Calculating Depreciation of Idle Tire Inventory

[dropdeaddart]

Hi everyone,
I have been put in charge and tasked with the challenge of clearing out our idle tire inventory, this inventory consists of, small, medium, and large passenger car, cuv, & suv tires, along with truck tires, and lifted truck tires (from 33-38 x 12.5-14.5 R 17-20LT). A lot of our inventory has been sitting idle for longer then a year, I have only been hear for 3 months, and at the moment, I am trying to return as much as my national account tire supplier will say yes too, along with my non-national account tire supplier (two separate local companies). Along with that, I am trying to sell as many as is take offs to a local buyer as they say yes to, and for the most part, it seems to be working in the GP $$$ sense, I am in the process of contacting another potential local buyer that buys used tires, to further rid myself of my idle inventory, so I would like to know what formula I can use to show them what is a good price to sell at, also, the tire inventory is hell on earth, non are received into the dms since the dinosaurs roamed the earth with adam and eve riding them like horses, they are all stacked with no thought or organization, they are contained to a steel shipping container in the back lot, and it Is more then difficult to reach some of them without first getting your workout. On a hot day, it is a sauna at best. Also if anyone is in the GTA, ask for info if you are interested in some "as cheap as I can go" tires. We also have rims, but that is a different story.

[FixedManager]

That's a lot of good questions and information. The plan I would put to them, in simple terms, is that I will move X units through sales, Y units through repurchase agreements, Z units through online auctions, Q units through buyback/obsolescence, and W units via inventory swaps. All used or DOT stale-dated tires will be written off.

1) Regarding your title most accountants calculate monthly inventory holding costs at 1.25% to 1.50%. Calculate the extended value of the tires after the month end close.

2) Your steps on removing old inventory are great. Adding to that I have found eBay to be quite lively when using them in the auction format and never lost money with a starting price of 5-10 dollars. I would also communicate to my vendor my problem and ask for an inventory swap. You may need to take a haircut on some and buy more than a 30 day supply but you can get cleaned up very quickly this way.

3) As far the edict of not selling below cost can this be stretched to sell a group of tires at an overall profit but not every one above cost?

4) You mentioned take-offs which should be the easiest. Unless someone made a major boo-boo the most your cost should be is 1¢. I would sell them as used making sure I received proper used tire removal documentation and never look back. Take-offs are a major liability waiting to happen.

Some notes regarding your situation come to mind. A tire is considered obsolescence at six months no sale not twelve. At six months of non-movement you should be looking to make it go away through price reduction or via return. One of the worst conditions for tire longevity is heat and storing them in containers at high temperatures is not good for their time in inventory. The oils in the tire can dry up reducing its ability to perform when installed on a customer's vehicle. At six years of age from the DOT date the tire is not salable. If you do not know how to read the DOT codes on tires and remove old units from your inventory immediately. Make sure you have documentation on all tires you return or scrap as you have liability for them. If someone has an accident and the DOT numbers show you have had ownership of the tires you must be able to prove otherwise and that the party who did take them off your hands is legally able to do so.

Good luck, you are on the right track.

[dropdeaddart]

That's a lot of good questions and information. The plan I would put to them, in simple terms, is that I will move X units through sales, Y units through repurchase agreements, Z units through online auctions, Q units through buyback/obsolescence, and W units via inventory swaps. All used or DOT stale-dated tires will be written off.

1) Regarding your title most accountants calculate monthly inventory holding costs at 1.25% to 1.50%. Calculate the extended value of the tires after the month end close.

2) Your steps on removing old inventory are great. Adding to that I have found eBay to be quite lively when using them in the auction format and never lost money with a starting price of 5-10 dollars. I would also communicate to my vendor my problem and ask for an inventory swap. You may need to take a haircut on some and buy more than a 30 day supply but you can get cleaned up very quickly this way.

3) As far the edict of not selling below cost can this be stretched to sell a group of tires at an overall profit but not every one above cost?

4) You mentioned take-offs which should be the easiest. Unless someone made a major boo-boo the most your cost should be is 1¢. I would sell them as used making sure I received proper used tire removal documentation and never look back. Take-offs are a major liability waiting to happen.

