Manage Your Spare Parts Department
V K Bansal, President, UP Motor Industries Association
& Council Member, FADA
The spare parts department is a key segment and profit centre
of the dealership operation. There are certain prime reasons
which attributes to such identification:
| ▪ |
The
dealership has 100% equity in paid for spare parts. |
| ▪ |
Investment
in parts inventory represents about one third of
the dealership's working capital. |
| ▪ |
25
to 30% of the dealership's gross profit comes from
parts and accessories sales. |
| ▪ |
Spare
parts segment plays a very important part in the
customer's acceptance of the dealership as a place
to buy not only spare parts but the product itself. |
Some dealers have had personal experience in managing their
spare parts department. Many have not and rely on managers/supervisors
for this important activity of dealership operation. Either
way, a productive spare parts operation requires leadership.
Wherever no such leader is available or guidance is provided,
the dealership can often find problems due to:
| ▪ |
Build-up
of parts in inventory |
| ▪ |
Insufficient
working capital |
| ▪ |
Low
turnover |
| ▪ |
Excessive
obsolescence |
| ▪ |
High rate of expenses |
| ▪ |
Lost
sales |
| ▪ |
Profit
objectives not achieved |
| ▪ |
Conflict
between parts, service and sales personnel |
| ▪ |
Customer
warranty complaints. |
In any case, practical operating policies will have to be
established to strengthen the operation and profits of the
spare parts department.
Suggestions concerning several such operating policies are
listed below:
| ▪ |
Set
inventory, sales and profit objectives |
| ▪ |
Service
to over-the-counter customer |
| ▪ |
Serving
the service department |
| ▪ |
Serving
the sales department |
| ▪ |
Inventory
review |
| ▪ |
House
keeping |
| ▪ |
Control
of obsolescence |
| ▪ |
Pricing
parts |
| ▪ |
Costing
parts |
| ▪ |
Annual
physical inventory. |
A lot can be written on each of the areas, but I would like
to elaborate on a few out of the above 10 points:-
Service to Over-the-Counter Customers
This process starts the moment the Spare Parts Incharge
comes face-to-face with a given customer. Effectiveness
at this moment requires the support of such immediate person-to-person
action as:
| 1. |
A
prompt, friendly greeting |
| 2. |
Quick
"small talk" |
| 3. |
Clear
identification of the customer's needs. |
All these would require support of current price catalogue,
spare parts catalogue, parts product knowledge, speedy picking
of parts, patience and self-control.
Serving the Service Department
The service department is the parts department's best single
customer. It is important that dealership management establishes
a policy, which supports close coordination between these
two important profit-centre departments.
This coordination should include the opportunity for the
parts manager to review requests for parts with the mechanic
or service manager. This will help ensure greater understanding
and permit suggesting additional parts to be included in
the repair job.
This practice will help increase sales and profits for both
departments.
This policy should clearly establish that close observance
of the following guidelines is basic to serving the shop:
| 1. |
Provide
fast service to the mechanic or the service manager.
Avoid keeping them waiting. Time lost in waiting
for parts costs the dealership in terms of loss
of the customer and reduced shop productivity. |
| 2. |
Anticipate
the mechanics' major needs for routine jobs. Whenever
practical, encourage mechanics to prepare repair
orders "in advance" so that they can be reviewed
and the parts are identified and available for immediate
pick-up when needed. |
| 3. |
Work
closely with the service manager in arranging for
and capitalising on parts and service promotions. |
Serving the Sales Department
The parts manager in the dealership will have numerous opportunities
to provide support to the sales department. For this reason,
it is important that management policy fosters close co-operation
between the parts manager and sales personnel. Areas where
such cooperation will payoff, include:
| ▪ |
Referring
incoming phone calls to salesman. |
| ▪ |
Greeting
and recording messages from customers who ask for
a salesman - or the dealer - when they are not available. |
| ▪ |
Making
certain to get sufficient information from the prospects
to be helpful to the salesmen. |
| ▪ |
Providing
prospects with literature on products they are interested
in. |
| ▪ |
Talking
with prospects about parts availability. |
| ▪ |
Supplying
parts and accessories for sale on new and used products. |
| ▪ |
Selling
items when sales personnel are not available. |
| ▪ |
Advising
sales personnel on equipment for which parts are
hard to get so that they can consider this in appraising
trade-ins. |
Housekeeping
A well-kept and orderly parts department can attract a strong
customer interest. Management policy should direct the parts
manager to maintain the appearance of the department through
daily clean-up of the parts on display and sales area.
