Oct. 5, 2009 – Digging deep to discover PG&A profitability issues

These articles recap some of the opportunities uncovered by Gart Sutton & Associates’ powersports specialists during consulting visits. These are followed by recommended actions that address the issues. Our goal is to provide ideas to help improve your dealership.

Dealership details
In 2008 the dealership was moved to a new, high-quality facility on freeway frontage near a small town. There are more than 200,000 people within a 30-mile radius and they are only 60 miles from a major city. Overall major unit sales are more than 900 units, plus they sell a significant volume of power equipment. The store is not making a profit and must implement significant changes to survive. This was a true mom and pop dealership until the owner died a few years ago. His sons have recently taken control and want to move the business away from the entrepreneurial stage to a more typical-structured business organization. The past two editions looked at the dealership as a whole and the store’s sales and F&I departments. This report focuses on the store’s parts and accessories department.

Analysis
There is a separate parts-only manager. One of the sales managers is doing accessories management as well as sales management. On the surface, the parts department looks good. In digging deeper, there are some serious issues. Margins are strong, but there may be issues with the numbers — they just don’t seem to match the situation. Parts turns indicate a lack of high-turn inventory. The errors found in last year’s inventory indicate a possible error of 15 percent in the total inventory valuation. Parts obsolescence is almost 25 percent of inventory while accessories are even higher. There was a discussion about writing these down and getting them out of the store through the Internet, special sales, donations or other means.
There are no essential processes, such as cycle-counting. P&A are not bin-located for this anyway. Geographical and categorical binning was explained to both managers.
Sales and service both access parts and help out on the counter. There is no control over computer access. It is suspected that shrinkage could be quite high as all employees can change part quantities. This needs to be password-protected to be accessed only by the parts manager and general manager.
We were assured that the proper categorizing of P&A has been done and is maintained. They are not utilizing the reports necessary to manage the department, such as: slow movers and non-movers reports; valuation reports; lost sales reports; and daily sales per employee.

Action Items
The staff needs definition and clarification of its roles and responsibilities. Develop a written non-negotiable standards lists for department personnel. Hold the staff accountable.
Create geographical bins for all hard parts. Size these to be counted in one hour or less.
Create categorical bins for all clothing and accessories. Size these to be counted in one hour or less (when possible).
Begin random cycle-counting of all P&A. Count at least one bin per day, every day.
Begin doing monthly random 25-number inventory spot checks. You should maintain an inventory accuracy of 97 percent or better.
Print slow-mover reports (less than two sold in six months) every two weeks. Reduce slow moving inventory.
Print a non-moving inventory report (no sale for 12 months) every two weeks. Utilize OE and supplier programs to send back non-movers or find other ways to get rid of obsolete inventory.
Eliminate all access to the parts department by non-parts staff.
Use passwords to limit access to changing part quantities to the parts manager and general manager.
Work with the owner to create inventory valuation budget and develop an open-to-buy system for all P&A. Adjust for seasonality.
Monitor inventory valuation, number of turns and GP on a monthly basis.
Consider physically stocking hard parts based on size and movement rather than numerical sequence.
Utilize a rider gear checklist to stimulate sales of gear at the time of the unit sale.