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May 14, 2007: Achieving a more profitable parts department

May 14, 2007
Filed under Archives

This series of articles recaps a portion of the opportunities that were uncovered by Gart Sutton & Associates’ powersports specialists during actual consulting visits.
These opportunities are followed by recommended actions that address the issues. The goal of this series is to provide you with ideas to help you improve your dealership.
The focus for this visit was to determine the cause for the lack of profitability in P&A and create proper categories to monitor the inventory, develop inventory tracking systems and improve efficiency in this department; provide training on the value of offering F&I products to all customers; and install the processes necessary to make these departments into more profitable contributors to the dealership’s bottom line.
This is the second of four articles that will focus on this dealership. The April 23 column focused on the dealership from a consumer’s perspective. This column looks at the processes in place in the dealership’s parts department.
Dealership Details
This small, multi-line dealership is located in a rural market that is a popular destination for year-round recreation. They recently completed a multi-phase dealership remodeling project. Their volume is less than 500 units annually. Although they reported gross sales of nearly $4 million, they ended up losing money. All the dealership’s departments were below recommended benchmarks. The P&A Department was showing a gross profit margin of 25 percent. Very few of the profitable F&I products were being offered to the customers. The dealership is carrying a large accounts receivable and interest is not being charged on past-due accounts. No independent audits are being performed to verify the accuracy of financial data.
Parts Department
The parts manager has no previous experience in dealerships or parts management. He believes everyone expects to get discounts on P&A because of the competition from the Internet or other dealers. Very little is being sold at MSRP and no P&A prices are being escalated.
There is no special order procedure. No deposits are taken, there is little follow-up on special orders and no “fast ship” options are offered. All parts orders are held until quantities are sufficient to meet OEM free freight programs.
Parts are poorly organized. There is some numerical sequencing, but much of the inventory is disorganized in this facility. Some of the P&A inventory is in off-site storage. A complete physical inventory count has not been done since last year, and the accuracy of this count is uncertain. There is no stocking by movement or size. There are no geographical bin locations set up for parts. No categories have been established for clothing or accessories, so there are no categorical bins. There also are no controls on parts access. Most of the staff, including techs, is allowed to pull parts. Current inventory value is unknown as is the number of turns. There is no open-to-buy system nor budgeting for the parts department.
A random audit of 25 part numbers revealed an inventory accuracy of only 56 percent for parts and 88 percent for accessories (the latter benchmark is 97 percent). The percentage of slow-movers and shrinkage can’t be measured until an accurate physical inventory is complete.
Recommended Actions

  • Develop a special order policy that includes 100 percent deposits on all orders, “fast ship” options (for a fee) and a follow-up policy to ensure special order pick up.
  • Submit OEM parts orders on a daily basis, which will increase customer satisfaction and improve repair turnaround. Build in enough profitability to absorb freight charges.
  • Implementing price escalation for all P&A and eliminating discounts will help the dealer achieve the goals of at least 35 percent parts and 40 percent clothing and accessory margins.
  • Establish a parts-to-service liaison, which will reduce labor losses and improve inventory control.
  • Conducting a complete, accurate physical inventory will allow the dealer to establish the current state and value of the inventory.
  • Categorizing all parts clothing and accessories in LightSpeed is necessary for developing bin locations that allow for tracking and measuring inventory performance.
  • Establish a cycle-counting process where one bin is counted each day. This will provide for increased inventory accuracy, reduce shrinkage and minimize year-end inventory issues.
  • Tracking lost sales and number of turns will improve stocking levels and profitability — reduce or eliminate inventory that turns less than four times a year.
  • Developing an open-to-buy budgeting system for P&A stocking will ensure accountability and maintain inventory valuation at the correct level.

    Author, speaker and educator, Gart Sutton has been retained by every major powersport manufacturer/distributor. He is a keynote speaker for national motorcycle conventions and dealer association events. Visit www.gartsutton.com.

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