Here is distilled advice — actually five main points — for operating a profitable parts department. They are not arranged in any order of importance. They're all important. They are ingredients to create an “Easy-Money Cocktail.”
1st Ingredient:<br />Focus on Inventory Control
Watch what's not selling as well as what is. Keep the 12-months/no-sale category at less than 5%. Never let it exceed 10%. Start looking at potential obsolescence at about six months without a sale.
Review inventory control parameters and settings at regular intervals. I recommend twice a year minimum.
Keep close track of special-order parts and have an organized system to contact customers who ordered them. Unsold special orders go right to obsolescence.
Educate your staff about the significance of lost-sale reporting. Continuously communicate this message.
Work smarter, not harder by exploring all avenues for continuously improving your inventory control and inventory management.
2nd Ingredient:<br />Purchase for Profit
Stick to scheduled stock orders as much as possible. Stock orders represent the best method for acquiring parts yielding the highest return on the investment — but not if ordering is at the expense of customers who need parts quickly.
There must be a balance between stock-order and emergency purchases. On a weekly cycle, try to maintain a stock-order performance of 75%-85%. On a daily cycle, try for 85%-95%.
3rd Ingredient:<br />Read the Reports
Review two important documents on a monthly basis: the departmental DMS month-end management report and the department's income statement. The management report includes all the departments' key performance areas.
Pay attention to these areas:
- True Turnover
It offers a better performance measurement of inventory because unlike gross turnover (which measures all parts sold from stock, intermediate orders, emergency orders and purchases), true turns measures only those parts sold from your stock.
- The Income Statement
This is the parts department scorecard. Look for trends and compare performance periods. Look at sales and gross profits relative to expenses.
- Total Sales
Are you on target? This should be planned logically on a yearly basis, not simply set as an arbitrary percent increase over the previous year.
- Gross Profit
It should cover operating expenses and still provide a reasonable return on the owner's investment. Pricing policies must support this gross profit goal.
They represent the normal cost of doing business. Under regular operating conditions, expenses seek their level in every line. Review monthly all expenses relative to total sales and gross profit.
4th Ingredient:<br />Maximize Your Human Assets
Foster good employee satisfaction. It leads to higher productivity and happier customers, which means higher profits. The parts and service director of a large Chevrolet dealership tells me, “Everyone has parts, it's the people who make the difference.”
Create a positive work environment that attracts, rewards, and cultivates the talents of star performers. In essence, become what I call a “preferred” employer.
5th Ingredient:<br />Make Customers Happy
Wow them! How? At all times keep your service promise. Do what you say you will and do it when you say you will. Make customers more satisfied with your services than with the competition's.
There you have it. Now stir it up, pour it out and enjoy.
Gary Naples is a parts consultant to dealers and manufacturers. He's authored two books on parts management. He's at 570-824-1528/Gss83@aol.com.