Some notes regarding your situation come to mind. A tire is considered obsolescence at six months no sale not twelve. At six months of non-movement you should be looking to make it go away through price reduction or via return. One of the worst conditions for tire longevity is heat and storing them in containers at high temperatures is not good for their time in inventory. The oils in the tire can dry up reducing its ability to perform when installed on a customer's vehicle. At six years of age from the DOT date the tire is not salable. If you do not know how to read the DOT codes on tires and remove old units from your inventory immediately. Make sure you have documentation on all tires you return or scrap as you have liability for them. If someone has an accident and the DOT numbers show you have had ownership of the tires you must be able to prove otherwise and that the party who did take them off your hands is legally able to do so.

Good luck, you are on the right track.

Hey Fixed Manager, thanks for the praise.

For the most part, it will be a long process, as we are only a four person team consisting of the parts manager, the shipper/receiver, the part-time driver, and myself, a parts counterperson.

I have a few comments to the first part of your response, the part with having X tires moved through sales, and the other ways is that I do not know what we have, i would literally have to rip all of the tires out of the shipping containers by hand, and hand write down all of the important information which in these days, is all words and numbers on a tire. Then reverse look them up on my local tire suppliers website, and cross reference the info to get manufacturer item numbers, and prices, then input them into the computer via our manufacturer prefix codes and the item numbers, and put in the cost, trade, list, name, source, group, and that is too much work for one man too handle. It would be good if the system was not broken to begin with

If that is the case in the way accountants calculate then we are screwed any way. There is a lot of idle inventory there.

There is ebay or kijiji, which I am looking into, again, short handed lol.

There is a place that is local that buys new and used tires, and I will be getting in touch with them shortly, their website shows that they do have a big facility, and hopefully the means and want to purchase a large number of tires from us.

We do a lot of lift trucks, and take of the wheels off with approximately 13-20 miles/km on them. What they do is the Parts Dept will give the Sales Dept or New Vehicle Cust. a credit for their wheels and then we put them out their for sale. I will definitively marked them as used, and put more legal jargon on the for sale sign so out ass is covered in all areas.

Another issue is that I simply do not know what is 6 months idle or 12 months, there is simply no record, this is no-one in the departments fault, everyone is fresh and we were handed this situation, and we are making the best of it. And it was not my choice to put the tires there, I have told them several times the heat will kill the tires, we are also exposed to severe cold in the winter time. But we are a small sub-group 3 dealer with an inventory hovering max at $250,000. Our tire situation is one that we are not equipped for. We do not have the space, or the man-power to do an overhaul in a small amount of time. It is a war to say the least, and wars are ugly, dirty, with blood, sweat, and tears, and no gets out of it winning.

My personal plan of attack is this, move 20 tires per day, by means of return, sale, or write-off. If with my primary job as Back counter, Wholesale Phone, Front Counter, Internal, On-road wholesale, collision shop parts estimator, jack-of-all-parts counterperson job. I will do my best, and at 24 with 4 years parts experience, I have the energy for it.

[FixedManager]

WOW So if I understand your tire issues you have an abundance of both new and used. These tires are stored without any organization or part number labels. You cannot run a report out that shows what you do have on hand with an extended value. To sell a stock item you need to have it in hand, identify it, and look it up online for a part number and price. Lastly, you subsidize the New Vehicle department profitability every time they accessorize a vehicle with wheels.

Unless I misunderstood and my assertions are incorrect you do have a job ahead of you. You also have a systemic problem within your department and dealership in handling tires that needs to be addressed immediately or this will be a never ending job. It's a shame you're so far away or I'd drive a truck up there and write you a check for the whole inventory. Nothing easier to move or more profitable than wheels and tires in a Parts inventory.

While a frustrating task for you as a new Parts Manager this can be a great learning experience; have fun.

[dropdeaddart]

WOW So if I understand your tire issues you have an abundance of both new and used. These tires are stored without any organization or part number labels. You cannot run a report out that shows what you do have on hand with an extended value. To sell a stock item you need to have it in hand, identify it, and look it up online for a part number and price. Lastly, you subsidize the New Vehicle department profitability every time they accessorize a vehicle with wheels.

Unless I misunderstood and my assertions are incorrect you do have a job ahead of you. You also have a systemic problem within your department and dealership in handling tires that needs to be addressed immediately or this will be a never ending job. It's a shame you're so far away or I'd drive a truck up there and write you a check for the whole inventory. Nothing easier to move or more profitable than wheels and tires in a Parts inventory.

While a frustrating task for you as a new Parts Manager this can be a great learning experience; have fun.

