, departments need less depth of parts, or how many of each individual part number you have on hand. Then, you can repurpose this capital into having more part numbers in stock, thus increasing your breadth, or total number of parts that you have on hand. By having better breadth of Parts, the Parts Department will be able to have a higher filled-from-stock ratio. This will help keep Technicians in their bays producing billable flat-rate hours and help both departments grow.

2) Another way to increase billable flat-rate hours is to find ways to keep the Technicians in their bays working, rather than waiting at the Parts counter for Parts. The best way to achieve this is by delivering the needed Parts to the technician right to his bay. This saves walk, talk and wait time for the Technician, as they would normally make their way to and from the back Parts counter.

3) Stock fast-moving Parts in the express Service bays. At the very least, oil filters have to be in the bay, but in reality you should make provisions for additional fast-moving items like air filters, cabin filters and wipers. Service Managers, take note: once these parts are stocked in your bays to increase Technician productivity, the parts are now under your control and any shortages are the responsibility of the Service Department.

4) Aggressively chase parts rather than automatically subjecting the Service Department to the perils of the special order Parts process. If you can pick up the part locally from another dealer and complete the job today, do so.

5) Keep your Parts Department aware of the daily and month-to-date hours produced in the Service Department. Seldom will you have a great month in the Parts Department without your Service Department having a great month. Therefore, the Parts Department needs to know exactly how the Service Department is tracking.

By posting these numbers, this will keep the relationship of hours billed to parts sold fresh in your employee’s mind. Hopefully, this will make them more proactive in finding ways to keep the Technicians in their bays working rather than waiting in line, or talking about their latest fishing adventure.

You can even incorporate shop hours produced into the pay plans of back counter people to keep them focused on increasing flat-rate hours billed. This helps make them more open to solutions.

Those are some ways that the Parts Department can help the Service Department produce more flat-rate hours. But since this is a team effort, what can the Service Department do to assist in this effort?

The Service Manager and Department must realize that the Parts Department is a business partner with them, not a servant to them. The success of both Service and Parts will be greatly reduced if they don’t work together.

Think about this: how is the Service Department staffed? Do you have enough Technicians and Advisors? Are both of these positions selling and producing enough? If you’re short Technicians or Advisors, your labor sales will suffer, thus your Parts sales will suffer. This is a critical element for both departments. Remember: your Service Department is your sales staff for your Parts Department.

Next, track and scoreboard your “Parts sales to labor hours billed” ratio. This will help you determine any shortcomings that you have by individual employees.

The final suggestion that I would like to give is simple. Employees find ways to work their pay plans. If you want to increase Parts sales, include your “Parts sales staff”, meaning your Service Advisors. Incentivizing Advisors (along with Service Managers) will help increase your Parts gross profit and help break down some of the interdepartmental barriers, as they will feel more a part of the same team. Continue to promote teamwork to ensure that both departments are successful, as that’s how the dealership wins. Just like a football team, the offense must be successful and the defense must be successful for the team to win the game. One without the other just won’t get it done.

Permanent link to this article: http://blog.ncm20.com/2015/06/were-all-on-the-same-team-parts-service-helping-each-other-succeed/

Steve Hall

The Financial Drain of Automotive Parts Obsolescence

Parts

Today’s article is intended as a wakeup call to General Managers and a profitability lesson to Parts Managers.  So, I’m going to lay it on the line…

It amazes me when I see parts departments with obsolescence that has been in their inventories for 12 months, 24 months and many times even 36 months or longer. Parts obsolescence is a large financial drain on any parts department. Controlling this negative revenue part of your inventory is a necessity for any parts department that wants to be highly profitable. In order to do this, people must look at obsolescence for what it is – idle capital at best, and “junk” at worst.  Either way, it is not pretty!

Let me define what I mean by each term:

Idle capital

This is the portion of your obsolescence that is returnable to the manufacturer. For one of several reasons, these parts were brought into your parts department, either through phase in, speculation or special orders, and have had no sales over the prior nine months. These dollars are just sitting on your shelves doing nothing for you. The parts are still in returnable condition, but either you haven’t sent them back to the manufacturer or you don’t have enough return allowance to send them back.

Let me take this one step further; stock parts are considered idle capital after nine months of no sales, but special order parts are considered idle capital after one month of no sales. After all, special order parts were already sold when they were ordered and if they are still there after one month, you have a problem.

Junk

Sometimes you get stuck with a part that is non-returnable. This could be from many causes, such as, open or damaged packaging, mis-ordered parts that are not eligible for return, partial quantity packages, left over inventory from a buy-sell, and many other reasons. I consider these parts “junk” because you only have one way to get your investment back, and that is to sell the part.  Unfortunately, the chance of ever selling any obsolete part is less than 85% and the chance of selling a “junk” part are even lower.  I don’t like those odds, especially when you start calculating the holding costs on the parts.

Let me explain the mathematics of the problem. There are three types of costs associated with parts inventory.

