Fact: The typical parts department has more investment and returns less profit than any other department. Every other department can be financed, leased, depreciated, or leveraged. Automotive parts require cash—paid in full, every month. Many parts departments are sinkholes, sucking resources from the dealer, tying up capital in un-saleable inventory, maintenance, and personnel. This needs to change. Today’s parts department must be an asset to the dealership. Analyze your parts department’s profitability. Look at the ratio of net profit to inventory. A well run parts department can generate annual net profit ratios of 50% or more, based on your inventory investment. Then show the dealer principle your inventory is an investment, better than the bank when it comes to the rate of return. This should be your goal. Every inventory dollar working to produce more profit and every employee’s time managed to maximize their productivity.
The first step is to analyze your inventory. You can easily check your month-end management report for stocking part numbers. I have found that an inventory of 1500 part numbers is all you need to cover your daily sales. This is based on a requirement that stocking parts should sell at least three times in a year, or for new models, two times, in six months. You can rationalize stocking dollars this way: After a part has sold three times, you have made enough profit to purchase the fourth part, effectively investing profit, not capital. A twenty-one day supply is more than adequate for all normal needs. All other parts should only be ordered when needed and when the sale is guaranteed. No money should be tied up in speculation. All excess inventory; all items unsold for twelve months or more, need to be converted to cash. Return them to the manufacturer as obsolescence if possible, or donate them to the nearest tech school for a tax credit. All they do now is collect dust and absorb valuable resources.
With today’s freight system, you can balance inventory vs. freight. A small dealer will have smaller inventory with higher freight charges; a large dealer will have more inventory, but smaller freight bills. Never absorb all freight charges, do the paperwork necessary to recover charges from the manufacturer and always charge your special order customers for their freight. A flat percentage with a minimum starting charge will keep your costs at a minimum. Example, 10% with a $2.00 minimum. Remember, that is ten percent of your selling price, not your cost. This should allow you to make a profit on your freight. Find out what your manufacturer charges are and post your freight policy where your customers can see it.
These simple guidelines will start you on your way to a department that is valuable to the dealer, and a steady source of needed revenue. In part two I will discuss the physical layout of your parts department, how to make it more efficient and profitable.
A profitable parts department must be time efficient. Wasted time is wasted money. Reduce as much as possible the time required to go from the sales position to the part itself. Counter personnel must be able to go directly to the bin, find the proper location, and pull the correct part with a minimum amount of time and effort.
The most basic of all, your efficient department must start with its physical design. Preplan your bin layout. Draw out a floor plan first. Know what your plan is and locate parts only one time. You must divide your inventory into fast and slow moving sections, not just large and small. Remember only about 1500 numbers make up the bulk of your sales. These parts must be in your first section of bins.
Use at least three sizes of bins in each section. You must be able to locate all fast moving parts to the bins closest to your counters. Make breaks in your rows; don’t force your men to walk the entire row before going to the next isle. No more than five bins between walk ways. All isles must be perpendicular to the counter. All isles must be a minimum of 30” and a maximum of 36” wide. Do not crowd your walkways, no parts sticking out of bins. I found 18” deep shelves work better than 12” ones. Also, remove backs of bins and use struts for reinforcement. This allows more light on your shelves, and 20” parts are no problem. Vary your shelf spacing for small, medium, and large parts. “Front” all your parts, it makes them easier to see and reach. Mark all part locations with movable tags, because your inventory is in a constant state of change. You want to be able to relocate parts easily. Leave bottom shelves empty, this is good for temporary storage of parts you will work into position later.
Special attention needs to be made to the back counter area. Bins here must be used for fast moving filters, fluids, and other shop needs. You must also have a shelf here for your shop’s special orders, visible to your technicians. A separate special order section is also needed. These parts will also be moving out rapidly. Keep your special orders near your counters.
Avoid stocking air. The biggest waste of stocking space is trying to follow the manufacturer’s numerical sequence on your shelves. Very few manufacturers keep like sized parts in sequence. With computer controls, you can mix parts, locations, size, etc. any way you want. The time spent creating the most efficient work area possible will be repaid ten fold in increased productivity.
