360Growth! Learning

Stock Turn (Days, Used Vehicles)

365 ÷ Annual Stock Turn

Baseline: < 45 Days

Description:

The logic and thinking behind this K.P.I is very similar to that of annual Stock Turn except that it is calculated by a slightly different method.

Let's day that you have 54 used vehicles in stock. the example above shows that each one of your vehicles sells every 35 days. Obviously, some of your vehicles will sell quicker than this and some will sell slower, the average being 35 days.

Now let's say that when you sell a vehicle you retain an average Gross Profit of R1,200 per unit. Armed with this information you can say that each of your 54 vehicles will produce a Gross profit of R1,200 every 35 days.

Example:

A) Number of days in 1 year = 365
B) Annual Stock Turn = 10.4
C) Days Stock Turn = 35 days (A ÷ B)

Discussion:

You can now see from this example that the faster your days Stock Turn, the quicker you will get your hands on your profit and therefore less money will be absorbed in costs.

Related Terminology:

Days Supply

Stock Turn (Version 1)

Annualised Used Unit Sales ÷ Used Units in Stock

Baseline: > 8 times per annum

Description:

Used vehicle Stock Turn tells you the number of times that you turnover your used vehicle stock in 1 year.

When considering the improvement of operational performance with used vehicles, this KPI represents the kingpin around which everything else revolves.

This example below illustrates the used vehicle stock being turned 10.5 times per year. Quite simply, the faster you turn your used vehicle stock, the less money you need to invest and the more profit you will make.

Example:

A) Annualised used vehicle sales = 945
B) Number of units in used vehicle stock = 90
C) Annual Stock Turn = 10.5 (A ÷ B)

Discussion:

Stock Turn affects your business in the two areas that really matter. Improving this KPI tends to increase your profitability in used vehicles and also speeds your company's Circulation of Funds Employed thereby delivering a double benefit.

If you ignore Stock Turn, then all your profits could leak out of your business just as easily as water leaking from a colander because with the passing of time, your costs become larger and your profits smaller.

Related Terminology:

Stock Turn (Version 2)

Annual Used Sales From Stock ÷ Used Units in Stock

Baseline: > 8 times per annum

Description:

Example:

A) Annual used sales from stock = 657
B) Annual used sales from S.O.R. = 288
C) Annual used sales = 945
D) Number of units in used vehicle stock =   90
E) Annual Stock Turn = 7.30 (A ÷ D)

Discussion:

To calculate your true used vehicle Stock Turn, you must only count those vehicles that have been sold from your stock. All sales from S.O.R. stock should be excluded from the equation.

Related Terminology:

Sub Contract Profitability

Sub Contract GP ÷ Sub Contract Sales (x100)

Baseline: >15%

Description:

Sub Contract refers to the jobs that you take in and undertake a 3rd party to conduct on your behalf. An example of this might be the fitting of windscreens for instance.

Example:

A) Sub contract Gross Profit = R784
B) Sub contract Sales = R5,223
C) Gross Profit on Sub Con = 15% (A ÷ B X 100)

Profitability in this area of the business varies greatly between manufacturers. For some truck manufacturers it can be as low as 5% and for some car manufacturers it can be as high as 25%.

There are many reasons for this high tolerance in performance and one of the main reasons being breakdown and recovery.

Discussion:

There are some dealers that do not make any profit margin from Sub Contract sales and research confirms that fear is the key to this shortfall. In other words, the Service Receptionist simply does not add any profit margin to the invoice when recharging the work on to the customer.

This is a thoughtful yet dangerous action to take after all, your dealership is still liable for the work that has been carried out!

Related Terminology:

Target Related Bonus

Bonuses Received for Target Achievement

Guideline: Franchise Specific

Description:

If your dealership is part of a franchise dealer network, then it is usual business practise for that franchise to set vehicle sales targets. When you achieve these targets, the franschise manufacturer pays a bonus.

The amount of bonus paid by each manufacturer varies considerably, but the thing that you should keep in mind is this. When do you show this bonus payment within your reports?

Some dealers show the bonus in the period within which it has been earned and other dealers show this bonus when they actually receive payment, the difference could be two months apart.

Example:

Discussion:

The variance across this method of accounting causes a sizable distortion in profitability. Some franchise manufacturers are now informing their dealers to enter bonus payments at a specific time so that these distortions are eradicated and composite reports are more meaningful.

When comparing your profitability with another dealer, it is always worth establishing how and when this element of bonus is allocated.

Related Terminology:

Total Parts Stock Turn

Annualised Parts Purchases ÷ Stock Value

Guideline: Franchise Specific

Description:

When you are interested in making your money work for you, then there are two Key Performance Indicators relating to Stock Turn for you to measure: this one and True Parts Stock Turn.

