Buying DistressedParts Inventory

With

Chuck HartléPresident, PartsEdge

Moderated by

Mike BowersExecutive Editor, DealersEdge

Presented by DealersEdge

Chuck Hartlé is president of PartsEdge (www.PartsEdge.com), a dealer-ship parts department consulting firm in Poway, CA. PartsEdge offersinnovative inventory management services to help dealers maximize partsdepartment profits. Chuck is also the editor of the nationally recognizednewsletter DealersEdge Parts Manager. Previously, Chuck spent morethan 30 years as a parts manager then parts and service director for amulti-franchise dealership group. He was also one of the founders of theMopar Master Parts Guild. He has been a featured speaker at NADA'sAnnual Convention and Dealer Academy as well as at dealer TwentyGroups, regional parts manager meetings, and factory-sponsored trainingseminars.

Since forming PartsEdge, Inc, Chuck has participated and spoke in front ofmany workshops, seminars, 20 Groups, and Dealer Associations.

We are located in Poway, California, a town located in San Diego County.You can contact us by phone by calling our toll free number at (800) 825-7562. Our office address is 12925 Pomerado Road, Suite E, Poway, CA.92064. You can contact us by email at operations@partsedge.com.

Chuck Hartlé -- President, Part sEdge

Building the Business Case for “Investing” or “Taking a Pass”

D2D Dealership Parts Purchasing

Forced Stock and Excess Inventory Analysis

Chuck Hartle’President

Presented By:

Partsedge, Inc.(800) 825-7562

State of the “Dealership” Parts Market

•Market has not rebounded yet1. Less dealerships has not meant more sales for

those left over in the parts arena as a whole.2. Unemployment is high, people just aren’t

spending that often right now.3. Dealerships are still in survival mode.

•Innovative Ways to earn more gross1 Some dealership parts operations are looking1. Some dealership parts operations are looking

at different ways to generate gross more than ever before, such as;

1. Internet Sales2 Accessory Sales2. Accessory Sales3. “Other” Sales associated with dealership

visits.4. Sales to other dealerships outside own

marketmarket.

Market is Proliferated with “Parts for Sale”

Five Main Reasons for the Proliferation

1 T i t d D l hi l ki t ll d i t

Five Main Reasons for the Proliferation

1. Terminated Dealerships looking to sell down inventory.2. “Soon to be” Dealerships looking to sell down inventory.3. Dealerships looking to capitalize on Supply Chain shortages.4 Dealerships looking to increase sales via E Bay and Internet4. Dealerships looking to increase sales via E-Bay and Internet.5. Dealerships have growing obsolescence problems due to lack of

earnings and program changes with manufacturers.

Width/ Breadth: the latest “overused” term!

Width / Breadth definitionCarry a larger array of parts in less quantities to satisfy customer demand and increase “Off The•Carry a larger array of parts in less quantities to satisfy customer demand and increase “Off-The-

Shelf” performance. •The “secondary” goal of manufacturer sponsored programs such as RIM and ARO.

Width / B dth tiWidth / Breadth action•Loosen phase-in guides to accept parts sooner to build width.•Adjust days supply settings so that reorder point and best stocking levels are much closer together. (Move low days setting and high days setting closer together)•Lower days supply settings to try and keep depth to a minimum.

Width / Breadth results•Manufacturer sponsored programs are really only benefitting the manufacturer. •Proliferation of Models equals proliferation of part number population.•Individual dealership characteristics are not being addressed.•Improvements have occurred, but not so drastic that the rest of the industry has followed in lineline.

“Forced Stock” Inventory……

Forced Stock DefinitionP t th t t h i it i i t t !•Parts that never met any phase-in criteria in your computer system!

What Creates Forced Stock?1. Over-ordered parts by Service Department (Technicians and Advisors).2. Parts returns from Wholesale Customers.3. Customers failing to return to complete repairs, especially warranty repairs.4 Parts ordered in error4. Parts ordered in error.5. Speculation stocking.

Result of Forced Stock on Inventory1 85% f ll b l t i t b di tl tt ib t d t f lfill d d d f d t k!1. 85% of all obsolete inventory can be directly attributed to unfulfilled demand, or forced stock!2. The “Average” store has 25% of it’s inventory value in forced stock inventory.3. The “Benchmark” for forced stock is 15%.

