Dealership Parts Management & Profitability

Satiate Knowledge Share Center

Newsletter Date 08th August 2015

Dealership Parts Management & Profitability

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Define a day’s supply number you can live by. One dealer had Rs.200,000 of parts with no sale over 12 months. He also had Rs.500,000 in excess inventory day’s supply. I can live with 45 days supply, but many dealers are beating the

30 day supply mark with daily stock order availability. Numerous dealers were purchasing on an emergency basis 60% of the parts they were selling each

month. The inventory they owned was stagnant.

Separate the wholesale operation from the retail service support operation. One dealer’s parts manager, a big wholesaler, based most inventory purchase

decisions on wholesale marketing strategies, not the demands for customer repair order parts. It seemed the purchase decisions were made based on

what could be made on the purchase discounts, not on customer demand. Be mindful that manufacturers are reducing the return allowances.

Be aware of why your customer repair order parts margins are what they are. One member had an 18% margin on customer repair parts and he did not

know why that was. This can be monitored each day through your DMS and by service advisor. Matrix pricing still works, allowing the repair parts margins

to compensate for the competitive parts margins. I still like to see an overall customer repair order parts margin in excess of 42%.

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Know your manufacturer schemes, how you earn purchase discounts, how to protect yourself through the return process.

Know the specific criteria and process for returning parts, as well as cores and warranty parts for review. You probably cannot even return a special order part. It is usually most important that the packaging of the returned part be submitted with the defective part. We heard one story where a parts manager decided that warranty return parts were not his concern and threw out all the warranty parts to be returned, putting the

dealer at risk of losing the value of all those claims.

Net profit is for Parts Departments, too. Prior to the recession, I always looked for Parts to be easily profitable at 30% of gross on up to 45 % of gross profit produced, depending on the franchise. Lately, I have seen Parts Departments only at breakeven, not to mention the excess per-

sonnel attributed to parts. Get the expenses in line with the parts gross you are currently developing. This is not brain surgery, and your DMS does most of the counting work for your personnel, not to mention the

help the manufacturer contributes to the ordering process.

Do an annual parts inventory with the help of an outside consulting or au-diting firm. At the very least, check the bins on a rotational basis throughout

the year, correcting counts and incorrect locations. Some dealers work a cycle count allowing for a complete inventory check each quarter. Can you imagine

an error rate of nearly 30% in the accuracy of your bins? It happened; it is happening now. One dealer, having asked his parts manager what an inven-tory reconciliation looked like, found the manager did not know. Hard to be-

lieve? I believe it.


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Dealership Parts Management & Profitability