Reducing Waste in Your Parts Inventory
All too often we get phone calls from parts managers looking to sell off their obsolete inventory. Dealing with reactive retail, as we do in automotive dealerships, obsolescence is a necessary and unavoidable part of the business. Idle inventory can build from many different avenues in day-to-day operations. Unfulfilled special orders, returns from customers, speculation, and many of the replenishment programs forced on you by your manufacturer top the list.
Have you ever seen a dealership dump all of its obsolete inventory only to find that 12 months later, it’s back again. Selling off parts that aren’t moving reduces your idle inventory, but what do you do to make sure it doesn’t happen all over again? For that, you’ll have to make a change to the way you manage parts.
Eliminating the root cause of obsolescence takes time, realizing the results can take some patience.
If you make a change in your parts operation today, you might have to wait months or more for your management report to validate your change. During that time, idle capital may still be growing.
You can cut the wait time almost in half by looking at your “technical obsolescence” in the 7 to 12 months no sale category. When you have a part that hasn’t sold in 7 months, its chances of selling are near 30 percent and it continues to diminish as each day goes by.
Now if you take the number from 7 to 12 and divide it by 6 you can get a pretty good idea of how much your obsolescence will grow monthly. Compare that to any purchase discounts or return allowances you may have and make a plan to accrue the rest from gross to offset this amount. With return programs becoming harder and harder to find, you may end up scrapping or donating most these parts. The accrual will come in handy when you want everything to balance.
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