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