Parts inventory: Revenue Management



Lessons’ from the NADA Dealer Academy:

The Parts Department is an important asset management component that if mismanaged, will have a negative impact to the balance sheet. Since most managers don’t take a path of leadership through Parts, this department is overlooked and undervalued.  The metrics of parts department performance is measured can be fully realized. The balance-sheet concern for the dealer is receiving good Return on Investment (ROI) for the dollars invested in inventory.

These essential functions are the key to excellent asset management and this is why it is imperative to have the right manager operating the parts department. Arriving at a good Return on Investment (ROI) is the result of careful planning and that addresses the many different facets of operating a profitable parts department.

Parts Management has two divergent roles regarding inventory investment:

  1. They must manage the stocked inventory, deciding which parts we should invest in with the objective of providing maximum return on inventory investment.
  2. They must work to limit the dealerships exposure to non-stocked and excess inventory, preventing investment in parts that are likely to become obsolete.
  • Each manufacturer carries hundreds of thousands of part numbers.  The average dealer stocks in the area of less than 7,000.  Of the hundreds of thousands of parts available how do you choose which is the right part to stock? The DMS (dealer management systems) are the integral tool for managing and monitoring the inventory status.  Specific to inventory control, the DMS helps managers retain data and provides specific stocking guidance.  A productive DMS program helps the manager determine; what to stock, when not to stock and how much to stock.

For your DMS to function accurately it must first have 100% of the demand data.  Demand comes from posting sales, posting lost sales and posting emergency purchases.

Posting lost sales:  The purpose for posting lost sales is to collect the demand data, identifying parts that should be stocked. There is only 1 rule for posting lost sales.  Always post a lost sale, unless you have the part in stock, or sell a factory part.  Your phase-in requires 100% demand to work effectively.

Posting emergency purchases: Some purchases will have to be made on an emergency basis.  The challenge for the Parts Manager is to minimize the need. Improving the Level of Service can be accomplished through over-stocking but this method drains away potential profits. The overall effect of purchasing parts correctly through the parts demand process as opposed through emergency ordering is that the savings gained improves profit margins.

True Turns:  Average inventory value at cost divided by annual cost of sales.  It is important to measure turn so that the Parts Manager can stock what is being sold and sell what is being purchased.  A true turn measurement is 5 to 6 turns per year.

Gross Turns: This calculation is the total number of parts in inventory divided by the total number of sales for the year.  Gross turns tell the Dealer how much money is tied up versus how much money is turned into profits.  The guide for Gross turns is 7 to 9 turns per year.  Gross turn numbers that exceed 12 have been accomplished by highly efficient parts departments.

Fill rate: Having inventory on the shelf to meet demand.  Current fill-rates should be equal to or greater than 95%. Off the shelf fill rate is having the parts on the shelf at the time of the demand.

Obsolescence: Is a part or parts that have been ordered (Special Order or stock) that no longer meets the stocking requirements.  Guide for obsolescence is to be no more than 5% of total parts inventory.

Level of Service: This is the measurement of your efficiency rating. It is a figure which details how well the parts department shelves are stocked and how many parts are filled on demand out of stocked inventory, rather than going outside locally, or completely losing the sale.  Your level of service should come in within the range of 92-97%.

Source by movement: Parts are segregated based on sales movement.  Days of supply settings are inverse to the rate of movement.

When not to stock – Phase out Methodology:

Active parts to inactive parts phase out begins from day 1 based on the demand cycle.  No demand in 6 months for the perspective part = 65% chance of becoming obsolete.  No demand in 9 months in the sales cycle = 85% chance of becoming obsolete.  The parts manager can always recycle if the demand increases so that the part can come back into stock if needed.

  • If there is a proliferation of non-stock , obsolescence and/or unwanted Parts. The parts manager must work diligently to control and manage the SOP (special order parts) process, non-stock inventory requests and inventory turn analysis.
  • At month-end the Parts manager along with the General Manager and Business Manager should complete a parts inventory balance sheet.
  • An Inventory stocking investment spreadsheet should be completed by the Parts Manager and the General Manager to ensure the investment is being managed for maximum ROI. The NADA provides an exceptional inventory assessment tool.

