We’ve noticed a definite trend of increasing obsolescence across the industry. For some time, the average for non-manufacturer guaranteed obsolescence has hovered around 10-12%, recently, it’s been trending upward towards 16-20%. We took a closer look to shed light on the cause and identify potential solutions. What we found is surprising.
Quite a few manufacturers offer automatic replenishment programs specifically designed to eliminate obsolescence for their dealers. Are these programs effective? Generally -but interestingly enough, as you can see in the table below, dealers participating in Manufacturer Automatic Replenishment Programs can also be on their way to having the highest obsolescence in the parts NOT managed by those programs.
What can be done to reduce this trend?
- Selling obsolescence through a parts broker. This can get rid of some of those parts but usually not all of them. You end up with the stuff that really won’t sell.
- If your manufacturer is paying warranty retail, use some of that markup to throw obsolescence away. An accrual account for scrap seems to work well.
- If you’re part of a Dealer Group with the same manufacturer in more than one location, trading obsolescence amongst locations helps. What isn’t selling at one location could be selling at another. Your DMS has the data needed to make decisions like this easy. We do this for our Dealer Group clients all the time!
Whatever method works for you, we recommend you start by separating your non-guaranteed and guaranteed inventories in your aging reports. Viewing them as completely different inventories, allows you to monitor what’s going on in each class of your on-hand investment to make the necessary changes in your process before parts obsolescence drags your whole operation down.