• November 22, 2007 at 2:22 pm #63243
    Tom Ham
    Participant

    I’ve found that shops that specialize in specific makes tend to keep more parts in stock than those who work on all makes. I’ve seen inventories as high as $175K (cost of parts) for shops doing $2M a year.

    I believe that the huge inventory is a key factor in why the shop could turn that much in sales. His inventory was about equal to one month’s total parts and labor sales. What is your inventory amount in relation to one month’s total sales?

    Ours is about 45% at this time, but I intend to slowly build it to about 100% like the shop I mentioned because I believe we can make a large increase in efficiency by having the part right in the building eliminating wait time for parts…something which I believe to be a far greater issue than most people believe.

    What do you think?

    Tom - Shop Owner since 1978

    November 22, 2007 at 3:09 pm #68394
    rhopp
    Member

    Great Question Tom.


    One of our current Sales/Management discussions is trying to ID choke points in our production capacity.


    I believe the biggest one is inventory and parts availablity.


    Getting the correct part the first time – Ahh, Life is but a Dream.


    The math comes down to this for me:
     
         a. One mechanic, idle for one minute = $2.93 in lost potential revenue.
         b. Ten minutes extra wait for a part = $29.30 in lost potential revenue.
         c. If the parts costs $14.00 more but is 8 minutes closer, which is the right decision?


    The worst case scenario IMHO is: Order the part, ten – fifteen minutes later (minutes that could have been used to "move on") the part arrives, the mechanic goes back into "fix" mode, to find out that the part is incorrect. Sometimes that is very obvious from the moment the mechanic receives the part. All too often, it takes a few minutes to discover this fact.


    Accuracy in cataloging and catalog use is one area that constantly requires review.


    Accuracy in vehicle data input into the garage management system is another.


    Inventory management is the unexplored profit center in most of our businesses. The ones I’ve seen do it well have been very successful.


    In your travels, what level of inventory control person has been there at the different success levels of the shops? (from your persprective of course). From a separate building, dedicated parts staff, to just a well organized set of shelves, watched over by a mother hen type.

    November 23, 2007 at 12:32 pm #68395
    geowitt
    Member

    One of our current Sales/Management discussions is trying to ID choke points in our production capacity.


    I believe the biggest one is inventory and parts availablity.

    Rob, I couldn’t agree more.


    Getting the correct part the first time – Ahh, Life is but a Dream.


         Even at a dealership, where parts are abundent, one of the biggest logistical problems is techs traveling to and from and waiting at the parts counter.

         As a dealership Service AND Parts Manager, I noticed a constant crowd of techs at the parts counter.  I wanted to increase efficiency and reduce the time spent waiting, so I put a time clock at the parts counter to track the wait.

         Suddenly, the parts guys were "on it" and the wait seemed to disappear.  When a tech came to the counter and asked for a part, the parts guys would say, "can’t help you, you’re not clocked in".  They wanted to look good and it made a big difference.

    The math comes down to this for me:
     
         a. One mechanic, idle for one minute = $2.93 in lost potential revenue.
         b. Ten minutes extra wait for a part = $29.30 in lost potential revenue.
         c. If the parts costs $14.00 more but is 8 minutes closer, which is the right decision?

         I covered this nicely in my recent "Advanced Pricing Strategy" class where I used Cost Accounting to analyze a repair shop.  In fact, the cost analysis showed that a good sized investment in inventory actually yielded 100% return on investment annually through improved tech efficiency!!

         The value of a tech’s time is one of the most important things to consider in running a shop and one of the things that gets the least attention paid to it by most repair shop owners.


    The worst case scenario IMHO is: Order the part, ten – fifteen minutes later (minutes that could have been used to "move on") the part arrives, the mechanic goes back into "fix" mode, to find out that the part is incorrect. Sometimes that is very obvious from the moment the mechanic receives the part. All too often, it takes a few minutes to discover this fact.

         

         Agreed.  Garbage in-garbage out.  Having a system to input the data is crucial.  We have forms we use when getting the vehicle info for a new customer to help us get what we need.

         This is also where the experience of a parts guy is important.  He’ll know when you need to know how different options affect parts numbers, like ABS or non-ABS?


    Inventory management is the unexplored profit center in most of our businesses. The ones I’ve seen do it well have been very successful.