Sexy side of expense management


Expense management is not sexy at all but you have to admit the title did catch your attention, right?

Expense control is not as exciting as closing a sale, providing a solution to an unsolvable problem or landing that big parts account. In fact, unless you are a the person responsible for a positive EBITDA you probably find the discussion of expense control exhaustive and tedious. This article won’t change that perspective much however; we will attempt to reduce the arduous task of discussing expense control.

Expenses and expense control aren’t the most exhilarating topic’s to read or write about.  The very topic of expense control as a critical component for sustaining profitability in a competitive market isn’t exactly a compelling story line.

Department managers understand the importance of controlling expenses but most likely, it is not top of mind. Proper monthly review will eliminate unnecessary expenses, reduce waste and control excess.

Here’s a creative process to help manage controllable expenses that’s easily transferable to department heads:

  1. Every month the department managers work with the General Manager and/or the responsible party to review expenses.  On the 5th of every month (on or before the date you perform your payable) all department managers meet to review expenses (referred to as an “expense party).  The expense party is the opportunity for everyone to review the accounts payable.
  2. Each department manager reviews his/her department expense with the General Manager (responsible party). The expense receives a value rating based on a scale of 1-10: If the expense scores a 3 or below the expense is eliminated – If the expense falls into the 4 to 7 range, review it to see how the expense can be decreased If the expense is an 8 or above, we ask how to better manage it.
  3. At the end of each month, subsequent to the last day of the month-end and prior to statement finalization, have the controller, or other designated employee, prepare an expense detail, by vendor for each expense account and other income/deductions.  This report should be rolled forward monthly for effective management evaluation of each expense account.  These summaries should be provided to each department manager prior to closing of the month-end.  The month-end should be closed only when each manager has turned in his or her signed summary indicating that each expense, for which he or she is responsible, has been effectively reviewed and deemed complete and accurate.
  4. Run a trend analysis report and review it monthly.  Any fluctuations versus prior month-to-date should be analyzed.  The analysis report should compare each department’s expense with a standardized guide or benchmark. Use of an expense composite trend report as compared to similar size and/or high-performing organizations. From these reports, determine if the expense is in line or out of line.

Engaging employees to accelerate the process of trimming expenses is essential.  To truly control expenses one has to understand them.  Careful review of departmental expenses will often shine a light on a process deficiency.  Business operations and their respective Managers must make expense control the responsibility of all employees.  Offer incentives or rewards for employees that help uncover waste and save money.  Department managers must always pay attention to the cost of sale accounts as well.  Remember, controlling a dollar spent is more work than making that same dollar.

The Success Path.

success path

Sometimes the external environment challenges our convictions, redirects our focus and skews our reality perception.  The never-ending quest for success clarity has us searching for easy answers to a more complicated question.

Success as a narrative is relative and carries a different set of values to each individual. Unlocking the individual brilliance that exists within all of us is not a simple calculation. There are resources available to help guide you along the success path.

This article is going to outline a five step process to set as the groundwork for the underlying objective. There will be five additional resources to help you on your journey to success enlightenment. The links included are for specific subject matter experts that provide learning platforms, offer insightful blogs, videos and books.

Prior to arriving at a solution its important to understand the obstructions.

Success is mired with a myriad of unexpected pitfalls, distractions and external influences. Throughout the day think about how many times an outside influence slows your momentum. Turn on the news and your likely to find some talking-head intent on imposing a singular agenda. There are plenty of distractions during the average daily commute time to cause stagnation.

The 24-hour news cycle inundates us with information from all over the world. Social media aberration has been exasperated by variable mediums touting the loudest voices. The reality is that the volume of content takes precedence over quality of content.

In the career path there will be a fork-in-the-road that creates indecision and uncertainty. It’s important to have the correct preparation, training and mental focus to be able to adapt when the route is full of debris.

