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Managing Your Parts Department In A Downturn

Is your parts department doing anything different in the recession? Or is it business as usual?

Economists tell us that the U.S. recession officially started in December 2007. But many of us really didn’t feel the effects of the recession until much later. For most companies, late 2008 felt like a recession, but early in 2008, things still felt pretty good.

Most equipment dealers adjusted their businesses to reflect the new economic conditions with a combination of layoffs and cost cuts. In the parts department, many dealers cut personnel and trimmed back on their inventory purchases.

But is that enough? What is the best way to manage a parts department in a downturn? For most of us, this is the toughest recession we’ve ever lived through-there really is no historical precedent on what to do. However, there are a few key areas worth exploring.

Improve Your Quoting Process
On the sales side, is your parts department quoting customers in the same manner as it always has? Many dealerships keep detailed records of each quotation that a new equipment sales representative generates, yet no records are kept for parts quotes. Parts quotes are still handled by answering the phone, looking at an inquiry screen and quoting a price. The caller is given a price, hangs up the phone and disappears. Sometimes a lost sale is recorded; most times it isn’t.

Today’s market requires a much more disciplined approach. Dealers with sophisticated business systems can generate quotes for every contact, phone call and e-mail. Each part number is logged and detailed data are collected. Too cumbersome? Not if your business system is set up correctly. The data that are recorded are priceless-you’ll know who is and who isn’t buying, who calls for technical help and never orders, what price you win at and what price you lose at. Even if you don’t have a computer system that can track parts quotes, any sort of manual system is better than doing nothing.

Analyze Your Purchasing
Next, where are you purchasing your parts from? Have you analyzed your top 100 items? There are two key reports to look at:
   •Top 100 items by sales dollars
   •Top 100 items by quantity.
Shop around! Compare your costs today with what you paid 12 or 18 months ago. Many parts increased in price when raw materials prices were increasing in 2007 and 2008. It’s worth checking to see if prices have reduced since the recession; if they haven’t, ask why. Even though this is a time-intensive exercise, consider the money your dealership spends on parts-it’s probably one of your largest cash expenditures. You’ll typically find much larger cost reductions by re-sourcing parts than in other areas of your dealership such as the cell phone bill, lawn service, building maintenance, etc.

Parts inventory

Change Your Pricing Model
Another area worth exploring is parts pricing. In today’s market, strategies that made sense three or four years ago aren’t holding up. Flat percentage markups above list price are tough to maintain in a down economy, particularly on items that are readily available in the aftermarket.

Instead of marking up all parts at a flat percentage above list price, consider using a tiered pricing strategy. Competitive items that are easily sourced from aftermarket suppliers may need to be offered at list price. The revenue lost from adjusting those items can be made up from increasing the percentage above list price that captive parts are sold for. It’s a tough project to set prices in this manner, but it will yield positive results.

Increase Your Marketing
How do you market to your over-the-counter parts customers? Some dealers abandoned this market when times were good-the belief was that eventually most of these end-users would outsource their fleets and the business could be captured through the service department. However, there still are plenty of customers doing their own lift truck maintenance who need to buy parts.

In today’s economy, over-the-counter parts customers can be wooed with top-notch customer service, knowledgeable parts people and sharp prices. You only get one chance to make a first impression. How do you target these customers?

Phone calls: Over-the-counter customers don’t necessarily need to be visited in person-often just a phone call will do. But there needs to be a consistent strategy for contacting these people on the phone. “Once in a while” or “whenever we get around to it” doesn’t cut it. There must be a reason for the call-a new product, new price, something on sale, etc.

E-mail: Some dealers have stopped using costly direct mail in favor of opt-in e-mail marketing campaigns. The cost is quite low, you get immediate feedback, and you may be surprised how many customers actually look forward to receiving a timely e-mail offering parts promotions and technical tips. If you don’t have an accurate e-mail list already, it may surprise you how many of your parts people already have the e-mail addresses of your best prospects and customers.

Finally, sit in the parts department and answer phone calls for a day. You may be impressed by the opportunities that cross the desks of your parts department employees each day, and you might get a few ideas as a result.

Material Handling Equipment Distributors Association

Marcel Vandentop Meet the Author
Marcel Vandentop is general manager of Intella Liftparts Inc., located in Holland, Michigan, and on the Web at www.intellaliftparts.com.

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