Wayne Brozek, an experienced former parts department manager who trains dealers on ways to improve their parts and service operations, sat down with Farm Equipment and offered expert advice on parts department processes and tips on how to increase profits.
Setting a realistic budget and reviewing it frequently, is one of the most important steps in the process, according to Brozek.
“Some of the best practices I’ve seen is every 90 days, you’re sitting down and you’re reviewing your budget, you’re talking about your budget and your revenue goals and sharing, ‘did anything change?’” Brozek says.
Market conditions and weather conditions are two examples that Brozek says could factor into the decision to make a budget change.
While advertisements are one good way of increasing parts sales, Brozek advocates for proactive marketing to customers by having an outside salesperson visit customers and market directly to their needs. He also emphasizes the need for reevaluating the purpose of a sale and focusing on becoming more of a solutions provider instead of just an order taker.
If you are maintaining a 30% gross margin on a part, how many more do you have to sell to maintain the same GM dollars, if you offer a discount?
Example: If you are currently selling 100 – You now must sell 150 to make the same GM dollars.
Brozek suggests building customer trust by pulling a list of soon to expire warranties and calling the customers up to solicit service before the warranty expires.
“That’s just a good way of doing business and making your customers feel like they can trust that you’re really looking out for them,” Brozek says.
Increasing gross margin and budgeting gross margin targets is another important category to focus on, according to Brozek. “Dollars are used to pay bills and percentages are used for analysis,” Brozek says.
Getting the Math Right
Example if you have a part cost $35 / . 70 = $50 Gross Margin = $15
Discount by 10% you have to sell 50% more of those parts to make the same gross margin dollars
Put another way
- Historically Sell 200/year (200 x $15) = $3000 Gross Margin, if you discount 10% ($50.00 x 10% Discount) = $5.00
- 200 x $-5 = $-1000 lost in Gross Margin dollars, how many do you need to sell at $10 margin to make $3000?
- Answer = $3000/$10 = 300 units rather than 200 units or 50% more
- 200 units x 50% = 100 units 200 + 100 = 300
One suggestion Brozek has is to “buy better.” He proposes negotiating better prices and terms with suppliers, stock ordering more parts, and even combining larger purchases with other branches and locations when possible.
“You may need to have $50,000 on this order or $150,000 on that order to maximize the supplier discount. Put those orders together to maximize that discount,” Brozek says.
Visit Farm-Equipment.com/0223 to check out the original webinar with Wayne Brozek,.
Mark-up vs. Margin
Brozek notes that when it comes to mark-up vs. margin, there are some common mistakes that are often made when calculating the correct mark-up to coincide with the price margin. The biggest mistake people make, according to Brozek, is they assume when they mark up an item by 30% (for example) that they will end up with a 30% margin. Instead, he says to start with the cost of the part(s) and divide that by 100% minus the gross margin.
If the target margin is 30%, for example, one should divide the cost of the part by 70% (100 minus 30). That number should be the new price at which to sell in order to ensure that the target margin is being reached.
Daily/Weekly/Monthly Parts Processes Tasks
- Pull reports for:
– Inventory adjustments (+/-)
– Invoices with discounts
– Invoices with return parts
- Ensure all paperwork is turned in from counter people
- Review lost sales report to ensure counter people are using the system to record lost sales
- Make sure we have a good process to ensure we don’t over record lost sales
- Review back order parts and update
- Walk department looking for issues:
– Dirty shelves
– Open shelf display
– Non-Priced display items
– Old Marketing materials
– Overall cleanliness of the Dept.
- End of the month team meeting discuss prior months performance and budget/forecast goals for the current month and any new programs from manufacturer
- Pull aged inventory reports and prepare a return
- Review financial reports
- Clean-up old special order shelves and prepare parts for return
- Clean-up warranty return shelves
- Check for training opportunities
- Update/Change show-room displays
Brozek also stresses that discounts can be a helpful tool but only if executed correctly. Discounting can have a negative impact and it’s important to evaluate to make sure the discount is increasing total units sold, pulling sales forward, or getting you into a new market.
Another way of increasing overall profits, according to Brozek, is to work on controlling unnecessary expenses. He warns not to get hung up on costs that you cannot control, such as rent, employee benefits and other numbers that are set in stone or non-negotiable. Instead, Brozek suggests taking a second look at factors such as parts adjustments or utilities.
Specifically, Brozek says to be diligent about returning parts ordered in error in a timely fashion, purging unnecessary company cell phone lines, implementing perpetual inventory counting instead of annual or bi-annual, and even canceling newsletter subscriptions that are no longer needed. While some of these expenses seem minimal, being more scrupulous about these details can make a big difference.
Improve Parts Turn Ratio – establish your target 2.5/3.0/3.2x
- Work with suppliers on stocking levels and turn goals.
- Establish good stocking procedures that increase turns.
- Return all non-stocked or special ordered parts not used or ordered in error.
- Set targets for idle capital by age…
– 24 months and greater 0%
– 18-24 month 3% or <
– 12-18 months 5% or <
- Establish a return/write-down/scrapping policy.
“I know for a fact a dealership that did that, we did that as well, and it saved us over $6,000 in one year. Look at those kinds of things. You might find something in there that makes a huge difference,” he says.
According to Brozek, one of the hardest but most important parts of implementing change is staying organized and holding yourself accountable to make these sorts of changes and new ideas when necessary.
He recommends setting daily, weekly and monthly tasks for the company as a whole but also for individual departments and employees. Brozek advises anyone who plans to try and implement any of these new ideas into their dealerships, to share those goals with another co-worker in order to decrease the chance of a good idea fading away and getting forgotten about.
- Revenue Growth – 110%
- Gross Margin – >30%
- Expenses % of Revenue – 12-14%
- Net Income – 10-16%
- Inventory Turn – >3x
- Stock order Participation – >85%
“It is not easy to implement change,” Brozek says. “Psychologists say it can take anywhere between 18 and 254 days for a person to form a new habit and on average, 66 days for the new behavior to become automatic.”
Even after spending 30 years in the industry, Brozek knows that being a parts manager is not an easy job.
“As you can see, parts managers, you have a lot to do on a daily basis, weekly or even monthly, to keep that department running smoothly, and I know it’s not easy,” Brozek says.
Post a comment
Report Abusive Comment