5-Steps to guide you along the success path:

  1. Clearly define what success means to you.
  2. Failure is a requisite for success and provides the essential experience.
  3. Find a person that has achieved the level of success you desire and reproduce the same efforts. Surround yourself with people who share the same vision, the same goals and have the same core values.
  4. Control the words and visions you send to yourself. We manifest what we consistently tell ourselves.
  5. Develop the skills you don’t currently have by learning as much as you can and as many ways that you can. Find resources that provide you with the insight and intellect you desire and immerse yourself in the research.

5-Outstanding resources (Subject Matter experts):

The Little Book of Clarity- By Jaime Smart

Strengths Based Leadership – by Tom Rath

High Performance Habits – By Brendon Burchard

The Compound Effect – By Darren Hardy

Prospecting: Pipeline Management


As a professional salesperson, the burden of creating revenue is your responsibility.  Anytime you are not face-to-face with a prospective customer, you are temporarily unemployed.  The organization provided you with the tools necessary to become an entrepreneur.  The company provides the advertising, the product support and supply, the reputation, telephones and the tools to assist you with communicating with potential clients.

Prospecting in the general sense of the word is defined as; searching for potential customers who may want to purchase our products and services.  These potential customers consist of (a) current owners of our product (b) in-market clients (c) orphaned owners (d) defected customers (e) customers not yet in the market.  The sales persons objective is to have at minimum five belly to belly contacts for every day worked.  The contacts should generate at least one appointment each working day.

The following activities will help boost the daily appointment goal:

  • Work your CRM (customer relations management) tool on a regular basis. Utilize the functionality to balance the tasks of prospecting, follow-up and task management.
  • Maintain a current owner follow-up program that does at least three things
  1. Enhances the relationship.
  2. Encourages repeat business.
  3. Obtains referrals.
  • Perform creative prospecting activities:
  1. Utilizing strategic email communications to creatively communicate with your customer base. Strategic emails should include content that creates a call-to-action.
  2. Using post cards with a quote of the month as a means to keep your name in front of your customer and potential customers.
  3. Active community involvement.
  4. Social Media engagement. Your brand awareness is essential in the age of social media.

The beginner’s guide to social media. – Neil Patel

7 Simple Ways to Drive Sales on Social Media [With Examples]- By Shane Barker

Prospecting implies digging for gold. To find the “gold” you must move a lot of dirt in the process.  The hard-work is part of selling that most salespeople do not want to do and do not do well.  It is the process that involves the highest level of rejection and ultimately determines the path between ultimate success and complacent mediocre. Learn how to effectively work and build a prospecting pipeline and an increase in sales are sure to follow.


Delivering value in the service drive.

service drive

“Intent counts more than technique” – Ian Brodie

Intent counts more than technique:

While you work on your questioning techniques, know that your intent is most important. Greeting your client(s) with honesty, sincerity and empathy prompts your clients to share their concerns and fears.  Consequently, your ability to find the right solution and their trust in adapting it, go up as well. Ironically, it is in our own most selfish interest to focus on the interest of our guest first.

Be a good listener:

When you ask a question, how well do you listen to the answer?  Studies have shown that the best sales people listen 70% of the time and leave 30% of the time to talk[1].  Service writing is largely a “receptive and observant mode” activity.  Unfortunately, most of us do the opposite and spend 70% of the time advocating (pitching) and only 30% listening for understanding (inquiry).

Listening is a matter of choice and concentration.  You must choose to listen actively and focus your complete attention on the other person.  To become a better listener, do the following:

  • Focus on the person’s answer – not on your next question
  • Listen with your ears for auditory communication: watch with your eyes for visual communication.
  • Sense with your intuition the real meaning of a guest’s concern.  Can you see the difference between what someone says and what they mean?
  • Expand the communication when appropriate.  Don’t cut it short of understanding or prolong it past interest

Avoid leading questions:

Leading questions can be manipulative, and frequently come over as sleazy.  From the words our clients use to describe their desired success to the criteria they use to evaluate the proposed solution, we need to be very careful not to lead or assume the answer.  Asking questions gives our client a chance to explain themselves and think about what they’re trying to achieve, and in turn gives us the opportunity to learn more.   Non-leading questions allow for open, mutual exploration.

Gain permission to ask questions:

Sometimes advisers feel they’re entitled to ask clients all sorts of questions.  In fact, we need to earn the right to ask questions first.