In part three, I will discuss further the numbering and location of bins to increase efficiency and therefore, profit.
Quick and easy access to your 1500 fastest moving parts is your key to efficiency and profit. Bin numbers should be mental guides to the actual location, easy to visualize and travel to. Direct travel between bins and isles in easy to remember location codes, not just numerical sequence. Give your team a mental picture of exactly where the bin is and they only have to remember the part number.
The best numbering system I have found is row, side, bin. Example: Bin “3L4” is isle 3, left side, bin 4 from the front. This gives a mental picture of exactly where this bin is located in the department. When necessary, use the shelf number also. 3L42 now indicates shelf number 2 as the part location. All parts on that shelf are in numerical order. Small parts need to be in 4” bin boxes with dividers. Don’t waste shelf space going wide when you can go deep. Again, logical bin numbering, 3L4D4 means drawer 4. Use logical letters to help locate parts, R,L,N,S,U,B,M, etc. means right, left, north, south, upper, bulk, molding, etc. Put like items together, tune-up section, cooling section, fuel section, etc.
Make the job as easy as possible, the less time taken per sale means more sales per employee.
The best floor plan possible is wasted, however, if you have sloppy housekeeping. Details are important! All parts must be in sequence, with adequate room for all like parts. Every location has a bin tag, magnetic ones are best. Every bin tag is printed in the same font. All tags legible from a five feet away. Your employees must be able to scan a bin and find their part in seconds, not minutes. No multiple locations except for bulk overstock of extremely fast moving parts, filters and fluids, for example.
After working out the main bin locations, parts locations, traffic patterns, sales patterns, do the individual work stations. Again, you are maximizing the selling time per counterperson. Every employee should have all the tools he or she needs within arm’s reach. If you have three employees working at the counter, and only two catalog stations, you are cutting one third of your sales potential.
Custom tailor each workstation to the individual. Right handed persons need the phone on the left, calculator on the right. Left handed people need the opposite! Cordless phones and headsets are good ideas. Buy the extra stapler.
A physical layout plan:
1. Divide your inventory by movement
2. Divide your inventory by sales area
3. Create isles, bins, and bin numbers
4. Create work areas
5. Supply all tools for each individual
In part four, I will discuss profitable inventory control philosophies.
Part 4 – Profitable Inventory Control Philosophies
Inventory control courses have always been promoted by the manufacturer and inventory specialists know who signs their checks. As a result of this, all inventory philosophies have naturally been biased in favor of the manufacturer. Stock order vs. special orders, designated stock order days, extra days supply, inventory of new model parts, and minimum percentages are good for the manufacturer, not the dealer. None of these policies make the best use of the dealer’s dollars. A slight change of philosophy, however, will result in better profits, the dealer’s main need. New philosophy…lean and mean!
Policy and procedures sample
Parts for stock (tight control system):
· Part must sell at least 4 times in 12 months
· Part must sell at least 1 time in last 60 days
· Part must have no more than 30 days supply on shelf
Parts for stock (normal control system):
· Part must sell at least 3 times in 12 months
· Part must sell at least 2 times in 6 months
· Part must have no more than 60 days supply on shelf
As I have said before, all these parts have permanent locations, in bins close to your sales counters.
Other inventory control guidelines:
Keep all your controls as simple as possible; a manager should not spend all his time on inventory reports. Use as few sources as possible, used not only for ordering, but also for pricing. Use the min-max, per job, and full bin fields to keep your parts at the proper levels. Watch out for phase-in parts. The computer has no idea of multiple part needs. For example, shock absorbers, spark plugs, etc. will phase in as a suggested order of one only. Manage your inventory by exception and use the hi/low value on reports, the middle will take care of itself.
Other inventory control issues: tape updates, part number changes, bin location changes, negative and zero on hand, phase in and out, should be weekly or monthly activities with regular schedules.
