Parts Investment Philosophy

What’s in a title?  It really doesn’t matter if your title is “Parts Manager,” “Parts Director,” or “Senior Grand Poobah of Parts,” because if you are making the final decisions on what parts to stock, you are the Parts Investment Manager.  You are, in fact, investing someone else’s money. It is reasonable that they would like or even require a return on their investment.  So as the Parts Investment Manager, you have a decision to make with every stock order; how will you invest in the parts inventory?

How will you invest?  What is the best parts investment philosophy?

There are two main Parts Investment Philosophies – One we recommend and one we do not.

Emotional Based Speculative Purchasing
One parts investment philosophy is to purchase parts because someone thinks it will sell. Note the, “someone”, can be anyone as there are a lot of folks with an opinion as to what should be in stock; the Parts staff, Service Manager, Service Advisers, and last, but certainly not least, Technicians. This is emotional investing.  It is emotional because the decision to purchase for stock is based on a feeling or thought but not data. Here is an example of emotional stocking decision:

“The Service Department has been replacing a lot of alternators lately. When an alternator is in stock, everyone is happy, but when one is not in stock, technicians say, “We’ve been replacing a lot of alternators lately so we should stock more of them”.

“Let’s start stocking accessories.  I know they will sell if we stock them”.

 “We never have the parts in stock we need.  You should really stock more parts.”

“I know what to stock, I’ve spent half my life in this department.  I write down everything we sell and re-order it. I also pay attention to what vehicles have been coming in the shop and what types of repairs we do. I do my stock orders manually”

“Yes, my computer system recommended I stock it, but I just don’t think it will sell again”

This type of investing yields the worst results.  Idle and obsolete inventory increases while the parts really needed aren’t in stock.

Demand Driven – Data Supported Purchasing
This parts investment philosophy is just the opposite of emotional based. In fact, it’s based on 0% emotion and 100% data.  With hundreds of thousands of part number possibilities to stock, it makes the most sense to buy the ones that have sold or ones that could’ve sold if you had them but based on real customer and technician demands.  This philosophy means you’re buying and stocking what your customer and technicians want and need. This philosophy produces less idle and obsolete inventory growth because the odds are in favor of parts that have been requested or sold multiple times within a recent period of time. Data driven suggested stock orders have passed the test of time and are a reliable predictor of future sales.

To harness the vast amount of data necessary to come up with the right list of parts to stock, you must utilize technology such as your DMS, RIM, or both. The DMS will keep track of every demand for every part number and then evaluate each one against a set of stocking and ordering rules resulting in a great stocking inventory.  If you are also using a RIM system, its recommendations are also based on sales data either in your OE network, market area, or your own dealership.

A properly configured DMS and RIM system with accurate data inputted will provide stocking suggestions that position your investment for a fantastic return.  This means not just the parts themselves but the parts that support service production rate, efficiency, increased labor sales and higher customer satisfaction.  An inventory that has breadth, or a wide range of unique parts, versus depth, or surplus of the same part number. An inventory that isn’t too big or too small but just right. An inventory that is a producer of profit and not a consumer of capital.

ADMI recommends using 0% emotion and 100% data.  Properly configure your DMS and RIM systems.  Ensure accurate data is in these systems at all times such as sales and lost sales transaction. On-hand counts should match what is really in stock.  Keep these systems maintained and with good data.  Run DMS suggested stock orders and submit every day. If on RIM, review your proposals and accept all that have prior sales demand.

So, Parts Investment Manager, get your inventory investment producing healthy and consistent returns for you. Invest wisely!

At ADMI, we transform Parts Managers into Parts Investment Experts.  If you would like to make the most out of your parts inventory investment, contact us today.

By Tom King