On average, idle and obsolete parts inventory comprise 30% of inventory on the shelves of every dealer in North America. Idle parts include non-stocking and phased-out parts.

Non-stocking parts are those parts that were unsold or returned special order parts while phased-out parts are those parts that have lost their sales demand and haven’t sold in the last 9 months of the last 6 months for more progressive dealers.

It’s an industry rule-of-thumb that when some parts sit in stock for nine months with no sales, there is only a 15% chance that they will sell. After 12 months, the probability of selling them drops to 5%, which means that there is 95% they will not sell at all.

Unfortunately, dealerships only have a few options to recoup their lost for idle parts inventory such as selling them for scrap, toss them in the garbage, auctioning them, or selling them online.

Randy Buyers, Parts Manager at Ontario Chrysler, on the other hand, don’t see these as an option, “I’m not selling my obsolete parts inventory for 50 cents on the buck – when I have other avenues to get rid of them where I don’t have to discount them”.

While there’s a growing concern about obsolete, and idle parts inventory in every parts department, selling idle or obsolete parts inventory for 50 cents on a dollar or even less is no longer thought of as a great avenue.

Today there’s no need for dealers to sell their idle parts inventory through different avenues with major losses. NADPE has designed a parts exchange program that helps dealers prevent losing to half the value of their parts inventory.

NADPE’s Parts Exchange Program is a solution that allows dealers to exchange their slow-moving inventory for active, and fast-moving parts inventory. Through this program, parts managers can get the full dealer cost of their idle parts, no matter how long they’ve been on their shelves. Parts managers will no longer be forced to sell their idle parts in different avenues hoping to get one-half of their investment before tossing them, where they ultimately get zero.

“The parts exchange program turns inactive parts inventory into current and fast-moving parts without me having to lose my shirt by discounting them.  In other words, I’m really retaining and getting back what I got into my inactive parts”, says Buyers.

Learn more about the NADPE’s Parts Exchange Program by visiting NADPE.com

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?

The parts exchange program tackles a growing epidemic that sees dealerships holding onto slow-moving, obsolete, and idle parts inventory. Unlike other parts marketplaces, NADPE offers dealers a way to swap the parts they don’t want for parts they do want – all at full dealer cost – so there’s no loss for the dealer.

Randy Buyers, Parts Manager at Ontario Chrysler, sums up the problem, “Most manufacturers have gone to an auto-replenishment order system and it has increased inventory amounts by hundreds of thousands of dollars. Where in the past I was able to keep idle parts at zero, I now have some parts that have had a birthday and a half, sometimes two birthdays, on the shelf. It’s unacceptable, but it’s a problem for every dealer.”

Parts departments have consistently been concerned about the prohibitive structure of manufacturer parts return allowances. Dealerships are typically finding that the allotted return allowance covers only a small percentage of parts that need to be returned. With slow-moving and obsolete parts comprising up to 30 percent of inventory on the shelves of the average dealer, this is a huge issue set to increase.

Buyers’ iterates that his manufacturer’s parts return accrual has been reduced in the past several years, what was once at 6.5% has now been slashed to 2%. “It’s just not enough to keep my inventory clean. There’s just no way to send back enough parts to stay current.”

Ford Motor Company has eliminated parts returns completely for dealerships operating in the United States, except within the first 60 days of purchasing with a tight return allowance percentage on those returns as well. Forcing parts departments to liquidate unneeded inventory in alternative ways with big losses. Other manufacturers are expected to follow suit in the coming years. In the last few years, many manufacturers have already slashed their parts return allowances leaving dealers scrambling for options.

Scott Campbell, Dealer Partner at Midtown Ford, echoed the importance of the weaning off return allowance, “Return allowance accruals are anywhere from two to five percent. It’s a necessary evil for manufacturers [to reduce return allowances].”

The inability to return slow-moving parts inventory, means dealerships need to be equipped to handle a steadily increasing parts inventory that takes up space or take massive losses when liquidating parts with insufficient sales demand.

 Few Options to Disperse Idle Parts Inventory

Parts Managers have very few avenues to recoup costs for their obsolete and idle parts inventory. Some have experimented with selling parts through online marketplaces such as eBay and Craigslist; however, selling on such platforms involves a significant time investment, initial and ongoing costs to maintain required software, and a small amount of profit (selling parts one at a time nearly at cost). Being a competitive marketplace, these sites provide little return if you’re not a large dealer with a long-term strategy capitalizing on deep manufacture discounts for volume purchases.

Auctions remain an option for dealers, although just 15% on average of dealer cost on parts is recouped this way. Another option is to salvage or simply just dispose which leads to virtually no monetary return.

