Obsolete parts are a drain on dealerships. You’ve bought them but now you can’t sell them, or they have been returned. They return to your shelves and are often forgotten, but they are hurting your bottom line. So what do you do?
Parts departments are accustomed to returns – in some cases up to 20 per cent of parts sales are returned. We take them back because we want to keep the customer happy rather than risk losing their future business, but when we accept those returns we also reverse the sales (and grosses), and now those crash parts and seldom-used emission parts are collecting dust on our shelves.
Some of these parts can sit on shelves for years, forgotten. Keeping them company are all the parts you special-ordered but never installed on customer cars and never returned to the manufacturer. Some might even be some parts that were ordered in error over the years.
In an average dealership the total value of parts sitting on 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 per cent) $164,000 in gross per year. That is a lot of lost profit.
Those $50,000-worth of parts that don’t sell reduce the number of parts on your shelves that would sell and drive 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.
NADA has examined this problem and come up with a number of solutions. These include:
- 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 travellers 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? Other retailers charge your credit card before they ship. 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 parts manager to keep track of and minimise your obsolete parts.