We agreed on some key concerns that we need to touch on.  Just to make sure we fully understand your perspective; would it be okay to ask you a few key questions first?


[1] SPG: Sales Performance Group

New to sales? Prove them wrong!

prove them wrong

After attending a very detailed week-long training event, a group of new salespeople were starting their first day on the sales floor. They were full of energy, enthusiasm and excitement. The product is new, the environment is new and they’re filled with possibilities. Enthusiasm paired with a growing understanding of their product makes for a formidable combination.

They understand the benefits of labored failure and the joy that eventual success brings. The challenge is keeping the fire stoked when the winds of adversity are working to stifle the flames. There’s an abundance of excitement and scarcity of knowledge as they approach the first potential client. What they lack in process recall is overcompensated by pure energy and excitement.

Eventually, the naysayers are omnipresent posing their perspective and beliefs. The under-achievers are there to extend a hand to welcome others into their camp. Mediocrity is around every corner willing to accept any new arrivals into the fraternity.

Behaviors are reinforced by the lessons learned during the sales process. Early management intervention and coaching are critical to building the sales process foundation. Discovery questions help the salesperson uncover deficiencies and flaws then redirects the behaviors. Coaching supplements practical training through repetitive learning.

It’s essential for the flock of fledglings to fly right away, to spread their wings and soar! They have the proper foundation to effectively harness energy, power it with enthusiasm and reject all the external negative forces. If you are new to sales there is a simple guiding principle. Manage your activities, limit your distractions and if someone tells you “you cannot”, go out and prove them wrong!

3-Step Value Proposition to Service Contracts.


Do a quick Google search of “should I buy a service contract” and you’re likely to see about 480 million results. Quite mind-boggling when one thinks about the decision whether or not to purchase a service contract.

Of course, there’s myriad of different service contract products but for the purposes of this article we’re going to reference those products that cover repairs on automobiles. There’s a wide-variety of opinions on the value of service contracts and the return on the investments. Rather than create debate over the validity of the products (author endorses/recommends extended coverage) instead this article will focus on the product presentation from a sales persons perspective.

The first critical element to offering service contracts is credibility. Do you believe in the value proposition the product provides the client?

Let’s address a few obvious value proposition questions:

  • Is the product likely to cover mechanical failures?
  • Does the service contract provide extra coverage for the client?
  • How are claims handled?
  • Who’s responsible for the contract?
  • Are there other options available to the client?
  • Does the product offer sense of security against unexpected repairs?

Product credibility is essential during the sales process. If a sales transaction was completed successfully the client must like, trust and respect the salesperson. That trust is easily abandoned if the client perceives the product is unworthy.

The sales persons role in the presentation of this intangible product is elementary. Three steps to help deliver the value proposition:

  1. Present the products. The product offering should be initiated at presentation stage to enhance the factory coverage. Present the product to every client during every presentation, every time without exception. Don’t prejudge whether the client will say yes or no. Simply present the product without prejudice so the client can make an intelligent and informed decision.
  2. Endorse the product. The salesperson has the relationship with the client and through the process of a sale there’s a transference of trust. Endorsement through product needs identification is key for value proposition. If the salesperson understands the product and identifies genuine value in the offering, than endorsing the product is natural.
  3. Speak intelligently about the product. Proper education is essential for this part of the process. Understand what the questions/objections are and how to properly address those concerns with facts and historical data. The sales persons depth of knowledge is key to being able to speak intelligently about the value proposition.

In closing, it should be said that nothing replaces good sales processes. If training is the foundation than practice is the framework. Practice is essential for skills to progress and for real learning to take hold. Practice is the preparation and provides the right environment to ask productive questions, listen intently and gain perspective.

Leverage the analytics. Measure the performance expectations and understand where the buy-in gaps are and how to properly address those specific voids.

“Measure what you intend to improve and let everyone know the score” – unknown.


Lost sales service: part 2

service dept

As mentioned in part 1 “How to Capture those lost sales in service”, we outlined the specific areas to address while reviewing repair orders.  This article will address three specific steps to help your service operations capture potential lost sales.