 Exchange Program Solution

The Parts Managers concern about idle inventory has not been ignored. A startup tech company, led by industry expert, Shawn Larkin, has focused its services on this niche. Larkin’s, background as a Fixed Operations Director led to the creation of North American Dealer Parts Exchange (NADPE) the first of its kind, parts exchange program solving the idle inventory problem.

To combat financial losses of selling idle parts inventory through different avenues, NADPE is structured as an exchange program. Participating dealers upload a list of parts in idle or obsolescent status. The inventory in the NADPE platform actively cross matches dealer inventories looking for correlations and matches – facilitating bulk trades between dealers at full dealer cost and exchanging within a dollar of each other. NADPE virtualizes the OEM’s Parts Distribution Centers using data to find where to redistribute and reallocate parts in bulk based on each dealer’s sales demand and needs.

Campbell from Midtown Ford, says, “if parts managers are staying on top of it… it’s a sure-fire way to prevent losing up to half the value of the parts.” He remarks that NADPE’s exchange program lets parts managers focus on fill rates instead of idle and obsolete parts inventory, eliminating the spiraling effect throughout the dealership.

The exchange program mitigates hard-to-swallow losses by offering trades at dollar-for-dollar values. In turn, NADPE earns its revenue from a 5.99% transaction fee – making it a pay-for-performance model.

Shawn Larking, NADPE’s CEO, says, “We certainly don’t focus on the selling aspect. As a former parts manager myself, I understand how difficult it is to justify losses on slow-moving parts inventory, no matter how long they’ve been sitting idle on the shelf. We want to offer a premium program whereby parts managers can reduce their idle parts inventory with little to no damage to their bottom line, which is why the dealer-to-dealer exchange is our focus. The idle and obsolete parts dealers need to get rid of are normally still active parts inventory in the manufacturer’s parts warehouse, meaning they are still good selling parts, they’re just in the wrong dealership. So, to take losses, to get it in the right dealership makes no sense.  Hence the exchange program”

It’s a program that Buyer’s, from Ontario Chrysler, has used on several occasions, “We had some parts which had no-sales for 7 to 15 months. [With NADPE] we moved over $142,000 of parts. The effect for me now is I’m about a month away from having parts in the building no older than 6 months.”

The program has also made an impact for Cheryl Law from Go Dodge, “After 11 months with NADPE, I’ve moved $96,245 of idle and obsolete parts inventory with just under 50 trades. I moved all of those parts at dealer cost, exchanged them for parts I could use and sell often. The amount of parts I’ve moved through them has made a big dent in my idle parts inventory.”

The Future of Parts Management

Industry standards in the past have been twelve months before a part is considered obsolete. Today’s parts manager has much less time to turn inventory.

Scott’s, from Campbell Ford, parts inventory is more stringent, “Most dealers set phase-out at nine to twelve months. I believe that if a part hasn’t sold in three to five months, there’s no reason to keep it on the shelf. I’d rather eliminate that part from inventory and replace it with parts I’ll turn over regularly. That’s where NADPE really becomes effective.”

With idle parts inventory increasing as manufacturer parts return allowance are tightened, dealers are running out of options to recoup capital. It is clear that NADPE’s exchange platform is the solution.

Our friends at PartsEdge.com have recently released a Parts Manager educational video on your Manufacturer’s Replenishment Programs.  We couldn’t agree more with the expertise shared on this topic. In the series, you’ll hear from Chuck Hartle, PartsEdge’s resident parts expert.

In this particular video, we think you’ll find lots of value. Chuck discusses how knowing more about your specific program can help level up your parts department. He shares specific data that indicates manufacturer programs are not dealer driven but manufacturer driven.

It was once said that parts inventory management wasn’t rocket science.  That’s never been the case, especially in today’s environment.

“Dealer’s have nearly 15% more obsolescence than dealers not on a manufacturer program.”

 “In the 5 years, obsolescence has increased by 7%, that is effecting dealer’s pocketbook.”

If these few quotes haven’t got your attention, we don’t know what will.  This segment will cover the key points you need to know about manufacturer replenishment programs.

You’ve got to watch it for yourself. We look forward to hearing what you think.

Developing relationships with your customers is vital to your success. Understanding their standpoint, helps you better understand how you can help them. At NADPE, we believe that by developing these relationships, we become what we call “human”. Not just a voice at the other end of the telephone, an email thumbprint or signature, we are people that care.