It is vitally important that you understand the difference between the two KPI as they tell you very different things about your business. The calculation for Total Parts Stock Turn is the Annualised Parts Purchases divided by the value of total Parts Stock.

Example:

A) Annualised Parts Purchases = R695,688
B) Parts Stock Value (at cost price) = R115,948
C) Total Parts Stock Turn (per year) = 6 (A ÷ B)

Discussion:

This is a useful trend to measure, but it can be misleading. The assumption is that this KPI tells you how many times that your Parts Stock is turned over each year, whereas in reality this is not the case. This is because the total Parts Sales include sales from parts ordered on V.O.R, which are not sales from stock.

Special note:
Total Parts Stock Turn is the KPI that is shown on most reports. When you want to measure how effectively your parts stock is being utilised then you need to measure True Parts Stock Turn.

Related Terminology:

True Parts Stock Turn (Version 1)

Annualised Stock Purchases ÷ Stock Value

Guideline: Franchise Specific

Description:

This is the KPI that is the most valuable, useful and trustworthy when you want to measure how effective your Parts Stock is being utilised.

The calculation for True Parts Stock Turn only assesses the parts purchases for stock and excludes all parts that are purchased on a V.O.R. or E.O. basis.

This KPI provides you with the true effectiveness of your Parts Stock. Quite simply, the faster your True Parts Stock Turn, the less investment is required in your stock and the more profit you will retain as a result.

Example:

A) Annualised Stock Purchases = R486,982
B) Annualised V.O.R. Purchases = Ignore
C) Parts Stock Value (at cost price) = R115,948
D) True Parts Stock Turn (per year) = 4.2 (A ÷ C)

Discussion:

Your franchise manufacturer usually provides this information to your Parts Department on a monthly basis. However, you may need to calculate the True Parts Stock Turn yourself as this is seldom shown.

Related Terminology:

True Parts Stock Turn (Version 2)

Annualised Sales from stock (at cost price) ÷ Stock Value

Guideline: Franchise Specific

Description:

This version differs from version 1 on the previous page because it measures the parts that have been sold (at purchase price) rather than the parts that have simply been purchased for stock and is therefore a more accurate result.

The calculation still assesses the parts purchases for stock and excludes all parts that are purchased on a V.O.R. or E.O. basis.

Example:

A) Annualised Sales (at cost price) - R706,112
B) Annual V.O.R Sales (at cost price) = Ignore
C) Parts Stock Value (at cost price) = R156,913
D) True Parts Stock Turn (per year) = 4.5 (A ÷ C)

If you are unable to obtain the purchase price of your sales, you could calculate it by using this method:

A) Annualised Sales from stock = R861,456
B) Annualised V.O.R Sales = Ignore
C) GP on Sales from stock = R155,344
D) Cost price of Sales from stock = R706,112 (A - C)
E) Parts Stock Value = R156,913
F) True Parts Stock Turn = 4.5 (D ÷ E)

This example is the most accurate of all as it captures the exact sales and the purchases made for those sales.

Discussion:

Related Terminology:

Used Vehicle Stock Ageing

Stock Age Profile of Units in Stock

Guideline: Own Policy

Description:

This information is really four Key Performance Indicators all rolled in to one. They assess your total units in stock and separate them into age categories expressed as a percentage.

Example:

A) Units between 01-30 Days = 36 - 60%
B) Units between 31-60 Days = 15 - 25%
C) Units between 61-90 Days = 6 - 10%
D) Units over 90 Days = 3 - 5%
E) Total Units in Stock = 60 - 100%

Discussion:

This example shows that 5% of the units that are in stock are over 90 days old. What it does not tell you is how much older than 90 days they are.

Related Terminology:

See also % Value of Stock Over 90 Days.

Used Vehicle Stock Value

Value of Used Vehicle Stock at Stand In Value

Guideline: See Stock Turn, Used Vehicles

Description:

This statistic simply provides you with the value of your used vehicle stock at any one moment in time.

The figure is usually taken directly from your Balance Sheet from which your used vehicle stock can be found within the section labelled Current Assets.

The used vehicle stock value takes into account all stock write down that has taken place within the current year and it is this figure that is used for the calculation of KPI's such as used vehicle Stock Turn.

Example:

Discussion:

It is important to note that this figure is reported as a monetary value and reflects the stand in value as opposed to the retail selling price or the original purchase price.

The information that you really want to know here is how much stock should you be holding at any one moment in time? The answer to this question lies in the KPI used vehicle Stock Turn.

