Getting The Best Odds & Returns On The Dealer’s Capital Investment In Parts Inventory

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Having a solid base to qualify parts inventory for stock starts with knowing which phase-in setup criteria has the best odds. Playing to the odds will help you:

  • Reduce phased-out parts in write-off territory,
  • Bring fast selling parts, and
  • Create efficiencies in your parts-department

We think you’d agree that the article above are all things the Dealer Principal would like. Interested in learning how to play to the odds to your favour?

What they’re saying about NADPE – Randy Buyers, Parts Manager

TRANSCRIPTION

NADPE has changed the game when it comes to idle parts inventory. We’ve helped Parts Managers, like yourself, get rid of idle and obsolete parts and free frozen working capital. Our program is easy to use and will help you exchange your idle and obsolete parts inventory at full dealer cost – without losing a single penny. But don’t just take our word for it, here’s what our customers are saying.

“We’ve moved $142,000 Canadian of parts. The effect for me now is that I’m about a month away from being to what my goal was, no parts in the building older than six months-no-sale. That’s a very, very clean inventory, and it’s maximizing the dealer’s investment.” – Randy Buyers, Parts Manager

How Did You Know This Was A Problem Worth Solving?

Well, any parts manager, you’re looking at your turn rate of inventory, your investment costs, your investment trending. And with slower moving parts, the manufacturer, and my particular case, Chrysler Mopar parts, they allow a return allowance, and it’s based on and built up with purchase accrual. So in the years, in the last five to eight years, not only Chrysler, Ford as well, and GM is, they’ve come up with inventory management procedures. They’ve got automatic replenishment order procedures for you. And I’m at longer-heads against that with the manufacturer.

At one point, we used to work well. Our return allowance used to be 6.5%, so for every hundred dollars and parts I bought, I’d be allowed to return $6.50 worth of slower moving inventory. So it built your return, your turn rate of your inventory, and you kept your investment fresh. Over the last eight years, there’s been a marked move from all of the manufacturers. They’re not interested in obsolete parts.

There was a time five years ago when there wasn’t a part in my building that was over six months-no-sale. And with the drop in the return accruals, I was having parts that were having a birthday on the shelf, and I was utilizing my maximum allowance to return parts to Mopar, but I was falling farther and farther behind.

Do You Think This Is An Industry Wide Problem?

Yes, absolutely. And not just specific to Chrysler, i.e. Mopar parts. It’s in Ford. It’s in General Motors. It’s prevalent.

You Have Been Using NADPE For 15 Months Now. What Results Have You Seen?

We’ve moved $142,000 Canadian of parts. The effect for me now is that I’m about a month away from being to what my goal was, no parts in the building older than six months-no-sale. That’s a very, very clean inventory, and it’s maximizing the dealer’s investment.

What Kept You From Joining A Service Like NADPE Sooner?

I didn’t know that there was any in existence. Again, as I said, I found it by accident on Facebook, and when I read it, I went, what? Parts, are you worried about parts obsolescence, on something like social media like Facebook, and so I went back and looked at it, and I went, yeah, I’m very interested in that. You hit a nerve.

If You Were To Recommend NADPE To Another Dealer, What Would You Say?

Well, as we touched on earlier, this is an industry wide problem, and it’s not just here in Toronto. It’s North American wide. The manufacturers have moved away from the larger return accrual rates. And so if you’re a larger dealer, and you’re involved in the wholesale providing wholesale customers outside the dealership, automotive needs, your parts obsolescence problem will definitely be there. Whether you’re aware of it or not, that’s up to the parts manager.

Why Do You Recommend NADPE To Other Dealerships?

I have recommended NADPE to a lot of the dealers that I deal with. It’s an essential tool now-a-days. With the manufacturers moving away from allowing the dealers to return parts the way we used to, it’s [NADPE] a necessary tool now to keep their inventory clean.

Can Draw Parallels Between Used Car Inventory Control And Parts Inventory Control?

In your parts department, you have X amount of dollars that are slow moving. So most dealers, okay, that’s great. It’s a wonderful story. But if you say to them, you have two cars that haven’t moved on your used car lot in six months. You have a $40,000 Jeep Grand Cherokee, and you have a $20,000 Jeep Cherokee. You’ve got 60 grand that hasn’t moved in six months. Every dealer would be all over the used car manager. Move this! Let’s put some dollars towards moving these. Are they priced too high? Do we need to offer a rebate? Do we need to reduce? Let’s sell it at a loss just to move that piece, so I don’t carry what’s called flooring. I don’t have the flooring expense to keep those old vehicles, but yet, they’re not aware that they have five valued vehicles of parts inventory sitting here.

Do You Find The Online Exchange Platform Easy To Use?

The platform is very, very simple to use. It tells you that there’s a potential trade. And you click on, and it opens up by the part numbers that you’re familiar with, what they’re suggesting could come to you from the other dealer, and then they’re suggesting on a second page what could go to the other dealer from your inventory. So it’s easy. You click on it, and you go, okay, yes, I would certainly like to sell those. And again, as I say, in a lot of the manufacturers, auto replenishment orders, you don’t have a say. They tell you, this is coming in tomorrow and good luck.