Missed sales and outside purchases are probably the second most important loss of dealer profits. You must have honest input of these parts in order to keep your inventory current. All shop purchases must be entered as missed sales. Every counterman must record every missed sale. If a man has to take the time to look up a part, it should be recorded. Buying a part from outside instead of taking it from your own supply is always a loss, a loss of time and manpower.
The many details of inventory control can take up thousands of words, but if you adhere to these principles, and keep your inventory lean and mean, profit will be the natural result.
In part five, I will begin to discuss the hardest part, managing your people.
You now have your 1500 part numbers arranged in bins close to your counters, in easy to remember locations, correct quantities, and are ready to make some money. No, not yet. You’ve only done the easy part.
After inventory-investment control, productivity is the next issue. Productivity is limited by time. Wasted time cannot be reclaimed. Every decision, every procedure, every plan should be based on time.
Training your people will be the hardest, longest, and most frustrating part of your job.
No one wants change in their life, especially not at work. Some are actually frozen in their patterns. Your ideas will be met with resistance of all kinds. You must not quit. You must be the unstoppable, irresistible force. Here are some guidelines to help you.
Write it down.
Verbal instructions are almost useless. We use our eyes first, our ears second, our memories last. When you write down your policies and procedures, you create a lasting effect, one that cannot be forgotten.
Write it all down.
When you are ready to start your written program, write it all. Isolate yourself, start thinking about how a perfect department functions, and start writing. Don’t worry about priority, that will come later. Think about the position, not the person. Think about efficiency, volume, quick and easy procedures, and how to provide them. Create plans. Break down overall plans into separate detailed plans. Give yourself time to brainstorm, and write everything down. Let your enthusiasm be your guide, but if you start to over-detail one subject, continue. You can always go back to the beginning, if you have written it down. The important thing is to keep the ideas flowing. Stop writing only when you can’t think of anything else.
Make your list.
Now comes the time for priority. Sort all your ideas into groups. Sort all procedures by positions. List changes in order of priority, and list everything you want to do. This list will become your guide in the months to come. If you do not have a guide, you will become mired in routine, and be unable to remember the wonderful ideas you used to have, all the changes you wanted to make.
Schedule your changes.
People can only handle a maximum of three new ideas at a time. It takes twenty-one days to make or break a habit. Use these two facts to make up your schedule of changes. Take it easy, one or two steps at a time. Wait until things have settled down before stirring the pot again. That is why you must have a list of all the things you want to change. Now you see why I say this is the longest and hardest part of your job.
Change yourself first.
In part six, I will give you guides to help you lead your people, but you must be the example they follow.
Part 6 – Employee Motivation
Be a leader, a teacher, and a problem solver. Each person in your department must be as productive as possible. An unhappy employee is not a productive one. Do your people come to work with smiles? Do your people stay late to “BS”, or to finish jobs, or to prepare for the next day? If you answered yes, 90 percent of your work is going to be very easy. If you have an unhappy workforce, however, the first thing you have to do is to change their attitude.
Negative criticism is the worst tool you have. Use it as a last resort, when trying to save an employee from termination. The manager’s attitude will be the attitude of the employees. They look to their leader for clues about how to perceive their jobs. If the top man is unhappy, everyone else will follow him down the hole and so will your customers. You must be a positive leader. Smile, laugh, and joke with your people—not enough to interfere with them, just enough to get them smiling also. Create positive feelings between employees and get them working together.
Here are a few simple ideas:
Ask each employee to fill out a short form once in a while about themselves or each other. A simple questionnaire: name, position, years of experience, their own idea of a job description, their proudest accomplishment, suggestions for improvement of their job. Do not ask for criticism; ask positive or neutral questions only. Talk with each one in private about how they perceive and feel about their job and place in department. When presented with an opportunity to implement one of their ideas, do so and give them full credit for the idea. Encourage them to want to improve the department.