Related Terminology:

Used Vehicle Stocking Plan

Special Loan Provided For Used Vehicle Stock

Benchmark: 80% of Stock Value

Description:

A Used Vehicle Stocking Plan is a unique type of funding where your dealership usually pays the interest on the loan and the principle loan value can vary from month to month according to the value of your used vehicle stock.

Let's say that you have an agreement to hold R250,000 of used vehicle stock at any one time. Your loan provider, usually your franchise manufacturer or their finance company, will provide you with up to 80% of that value.

Finance companies usually advance up to 80% of the agreed stock value because the 20% difference gives them cover for depreciation if they have to liquidate the vehicles.

Example:

A) Agreed Stock Value = R250,000
B) Stocking Plan = R200,000 (A X 80 ÷ 100)

Discussion:

An Auditor visits your dealership every month to value your stock against one of the industry guides and your stock value must exceed this figure.

If the stock valuation is above the agreed R250,000 then everything carries on as normal. However, if your stock is valued less than the agreed limit, you have to write a cheque to make up the difference of the shortfall.

Related Terminology:

Used Vehicle Write Down

Depreciation of Used Vehicle Stock

Guideline: Vehicle Specific

Description:

If there is one thing that is certain about used vehicles, it is that their value changes on a monthly basis and unfortunately for us, it's usually in a downward direction.

The top performing Sales Managers within our industry re-evaluate their used vehicle stock every month, and where depreciation has taken hold, the effects are shown within Used Vehicle Write Down.

The value of Used Vehicle Write Down represents the amount of depreciation that has been suffered. Typically, this value can be found within the Semi-Fixed Expenses of your management accounts.

The value of Used Vehicle Write Down is usually deducted from the stand in value of the used vehicles that have depreciated so that the screen price can be reduced.

Example:

A) Current Used Stock Value = R324,500
B) Revaluation of used stock = R320,700
C) Used Vehicle Write Down = R3,800 (A - B)

Discussion:

This process serves to maintain a competitive pricing strategy for used vehicles within your marketplace without the loss of Gross Profit.

It provides you with the true trading status of your business as opposed to hiding behind lower margins.

Related Terminology:

Used: New Retail Ratio

Used Retail Units Sold ÷ New Retail Units Sold

Baseline: >1:1

Description:

This KPI is specifically for retail vehicles and excludes all fleet sales. The statistic establishes the relationship between the number of used vehicles that you retail and the number of new vehicles that you retail

This example shows that for every new vehicle that you retail, you sell 1.75 used retail vehicles. Take the time to understand what you are reading on your reports as some manufacturers show this ratio in reverse. (New:Used)

Example:

A) Used Retail Sales = 960
B) New Retail Sales = 548
C) Used:New Retail Ratio = 1.75:1 (A ÷ B)

Discussion:

It is not possible to provide an industry benchmark for this performance as it is influenced by the franchise that you operate, your overall trading strategy, the ability of the Sales Manager and the sales team.

Related Terminology:

Utilisation % (Bodyshop)

Hours Worked ÷ Hours Attended (x100)

Benchmark: 85% x 95%

Description:

In more simplistic terms, each Productives usually clocks in and is available for eight hours each day, but how much of that time is spent spray-gun-in-hand or panel beating, working on hours that can be charged out to the customer? Utilisation gives you the answer to this question.

Example:

A) Hours Worked = 957
B) Hours Attended = 1,040
C) Utilisation = 92% (A ÷ B X 100)

Discussion:

Related Terminology:

This KPI is also known as Labour Efficiency, Labour Utilisation and Selling Effiency.

Utilisation % (Service Department)

Hours Worked ÷ Hours Attended (x100)

Benchmark: 85% to 95%

Description:

In more simplistic terms, each Technician usually clocks in and is available for eight hours each day, but how much of that time is spent spanner-in-hand, head-under-bonnet, working on hours that can be charged out to the customer? Utilisation gives you the answer to this question.

Example:

A) Hours Worked = 957
B) Hours Attended = 1,040
C) Utilisation = 92% (A ÷ B X 100)

Discussion:

Related Terminology:

This KPI is also known as Labour Efficiency, Labour Utilisation and Selling Effiency.

V.O.R % (Version 1)

Purchases on V.O.R. ÷ All Parts Purchases (x100)

Benchmark: < 30% of Total Purchases

Description:

V.O.R. is an abbreviation for Vehicle Off Road. V.O.R. sales occur when a vehicle is being repaired in the workshop and the parts that are required to repair it are not currently held within your Parts Stock.

In this instance, the required parts are ordered from your franchise manufacturer on an emergency basis and the parts are usually delivered the next day.

