Even the name hisses.
They slither through your parts department and feed off your dealership. They’re sneaky. They slink onto your shelves when you are busy or not paying attention. Obsolete parts hide out of sight and out of mind.
Consider your wholesale parts business over the years. Nice, right? But how many parts were returned by your customers? Ten percent of sales? Twenty? More? You took them back because you didn’t want to risk losing a customer. But, when you accepted those returns you also reversed the sales (and grosses) and now those crash parts and seldom-used emission parts are collecting dust on your shelves. Actually, some have been there for eight years, maybe more. Snakes. Keeping them company are all the parts you special-ordered but never installed on customer cars. And never returned to the manufacturer. More snakes. Might even be some parts that were ordered in error over the years. Oops. Lots of snakes.
If you are an average dealership, the total value of the parts sitting on your shelves without a sale in 12 months can exceed $50,000. That’s $50,000 that could – should – be invested in parts that actually sell. Your $50,000 investment should turn eight times annually, generating about $400,000 in sales and (at a margin of 41%) $164,000 in gross per year. The snakes are slithering away with your profit.
Those $50,000 of parts that aren’t selling are reducing the number of parts on your shelves that would sell and are driving down your fill rate. Low fill is one of the top reasons skilled techs jump ship. (And who has an endless supply of skilled techs?) Closely related is the fact that missed-fills often require customers to return to your dealership a second time to complete their repairs. To customers that looks a lot like “not fixed right the first time” and your CSI gets poisoned. Rattlesnakes.
So, how do you kill your snakes? Here are the high-impact weapons:
- Start with awareness. Obsolescence happens over time right under your nose. If you don’t know how much obsolescence you have, you can’t track it to reduce it.
- Set prudent return policies that provide progressively generous return privileges to wholesale customers based on their actual business value to you considering purchase volume, timely payments and so on. You might consider the airline/hotel model: Frequent travelers get progressively generous perks as they earn silver, gold and platinum status.
- If you don’t require customers to pay in advance for special order parts, why not? Amazon charges your credit card before it ships. Your customers expect to pay in advance. Make it so.
- Your manufacturer doesn’t want you to have obsolete inventory. Learn about their return program and use it to maximum advantage.
- Hire/train a mongoose/parts manager to hunt and devour your snakes and set the pay plan to reflect the level of obsolescence you want.
For additional resources to learn how to reduce parts obsolescence, consider taking the NADA Online course “Overcoming Obsolescence.”