We had a great discussion with one of our successful Chrysler Dealers, Jeremy Baratto the Parts Manager of Team Chrysler, about his experience with NADPE. If you missed it, be sure to check out our most recent articles for the depth in that conversation piece. Compounding from that article, was a discussion we seem to have regularly about the ease of use, and success of the online exchange platform and Jeremy hit the nail on the head, so we’d like to share his wisdom with you.

Almost daily we get asked how much time is expected of the parts manager and how hard the program is to use. We thought we’d take it from a customer standpoint and ask Jeremy. His response was: “Very easy. The first couple was a little overwhelming but in a good way. I see all the parts I potentially will be getting rid of. You have total control of what you want to move out and what you have agreed to have incoming.”

Okay, so that answers the difficult question…what about when it comes to trades? “Like all new things, it takes time to get comfortable”. Understanding the process and what is expected of you, doesn’t come overnight, but at NADPE our objective was to make it as hands-free for the parts manager as possible. When we asked Jeremy, he stated: “It did take some time, the first couple, but nothing too difficult to figure out. Now I can review and modify a trade in minutes.”

It’s always a concern that when you sign up for a program, you’re going to be bombarded with info, in the beginning, then have it almost immediately peter off and not be able to get anyone on the phone to help you when it comes time to use it. In understanding this, we asked how Jeremy felt about the learning curve with NADPE. We were flattered with his response: “The staff is amazing. These guys know what they are doing. They can modify the settings to your liking and change them again at any time. I can’t say enough good about Shawn and Jordan, Bravo!”

Fairness and cost-effectiveness are a top priority when it comes to trades on the exchange platform. To ensure we are upholding that promise to our customers, we asked Jeremy if he would agree that we are keeping to that promise. He said: “absolutely!” And continued to add: “I look at the big picture. How much inventory do you have to purchase from the Manufacturer to be able to return $1,000.00 of inactive inventory?” Very good point, Jeremy!

Customer retention and satisfaction seem to be a continuous uphill battle, in a competitive, always changing and thriving industry. The question of, “Why choose NADPE in the first place” and “what makes you stay” are always at the front of mind. When asked, Jason responded promptly with: “A local Dealer recommended you. They spoke very highly of you for some time, and as I said earlier, I was afraid of something “new”. I didn’t give you the chance you deserved for a long time. Only wish I had joined sooner. Simply, the results are what keeps me a member of this program. Thank you NADPE.”

From the outside looking in, a parts manager’s job is viewed by some simply as an inventory clerk and a supervisor of people. This is a misconception by those who don’t understand the complexities of controlling parts inventory and making capital perform. Parts managers play a key role in converting capital the dealer principal puts into parts inventory into profit. Parts managers are really money managers. High performing progressive dealers understand this and treat the parts manager like they are managing an investment fund – because they are.

Just like a used car manager, a parts manager is responsible for taking the initial investment in the asset and turning a profit. Simply put, both the used car manager and parts manager need to make money perform. Both take the initial investment and turn a profit and reinvest the profits into the business to make it grow.

The difference between a used car manager and the parts manager is the complexities of ordering and returning parts inventory, and dealing with special order parts.

One truth for both is that the money invested must perform. Therefore, the product must sell, preferably as fast as possible, so the odds of a quick turnaround with a large profit are in favor.

So, the question is: “Why do we handle used car inventory so different than parts inventory?”

• Depreciation: Used car inventory depreciates by the day. Parts inventory doesn’t unless it’s been in inventory over 12-months without sale, then it’s in write-off territory.
• Plan B: Used car managers have an outlet to get rid of used car inventory after 90-days if they haven’t sold it yet. They can sell to a broker or even an auction. Parts managers don’t have that outlet – until recently.
• Timelines Are Different: Probabilities to move car inventory for a profit exists within the first 90-days (the sooner the better of course).  Parts inventory probabilities are basically 3x longer (2x for more progressive dealers). Where used cars have a profit lifespan of 3-months compared to 9-months with parts inventory, provided there is sales demand for a unit or parts inventory to begin

Understanding how to manage parts inventory when you have a small manufacturer’s parts return allowance is the key to increasing profitability and lessening the likelihood you’ll sit on under-performing parts or write them off in 12-months.

The key to managing parts inventory is knowing the odds of selling parts inventory and then applying those odds with a methodology to control parts inventory. To help your parts manager be a true money manager, we listed the 3 different types of parts inventory, their odds, and how to best control them:

The 3 Different Classifications of Parts Inventory

Parts inventory is classified into three groups and each group has different odds of selling.  Parts inventory is filtered into each class based on sales demand (and lost sales) activity within the last 12 months. If initially set up by the parts manager, every DMS can qualify individual parts based on sales history automatically.

