Kaylee Felio: Hey everyone! So I have Robert Davis with Dixon Hughes- he’s a partner there. And I’m bringing him on to talk about just what he experiences when working with dealerships from a parts perspective because I like to talk about parts. So I want an accountant to shed some light on what he’s experiencing. Robert, why don’t you start by sharing your background, Dixon Hughes, and all about that stuff.
Robert Davis: Happy to do that. First of all, thanks for having me here today Kaylee. The Parts Department is very interesting, and you know, similar to the operations, it is a fairly misunderstood department sometimes by the very upper echelons of management. You can see that is the statistics that are published by NADA confirm of the number of dealers in the US that actually came up through the parts department to the pinnacle of their organizations is a fairly small number. Here at Dixon Hughes Goodman, we’ve been blessed with a large automotive practice that concentrates on various aspects of accounting and also consulting every day with our dealer’s clients. Since the parts department is fairly misunderstood in many cases when things go array our phone rings from time to time and then we have to delve into some of the details back at the parts department and help explain to management what we think me be happening. As far as my background, I’m a car dealer’s kid if you will. My family back two generations before me owned various dealerships and that’s allowed me through working with those organizations and then being with this organization since 1986 it’s allowed me to become familiar with the parts operations and actually it’s one of my favorite departments. Maybe because it has too much to do with numbers.
KF: Yeah! So I just want to talk a little about the process you guys go through when starting to work with a dealership. Particularly with the parts operation. What is the process?
RD: You know the parts operation, in many cases, will come to us when an issue arises. As we all know parts overages during a parts fiscal inventory don’t garner nearly the attention the shortages do. From an accountant’s perspective, both of ‘em garner the same amount of attention but then nature gets in the way. But most of the time we see issues in the parts department either when we’re reviewing the results of a parts physical inventory or when we’re actually supervising a parts physical inventory on behalf of a dealer and they have provided their own individuals to count those parts. And we really move them through the process and the DMS and all the other aspects of taking that physical. So that’s how we get involved. Other times when I’m in the store, I just pull the management reports and walking through the parts department and maybe pulling a dozen parts and seeing what the on-hand account says and just getting a general idea. You can really tell a lot when you walk through a parts department and see the organization of the physical space. If it looks disorganized, typically it is fairly disorganized inside the DMS data as well.
KF: That makes sense, yeah. Also, let’s talk about your experience with PartsEdge working in the dealerships. Because we work together in that aspect of, you know, when a dealership has an issue, and they need a little bit more help, that’s where we kinda come in and give that support.
RD: PartsEdge has actually been a good augmentation of what we do for a dealer. Basically, where we have asked a dealer to look at PartsEdge for possible solutions to some of the issues we might identify, those issues tend to run in gamut from true to technical obsolescence, management issues surrounding special orders and getting them moved through the department, and ultimately on to customers vehicles. I mentioned a moment ago the poor housekeeping of the physical space is an issue at times. Getting the parts department to the point that they can actually trust the on-hand accounts and other data that are being supplied to them out of the DMS system, and getting them to the point of understanding how to get the data out of the DMS system in terms of having something that’s in there that could actually be supplied to them to help them in their management efforts. Poor management of returns and really that whole space of the efficient use of the automatic replenishment systems that are being utilized by quite a number of manufacturers at this point as far as, you know, do I just sorta sit back and let big brother take over and decide what I stock or am I going to interact with that process and actually be more than just a passive bystander letting the manufacturer decide what’s going to be on the shelf or what is really typically one of the larger uses of unencumbered capital inside the store. And then finally, PartsEdge helps with managing the purchasing controls for outside purchases and so those are some of the things PartsEdge does for our clients that we will suggest to a client that they talk to PartsEdge about. You know, there’s a natural byproduct of this: the Parts Manager becomes better educated at managing their department, or, sometimes, a parts department just doesn’t have the personnel to handle everything that needs to be done, and literally, it’s just a bandwidth issue. It’s not an educational issue. It’s one of those there are not enough hours in a day to get it all done, and so I like the way you guys do it virtually. You accomplish what you need to by accessing the DMS system, having video conferences such as this one with whatever personnel you need to be involved in terms of the education and/or corrections process. And sometimes we find a parts manager that’s new to the game- we all had to start somewhere- and so PartsEdge at times for our clients has been used as, literally, let’s just keep it simple- as a parts managers school, if you will. Where the ultimate goal is to graduate from school if you will. And then they either stay on as a client because they have bandwidth things they want to deal with or they just want another set of eyes. And so, those are some of the examples that we’ve seen and basically, I should finish up by saying all of these services, at least in my opinion, are a good value and present a good return on investment. I probably went way beyond answering your question but that’s sorta the entire message.
