NS stocking status syndrome

[CHRIS BAUMANN]

July 99 issue of TPM had an article re: non stock parts and all the pitfalls and policing
that go with them.
One issue that I would add is sources, Rather, adding or setting up specific sources to handle parts that the author calls "forced stock" parts. Also noted, AP means automatic phaseout, a function performed by your ICS. If you tell the system that a part is now on AP, why do uou need
an inventory control system? Example:
salesperson A sells a 123456 for a 1999 model in 8/99. 1st hit. 09/99 we special order 1 and it doesnt sell. We set it up as an AP part in bin XYZ. In 10/99 dealer ABC calls and buys the part. 2nd hit.
BUT system sees AP, and changes to DLT and good bye sales history.
See the part may have not been in the system long enough to defeat the AP status.
My recommendation? NS parts are parts that you do not carry in your inventory.
AP parts have met the criteria that you have set up in your specifications and need
to be returned to MFG.
Unwanted special orders,etc go in a special
source with a BLANK in the stocking status
because they ARE in stock, and they, most
likely have not been in the system long enough to determine their future demand.
At least 20% of my "forced stock" parts eventually become normal stock.
You need to run stock orders on that source at least monthly, preferably weekly
to see what sold and what needs to be reverted back to special order, non stock or
what needs to be changed to a normal stock source.

One other idea I've had much success with is 2 Non stock sources. The 1st has liberal
phase in criteria, which gives me many
phase ins a week. From that phase in or
suggested stock order I "decide' what is
an unusual or strange occurrence,( EG 20
molding clips to one customer) and change that number to my second NS source which
has tougher standards. Then I run a stock order on that source monthly to see what
develops. Just some ideas to pass on.
adios
cb

[Chuck Hartle]

Hi Chris,

If this works for you, then that is great. You are working in the right direction, however, I want you to consider looking at your "forced stock" parts in a different way.

First off, your "forced stock" never met your phase in criteria and you had to put it on the shelf. Since it never met your phase in criteria, why would you put it to blank. You even admit that only 20% of it ever phases in. This means you are having a 80% failure ratio and believe me this is common.

The are only two ways the part is going to go on "DLT" status. The one you are talking about is only if you sell the part to zero and have zero on order and you run your month end routine. I have two suggestions here. First, run a report daily to review "AP" parts that have sold to zero on hand. You can then make your decisions on a few parts daily and either put them back to "NS" and use your test sources or activate the part and make sure to get it on the next stock order. Second, if you don't want to run a daily report to review these parts then use "DP" for your forced stock parts. This way you can review them whenever you want without fear of them dropping off on you.

My point is this. I try to simplify things when it comes to reporting. Computers look at common data. If you use all sorts of stocking status codes in a few sources, it will cause you to work a lot harder to find the problems and fix them. Whether a part is on "NS" "AP" or "DP" once it sells to zero there is a time element involved as to when anything will happen again.
- With "NS" status it will sit there at zero until it either hits your phase in or your phase out criteria. I just recently went to a small dealership with a $125,000 inventory in which he had 250 part numbers with a physical location and zero on hand and zero on order and he was "starving" for room to add parts. These parts were waiting for the above to happen and wasting space in his inventory.
- With "AP" parts they will force you to make a decision whether you want to or not on a monthly basis if they sell to zero. Consider your observation: 20% of it will phase in; 80% of it will not! I have repeated over and over that you should never delete valuable sales history even if you sell an "AP" part to zero. Do you want to set up your inventory for a 80% problem or a 20% problem? Look at considering "forced stock" as obsolescence and treat the two the same way.

You are certainly in the minority when it comes to building multiple phase in sources. Consider breaking it down even more by model high year or part number and having several more phase in sources.

Give me a call if you have any other suggestions or want to discuss this further.
Thanks

Chuck Hartle

P.S. By the way Chris when I said "in the minority" on multiple phase in sources, this is great. Very few managers ever experiment with this wonderful tool!

[This message has been edited by Chuck Hartle (edited 09-13-99).]