This is a guided three-step outline that creates the pathway to performance improvement. These steps aren’t the cure-all philosophy but, they can better position the service department to deliver better results.

  1. Step 1: Make an “op” code for the service adviser for all work offered but not purchased. One suggested “op” code is ASR (Additional Service Recommended). The service manager must drill into the service advisor head that logging the “op” code is not optional and will bring incremental business back to the team.
  2. Step 2: Pull the “op” code report weekly to review the number of lost sales. All lost sale customers’ in that op code gets either (a) a phone call from your Service Manager (b) a follow-up phone call from your BDC or appointment setter (c)an email from the dealership.
  3. Step 3: Find out why the customer declined the work.

Many customers have time constraints and plan on returning at a later date for the repairs. Extend a free rental to them if they come in sooner.

Some clients will say the cost was too high so review the services offered and give them a good, better and best scenario. Sometimes,the best approach is to do the smaller repair today and delay the larger repair for another date. Make sure you’re scheduling the larger repair today once you have approval to delay.

Offer the customer a discount to perform those services by the end of the month. A common discount amount is 15% but the value should be commensurate with the services declined. Bigger services that bring in time and money will warrant a larger discount.

The decision to fix or repair has taken a back seat to larger problems in this economy. If the customer’s perception is they save money by using an aftermarket provider, they will bring it to the city garage. Competition for the customers’ attention has grown substantially over the past five years. Independent facilities have captured millions of dollars in revenues from the dealerships units in operations.

The sum of the people you surround yourself with.

coffee clutch

Watch the morning coffee clutch gather for their morning ritual. Try to listen in to what the tone of the day is going to be. Are they focused in on trying to solve the world’s political problems? Maybe the tone will be centered on global warming, or the price of oil? There’s always that center-of-attention person trying to steer the conversation towards what’s not happening rather than what is happening.

If you were to observe the attention grabbing lieutenant you might be able to see the driving force behind his/her failures. Generally speaking, the disruption in the mental psyche of the staff is at the provocation of this person. Noticeably missing from this collective group of disenchanted mourners is the top producer. Coincidentally, the top producer is busy working at his/her game-plan for the day. They’re following up on unsold customers, greeting existing customers in the service drive, mailing out thank you cards, sending intelligent and engaging emails and constantly working their managing the client pipeline. Truth be told, they don’t have the time to sit around and talk about world issues.

The remainder of the staff that support the coffee clutch group generally make up the bottom third of sales. Those under-achievers wonder why top producers stay at the top and consistently make more money. Some are content watching sales being conducted around them while they ponder why no customers’ are walking through their front door.

The common misnomer is the top-tier sales producer seems to be lucky.  It’s no wonder the elite appear be in the right place, they put themselves in that position.  They’re not off smoking cigarettes, on an endless coffee break, running errands or conveniently unavailable when a challenging customer arrives.

The intellectual cancer that metastasized needs to be managed. The severity of the destructive behavior dictates the treatment be swift.

Surrounding your salespeople with positive productive people is essential to a successful sales environment. In every sales environment there are the “outliers”, that is the small group usually consisting of one to two people who are on the edge of greatness. The outliers want to be great, they think there is a possibility of greatness but, they just haven’t experienced success yet. The outliers haven’t been poisoned yet but there’s potential to be misdirected by the masses to be mediocre. These are the people we need to redirect and save from the mundane.

In the end, it’s the mood of the coffee clutch that tells you what’s happening in and around a sales environment. If the tension is transparent to leadership then one can only imagine what the customer is likely to feel and see. Don’t allow the undercurrent of the coffee clutch to affect the performance. Work to disrupt the course of the scheduled meeting by offering constructive solutions to downtime. Disrupt the mental conditioning being created by giving the group a list of tasks to promote intellectual stimulation.

A lot of great leaders have said that enthusiasm was the single most important ingredient to their achievement and success. Enthusiasm then is at the very epicenter of selling success. Values such as; persistence, work-ethics, effort and other attributes contribute to massive and consistent success.

Surround the sales environment with those individuals that have high expectations and inspire superior performance through the daily activities.

Live good, be strong in your convictions and make it happen!