Are You a Store or a Museum?
The Lightspeed program exists because the Parts Department was sucking up all my money. The December P&L would show a nice little profit for my Honda store, but there was no money in the bank. Three years in a row, same thing: Nice profit, no cash.
So I started digging, and the cash flow statement finally revealed the culprit. Good margins, good volume, expenses under control, AR steady and profit solid, but the parts inventory was growing each month. And that growth was about equal to each month’s profit. Result? End of the year I showed nice profit, but every dollar of it was sitting on the parts shelves. My parts manager was spending all my profit !
So I called a young programming friend, told him I needed control over the Parts Monster, and he went to work. The result was the Lightspeed program, now in its 26th year, and for those who use it properly, controlling millions of parts in thousands of shops, just fine, thank you very much.
But, you say, you have Lightspeed and you think you have that same parts problem. And, the problem did not reveal itself until this year, when cash became just a little short. Now, if cash moved into parts, it certainly can move back out. Here’s how.
First, stop the monster from growing. Use the logic of the program to order parts, not the “on-the-fly” guess of your busy parts manager. He or she will be reacting to the last thing that happened to him or her (can you say, chewed out by the service manager, again), rather than carefully evaluating the past, present, and future demand on each of thousands of part numbers. Any one part can be ordered by Lightspeed in one of four different ways. They are:
The Sales Curve: Evaluates the last 12 months sales, determines future demand based on past sales, counts what is on hand, and suggests ordering the difference needed (if any) to meet estimated future demand. You could never do all of this math in your head. Use the program.
Min Max: Works great for continual fast movers. But, my studies show that once a part slows down, Min Max orders back to the Max and there it sits for years to come. Watch Min Max. It is not your friend. It can bite you bad. Use it only when you know the part will continue to be active. And by the way, just how do you know that?
Force to 1: This will add the part number to every order you run. Use to remind you of fast movers that need constant attention.
Force to 0: In other words, never order this part again. Special orders, OK, but for stock, never.
Next, share what you have with the world. You are on an island. You can only talk to the person in front of you. Get your inventory out to the world. Use whatever means possible, Craig’s List, E-bay, local auctions sites, etc. They don’t have a requested part in stock? More dealers and customers than ever are looking to the web to find parts. A lot of them look to the web to find older or hard to find parts, the ones that are clogging your parts shelves and costing you money
Maximize every line of every counter ticket. Some dealers sell O-rings for MSRP around 19 cents each. Others, realizing the value of this little piece of round rubber, sell that same O-ring for 99 cents, and make 10 times the margin. Expand this concept to every part in your inventory. MSRP is not Holy Writ. Use your own experience and testing to price parts where you maximize gross margin. Only you can do that in your market area.
Use the Lightspeed Similar parts and Reference parts feature to link clusters of parts normally sold together. Teach up-selling, and reward those who do it. One quarter line per invoice increase in your average ticket will drop an additional $60,000 per year in margin to your bottom line. Cull non-performing employees.
Pricing: Use the Lightspeed escalator, the rounding feature and the minimum retail option. These last two tools will yield to you about $8,000 per year in the average dealership. The escalator is a little more tricky, what with the internet today, but you should evaluate your market and use this tool wherever you can.
Use Lightspeed to identify obsolete parts, use variable updating to:
- mark them as never order,
- write them down in value, and
- reset the retail price to pennies on the dollar.
They’re not going to move unless you do. I did this for a dealer in California, and he reports to me that he is selling a consistent $800 per month in obsolete parts.
All of this takes focus, attention to detail, knowledge of the Lightspeed system, tracking and rewarding for good performance. Look at your parts department as a bank. You have made deposits for years. There is cash value there, and now, it’s time to make a withdrawal.