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TRANSCRIPT
Business Math for Parts Managers
Tuesday, May 26, 2009
1-2:30pm ET
With
Mike Nicholes – President, Nicholes Capital Management
Moderated by
Mike Bowers – Executive Editor, DealersEdge
Mike Nicholes, President, Nicholes Capital Management
Mike Nicholes, was the founder of Mike Nicholes, Inc., has earned international recognition as a consultant and seminar speaker. He has conducted hundreds of seminars during the past 35 years for more than 42 major vehicle manufacturers. In addition, Mr. Nicholes has functioned as an in-dealership consultant/trainer (in a seminar mode) to over 10,000 automobile, truck, agricultural, and construction equipment dealerships and distributorships. He has been directly involved in fixed operations consulting and training for over 35 years. During his career as a consultant, Mr. Nicholes worked with many dealers, and manufacturers, specifically Saturn Corporation during the design phase of the company, to implement the parts management concept "Beyond EOQ", or source by movement, resulting in greatly improved fill-off-the-shelf to the technicians without a significant increase in inventory investment. In addition, he has researched and assisted many manufacturers as a subject matter expert in the area of daily stock order implementation.
He has hosted a television show called Parts and Profits for the cable network Automotive Satellite Television Network (ASTN), and is in demand as a '20 Group' speaker. He is also has been a frequent workshop speaker at the National Automobile Dealers Association (NADA) and American Truck Dealers Association (ATD) annual conventions. Mr. Nicholes is the author of several publications and articles on inventory management including 8th Edition Inventory Management, Inventory Management for Daily Stock Orders, and 3rd Edition Advanced Inventory Management used in his past seminars. In 1994 Mike Nicholes Inc was acquired by a major DMS system. That relationship dissolved in 2004 with Mike startingNicholes Capital Management LLC to pursue a course on non-endorsing, neutral inventory management training and consulting. Nicholes has been an active guest lecturer for the Entrepreneurial Lecture Series at Brigham Young University in Provo, Utah. Mike and his wife Lynne reside in Portland, Oregon.
A Dealer Knows:• The Numbers on the Monthly
Financial Statement• There are only two that really
‘speak’ to the parts department
A Dealer Does Not Know:
• Some Critical DetailsPertaining to the Real Efficiency of the Parts
Investment.
The Parts Inventory Investment
• A Dealer Knows:• 1. Inventory Turn
aka: Gross Turn Ratios
• 2. Months of Supply (Days of Supply)
• A Dealer Does Not Know .• 1. The Quality of the
Parts Inventory in Fulfilling its main purpose: Feed The Technicians
A Dealer Knows:Inventory Turns
Annual cost of SalesG/L Inventory
Months of Supply
_______G/L Inventory_______Average Monthly Cost of Sales
A Dealer Should Know:• 1. Monthly Reconciled
Inventory to the G/L Inventory
• 2. O.H. Value for NS Status parts
• 3. Gross Profit Margin %: detail on the ‘mix’ of sales types.
• 4. True Turn
• 5. Parts > 6 months no sales history
• 6. Parts > 12 months no sales history
• 7. Fill-Off-The-Shelf: lost sales & emergency purchases
• 8. Service Efficiency
Source of the Data:• 1. Financial statement• 2. Month end Totals or Summaries or
similar data using a report generator .• 3. Purchase History by type:• -Factory Sources• -General Ledger Sources• 4. Certain Calculations
OK…
THE ‘BIG’ EIGHT
Monthly Reconciled InventoryTo the G/L Inventory
GeneralLedgerInventory
ComputerSystem
Inventory
Monthly Reconciled InventoryTo the G/L Inventory
GeneralLedgerInventory
ComputerSystem
Inventory
After Monthly Reconciliation The Difference Should be within 2%
Non-Stock Parts with an On-Hand Value
$
Cash in a Sealed Can
Non-Stock Parts with an On-Hand Value
$
Cash in a Sealed Can
It’s There But You Can’t /Aren’t Using it
Non-Stock Parts with an On-Hand Value
$
Cash in a Sealed Can
It’s There But You Can’t /Aren’t Using it
Non-Stock Parts with an On-Hand Value
Non-Stock Parts with an On-Hand Value
Margins are a functionof the ‘Mix’ of Parts Sales Types
VolumeVS.
Margin
Margins are a functionof the ‘Mix’ of Parts Sales Types
High Volume
Low Margin
Margins are a functionof the ‘Mix’ of Parts Sales Types
Low Volume
High Margin
Margins are a functionof the ‘Mix’ of Parts Sales Types
Track and Trend all Six Sales Types
True TurnPurchase Efficiency X Gross Turn Ratio
$100,000INVENTORY
COST-OF-SALES$300,000
True TurnPurchase Efficiency X Gross Turn Ratio
$100,000INVENTORY
COST-OF-SALES$300,000
GROSS TURN RATIO3.0
True TurnPurchase Efficiency X Gross Turn Ratio
$100,000INVENTORY
Purchases For Stock$220,000
COST-OF-SALES$300,000
GROSS TURN RATIO3.0
True Turn)Purchase Efficiency X Gross Turn Ratio
$100,000INVENTORY
Purchases For Stock$220,000
COST-OF-SALES$300,000
GROSS TURN RATIO3.0
EMERGENCY PURCHASES$80,000.
