Obsolescence leads to frozen capital. These funds become non-productive assets. In essence, this is dead wood in your inventory. For instance, idle inventory includes excess stock or parts that don’t move. Furthermore, non-moving parts reduce inventory turns. This directly affects the dealership's financial health.

Dealerships measure inventory by days' supply or inventory turns. When you exclude idle inventory, your productive inventory shows stronger performance metrics. However, many dealers find this hard to achieve. Hence, understanding the true cost of idle inventory is critical.

Manufacturer Programs: A Double-Edged Sword

Guaranteed Inventory: Good or Bad?

Manufacturers often have ASR (Automatic Stock Replenishment) programs. These include systems like Rim, Aero, and Parts Eye. Such programs guarantee what sells, aiding both dealers and manufacturers. Nonetheless, this creates another problem. It does little to eliminate parts that don’t sell.

Balancing Guaranteed vs Non-Guaranteed Inventory

Many parts managers ask what percentage of inventory should be guaranteed. Ideally, it should be between 40% and 60%. Unfortunately, achieving a 100% guarantee is rare. Consequently, focus often shifts to non-guaranteed inventory. This category grows by 10% to 15% every five years. Thus, it becomes crucial to manage this effectively.

Practical Strategies for Reducing Obsolescence

Cost-Benefit Analysis

One critical practice is to analyze costs and benefits. First, identify why and how obsolete inventory accumulates. Technicians may over-order parts. Moreover, wholesale operations may return too much unused stock. Therefore, identifying these root causes can prevent future issues.

Restocking Fees and Accrual Mechanisms

Introducing restocking fees can help recover costs. Additionally, build accrual mechanisms to retire obsolete inventory. This is a long-term solution. It's crucial as manufacturers rarely accept returned parts. Therefore, creating an internal system is essential.

Facing the Hard Truth: Obsolescence in Dealerships

Zero Obsolescence: Ideal but Impractical

Many dealerships aim for zero obsolescence. However, achieving this requires extensive effort from both parties. It is neither easy nor common. Despite this, dealerships should strive for minimal obsolescence.

Standard Practices and Write-Offs

At what point should dealerships write off obsolete parts? Chuck Hartle shared an insightful analogy. He compared it to when one should fire an employee: before you ever hire them. Therefore, focus on efficient ordering from the outset. When parts come in wrongly, deal with them immediately. This avoids long-term accumulation.

Collaboration Between Departments

Parts and Service Departments: A Symbiotic Relationship

Both parts and service departments must collaborate. Often, service departments unknowingly hinder parts operations. For instance, technicians may over-order parts, thinking it’s a minor issue. However, it adds up. Thus, internal communication is key to avoiding unnecessary obsolescence.

Low-Selling Parts: Immediate Classification

When low-selling parts arrive, classify them as obsolescence immediately. For instance, wrong-color floor mats shouldn't sit in inventory. Treat such parts as dead wood right away. This approach can prevent future financial strain.

Conclusion

Inventory obsolescence remains a significant financial burden for dealerships. However, understanding its impact and implementing strategic measures can mitigate its effects. Collaboration between departments, efficient ordering, and immediately classifying low-selling parts are vital steps. Over time, these practices can lead to a healthier bottom line. Hence, tackling inventory obsolescence is not just a necessity but a strategic imperative.

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