Forecasting Obsolete Inventory
Inventories age. So you’ve used your return allowance to throw away all of your obsolete parts but they keep coming back.
What do you do now?
Many dealerships have to accrue funds to offset the new obsolescence created each month by an aging on hand.
If this is your strategy, you’ll need to know how much to accrue and where to get it from.
#1 You need to know your technical obsolescence (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. Read more about what technical obsolescence is here.
#2 Find out how much you are earning in manufacturer return reserve each month.
#3 If #2 is not greater than #1 you will need to accrue the difference and use that amount to scrap obsolescence each month moving forward.
This Chart shows how a Dealer with $44,790 in Technical Obsolescence will still have $14,790 more in obsolescence 6 months and $5,000 a month in Manufacturer Return Reserve will still have over $14,790 more in Obsolescence 6 months from now.
This Dealer needs to accrue $2,465 each month to keep their obsolescence from growing.
Do you want to know how to find out where to accrue more funds? Click here to access and download our free forecasting obsolete inventory ebook.
Is your obsolescence becoming overwhelming and hard to manage? We can help! Get in touch to find out more.