Yes, both new and used. Yep, they are stacked in the shipping container, some with the tire manufacturer labels facing outward, some facing in, some without.
If I didn't say this before, I am on DealerTrack/Arkona, I don't know how to run decent reports or even find them, it isn't anywhere as good as R&R, when I was at a store with R&R, I created a report in the 6910 by coding it in, with help from the R&R book, where I could look up my QOH, QAV, Cost, Trade, List, Bin Location, Name, Description, all by searching with the size of the tire (Example: P225/60R16, or LT275/60R20, or 35X13.50R18LT). When I showed this to my manager, and telling him how great it would be to use, he brushed it off as it not being worth it because they don't do a lot, but the other parts counter people praised it and used it for our in stock tire inventory. I wish I could do that in DealerTrack. Yes, I need the tire in hand to confirm its stock.

Well, the situation with the New Car Dept. is different, we have worked that out correctly in my eyes, when we issue the credit, we first do it on the debit machine so it is just a monetary value that appears on our statement. We then take ownership of the Wheel Set, we then receive it into the DMS as Part Number: Truck20, for a 20 inch truck wheel set, with the cost we did the credit it for, a trade price, and a list, and in its own source, group, so that we can keep track of it (for the most part),with a proper description. It is received into the DMS as a quantity of 1, and is billed out accordingly. For the most part, this makes sense to me, and we make money on it. We buy a 20 inch truck wheel set with lugs, and centre caps for $1000.00 and sell it usually at full retail for $2200. Everyone is happy in the end. Sales once learned of how much we make off a set, and was a little bitter. When we do a lifted truck we do add it in too the price of the truck and we do make money off of it.

I do have a job ahead of me, The tire situation has been addressed and we are doing it correctly, everyone knows what they have to do when the local tire supplier brings the tires in with the paperwork, we go to the tires, and visual check that the paper and tires match, sign the paper, we then go to the Purchase Order and receive the tires if they are national account or not, and only post them if they are national account. If they have not been previously added in the system, they are added the correct way with correct markup, sources, groups, descriptions, etc. Paperwork is printed, stapled, filed. We then find what the appointment or Repair Order it is attached to, and alert the Advisor to the tires. We also mark the tires physically with a copy of the APPT/R.O. and wait for them to be rolled to the machine. My current job is to address the idle inventory in the shipping container, and this is one of those very long ones.

I am not a parts manager , I am a normal Parts Counterperson, who's primary concern is the Back Counter, The Wholesale/Retail Phones, The Front Counter, Internal New Car Sales Inquires, The occasional on-the-road wholesale rep., the collision repair estimator/facilitator, with only 4 years experience. I hope to be a Manager....some day.

[RLWOLF]

Dropdeaddart:
One suggestion I would make going forward:
As we purchase take-offs from our NCD (or anyone else) we use the last 8 of the VIN# as the part# on each individual set.
That allows you to cost each set according to what you have paid for it. Also, you create a good paper trail as to where it came from and where it goes as you sell it.
Or if by chance, there is a recall on any tires by the manufacturer, you can trace a specific set to the end user.
That way, if the NCD ever claims they didn't receive proper credit, etc..., you can prove otherwise.
Just some food for thought.
It works well for us.

Good Luck,
RLWOLF

[dropdeaddart]

Dropdeaddart:
One suggestion I would make going forward:
As we purchase take-offs from our NCD (or anyone else) we use the last 8 of the VIN# as the part# on each individual set.
That allows you to cost each set according to what you have paid for it. Also, you create a good paper trail as to where it came from and where it goes as you sell it.
Or if by chance, there is a recall on any tires by the manufacturer, you can trace a specific set to the end user.
That way, if the NCD ever claims they didn't receive proper credit, etc..., you can prove otherwise.
Just some food for thought.
It works well for us.

Good Luck,
RLWOLF

That is a great way of doing them. Just use the Vin as the P/N and then make a description of the wheels. I agree completely with how that is the way we should do that, I will recommend it ASAP.

[hondab]

I'm gonna sound like Donald Trump talking about making Mexico pay for a fence, but.....

Unless you are one of the top tire sellers in the country, focus as much of your business as you can on one tire vendor -- go for your manufacturer's preferred vendor for all of your tire purchases -- except where it just won't work. As part of the business plan, have them analyze your inventory at least three times a year and let them know that any tires that age are their problem to deal with.

Trust me, they want to do this. The best tire dealer in the country for auto dealers is Dealer Tire, so use them if you are lucky enough to be selling parts for one of the manufacturers that partnered with them (sorry GM dealers, the General would not play ball when every other manufacturer would!).