How to Improve Off-Shelf Parts Fill Rate

1. Review the fill rate for each whole goods model your dealership sells. Where are your support problems? As part of its product development process, each manufacturer creates a “mortality list” of parts that could fail during the early life of the product. By reviewing this list of recommended spares, you can stock more of what will be needed. Are you stocking the required mix to support your primary line?

2. Analyze backorders. What items are backordered? Are customers asking for non-stock items because their equipment is old and obsolete?  Are there any parts requested for new models that you are not supporting with adequate inventory? Are parts backorders recurring problems because of manufacturer stock-outs? Are dealer stock-outs because of inadequate inventory management and replenishment? Are stock-outs a result of large cash investments tied up in excessive obsolete or slow-moving stock? Obsolescence should be no more than 10% of total parts inventory value.

3. Visit your top 20 service customers (ranked by dollar volume).  Review their parts usage requirements. Develop a parts list you will support with a 100% fill rate. (100% is possible to achieve for a specific list of equipment models.)

4. Visit your top 20 parts customers (also ranked by dollar volume). These companies have in-company maintenance capabilities and purchase a significant volume of parts.  Review their purchase orders, not your invoices. What are they requesting? Are you able to fill 90-92% or more of their requirements off the shelf?

5. Service Manager should meet daily with the Parts Manager. Review upcoming work schedules and pre-order parts and kits as needed.

6. Meet with technicians. Develop a list of 100-120 items  that should always be in stock.  Service technicians have the same difficulty as customers, but technician stock-outs are costing the dealership significant losses in labor productivity.  

7. Talk to your field service technicians. Ask how you can help them arrive at the job site with the right part “first trip” at least 95% of the time. (As me for ideas on recommendations how to do this.)

8. Cycle count inventory, check accuracy of stock report. Include service vehicles as warehouse locations.

9. Bill correctly. Ensure that all parts are properly billed out. to maintain the integrity of your stock status inventory control report.

10. Review Emergency Orders each week. Ask why.

11. Review and chart paperwork system and hard parts movement. Doing so will help eliminate “leakage” of parts from quantity control in your information system.

12. Record and monitor lost sales. Consider both controlled stock items and non-stocked items..

13. Track and monitor off-shelf fill rates. Track the rates to customers as well as to the service department. Each van/service vehicle should be set up as a warehouse to track sales and fill. If you don’t measure it, you can’t manage it.  

14. Create and study a Parts Sales Ranking Report sorted by units of items sold.  The top 20% represent about 80% of your dollar sales. You should strive for a 100% fill rate on this top 20% of high-volume parts.  Overall, your parts fill rate should be at least 80 – 85%. Why would you ever want to be out of stock of your best-selling items?

15. Create and maintain a Lost Sales Report.  This tracks customer demand for items you are not now carrying. The Stock Status Report typically does not track items customers request that are for non-stock items. The Lost Sales Report reflects true market demand, new trends, interest in new products, and shifts in demand.  Unless you track these market conditions, your inventory could become more obsolete.

16. Review the Parts Quote File.  What items are being quoted?  Do you have the parts inventory to support these potential sales?

17. Replace Obsolete Stock with current high-demand items.  An inventory item with zero movement in the past 12 months is considered “obsolete.” The faster you can rid of your obsolete stock and convert the investment into fresh, current merchandise, the better off you are.  (Ask me for suggestions on how to get rid of obsolete stock.)

Obsolete stock can result from:

As noted above in #2 above, parts obsolescence should be no more than 10% of total parts inventory value.

• Changing product lines or manufacturers.

• Overly aggressive purchase activity.

• Poor stock status monitoring.

• Customer returns of special orders.
• Late order placement for seasonal items that did not sell.
• Improper pricing/acquisition cost.
• Failure to utilize manufacturer’s annual stock return.
• Sloppy overall inventory management practices.
• Purchasing unaudited/unverified parts inventory of a new acquisition.

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Accuracy of the Inventory Stock Status Report is

greatly Dependent On:

