Business Math for Parts Managers - Dealersedge · Business Math for Parts Managers Tuesday, May 26, 2009 1-2:30pm ET ... The Parts Inventory Investment • A Dealer Knows: • 1

Business Math for Parts Managers

Tuesday, May 26, 2009

1-2:30pm ET

With

Mike Nicholes – President, Nicholes Capital Management

Moderated by

Mike Bowers – Executive Editor, DealersEdge

Mike Nicholes, President, Nicholes Capital Management

Mike Nicholes, was the founder of Mike Nicholes, Inc., has earned international recognition as a consultant and seminar speaker. He has conducted hundreds of seminars during the past 35 years for more than 42 major vehicle manufacturers. In addition, Mr. Nicholes has functioned as an in-dealership consultant/trainer (in a seminar mode) to over 10,000 automobile, truck, agricultural, and construction equipment dealerships and distributorships. He has been directly involved in fixed operations consulting and training for over 35 years. During his career as a consultant, Mr. Nicholes worked with many dealers, and manufacturers, specifically Saturn Corporation during the design phase of the company, to implement the parts management concept "Beyond EOQ", or source by movement, resulting in greatly improved fill-off-the-shelf to the technicians without a significant increase in inventory investment. In addition, he has researched and assisted many manufacturers as a subject matter expert in the area of daily stock order implementation.

He has hosted a television show called Parts and Profits for the cable network Automotive Satellite Television Network (ASTN), and is in demand as a '20 Group' speaker. He is also has been a frequent workshop speaker at the National Automobile Dealers Association (NADA) and American Truck Dealers Association (ATD) annual conventions. Mr. Nicholes is the author of several publications and articles on inventory management including 8th Edition Inventory Management, Inventory Management for Daily Stock Orders, and 3rd Edition Advanced Inventory Management used in his past seminars. In 1994 Mike Nicholes Inc was acquired by a major DMS system. That relationship dissolved in 2004 with Mike startingNicholes Capital Management LLC to pursue a course on non-endorsing, neutral inventory management training and consulting. Nicholes has been an active guest lecturer for the Entrepreneurial Lecture Series at Brigham Young University in Provo, Utah. Mike and his wife Lynne reside in Portland, Oregon.

A Dealer Knows:• The Numbers on the Monthly

Financial Statement• There are only two that really

‘speak’ to the parts department

A Dealer Does Not Know:

• Some Critical DetailsPertaining to the Real Efficiency of the Parts

Investment.

The Parts Inventory Investment

• A Dealer Knows:• 1. Inventory Turn

aka: Gross Turn Ratios

• 2. Months of Supply (Days of Supply)

• A Dealer Does Not Know .• 1. The Quality of the

Parts Inventory in Fulfilling its main purpose: Feed The Technicians

A Dealer Knows:Inventory Turns

Annual cost of SalesG/L Inventory

Months of Supply

_______G/L Inventory_______Average Monthly Cost of Sales

A Dealer Should Know:• 1. Monthly Reconciled

Inventory to the G/L Inventory

• 2. O.H. Value for NS Status parts

• 3. Gross Profit Margin %: detail on the ‘mix’ of sales types.

• 4. True Turn

• 5. Parts > 6 months no sales history

• 6. Parts > 12 months no sales history

• 7. Fill-Off-The-Shelf: lost sales & emergency purchases

• 8. Service Efficiency

Source of the Data:• 1. Financial statement• 2. Month end Totals or Summaries or

similar data using a report generator .• 3. Purchase History by type:• -Factory Sources• -General Ledger Sources• 4. Certain Calculations

OK…

THE ‘BIG’ EIGHT

Monthly Reconciled InventoryTo the G/L Inventory

GeneralLedgerInventory

ComputerSystem

Inventory

Monthly Reconciled InventoryTo the G/L Inventory

GeneralLedgerInventory

ComputerSystem

Inventory

After Monthly Reconciliation The Difference Should be within 2%

Non-Stock Parts with an On-Hand Value

$

Cash in a Sealed Can


$


It’s There But You Can’t /Aren’t Using it


$


It’s There But You Can’t /Aren’t Using it



Margins are a functionof the ‘Mix’ of Parts Sales Types

VolumeVS.