    In your travels, what level of inventory control person has been there at the different success levels of the shops? (from your persprective of course). From a separate building, dedicated parts staff, to just a well organized set of shelves, watched over by a mother hen type. 

         I have 4 techs, 10 bays and 2 Service Advisors and also a dedicated Parts Manager.  He’s had over 20 years experience at new car dealers and is a former dealership Parts Manager.  Worth his weight in gold.

          His experience as a Parts Manager means he understands how to put new part numbers in stock, when to phase things out and when to NOT put new part numbers in.

         The biggest risk of inventory is obsolescence.  That can eat your lunch if it’s not closely monitored.  There comes a time when you have to just write things off and put them in the dumpster and most people just can’t bring themselves to do that.

         To answer Tom’s question, I ran my numbers and I have 80% of monthly sales invested in inventory.

          However, I think you’re tracking it all wrong. icon12.gif

          The correct way to track it is to value it at retail and compare it to monthly PARTS sales, not total sales.  Total sales includes labor, sublet and all kinds of other things that don’t really matter to inventory levels.

          When I do that, I have a 3 month supply of parts (300%).  That means I’m turning my inventory 4 times a year (12 months divided by month’s supply).  This would indicate that I have a good breadth and depth.  If I turned it fewer times, like 2 to 3, it would mean I probably have too much obsolete stuff.  It only counts if it’s moving, collecting dust doesn’t help.

         If I turned it faster, like 6 times or more, I probably don’t have a deep enough inventory.
         Depth of inventory refers to how often I go to the bin and find it empty?  Is it "deep enough" to handle a run on that part number?

          Breadth of inventory (how broad is it?) refers to my "fill rate" on parts requests.

          I’m just guessing, but it’s probably in the 60% or better range, based on dollars, not part numbers.  In order to increase from 60 to 70%, I’d probably have to triple my investment or more.

         In Honda parts schools, they said the ideal level for a dealer is about 70% and most warehouses can’t hit 90%.  They said to go from 70 to 80 involved another tripling, so there’s a point of diminishing return.  You don’t even want to know what it costs to hit 90…

          So, just guessing, but I’d bet that Tom’s example of the 2M shop is that they have a fair amount of "dead wood" in their inventory or they have a lot of very high priced stuff.

         Some basic guidelines for "when do you stock it?" are, if you have 3 hits in 3 months, it should probably go on the shelf.

         If you haven’t sold one in 90 days, it should be a candidate for phase-out.  If you haven’t sold it in 6 months, you’ll most likely still have it in 9 months.  If you haven’t sold it in 9 months, it just became a member of the family forever….icon8.gif

         Another guideline is, "how often do I need it and what does it cost?"  In my case, being a Honda (and Toyota) specialist means we’re doing a lot of valve adjustments, which means we have a lot of valve covers off routinely.  Since valve cover gaskets are fairly cheap, it makes sense for me to just stock at least one of nearly every one in the book.  That’s less than a few hundred bucks.

         In addition to the valve cover gaskets, there’s the "related sale" rule.  When you sell a valve cover gasket, you’re also very likely to sell spark plug tube seals and valve cover bolt grommets.  If you don’t have those as well, there’s no point in having the gaskets.   The "related sale" rule states that if you don’t carry every single part related to the sale of one part, there’s no reason to stock any of it.  You’re still waiting for something.

          Another parts rule is:  "how long will it take from the time the sale is made until the tech needs the part?"  If you can readily get the part in the time it takes the tech to remove the parts needed before he needs the part, there’s no reason to stock the part.

         Clutches are a great example of this.  If you can have any clutch on your counter in 30 minutes, what do you need clutches in stock for?   Toyota valve cover gaskets are another good example.  The intake manifold has to be removed on most V6 engines to access the rear valve cover.  No reason to stock that one, even if it’s cheap.  It’ll be at least an hour or more before it’s needed.

         On the other hand, if your supplier(s) are frequently out of stock, this should also be taken into account.

         Another rule is: "can I operate on someone else’s money?"  If I can get my local tire supplier to put in a consignment of 40 tires to save himself some time, why would I want to buy tires from another store who’s delivery service sometimes holds me up?  Interstate batteries is another good example of this principle.

         I’ll finish with some words on inventory depth.  2 key terms are birps and bizzles.  Bizzles are BSL, Best Stocking Level and Birps are BRP, Best Reorder Point.