[David S]

Does it really have to be so difficult? I dont think so. Many parts managers have a simple, yet very effective source set-up.

I agree in the concept of multiple sources. But these sources dont need to be set up for varying phase in criteria. Its not difficult to establish what makes good business sense when determining what should be stocked and what should not. There are obvious decisions to be made by each department manager. Is there enough storage space? Does the owner put a cap on inventory value? Was there an unusual demand that caused a phase in? Beyond the obvious the only question is; once stocked, will I receive a return on my investment? It is probably time another study be completed but years ago I had heard that the NADA determined a part that had sales in 3 of 12 months had a 93% chance of selling again. 3 in 12 always worked for me.

That takes care of the active parts. Profitable parts that we all want to have in inventory. Now on the forced stock. There are 3 common causes to forced stock. They are:

1. Speculation
2. Wholesale Returns
3. Special Ordered Parts not installed in your shop

Speculation is easy. Dont do it! OK, there are some impulse items you need to have in your retail area. Maybe you should buy some maintenance items for that new model your manufacturer put on the road last month. But for the other 99% of your inventory, if it has not met your phase in, dont stock it!

Wholesale returns are the second leading cause of forced stock. Any real business tracks its sales and returns. You should too! If you have an account that returns 25% of everything he buys, youre not making any money. You either need to change your customers buying habits or let the competition have them.

Typically the largest contributor to forced stock is special orders for the shop. The only way this problem is going to be solved is with a strong working relationship between the parts and service department. One way I have found helpful in getting help from the service department is by determining the amount of lost labor gross profit by not installing these parts. It is amazing how quickly the dollars can add up and how wide a service managers eyes will open when you show him on paper how much money has been left on the table.

Though the dealer management systems could use some serious updating, they all basically work fine. There is no reason to make the system work other than designed. With few exceptions, any part that has not met phase in criteria should be NS. Just recognize that you want a large percentage of your part numbers in the system to be NS (not on hand). These parts are being tested for possible phase in. You also want a low percentage of inventory value with an NS status. Parts on hand with an NS status is your forced stock inventory. If need be, it is easy in all systems to generate a report to show you what these parts are. If you know your product it will be easy for you to identify how these parts crept in to your inventory.

Statistically, a part that has not sold in 6 months has a 65% of going obsolete. This is where I would set my phase out. It is the only way I would let a part obtain the AP status. Sounds easy doesnt it. It is. Work smart not hard. Your dealer has spent thousands of dollars on a system that was built with decades of knowledge and statistics. Let the system work for you.

Back to multiple sources. When we get down to dollars and cents, every part on your shelf is just that, dollars and cents. It doesnt matter what kind of part it is or what year or model it fits. What matters is how many you are selling and what kind of return on your investment you are making. The only logical reason I can find for separating sources within the same manufacturer is to control the inventory levels. If you havent read or learned about source by movement, it may behoove you to do some research.

David S

[jdpetey]

First time reply.
I've been working with ADP for a few years now and have been finding more and more of my problems have already been encountered by others.
I don't think it is necessary to separate NS parts by source. NS parts have been added to our system for the most part in regard to special order parts. With ADP, you can set up your system to retain the NS status for as long as you want. Having it in the NS status doesn't do anything except take up memory space on your system. Not necessarily that much either. If the part gets enough hits in your specified time frame, it will get activated. When it does, when you review your stockorder, you can decide then if you actually want to stock the part.
With GM Parts & ADP, most of the sources have already been set up to indicate which sources are non-returnable, fast moving, chemicals, accessories, etc..
The one thing lately I've been trying to experiment with is a status noone has mentioned. That status would be "SP". Special Purchase status. If I can get everyone in our department to assign that status to parts when they add them to the system to special order the parts for someone, I could get a better evaluation of the value of special order parts. As it currently is now, these parts are given the NS status when added to the system. That clumps these parts together with parts that I have added to the system to test for hits. With SP, my test parts will be separated from special order parts.