  1. Cost of sale: This is what you actually paid for the part when you purchased it. This is also the amount you should receive back if you return the part, minus a small restocking charge.
  2. Holding cost:  This is actual tangible expenses that you incur when a part is in stock. These expenses include items like taxes, insurance, space and interest. These costs equate to about 2% to 3% of the part cost per month. If you have an average size inventory of $300,000 and control your obsolescence at only 5% of your inventory value, you would have $15,000 in obsolescence.  This $15,000 alone would cost you about $3,600 to $5,400 a year in actual carrying costs. You can never get this money back and it comes straight out of net profit.
  3. Intangible costs, also considered lost opportunity costs: These include lost revenue (gross profit), lost return allowance and lost purchase discounts that could have been earned on the $15,000 if it was turned into good inventory. This is a much larger number. If you only have five inventory turns a year, the $15,000 of obsolescence could be costing you upwards of $37,500 a year in intangible costs and that is in addition to your holding costs! Here is how I came up with these numbers:
    • Lost gross profit $15,000 x 40% GP x 5 turns = $30,000
    • SRA  $15,000 x 5% SRA x 5 turns = $3,750 (Stock Return Allowance)
    • Discounts $15,000 x 5% x 5 turns = $3,750 (Purchase Discounts)

With all of this in mind, do you know what makes up your obsolescence? Is it returnable? If so, you must get it returned and put that money to use. Is it junk? If so, get rid of it! Take the loss, free up the space and quit paying taxes, insurance and other real costs. Take the write off and turn the money into something that will make you a profit. After all, this is really just “water” in your inventory.

It’s a hard pill to swallow, but don’t continue to pay for something that has no value. Pay attention and increase your profitability.

Top level parts profitability doesn’t just happen by accident. It takes understanding and planning. If you would like to have a better understanding of how to turn your parts department into a net profit machine, I invite you to join me for NCM Institute’s Principles of Parts Management training courses. Whether you are a General Manager that wants to understand every profit center within the dealership, a veteran parts manager or a rookie manager, we will help you realize the profit that you deserve!

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Permanent link to this article: http://blog.ncm20.com/2014/05/the-financial-drain-of-automotive-parts-obsolescence/

Steve Hall

Does Your DMS Match Your Actual Parts Counts?

Fotolia_36189691_XSHave you ever had this happen?  … A service advisor contacts your parts department to see if you have a specific part in stock. You check the computer system and it shows that you have it. A price is given, “Yes, we have it in stock” is told to the advisor.

The advisor proceeds to sell the job to the customer; the information is relayed to the technician who then comes to the parts counter to get the part. Your counter person goes to pick the part from the shelf, only to find the spot on the shelf is empty!

What happens now? You either have to pick the part up from another dealership, possibly hold the vehicle over while the part is ordered, or have the customer return at a later date. None of which are good end-results.

What caused this to happen and what can be done about it? If you believe that you “can’t sell what you can’t find” then you need to have systems in place to make sure that you can “find it.” Let’s look at a few basic rules for a parts department:

  1. Every part must have a “home.” A bin location must be assigned to every part that you have in stock. Even if you are cramped for space, you must designate a space for every part in your system that has an on hand quantity. This includes special ordered parts.
  2. Each bin or location should have a designated number for identification. Does the numbering system make sense? Can a new counterperson or stocker locate the appropriate bin quickly and efficiently?
  3. Each bin should be arranged in alpha numeric order. Shelves should have parts tags for each part that is stocked in it. This makes for easier, faster and more accurate stock replenishment.
  4. If space allows, leave the top and bottom shelves empty. This will allow space for growth within specific bins. You will need this as you add additional part numbers into your stock.
  5. Perform I-bin counts. Individual bin or “I-bin” counts should be a daily discipline within your department.

Items one through four are pretty basic, but I would like to expand more on item five. Parts managers should be aware of this term, whether they apply it or not. General managers or owners may not have been exposed to it, so let me explain how and why to perform these counts.

I-bin counts are used to check the accuracy of your DMS parts system vs. the actual on-hand quantity.  Ideally, they should be set up the following way:

First, make a spreadsheet listing each of your parts bins number. Have additional columns for the date the bin was counted and a column for who counted it. You should have one more column noting that there were, or were not, discrepancies found and adjustments to on-hand quantities.

Each day, the parts manager should print off and have on hand quantity or inventory sheet for the bins that need to be counted. Ideally, you should count enough bins so that you “look” at your complete inventory every 30-45 days. In most parts departments, this only a few bins a day.

Once the sheets are printed, the count should happen quickly. The reason for this is, if any parts are pulled after the sheets are printed you will show a discrepancy and have to research it before any potential adjustments are made. Normally it only takes a few minutes to count a bin, with the obvious exclusions of high-density drawers. In those cases, you may want to count a couple of drawers a day to break it into bite-size chunks.

After the count is completed, if you find any discrepancies, research them appropriately and if the count truly is wrong, make the adjustment in your system. At times you will have positive adjustments as well as negative adjustments. After you are finished with the bin, including the necessary research and adjustments, you should retain the count sheets for future reference.

