SMI: Some Minimizing Ideas

In the May issue of RV PRO, I invited you to tune in to this June issue’s column for methods that you could use to minimize and to possibly eliminate existing “slow-moving inventory” (SMI) from your parts and accessories inventories.

Assuming that you have begun to apply your SMI prevention plan as suggested in my May column, then by implementing “Some Minimizing Ideas” that are included in this month’s column, you could be on your way to a more effective, profitable parts and accessories operation.

Some Minimizing Ideas for Your SMI

What is in your SMI? If you haven’t already generated a report to identify your SMI, then that is the primary task you need to accomplish. To do this, you will need to define SMI for your parts and accessories inventories. I suggest applying the definition of SMI provided in my May column, which is any item that has not incurred a demand in more than nine consecutive months and was received at least 12 months prior.

Using this definition, create a report (or use a report that exists) in your dealership management system (DMS) to identify these qualifying items. How many part numbers are reported? What percentage of your entire parts and accessories inventories does this represent? If it is more than 33% of your total inventory, then I suggest applying some filters to your report parameters to generate a smaller volume of part numbers. These filters could include but are not limited to:

• • A separate SMI report for parts and one for accessories.
  • Establish minimal unit cost — e.g., minimum unit cost is $25.
  • Define minimum number of months with no demand (MND) — e.g., MND = 18 months (work on the older items first).
  • Define a specific class of goods — e.g., sanitary supplies, electronic gear, suspension elements, etc.

Since these SMI reports are an application of management by exception, it is important to be able to resolve the reported exceptions in a reasonable amount of time, which I suggest be no more than two to four weeks.

That said, assuming that your SMI is a substantial portion of your total inventory, than perhaps you could use these suggested parameters for your report: a separate report for parts and for accessories with minimum unit cost of $25 for accessories and $10 for parts and for items with no demand in more than 18 months.

Now What?

Assuming you have generated an SMI report for parts and a separate one for accessories, there are similar and different options that could be applied for eliminating the contents of each of these groups. Those options that are similar could be:

• • Return to the supplier.
  • Contact the supplier and coordinate a swap where you purchase a cost value of goods that are currently in demand and might be two or three times the cost value of the SMI.
  • List these goods on an internet parts finder provided by your DMS vendor or by any of your RV manufacturers.

For SMI accessories, you might consider offering them at a reduced price to your customers. This could be accomplished by including them in a special tab/button on your business website. If they are small enough, you could display them in a designated area of your retail displays.

For larger items, you could provide a list of these items to the RV sales and service departments so these associates could mention them to their customers. These lists should include the sale price, description, part number and brand/model/year application. You could also include a bonus that the selling associate could earn as an enticement to refer to these lists.

Related to this SMI option, you might teach your parts associates SWISS. No, it isn’t the Swiss language. Rather it stands for “sell what’s in stock system.”

If you train your parts associates to ask open-ended questions* when interacting with customers, your parts associates can identify what features and benefits are important to the customer with regard to the item(s) the customer is requesting. If there are goods in your parts and accessories inventories that have similar features, especially SMI goods, then the parts associate could offer these in-stock items.

*Open-ended questions are designed to establish a dialogue between the customer and the parts associate and usually begin with one of these six words: who, what, when, where, why and how.

Any Other SMI Options?

Any item that has not been demanded in more than 12 months has a minimal chance of selling and earning a profit since the holding costs associated with keeping it have absorbed the inherent profit. Generate a report of SMI that has a unit cost less than $5 and that has no demand in more than 12 months. You could consider writing these off against your profits for the year after confirming the benefits of doing this with your tax preparer. The caveat is that your RV business must be reporting a profit for the year.

Maintenance

As you apply your SMI Prevention Plan and Some Minimizing Ideas through the year, you should be experiencing more efficient and profitable operations because you are winnowing the existing SMI and preventing the accumulation of future SMI. To ensure that these processes remain in place, you should continue to generate SMI reports, which should consist of fewer pages. Eventually, assuming you continue your maintenance processes, your SMI should not require much of your time and not involve much of your parts and accessories inventory investment.

Your parts and accessories inventories should now contain items that are in current demand. And because you have substantially less investment in SMI, those inventories may also be open to trying new items offered by your suppliers. You could change your parts and accessories SMI to represent So Much Improvement.