Thanks for reading.





[This message has been edited by jdpetey (edited 09-20-99).]

[This message has been edited by jdpetey (edited 09-20-99).]

[Chuck Hartle]

Hi David,

Thanks for the reply. I find your observations as "nostalgic". I do agree with you that the bottom line is a good
return on investment, but it is those exact practices that have led to major obsolescence
in dealerships around the country.

It is not your thoughts that are the problem, it is how each individual dealership deals with them. I guarantee you that if you have a small number of sources (i.e. factory sourcing) you are working a lot harder to distingush your parts movement than you have to.

You are correct that the existing Computer Vendors have a wonderful tool, but very few ever take it to the level and use the tools that are available because of time constraints. After all, to get a good return on your investment you have to "sell" the part first and foremost to make a profit.

My experience has been the complete opposite with limited sources. Factory sourcing is just that, for the factory. It limits your ability to increase your return on investment using outdated methods of clumping the majority of parts into a few sources and trying to measure it and manage it the same way. I guess if you are satisfied with a decent return on your investment without regard for idle capital then the old "macro" way of sourcing is ok.

I don't mean to be brutal here because we all have our own opinion and methods that work, but there is a tremendous need for a new way of managing our inventories more effectively. Breaking out the inventory into sources by personality has dramatically improved each and every dealership where it has been implemented.

We need ways that are faster and more efficient to understand our inventory and break it down for us. "Macro" sourcing is a "dying" concept that has outlived it's usefulness.

Chuck Hartle'

[Chuck Hartle]

Hi jdpetey,

To get your stocking status to "SP" for your special order parts is great if you can get them all to input the status. Here are several thoughts and solutions for you.

1) As the parts are special ordered daily, set up your fast change prompt in OMN 13 to update the SS (Special Status) only and change your parts as you place your orders or have your inventory control clerk do it when the order is receipted the next morning.

2) Rather than worry about using the "SP" status at all... If you use the SOR function for your special orders that ADP offers, I suggest that you use a group of bins for special orders only (i.e. SOR1, SOR2, SOR3, and so forth) and then post these locations through function code "SOR". When you highlight each part number and use "F2" to detail the part, you will notice that a bin location is there to update. In some instances the bin location from the PART-NO. file is pulled over, but rest assured that you can update the bin location in the SOR record and it is completely separate from your PART-NO. bin location. Then you can pull your special order report out of the SOR-LINES file by bin location to identify and perpetuate your special order inventory.

Hope it helps you....

Chuck Hartle'

[David S]

Chuck:

What I like about this forum is that it gives parts and service managers an opportunity to discuss their ideas and philosophy, and receive confirmation when their ideas make sense.

I am glad that you and I agree. We do need faster and more efficient ways to manage our inventory; many do not take full advantage of their computer system; to get a good return on investment you do have to sell the part first and foremost to make a profit.

Apparently, I could have done more to explain my views on sourcing. I agree that factory sourcing is not the best method of inventory control and may lead to obsolescence. In the last paragraph of my previous posting I mentioned Source by Movement.

Source by Movement is not a factory sourcing method. It is a tried and true method of sourcing your inventory by sales movement. Source by Movement is used in many industries, both large and small warehouses. It takes in to consideration concerns for idle capital and will provide you with a higher return on investment.

Once a part has been phased in, the only concerns are how many to keep and when should it be phased out. Setting the phase out criteria takes care of the latter. We are left with how many do we need on the shelf at any given moment.

When sourcing parts by product type, or model year, a source will contain some parts that sell 3 times per year and some parts that sell 50 times per year. If this source had a high days supply the slow moving part may be recommended on a stock order but you would also end up with excess stock on the faster moving part. Conversely, if you had a low days supply you may end up with the optimum amount of fast moving stock on the shelf but your system would not recommend that you stock any of the slower moving inventory.

Source by movement can be set up to automatically sort parts in your system based on sales frequency. Slow moving parts would be placed in to a source with a higher days supply to insure that there is one part on the shelf. Faster moving parts are moved to sources with lower days supply to reduce the volume of parts on the shelf at any given moment.