KF: Yeah no you did great, you covered everything. I did want to touch though on kind of the consequences you see of when a dealership doesn’t provide the support and the training to a parts manager. We kinda touched on some of the issues but the bigger issues from an accounting standpoint that you see.
RD: Well from an accounting standpoint, I’ve seen some pretty wild things over the years. I’ve seen just the stuff that are real head-scratchers where the DMS system says there are millions of dollars worth of inventory and you’re sitting there walking through the parts department and it might be a couple of thousand square feet of parts and you’re like going ‘don’t think so- didn’t take a lot of accounting acumen to figure this one out.
KF: Yeah where are those parts hiding.
RD: Or a general ledger balance that is millions of dollars and then the DMS system’s going ‘no you only got $80,000 bak there’. And you’re just like how did we get to this point, ya know?
KF: Yeah how does that happen? Is it just the inconsistency of not doing physical inventories?
RD: Well, remember there are two numbers here: one of ‘em is what’s in the warehouse and the other is what’s on the books. And I know one of them can take on a life of their own if they are not monitored and controlled accurately.
KF: Exactly.
RD: And so, the problem can originate from two different directions. So the reasons for that are as varied as the day is long but it has provided for some relatively exciting moments from an accountant perspective typically not from a dealers perspective along the way because we don’t get too many phone calls about ‘Man I got this great big overage and I don’t know how it happened’. Typically the phone rings when it’s ‘Hey we came up several hundred thousand short or perhaps even more and we want to know where to go with it’ and the interesting parts about that is that you know one of the things that we talk about, one of the first things is ‘have you been reconciling what the DMS says you have to what the general ledger says monthly along the way?’. Typically, the answer is no. So we educate them on that process because after we go through an original investigation, and we don’t come to a solid finite answer, I want to know how this discrepancy is growing. You know, is it something like ‘I’m right on target for month, month, month, oh and then once it jumps up and then stays there on something that is AN entry in the general ledger that was an error. If it’s something that grows at the same rate every month, that’s something that’s typically happening every time we turn the key in the door and open the doors for business it is some process out there that is happening every day and then you have to start examining those processes. So that might answer some of your questions there.
KF: Definitely. No, you did good. Ok so, to wrap it up. Let’s end with a couple of answers with one or two words, just a couple of questions. What’s the most important thing that you’re experiencing within the dealerships just off the top of your head. I know we didn’t prepare for this, I am just curious.
RD: No that’s fine! COVID has provided easy answers to these questions. The one thing that we’re experiencing is a lack of inventory on the new vehicle side, inflated pricing because of supply chain issues access the board in terms of the variable operations and because of that, we’re also seeing really fantastic growth and successful dealers fixed operations.
KF: Definitely. Ok. And then one most important tip that you’d give a dealership today if you had to talk to someone what would it be?
RD: Well in terms of the parts department? Or just anything?
KF: Let’s do both- parts department and anything! And then we’ll end there.
RD: Parts department is embrace the parts operations. Garner a greater understanding of how it works beyond just the service managers saying ‘hey they never have what I need’. Understand a little bit why and understand with this chunk of, basically most times, unencumbered capital- how much of it is actually working for you and how much of it laying there, just, you’re paying to insure it, you pay to build walls around it to protect it from the weather, and um it’s just laying there. So, understand that and you want your parts manager to understand that as well. From the accountant’s perspective overall in the dealership, and this is so much better than in the times of my father and my grandfather, is understand what’s driving the numbers. Share those numbers and get your managers involved. Some people think that it is a one-person show- it really is a team effort and not one that should be autocratic from the dealer’s office alone. These people have talent, and let’s make sure we make use of it in everyday operations. Listen to ‘em! They’ll have some really good ideas.
KF: That’s perfect! Awesome thank you for joining us and sharing all your experiences and talking parts with us.
RD: Alright happy to do it!
KF: Thank you so much.
RD: You’re very welcome.