possible obsolete stock problem

[BUCKWHEAT]

JUST WONDERING IF THERE IS A BENCHMARK PERCENTAGE TO DETERMINE WHAT PERCENT OF A PARTS INVENTORY IS NORMAL TO MOVE INTO "MONTHS NO SALE = 12". RIGHT NOW I HAVE ABOUT 1.5% OF MY INVENTORY TURNING OBSOLETE EVERY MONTH. I INHERITED THE PROBLEM WHEN I TOOK OVER THE DEPARTMENT THREE YEARS AGO AND AM CURIOUS IF I AM ADDING TO THE PROBLEM WITH A RATE THIS HIGH! ( THIS FIGURE DOES NOT INCLUDE CUSTOMER RETURNS AGED IN INVENTORY).

[Chuck Hartle]

Hi Buckwheat,

What is your total inventory over 12 months no sale? If 1.5% of your inventory per month is falling into 12 months no sale the biggest question is: Are you earning enough return allowance to cover that amount? Repost with your total obsolescence and see what the approximate monthly return allowance is that you earn and we'll see what we can do.

[J.C. BOHL]

The goal of the parts dept. should be to have $.00 in 12mo no sale,in fact the current trend is 9mo up no sale$.00 to capitalize on your dealer's return on investment. You should(depending on your franchise) have less than 10% of your TOTAL inventory @ 12mo. up and this includes all inventory. Watch your 7 - 12 mo no sale figure and reduce this as this is going to end up in your 12mo up.
Current thinking is that 7 mo and up is obsolete inventory

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[David S]

Buckwheat:

It would be interesting to hear if anyone has a benchmark for parts moving into 12 mos. no sale. I have never heard of one though.

In Toyotaland the guide is less than 10% of inventory 12 mos. and older with no sales. Toyota is also starting to track pending obsolescence (7-12 mos no sale). But contrary to your question this also will include customer returns if it has been 12 months since last sale.

Chuck requested some numbers that are essential to determine your true situation. These figures need to include all parts. But these numbers will only give you the symptom of the problem not the cause. Once you understand your illness you need to take proactive steps to kill the cancer. I can almost guarantee you that you will find one or more of the 4 following issues.

1. Your computer parameters are not set properly (parts should go to AP if they have not sold in 6 months)
2. You have permitted excessive returns from your wholesale accounts (regardless of the profitability of each account)
3. Your advisors are not being held responsible for special orders. The parts are not being installed and are migrating into your inventory. (In my experience this is the biggest problem)
4. You are making speculative purchases on parts that have not met proper Phase In criteria

Find the cause and kill the cancer!

Happy Obsolescence Hunting!
David S

[Chuck Hartle]

David S.,

Couldn't have said it better myself! Touche'.......

[BUCKWHEAT]

THANKS FOR THE TIMELY REPLIES.
My total mns>12 is $75,000. This is exactly 10% of my inventory. My dealer is OK with paying the penalty to correct this problem but obviously he wants some guarantee that the problem will not reoccur. I was averaging $14,000/mo return eligibility. Unfortunately $10,000 of that was used up by customer returns and very little was left over to return dead stock. I'm also finding some disturbing trends just this last few months where my mns=10 is $25,000 and mns=9 is $18,000!!! With these kind of figures moving toward mns>12 combined with my return reserve has got me feeling very uncomfortable about my situation.
Some recent soul searching has made me come to the conclusion that in my quest for increased sales that I was too aggressive when bringing in new model stock without sufficient history as well as I allowed excessive customer returns. (note:since September, the Canadian parts system allows us to return mechanical parts penalty free within 30 days- any older parts as well as sheet metal and trim automatically use return reserve when sent back. GM also pushes very hard for us to have a 90+% fill rate on warranty mechanical parts) We take full advantage of sending back mechanical parts on time but our bodyshop returns are an obvious problem.
My proposed solution to my dealer is this.
A) go back to a more conservative phasein criteria (3in 12 for mechanical 4 in 12 for body)
B)take a hard stand on customer returns which use up return reserve (even at the risk of losing some big accounts who are the worst violators
C)my AP criteria is set to <3 sales in 12 months- I feel this is adequate to catch slow movers and prevent them from reordering long before they stop selling completely
D) put all customer returns that are not returnable (penalty free) into inventory and age it like the regular inventory. My hope is that a good portion will sell before it hits 12 mns. (I used to send back customer returns immediately- I couldn't stand to put "junk" into my regular inventory.

The sad reality is that these new procedures will take a year to notice the effects. The trick will be what to do with the growing problem until that time. Take the hit and chaulk it up to experience????

Any reply would be appreciated

[J.C. BOHL]

Dear Buckwheat,
Sounds like you have a plan!

A. 3-12 phase-in for mech and 4-12 body-good!

b. Customer returns-- This is where you are eating up your return allowance, Track out your wholesale accounts who are returning parts on a regular basis and CUT THEM OFF!

If you sit down and take into account all factors involved, these accounts are costing you money!

One way to control this is to give your customers return allowance based on their purchases. This way your good customers that buy more will be able to return more.
Do this after you weed out your bad customers.
You could have someone who is returning more that they are buying, and you do'nt want to give these people return allowance.

You must stop the influx of Non-Stock parts that are ending up in your obsolesence
Special order parts ordered by your shop and not installed is another source.

By stopping the influx you will be able to work on your problem-$118,000 9mo up no sale!
@ $14,000/ month earned allowance, you will earn $168,000/ year. This is enough to "cure" your problem.

1. Do monthly returns

2. keep utilizing you 30 day returns

3. Donate to a school, have a tent sale or outright SCRAP all non-eligible return parts.
(If you have damaged packageing and the factory will not take it back, you will have it forever) this is a long time to pay for all the carrying costs involved in a parts inventory

4. Buy all you can at maxiumum purchase to earn more return allowance- Some manuf let you take more return allowance in place of discount.

5. The returns that you do accept, put in a seperate source to track these parts and allow them to age on their own.
GO after the 7mo-up parts Starting with the oldest first. If you slow the flow, you will be able to clean-up and keep clean your inv as time passes.

Finally, Is there an instant fix? unfortuantly-no

Proper Management and Procedures will cure your problem

[This message has been edited by J.C. BOHL (edited 07-16-99).]