This KPI measures the percentage of your parts purchases that have been ordered on an emergency basis.

Example:

A) Purchases on V.O.R = R17,977
B) Total parts purchases = R79,894
C) V.O.R. % = 22.5% (A ÷ B X 100)

Discussion:

In most cases, parts that are ordered on V.O.R carry a financial penalty, which reduces your Average Buying Margin. Therefore it is in your interest to maintain harmony and balance between your True Stock Turn and V.O.R%

The suggested Benchmark for version 1 of this KPI is higher than that of version 2 because it is assessing monetary values, which can fluctuate depending upon the price of the items ordered on a V.O.R. basis.

Related Terminology:

Also see Average Bought Cost

V.O.R % (Version 2)

Line Items on V.O.R. ÷ Total Line Items (x100)

Benchmark: < 25% of Total Orders

Description:

The meaning of this KPI is exactly the same as version 1, except that it measures the number of line items ordered on a V.O.R. basis as opposed to their monetary values.

These two methods of measuring V.O.R % are very different to each other and it is obviously critical that you know which of these versions your departmental reports are showing you.

Neither one of these methods of measuring the V.O.R % is any better than the other and neither one of them is right or wrong; it is really a matter of what you want to measure.

Both indicators are influenced by the frequency of the parts stock order that is provided by your franchise manufacturer.

Example:

A) Line Items Ordered on V.O.R. = 546
B) Total Line Items Ordered = 2601
C) V.O.R. % = 21% (A ÷ B X 100)

Discussion:

The suggested benchmark for keeping V.O.R% less than 25% is applicable to weekly stock orders. If your stock orders are more frequent, then your V.O.R% should be considerably lower.

Related Terminology:

V.O.R. Penalty

Actual Buying Price X Optimum Terms

Guideline: Franchise Specific

Description:

This Key performance Indicator establishes the value of penalty that has been incurred by purchasing parts on a V.O.R basis.

In the example below, the Actual Buying Price represents the total price that you have paid for the parts that you have purchased.

The Optimum Terms Cost is the figure that you would have paid for these parts if you had ordered them all on a stock order basis.

The difference between these two values represents the additional money that you have paid to obtain these parts on the V.O.R ordering system.

The value of this penalty is dependent upon your Parts Sales, V.O.R % and of course the frequency of your parts deliveries.

Example:

A) Actual Buying Price = R532,423
B) Optimum Terms Cost = R520,069
C) V.O.R Penalty = R12,354 (A - B)

Discussion:

Measuring the value of the V.O.R Penalty can be misleading when comparing your information with other businesses so to level out the playing field in this area refer to the V.O.R. Penalty %.

Related Terminology:

V.O.R. Penalty %

V.O.R Penalty ÷ Parts List Price

Guideline: Franchise Specific

Description:

This Key Performance Indicator is most effective for measuring the trend of your V.O.R Penalty, especially when comparing your results with other dealers.

In this example, Purchases at List Price represents the total price that you would receive if you were to sell all the parts at their full retail sales value.

Although you will not receive the full list price due to the discount that you give on some parts sales, it is the best yardstick to use as a comparison because different dealers give different levels of discount. If you used your parts sales turnover for this equation, the different levels of discount would produce a sizeable distortion.

Example:

A) V.O.R. Penalty* = R12,254
B) Purchases at List Price = R734,743
C) V.O.R. Penalty % = 1.68% (A ÷ B)

*Please see V.O.R Penalty on the previous page to gain a full understanding of this equation.

Discussion:

Your franchise manufacturer usually provides your Parts Department with these statistics on a monthly basis.

Related Terminology:

Also see Average Bought Cost

Variable Expenses (Bodyshop)

Variable Expenses ÷ Departmental Turnover (x100)

Guideline: Own Policy

Description:

Variable Expenses are those expenses that are directly linked to the volume of business that you conduct. A good example here is consumables. If you do not sell any hours then consumables will be zero, as soon as you begin to sell hours then consumables build accordingly.

Typically, Variable Expenses are shown as a monetary value and in order for you to capture meaningful trend analysis you will need to express them as a percentage of departmental Turnover.

Example:

A) Variable Expenses = R18,570
B) Total Turnover = R371,388
C) Variable Expense % = 5% (A ÷ B X 100)

Discussion:

The term "Variable" does not mean that an expense varies by value, nor does it mean that it may change in some way. It simply means that this type of expense grows with the level of business that you conduct.

In order to gain full control over your Departmental Expenses you really need to understand the difference between Variable and Semi-fixed Expenses and have them properly separated on your financial reports.

Related Terminology: