Jun. 2, 2008: A $240,000 money pit that’s sitting on your shelves
June 2, 2008
Filed under Archives
They were four small tubs of grease used for packing wheel bearings. All four of those tubs had been sitting on that shelf for five years.
They were clean. The parts guys had dusted them regularly, and the only evidence of their age were the faded labels that were now beginning to peel off. They could have sat there for another five years in that primo spot on the end-cap, but I had just identified them as part of the dealer’s $150,000 in obsolete parts, none of them with a single sale in the past 60 months.
So I grabbed them and headed for the parts counter. The guys gathered around and I asked the question: “Folks, why don’t you sell this stuff? It’s bearing grease. We use it every day, and our customers do too. Why are these four tubs sitting here and not moving?”
The answers were lame. “Well, it’s a different brand. Well, it is a little ways away from the counter” (yeah, 10 feet), and “Well, we just never thought about it…”
They could tell it wasn’t flying, and then the service manager paused on his way back to service. He took a tub in his hand, looked at the parts manager and said: “I use about a tub of this a week. It’s good stuff. I’ll take one right now for shop supplies.”
“OK guys,” I said. “This stuff has got to go. It has been sitting here for five years, and I’m movin’ it. I’m writing this down to 10 cents on the dollar. Sixty nine cents each. Do something with it!”
In 10 minutes, a second can had been sold, not for the 69 cents, but for full price. And the grin on the parts guy’s face was priceless.
Two gone in 10 minutes. After five years of sitting on the shelf.
So what’s the lesson here? I think I can safely say that obsolescence is as much the result of our attitude, as it is of bad buys, product changes or fickle customer preferences.
The charts on this page show what I have found in the parts inventories of 248 dealers. I looked at the date of last sale for more than 9 million part numbers, then ranked them as either sold within the past 12 months, or, for sitting from 2-5 years (or more) without a sale. The results were awful.
For the best 10 percent of dealers, I found that 80 percent of their part numbers had sales within the year. Those parts were doing what parts should do: Get in, and get out. Only 11 percent of these dealerships’ parts were hitting five years or more without selling. Not real good for this piece of it, but wait till you see the parts departments for the dealers on the other end.
For the dealers on the bottom, only 30 percent of their inventories had sales within the past 12 months, while 47 percent of their part numbers were in excess of 60 months no sale. Can I say that again? Half of their inventories have sat there for five years without selling a single piece! Who ordered that stuff? How can our people walk by it almost 2,000 times and not figure out that they have a problem? Who’s running the store?
But here is the worst — for you. Bottom line. My numbers tell me that within my sample of 248 dealers, these boat anchors amount to a staggering $60 million. Yeah. You read that right. Sixty. Million. Dollars.That is about $240,000 per dealer. It is money that is anchored to your parts shelves. Never turning, never producing margin and costing you every day in interest, insurance, rent and costs-to-carry.
Project this over our whole industry and we get $1.5 billion in current assets that are not current at all. They are as fixed as the ground they stand on. And they don’t look like they are getting to work any time soon.
Hope they’ll just go away?
Hope isn’t a good business plan, and in future articles we will talk about real remedies. But for now, remember just one thing. Remember those four little tubs of wheel packing grease. And start working on your attitude.
Hal Ethington has been associated with the powersports industry for more than 30 years. Ethington is a senior analyst at ADP Lightspeed. He can be reached at Hal_ethington@adp.com.