Access to a wealth of data can be beneficial but also a double-edged sword; just because something is measurable doesn’t mean you need to measure it. Efficient management isn’t about amassing metrics, it’s about selecting the right indicators that drive strategic decisions.
“The ability to identify new ways to measure makes a difference in successful management.” — Octavio Santisteban, Senior Analyst at Autologica.
Two Common Challenges for Every Parts Manager
Scenario 1
Imagine a customer arrives at the dealership requesting 10 units of a specific part, but only 6 are in stock. Here, the fill rate would be 60% if measured by “quantity”, or 0% if using the “line item” approach some OEMs follow.
Two outcomes can occur:
- The Parts Department staff offers to order the remaining parts and the customer agrees, completing the sale but creating an emergency order.
- The Parts Department staff offers to place an order for the missing items, but the customer declines, resulting in a partial loss of sales on the remaining 4 units.
While the first outcome may seem more favorable, emergency orders usually incur additional costs due to expedited shipping fees. These delays also extend the time the customer is without their vehicle, impacting overall satisfaction. For machinery, these consequences can be even more severe. In some cases, ordering a single part may result in disproportionate shipping costs, which would be more justifiable if the order included multiple items. Thus, freight charges can become excessive and reduce profit for the dealership.
Scenario 2
In the dealership, there is no control over parts activity, leading, after careful analysis, to the detection of a troubling reality: hundreds of thousands of dollars are tied up in parts that depreciate daily. The obsolescence rate of parts isn’t an obvious metric for many dealerships, but measuring it reveals how much capital is immobilized in slow-moving inventory.
Imagine a dealership with a total parts inventory of $1,000,000, of which $500,000 is obsolete. Supposing a bank pays 5% annual interest on deposits, the dealership is facing an opportunity cost of $50,000 annually for this immobilized inventory.
Data as the Answer to Everything
Both scenarios share several common points, but the most significant is that they are silent aggressors until uncovered through precise measurement. Months may pass with these issues gradually wearing down the department; identifying them is the first step, and taking corrective action is the second.
Solutions
Purchase Management
It’s essential to base purchases on statistical methods by using automated purchase suggestions. Effective purchasing management considers factors such as sales rankings, demand volume, popularity, and seasonality. Autologica Sky DMS offers various order suggestion methods, which you can explore further here.
Monitoring Inventory Health
Regularly controlling the health of the inventory using ABC report cross-analysis techniques is vital. For example, obsolete parts with a high impact on stock value can be detected, allowing for immediate corrective actions.
Improving Pending Order Management
When suppliers send parts to the dealership, it can be challenging to determine whether they are for replenishing inventory or if they were specifically requested by a customer. If the parts are for a customer who doesn’t return to the dealership, they may end up sitting on the shelf contributing to immobilized stock. Autologica can assist with this issue; learn more here.
Inter-store Cooperation
Analyze parts that aren’t selling at one branch and transfer them to another location where there is a higher likelihood of sale.
Balance Between Action and Measurement
Success in parts inventory management doesn’t depend on how many indicators are measured, but rather on selecting those that offer the greatest strategic value. It’s also essential to keep an open mind to discover new metrics that can be revealing and drive significant improvements.