Further, the housekeeping policy should encourage suggestions
from the parts manager for improvements in department appearance,
fixtures, displays, and in storage of heavy, odd shaped
and flexible items.
Regular inspection of the Parts Department by dealership
management will help ensure continued good housekeeping.
Control Obsolescence
Parts that become obsolete represent dealership rupees that
are not working. Obsolescence is bound to creep into spare
parts inventory to some extent. Dealership management can
improve the parts turnover rate and minimise obsolescence
by adopting policies like:
| ▪ |
Careful
ordering |
| ▪ |
Regular
use of the monthly stock ordering program |
| ▪ |
Getting
an advance deposit from customers against special
order of parts |
| ▪ |
By considering the parts not sold at retail for
the last two years as 100% obsolete and having a
dialogue with principal to accept the non-moving
parts |
| ▪ |
Special
sales effort to liquidate the surplus parts by offering
special discount at counter or to trade. |
Support Department's Role
Next comes the basic management function of providing essential
support to the operation of the spare parts department,
namely:-
| ▪ |
To
provide a suitable pay plan for the parts personnel
including performance-linked incentive |
| ▪ |
To
provide for merchandising action |
| |
-
Selling rotated items |
| |
-
Using a company parts promotion program |
| |
-
Using a good display procedure |
| |
-
Advertising |
| ▪ |
To
know the parts ordering guide |
| ▪ |
To
provide facilities |
| ▪ |
To
provide the parts manager with a back-up for unhappy
customers |
| ▪ |
To
provide computerised inventory control. |
Lastly, periodic review and evaluation (weekly, monthly,
quarterly, year end) of spare parts department can provide
significant information for the management in strengthening
the spare parts department's performance. The following
action suggested may be helpful in this regard, as they
can provide the management with factual decision supporting
information.
(i) |
Observe
the counter salesman in action |
(ii) |
Sample
check inventory records |
(iii) |
Review
sales and profit levels vs objectives |
(iv) |
Review
monthly turnover rate |
(v) |
Review
ordering procedure |
(vi) |
Review
expenses |
(vii) |
Review parts catalogue and price lists |
(viii) |
Review
annual physical inventory results. |
It may be worthwhile mentioning here about part inventory
procedures and evaluation of spare parts manager if the
total operation is being managed by him.
| ▪ |
After
all parts and accessories are counted, the quality,
location and description should be compared and
recorded on each inventory control sheet. |
| ▪ |
The
inventory control card should be reviewed for obsolescence
or surplus classification: |
| |
- |
Obsolete
parts are defined as all items that are not in the
latest master price list. Those items that are considered
worthless should be removed from the inventory and
scrapped or disposed off; |
| |
- |
Surplus
parts are defined as all parts which have had no
movement over the past 24 months period; |
| |
- |
The
summary of the physical parts inventory must be
reconciled to the general ledger; |
| |
- |
A copy of the inventory can be used for own analysis
of the department in order to look for areas in
need of improvement. |
Management observance of the parts manager performing his
day-to-day duties can be the source for suggestions to help
him become more professional and productive.
The following evaluation sheet can be used:
| S
No |
Performance
Observation Factors |
Evaluation |
| |
|
OK |
Improve |
| 1. |
Greeting
and working with counter customer |
|
|
| 2. |
Handling
incoming and outgoing phone calls |
|
|
| 3. |
Making
and delivering written messages to dealership personnel |
|
|
| 4. |
Selling
related items |
|
|
| 5. |
Setting
up and selling from promotional displays |
|
|
| 6. |
Following
up on promises to customers |
|
|
| 7. |
Handling call and pick up orders |
|
|
| 8. |
Assisting customers with heavy items |
|
|
| 9. |
Cooperating
with service men |
|
|
| 10. |
Cooperating with sales personnel |
|
|
| 11. |
Cooperating with bookkeeper |
|
|
| 12. |
Working with delivery personnel |
|
|
| 13. |
Assisting with year-end inventory |
|
|
|
| |
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