If a General Manager had 50% of new or used car inventory aged at over 7 months without a sale, life would not be pleasant. Many dealerships have this concern in their parts department and are not even aware of it. Let’s look at some operational guidelines that will improve your parts department in every aspect. Every month end should generate a parts summary report that is given to the parts manager. This report contains some valuable information most General Managers never see. An important key for any parts department is to track lost sales from service. The definition of a lost sale is anytime the company loses technician time, gross profit, or return reserve. Basically if the part is not in stock when asked for it is a lost sale. The month end summary tracks lost sales throughout the month and reports our efforts towards managing the dealerships investment. If we do not track lost sales aged inventory increases as we waste time and return reserves looking for items we should have stocked. If aggressive lost sales tracking is in place your outside vendor invoices will be low and lost sales in the hundreds in a medium size shop. Aged inventory is another item listed in the month end summary report and listed in months without a sale. A good guide is to be below 15% in seven months or older and under 10% twelve months. It is a good operational policy to review phase in and phase out inventory set up and take an aggressive posture. Three hits should phase in service items and six months without a sale should phase out numbers. It takes an aggressive manager to rate their performance individually without guidance from their immediate supervisor. The best practice is to establish goals and track progress by reviewing the month end summary on a consistent basis. Performance will always be improved with the understanding by the team progress is being tracked and reviewed by upper management. Aged inventory is never an easy problem to correct and take generally 18 months or longer of aggressive controls to get within guidelines. Return reserves are getting squeezed when they are used to deal with special order parts never picked up. The best practice is to make appointments when the customer picks up their car and informed the dealership needed to order a part. 

This appointment should be dated five working days out giving the parts department ample time to get. Then the only customer contact needed will be on the few backorders that have not arrived yet. Instead of needing to contact 100% of your customers it will drop to only a few percent.

Gross profit as a percentage of sales is another area that needs reviewed by upper management. Discounting for internals and wholesale accounts drop this percentage drastically. Be sure to understand all discount policies and matrix pricing programs you parts department has in use. The parts department should be a profit center and have goals and guidelines monitored by upper Management.  

Rob Gehring is the President of Fixed Performance
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