1. Inventory Receipts Promptly Recorded and Shelved
   Fresh inventory can languish at your loading dock for days until it is properly handled. If not recorded and shelved, it is not in stock.
2. Systems Integrity
   The paperwork gets done on a timely basis. There is a smooth and administratively efficient way of handling information and all elements of parts movement are recognized and recorded.
3. Correct Logic
   The computer math model for parts replenishment is correctly recognizing seasonality, min-to-bin time, safety stock, and changes in the rate of demand for controlled parts in the system.
4. Accurate Input
   Posting of all quantities is timely, accurate, and verifiable through management control.
5. Proper Monitoring of Demand 
   Requests for non-stocked (non-controlled) parts are recorded on the loss sale report. Requests for controlled parts that are out of stock are also recorded. A logic of 3 hits in 6 months is used to determine if a non-stocked item should be added to the inventory of controlled items.
6. Prompt Posting of Movement
   Inbound receipts are promptly posted and recognized as “in stock.”  Parts removed from stock are promptly posted and recognized as “sold.”
7. Tight Controls against “Leakage.”
   Any part movement not recognized by the system contaminates the integrity of the Stock Status Report.  Leakage or shrinkage is controlled by tight security of stock areas, a strict paper trail of parts usage, and careful supervision of shipping/receiving areas against pilferage.
8. Tight Controls on “Special Orders.”
   Customers who want to order a non-stock, non-returnable item must pay in advance. You can’t order a rear bumper for your 1990 Corvette restoration project without payment in advance.

If a Service Manager wants to achieve higher fill rates, the Service Manager should assist in the effort to make certain proper disciplines are in place and that all parts are properly checked out and in.

Secrets Of Improved Fill Rates to The Shop

Possible reasons for “stockout” of a Controlled Item:

1. Manufacturer’s parts are on backorder.
2. Statistical Anomaly.  Unusually high demand this week.
3. General transportation/shipping strike.
4. Owner says “No more purchasing!”
5. Stock status report not being managed properly.
6. Parts Manager is asleep.

Remedial Actions Your Management Team Can Take

If the shop is consistently experiencing poor parts availability, e.g., less than 80-85% off-shelf fill rate, this is a significant obstacle to dealer customer service and retention. This problem should be recognized and addressed by your dealer management team immediately.

Suggestion:  If your parts department is not monitoring and reporting their “off-shelf parts fill rate to your service department” on a monthly basis, measure it manually.  This can be accomplished by a review of Repair Orders for the last one or two months. And, I suggest you do it at least every three months.

Count up the total number of parts line items on all shop repair orders. Then, count up the total number of parts line items that were filled 100% immediately, off the shelf. Divide the number of 100% fill parts lines by the total number of parts line items on this batch of repair orders.  The result is called Line Item Parts Fill Rate.

And, if the line-item fill rate to service is less than 80%, begin immediately to work to solve this very serious problem.

Dealer Principals, accountants, and investors are concerned with inventory turns.  Customers are concerned with fill rates.  Not surprisingly, the higher the off-shelf fill rate (assuming obsolescence remains under 10%) the higher your turns.

So, equipment dealers are wise to train purchasing and inventory personnel in the twin arts of maintaining high fill rates while maintaining adequate turns. If your customers win, you win.  If your customers are receiving marginal parts service, your business is at risk.  

Along with “knowledgeable, friendly people,” overall off-shelf parts fill rate is the most important contributor to customer satisfaction and retention in a dealership.  

Fill Rates should be measured for Stock Items as well as to the Service Department on Current Focus Products, those of strategic importance to the dealership.  

An acceptable level of off-shelf parts fill rate is essential for service technicians to do their job efficiently.  A poor fill rate to the service department contributes to re-work, missed repair promised dates and unhappy customers.  

With proper planning Sales, Parts and Service Managers can make progress toward achieving a 98% off-shelf parts fill rate for service work on Strategic or Current Focus Products.

Your dealership may also want to support Selected Key Accounts with a highly competitive level of parts support. This is easily done by managing a specific, finite set of parts reflected by the usage history of their current fleets.

Service and Parts managers should meet frequently to review upcoming repair work and advance order special kits or components needed.  

Customer Direct parts orders are more random and can be for almost any model or age equipment.  Therefore, fill rates for customer direct sales are more difficult to maintain.  However, many parts managers are able to achieve these scores by carefully studying overall purchasing patterns and parts usage.

Ask the service technicians to develop a list of the 120 most needed items for 100% fill.  Ask field service technicians how to arrive at the job site “first trip” with the right part 98% of the time.  

Cycle count inventory to check the accuracy of stock status.  Establish iron-clad disciplines for “in-out” recording of movement by all hands. You must develop management leadership to defend the integrity of the Stock Status Report. If it is full of errors, you cannot possibly manage the inventory and achieve a high off-shelf fill rate.

Even if the factory distribution center is out of stock, the astute Parts Manger has a replenishment strategy that includes five or six alternate sources including other dealers, used machine inventory, “will fitters” (non-OEM parts manufacturers), and, going directly to the production line or the vendor who supplies the part or component to the OEM manufacturer.

Final point: your Parts Manger must have the training, motivation, tools and time to do this job well. The days of the “Super Parts Counterman” doing it all are long gone.

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