Your Parts Inventory:
Treasure or Trash?
Chuck Hartle’, President
Partsedge, Inc.
San Diego, CA
operations@partsedge.com
(800) 825-7562
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The views and opinions presented in this educational program and any accompanying
handout material are those of the speakers, and do not necessarily represent the views
or opinions of NADA. The speakers are not NADA representatives, and their presence
on the program is not a NADA endorsement or sponsorship of the speaker or the
speaker’s company, product, or services.
Nothing that is presented during this educational program is intended as legal advice,
and this program may not address all federal, state, or local regulatory or other legal
issues raised by the subject matter it addresses. The purpose of the program is to help
dealers improve the effectiveness of their business practices. The information
presented is also not intended to urge or suggest that dealers adopt any specific
practices or policies for their dealerships, nor is it intended to encourage concerted
action among competitors or any other action on the part of dealers that would in any
manner fix or stabilize the price or any element of the price of any good or service.
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Identifying Idle Inventory
o There are two types of retail inventory:
1. Inventory that sells consistently is an “asset.”
2. Parts that don’t sell, or have little to no demand, are a “liability,” such as:
a. Obsolete parts that have aged over 12 months without sales
b. Parts that are in stock and did not qualify for the phase-in criteria.
o Very few, if any, dealership computer systems identify those parts
that have low sales and did not qualify for stocking status.
Traditional Method of Reporting Inventory Performance
o The “Month’s No-Sale” report: “the sports page” for management!
1. Every dealership computer system seems to have this report.
2. It has been the “go-to” report for over four decades.
The “Flaw” in the “Month’s No-Sale” Report
o The month’s no-sale report can hide idle inventory in the way of
excess inventory and depth.
o Action plan:
1. Pull a report showing all parts with excess-inventory value.
2. Pull a report of all parts with zero month’ no sale and a last receipt date over
nine month’s old.
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Month’s No-Receipt Reporting
o Most retail businesses, including our automotive manufacturers, use
the “last receipt date” as the primary means for measurement of idle
and obsolete inventory.
o Month’ no-receipt reporting is a better way to measure your idle
inventory value.
o Month’s no-receipt reporting has some flaws as well.
o Action plan:
1. Identify your “Month’s no-receipt” report, if any, on your dealership computer
system.
a. ADP month’s no-receipt reporting is directly below the month’s no-sale
report.
b. Reynolds and Reynolds requires a change in Program 2321, Option
35. The prompt asks if you want to “sort your inventory aging by
Sales,” which the default is “Y.” Change to “N” and rerun your 2213
management report to get your aging by receipts. As a note of
caution, your “AGE” field will now reflect the last receipt date instead of
the last date sold.
c. For other dealership computer systems, consult your vendor to
develop or identify a summary report by last receipt date.
The Most Accurate Way to Measure Inventory Performance
o Compare the month’s no-sale report to the month’s no-receipt report
in a side-by-side spreadsheet, allowing you to compare values by the
same aging groups.
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o Two key indicators for comparing month’s no sale to month’s no
receipt
1. In the 0-3 month’s category for both sales and receipts, you want the dollar
amounts to be very close to each other. By dividing the receipt value into the
sales value, the ideal purchase to sale ratio would be 100 percent.
2. Inventory values over 13 months should be close to each other as well.
Typically, if the receipt value is a lot higher than the sales value, you have a
excess depth and aging issue.
The “New Parts No Sale” measurement
o The real definition means parts on your shelf with a value that have
had zero demand in twelve months or less.
o The value of new parts with no sale can reside anywhere in the zero
to twelve month aging window.
o Action plan:
1. Pull a report of parts with “zero” years sale and the age less than 13 month’s
old and with an on-hand value. Sort this report by descending month’s no
sale and total the report.
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New Parts No Sale, How?
o The main causes for new parts without sales are:
1. Technician over-ordering of parts to solve customer problems in the shop,
especially under warranty repair conditions.
2. Returns for wholesale customers, especially body-shop clients.
3. Customers failing to return for repairs, especially under warranty conditions
where prepaid orders are impossible.
4. Order errors by parts advisors failing to get the proper information or vehicle
identification number.
5. Speculation stocking. Putting parts on the shelf without tracking any demand
based on “gut” instinct instead of true demand history.
o Action plan:
o After pulling the new parts no sale report, begin drilling down into the primary
causes for these idle inventory parts that are a liability.
Forecasting Obsolete Inventory
o Technical Obsolescence
o Parts that have aged between seven months to twelve months, either by
sales or receipts value, whichever value is greater.
o In our experience, a part that reaches seven months in aging has a 15
percent chance of selling again.
o This means that there is an 85 percent chance that a part reaching seven
month’s no sale will make it to the 13 month’s aging value.
o Action plan:
1. Get the total inventory value 7 to 12 month’s old.
2. Divide the above number by six to get a monthly average.
3. Add up what you are earning monthly in manufacturer return allowance
and/or accrual to purge idle inventory.
4. Subtract the technical obsolescence monthly average from the monthly
accrual value.
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5. If your monthly accrual value is higher than your monthly technical
obsolescence average, you will be able to reduce your obsolete value.
6. If your monthly accrual value is lower than your monthly technical
obsolescence average, you will more than likely see your obsolete
value grow by that approximate amount monthly.
Ways to Accrue More Dollars to Purge Idle Inventory
1. Consider increasing the retail-matrix escalators.
2. Do a thorough review of what percentage of retail sales are actually being sold at
the matrix price before arbitrarily increasing the escalators so as not to saleproof captive parts.
3. Consider tweaking maintenance parts sold below retail.
o Our experience shows that the average dealership sells approximately 75
percent of their customer-pay retail parts at or below the traditional 40 percent
profit margin. Adjusting some of the low gross, fast-moving maintenance
items slightly can have a significant impact on gross profit.
4. Review wholesale customer discounts.
o All wholesale customers are not created equal. Look for wholesale
customers who:
a) Pay slowly.
b) Have large discounts but don’t by in a large volume.
c) Get the same discount as loyal wholesale customers but buy very little.
d) Return a high percentage of parts purchased. (Anything above ten
percent).
e) Consider implementing a “tiered” discount program based on the
above criteria.
5. Review Internal Pricing Strategies
o Would adjusting the internal mark up rate a percent or two make a real
difference to the New Car and Used Car departments?
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Key Takeaways from Today’s Workshop
1. Identify and accurately report your true “liability” or “idle” inventory
values and manage your inventory performance more accurately.
2. Forecast (or predict) future obsolete inventory by being proactive and
measuring the technical obsolescence value and accrual earned to
control obsolete growth.
3. Pass on the increase “cost of doing business” by evenly applying price
increases across all profit centers.
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