Pub. 14 2015-2016 Issue 3

N E W J E R S E Y C O A L I T I O N O F A U T O M O T I V E R E T A I L E R S 23 new jersey auto retailer W W W . N J C A R . O R G DMS system they were using at the time. This lack of training and lack of under- standing by general management of the processes and requirements of a good Parts Manager and profitable Parts De- partment was ‘cast to the wind.” Only those fortunate enough to have had a good mentor learned all the policies, measurement and tricks of the trade necessary to run the Parts Department properly and profitably. Another of the problems general managers and dealers faced was in the measurements themselves. For decades there were few measurements outside of some ‘ratios’ that were gleaned from the financial statement that allowed a General Manager to try and ‘see’ what was really going on in the parts inventory and Parts Department. Often, more time was spent balancing the cash box in accounting on a daily basis, leaving the ‘management’ of the Parts Department to an annual inventory, hoping that the count of the annual parts inventory would somehow ‘match’ that on the general ledger. If it did not, all hell broke loose andPartsManagerswould be out looking for another job. The biggest singleproblemwithmanagement, using the annual physical inventory was “annual”. If there were a difference with the G/L, finding the exact cause was essentially impossible… to go back over the past year and find problems that well could have been incremental over the full term of the year. The biggest question the General Manag- ers and dealers had about parts was simply “howwell is the parts inventory ‘feeding’ my best customers, the technicians, giving them WHAT they want WHEN they want it.” In other words, how good was the mixture of parts on the shelf in filling the demands of the customers. The figures of ‘inventory turn’ [annual cost of sales divided by the G/L inventory] and the calculation of ‘months of supply’ [G/L inventorydividedby the averagemonthly cost of sales] have been themost common calcula- tions in our industry for the last 100 years; but they fail to tell the dealer orGeneralManager what they want to know: 1. How good is the ‘mix’ of the inventory in filling the demand of the customer? 2. How good is the purchasing of these parts [the parts are like cash on the shelf] by the Parts Manager? The answer to these two questions are not from the financial statement, but from other sources. For decades, the job of determining what to stock, how much and when to order fell on the back of the Parts Manager who usually learned this skill from his/her peer in the employment and education process. This method is very strong when the teacher knows what to teach to the apprentice. The factory pretty much stayed out of the training process, but in the mid-1980’s the factory began taking a very strong, and in the opinion of some, unwarranted intru- sion into the decision-making process. Automatic Stock Replenishment (ASR) is, in essence, a parts, sales and marketing program by the factory to sell the parts to the dealership. Oh, they were “guaranteed” but the standards became more and more predatory and the dealer body did little to stop the camel from getting into the tent. Those ASR programs began to spread throughout the industry, with only a few manufacturers not taking the program over what was initially the responsibility of the Parts Manager. So the Parts Managers, in a very real sense, have had the most important part of their job usurped by the factory— the decision of what to stock and when to shock it. To be fully forthright, a few of these ASR systems have done a very credible job, but some are a disaster in ‘parts inventory man- agement’ and have been reduced to preda- tory marketing programs of the factory. Oftentimes the inventory management is not based on the demand of the single dealer location, but rather a larger geographic loca- tion. This means that, although a specific dealership has never sold a particular part, a dealership ten or a hundred miles away, HAS sold the part, so both dealerships should stock the part even though there has been no demand at one of the stores. So here we are in a situation where the dealer’s Parts Department has been ‘taken over’ by the manufacturers in this critical part of the sales cycle and the maintenance of the vehicles sold to their customers. Is there an answer to all this? Yes! The dealer- ship’s DMS systemmust be set up to do for the dealer (and the Parts Manager) what they would do for themselves, if they had unlimited calculating and market discern- ment powers. They can use their DMS to be the ultimate arbiter of accuracy of what their market needs, rather than rely- ing on an outside source (the factory), to determine what they feel is needed in the dealer’s own store. Mike Nicholes is founder of Mike Nicholes Capital Management, Inc. He can be reached at 503.705.7490 or via email at miknik@aol.com . The dealerships DMS system must be set up to do for the dealer (and the Parts Manager) what they would do for themselves, if they had unlimited calculating and market discernment powers.