Managing Dead Stock
Our industry has evolved through many stages over the past 30 years. The notable development over our history however is the consolidation of OEM’s and the inevitable merging of distribution channels. It was bound to happen. Over the decades the production capabilities between brands of equipment have narrowed. There is no longer any way that engineers can make them smaller or faster without sacrificing safety. So, in order to create price advantages, OEM’s had to develop “economies of scale” in order to utilize their buying power, and preserve profitability. This could not be done without mergers and acquisitions. Similar evolutions have taken place in the farm and construction equipment marketplace as well.
In like kind, the distributor base has also gone through its own winnowing process. Look around the industry. 20 years ago, every OEM had 90 to 150 dealers. Today, you will find much smaller dealer networks, comprised of larger dealers with growing territories.
This evolutionary cycle has its benefits, but it also has forced dealers out of their brand-centric practices as more lines of equipment become available in a shrinking dealer network. Supporting multiple lines of equipment requires investments in sales promotion, training, and most of all, parts inventory. Each brand has different maintenance and repair requirements. Stocking programs for parts will differ from OEM to OEM. Managing the ebb and flow of a responsible parts inventory only becomes more complex when we take on multiple lines of equipment.
Dead stock is the bane of the parts managers existence. Once you own it, you own it. Sometimes parts can be returned to the OEM, sometimes not. Even with the best planning you will sometimes end up with non-returnable parts that sit silently on the shelf…. waiting to be written off.
The problem with managing dead stock is that the horse is already out of the barn. You can’t simply create demand that no longer exists. There are however some processes that we can discuss to either prevent dead stock from accumulating in the first place, or find new purposes to manage the dead money.
Unit population aging analysis.
Time and again I encounter parts records that contain the following data
- Part number
- Pack quantity
- Package weight
- Purchase history
All of these items are relevant, but one thing that is missing from most systems is a list of equipment models corresponding to this particular part number. OEM’s really miss an opportunity to help their dealers track relevant inventory when they don’t map that information into their parts data stream. Usually a dealer has to look up the part manually on the OEM website to find what models are relevant, and sometimes, even the information listed on the website is in error, or is simply not available. This knowledge is a key component to controlling the inventory. We all have sales records. We are pretty good about knowing what units we are currently servicing. If we could somehow tie a list of parts to models that are aging out, or being retired, it would give us some advance warning on parts that should merit special attention when it comes time for the annual return. Even if your OEM doesn’t do a good job of providing this link, the dealership can build that data over time. It may mean that you have to create additional fields in your business system, but the time and effort it would take will pay dividends if you get some forewarning.
Do some strategic planning, and keep track of units that are ending lease, and/or customer equipment that is being supplanted by newer models. If the existing models are leaving your APR, it’s time to start a review.
Quantity pack pricing policies
OEM’s tend to sell some smaller parts in package quantities far larger than what a single work order will require to complete a repair. When the package quantity is 8 and you only need 2 for a single repair, the left-over inventory can be one of the biggest creators of dead stock. Consider instituting a policy of quantity pack pricing on repair orders. If the only way to buy the part is in lots of 8, post all 8 pieces to the job. Give the left-over pieces to the customer, or toss them…but DON’T return them to inventory!
Maximize your return privilege
Almost every OEM allows at least one annual parts return. It is amazing to me when this event is not front and center on the calendar every year. Planning for the annual return can be done as much as 6 months in advance of the return date. If you have multiple branches, sometimes each branch has its own return allowance. Be sure to transfer dead stock parts between branches if needed to maximize every allowance you have.
Make a deal
Just because your OEM won’t allow some parts to be included on the annual return, doesn’t mean that you can’t negotiate some sort of value trade to sweeten the deal. Perhaps you can offer to shift purchases of sundry items like, lubricants, hardware, bearings, chain, forks and other accessories from a local vendor to the OEM, in trade for some consideration in accepting unreturnable dead stock items. You may only get 40 cents on the dollar, but it’s better than a write-off!
Use your aftermarket resources to identify parts that may fit competitive model units. The IRMN system used by TVH can offer a clue as to what other competitive models can be targeted with your obsolete hose, bearing, cylinder, or belt. Relabel the part as an aftermarket item, and your old part may find a new home on a competitive machine.
Our industry’s penchant for consolidation will not end anytime soon. Like it or not, dead stock is an issue we will all come face to face with. The worst thing we can do is ignore it. My advice is that if you have to write it off….do it early and then MAKE A PLAN for what to do with that part! If it hasn’t moved in 18-24 months, return it, find a way to use it on your own rental fleet, or write it off and determine the drop- dead date for the part to hit the dumpster. Run lean, and stay aware.
Dave Baiocchi is the president of Resonant Dealer Services LLC. He has spent 37 years in the equipment business as a sales manager, aftermarket director and dealer principal. Dave now consults with dealerships nationwide to establish and enhance best practices, especially in the area of aftermarket development and performance. E-mail email@example.com to contact Dave.