What is Technical Obsolescence?
Last month we shared an ebook on Forecasting Obsolete Inventory. In case you missed it, you can view it by clicking here. Did you calculate your technical obsolescence? If so, you now know how much your obsolescence will grow each month moving forward. We recommend calculating your technical obsolescence monthly.
What is included in technical obsolescence? Where does it come from? These are either excess or forced parts with no sale or no receipt in 7-12 months. After 7 months, these parts have an 85% chance of becoming obsolete and as the months progress they have an even greater chance of becoming obsolete.
The most important aspect of technical obsolescence is whether or not you have enough return allowance to cover it.
If you don’t have enough return allowance to offset your growing obsolescence, you will want to take a look at excess and forced parts. Excess Parts are parts on-hand, where the current quantity is higher than what you need. For Instance, if your Best Stocking Level is 5 and you have 7 in stock, you have an excess of 2. Dealerships can reduce excess parts by adjusting “Days Supply” settings in the DMS.
Forced Parts are the parts you have on-hand which never met your phase-in criteria. These are customer returns, specials orders that were not picked up, or simply errors. In the name of good customer service, there will always be forced parts. Dealerships can reduce forced parts by implementing tighter control over special orders and returns.
Here’s how you can find parts in each category:
Forced – a very common phase-in criteria is 3 hits over 12 months. For most dealerships. any new parts in the last 12 months, with less than 2 sales and are not manufacturer-guaranteed (RIM/ARO/etc), are almost certainly forced parts. The list is usually bigger than you expect.
Excess – any parts you have where your QOH (quantity on-hand) exceeds the system-generated BSL (best stocking level) could have excess on-hand, but remember, some systems don’t show you BSL at all and the system generated BSL can be dramatically skewed by the “Days Supply” setting in your DMS. You can also look at Active (normally stocked) parts where your on-hand quantity is higher than what you have sold in the past 60 to 90 days. There will be exceptions, so filtering out low value parts with small on-hand quantities and parts you have to stock to remain compliant with your manufacturer can help you identify the excess parts in your inventory that you can actually do something about.
By tracking Excess and Forced parts in your inventory and making regular changes to your DMS settings, your inventory will become more efficient with much less future obsolescence. Need help implementing a plan to reduce technical obsolescence? Get in touch!