Read Part 1 of How to Improve Your Parts Fill Rate.

A critical measurement of a parts department is to determine how often a customer or a service department has a need for a part. Is your department able to satisfy that demand from your inventory on-hand? Your “percent of fill” or “fill rate” will tell you not only if you have enough parts on-hand, but also if they’re the right parts. When looking at your parts department, it’s important to keep in mind that it exists to have parts when they are needed.

From a customer’s point of view, your parts department is there to trade a new part for a broken one. If your customer needs a part for equipment your dealership sold them and it is a “wear” part, they’re not out of bounds in expecting that you should have those parts. The same holds true for your service department.

When you don’t have the parts that the service department needs to complete a repair, it creates a delay for a customer who was promised a repair by a certain date. If a part is not available, the service technician has to take the equipment out of the shop; the service manager has to reschedule the work; and a customer has to be called and told the equipment won’t be ready when promised. There are a lot of things that cost the service department money when parts aren’t available.

What should your percent of fill be? We like to see it in the mid- to high-80% range, although a lot of variables have to be taken into account to really determine a reasonable expectation for you.

For example, how many different lines do you represent? Where are your parts distributed from in relationship to your dealership? How complex are the lines that you handle? What type of customer mix do you have?

To determine your current fill rate, you will need a calculator and some information from your business management software. Let’s say we want to find out the following: For the previous week, what percent of the parts we sold were we able to fill out of stocking inventory? That’s the key. I don’t care about the parts you were able to order and fill for the customer, because they didn’t come into your store to order parts and wait for them. They want the parts they need today — not tomorrow or the next day.

To determine your parts department’s “fill rate out of stocking inventory” for last week, take the number of parts you sold last week, subtract your lost sales, special orders and emergency orders, and then divide that number by your parts sales for the week.   

If you sold 100 parts last week and had 5 lost sales, 20 special orders and 10 emergency orders, your formula would look like this: 100-(5+20+10)/100 = 65%. Therefore, your fill rate out of stocking inventory would be 65%. This means 35% of your customers last week were disappointed at some level on your ability to manage inventory. While most of you are able to do this calculation fairly easily, many of you’re lacking one important element — lost sales — because you’re not tracking it even though your software gives you the ability to do it.

Create a High Performance Dealership with Bob Clements is a new series brought to you by Yanmar.

More from Bob Clements

Yanmar — Don’t settle for less when you can have more. For example, Yanmar makes all its compact tractors’ major drivetrain components – the Yanmar engine, transmission, and axles — in-house. Because they’re made to work perfectly together, you and your customers get a hardworking machine with more usable horsepower, less power loss, and a smoother, more comfortable ride. Yanmar’s tractors are designed to work as hard as you do for a lifetime. Strengthen your dealership with Yanmar today: AgMarketing@yanmar.com or call 770-877-9894.

The importance of keeping track of lost sales is that it helps us determine our stocking level of a new part. For example, say I have a customer who needs a part we don’t have, but they don’t have ask us to special order it and I don’t keep track of it as a lost sale. My system doesn’t have any idea that there was a demand for the part; therefore, it won’t tell me I should consider stocking it. If that happens 3 times over the next month, I have a part that is failing and should be stocked, but isn’t because I don’t recognize the demand for it.

Once you have determined your percent of fill rate, you will know if you have the right parts on-hand when they are needed to meet the needs of both your service department and retail customers.

Raising the Rate

The biggest problem in your parts department is a service department that needs parts on demand. Create a working relationship with your service department that has a service staff member that plans for and anticipates the parts that will be needed in a timely fashion.

I stress the importance of creating processes that will give the parts department at least 4 days’ notice on any parts that might be needed for the successful completion of a service or repair.

By looking at equipment the day it comes into the service department and letting the parts department know in advance what parts might be needed, it removes the “parts on demand” situation that happens every hour in a parts department.

Let’s face it, in parts there is nothing more pressure-filled than to have 6 customers in line, the phone ringing and a service tech hanging out at your counter with a frustrated look on their face — upset because you won’t help them get a part for a piece of equipment they’ve had in their possession for 2 weeks.

I would encourage you to work with your service department and help them create a parts sheet that can be used when they complete their “triaging” process. This will allow them to make notes on the parts needed for the service or repair requested by the customers. Keep in mind that if the techs are doing their job, they should be looking at equipment the moment it comes in so they know what parts are needed ahead of time.

In some cases, there will be parts a tech won’t know he needs until they begin breaking down the equipment. But with 75% of the repairs in the shop, most techs can identify the part needed ahead of time. With an advance notice of 3-5 days on parts needed for the shop, you can reduce on-hand inventory by 20% and reallocate that money to invest in other parts that might be in the medium-to-slow moving category, but will help you improve that all important fill rate.

The ultimate goal for your parts department is to have your inventory at its highest level moving in and out of your peak seasons. So if your mowing season typically starts in mid-March, you want your mower parts inventory at its highest level by mid-February because there might be a nice, early spring warm-up and your busy season could start before it normally does. The key is to also understand when you should start managing it down. If you’re using the business management software, make sure you are taking advantage of the season settings. It will allow you to set the minimum and maximum levels you want to keep on hand at any given point of time.

Let’s say, for example, I have a particular spark plug or filter that sells a lot of during season. I might have my minimum set so that it never falls below a dozen and my maximum so that it never goes above 4 dozen. In most cases, that would be a good, workable number so that I can easily meet the demands of that part at any point in time.

By having an appropriate maximum, service will always have what they need. The same holds true for the customers who come to the counter. The key is also to manage down that inventory as the season peaks. Just as you want to have more than enough to meet the demand at season, it makes no sense to tie up a lot of money in inventory that you won’t sell much of when season is over. I encourage the parts managers I work with to begin bleeding off inventory as the season begins to peak so that by the time season is over, I have my inventory at about 30% of the level that it was during peak season.

Good measurements in the parts department start with good information coming from your business management system. If you don’t have a business management system, you should consider investing in one when your season begins to slow down. A business management system will allow access to good information that will assist you in managing all aspects of your dealership.

There are many factors to consider when purchasing a business management system, but understand once you’ve made the up-front investment, any additional cost will most likely be for price updates and maintenance, which you will want to keep as low as possible.

Whatever system you use, start today to gather the data necessary so you can begin to evaluate the effectiveness of your parts department.

Create a High Performance Dealership with Bob Clements is a new series brought to you by Yanmar.

More from Bob Clements

Yanmar — Don’t settle for less when you can have more. For example, Yanmar makes all its compact tractors’ major drivetrain components – the Yanmar engine, transmission, and axles — in-house. Because they’re made to work perfectly together, you and your customers get a hardworking machine with more usable horsepower, less power loss, and a smoother, more comfortable ride. Yanmar’s tractors are designed to work as hard as you do for a lifetime. Strengthen your dealership with Yanmar today: AgMarketing@yanmar.com or call 770-877-9894.