Managing and Controlling Your Parts DepartmentJune 29, 2015
When was the last time you walked through your parts department? Did you just cut through there or did you actually walk every aisle and maybe even look at the shelves and bins? I bet you have never actually walked into your parts department, up and down each aisle slowly, looking at each shelf, bin and drawer to see what you actually own and how your cash is tied up.
Why would you want to do this? One, to see if it is even halfway organized. Two, to see how clean or dirty the parts packages and shelves are. Three, to find out where the special order parts are stored and segregated. Four, to find out where all of your “used” parts are stored. Five, to see how busy they really are back there. And six, to see how much storage room your parts inventory dollars really need.
Organization in your parts department is central to having a well-run parts department so your employees working there can find the parts quickly, as every minute they make a technician wait costs you gross profit. If parts bins are not organized and labeled, how are any new hires or temporary employees ever going to find the parts to sell them?
Dirt and dust are necessary evils in the parts department due to the large open area in which everything is stored, being next to the service department and the amount of human and parts of traffic going in and out of there daily. But that doesn’t mean an effort should not be made to keep it clean and dusted on a regular basis.
Special order parts not picked up by a customer or installed on a customer car will cost you a lot of money over time. Special order parts use up your return allowance very quickly and erode the amount of parts you can return that are becoming obsolete. If you have this problem, you should make sure they are stocked on the parts pad in a special separate source so they can easily be tracked and you can obtain the total dollars you have sitting on the shelves. You should also try to obtain prepayment on these parts as often as possible. At least then you can try to minimize the parts return allowance used up by these parts.
Do you know where all of your used parts are that you have taken off of vehicles over the years? Did you personally keep track of the $2,000 of tires and wheels you took off that three-quarter ton pickup? I don’t know many dealers who can tell me what their used inventory value is or if they know it is still in stock, has been installed on another used vehicle or sold to a customer. What cost has been attached to these parts? These parts should also be tracked on the parts counter pad and have a cost attached to them. You should be able to run a report of these parts to physically check if they are still in stock. Without stocking these into your system, these parts can easily disappear out the back door, and no one will remember you have them.
How busy are your parts counter employees? One way you can tell before you walk through the department and spend some time back there, is to look at your financial statement parts sales and divide it by the number of employees you have in the department. I have seen average sales of $30,000 to $75,000 per employee. This is quite a range. Some stores find themselves with not enough sales to afford hiring an extra person but with sales too high for the number of people they have employed there.
With daily parts orders and various factory programs these days for stocking guides, we have seen the average parts inventory reduce over time. With this in mind, do you really need all the room you used to need back there? Can it be put to better use? Can it become a special tool room, a work area for the technicians, etc., which may free up a bay in your service department that you can turn into a profit center? Or maybe you could use the room for a larger customer waiting area or service write-up area?
You should also run your parts management report on a regular basis. This report will show you what the aging of your parts inventory is, how many dollars of adjustments have been made to the inventory value, how much you have on your parts pad versus your general ledger, what your projected obsolescence is, negative parts and dollars on hand, your parts turn, how many dollars are over 12 months old, etc. All of this information is normally trended by month side-by-side for comparison purposes. Find out if you are going in the right direction.
Check your parts grosses on your financial statements. Are your internal parts grossing at least what your customer pay parts sales are grossing? If not, why not? You are giving up gross profit that can help increase your parts and service absorption of fixed expenses. Have your parts manager increase the parts matrix to a higher markup until you achieve at least the customer pay gross profit percentage. This should not affect your average used vehicle gross profit. If anything, I have seen it increase the average vehicle gross instead.
Take a chance and spend some time with your parts department. Maybe you will find out why they never seem to have the right parts in stock.