• Active Parts Inventory: Inventory that has sold in at least 3 separate months, within the last 12 months rolling, and has sold at least once within the last 9 months (6 months for progressive dealers).

We call this 3-in-12, 4-in-12, and so on up to 12-in-12. We count the number of months an individual part has sold.  If a part sold in 3-months, within the last 12-months rolling, we would consider this part an active part.

• Phased Out Parts Inventory: Inventory which once had lots of demand and was once classified as an active part, but since has not sold in the last 10-months (7 months for progressive dealers), and hasn’t sold in 2 or less months within the last 12-months rolling. We call this 2-in-12, 1-in-12, or worse, 0-in-12.

• Non-Stocking Parts Inventory: These are special-order parts. These parts have never qualified for stock (using active parts method mentioned above), would never be seen on a stock order, and would never be purchased unless specifically ordered for a customer. Like phased out parts, these parts have a sales demand of 2-in-12 or less. These are the biggest offenders in any parts inventory because they would never regularly be ordered unless specifically asked for by a customer.

The Parts That Actually Make Money

Active parts inventory are the best performers. These parts have a 93% chance of selling again, which is incredible odds. In this case, the dealer makes a profit on 93% of the active inventory. Only 7% on an annual basis will become losers.  If managed correctly, this 7% won’t need to be written off and will be returned before they get to 12-months-no-sale – the danger zone where parts are normally writing off.

The Parts That Are Losing Momentum

Phased out parts inventory have lost sales demand. These parts were once ordered often on stock orders, but now are 10-months old since their last sales transaction (7-months old for more progressive dealers). At 10-months-no-sale, these parts have an 85% chance they’ll never sell again. Meaning only a 15% chance that they will until they hit 12-months-no-sale where the chance of sale becomes much worse. Phased out parts are not the biggest problems within a parts inventory, but they can become big problems when dealers lack return allowances to return them after they lose sales demand.

Your 2^nd Worst Nightmare

Non-stocking parts inventory that is ordered in specifically for customers, and not sold, are a huge problem for parts managers. Dealers get stuck with these non-stocking parts for a variety of reasons: customer no-show, customer misdiagnosed, tech over-quoted, the customer wrote-off their, etc.

These non-stocking parts, depending on the demand, have between a 35%-65% chance of never selling again.

You may be wondering, “Why are non-stocking parts the second-worst nightmare for a parts manager if the odds of selling them are higher than phased-out parts inventory?” Well, there are a few reasons:

• First: Non-stocking inventory represents the largest and the hardest parts to gain control over to minimize the impact to both the capital invested in inventory and the ability to return them in a timely manner.
• Second: The biggest problem is that they represent the largest portion of under-performing inventory by an excessive amount. Usually, within the first 30-days, if these parts are not sold the odds are poor that they’ll be sold within the coming few months. Since they are not the oldest parts in inventory, they sit in inventory until they become the oldest, usually around 10 to 12-months before they are next to be returned because parts managers need to get rid of the oldest parts in inventory first due to an insufficient amount of return dollars.
• Third: As non-stocking parts inventory gets older and sit on dealer’s shelves without selling, they have fewer odds of selling – compounding the problem.

Your Worst Nightmare

A parts manager and the dealer principal’s worst nightmare is when any parts, be it the phased-out parts or non-stocking part, hits 12-months-no-sale. This is because parts that haven’t sold in 12-months or longer have less than a 5% chance of selling again. That’s right – 95% of those parts will never get sold to a customer.

There are three separate studies on dealer’s inventory that show that at 12 months-no-sale if you sold one of these parts at retail price, you will break even with your holding costs. There are two other studies that suggest at 9-months and at 10-months-no-sale, IF you sell one of these parts, you will break even. This evidence shows that parts at 12-months-no-sale are a huge liability because dealers end up writing them off or tossing them into the garbage.

Finding A Solid Plan to Avoid Write-Offs

Although no dealer can get ahead of the curve, and have zero parts that are considered phased-out parts inventory or non-stocking inventory, they can definitely implement key strategies to slow down the amount of under-performing parts inventory. Progressive dealers implement processes so that they have very little to no parts write-offs and they have enough return allowance to keep parts inventory less than 12-months-no-sale.

Dealers on a manufacturer program might conclude that they have their hands tied and take what the manufacturer recommends – staying compliant. Although being compliant is something most dealers choose to do, parts managers can apply proper inventory control methodologies to try and keep out parts inventory that doesn’t have sales demand as much as possible, while staying at the lowest compliance percentage as possible. It’s a balancing act.

