Every dealership has a "Battery Bill." He's the local wholesale distr-ibutor who's been with the dealership for 25 years. He's been there when the parts depart-ment needed him and between batteries, starters and a handful of other fast-movers, he's never let the dealership down.
But with the complexity of today's automobile (a typical modern car has some 20,000 plus parts) and the significant profit contribution of today's parts department, the local WD has found it difficult to stock the depth and breadth of items required to fully service their customers. Accordingly, many dealerships now have re-focused their thinking and place a far greater reliance on a combination of the Factory and a few larger regional or national WD's to service their wider and more complex parts inventories.
That the parts department has become a major profit contributor is undisputed. With a typical gross profit margin of 44% in a market estimated at $35.9 billion (1998), there are few dealerships who do not acknowledge the importance of the parts department.
And the potential for dealership parts sales grows steadily. Between 15.5 million new vehicle sales in 1998 and 10.3 million used vehicles, the market is there. Couple the large volume of car sales with a slow but steady increase in the average life of a vehicle, 9.6 years at the latest count, and the fact that U.S. drivers now drive about with more computer power than early space craft, the stage is set for even more parts growth. Add to that a steady decline in the DIY market and the new car dealership stands to be an even bigger winner. But sales growth is only half of the equation.
The stores who will gain the most are those who find ways to maximize the profitability of these incremental sales. The daily replenishment order (DRO), where the vast majority of dealership parts purchases are made, is the key to this greater parts profitability. A careful analysis of inventory needs and turns coupled with the availability of electronic measurement and ordering is the best combination to insure that the dealership is maximizing parts profits by reducing the total acquisition cost of DRO items (measured as price and ordering efficiencies).
The factory offers much in the way of efficiency-enhancing connectivity, for instance, with DOES II and Rapid Plus. But by relying solely on the factory, some dealerships are leaving money on the table. Without realizing it, they are not doing the careful parts order management process necessary to maximize parts profit. Seeking the least cost source for every DRO item is universally recognized as the best way to extend profit. But, the answer is not ordering all DRO parts from the factory since there is as much as a 35% price differential between the sources of the DRO, the factory and the WD - with equivalent or better advertising and return allowances.
The answer that many dealerships have discovered is direct electronic parts ordering of the DRO from multiple sources.
Many dealerships have disc-overed that as much as 25%-30% of the DRO is better secured from a multi- line WD. And with a dealership that purchases, for example, $65,000 per month in parts from the factory, the savings can be $1000 per month or more. Using that facility, the parts department is assured of achieving the best pricing and delivery terms. It is, though, a matter of balancing time and effort (to identify the best source per item) vs. best price. Purchasing everything from the factory is the simple solution (since it eliminates the time required to identify parts which are or not available from a WD) but not the most profitable. However, the time required to identify WD-supplied items, remove them from the factory order, and phone or fax them to a WD often outweighs the profit enhan-cements which accrue from doing so.
The trick is to at once maximize the percentage of WD-supplied items actually purchased from a WD while facilitating simple identification and ordering of those WD items. "Battery Bill" with rare exception is not the answer. Without a broad inventory and little in the way of technology solutions, he cannot fully service the needs of the parts department. Neither are most regional WD's the best solution. Yes, their inventories are larger than Bill's. Plus, most offer the service of running their inventory against the dealer's and "flagging" parts supplied, thus saving the parts manager time. But with constantly changing parts numbers, flags become out-of-date regularly resulting in the potential for missed savings. And the less than exhaustive availability provided by the regional WD adds to the injury.
Many dealerships have discovered the one best tactic - carefully balancing the DRO order between the factory and a large WD (Johnson Industries, Elliott, PAM, or Parts House, for example). The large inventories of these national WDs ensure that stores will maximize purchase price savings since a greater portion of the DRO can be shifted to the less-expensive WD. Plus, most of these large players provide some form of efficiency, enhancing electronic ordering capability. Johnson Industries, for example, offers an electronic transaction system called JETS, which can entirely automate the task of identifying and ordering WD-available items. Other national WDs offer similar applications which lower overall acquisition cost by eliminating time and effort required to assemble and submit a WD order. The bottom line is this: with a well managed factory plus national WD strategy, the new car dealership can accomplish both earlier stated goals - maximizing departmental profitability while minimizing the effort required to do so. As an added benefit, the store's relationship with Battery Bill will continue mostly unaffected (since most of what will be supplied by the national giants was never supplied by Bill in the first place).
"Battery Bill" has been a loyal WD for many years. And loyalty should be rewarded. He still will be a link to boosting CSI. He still will be the emergency supplier and the best source for items which due to their bulk are cost prohibitive for the national WD to ship.
But just as the carburetor has been replaced by a more reliable electronic solution, so, too, must the local WD be replaced by an electronic solution.
Michael Winter is a broad-line marketing consultant. He can be reached via e-mail at [email protected].