          Keeping the stock orders coming to keep the bins full is a clerical job, so we don’t want to spend all week long writing up orders.  Oil drain plug gaskets are a good example.  No one in their right mind would want to re-order each one every time we used it.  It would be a lot easier to just order a 30 day supply once a month, maybe a 60 day supply if the part is frequently used.

          So, we might say that our BSL for drain plug gaskets would be a 60 day supply and our BRP is when we’re down to a 30 day supply.  We only have to order that number once a month.

         Let’s introduce another concept–Economic Order Quantity.  If we could get a substantial discount on those same gaskets by buying a huge quantity (like a year’s supply), we should consider doing it.  After all, we’re using them like crazy, so they won’t be obsolete soon and we can save time and money by buying them in large lots.

           Geez, I’m writing a book here, but I won’t stop yet.  The last point to make is what’s called the "French Fry" section.

         Ever been to McDonald’s, ordered a burger and then decided, how about an order of fries with that? and been told, "Sorry, we’re out of fries?"  I didn’t think so, although I’ve had a few people tell me they have.

          There should be a part of our inventory that we can never be out of.  Oil and oil filters come to mind.

          We need to have a fairly large commitment to those to cover us for those rare times when our supplier will run out and the warehouse has them on back-order.  After all, we sell this stuff every day and just can’t ever afford to be out of them.  Call that "french fry" stuff.

         Gotta quit, my fingers hurt.  Any questions?Depending on the size of the shop operation, this might build a reasonable case for hiring an experienced parts person, who knew enough to get the right part the first time in most cases.

    Accuracy in cataloging and catalog use is one area that constantly requires review.

         I think both Honda and Toyota have factory parts lookup systems in place in their repair info websites.  It may also be possible to get the CD discs from a cooperative dealer, so you can do your own look up.

    Accuracy in vehicle data input into the garage management system is another.


        

    November 24, 2007 at 2:43 pm #68396
    Tom Ham
    Participant

    Rob Hopp wrote:
    >

    > Accuracy in cataloging and catalog use is one area that constantly requires review.

    >
    > Accuracy in vehicle data input into the garage management system is another.


    We have fixed that for the most part by looking up almost all parts by VIN…when the VIN does not go into the catalog we know it is incorrect.

    In your travels, what level of inventory control person has been there at the different success levels of the shops? (from your persprective of course). From a separate building, dedicated parts staff, to just a well organized set of shelves, watched over by a mother hen type.

    One thing that separates the most efficient shops from the average ones is a parts person and dept. This set up is normally right in house. Of course one has to be able to afford it. But even in a smaller shop it can work. Two techs, one advisor and a parts person who likely has several other tasks to keep him/her busy. As the shop gets larger the parts person becomes mandatory for efficiency. In our shop I am currently the parts person who also does estimating and advisor back up allowing the advisor to work primarily as a customer contact/sales person. I am trying to build a better inventory right now…based both on previous sales and gut feel. Part of my daily job is to look over what is coming in tomorrow and the next few days. I often order parts which are frankly a guess…but and educated guess. This allows us to take on a drivability diagnosis as a wait at 3:00 PM and fix the car while the customer waits if need be. There have been way too many lost sales here because we do not have the part right NOW. I intend to fix that.


    Tom - Shop Owner since 1978

    November 24, 2007 at 3:00 pm #68397
    Tom Ham
    Participant

    George Witt wrote:

    >      Gotta quit, my fingers hurt.  Any questions?

    Can’t think of any after that!

    I sincerely hope that a lot of shop owners bookmarked this post and/or saved for reference.

    Thanks a lot!

    Tom - Shop Owner since 1978

    November 26, 2007 at 4:22 pm #68401
    rhopp
    Member

    Wow!

    Thank you George. We will be discussing your notes for days. All of our key people have been through at least some of your training and hold you in high regard.

    August 17, 2008 at 6:22 am #69133

    We try to keep all the fast moving parts in stock .,I try to stay out if the shop and focus on buying right ,Compressors new cost on avg of 325 in the summer and 249 in the winter we sell 6-10 a week what would you do . I learned you make money on a used cars when you buy it not sell it same with parts .Watch out for the easiest and I feel the best parts system around World pack Dial they creap up the prices .make a spread sheet once o wek and fax it around see who has the best price and quality . We stock about 100k in parts for a 1.5k per year business . We are lucky we get 8 runs a day from our suppliers 8 lifts really helps..

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