What is the True Cost of Special Order Parts?

Jerry Wakefield Newsletter Now I bet you think this is an easy question to answer. Just go to the special order parts bin, count all the parts, look up the value in the DMS and there’s my cost. If you think that’s the answer, you couldn’t be further from the truth. Okay there is some truth to that answer. The actual cost of the parts in your special order bin can be calculated by counting the parts and looking up the cost in the DMS, but there’s much more to the true value of those parts in the special order parts bin.

Let’s look at the opportunities that special order parts bring. If all the parts in your special order parts bin were customer pay prepaid parts there probably wouldn’t be a whole lot for us to talk about. But there’s a good chance that most of the parts in your special order parts bin have not been prepaid. They are most likely warranty parts ordered for a vehicle that was in the shop, and hopefully the customer will soon come back to have them installed. The reality is in most dealerships someone from the parts department, or maybe even the service department calls the customer when their parts have been received and tries to make an appointment for the customer. Some customers come in right away, some don’t.

Many of the parts that have been ordered for customers are parts the customer may not even know that have been ordered for them. The technician came to the parts department asked for a particular part to repair a customers concern, the part was not stock and the tech told the parts counterperson to order the part. Hopefully they told the advisor of the part that was needed to complete the repair, but many times they don’t. Or they ordered a part to address the customers concerns, and simply told the advisor I had to order a part. Here again hopefully the advisor has expressed that there was a part ordered for the customer to address their concern. If the part that is needed is something that can be a nuisance, or affect the operation of the vehicle there obviously is a much greater chance the customer will return once they have been notified the part is in. Let’s say the part that was ordered is a sunroof motor. Its wintertime now, the customer probably won’t open the sunroof until spring. So the urgency for the repair may not be as high as say the radio doesn’t work. But the first warm day the customer decides to open their sunroof he or she probably will not be happy that the sunroof won’t open because no one has notified them their sun roof motor was in, or there was no effort made by the dealer to get the customer back in to install their part that will fix the sunroof. Are you getting where I’m going yet?

So I have given you some scenarios of how parts get ordered, and may not get installed on customer’s cars, but I have not even touched the surface. Let’s now talk about the financial aspects which are much more involved than just the cost of the parts.

Since we’ve established that many of the parts that are in your special order parts bin are probably warranty parts to complete a repair on a customer’s car. We need to look at the financial impact not only in parts but also in service. Let’s say the manufacturer pays a 40% markup for warranty parts sales. Let’s say for every dollar of warranty labor sold you sell a dollar in parts. So if your special order parts bin has $5000 worth of parts in it at cost you’re looking at a potential gross profit of $2000. Now that’s just parts gross. Let’s look at the service side. If you’re selling dollar for dollar of warranty parts to warranty labor you would be looking at $7000 worth of labor sales times your gross profit percentage for warranty labor most likely at least 70% so you are looking at $4900.00 worth of service gross profit. How would that help your bottom line? And let’s not forget some manufacturers pay retail for warranty parts, and many dealers are making close to 80% gross profit on labor or more depending on the cost of the tech doing the repair. Do I have your attention yet?

Now let’s look at a side of special order parts you may not have even thought of CSI. What is one of the questions that all manufacturers ask on their surveys? “Was Your Car Fixed Right The First Time”? Well I have personally had a customer in my retail life answer that question “NO They Had to Order a Part” Now I’m not saying you need to keep every customers car until their special order part comes in, but do you see how this can affect CSI? Has this happened to you? Is the part being ordered for the repair worth keeping the car overnight? Will the manufacturer pay for the loaner or rental? Is the profit from the repair worth covering the expense of a rental car?

Now let’s look at another issue that can cost the store obsolescence. Non-Stock or (NS) parts are a major contributor to obsolescence, and many of these items are unsold special ordered parts. If the parts manager is not actively monitoring his special order parts bin. The unsold special order parts will begin to pile up. If the customer has not come back for their part to be installed they may never come back. Or maybe they are going to wait until their next needed service. This could be 6 or 7 months from the original order date. Are you going to wait until then? Is the customer going to remember that their passenger rear side door actuator is broken? Maybe, maybe not. They probably don’t use that door much unless they have children. So is it worth holding on to special ordered parts if the customer isn’t coming back for some time?

Let’s also talk service drive traffic. Are you busy? Could you use some more cars on your drive? Are you thinking of sending out a mailer or an e-mail blast? Those types of advertising cost money. You may get a slight return on your investment or you might drive some traffic so you can hit your forecast this month, but before you spend any money on advertising think about your special order parts bin as source to drive traffic. You have already diagnosed the vehicle. The customer is already doing business with you. It will most likely result in a much higher grossing repair then an oil change, or a flush. So why do you want to spend money that may or may not have an impact on your business. You have a parts bin full of pre-diagnosed repair parts with customers who are doing business with you and, who knows, they might need additional services since the last time they were in your store.

So do you see what a special order part can really cost? Is there something that can be done to prevent this kind of negative impact to your business? Absolutely, it is a special order process. First of all you must define who can order a part for a customer. I would suggest the advisors only can order parts for a customer’s car, not the techs. This way there is a much greater likelihood of the customer being informed of what is needed to address the customers concern. An appointment should also be required before a part is ordered. I know this can cause some concerns, but is the part really going to be here when the customer comes back? In most cases the parts person can check availability on the requested part and know if the part will be in by the time the customer returns. Also let’s say the customers tells the advisor, “I’ll wait until my next oil change.” Well what do you do then? Make an appointment in the DMS with an explanation of the needed part, and the part number needed. In every DMS I have seen when a customer calls to make an appointment the system will show the previous appointment made. Yes the advisor will have to look at that previous appointment and add the additional concerns and change the date, but they can also inform the customer that the last time they were in, a part was ordered for a specific concern. That shows the customer that your dealer really cares about the state of their vehicle, and there is value for doing business with your store. Now does this sound like more work? Yes it is, but think of what your customers will think when they are picking up their car and they ask you “So did you fix my right rear door lock. They ordered a part for it last time I was in,” and your advisor says “I’m sorry we sent the part back because you didn’t come back within 30 days,” and “I’m sorry that’s our policy.” Are you kidding me!! What would you think if you were told that? I know this does not happen all the time, but it does happen.

So in closing with a little effort you can drive traffic to your service department, make your customers happy, and make more money by simply utilizing an opportunity that you have in your special order parts bin.

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