We talk a lot about parts inventory control methodologies in our Fixed Ops Magazine article here.

A Real Plan to Avoid Write-Offs

There are a few outlets that let dealers recapture some of the losses on parts inventory which ages out, of which most of those avenues require the dealer to take a 50% loss or more. Some dealers even refuse to take the loss and sit on parts inventory for years. Either way, dealers are stuck – until now.

Now there is an alternative way for dealers to unload underperforming parts inventory and get their full cost back. Using a parts trading program that basically swaps out parts inventory they don’t want for parts inventory they do want and can sell. You can find out more about the parts exchange program here.

It Takes Time

Managing parts inventory is no different than managing used car inventory. It’s a long process, but the best method is to start getting a handle on which parts are performing, which parts are not, and classifying them correctly to get the odds in your favor. In time, you’ll have a great parts inventory that is managed as well as your used car inventory.

If you’re feeling overwhelmed with your idle and obsolete parts inventory, you’re not alone.  If you’re looking for more in-depth support, feel free to contact us and book some time to get some help.

About the Author

Shawn Larkin is a feature article writer for Fixed Ops Magazine and 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 links.

In a recent conversation with Jeremy Baratto, the Parts Manager of Team Chrysler, we had the opportunity to get some invaluable feedback about our parts exchange program. It was interesting to find out what provoked him to sign up, his perspective on the benefits of using our program and hear his side of the story. We are grateful that Jeremy has allowed us to share some of his insight.

Initially, we wanted to know what problems Jeremy had in his parts department, prior to joining NADPE. His response was: “I always wanted, and believed, that I had a low percentage of inactive inventory. With the increased parts return limitations I was receiving over the years from the factory, I noticed an ongoing increase in my inactive inventory. I also have a problem with MSQ’s (minimum sales quantity) packaged parts…you know I need 1, but I have to buy 5 or 10.”

We asked if he thought this was an industry-wide problem. Jeremy responded: “I do, the OEM’s to me is saving money from every angle. The amount of return value the dealers can accrue is declining. Therefore, the dealer’s inventories are swelling. As well, the number of parts with MSQ’s have increased.” He later went on to mention: “with NADPE, you can even exchange parts that the Manufacturer won’t take back. You can exchange parts that have MSQ’s, rather than sitting on 9 of one part# because the MSQ is 10 and the Manufacturer will not take back 9. You have the potential to trade them for something that will sell off your shelf.” So all-in-all, NADPE came as a huge relief, enabling dealers to get rid of those parts and help reduce the swelling.

In many of our posts, we discuss the importance of how a Parts Manager is the “money manager”, in the parts department. In relating that to Jeremy, we asked if he thought this was a problem work solving. His response, which directly correlated with the opinions of NADPE, was: “I respect my Dealer Principal, after all, this is his money, and I am responsible for it. If I’m not treating his money like it was my own, then I’m not respecting him/her.” Great advice from a successful parts manager.

When presenting NADPE to potential new customers, a common question we get asked is: “Does it work?” If Jeremy could answer for us, he would leave no doubt in your mind that it does. In fact, he gave us some numbers, to prove that it does. “The amount of inactive inventory is reduced, my over 12 months on hand went from over $13,000.00 to as low as $3,500.00, and I still have return accrual available”, said Jeremy.

So, why then did it take him so long to get signed up? What was his hesitation? Jeremy’s response was: “To be honest, I really wasn’t aware of these programs. I had heard of them, just didn’t really focus my attention on them, for a long time. There is always the fear of trying something “new”. We are creatures of habit and are afraid of change. Also, of course, the question that everyone asks. How much is this going to cost me?” We then asked what it was that put his fears to rest. He answered: “The cost is reasonable, for what seems to be a large effort, that is put into this.  The process is simple and if there are any questions the staff is very knowledgeable and friendly to work with.’

Jeremy has been a great promoter of NADPE, so obviously, we wanted to know what he liked most about our program, and what ensued him to recommend NADPE to others. Jeremy’s rewarded us with this response: “The satisfaction of knowing inactive parts are going out the door in exchange for active parts. For what I consider a small fee, the results are impressive. If the Dealer Principal ever asks how much inactive inventory they have, you might as well be prepared with a low number.”

In closing, we asked Jeremy what he would say, should he recommend NADPE to another dealer who might have hesitated. He said: “Keep an open mind and remember what you’re doing for the dealership. $20,000.00 in stale inventory can be used to buy a couple used cars and sell them for a profit. So why have that kind of money sitting on the shelf in the parts department?”

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.