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May 24, 2010 – Ways to track inventory accuracy in parts dept.

May 24, 2010
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These articles recap some of the opportunities uncovered by our GSA Powersports Consultants during actual consulting visits. These are followed by recommended actions that address these opportunities. Our goal is to provide you with ideas to help improve your dealership.

Dealership Details

This small dealership is in a market area containing around 150,000 people within a 50-mile radius. This number increases considerably during the summer months because of the large number of seasonal lake homes in the area. They sold just more than 200 units in the past 12 months.
The current owners are powersports enthusiasts who were customers of the original dealership. After the buyout, they built a new facility on a state highway with good traffic volume. They also acquired an additional major powersports product line.
Since they are not visible from the freeway, they have used billboards located near the freeway off-ramps to help draw additional business. They have sold their other large, successful (non-powersports) business and have good capital to back the dealership.
In the first three parts of this series on this dealership, we analyzed the entire store’s operations, the sales department and the F&I department. In this edition, we’ll report on the PG&A department.

Analysis

They do not have a parts manager. They have one person handling their large Internet sales profit center. He also sells parts as well as major units. In addition, they have one dedicated parts counterperson.
They do not have a purchase order system. They do have the parts binned. They should develop categorical bins for the clothing and accessories. Because of limited space, they should consider compressing the parts department by stocking by size and movement. They can take advantage of tools, such as multi-drawer bins and file cabinets, to store more parts in smaller areas.
Although they have a parts-to-service person, techs still pull parts. This tends to contribute to reduced inventory accuracy. In addition, everyone was able to change parts quantities. This was changed while I was there. This is a best business practice that helps reduce shrinkage.
They can and should implement cycle-counting. They need to begin running the basic reports on a regular basis, such as inventory valuation, slow-movers, non-movers and lost sales. They have relatively little obsolete inventory. This is due to the depth of their high-turn clothing stock, which makes up the bulk of their thriving Internet sales. Most of their obsolescence is in hard parts.
Parts escalators should be set up to allow them to set minimum margins on parts. This will help them recover costs, such as shipping and stocking. This was discussed, and they are working on it.
The 100 percent pre-payment on special orders process is in place, but is not being enforced. This should be done to minimize losses on parts that are not picked up.
Internet sales are driving the numbers here, and they are well above the norm. They stock exceptionally deep in specific OE-branded clothing. They buy in large quantities to get the discounts, and take advantage of close-outs and specials. This allows them to not only offer a broad selection, but they can sell at competitive prices while maintaining reasonable margins.
This department is really supporting the business. If the other departments are brought up to profitability, they will have a decent business.
The showroom end of this department should be improved by adding theme and lifestyle displays of P&A with associated units. Accessories should be added to units on display. These will help increase visualization, drive increased unit, P&A and clothing sales and help differentiate their store.

Action Plans

  • Monitor inventory value, obsolescence, slow-movers and lost sales monthly.
  • Set up and activate the price escalators in Lightspeed.
  • Develop categorical bins for clothing and accessories. Verify that all P&A bins are sized to be counted in one hour or less.
  • Implement cycle-counting to increase accuracy and reduce shrinkage. Count one bin at random every day with the goal of getting through the entire inventory four-six times per year.
  • Develop theme displays with clothing, accessories and related units to increase customer visualization and emotional reaction. This will help increase sales.
  • Enforce the 100 percent pre-payment procedure for special orders.
  • Create a purchase order system to provide tracking for expenditures.
  • Implement an open-to-buy system to control the budget for this department. PSB
    Gart Sutton has been a leading provider of on-site dealer consulting, dealer 20-groups, online financial composites, accounting rescue services and OEM and dealership training solutions for nearly 30 years. For more info, visit gartsutton.com.

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