Redefining Parts Obsolescence & A Process for Better Control How to defrost these frozen assets with a better approach

Transcription

1 Redefining Parts Obsolescence & A Process for Better Control How to defrost these frozen assets with a better approach With Rick Heronime, Senior V.P. and COO Dealership CSI Moderated by Mike Bowers, Executive Editor DealersEdge

2 Dealership CSI Redefining Parts Obsolescence

3 Dealership CSI Rick Heronime Sr. VP & COO Dealership CSI

4 WELCOME Recognizing Obsolescence MNS vs MNR Who Has the Check Book Getting It Under Control

5 Recognizing Obsolescence

6

7 Stocking Status or Aging?

8 Months No Sale - or - Months No Receipt

9 What s Wrong With the Traditional Measurements?

10 Months No Sale Greater Than 12 Has Proven to Be Too Little Too Late

11 Today We Are Faced With Less Obsolescence Accrual Costlier Parts Need to Lower Days Supply More Mis-Diagnosis/Errors Need Larger Assortment

12 Stocking Status

13 Interpreting Management Reports

14 Interpreting Management Reports Stocking Status Identification Non Stock Do Not Stock. Default Status. Moves to Active or Deletes Over Time

15 Interpreting Management Reports Reynolds and Reynolds

16 Interpreting Management Reports ADP

17 Interpreting Management Reports Reynolds and Reynolds

18 Interpreting Management Reports Reynolds and Reynolds

19 Interpreting Management Reports ADP

20 Interpreting Management Reports ADP

21 Interpreting Management Reports Stocking Status Identification Non Stock Do Not Stock. Default Status. Moves to Active or Deletes Over Time

22 Interpreting Management Reports Stocking Status Identification Non Stock Do Not Stock. Default Status. Moves to Active or Deletes Over Time Active Parts have Phased In and Have a High Probability of Selling

23 Interpreting Management Reports Reynolds and Reynolds

24 Interpreting Management Reports Reynolds and Reynolds

25 Interpreting Management Reports ADP

26 Interpreting Management Reports ADP

27 Interpreting Management Reports Stocking Status Identification Non Stock Do Not Stock. Default Status. Moves to Active or Deletes Over Time Active Parts have Phased In and Have a High Probability of Selling

28 Interpreting Management Reports Stocking Status Identification Non Stock Do Not Stock. Default Status. Moves to Active or Deletes Over Time Active Parts have Phased In and Have a High Probability of Selling Auto Phase Out Active Parts Have Dropped In Demand and Moved to AP They Only Move Back to Active or Delete

29 Interpreting Management Reports Reynolds and Reynolds

30 Interpreting Management Reports Reynolds and Reynolds

31 Interpreting Management Reports ADP

32 Interpreting Management Reports ADP

33 Interpreting Management Reports Stocking Status Identification Non Stock Active Auto Phase Out Do Not Stock. Default Status. Moves to Active or Deletes Over Time Parts have Phased In and Have a High Probability of Selling Active Parts Have Dropped In Demand and Moved to AP They Only Move Back to Active or Delete

34 A High Performance Inventory Investment Follows This Mix Active 80 to 85 % AP 8-12 % NS < 5 %

35 Aging MNS or MNR

36 Interpreting Management Reports ADP

37 Interpreting Management Reports ADP

38 Interpreting Management Reports ADP

39 Interpreting Management Reports

40 Interpreting Management Reports Reynolds and Reynolds

41 Interpreting Management Reports Reynolds and Reynolds

42 Reynolds and Reynolds 2321 AGE To MNR

43 Interpreting Management Reports ADP

44 Interpreting Management Reports ADP MNS GT 12 MNS = $4,851 MNR GT 12 MNR = $18,927

45 A High Performance Inventory Investment Follows This Mix Active 80 to 85 % AP 8-12 % NS < 5 %

46 Interpreting Management Reports ADP

47 Interpreting Management Reports ADP AP GT 12% = $6,548 NS GT 5% = $38,378 MO and Other = $0 Total By Status = $44,926

48 Redefining Obsolescence Obsolescence By MNS $4,851 Obsolescence By MNR $18,927 Obsolescence By Status $44,926 Difference/MNS Difference/MNR $40,075 $25,999

49 To Target and Destroy the Obsolescence Use a Blend of The Two Strategies.

50 Return All AP GT 9 MNR And NS GT 2 MNR

51 Who Has The Check Book?

52 Auto Phase Out Parts Are a By-Product of Normal Inventory Movement

53 Once We Have Replaced All Of A Defective Part In Our Market, The Leftovers Are Termed As Naturally Occurring Obsolescence.

