6 Macro solutions for Dealer’s principal towards his Spares department



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|Aftermarket Parts|

Dealer’s situation

Define a day’s supply number you can live by. One dealer had Rs.200,000 of parts with no sales for over 12 months. He also had Rs.500,000 excess in inventory day’s supply. I can live with 45 days’ supply, but many dealers are beating the 30 day supply mark with daily stock order availability. Numerous dealers were purchasing 60% of the parts they were selling each month on an emergency basis. The inventory they owned remained stagnant.

What dealer has to do?

6 Simple tricks

  • Separate the wholesale operations from the retail service support operations. One dealer’s parts manager, a big wholesaler based most of the inventory purchase decisions on the ‘wholesale marketing strategies’ and not the demands for customer repair order parts. It seemed that the purchase decisions were made based on what could be bought on the purchase discounts, not on customer demands. Be mindful that the manufacturers are reducing the return allowances.

  • Be aware of what your customer repair order parts margins are. One member had an 18% margin on customer repair parts and he did not know why that was. This can be monitored each day through your DMS and by service advisors. Matrix pricing still works, allowing the repair parts margins to compensate for the competitive parts margins. I would still like to see an overall customer repair order parts margin in excess of 42%.

  • Do an annual parts inventory audit with the help of an outside consulting or auditing firm. At the very least, check the bins on a rotational basis throughout the year, correcting counts and locations which are incorrect on the go. Some dealers work on a cycle count allowing them to make room for a complete inventory check each quarter. Can you imagine an error rate of nearly 30% in the accuracy of your bins? It has happened and it is still happening now. One dealer, having asked his parts manager what an “inventory reconciliation looked like”, he found that the manager did not know. Hard to believe? Having seen it already, I believe it.

  • Net profit is for Parts Department as well. Prior to the Covid-19 pandemic, I always looked for Parts to be easily profitable at 30% of gross on up to 45 % of gross profit produced, depending on the franchise. Lately, I have seen Parts Departments only at break-even, not to mention the excess personnel attributed to parts. Get the expenses in line with the parts gross you are currently developing. This is not brain surgery, and your DMS does most of the counting work for your personnel, not to mention the help the manufacturer contributes to the ordering process.

  • Know your manufacturer schemes, how you earn purchase discounts, how to protect yourself through the return procedure.

  • Know the specific criteria and process for returning parts, as well as core and warranty parts for review. You probably cannot even return a special order part. It is usually of the utmost importance that the packaging of the returned part be submitted along with the defective part. We heard one story where a parts manager decided that warranty return parts were not his concern and threw out all the warranty parts to be returned, putting the dealer at risk of losing the value of all those claims.
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