Having been with NEXERA (BEI Services) for 11 years, I’ve spent ample time studying the inventory challenges this industry faces.
Quite honestly, I’m perplexed at what I see. With the abundance of business intelligence data and inventory management solutions available today, why does inventory mismanagement and obsolescence seem so rampant?
I would ask you to look at the following statistics and ask yourself where your company stands in relationship to these stats. I’m providing totals of the combined dealers, as well as averages and median (removing high and low outliers) numbers for your review. The chances are good that your organization falls in line with these stats.
Reporting dealers: 224
Overstocked inventory costs —the dollar amount of inventory exceeding three months’ need.
Total: $61,213,803.00
Average: $274,311.02
Median: $106,089.38
Aged inventory costs—the cost of inventory not used by the entire company in the time frames below.
6-12 months total: $16,571,870.13
6-12 months average: $76,648.06
6-12 months median: $40,178.16
12-18 months total: $7,919,651.94
12-18 months average: $35,514.13
12-18 months median: $19,661.45
Note: much of this inventory is in technician’s car stocks.
Obsolete inventory costs—the cost of inventory not used by the entire company over 18 months.
Total: $29,619,652.15
Average: $133,421.86
Median: $66,108.35
Inventory moving from “aged” to “obsolete’ every month; we call this “trickle.”
Average: $5,637.12
Median: $2,104.10
We understand that in order to provide good service, there will need to be some obsolescence. However, after reviewing the above stats with such staggering cost figures, you have to ask yourself why dealers’ ownership and management tolerate this. Do they even know about it?
Inventory Needs Should be Relatively Easy to Manage
For service:
- Determine what the technicians need to carry for parts, and stock those parts.
- Make sure you have enough inventory in the warehouse to restock the technicians for one month.
- Take back inventory that some techs no longer use and put it back on the shelf for other tech needs.
- Repeat every month.
For supplies (if stocking):
- Look at average monthly usage or average monthly volume, and then determine needs by supply yields.
- Order monthly needs only.
- Repeat every month.
These steps aren’t difficult to accomplish, so why do dealerships have millions of dollars in aged and obsolete inventory? I can you tell the four main reasons we see:
- Ordering too much inventory in advance for discounts.
- Not managing the technician’s car stocks properly.
- Not updating the MIN/MAX settings in a timely manner.
- Not planning for churn in the base.
In our studies, we identified a common scenario: every aged and obsolete item passed through the overstocked bucket (Bucket OVR). By managing this bucket, you can avoid these costly mistakes and solve most of the problems. With today’s logistics, we do not see any reason to have more than 30 days need of inventory in stock. You can typically get anything you order delivered within a week, so why keep more on hand?
NEXERA’s inventory solution—Advanced Inventory Management (AIM)—is part of our total offering and can help you manage this inventory. We’ve created a free version that is limited in functionality, but has valuable reporting around aged inventory, plus a “Parts at Risk” report that shows what items need to be managed in the overstock bucket. The goal of NEXERA’s AIM solution is to help you successfully manage and avoid aged and obsolete inventory on an ongoing basis.
Helping Dealers Turn Trash into Cash
Both NEXERA and OEM Connect have been in business for over 20 years and understand these inventory problems. We’ve joined forces with them to create the Overstock Parts Network (OPN), which helps address aged and obsolete inventory. Using the AIM product, and based on national usage stats, we offer to buy your aged and obsolete inventory. Our goal is to sell it back to the dealers still using it at a cost far less than normal. This is a win-win-win situation—the selling dealer wins, the buying dealer wins and the parts win because they get to serve their purpose and do not end up in landfills.
When you participate in the OPN, the system generates an automated monthly purchase order that is emailed to the dealership’s parts person, asking to sell the parts to us. This PO will show all the pertinent information needed, including the days since each item was last used.
On the other end, when the inventory arrives at the OEM Connect facility, it’s checked out and validated as OEM and new in box. It is then added to the inventory counts. An automated sales order (SO) is generated and emailed to the purchasing person at the dealership, letting them know what’s available. This SO contains information including average monthly usage, OPN QOH, price and savings.
If your dealership is using e-Automate, you now can use PO Processor to make these orders automatic, saving your dealership thousands of dollars every month or every year. For items not used as often, you can visit the ecommerce site at www.overstockpartsnetwork.net to see if we have what you need, or call OEM Connect directly at 978-207-1055.