54 However, Non Stock Parts For the Most Part Are a Self Inflicted Problem!

55 Every Service Advisor, Technician, Counter Person, Department Manager and Wholesale Customer Has the Dealer s Checkbook In Their Back Pocket

56 And They Are Not Afraid To Use It!

57 However, The Parts Manager is The Only Person Who is Directly Responsible For The Outcome Of These Purchases.

58 The Only Way to Get and Take Control is To Follow This Rule

59 Every Special Order MUST Have A Committed Customer And An Accountable Person!

60 A Committed Customer Has Paid In Advance Left The Car In The Shop Set An Appointment

61 An Accountable Person Is The Service Advisor For All Service Customers The Counter Person For All Front Counter And Wholesale Customers

62 Every Special Order Must Be Entered Into The DMS. This Ties The Customer To The Accountable Person For Later Follow Up

63 We Must Verify The Customer s Commitment on Every Special Order.

64 Once You Hit The Transmit Button, You Own The Part Whether It Is Needed Or Not.

65 Tracking The Accountable Person 0 1 Y Y Y Y Y N N N N N N 5 0 L i s t P r i c e

66 Tracking The Accountable Person List Price

67 Special Order Return Log Copyright Dealership Consult ing Services Inc Return Counter Order Order Date Person Adv Tech RO# CT# Date Customer Part # Desc Reason Type Cost

68 To Earn $1000 In OBS Accrual at 7% You Must Purchase $14,285.

69 To Earn $1000 In OBS Accrual at 5% You Must Purchase $20,000.

70 To Earn $1000 In OBS Accrual at 3% You Must Purchase $33,333.

71 One Of The Largest Contributors To Unsold Special Orders (NS Parts) Is Your Wholesale Customer

72 You Must Hold Them Accountable For The Checks That They Write.

73 Getting It All Under Control

74 Here Are Some Steps To Take Control Of Obsolescence

75 Calculate Your True On Hand Obsolescence Look For AP GT 12% of Inventory Look For NS GT 5% of Inventory Use MNR Not MNS

76 Plan To Return All NS GT 2 Months No Receipt Plan To Return All AP GT 9 Months No Receipt Begin Or Continue to Track EVERY SOR On The DMS

77 Determine All Checkwriters Set Up The SOR Reports By Advisor/Counterperson Establish a DAILY Review of Each Accountable Persons Book Of Business

78 Track All SOR Returns and Cancellations On A Return Log Review Excessive Returns or Cancellations With The Accountable Person This Includes Wholesale Accounts As Well

79 Plan To Return All Unsold Special Orders Immediately Hold Them In A Special Return Bin. Do Not Give Them a Permanent Bin Location

80 Continue To Keep The Focus On This Very Volatile Investment Spend Your Inventory Dollars On Parts Your Technicians Really Need!

81 Contact Me Rick Heronime Dealership CSI

82 Open Q & A

83 Thank You!

84 Who Has The Check Book? The typical dealer has a very tight control over who has the checkbook and who can sign checks. This privilege is usually reserved for the Owner, General Manager, Controller and perhaps one other trusted long term manager. Many stores require two signatures to add another layer of security. Pretty safe? Pretty secure? The cash is well under control Upon closer inspection, we find the typical dealer has on average, at least 40 active check signers. Some as many as 150, some as few as 20, but all have many more than the owner and the bank have authorized or realized. Every technician, every service advisor, every counterperson, every department manager and many wholesale customers are walking around with YOUR check book in their back pocket! And they re not afraid to use it. How can this be? Enter the Special Order Part. A technician can walk up to the counter and order the most obscure part in the book, (whether they really need it or not), whip out your checkbook, write the check and like magic you just traded your cash dollars for the oftentimes obscure part that ends up not being used after all. Service advisors can do the same thing, sales managers can order tons of accessory items that may or may not get installed and sold, and we can even extend this privilege to the local body shops we deal with. We have discovered that after the harsh reality that we don t really need this part after all sets in, that the time honored phrase put it on the shelf, it will sell does not work. All the hope in the world will not sell that obscure part that is not failing and that nobody wants. One important fact to consider is that once you hit the button to transmit your order to the factory, it s a done deal. Your check has been cashed. The only way to manage out of this problem now is to actually sell the part (Plan A) or target it for return as soon as possible (Plan B). If you do even a casual survey, you will discover that only a small percentage of special order parts actually perform to Plan A. Roughly 50% to 60% of all special order parts end up as Plan B. So what is the problem with Plan B? You earn obsolescence credit to manage just this type of event. Yes you do, however, that obsolescence credit is designed to help manage Naturally Occurring Obsolescence along with a small percentage of unsold special orders. DealershipCSI.com - PO Box Rancho Santa Margarita, CA Rick Heronime Rick_Heronime@DealershipCSI.com

