As we move on to our 201st Issue of ACG "Smart Parts", we will continue to provide our Dealers & Parts Managers the latest Parts News, Updates and Personal Insights. Even though we all know that "Parts is Parts", there is always something new to talk about.
In our October issue will
be focused on a topic we are all familiar with and that is Parts Obsolescence.
We also know that Parts Obsolescence is one of the top issues our Dealers are
concerned about in Parts, second only perhaps to Parts Sales & Gross
Profits.
Controlling Parts
Obsolescence is one of our toughest jobs each day and one that can keep us
awake at night. But imagine or perhaps "dream" if we had a process
that could eliminate Parts Obsolescence all together?
Even though we can never
really prevent Parts Obsolescence from happening as parts will go obsolete at
an average rate of 5%-10% each year. But what if we could have a process that
could keep our Parts Obsolescence at a minimum of less than 5% all the time?
If we don't have a process
or "game plan" to manage Parts Obsolescence, the obvious result is
that it will just keep piling on each month and year. Pretending it's not there
will just end up out of control.
Increasing Acquisition
& Holding Costs, lower Gross & True Turns, higher Days Supply as well
as higher variances on the Ledger Balance Inventory. The list of ramifications
of excess Parts Obsolescence goes on and on.
Achieving this goal of
0%-5% Parts Obsolescence is not a myth as many of our "Smart Parts"
Managers are experiencing these low Parts Obsolescence Percentages each month.
To achieve this feat, we have to have a "recipe" which includes five
important factors.
Number One: Commitment
Number Two: "Don't
Buy Obsolescence!"
Number Three: Utilizing
Your Parts Return Reserves
Number Four: Choosing the
Right Obsolescence Vendors
Number Five: "Protect
Yourself!"
"So!..How Do We
Accomplish All This and Be Free of Obsolescence and Keep It from Coming
Back?"
Let's Begin!
Number One: Commitment
The Parts Manager needs to
be committed to achieving essentially "Zero Obsolescence". This
mindset is first and foremost by realizing that there is a 98% chance of not
selling parts that have not sold over 12 months.
Initially, it may seem
tough as it was for me as letting go of a part that you've known very well and
have sold for months or years may not make sense. It was almost like saying
"good-bye" to an old friend.
Sticking to the plan is
crucial and must be our very first step. Otherwise, all the rest that follows
won't matter if we have a tough time letting go. We must stick to the facts and
go with what the math tells us.
Number Two: "Don't
Buy Obsolescence!"
Special Orders and some of
the Manufacturers Vendor Managed Inventories, (VMI's) are notorious for
building Parts Obsolescence. Without a Special Order Parts Process and managing
our Manufacturers’ VMI Program, we could be just adding obsolescence.
Without a Special Order
Parts Process, or "Policy", Special Orders can be considered
"Purchased Obsolescence". They call them "Special Orders"
for a reason as we do not stock these parts as they have not met initial
Phase-In Criteria.
If these parts do not get
installed and/or sold, they could become "Purchased Obsolescence".
The ironic thing about "Purchased Obsolescence" is that many Parts
Managers avoid stocking the "right parts" because they think they
are buying obsolescence.
Even though a part meets
Phase-In Criteria, they shy away from stocking it because it may be too
expensive, or they think they may get stuck with it. Totally opposite from what
we are referring to as "Purchased Obsolescence" above.
Special Ordered Parts
should also be returned, (if not sold) after 45 Days, no matter what the return
costs. Return Fees should be applied to responsible parties who authorized the
Special Order. If not returnable, they should be sold to Obsolescence Vendors.
As far as the
Manufacturers' VMI Programs, being "compliant" is one thing, but
being "obedient" is another. Simply approving Daily Proposals without
"drilling down" each part number can and does lead to "Purchased
Obsolescence".
Number Three: Utilizing
Your Parts Return Reserves
May seem obvious, but you
would be surprised at how many Parts Managers do not utilize all of their
Manufacturers' Parts Return Reserves. Even worse, they don't take advantage of
all their opportunities to build even more Parts Return Reserve.
