In the parts business, it’s inevitable that there will be a certain amount of obsolescence. While return allowances can help offset the cost of discarding obsolete stock, a strategy that doesn’t take into consideration where obsolescence is coming from will result in sticky obsolescence that keeps coming back. Finding the happy balance of a healthy amount of obsolescence in combination with a plan for how to get rid of that accrued excess or forced stock regularly is the key to long-term success.
Assessing the situation
To begin tackling your obsolescence, you need to get a good handle on where you currently stand and how much obsolescence is being accrued monthly. To calculate your technical obsolescence, identify your parts on-hand that are “7 to 12 months” no sale or the “7 to 12 months” no receipts value; whichever is greater and then divide that number by 6 to get an idea of how much your obsolescence is growing each month. Compare this with your manufacturer return reserve each month. If the technical obsolescence is more than your return reserve, you will need to accrue the difference and use that amount to scrap obsolescence each month moving forward.
See how in the above example, the return reserve isn’t covering the technical obsolescence leading to a large accrual of obsolete inventory. The best way to prevent this is to stay ahead and assume you will need to offset your obsolescence through more avenues than just your return reserve.
Making a plan
Once you have a good handle on where your obsolescence sits and how much is being accrued monthly, it’s time to create a strategy for offsetting the cost to discard said inventory from elsewhere in your dealership. Take a look at your Retail Matrix Escalators, profit margins on maintenance items, wholesale discounts, and pricing strategies to identify areas you can accrue more funds. For more specifics on each of these areas, download our FREE Forecasting Obsolete Inventory ebook.
PartsEdge has helped countless dealerships predict and offset their obsolete inventory through our custom matrixes and daily optimizations. As a result, our clients see an average 20% drop in total inventory, 15% less idle inventory, a 50% increase in ROI, and a 20% increase in parts sales. PartsEdge not only gives back to your parts manager countless hours lost to DMS and inventory management, it also helps upper management better understand exactly how things work in the inventory. Our reporting is clear, simple, and informs proactive decision making. If you’re ready to put our parts power-tool to work, send us a message! We’ve been helping dealerships for over 20 years and our testimonials speak for themselves.