How much parts storage space do you need? It can be perplexing. If you over-emphasize your capacity needs, you'll sit on expensive wasted space. If you under-estimate, you'll ultimately scramble to find alternative storage.
Be as accurate as possible when planning your needs. But, should the storage space be all brick-and-mortar? Or mostly high-density, floor-to-ceiling storage? Or a combination of the two?
Some dealers feel that high-density storage solutions and daily stock orders minimize the need for parts storage facility (brick-and-mortar) square footage. Yet, others recognize that building with sufficient square footage will secure future storage needs.
I spearheaded a project to help an Asian auto maker evaluate the appropriateness of their existing parts department square footage recommendations to its dealers.
The recommendations had to support the manufacturer's projected five-year sales growth in the U.S.
We were able to identify potential supporting inventory amounts required to sustain service levels over the same period, and the square footage/inventory variance necessary to support aggressive wholesale collision business.
To evaluate the effectiveness of the new recommendations, they were randomly compared to varying dealerships franchised by the manufacturer. The result was a projected variance of only +/- 10% during the five-year period for both the square footage requirements and inventory levels.
Of course, this manufacturer is not the only OEM making recommendations to its dealers. Most foreign and domestic manufacturers do. My point in mentioning it is to emphasize that the lion's share of the work in determining how much square footage you will need is already done and available from the manufacturer.
So what about the impact of daily stock orders and high-density storage solutions on actual brick-and-mortar needs? I suggested to the manufacturer that emphasis be put on brick-and-mortar as the first alternative with high-density as a supplemental consideration, regardless of stock order delivery rate.
Why? The storage of parts essentially follows the 80/20 Rule. Eighty percent of the stocked parts — small parts, which are conducive to high-density storage — occupy approximately 20% of the storage space.
The remaining 20% of the parts, occupying approximately 80% of the storage space, are bulk, body, and irregular shaped parts inconsistent with high-density storage.
With more models, bigger models, and increasing sales, severely curtailing square footage for parts storage with vertically configured high-density storage, can impair parts department growth, eventually affecting the entire dealership.
As a parts manager representing another franchise put it, “When they built our new dealership, a decision was made to go with a 4,000 sq. ft. parts department based mostly on high-density storage without considering bulk storage at all.
“My parts sales were $650,000 to $680,000 per month with an average inventory of $700,000 to $730,000. After moving into the new department I had to drastically cut my inventory and immediately look for off-site storage, all at the expense of my parts sales and profits.”
What about daily stock orders? There is no greater expression of customer service than having the part in stock when the customer wants it. An off-the-shelf sale is your most efficient, least costly, and most profitable sale. The alternative, even with daily stock order, is to say, “We don't have it.”
A comparison was made of a dealership using my square footage recommendations to a store of another major foreign manufacturer offering its dealers daily stock orders.
Both dealerships had similar operational and performance characteristics. To sustain its customer service and units-in-operation volume, the dealership with the daily stock orders had about the same square footage/inventory needs as the comparable dealership without daily stock orders.
My advice. First, follow the OEM recommendations. Then, if you're considering high-density storage, don't ignore bulk storage. Your final plan should include a logical combination of high-density storage and brick-and-mortar.
Gary Naples is a parts consultant to dealers and manufacturers. He's authored two books on parts management. He's at 570-824-1528/[email protected].