How Many Inventory Veterans Do You Have?

As a long-time RV industry professional, I appreciate RV PRO’s recognition of RV industry veterans. In preparing my column for this month’s edition, I thought of the veterans that might be hanging around in your parts and accessories inventories. Perhaps some of these inventory veterans qualify as an inactive reservist.

I suggest that you develop a PLAN to identify, evaluate and possibly retire any inactive reservists that have completed their service in your parts and accessories inventories.

PLAN is an acronym that I have developed to assist you in your inventory management efforts. These four letters represent:

• Parameters should be established to identify inactive reservists
• Locate any suspects using your DMS or by measuring the dust on items
• Analyze the reason(s) for the inactivity of each qualifying item
• Need to take action to effectively process the qualifying candidates

You can start by establishing …

PARAMETERS to identify an inactive reservist

It is important that you develop criteria to identify inventory items that are not paying their rent. Some dealership management systems (DMS) term these criteria as phase-out guides. The parameters that I used when I was a parts manager/director and that I continued to use in my career as an inventory consultant/trainer are items that have incurred less than three demands in a consecutive nine-month period and that have been included in the DMS database for at least 12 months.

My rationale for a part number to have been in the DMS database for at least 12 months is that any seasonality of demand should have been experienced during the year. Seasonality also plays a role in the consecutive nine months of no demand. My experience is that if an item is seasonal, the season will be at least three months duration. Twelve months in a year minus three months yields a no-demand period of nine months.

These parameters work for me; however, you should develop criteria with which you feel comfortable to identify your inactive reservists. Establish these criteria and track the results for a period of time.

If you are hesitant to submit your entire parts and accessories inventories to these criteria, then choose a group* of items and apply the phase-out criteria to them. Monitor this group to determine if your criteria are identifying the inactive reservists accurately and promptly. If you are comfortable that your parameters are effective, then apply them to the entire parts and accessories inventories.

* category, batch, group, etc. depending on your DMS nomenclature

Now that you have developed the parameters, you should …

LOCATE the qualifying candidates

Do this preferably by using reports in your DMS. Your DMS might offer a phase-out function that includes a report to identify part numbers that meet the criteria you have established. Or you might develop an exception report with data fields that include (but not be limited to): part number; description; cost; on-hand; on-order; date last received; date last sold; bin location (or locations).

Note: I suggest including all values of the on-hand quantity field (-, 0, +) so that you could also use this as an on-hand accuracy check.

Having identified possible inactive reservists, the next step in your PLAN is to …

ANALYZE the reason each is experiencing inactivity.

This is important because there might be reasons for the inactivity. These reasons could include:

• The item is not competitively priced.
• The display is not attractively presented.
• The item is hidden behind other goods.
• The carton is in the storeroom and not on the retail floor.
• The product is out of place, e.g. black water tank treatment not with sanitation display.
• Customers in your market aren’t interested in this product.
• The brand of RV for which this item is applicable are no longer offered by or serviced by your dealership/business.

These are a few of the reasons that an item has been identified as inactive — yet some of these reasons might suggest different marketing efforts are needed rather than a reason to eliminate the item.

Having decided why each part number has been included in your phase-out report, you now …

NEED to take the appropriate action.

As implied in the analysis section, the action taken on each item in the phase-out report might be elimination if an item has qualified as inactive. However, if the item has qualified as inactive due to ineffective marketing, then the necessary actions may not include elimination. First, we will introduce some elimination options and then look at some marketing changes.

Can an eligible item be returned to the supplier? This will require that your parts and accessories manager is familiar with the policies and procedures of each of your suppliers or at least your primary suppliers.

Does the supplier for an eligible item offer a buy-swap option? In this case, some of your suppliers allow returns of slow moving inventory in your dealership if you agree to purchase a specified value in currently popular goods. This is an especially useful option (if it is available) when ordering for an upcoming season. Assuming that the products you will be ordering are reasonably certain to sell during the season, then ordering for the season could also provide benefits such as delayed billing, discounts or free items.

If the cost of one of the qualifying items is substantial, then perhaps your parts and accessories manager could have the parts associates (or even the major unit sales agents) contact customers who own an RV which the item will fit. An attractive price offer could get the item out of your inventory and generate some cash flow. If this item requires technical expertise to install, perhaps some income could be generated through the service department.

Review the tax laws related to scrapping inventory items. This might not generate any income, yet it might reduce your business’ tax liability for the year.

If an item on the phase-out report has experienced inactivity, perhaps you determined that it wasn’t merchandised effectively. Decide if the demand might be there if your customers were aware of the item and take the necessary actions to market it more effectively.

Recalling the drill instructor’s frequent commands during my basic training experience for the U.S. Air Force, perhaps my closing could be: Ten-Hut! Forward march to get those inactive reservists out of your parts and accessories inventories.