Create a “pat on the back” award, one that the employees themselves contribute to. Give your employees a simple form, with all employee names, and a check box for good, better, and best. Ask a simple question: Rate your fellow employees for most helpful, or most cheerful, or best problem solver, etc.—only one question, no possible negative comments, a take-home and mail in form with a stamped and addressed envelope. No ratings except for an award to the winner. Get your people thinking positively about each other.
Post all department goals based on prior years and update daily. Make every effort to praise good work publicly and if it becomes necessary to have a negative session with an employee, do it in private, behind closed doors. Once you have fully developed a positive attitude in your department, changes will be easy to make.
In part seven:
Things to do:
· Establish inventory controls
· Establish training program
· Establish pricing policy
· Establish expense accounting
· Analysis of wholesale income
· Analysis of discount structure
· Check for maximum stock order discounts
· Check for dealer wholesale incentives
· Check fleet accounts and rebates
· Check for best part return policy
· Review possible promotions
· Review pay plans
· Create policy and procedure manual
· Establish schedules for inventory maintenance
· Schedule freight credits
Part 7 – Training
As I showed you in part six, the parts manager is the key motivator in the department. He also has the most complex job. He needs all the help he can get, and it needs to be good help.
Few employees will train themselves. Most of the time they rely on “on the job” training, and when they have learned enough to keep up with the everyday flow of business, they stop learning. The problem is “just enough” is not good enough. The parts manager must institute an ongoing training program until everyone is as qualified as possible. The more personnel know about the entire department, the better they will work with each other.
Most manufactures have a certification program of some kind. Set a goal that every employee will get the highest certificate possible. Set aside time for training. For individual employees, afternoon sessions are best. Training for a group is best done after work. Group training is difficult. None of your people are going to be enthusiastic about staying after work, but it is necessary. Let them decide together on which day they want, except for Friday, no one should have to stay late on that day. After the day is decided, have a firm goal for each meeting.
One manufacturer I worked for had short manuals, approximately thirty pages, with twenty questions at the end. Having a “classroom,” with each employee reading and answering by themselves would have been a boring and painful experience. Instead, I passed out that evening’s manual, and immediately assigned one of the questions to each person. I instructed everyone to look through the manual for their answer. When an employee found an answer, he would tell everyone on what page the information could be found, and read it aloud. That employee was then given his next question to work on. All persons were given the same amount of questions, creating a “team” effect. At the end of that session, everyone had all the answers, and all had contributed evenly. If one or two had not found answers by the end, they still contributed to the effort. Although it would seem on the surface that the employees would be skipping a lot of material, in reality they had to read the manual, cover to cover, over and over to find the answer to their own question. Reading the answer to another person’s question and writing the answer down gave them the knowledge without the “pain” of a structured class. All shared the work, the knowledge, and the reward.
Here is a general training outline:
– Training on parts system, number system, and group system
– Training on computer system-interface with accounting
– Training on posting, part number control, and dollar control
– Training on customer relations-wholesale and retail
– Training on accounting, expense and sales accounts
– Training on parts control-monthly obsolescence, parts ordered in error, part number changes, and credits
– Overall objective: have everyone know everything and why
– Create a team
Part 8 – Personnel
Making the most profit out of your inventory is easy and, once set up properly, needs minimum maintenance. Making the best profit out of your personnel is the hard part. This is why I spend most of my effort on my people.
The hardest part of any profession is learning the language. The various terminologies used to communicate needs. Parts is one of the hardest, a language of multiple words for the same item: controller, solenoid, actuator, module, ECU, etc. can all be used to describe the same object. Only a few years ago Ford started a program to unify parts terminology. Now all departments, design, engineering, manufacturing, service, and parts would all refer to a part by one name. Manufacturers have been in business almost a hundred years and only now are addressing the problem. Same thing with new models…all kinds of information for sales and service, nothing for parts education. Everyone must learn on the job.
Qualified personnel are difficult to find, so your best results will be if you train your people yourself. Promote from within on a scale of needed expertise, driver, stockman, back counter, front counter, phones. Always start new counter personnel at the back counter. They can get the most help, information, and actually see the vehicle if necessary. Technicians will educate a new counterperson better and faster than any other method. Every person has an area they are happiest working in, find the best fit for your personnel. A person is most productive when working in the area that they like. They make fewer mistakes, enjoy their work, and have less attendance problem.
