What’s going on in the Candy Store?
by: Jim Richter
A recent article in USA TODAY highlighted a report from the Federal General Accountability Office (GAO) concerning the state of spare parts under the control of the Army. The following issues were called out:
- $3.6 Billion of excess stock annually from 2004 through 2007 (this is only the Army.)
- $900 Million in scrap as of 2007.
- $3.5 Billion in Emergency Purchases due to insufficient quantities of stocking parts (2007.)
- Computer Models ineffective for the job (their equivalent of a DMS.)
Doesn’t this sound vaguely familiar to you? Excess Stock due to changes in demand and ordering irregularities? Scrap buildup due to ineffective control of Non Stocking parts resulting in Obsolescence beyond the redemption allowed by the manufacturers? Lost Parts GP$ and Shop Productivity due to needed parts not being available at the time of demand? DMS settings which are not correct for current customer volume or ordering parameters? So what are you going to do about it now that sloppy parts inventory management is no longer affordable?
Course of Action
The primary concern here is to ensure that the DMS is set correctly for your current needs, and that your parts manager knows what to do and how to do it. This may sound simple, but in my recent travels with a major consolidator I have met numerous managers that have not checked their settings in years, if at all since they assumed their position. One Ford manager had been on Daily Stock Order for the last 6 years and still was set for weekly BSL targets! A Honda manager did not even have access to the MNT functions in ADP so she couldn’t have made changes even if she wanted to, which points out another issue: too many new managers are never given the training necessary to maintain the critical settings in the inventory controls. So what should a Dealer or GM do?
- Start by taking an assessment of your manager’s capabilities. Can they show you how your money is being managed by the DMS? Do they understand the decision making process behind when parts are put into stock? How many to buy? How long to keep them on hand? If you’ve made the classic move of promoting your best counterperson to be your newest manager it’s a safe bet that they came to their new position poorly trained for inventory control since sales was their primary concern. Remember, it’s your Working Capital they’re working with.
- Develop a ‘Needs Analysis’ for your manager. Identify what knowledge is missing and set up training to provide it. More often that not my first visit to a new client involves this assessment and performance of on-site training in the parts department since it’s pointless to build Service up if Parts is not ready for them. If you are not comfortable in performing this bring in a professional. You’ll get an impartial revue and report as well as some very effective one-on-one training.
- After the ‘Needs Analysis’ construct an Improvement Plan with specific action items, measurable goals, and regular reviews with the manager. What if you, as the Dealer or GM don’t know what to evaluate specifically? Consult with that same professional; take advantage of manufacturer training; review the DMS training yourself; or work with your 20 Group facilitator. If you would like an Assessment and Improvement Plan format to use with your manager contact me at jimrichter@m5ms.com.
- Learn to use the reporting tools provided by the DMS and include them in the monthly manager’s review.
- ADP uses the MGR Report. Reports 1 and 2 are the most informative for general oversight.
- ERA uses the 2213.
- Most of the other providers have their versions of these 2 reports, or can serve up the same data through a series of smaller reports.
If your parts manager knows that you are interested and knowledgeable about parts it will go a long way toward getting him or her to focus on managing your money in addition to sales. Ask pointed questions and set deadlines for resolutions. If you don’t they probably won’t happen.
Parts Inventories are a concern for everyone in the dealership today. They represent a high concentration of Net Working Capital, are not as liquid as many people think they are, provide a substantial Gross Profit opportunity, and are integral to the success of Service and Collision departments. Our current business climate makes sloppy inventory management more expensive than ever, especially when it can be avoided.
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