Do You Think Your NADPE Trades Are Fair And Cost Effective?

Yeah, 100%. Yeah. And don’t tell NADPE this, but honestly, it’s relatively nothing.

Are you ready to have an inventory like Randy’s? Sign up today.

Inventory Control Phase-In – A Good Method Improves Your Parts Operation

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The #1 Resource Guide For Parts Managers

How to become the Top 5 percent in Parts Management

It can feel like you’re the lone person on an island, being a Parts Manager.  Many times, you get the feeling as though you’ve been stuck for 10 years, repeating year 1, without access or knowledge of outside consulting, training, or help. It can be tough, but you shouldn’t feel bad because this feeling is commonplace in the industry, whether you’re a new or long-time parts manager.

I like to say Parts is like Voodoo: no else in the dealership has a good handle on the parts department.  Upper management typically only understand Parts Department from the financial statement from a high level and its need to provide great customer service. Outside of those given items, there are key technical components that both upper management, and new and existing Parts Managers must understand. Aside from the broad strokes, it’s widely seen that many managers are undertrained when it comes to Parts Department. What’s even worse is that a painful lack of resources is prevalent.

The climb as a Parts Manager to best-in-class can be done with the right resources. We have compiled some key actions to help get you started on your own, without the necessity of anyone above you to pitch in to make it happen. It’s about striving for professional growth; a key component of any manager worth their weight. Without any of the training below, you are essentially running a multi-million-dollar operation, blind.

In-Depth Parts Technical Training

From all appearances, there aren’t many places to turn to get valuable parts training. This is true. Resources are hard to come by. Most conferences just scratch the surface and are not technical enough. If you are lucky enough to be in a Dealer 20 performance group, there are still many holes that don’t cover the technical aspects of inventory control, and DMS settings.

There is one place where everything parts department-related is available: DealersEdge.com. Here you will find all the parts resources you could possibly need for self-study. It’s only $59/month, or $597/year to access their entire educational platform or you can buy 1 video, audio, or e-book at a time. This is of incredible value, and not available anywhere else.

There could be some of you who will have upper management opt not to pay for this, either discounting its value or think it’s up to you personally. My advice is: pay for it yourself if upper management doesn’t pitch in. This will likely be the greatest investment of your career, if you are in parts management.

Understanding Parts Inventory Management

Little is really known by most parts managers on the performance of parts inventory, aside from ‘months no-sales less than 12 is good, 12 months-plus is bad.’  Even that statement is pretty rough.

Parts inventory is something that takes a lot of training and understanding of its dynamic.  The first resource you should pick up is Mike Nicholes’ book, Professional Inventory Management Guide.  This book can add an incredible foundation to any parts manager, even if you only remember 10 percent of it.  It’s an easy read, and for those who enjoy learning and numbers, it’s a great read.  The book puts the entire parts operation in terms that anyone, with any level of experience, can understand.  I’d recommend even upper dealer management read this book.

The book Mike wrote is aged somewhat, but the principles still stand. Don’t dismiss this book as too junior for even someone who has years of parts management experience. You can get a copy of this book at DealersEdge.com.

Managing Business and People

Several self-help seminars and conferences offer guidance on business management and people. There are key points to extract from them. However, if you are looking for a dealer-centric and very actionable management book, you must read Up Your Business by Dave Anderson.

This book will help you understand how to manage a business and people.  It will also reaffirm some thoughts you might already have. It’s especially motivating – expect that when you get 10 pages deep, you will need a new highlighter.

DMS Settings

Once you have read and completely understand inventory management book – in particular, phase in/phase out, and days supply – you should sit with your DMS trainer for at least half a day. They will help you pull all the current settings for parts inventory management.

Everything you have learned on how to manage parts can be entered into the DMS. This way, you not only stop “winging-it”, but you will also now have the DMS managing parts with the same control and mythology as you.  It’s less work for you when doing a return and stock orders, and enables proper reporting as well. This is highly valuable as the DMS is really a parts manager’s ally. Learning to use it and understand it first starts with understanding parts inventory control technically. From there, learn with your DMS trainer how to navigate, since you now know what to do with the parts inventory.

Not using the DMS to manage your inventory on the same page as your technical training is a waste of time.  It’s important to manage parts inventory with the DMS, and not question how the DMS is managing, or not managing your parts inventory.  The DMS can be your friend or your enemy. It depends on what you put into it.  The DMS can emulate every technical aspect you learn on inventory control after you set it up.  Thereafter, you’re only reviewing and making small modifications to your inventory, and letting the DMS manage the rest.

Financial Statement

The parts department, like every other department and business, has its own set of financial statements. If you have never seen them, you need to see your controller around mid-month, after a month closes. Request to see your parts financial statement and review it in depth with them enough to understand the particulars. Get very comfortable with it. It’s your lifeline.

For those who already get a financial statement, the fun doesn’t stop there.  Simply looking at a few numbers and saying something is good, bad, or needs some work isn’t enough.

