This is the time of year dealerships are making decisions for end of year adjustments. Today I wanted to focus on the parts Department aged inventory. I understand how hard it is to realize eventually old inventory loses its value and has absolutely no chance of selling. Nevertheless, this is a reality that must be addressed. There is a lifecycle of a part number that begins selling slowly, then ramps up, begins to slow down, and then stopped selling at all.
One time in particular, I was in the attic of the client looking at old plastic tubs and I wanted to understand what types of items were inside. I selected a few numbers randomly and then went down to the catalog system to see what these items fit. Imagine my surprise when the first number I checked was a brake caliper for a Chevrolet Vega. The chance of someone restoring an old Vega and needing the left front brake caliper and then contacting this specific dealership in my view is nearly impossible…Yet, here it is in the attic taking up space that could be used to inventory current items and improve fill rate to technicians and sales. I suggested the dealership send anything back that had a core value on it as a core. The rest of the parts need to be placed into the dumpster.
The percentage of your inventory that is protected is a number I think every dealer should be aware of. Most manufacturers track this number and they are available for review. Discarding old inventory with no chance of selling becomes easier when the dealer places a goal of having over 90% of inventory investment protected. This means that the dealership will have the ability to return these items for full credit on a regular basis. It assures the dealer that the inventory investment they have made has a value.
When Should Parts Hit the Dumpster?
This year the profitability of dealerships is on the rise, and most locations would benefit from marking down parts that are non-salable or aged beyond reason. In determining when aged inventory should hit the dumpster it should involve a discussion with your tax accountant. The needs will vary on a particular year, especially if you’re looking for a way to mark down a high income year.
General guidelines however, are that if a part has been in your inventory for over five years it has no hope of selling and should be placed into the trash. It’s always best to damage these items so they can’t be returned fraudulently before being placed into the dumpster. As the dealership implements a standardized program they would first discount substantially any item over 2 ½ years old and then dispose of it no later than four years old. Don’t occupy any space with items that have little or no hope selling.
Rob Gehring, President
Fixed Performance Inc.
Fixed Performance complete fixed operations coaching consulting