The lack of creating and
sending Stock Orders, especially Supplemental Stock Orders on the DMS, (if the
math is set up correctly). This lessens the opportunity for higher Purchase
Discounts and Return Reserves.
Unused Return Reserves are
not so uncommon and if not taken or utilized will be eliminated after the first
few months of each year for the previous year. It ends up as wasted cash in the
long run.
Number Four: Choosing the
Right Obsolescence Vendors
First and foremost, we all
need to know that a starting price of $.50 cents on the dollar is not a
"made up number". Most don't realize that the IRS Standard Accounting
Method states that the value of any inventory or commodity that has not sold in
12 months has an estimated worth of half its initial value.
Second, we should start
looking at Parts Obsolescence at 10 Months - No Sales and start shopping these
parts out to Obsolescence Vendors. Waiting until 12 Months or Over before
shopping them out lessens the chance of getting rid of them or getting the best
price.
The most important part of
choosing the right Obsolescence Vendors is to have more than just one. We need
to take advantage of all of our Obsolescence Vendors and all of the offers out
there.
We also must realize that
some Obsolescence Vendors may not accept or offer as much as another vendor.
This is why we need to use as many as we can to find that are reputable and pay
the highest return.
We also must include added
costs and shipping of course in our final "net return". In many
cases, it may not be wise to use different vendors as added costs and shipping
make it worthless to send back, and this is why our Number Five is so important.
Our "Top Five"
Obsolescence Vendors are as follows, but keep in mind there may be many others.
Again, most important is to have several to work with to weigh all of our
options;
dealermine.com
oeconnection.com, (Parts
Broker Direct)
partsfisher.com
findrareparts.com
youngautomotive.us
Number Five: "Protect
Yourself!"
Every Dealer should have an "In-House Parts Scrapping
Program" as well as the right Parts Phase-In & Phase-Out Parameters in
their DMS. Prevention is key, but we also need to have that "Parts
Kitty" to get rid of what's left after utilizing all the above four
factors.
Building an "In-House Parts Scrapping Program"
allows us to use this final option to get rid of all Parts Obsolescence. Much
like having a Used Vehicle In-House "Bruise Account", we can tuck
away some money aside to scrap these parts after all the above options have
been utilized.
This final option is not new as many Dealers tuck a set
amount aside for "Parts In-House Scrapping". What may not be new is
how we determine the amount and how much we set aside each month.
By setting aside a certain percentage of Customer Pay
Repair Order Parts Gross Profit, it becomes much easier to manage and build our
"In-House Scrapping Program". If we were to take 1%-2% of our CPRO
Parts Gross Profit and charge it back to Cost of Sales, we can put that money
into our "In-House Scrapping Program".
We can easily manage this CPRO Gross Profit deduction by
increasing our Parts Matrix by 10% Above Cost, which will net a 2% gain in
Parts Retained Gross Profit Percentage. This would result in a "wash"
and allow month-to-month fluctuations that will flow with Gross Percentages as
opposed to one flat, set amount each month.
I can only say from experience that there is no better
feeling than being a Parts Manager that does not have to worry about Parts
Obsolescence. It also changed me from being a "cautious, worrisome"
Parts Manager to an "aggressive" Parts Manager.
It changed me from not buying parts because I was too
worried if they didn't sell or too expensive, as I felt they would just add to
my obsolescence. Once I didn't have to worry about Parts Obsolescence, my First
Time Off Shelf Fill Rate took off.
I had more of the right parts and magically, my Parts
Obsolescence was shrinking as I had more of the right parts. They then
"phased out" when they got to the end of their "life
cycle". Even though I had my Scrap Account, less fell into obsolescence
Last Question...
"Would You Like to Sleep Better at Night and Not Worry About Parts Obsolescence?"...Maybe It's Time to Take That Giant Leap of Faith!"
(786) 521 - 1720...After all, not knowing is not worth not "fixing" it...
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