Parts managers and dealer principals should be thinking about the parts department's performance for the new year. Remember, fail to plan and you plan to fail.
Here are a few reminders to get you off to a good start in 2003:
Set Realistic Sales Goals
The sales goals should not be arbitrary, such as the usual estimated percent of increase factored onto the prior year business.
The parts department's performance and dealership's budget will be driven by the sales objectives that you set. For the parts manager, when sales objectives are overstated, much anxiety can result during progress meetings with senior management.
Poorly conceived sales objectives also put undue stress on the department staff because they're striving to attain unobtainable goals. Conversely, if objectives are understated, they're easily surpassed, budgeting will be set accordingly, and you may likely overestimate them the next year.
The best course of action is to develop realistic sales objectives that maximize your department's performance capabilities.
Elements to consider as you develop these figures are normal potential, UIOs, new vehicle sales, customer retention, and other known factors that will contribute to departmental sales growth.
Set your monthly objectives according to your department's individual monthly performance. Sales are inconsistent month to month. The amount of business the parts department does in February may differ greatly from what's possible in April.
Decide How Much Gross Profit You Need
As with the sales objectives, this figure should not be arbitrary either. It may be obtained from industry information (OEM recommendations, 20 groups, consultant suggestions, etc.) or your dealership's expectation of what it should be.
But it should be arrived at collectively between the parts manager and senior management so there is clear understanding as to what is expected.
At this time it's a good idea to examine the department's pricing policy. Also consider major promotions, particularly if they involve parts price reductions. Remember, parts department costs stay relatively constant. An aggressive unplanned retail parts promotion will affect the department's gross profit retention.
Review Your Inventory Performance
Will it produce the results and perform in accordance with your sales objectives and sales expectations. Is inventory obsolescence under control?
Some of the major contributors to high obsolescence are incorrect inventory setups and guides. Other areas to monitor are your special order processes and utilization of your return program.
Try to keep your 12-month level of parts “no sales” 5% or less. Never let it get above 10% of your total inventory.
Review your purchasing habits and processes. Are you purchasing at the best possible price? Are most of your purchases via stock order whenever possible? Stock orders represent the lowest in acquisition costs and highest in profitability.
When stock order performance is higher the return on investment is greater. But, caution should also be exercised. Although it's financially advantageous to order everything via stock orders, the potential to damage customer service also exists if immediate demands are ignored. The proper balance must be maintained between stock orders and emergency purchases.
Monitor inventory turnover. Pay attention to true turns as well as gross turns.
True turns offers a better performance measurement of the inventory because, unlike gross turns (which measures all parts sales whether from stock, or acquired from intermediate orders, emergency orders and purchases, etc.), true turns measures only those parts sold directly from your stock.
Gary Naples provides parts consulting and training to dealers and manufacturers. Based in Wilkes-Barre, PA, he's written two books on parts management. He's at 570-824-1528.