Margin


High Volume

Low Margin


Low Volume

High Margin


Track and Trend all Six Sales Types

True TurnPurchase Efficiency X Gross Turn Ratio

$100,000INVENTORY

COST-OF-SALES$300,000


$100,000INVENTORY


GROSS TURN RATIO3.0


$100,000INVENTORY

Purchases For Stock$220,000


GROSS TURN RATIO3.0

True Turn)Purchase Efficiency X Gross Turn Ratio

$100,000INVENTORY



GROSS TURN RATIO3.0

EMERGENCY PURCHASES$80,000.


$100,000INVENTORY



Purchase Efficiency73%

GROSS TURN RATIO3.0



$100,000INVENTORY




GROSS TURN RATIO3.0

TRUE TURN 2.0



$100,000INVENTORY




GROSS TURN RATIO3.0

TRUE TURN 2.0


The Truth!

Parts > 6 MNS $Parts > 6 MNS %

All Categories of Parts Demand or Sales Demand WHICHEXCEED 6 Months-No-Sale Since the Last Sales Demand

0-3 Months Since Last Sale4-6 Months Since Last Sale7-12 Months Since Last Sale> 12 Months Since Last Sale

0-6 Months Since Last Sale7-9 Months Since Last Sale10-12 Months Since Last Sale13-24 Months Since Last Sale> 25 Months Since Last Sale

OR

Guide: Less Than 25% Of Total Inventory

Parts > 12 MNS $Parts > 12 MNS %

All Categories of Parts Demand or Sales Demand WHICHEXCEED 12 Months-No-Sale Since the Last Sales Demand

0-3 Months Since Last Sale4-6 Months Since Last Sale7-12 Months Since Last Sale> 12 Months Since Last Sale

0-6 Months Since Last Sale7-9 Months Since Last Sale10-12 Months Since Last Sale13-24 Months Since Last Sale> 25 Months Since Last Sale

OR

Guide: Less Than 5% Of Total Inventory

Obsolescence Handling

NS Activation

Part is Active, StockedBought and Sold

Part Goes 6 MonthsNo Sale; Status

Goes to AP

OH = 0, Part Phases Out

Obsolescence HandlingTreat the Disease; Not the Symptoms

• 1. Parts Returns from Outside Customers

• 2. Parts Ordered and Not Used by Inside Customers

• 3. Parts Ordered in Error• 4. Natural Occurring Obsolescence• 5. Speculation

Fill-off-the-shelf:How Well Do We ‘Feed’ The Technicians?

T.D. - (E + L + C)

T.D.L/S =

T.D. = Total DemandE = Emergency ReceiptsL = Lost SalesC = Customer Special Orders

Use Piece figures

Fill off the Shelf“Average Levels”

• Automotive: Weekly Stock Order: 80-85%• Automotive: Daily Stock Order: 85-92%

• Heavy Truck: Weekly Stock Order: 80-90%• Heavy Truck: Daily Stock Order: 85-94%

Service Efficiency

Clock Hours

Flagged/Billed Hours

VS

Service Efficiency

Clock Hours

Flagged/Billed Hours

VS

ADirect

Connection

Fill Off The Shelf Service Efficiency

ADirect

Connection


CSI

ADirect

Connection


CSI

Dealership Survival in a Tough Market

Reporting Methods

Parts Manager Dealer

Dealer Parts Manager

With Some Additional Key ‘Players’

-Service Manager-Accounting Manager or CFO

Reporting Format

• The checklist

v2006Available

The Monthly Checklist

No Copyright; Free From www.partsconsulting.com

Monthly Analysisvs.

Trend Analysis

VariableOperations

VariableOperations

‘Good’ MonthSniffing Helium

‘Flying High’

VariableOperations

‘Good’ MonthSniffing Helium

‘Flying High’

‘Bad’ Month‘Sucking up Prozac

The Month by Month Trend

VariableOperations

Fixed Operations

The Month by Month Trend

VariableOperations

Fixed Operations

It Takes Time:Sometimes From 12-18 Months To See Changes

Some Changes Are ‘Instant’

Repetition makes it easy:

• That which we persist in doing becomes easier for us to do; not that the nature of the thing itself is changed, but that our power to do is increased.Heber J. Grant

The Goal Statement

• When we deal in generalities we will never succeed . When we deal in specifics we will seldom fail . Where performance is measured performance improves ; and where performance is measured and reported, the rate of improvement accelerates! Thomas Monson

Questions?Now’s The Time

Thanks for Coming

Watch OutFor the Crazies!

Documents

Business Math for Parts Managers - Dealersedge · Business Math for Parts Managers Tuesday, May 26, 2009 1-2:30pm ET ... The Parts Inventory Investment • A Dealer Knows: • 1