Traditional “Forced Stock” Reporting

Inventory Movement - Sales

ADP Forced Stock from MGRy

0 to 3 Months 3,639 50.37 13,762 61.82 154,311.60 48.80 4 to 6 Months 669 9.26 1,727 7.75 40,372.32 12.76 7 to 12 Months 750 10.38 1,761 7.91 37,892.76 11.98 Over 12 Months 891 12.33 3,090 13.88 41,573.11 13.14 New Parts No Sales 1,275 17.64 1,918 8.61 42,000.19 13.28

Inventory Movement - Receipts0 to 3 Months 3,361 46.52 9,576 43.02 152,440.64 48.21 4 to 6 Months 983 13.60 2,621 11.77 56,729.35 17.94 7 to 12 Months 1,194 16.52 2,769 12.44 47,450.95 15.00 Over 12 Months 1 262 17 46 7 017 31 52 54 211 04 17 14Over 12 Months 1,262 17.46 7,017 31.52 54,211.04 17.14 New Parts No Receipts 424 5.86 275 1.23 5,318.00 1.68

Outstanding Orders 491 6.79 1,362 40,502.50 Stockorders 408 83.09 1,152 84.58 27,212.75 67.18 Supplemental Orders 11 2.24 12 0.88 897.50 2.21 Customer Orders Backorders 76 15.47 198 14.53 12,392.25 30.59

Stockorder Backorders 32 6.51 66 4.84 2,197.30 5.42 Supplemntl Backorders 6 1.22 6 0.44 355.75 0.87 Customer Backorders 47 9.57 126 9.25 9,839.20 24.29

“Forced Stock” Reporting

ERA and ADP Forced Stock Detail Reporting69106910 ENG

“Forced Stock” Reporting

ERA and ADP Forced Stock Summary Report6910 ENG

DIVIDE YOUR TOTAL VALUE FROM FORCED STOCK REPORT INTO TOTAL INVENTORY TO GET PCT%

Excess Inventory……(Depth)

Excess Inventory DefinedWhen the current on hand quantity exceeds the system

generated best stocking level. The system generated best stocking level is determined by the days supply setting in your

DMS program.OH >BSL

Excess Inventory……(Depth)

Excess Inventory Reporting

ERA Report “2226” ADP Report “RES”p p

ADP English Report

MNS / MNR (Another Measurement)

Where Your Numbers want to be!

0-3 MNS 137811 57% 0-3 MNR 133866 56%

Focusing on the 0-3 Months Category

4-6 MNS 37552 4-6 MNR 23709

7 MNS 9287 7 MNR 6975

8 MNS 8176 8 MNR 5578

9 MNS 7527 9 MNR 2551

10 MNS 7560 10 MNR 9762

11 MNS 6320 11 MNR 3946

12 MNS 5565 12 MNR 2552

13-24 MNS 18267 13-24 MNR 34630

25+ MNS 867 25+ MNR 15363

Total Inv 238932 Total Inv 238932Total Inv 238932 Total Inv 238932

Purchase to Sale Ratio is within 1% percent!“Benchmark”

Purchase to Sale Ratio within 10% tolerance.

MNS / MNR (Out of Tolerance)

Where Your Numbers don’t want to be!

0-3 MNS 117811 49% 0-3 MNR 153866 64%

Focusing on the 0-3 Months Category

4-6 MNS 37552 4-6 MNR 23709

7 MNS 9287 7 MNR 6975

8 MNS 8176 8 MNR 5578

9 MNS 7527 9 MNR 2551

10 MNS 7560 10 MNR 9762

11 MNS 6320 11 MNR 3946

12 MNS 5565 12 MNR 2552

13-24 MNS 18267 13-24 MNR 34630

25+ MNS 867 25+ MNR 15363

Total Inv 238932 Total Inv 238932Total Inv 238932 Total Inv 238932

Purchase to Sale Ratio is 15% heavy to the purchasing side!

Over-Purchasing leads to Excess Depth!!!

Meat and Potatoes Time!!!Let’s get “Real”Let s get Real

48% of this Inventory is productive based on report

49% of this Inventory is non-productive!

