Surplus inventory in your automotive dealership often leads to waste and losses. Sure, sometimes a well-planned marketing campaign or a sudden unexpected spike in service needs can help reduce the stock. But the reality is that once inventory becomes obsolete it usually doesn’t do much more than take up space and capital.
The good news is that there are steps you can take to eliminate surplus and obsolescence to help improve your bottom line.
- Define the problem
The first thing you need to do is identify the problem inventory. Make a list of parts that you always seem to have too much of, parts that you have to sell at a discount and parts that regularly suffer from obsolescence.
Once you’ve done that, you need to value each SKU. Determine the turnover, delivery times, profit margin and storage. This will help you determine whether the cost of having the product on hand outweighs the risk of obsolescence (in most cases it won’t - improved planning and record keeping is often needed) and which areas need the greatest attention.
- Find a short-term solution
When it comes to overstock with little chance of future sales, the solution is usually obvious – just a little hard to swallow. And that solution is – get rid of it.
The good news is that doesn’t just mean tossing it in the bin out back. With automotive parts inventory, there are usually better solutions. If you don’t know what those solutions are, this is the perfect time to start working on a reverse supply chain plan so that you know what to do if obsolescence starts creeping up in the future.
Some disposal ideas may include:
- Selling stock at discounted prices to customers or other automotive service providers who have more demand.
- Disassembling and reusing components for other jobs.
- Reaching out to other dealerships in your area that may need additional stock.
- Parts return programs through manufacturers.
- Using the parts for training.
- Scrapping the parts. Using the parts for training.
- Scrapping the parts
- Identify inventory problems
While monitoring parts for obsolescence so that you can unload them before they become obsolete is a solution, it can use up valuable personnel resources and creates a lot of risk if you miss calculate your unloading window.
Instead, you want to find the real cause of why you're constantly stuck with more stock than you need. Common problems include:
- Overly optimistic sales forecasts.
- Poor communication between members of the parts, service and accounting department.
- Changes in technology.
- Vendor issues including regular backorders and orders with incorrect quantities and parts.
- Inaccurate inventory records.
- Poor planning and scheduling.
- Misaligned marketing campaigns.
- Find a long-term solution
A company without inventory problems is probably unaware of all the problems they really have. And that’s because inventory, by nature, is a magnet for mistakes and errors. Especially during peak season when parts are moving in and out of stock faster than you can write it down.
From mismanagement to sticky fingers to accidentally forgetting to write something down, there’s a lot that can go wrong. But there are steps that you can take to reduce and eliminate problems, especially when it comes to obsolescence and overstock.
The main thing to remember is that you won’t be able to find the right solution until you pinpoint the real problem.
Some solutions to consider once you identify the real problem are:
- Better procedures and oversight
- Improved organization
- More frequent inventory counts
- Better forecasting
- Better ordering processes based on turnover and delivery times
For help identifying the root cause of your overstock and obsolescence or to help solve your inventory problems, contact our team of professionals today.