 Special Order Parts: Asset or Liability?
by: Perry Phillips
Special Order Parts (SOP) is that dreaded acronym that shows up on repair order estimates everywhere, from the technician to the advisor and finally the customer. All are impacted when our parts departments cannot immediately fill a demand for parts. Technician productivity is affected, advisor workload is increased, and the customer is inconvenienced affecting owner loyalty and net promoter scores.
All dealership parts and service departments deal with this challenge daily. No matter how well run a parts department is and no matter how large the inventory, there will always be situations where demand cannot be met immediately. When it is necessary to special order a part, often the parts department does so with the knowledge a certain percentage of parts will not be sold, and steps are immediately taken to begin the return process. Notifying the service department of part arrival and then hoping the advisors will follow through and notify the customer is the first step. After that, lists of aging SOPs are given to the service department warning them of the deadline when parts will be returned.
As soon as the process to return parts begins, the investment made in those parts becomes a liability. The countdown begins on the road to losing money on the investment.
- Idle capital
- Wasted person-hours required to process the order and the return
- Handling charges
- Freight charges
- Valuable obsolescence credit used
- Lost labor hours
- Lost parts sale and gross
- Vehicle still not repaired, OLP/NPS
Too often parts managers see the above scenario as a normal part of doing business and may well have been operating this way since they became managers. Accepting the fact that the department will make bad investments and create a liability has unfortunately, become the norm in many cases.
Liabilities to Assets
So, what would it take to turn these liabilities into assets? First, parts managers should realize the fact that when they order a part and it arrives, they own it! Whether it is a prepaid, wholesale, or warranty the investment has been made and the clock starts on when the return on investment is realized. If it is prepaid, the ROI is realized in advance. Wholesale orders are usually delivered or otherwise sold the same day they arrive, again the ROI is realized. These invested parts are considered assets at this point and will only become a liability if returned. Then we have unsold special orders – warranty parts. As described above, parts not installed on vehicles are scheduled for return and the potential asset becomes a liability.
Because these parts have been ordered for a specific vehicle and customer and to remedy a specific concern, the potential for realizing an ROI should be thought of more than how to rid the inventory of the unwanted part. The responsibility for notifying customers of received SOPs usually falls to the employees that are the least prepared to complete the task. Obviously, they should be the first point of contact with the customer since they have been communicating with the customer about the SOP. However, when that inevitably does not happen, the parts personnel must act if the ROI is to be realized. Some processes more successful parts managers utilize are:
- Ensure an appointment is set when the part is ordered
- Verify the appointment
- Notify customer of parts order with ETA
- Notify advisor when the part arrives
- Notify customer when the part arrives
- Offer to schedule an appointment for the customer if they are not aware of a part being ordered
- Contact customer before providing aged SOP list to advisors
- Exhaust every effort before deciding to return – remember these parts are not going to be installed on the vehicle, resulting in lost profit and poor OLP/NPS scores
While some might see these processes as the job of someone else, however, when they do not do their job is when liabilities occur.
Bottom line - do not put the fate of your inventory in someone else’s hands. Remember, you bought these parts to make a profit, not to return them for a loss. You own them until someone buys them no matter how you decided to invest. So, if it means doing someone else’s job sometimes to ensure the return on investment is realized, it might just be worth the effort.
From a complete Service Department Assessment to targeted Classroom Service Advisor Training options, I am here to assist you with all of your Fixed Operation improvement custom-tailored to your specific needs. For more information feel free to contact me anytime at (360) 915-2963 or [email protected]. |
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