9% Ob l

All of this based on an Inventory showing obsolete inventory well within Industry standards!!!

9% Obsolescence

Industry standards!!!

Who Usually buys Obsolete Inventory?

Only 5-10% of dealerships participate in purchasing inventory from other dealerships!

1. Parts Broker success is generated solely on the number of buyers it has.2 Practically every dealership is a “seller”

Traditional Thinking

2. Practically every dealership is a seller .3. Typically, only large inventories with no obsolete inventory participate in the buying process.

Why Isn’t Every Dealer a “buyer”?

Active parts are worth buying from another dealer with any significant discount offered, especially Daily Stock Orders?when discounts more than offset any discount

and/or return allowance offered by manufacturer.

Phase Out Parts that are productive might be worth purchasing too, but certainly worth

i i f t ki ibilitiPeriodic Review of Potential Phase In Parts

a y Stoc O de s

reviewing for stocking possibilities.

Non Stock Parts showing productive are certainly worth looking at, just as the Phase Out parts are. But what if you could purchase your special order

parts from other dealerships at a significant

Daily Customer Orders?

Potential Phase In Parts.

parts from other dealerships at a significant discount?

How quickly could I reduce My “Idle” inventory?inventory?

A Dealership with an obsolescence issue could purchase productive inventory, and with the right discipline apply any discounts earned to purging p pp y y p g g

obsolete inventory at an accelerated pace.

The Best Case Scenario

Wh 55% f i t i d ti i3% of the inventory idle capital is over 7When 55% of your inventory is productive in

Active parts alone, you are in a unique position to take advantage of any purchases offering

discounts that exceed any manufacturer discounts and return allowance earnings.

idle capital is over 7 months old!

The Worst Case Scenario

62% of this Inventory is Idle…. Is this a case of just “giving up”, or is there

potential here to purchase parts?

Assuming that $20,000 of this was active stocking, renewable inventory…

and the dealer were ableand the dealer were able to purchase $10K per month at even a 25%

discount…. that would be $2,500 per month to purge

the obsolete inventory! ySixteen months to a clean

inventory?????

DO’s and DO NOT’s

The Do List1. Develop a process to begin looking at purchasing inventory from other dealerships often.2. Look for dealerships in general geographic location that you can trade with easily.3. Be careful to “never” purchase inventory that will exceed a 60 day supply (30 days optimum).4 Control Forced Stock inventory with consistent daily procedures to minimize impact on inventory

The Do List

4. Control Forced Stock inventory with consistent daily procedures to minimize impact on inventory.5. Develop a process to discount and capture files of idle and obsolete parts you want to sell.6. Until your obsolete inventory is basically zero; use dollars earned to purge the obsolescence.

1. Don’t Purchase parts just for the sake of padding the monthly net profit. (Short term thinking)2 Don’t purchase anything where you increase your odds of creating excess or obsolete stock

The Don’t List

2. Don t purchase anything where you increase your odds of creating excess or obsolete stock.3. Don’t sit back and wait for someone else to come to you, be aggressive and find avenues for

sales and purchases with other dealers.4. Don’t procrastinate and try to push everything to the last minute.

Partsedge “Statview”Let your computer do the work!Let your computer do the work!

1. Download and install the Software on your Windows PC.2. Capture a text file or CSV file of your inventory to a folder on your system.3. Click on and open the “Statview” program.4 D d d t d fil i t th St t i i d4. Drag and drop your captured file into the Statview window.5. The program will process and report your Productive, Excess, Forced, and obsolete inventory.

Partsedge “Statview”Detail Reports on Just a “Click”Detail Reports on Just a Click

Simply click on a specific value or range of values and get instantaneous results in the window below.

Partsedge “Statview”Sorting the report is simpleSorting the report is simple

Click on a field in the header to sort your report anyway you wish… by part number, by bin, by value!

Partsedge “Statview”Give us a callGive us a call

C ll t (800) 825 7562Call us at (800) 825-7562 Or email us at

info@partsedge.comAnd ask for your copy ofAnd ask for your copy of

Statview

Keep the Cash Register Ringing!!!

Thank You!Partsedge, Inc.

12925 Pomerado Road #EPoway, CA. 92064

(800) 825 7562(800) 825-7562www.partsedge.com