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September 25, 2006: Focusing on a dealer’s parts, service policies

This series of articles recaps a portion of the opportunities that were uncovered by Gart Sutton & Associates powersports specialists during consulting visits.
These opportunities are followed by recommended actions that address the issues.
The goal of this series is to provide you with ideas to help you improve your dealership.
Last issue, we looked at the dealership from a customer viewpoint. This issue, we’ll look at the processes in place at the dealership.
Dealership Details
This multi-line dealership is located in a rural area that draws from surrounding communities and an established rural market. The dealership recently moved into a new, highly visible facility, resulting in rapid growth. They have nearly doubled sales to more than 1,200 units per year. Their existing systems and procedures are not capable of supporting this volume. The focus of this report was the needs assessment of their parts and accessories departments. The goal for the recommended actions was to (a) improve displays, inventory levels, tracking systems and efficiency in the P&A department; and (b) install the processes necessary to make these departments into more profitable contributors to the dealership’s bottom line.
Dealership Policies
There are no written policy and procedure guide or job descriptions for the parts and accessories departments. The parts manager was selected based on seniority (oldest survivor). He has no management training or past experience to draw from. There is no department budget, Open-to-Buy system or inventory analysis. Lost sales are not being tracked. They do not use bin locations, and the hard parts are being stocked by brand in numerical sequence. Inventory is counted once a year. The store is closed for several days during this period. No one is held accountable for receiving or stocking merchandise.
A random audit of 25 part numbers revealed an inventory accuracy of only 73 percent. Slow-moving inventory appears to be close to 35 percent (hard to tell when accuracy is off by almost 30 percent). Some of this inventory is more than 4 years old. Due to the lack of accuracy, the current shrinkage rate is unknown.
All of the parts staff have the ability to receive merchandise and access and change stock quantities. The service staff is allowed to pull its own parts for service jobs. The parts manager is responsible for all parts orders, but there are no established ordering processes. Special orders require a 10 percent deposit. The consultant counted 82 special orders on the shelves, 37 were more than a year old.
Recommended Actions

  • Hire an experienced parts manager who will help implement and support the processes necessary for proper operation of this department.
  • Develop and enforce a policy and procedure guide for the operation of this department.
  • Develop and implement written job descriptions so you can hold the staff accountable.
  • Create a department budget and an Open-to-Buy system so you can establish control of the expenditures.
  • Limit the people authorized to receive inventory and change inventory levels. This will help reduce shrinkage.
  • Eliminate all service access to the parts area. Establish a service parts person whose primary function is pulling parts for the service department.
  • Develop a procedure for ordering, receiving and stocking merchandise.
  • Require all lost sales to be recorded. Use this report to determine future stocking needs.
  • Restructure the parts stocking area. Move fast-moving parts closer to the parts counter. Stock the remaining parts by physical size. Maximize the use of multi-drawer cabinets and other storage methods.
  • Develop categorical or geographical bin locations for all merchandise. Keep them small enough to count the contents in one day.
  • Establish a cycle-counting system with at least one bin being counted each day. All P&A inventory should be counted three to four times a year.
  • Begin monthly, random part number audits. The goal is 97 percent accuracy.
  • Begin charging 100 percent for special orders. Immediately contact all existing special order customers to determine which of this inventory can be eliminated.
  • Verify the part numbers that have not sold for more than a year. Eliminate these items through return programs, special sales or donations so the funds can be reinvested in fast-moving inventory. Investigate possible tax advantages for these sales and donations.
  • Monitor inventory turns by part number and minimize stocking of items that turn less than four times a year.
  • Review and utilize any suppliers’ stocking and return programs that benefit the profitability of this department. psb
    Author, speaker and educator, Gart Sutton has been retained by every major powersport manufacturer/distributor. He is a frequent keynote speaker for national motorcycle conventions and state motorcycle dealer association events. Visit www.gartsutton.com.

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