This is Part 1 in a two-part article.
One of the most frustrating situations for any parts manager is to not have common parts that technicians need for a job that is in the shop. Not only do we miss out on the highest potential gross profit sale, but Service also stands to lose the labor they have invested in diagnosis, and we’re looking at another Special Order with all of its problems. Why does this happen, and what can we do to reduce the frequency of service Special Orders?
Often times, in our zeal to prevent Obsolescence, we lose track of why we exist. Just like the Used Car Inventory, the Parts Inventory is expected to fulfill a high level of initial demand, in spite of the fact that many of these demands can be unique. How can we do this?
That was then -Those of us who have been in the dealership parts business for more than 20 years remember when Dealership Management Systems (DMS) were no more than a storage medium for inventory and sales data. They were not much more than an electronic cardex system, incapable of doing much beyond reporting their contents. The Parts Manager determined what was needed by experience and SWAG ordering. The situation was such that there was no real good way to project your needs. One could only respond to obvious demands and hopefully buy the ones that would result in future sales.
This is now – Jumping forward to today the modern DMS is capable of doing far more than keeping track of our activities. It can actually forecast from them and make stocking recommendations based on algorithms that provide high probabilities of resale. There are only two requirements necessary to make this happen:
- The Parameters for Phase In and Phase Out and Supply Depth need to be set properly for your store based on your Franchise(s), Market, Order Frequency, Resources, Business Profile, and target Levels of Service.
- All Demands must be aggressively entered into the DMS so that they can be analyzed and incorporated into the forecasting process.
When these critical activities are performed correctly, most modern DMS will provide a very serviceable selling inventory. Like most computer systems, you get results based on the quality of the information you provide.
Phase In Parameters – Books have been written about this subject by people who have made careers of teaching their personal beliefs concerning just how you should set up your DMS. I personally don’t think that there is any one right way to do this, due to the fact that there are very few dealerships that behave exactly alike. However, there are some basic elements which need to be determined up front:
- What is my market potential? How many units are in operation, and what is my share of the repair business going to be? This will help determine what space, people, and working capital, are going to be needed.
- What will I need for each franchise? Most multi-line stores have major and minor franchises, each generating different levels of demand, requiring different response rates. The smaller lines will actually need more aggressive settings than the larger ones, to make up for reduced overall demands.
- How many sales areas am I going to be active in? There’s little need to be aggressive in crash parts if you’re not going to be a player in Wholesale. Don’t go overboard on Accessories if you don’t have the support of the sales department.
- How aggressive does my Service Department need me to be? What inventory investment level will Executive Management support? What level of Obsolescence can I sustain with returns?
Once you have the answers to these questions then it is time to determine how many different categories of parts will be stocked, and how each of them will be introduced into the inventory. You may have 10 or more different sources, each with its own unique settings; or you may choose to use a Non-Stock Test source where all parts undergo the same initial qualification. In either case, the quality of the response you receive will be directly related to how thoroughly you plan before making your settings.
Supply Depth – Once you’ve qualified a part for stocking status, the next step is to determine how many of them are needed. Some of the factors to be considered are:
- What are the Stock Order frequencies? Does Daily Stock Order mean next day receipt? What are the benefits and penalties involved in the various order types?
- How good is the service from my PDC(s)? Can I expect good fill rates, or must I increase stock in self-defense?
- Are there multiples of certain parts that are necessary to complete a job? You can override the calculated stocking levels in most DMS to allow for parts that require specific amounts, such as brake rotors.
- Are there space limitations that you must work with? Sheet metal stocking levels are often influenced in this way.
Continued next week in Part 2! View Part 2 >>