On a side note, it is a good idea to have different people do counts periodically. Though we don’t like to think that any theft would happen within our store, it can happen. Having a variety of people doing bin counts will make it harder to cover up. As a general manager, be willing to go back and perform some counts yourself; it can be an eye-opening experience.

By doing the perpetual count and check, you will get to see how accurate your DMS and actual on-hand inventory really are. You might just find that the “missing” part in our example above was just stocked in the wrong location!

If you are interested in continued training for your parts manager, be sure and check out the upcoming NCM Institute Principles of Parts Management I and II courses that are launching this fall.

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Permanent link to this article: http://blog.ncm20.com/2013/06/does-your-dms-match-your-actual-parts-counts/

Leo Hart

Seven Tips for Better Dealership Parts Management and Profitability

auto mechanic or smith with tablet pc at workshop

NCM has just completed another cycle of 20 Group meetings, each focusing primarily on the parts department. Truth be told, we had not focused on this discipline for a number of years, being more concerned about the variable sales and expense management areas of our auto retail business.

As a result of the discussions, a few crises became apparent. One wake-up call for me was the manufacturer continuing to increase its control of inventory investment, effectively siphoning cash out of stores. My second revelation was that the dealer isn’t being informed of or conversant about current inventory purchasing and returns programs. Third was the discomforting old problem of a long-term, trusted parts manager taking advantage of his tenure, resting on his laurels, and allowing the departmental profitability to evaporate.

All of the above issues come down to one problem: leadership has taken its eye off the “parts ball” and have not demanded discipline of their parts manager to meet certain standards and achieve net profit levels.

Here are my most important takeaways from these parts discussions:

  1. Define a day’s supply number you can live by. One dealer had $200,000 in parts with no sale over 12 months. He also had $500,000 in excess inventory day’s supply. I can live with 45 days supply, but many dealers are beating the 30 day supply mark with daily stock order availability. Numerous dealers were purchasing, on an emergency basis, 60% of the parts they were selling each month. The inventory they owned was stagnant.
  2. Separate the wholesale operation from the retail service support operation. One dealer’s parts manager, a big wholesaler, based most inventory purchase decisions on wholesale marketing strategies, not the demands for customer repair order parts. It seemed the purchase decisions were made based on what could be made on the purchase discounts, not on customer demand. Be mindful that manufacturers are reducing the return allowances.
  3. Be aware of why your customer repair order parts margins are what they are. One member had an 18% margin on customer repair parts and he didn’t know why. This can be monitored each day through your DMS and by your service advisor. Matrix pricing still works, allowing the repair parts margins to compensate for the competitive parts margins. I still like to see an overall customer repair order parts margin in excess of 42%.
  4. Do an annual parts inventory with the help of an outside consulting or auditing firm. At the very least, check the bins on a rotational basis throughout the year, correcting counts and locations. Some dealers work a cycle count allowing for a complete inventory check each quarter. Can you imagine an error rate of nearly 30% in your bins? It happened, and it’s happening now. One dealer, having asked his parts manager what an inventory reconciliation looked like, found that the manager did not know. Hard to believe? I believe it.
  5. Net profit is for parts departments too. Prior to the recession, I always looked for parts departments to be easily profitable at 30% of gross on up to 45% of gross profit produced, depending on the franchise. Lately, I have seen parts departments only break even, not to mention the excess personnel attributed to parts. Get the expenses in line with the parts gross you are currently developing. This is not brain surgery, and your DMS does most of the counting work for your personnel, not to mention the help the manufacturer contributes to the ordering process.
  6. Know your manufacturer programs, how you earn purchase discounts, and how to protect yourself through the return process. I heard one confession in the meeting room where a parts manager had purchased another truckload of engines to build his return allowance credits, telling the dealer that was what he had to do. However, upon further investigation, the dealer found that the $65,000 purchase did not increase his return allowance, which further depleted the cash in the store. I also heard that General Motors is expanding the number of part numbers that dealers should carry to be RIM compliant, further siphoning cash from the dealers. We are talking about thousands of newly-recommended parts numbers, as RIM will demand 85% compliance and as much as 100% compliance on many more parts numbers that are newly classified as “Service Drive Required” parts. OUCH! Other manufacturers may be doing these same things under their customer retention banners.
  7. Know the specific criteria and process for returning parts, as well as cores and warranty parts for review. You probably cannot even return a special order part. It is usually most important that the packaging of the returned part be submitted with the defective part. We heard one story where a parts manager decided that warranty return parts were not his concern and threw out all the warranty parts to be returned, putting the dealer at risk of losing the value of all those claims.

In conclusion, get involved in your parts investment. For some dealers, this is a large bank account on its own. If it is not in perfect order, you probably need to get outside help for your manager, or you may need new parts department management.

Learn more about parts department management by joining a 20 Group or attending an NCM Institute Parts and Accessories Management course!

Permanent link to this article: http://blog.ncm20.com/2013/04/seven-tips-for-better-parts-management-and-profitability/