True TurnPurchase Efficiency X Gross Turn Ratio
$100,000INVENTORY
Purchases For Stock$220,000
COST-OF-SALES$300,000
Purchase Efficiency73%
GROSS TURN RATIO3.0
EMERGENCY PURCHASES$80,000.
True TurnPurchase Efficiency X Gross Turn Ratio
$100,000INVENTORY
Purchases For Stock$220,000
COST-OF-SALES$300,000
Purchase Efficiency73%
GROSS TURN RATIO3.0
TRUE TURN 2.0
EMERGENCY PURCHASES$80,000.
True TurnPurchase Efficiency X Gross Turn Ratio
$100,000INVENTORY
Purchases For Stock$220,000
COST-OF-SALES$300,000
Purchase Efficiency73%
GROSS TURN RATIO3.0
TRUE TURN 2.0
EMERGENCY PURCHASES$80,000.
The Truth!
Parts > 6 MNS $Parts > 6 MNS %
All Categories of Parts Demand or Sales Demand WHICHEXCEED 6 Months-No-Sale Since the Last Sales Demand
0-3 Months Since Last Sale4-6 Months Since Last Sale7-12 Months Since Last Sale> 12 Months Since Last Sale
0-6 Months Since Last Sale7-9 Months Since Last Sale10-12 Months Since Last Sale13-24 Months Since Last Sale> 25 Months Since Last Sale
OR
Guide: Less Than 25% Of Total Inventory
Parts > 12 MNS $Parts > 12 MNS %
All Categories of Parts Demand or Sales Demand WHICHEXCEED 12 Months-No-Sale Since the Last Sales Demand
0-3 Months Since Last Sale4-6 Months Since Last Sale7-12 Months Since Last Sale> 12 Months Since Last Sale
0-6 Months Since Last Sale7-9 Months Since Last Sale10-12 Months Since Last Sale13-24 Months Since Last Sale> 25 Months Since Last Sale
OR
Guide: Less Than 5% Of Total Inventory
Obsolescence Handling
NS Activation
Part is Active, StockedBought and Sold
Part Goes 6 MonthsNo Sale; Status
Goes to AP
OH = 0, Part Phases Out
Obsolescence HandlingTreat the Disease; Not the Symptoms
• 1. Parts Returns from Outside Customers
• 2. Parts Ordered and Not Used by Inside Customers
• 3. Parts Ordered in Error• 4. Natural Occurring Obsolescence• 5. Speculation
Fill-off-the-shelf:How Well Do We ‘Feed’ The Technicians?
T.D. - (E + L + C)
T.D.L/S =
T.D. = Total DemandE = Emergency ReceiptsL = Lost SalesC = Customer Special Orders
Use Piece figures
Fill off the Shelf“Average Levels”
• Automotive: Weekly Stock Order: 80-85%• Automotive: Daily Stock Order: 85-92%
• Heavy Truck: Weekly Stock Order: 80-90%• Heavy Truck: Daily Stock Order: 85-94%
Service Efficiency
Clock Hours
Flagged/Billed Hours
VS
Service Efficiency
Clock Hours
Flagged/Billed Hours
VS
ADirect
Connection
Fill Off The Shelf Service Efficiency
ADirect
Connection
Fill Off The Shelf Service Efficiency
CSI
ADirect
Connection
Fill Off The Shelf Service Efficiency
CSI
Dealership Survival in a Tough Market
Reporting Methods
Parts Manager Dealer
Dealer Parts Manager
With Some Additional Key ‘Players’
-Service Manager-Accounting Manager or CFO
Reporting Format
• The checklist
v2006Available
The Monthly Checklist
No Copyright; Free From www.partsconsulting.com
Monthly Analysisvs.
Trend Analysis
VariableOperations
VariableOperations
‘Good’ MonthSniffing Helium
‘Flying High’
VariableOperations
‘Good’ MonthSniffing Helium
‘Flying High’
‘Bad’ Month‘Sucking up Prozac
The Month by Month Trend
VariableOperations
Fixed Operations
The Month by Month Trend
VariableOperations
Fixed Operations
It Takes Time:Sometimes From 12-18 Months To See Changes
Some Changes Are ‘Instant’
Repetition makes it easy:
• That which we persist in doing becomes easier for us to do; not that the nature of the thing itself is changed, but that our power to do is increased.Heber J. Grant
The Goal Statement
• When we deal in generalities we will never succeed . When we deal in specifics we will seldom fail . Where performance is measured performance improves ; and where performance is measured and reported, the rate of improvement accelerates! Thomas Monson
Questions?Now’s The Time
Thanks for Coming
Watch OutFor the Crazies!