85 How Much of This Inventory Do I Own? A large majority of these Unsold Special Orders are very easy to recognize amidst that big pile of cash known as a parts inventory. Every part has a Stocking Status and the Unsold Special Orders will carry a stocking status of NS for Non Stock. Simply calculate the total value of NS (non stock) parts from you parts department management report (MGR for ADP and 2213 for R&R). You should have Less Than 5% of all inventory dollars in Non Stock inventory. Typically, any value over 5% has a very high probability of never selling. Anything over 5% should be targeted for return ASAP. The funny thing about these parts is that you do not have to wait for 12 months no sale to determine they won t sell. Once they have been on the shelf for 90 days or more, the chance that they will sell is near zero. New Trends from the Manufacturers The trend with all manufacturers is to reduce the amount of obsolescence credit and either not replace It at all or offer an alternative way to earn some of it back. (Purchase targets, CSI targets, program compliance etc.) Some dealers forget that this newfound Gross Profit is actually substituting for what used to be obsolescence return credit. If your franchise is offering this type of obsolescence credit replacement, make sure you are using it for it s intended purpose if you need it. Otherwise, you will quickly find yourself awash in excess obsolescence and no way to get rid of it except to let it pile up or take the dreaded Write Off. Think about the math involved here. If you are receiving a generous 7% obsolescence credit on what you purchase, you must buy $14,286 to earn $1,000 of credit. If you are earning 5% then you need to purchase $20,000 for every $1,000 returned. The next time the local body shop wants to return that $1,100 body panel that now all of a sudden they don t need, you have to purchase over $15,000 to earn the credit to deal with that one part. Has that body shop been adhering to only returning an amount equivalent to the return allowance percentage? Or are they double or triple your own factory return rate? Back to the Check Book The problem here is that the possession of the company check book is essential to get the job done, for our customers and our profitability. DealershipCSI.com - PO Box Rancho Santa Margarita, CA Rick Heronime Rick_Heronime@DealershipCSI.com

86 It is not feasible to insist that every special order be run through a purchasing committee to determine if it is legitimate and if we should spend company cash on this acquisition. So we need to implement two very important processes. We need to make sure we have a committed customer for EVERY special order. Commitment is either payment in advance, holding the car hostage or at the very least a firm agreement to a service appointment sometime in the very near future to have that part installed. Absent one of these three, I would not order the part. Period. The second element that must accompany every special order is an Accountable Person. Who wrote the check? They should own this order from cradle to grave. A regular review of special order parts which are in stock and are coming must be performed and the Accountable Person must take responsibility for every order in their Book of Business. They must have a game plan in place to handle this purchase as a Plan A transaction. (remember Plan A is to actually sell the part). Of course we cannot rely on a consistent Plan A result if we don t engage the customer. Now we re back to the Commitment from the customer before we ever order the part. The Accountable person must get the commitment, just as a salesperson needs a commitment from a customer before we buy a new or used vehicle or perform a dealer trade for them. Do yourself a favor. Determine your current level of unsold special orders on hand right now. Review all the check writers and take an inventory of all of your checkbooks floating around the dealership right now. Use the built in Special Order Process management function in your DMS (that means no handwrites, everything is in the system electronically). And hold every check writer accountable for every dollar they insist you spend on acquiring special order parts. Do a comprehensive review of your wholesale business and target every customer who exceeds your earned obsolescence credit amount on the parts they have purchased. The results are happier customers, (they get their parts installed and their cars fixed), a happier dealer, (no lost investment and wasted dollars) and happier employees, (they are not fighting about return parts, lack of accountability and dealing with huge returns). Then you can spend your money on parts your technicians really need to accomplish their job. DealershipCSI.com - PO Box Rancho Santa Margarita, CA Rick Heronime Rick_Heronime@DealershipCSI.com