Below is a simple example of how source by movement might be set up in a Reynolds system for a dealer that has daily stock orders:

0-3 sales per year, 35 days supply. 4-12 sales per year, 28 days supply. 13-35 sales per year, 21 days supply. 36-99999 sales per year, 14 days supply.

Make note: The number of days supply has an inverse relationship to the number of sales per year.


David S.

[Chuck Hartle]

Hi David,

Thanks for clearing that up.... we're on basically the same page.

However, here is the only flaw that rests with "ABC" sourcing or "Source by Movement". I will give you the extreme here to illustate my point. You have a campaign part that the letters hit the customer mail box and you have a short period of incredibly high sales, say 50 in month one and 50 in month two. However, the customers dry up and with a 30 day supply in "Source by Movement" now falls into a source that orders somewhere between 40 or 50 pieces depending on how many days supply it sources to.
I know this is the extreme, again, and it is the extremes that we usually catch, but what if you could source these parts by 3 areas of logic.
First, by your BSL (Best Stocking Level). Your best stocking level is calculated by your movement versus your days supply and it changes everytime you run a stock order.
Second, by model high year out or mfg movement code.
Third, by Years Sale or the "ABC" Sourcing. When you can take all three of these and build your setup and days supply around these three criterias, you have something to really make a logical decision on.....
The biggest flaw that our computer vendors need to fix (I feel) is the way they calculate stock orders.
It has always been based on a 1 month, 4 quarters, 1 year period philosophy. For profit and loss statements and customer sales information this is great. But it is totally outdated with our ability to do daily and weekly stock orders. Our inventory movement history needs to go to 1 week, 13 weeks in a quarter, 52 weeks in a year calculation process to work more effectively. Until then, we just have to keep cheating the system.
The other thing that needs to change is the HI-LOW Days program. Again, with daily stockorders or even weekly stockorders the usual turnaround time by our depots is 24 hours. So, why do we need a HI-LOW anymore?
I personally set a low days supply only and put a zero in high days supply for ADP and 1 extra day for ERA (cause you have to in 2323) and the parts in the source determine the days supply. Since 92% of our inventories have a BSL of 2 or less, with just a low days supply your BRP (Best Reorder Point) is always just one different that your BSL. It means you will go to the bin more often to put the same part away, but not to the point that it makes a major difference if labor and effort to handle it.
These are just some thoughts that we have put into practice and we have been able to increase our customers 0-6 productive inventory by over 7% and reduce obsolescence by 63% using these methods of sourcing.....
Just some thoughts.... Got anything else to share?
I wish we would get more interaction on this forum cause I know there has to be someone out there breaking the boundries of conventional inventory practices that works...

Chuck Hartle'

[This message has been edited by Chuck Hartle (edited 09-21-99).]

[Tomm]

David S, you are right on! Managing a parts inventory isn't rocket science. If dealership parts managers realized that their most important function was selling instead of inventory control we wouldn't need to be so concerned about obsolete parts. Set your system up with source by movement, set days supply inverse to movement, communicate with your internal customers and go find some new external customers. You can't inventory your way out of obsolescence, you sure has heck can sell your way out.
Keep the faith David.

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[Rex]

How do you sell your way out of obsolescence with an obsolete inventory? On the other hand, if we never pull our head out of our computers long enough to talk to a customer, we won't sell anything. Certainly there has to be some balance. The computer is an awesome tool that requires a certain amount of maintenance to operate correctly.

Chuck takes the computer maintenance to a level I've never seen anyone else do, but with sales numbers like he has in his background, how can you argue?

We all have different personalities that lend to different strengths and weaknesses. So.. get someone who can talk to customers out there knocking on doors, and have your best geek getting the computer right! I think for most dealerships, neither job belongs to the Parts (Department) Manager. It is his/her job to see that both tasks are done according to their management style (dictates, wishes, or however else you want to say it).



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