Of the many issues facing parts managers, those of phasing in and phasing out specific parts continue to be the most confusing. This confusion can be costly.
On the phase-in side, the two factors are time and the amount of sales occurring within the specified time. Two questions to answer are: “When do I actually start stocking the part?” and “What is the probability of resale of the phased-in part over the next 12 months?”
Phasing in too soon can needlessly tie up working capital and lower the probability of sale of the item over the next 12 months.
Either way, its working capital you can't invest in selling product. You can try to guarantee your probability of resale over the next 12 months by using a more restrictive or conservative phase-in. But, in utilizing the conservative setting, you may miss out on stocking opportunities.
For example, if my phase-in test period is four months and I need three separate months of sales (a three-in-four phase-in setting) the resale probability of selling the item over the next 12 months is 99.8%.
On the other hand, if I only require one sale within the four-month test period the resale probability is 92.6%.
Both have better than a 90% chance of reselling in the next 12 months, but the three-in-four setting is almost a sure bet. Unfortunately, due to the restrictive or conservative nature of the setting, only those items with high activity will ever meet the criteria.
To further emphasize the point, if the test period is January through April, the sales will have to occur three out of the four months, or January, February, and March. Otherwise, phase-in does not take place.
As for longer phase-in test periods, we must also consider opposite implications. For example, if we use a setting of two months sales in a 12-month test period, the probability of resale over the next 12 months is 87.5%.
This still is a good resale opportunity. However, additional scrutiny or testing of the item may be warranted if the 12-month test period is, say, January through December and the months of sale are January and October.
My standard recommended phase-in setting is three months of sales in a nine-month period. The three-in-nine setting yields a 97% probability of resale. This is just a starting point. Once this setting or any setting is in place, review of market activity (customer demand) is crucial.
If you desire greater flexibility of phase-in helping to build inventory size and scope, try a more relaxed and aggressive initial phase-in of two in six or two in nine. Some parts that meet these criteria may be worth stocking. If not, move the item to another source with higher demand (three in nine or three in 12) for additional demand testing.
In the end, regardless of the setting, the parts manager should have the final say as to whether the part is placed in stock or not.
Other circumstances must be taken into consideration like facility capacity, manufacturer stock codes, return eligibility and time lapse between last and previous to last sale.
For phase out, zero sales (less than one) in six-months setting is preferred. This works well as a starting point in the U.S. market. However, some items may require a more aggressive phase-out like less than two sales in six months or one sale in six months.
Keep in mind; phase out is a totally separate issue from phase in. An item cannot achieve phase out unless it actually phases in.
A final point concerning phase out. The aforementioned setting is aggressive. It is not supportive of a service strategy that includes older vehicles. It helps to minimize obsolescence but also decreases availability of parts for older vehicles in the dealership stocking inventory.
Gary J. Naples is a parts industry consultant to dealers and manufacturers. He's authored two books on parts management.? He is at?570-824-1528 or [email protected]