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Jan. 17, 2011 – Categorizing and counting: Two key P&A practices

January 17, 2011
Filed under Archives

These articles recap some of the opportunities uncovered by 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.
This is the third part in a series on this dealership. The first part provided an analysis of their overall operations and the second part reported on their sales and F&I departments.?This third part delves into the store’s parts and accessory department.

Dealership

The owner recently purchased this dealership and was approved for the two major product lines that they carried. The original dealership had no computers and no financials. They were underperforming and held very poor market share for this area. They also had a poor reputation with the local customers. The new owner feels there is a good potential for growth due to the dealership’s past history. Since they acquired this dealership, they have increased the market share by more than 60 percent for one of the lines. However, most of their unit sales have been for very low margins as they have had to clean out noncurrent inventory (some up to six years old).
The local town has only about 10,000 people. However, the market area has a population of more than 300,000. They have purchased a new facility with frontage on a major highway. It is currently under remodeling construction. They plan to move in the next few months.
They have a lot of work to do in order to make this into a profitable dealership. Their sales volume is small and there are poor margins in nearly all departments. They have no inventory management and no personnel management structure.

Analysis

As with the other departments, there is no manager. Pete is the entire department. He has been since he was a small boy. He worked for another dealership in the area for several years and has been with this dealership for the past few years. He could use some additional training and guidance in the procedures desired by the new owner.
The lack of proper categorization of the parts, clothing and accessories numbers in the DMS means that many of the measurements we received in the pre-work have questionable validity. In addition, some of the reported numbers are simply not possible. It will take some effort to uncover whether these are personnel or DMS issues. Proper categorization methods were discussed.
There are no bin locations and no cycle-counting. The implementation of this was discussed in detail. The inventory accuracy needs to be verified by a full inventory and parts obsolescence needs to be measured. Their DMS software would not report the valuation of the obsolete parts. After discussion with the DMS supplier, they assured us they will fix this report. Once the obsolete parts can be verified, they need to be disposed of by selling them, donating them or trashing them. They have no use to the dealership other than as a write-down. It is recommended that a dealership carry no more than 15 percent obsolescence. P&A is not being sold at retail to other departments. This needs to be corrected so that measurements can be compared with industry standards.
OE hard parts orders are not placed on a daily basis. Some manufacturers have sizable penalties for ordering less than the minimum. Other sources should be sought for small orders if they are holding up service jobs.

Action Items

  • Ensure all parts are sold at retail to other departments.
  • Properly categorize the parts, accessories and clothing in the DMS so these categories can be measured against industry benchmarks. As you do this, ensure every part number has a cost attached.
  • Complete a physical inventory of all parts, clothing and accessories.
  • Monitor gross profit on parts and accessories. Strive for 35 percent in parts and 32 percent in accessories/clothing.
  • Monitor inventory value, number of turns, lost sales, slow movers and nonmovers on a regular basis.
  • Develop geographical bins for all hard parts. Develop categorical bins for all accessories and clothing. Size these bins to be counted in about an hour. A lot of this can be done prior to the dealership’s upcoming move.
  • Begin random cycle-counting of all P&A. Count at least one bin every day. As you implement this, resize bins where necessary to be counted in one hour or less. The goal is to count the inventory four to six times a year, improve inventory accuracy and reduce shrinkage.
  • Place OE hard parts orders daily if they contain service parts. Never keep service jobs waiting for parts.
  • Do not allow techs to pull parts. Develop a written process to improve parts-to-service. Make service parts a top priority. Tech time is the most expensive hourly time in the dealership.
  • Continue relocating fast-moving parts closer to the counter.
  • Put all procedures in writing. 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 more than
    30 years. For additional information on these services, visit www.gartsutton.com

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