My first experience on how much impact a parts department can have on a dealership was several years ago when I was an operations manager for a large RV, marine and powersports dealership. When it came time for our year end, we brought in an inventory counting service to assist us so that we could be finished in a weekend. When the dust had settled and we compared the physical count to our general ledger records, we were short by a number that reached into six figures. I was stunned. How could this happen to such an extreme amount?
I’ll let you know how this happened a little later in my blog, but first I must say that over the years of working in this industry, I have witnessed several instances where dealerships have not given the arts department the attention it requires. It is often treated like a neglected sibling, taken advantage of and taken for granted by other departments in the dealership. It can and should be a great source of revenue for you, but it can also be a profit drain if not managed properly.
Your parts and accessories department is a great unifier within your organization. It helps the sales department sell more product by providing those extras a customer is looking for. It helps the service department get its jobs completed. It helps improve door swings for customers who like to work on their own units. It consistently produces the highest margins in the dealership and it’s the department that best weathers the highs and lows of our seasonable business.
How comfortable are you with your parts department and are you confident that you are maximizing all the benefits and profit this department can provide? Here are a few red flag issues that indicate that you could or already have issues that prevent maximizing your profits:
- Do you actually do a physical parts inventory count at year end? There are some dealers who rely on computer reports for year end. Huge problems await.
- When was the last time you reviewed your aging parts inventory and what was your strategy to reduce? Some dealers will shrug and say they use that inventory to help with margin requirements for operating lines of credit. That isn’t a strategy.
- Do you know what your parts department turns are and are you hitting industry averages?
- Do you take advantage of OEM return policies?
- Do you limit access and implement proper security in your dealer management software to limit who can change quantities and approve charging?
- Do you have policies in place to limit sales and service staff's access to actual hard parts?
- Have you ever implemented regular and various bin cycle counts to help alert you to potential problems before they get bigger?
Now I can finish the story I mentioned at the beginning about our huge loss in the parts department. While I understand that theft is a part of operating a retail business, there was no way it could contribute to a six-figure variance with a physical count. I needed to spend more time out of my office and see what was going on throughout the store.
At the back end of the store, I found that the service techs were tired of standing around, having to wait for the parts people to show up and get them their parts, so they went into the parts room and got the parts themselves so they could get the RO completed. I saw that the odd part was charged to a RO, but most were not. At the front end, I saw salespeople throw accessories into a deal in order to close. Lifejackets, Porta-Potti’s, shirts and hats that made customers happy … but never made it to the parts counter so they could be charged to the deal.
This was a large dealership so I can only assume this happened thousands of times a year. So what did I do to fix this? At the back end, I put keyless locks on the main doors to the parts room and a buzzer for the techs to notify parts staff that they were waiting. For the front end, I spoke to the salespeople and implemented a policy that all accessories had to be charged to a deal. I explained why the policy was required and that it was serious enough that salespeople could be terminated if caught going into the back parts room to help themselves.
Sales staff didn’t like the policy but understood why it was being implemented. That didn’t make me comfortable so after the meeting, I grabbed a coffee and a chair and went into the back parts room and sat down about 50 feet directly across from the door. I swear on a stack of Bibles that it wasn’t more than 15 minutes and a salesman was stopped cold in his tracks when he opened the door to see me sitting there. Let’s remember to inspect what we expect!
Bruce Marcia is the director of Bruce Marcia and Associates, a retail management consulting firm that specializes in assisting and supporting dealerships in the RV/marine and powersports industries. As a recognized troubleshooter with over 30 years of experience in inventory finance, dealership general management and as a district manager for a major OEM, Bruce has had the unique opportunity to understand and learn from all three important fields that make these industries function.