This means those parts that are gathering dust on shelves or pallets are not making parts providers money and are taking up space for inventory they could be selling.
The old or obsolete inventory needs to go and parts providers have several options to still turn a profit, break even or at least get something for these low- to no-demand parts before they ultimately end up in the trash.
Identifying old inventory
To ensure parts providers don’t have unwanted stock on their shelves, they need a system for identifying parts in which sales have slowed or stalled entirely. The sooner they target those parts, the more options they have.
Edward Neeley, president, Truck Supply Company of South Carolina, stresses the importance of keeping current with aging parts.
“If you stay up on older inventory regularly, you don’t have this huge list of parts to look at,” Neeley says. “If you just all of a sudden go out there and start looking, you’ll get overwhelmed and want to pull your hair out because you won’t know what to do.”
Truck Supply runs aging reports to know how many of each part is being sold based on the number of turns and is classified as an A, B, C or D mover — A movers being parts the industry considers a commodity and Truck Supply might sell 10 of them a day. A D mover is a part that will sit in the warehouse for a while but will usually sell at some point.
“The way I look at it is everything that sits on the shelf is renting a motel room. Are you renting it for a day or are you renting it for a month? If you’re renting it for a month, the price is higher because it has more days on the shelf,” says Neeley. “That’s a D mover. A D mover is more expensive because nobody else has it in stock, so I can get what I want for it.”
In addition to regular reporting, Truck Supply monitors its service shop.
“We know what we’re installing, so we use that information to tell us what we need to have. If we’re installing it, the other shops are installing it,” Neeley says.
Blaine Brothers’ inventory system is based on 13 classes, with each class signifying the number of months parts have been on the shelves without sales. Those classes are categorized by A, B and C movers. For example, A movers are one to three months, B movers are four to seven and C movers have been in inventory up to 10 months, says Vice President Tim Grabow.
“After 10 months of no sales, we don’t much want it around anymore and we start getting creative with marketing and sales,” Grabow says.
That being said, he adds there are some parts Blaine Brothers keep up to 18 months and still consider good inventory.
“There are some one-offs where we’re the only dealer for them,” he says. “The parts we don’t like keeping over that year are either obsolete parts that might have been updated or new parts that didn’t take off for us.”
Parts Manager Phil Howard adds, “Since we put these processes in place about two years ago, we’ve been able to decrease our aging inventory by 50 percent.”
Hovis Auto and Truck Supply employs a computer system to assist with management of its inventory. The company uses the system to replenish inventory daily, increasing or decreasing the order point of a part based on sales. If a part isn’t selling, the system will continue ratcheting down the order point until it reaches a minimum order point. Likewise, when sales increase, the system will continue to ratchet up order points.
“Once or twice a year I take a look at all of the slow numbers and decide whether it’s something we should stock or not,” says President Cliff Hovis.
Weldon Parts uses the term “dead stock” for parts that aren’t selling and they are broken down into three categories, says John Crist, data analyst and replenishment manager.
At the store level, dead stock is anything that hasn’t sold at a particular location within the last year. “We have 17 branches and if it hasn’t been sold in the last year, we try to move it to another branch where it does sell,” Crist says.
The second level is inventory that hasn’t sold at the company level for a year and the third, or “urgent,” level is stock that hasn’t been sold at the company level for two years.
“We try to break it down into those three categories. Every month, when our usage rolls over is how we keep track. After that 11th month, some parts may fall into one of those categories,” he says.
Moving it out
Parts providers use various methods to clear out obsolescent inventory, such as discounted prices. Another avenue is to return product back to vendors.
That’s what Weldon Parts does when a component isn’t selling at any of its locations.
“The best way we have been able to liquidate obsolete inventory is through vendor returns and we’ve spent a great deal of time improving the processes so we have been able to increase our capacity on the number of returns,” Crist says. “We have to meet their criteria and every supplier is different. We don’t like to sit around too long for a customer to come in if we can return it to the supplier.”
Daniel Hagy, president and co-owner of Transerve with his wife Johanna, says returning parts to the vendor is the first option.