The next step in a financial statement study is printing out every expense line, with every entry.  This isn’t as hard as it sounds. Your Controller can do this within about half an hour.  Take those printouts and review each entry, line by line. You should understand most of it already. Highlight the ones you don’t comprehend and sit with your controller for an hour or two to decipher it. It will easily take two hours or more if it’s your first time through it. I promise you – there will be thousands of dollars you didn’t know about, thousands with more impact than you realize, and thousands that are misallocated. I guarantee you that.

If you are a financial statement hawk and have the entire department statement understood, I like to pull and print every account in detail twice a year, and you should too. There is always something out of place in the statement that needs your attention.  Think of it much like your personal financial statement, and expenses – then multiple the volume 100X.  You certainly wouldn’t want to just glance over a few high-level numbers.  Without reviewing your financial statement to this depth is like managing your department with a blindfold on – yet you’re responsible for every line on the statement and its results.

Industry Guidelines, and Benchmarks

For every number in parts, there is a guideline for where it should be. Many don’t know that these exist, and even if they do, they don’t know where to find them.  You can find most of them in the aforementioned Mike Nicholes’ inventory book.  You can find more inside NADA’s guide.  If you have someone at the dealership who has trained at NADA, or someone in your Group 20 who has, they can get you a copy.

The importance of these numbers is to allow you to compare where you should be, and what is possible. While it’s true that there will always be something that needs attention, it’s easy to dismiss some numbers as you might think you can’t achieve them. Don’t be too quick to point out the negatives. Many times, you just need to dig more on what is driving the number below guide and come up with a plan and think outside the box. They are guidelines or benchmarks because they are achievable.

Before dealing with the hardest numbers to move, looking at the benchmark numbers will have the most impact. Once you get a sense of where you are, you can dive into a particular line, and develop a strategy to correct it. There are hundreds of parts metrics, so it’s best to start one month with one set of metrics like Inventory, then Financials expense lines, and so on. It will take several months, or even a year, to address it all.

Consultants and NADA Training

Lastly, there are other resources to help you get trained. A small handful of parts consultants are available who can help. Prepare ahead to communicate exactly what you need help on and find a parts consultant that compliments that area.  My suggestion is to first complete the above training before hiring a consultant. Their time is limited, you’ll need a budget for them, and you will definitely need to understand more than the basics to get the best value from their service.

NADA has training classes for Dealer Principals, General Managers, and Controllers.  If someone from your dealership is going, you can get in on their Parts Class for one week as a sit-in.  It’s cheap enough and very valuable. 

Moving the Needle

There is a lot of content once you start going through all this material.  If you are just starting out, or you’re a seasoned manager without formalized training, undoubtedly you will have a year’s worth of work to get things to a point where you are just optimizing.  It’s a never-ending process.

The best way to get through all this is to make a monthly plan.  Address three key items to attack, write out a plan and steps to achieve them, and what numbers and benchmarks must be hit to see success. If submissions of a monthly plan and forecast is not a requirement by your dealership yet, make it yours.

If you’re feeling overwhelmed with idle and obsolete parts inventory, you’re not alone.  If you’re looking for more in-depth support, start by reading the resources within this article, or feel free to contact us and book some time to get some help.

About the Author

Shawn Larkin is the Founder and CEO of North American Dealer Parts Exchange Inc. (NADPE).  NADPE is a marketplace to help the Parts Department within New Car Dealerships move Idle and Obsolete Parts inventory in bulk without any losses.

Shawn has spent his entire professional career in the dealer parts business.  Starting in shipping and working his way up to Director of Fixed Operations managing multiple locations with a staff of 75 and an annual turnover in excess of $17 Million.

Shawn brings a deep understanding of how parts departments work, their economics, and their needs and problems, as well as the psychology of Parts Managers and dealership owners.

To learn more about NADPE or Shawn Larkin, click the embedded hyperlink.

7 Ways To Get Rid Of Idle Parts Inventory & Obsolete Parts Inventory

You may be asking, how can I get rid of my Idle Parts Inventory, or even your Obsolete Parts Inventory.

Here is a list of ways to get rid of slow-moving parts inventory in alphabetical order in bullet point form:

Auction:  Easy solution to clear parts in bulk.. After all expense are paid, usually, 10-15% of the original parts cost is recovered.

Cash Discovery Program:  A dealer to dealer network, where parts are sold at 50% of dealer cost.  Parts moved in bulk.

D2D Link: A available for Dodge, GMC, and Ford dealers.  A single part transactions platform native to these brands system.  Manual process with various parts pricing.

Dealermine:  A dealer to dealer network, where parts are sold at 50% of dealer cost.  Parts moved in bulk.

eBay:  An established audience.  Listings are typically 1 part at a time with some time required per listing unless the dealer has signed with a digital software company to provide this service – typically the majority of a dealers inventory is listed on eBay with this software.

NADPE – Parts Exchange Program:  A dealer to dealer network, and an emerging technology, where parts are exchanged evenly at dealer cost, in bulk.  No write-down of parts cost.

Write Off:  Write off, and toss in the garbage.  100% loss.