Are Special Orders Causing Your Obsolescence to Grow?
Every dealership has to deal with parts obsolescence. Parts that haven’t sold in 12 (or sometimes 16) months are obsolete and clogging up your inventory. Even if it costs money in the short term, finding ways to get rid of this inventory is crucial for maintaining a healthy and long-term profitable inventory.
How are these parts getting into your inventory in the first place? For many dealerships, a significant part of obsolescence comes into inventory through special orders. Special orders themselves are not the problem and are very much needed. Without them, inventories would have to be much larger, generating even more obsolescence. The real problem is special ordered parts that fail to make it to your customer and instead end up on your shelves. These parts are considered Forced Stock and can account for 30% or more of your on hand, making up half of your obsolescence as it ages past the 12 months no sale mark.
Is there anything you can do to minimize the impact obsolete parts have on your business? Absolutely. Why wait so long to deal with them? Some parts could be considered obsolete as soon as the demand looking forward is unlikely to deplete what you have on hand. By definition, special ordered parts can be obsolete the day you receive them. If your special orders are not ending up with your customers, an estimated 90% of them they will become your returns, mark-downs, scrap or worse: your on-hand obsolescence. Reducing the negative effects of obsolescence caused by special orders involves identifying these parts in two stages; 1) at the source of the problem before they become forced stock, and 2) once they are forced into inventory.
Identifying all of your forced stock is the only way to be sure that you are addressing every source of it in your operation. Unfortunately, DMS software doesn’t always track or report on forced stock as a category. Finding it, and finding out just how much you have is worth the effort, but it could take some work. If you’re not getting detailed information on forced stock from your DMS, you can still slow the creation of obsolescence from forced stock at your dealership by taking steps like the ones described below when certain conditions apply:
Are there times when parts get special ordered simply to save diagnostic time?
It happens. The tech has narrowed the problem down to a few parts and it looks like swapping in parts one by one will get the vehicle back on the road with the least amount of technician time. The back counter orders parts for the technician and when they arrive, the problem part is found. The remaining parts get handed back to the parts department where more times than not, they become forced stock. Some technicians do this more than others which could indicate a training issue. If you track which of your technicians are returning the most special ordered parts, additional training could pay off big in forced stock reduction.
Do you special order parts for warranty work where the customer has to return for the work at another time?
Not all customers return for their special orders sticking you with a part that you probably don’t want. It would be nice to collect a deposit on special orders before you place them, but that doesn’t work on warranty work. The best way to control this type of forced stock is to clearly define who’s responsible for scheduling the follow-up appointment when the part is ordered and who is responsible for contacting the customer when the part is received. These parts may be more expensive than you think, it’s not just the cost of a special ordered part and the gross you missed out on, you had an opportunity to satisfy a customer by doing something just for them and it didn’t work out.
Special orders are just one source of forced and obsolete stock, but considering that forced stock can make up a third of a dealerships on hand and half of its obsolescence, reducing it to increase levels of service and profits is essential. PartsEdge helps dealerships implement personalized plans to reduce existing and future obsolescence in their operations. Read more about obsolescence here and how to forecast future obsolescence here.