“We negotiate with the vendors. Maybe we’ll pay the freight to ship it back or let them charge us with a restocking fee. Our thought is we have $5,000 worth of parts and it’s either getting $2,000 back or nothing,” he says.
At Blaine Brothers, when parts hit the 10-month mark of no sales, the company contacts its vendors.
“We’ll call a vendor and say, ‘We have this amount of inventory, this is what’s moving for us and this is what isn’t. Can we do an exchange?’ It’s an offsetting order, essentially. We’ll send back 1,000 of a product and they give us 1,000 of this other product. We’re pretty proactive in that area,” Howard says.
When parts have no sales for 10 to 12 months, Blaine Brothers will run various marketing programs, such as flyers sales representatives distribute to customers or bargain bins at its locations. In addition, sales reps receive an extra 3 percent commission on the sale of those parts, says Grabow.
Transerve runs weekly reports to spot parts or product lines that haven’t been selling within a 10- to 12-month period. Sometimes the reason is because a fleet customer has sold certain trucks and no longer needs to order those parts. If that’s the case, Transerve will try to locate fleets with similar trucks, says Hagy.
In addition to providing its sales department a list of the parts to try to sell at a discounted price, the company will contact repair shops and competing distributors. “Some distributor might want a certain product that we no longer need. They’re happy to get them at a good price and we’re happy to get rid of them,” he says.
Transerve also will set up a table of general parts in the showroom and the company has a room with a little bit of everything and customers can go in and pick through the obsolete and clearance inventory. Hagy says of the parts in that room, “If we have $100 in it and a customer offers $70 for it, we’re probably going to take it. Once it goes in that room, it’s get what you can.”
Hovis says his business also leverages its supplier base and sales associates to help move old parts.He says some parts are easier to move than others. For example, “It is easier with brake friction and parts of that nature because you’re just looking at an industry standard shoe number and give them the friction weight rating, put a deal on it and you can pump it out that way,” he says.
If a part is superseded by a new version, Neeley says there’s still time to sell the existing inventory.
“There will be demand for the new part but it’s not instantaneous. There’s a transitional period. When I learn about the start of new manufacturing, I start selling the old inventory off. That’s just keeping yourself informed,” he says.
“We work it like it’s the milk shelf of a grocery store. All the new inventory goes to the back and the existing inventory goes to the front. My guys stocking the shelves automatically know when it comes in, it goes to the bottom of the stack,” Neeley adds.
Last-ditch options
After efforts have been exhausted to return stock to vendors, find customers needing the unwanted inventory and promote and sell old and obsolete parts at discounted prices, a few options still remain.
One such option is to play the waiting game, holding onto certain parts until customers need them — which could be more lucrative than one might think.
“With obsolete products, it’s an opportunity to make good margin on those parts. If customers know they can’t find it anywhere, you’re adding value for the customer because you have it,” Crist says.
Truck Supply is another company that isn’t quick to get rid of those D movers.
“With transmission parts, for instance, we manage them better. “We’ll keep one because someone will want it eventually,” Neeley says.
Sometimes parts providers will cut their losses and sell parts for scrap or, worse yet, throw them in the dumpster to make room for parts that will sell.
“We might take parts to the scrap yard because the issue with obsolete inventory is you’re going to continue to pay money on it in the form of taxes and insurance while it’s taking up warehouse space,” Crist says. What’s more, there is the wasted time of “your warehouse staff doing cycle counts on that product. Sometimes it’s better to just get rid of inventory by junking it.”
But he adds that’s not always the case.
“We have run into situations where we were going to scrap a lot of inventory but we were able to identify quite a few parts that had cores and instead of selling to the scrap yard, we returned them for the core credit,” Crist says.
Blaine Brothers is another parts provider that takes advantage of core returns. The company has an employee who monitors the eligibility for core returns on parts, Grabow says.
Parts providers don’t want dead stock taking up space in the warehouse. By remaining vigilant in identifying these parts and getting a little creative, they can clear out that less-than-profitable inventory without taking too much of a financial hit, if any.
