Parts in your inventory with a non-stock status (coded NS within the inventory control system) exist in two ways.
One is with zero on-hand quantity. This type resides strictly within the dealership-management system for the purpose of demand testing.
When sufficient demand occurs according to the user-defined phase-in criteria, the item is suggested by the system for stocking eligibility and reviewed by the parts manager prior to actual stocking.
Demand testing is important and should be a continuous process as part of building a profitable and customer responsive inventory.
The other type is non-stock parts with an on-hand quantity. This kind of part has an immediate physical presence. It has been brought into stock, by-passing the phase-in criteria.
A part of this sort, once in stock, has a 48% chance or less of selling in the next 12 months. For this reason, it's important to minimize their presence in inventory. Due to their unproductive nature, retaining excessive quantities of non-stock type parts in the stocking inventory reduces department profit and freezes working capital that could otherwise be invested in selling parts.
What are the circumstances causing these parts to end up in stock? Here are some common conditions:
- Unsold special order parts.
- Parts returned by customers, both wholesale and retail.
- Misdiagnosis.
- Speculative buying.
Control and elimination of these parts can be accomplished by:
- Having a special-order policy that ensures that this type part is sold to the customer.
- Working to reduce or eliminate returns of parts by customers. Making sure the correct part is ordered. Having return policies that inhibit frivolous and unwarranted returns.
- Making sure counter people have strong product knowledge and proficiency using the Electronic Parts Catalog (EPC) so the correct replacement parts are identified and specified.
- Ensuring that counter people get all necessary vehicle information for accurate specification of parts.
- With few exceptions, making sure that parts are properly tested for demand prior to stocking.
- Having return policies and procedures that ensure complete and timely participation in all manufacturer return programs.
A rule-of-thumb recommendation is that 90% to 97% of the non-stock parts in inventory are turned per month. In other words, out of 100% of the non-stock inventory 90% to 97% is sold or removed by some other means such as returns.
The percentage range will fluctuate and dealers with large wholesale operations may tend toward the higher percentage. The range will also fluctuate depending on when customer orders are received and sold.
As you work to reduce and manage the inventory of non-stock parts with on-hand quantities, it helps to be able to measure and track your efforts. A simple calculation allows you to accomplish this.
On a monthly basis, assess the percent of non-stock parts sold. Do this by dividing the net dollar amount of non-stock parts and accessories sold by the total non-stock inventory value for the same period.
This will yield the ratio of non-stock parts sold to those purchased and forced into stock.
Say in February non-stock part sold totaled $15,587 and the non-stock inventory balance for the month was $16,983. So, the percent of non-stock parts sold for that month is approximately 95%.
The math is: $15,587 divided by $16,383 multiplied by 100 equals 95.1%.
Information to conduct this calculation can be obtained from the Dealership- Management System monthly report or contact your provider for assistance.
Gary Naples is a parts consultant to dealers and manufacturers. He's authored two books on parts management. He can be reached at: 570-824-1528 or [email protected].
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