A new study of 450 dealers shows a significant amount of dealer capital is frozen in inventories as overstock parts. For the average dealer, 25 percent of all parts dollars could be freed if overstock parts were eliminated and stocking levels were maintained at a one month’s supply.
“Overstock” is defined as inventory on hand in excess of current demand. Current demand will vary according to local conditions, but for this study it has been defined as the quantity sold in the month of August 2009. On-hand values were taken at the end of this month. Parts with no sales in this month are not included in the study since they could more properly be classified as obsolete parts.
The chart at the top right shows the percentage of overstock parts among the dealers in this study. Most dealers (103) run 25 percent of their parts dollars as excess parts. The best of dealers are in the 5-10 percent range and the worst above 45 percent.
A second chart below, “Dealer A’s overstock parts,” breaks down the overstock parts by the depth of the excess. This dealer has $25,600 in parts beyond a one-month supply, $28,000 with an excess two-month supply, $16,900 with an excess three-month supply, and on, to a large group of parts ($32,500) that have more than an excess four-year supply on hand. The total value of overstock parts for this dealer is almost $200,000.
The third chart, “Dealer B’s overstock parts,” is a much smaller dealer, but the same problem with overstock parts is present. The overstock totals more than $22,000.
Overstocked parts are a significant drain on dealer capital. With an average of 25 percent excess stock, the total for the powersports industry could be as high as $350 million nationwide.
Dealers are encouraged to determine the extent of overstocking in their parts inventories, adjust stocking levels to meet only current demand, and carefully maintain control on purchases. Also, we note that liquidation of overstocking will be a significant recapture of working capital and should be aggressively pursued.