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Calculations for evaluating, improving a dealer's parts mix

November 16, 2010

Take a good look at the mix of parts in your inventory. Pay close attention to non-seasonal parts whose most recent sales activity happened four to six months ago. They may not have reached their time limit on your shelf, but are they really parts you should stock? Look at those parts as "potential" obsolescence.

 

A good place to start reviewing your inventory mix is with the fill rate, or level of service, which measures how well you fill your orders or, put another way, how effective your parts department is at meeting your primary customers’ demands. With most dealerships, the primary customers are their own service and body shops, although occasionally a dealer may do more wholesale than internal parts sales. It’s important to maintain a high fill rate (85–95 percent), which is calculated using the demand history in the following equation:

 

Fill rate = total demand - (emergency purchases + lost sales)

                                    total demand

 

Total demand is the total number of customer requests received during a given period. Emergency purchases are orders placed for parts that aren’t available through regular stock orders or special orders. Lost sales are those parts that aren’t in stock when the customer makes the request.

 

Any request for a part, whether or not you have the part in stock, creates a demand history. When a part’s demand history shows a certain number of demands over a given period of time—traditionally, demands in three of the most recent 12 months—that part might be phasing in and should be watched closely. (The number of demands and the time period will vary based on such factors as the type of part and whether it is a seasonal part).

 

The best way to improve your parts mix is to track customer requests for parts you don’t have in stock, along with the sales activity for the parts you have. Review your fill rate and other tracking information weekly to see which parts are most in demand. You can then improve your parts mix by ordering the needed parts based on their demand history.

 

The more quickly you recognize the need to get certain parts in stock, the more quickly you’ll improve your parts mix, boost your level of service, and increase your department’s profitability.

 

Tracking demand can also help reduce or eliminate orders for parts that are likely to become obsolete. The traditional phase-out criteria are no demands during the last six months.

 

This article is excerpted from "Top 5 Ideas for Managing Parts Department Inventory Performance." The publication can be ordered online at www.nada.org/mecatalog or by calling NADA at 800-252-NADA, ext. 2.

 

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