Every person must know exactly what their job and their responsibilities are. Not just verbally, written down! You must create your own policy and procedure manual, with every position defined, and all duties outlined. Only with a permanent “bible” for your department can you cope with ongoing personnel issues.
A few examples:
1 Maintain a professional appearance
2 Keep my vehicle clean and maintained daily.
3 Maintain a professional attitude with all my customers.
4 Organize my deliveries in the best way for time and distance.
5 Maintain contact at all times.
6 When not delivering, assist with receiving-shipping, and housekeeping.
7 Obtain training toward further advancement.
Receiving Clerk Duties:
1 Maintain my area in a neat, clean, and organized manner.
2 Complete all receipts every day.
3 Complete all paperwork every day.
4 Complete all stocking duties every day.
5 Report all errors, mistakes, and problems immediately.
Shop Counter Duties:
1 Fill all part requests as quickly as possible.
2 Record all transactions at time of sale.
3 Attempt to fill all missed sales with local sources.
4 Verify all unfilled orders with both technician and service advisor.
5 Handle all “car down” orders as quickly as possible.
6 Process all core and warranty part returns daily.
7 Keep my area as neat as possible.
Part 9 – Your Parts Driver
Analyze and define every position and discuss with each employee exactly what you believe their job duties are. The result creates secure feelings between you and your people about their work.
Here are a few thoughts concerning the parts driver:
One of the most important, yet lowest paid and least trained position. Many times, this is the only representative of the dealer to actually meet the customer face-to-face. Your driver is the symbol of your professionalism, pride, and sincerity in all transactions with your most frequent customers. These customers have the option of purchasing parts elsewhere, and if offended by a driver surely will. Let your drivers know how important they are to the image of the dealership, and that the customers are theirs as well as the dealers. Their uniforms must be clean and well kept, their appearance a credit to your business. Delivery trucks must be clean, with easily read signs, not cluttered, but with name and phone numbers clearly stated.
Make each driver responsible for their vehicle. Check all fluids, tires, gasoline, etc. each night, in order to have them completely ready for the next morning’s business. Remember, your customers appreciate early deliveries rather than late ones. It is better to have several runs each day to different areas rather than one run that will take all day. Short runs allow you to make an emergency run for that “special” customer. If you have a central location in town, divide your deliveries by area, east/west, or north/south, and set a schedule. Make sure all your customers are aware of your schedule. Always have some way to keep in touch with your driver—radio, pager, cell phone, etc.
Give your driver some discretion in the field. Allow him to make minor adjustments for damaged goods, returns, wrong parts, or other issues. Your customers will appreciate the quick handling of their problems. Drivers are responsible for obtaining all information when wrong parts are sent, since the second trip must be correct.
Part 10 – Receiving and Shipping
Receiving and shipping: stated in that order because receiving is the most common and the most important duty. All incoming freight must be checked piece-by-piece. Quantity ordered, billed, and received must match. All packing slips must be checked and turned in to the manager for final accounting. Mark all exceptions on packing slips, also a separate exception report to the manager. For extra parts, make packing slips for posting; then make all claims after checking with the factory invoice. All part number changes must be posted, any bin locations changed daily, after all the receiving is done.
Remember, you must have accuracy in three places: physical on hand stock, computer inventory information, and your accounting dollars. All three have to agree at all times.
Parts received are generally in two classifications, stocking and special orders. Stock orders are easier to handle. Every part has a location, and no pressure to deliver. Orders are received in the morning and parts are on your shelves in the afternoon.
Special orders are a completely different situation. All special orders are to be considered high priority. A $2.00 part can be holding up a $1,000 job. After checking all the parts on the packing slip, separate pieces by order type. Priority is your shop, then wholesale, and finally retail.
With shop orders, speed is your first concern, followed by communication. Take all shop orders to a designated area near your back counter. Give written notification to your back counter personnel and also to the responsible service consultant. Parts should also be visible to the technicians when they are at the back counter.
Wholesale customers are next. Notify the counterperson responsible; then place the part in either the will-call or delivery area for your driver.
Retail customers are last, but they require the most handling. A copy of the special order is attached to the part; the part is placed in a special order section in alphabetical order. A copy of the order is placed in an alphabetical file, and another copy is used to contact the customer. A phone call is best, but a post card can also be mailed.
Special orders will always accumulate. For reasons unknown, even when parts have been pre-paid, customers will not come back for them. You must clean out special order shelves on a regular basis. This is just a part of normal business.
The most important thing about shipping is keeping records. Duplicates of packing slips, carrier name, and shipping number are all necessary information to track. Shipments must be kept in an organized file, preferably kept by carrier and date. Remember, if you cannot prove liability on lost shipments, you will have to assume the loss.
As you can see, the receiving, shipping, housekeeping portion of the department’s business is critical to all sales areas. This is a good position for an assistant manager. You need someone with good organizational skills, who is good with paperwork, neat, and supportive of all the other personnel. This position is truly the foundation of a good parts department.
Part 11 – Shop Counter Personnel
As I have said before, the back counter is the best place to train a future counterperson. The technician cannot be lost or driven off by unfortunate delays or errors. The car, the technician, all of the necessary information, is here. Advice and help are available at all times. Your regular back counter personnel can always use the extra hands and feet, and the heavy volume of orders provides the greatest experience in the least amount of time.
Your back counter (service sales) is the best profit center and the backbone of all parts department sales. A good parts operation contributes to increased service and sales. Customers who have their car repaired in a timely manner return for more service, and continue to purchase vehicles at your dealership. The most important thing for service sales is the proper inventory of expected parts. You must never be out of parts for regularly scheduled service. Set minimum amounts (e.g. two services) for all part numbers. Not having simple items such as spark plugs, filters, etc. will give your customer the worst possible impression of your department and dealership.
A separate fast-moving stock area must be next to your back counter. Not only for filters and fluids, your service special order section must also be here. A separate shelf, in view of your technicians, is used for all “car down” orders. The part is a constant reminder to get the car into the shop and finished.
The back counter is also the center for phasing in new numbers and adjusting on-hand quantities. Here is where you purchase parts from other dealers or more importantly, other parts suppliers, like NAPA and AUTO ZONE. If you have a regular monthly bill of over $1000 for your own car line, you are not managing your inventory properly. Independent part stores only carry the most popular parts, the same ones you should never be out of.
Every purchase of a part that has a factory number needs to be entered in your system. Instruct all of your countermen to use only factory numbers on purchase orders. When you do your daily review, enter all these numbers as lost sales. You should only have to do this two times before the number comes up on your suggested stock order. If you do not catch these missed sales, you will continue giving away profits that rightfully belong to you.
If your dealership includes a body shop, assign one person to handle all these orders. This position is mandatory training for a future wholesale counterperson. You must know how your best customer operates in order to work with him. Six months of dedicated involvement with a functioning body shop will give you the experience necessary to understand this customer’s point of view.
Remember, you are not just a parts warehouse. You are a partner in the auto repair business. Your people should know how their parts will be used. They should be aware of a technician’s primary needs, and which parts need to be available first. This attitude creates a bond between you and your customer that will benefit you both.
Part 12 – Retail Counter Personnel
After learning on the back counter; transfer your trainees to the front counter. By now they should be able to find the most common parts, and understand the repair procedures used in mechanical and body repair. At the front counter they will learn how to take care of a new kind of customer…the kind that can be extremely frustrating to serve.
The typical front counter (walk-in) customer is an amateur mechanic, who may or may not know the correct terminology of the part, or parts, that he needs. A trainee will learn to use illustrations, locations, and descriptions to determine the required parts. These customers need more time per sale than any other. Patience is the primary requirement for this position. Other walk-in customers will be your local