OEC Blog

Idle Parts Left Idle Breed Profit Disaster

Idle Parts Left Idle Breed Profit Disaster

Even the shrewdest, most experienced parts managers have idle inventory.  In fact, according to the NADA Data Analyst Division, the average dealer has $27,500 tied up in idle inventory.  On the surface, this may not sound like much when you’re managing fast-moving 6 to 7 figure inventories with tens of thousands of part numbers. But to your dealer principal, this figure represents “dead” capital that needs to be addressed – NOW.

The Clock is Ticking

In addition to dealership management questioning why double-digit percentages of your OEM parts inventory is sitting there drawing carrying costs with zero revenue, you also have the pressure of knowing that the longer you wait the worse the situation will become.

Take a look at how your chance of sale dramatically decreases with the age of the part:

  • Idle parts on the shelf 9+ months have a 15% chance of sale
  • Idle parts on the shelf 12+ months have a 5% chance of sale

The Cost of Doing Nothing

These are grim statistics that might make a time-starved parts manager say, “What’s the use?”  The answer is to avoid escalating profit drains.

The cost of doing nothing with the aforementioned $27,500 in idle inventory can actually add up to a minimum of $4,675 in average carrying costs (at 17%) for a total annual profit drain of $32,175.  Add to this one single line parts manager’s horror story of letting idle creep up to 30% due to neglect.  After a year of concentrated efforts, he was able to reduce it to 20% but he’s not out-of-the-woods yet.

The Profit of Doing Something

The good news is that it is possible to reverse this cycle by tackling your idle problem TODAY.  Using a two-pronged approach of brokers for a more immediate impact and e-commerce advertising for ongoing maintenance, you can convert idle inventory into working capital with increased gross profits.

Parts brokers are best for large line parts sales.  Typically, OEM parts discounts will start at 50% with an average of 5% commission and 3% shipping costs.  Sure, you may think: “my dealer principal will never go for that kind of discounting.”  But will he go for this?  Take the $11,550 ($27,500 X 42%) working capital generated from the net sale of idle and reinvest it in more marketable inventory with an average turn of 8 times per year. This could lead to more than $43,000 in annual gross profit versus a loss of $32,715 – for a profit swing of $75,000+.

Do We Have Your Attention?

It doesn’t pay to put off dealing with idle. Instead, run a report today on months no sale and months-no-receipt.  Use your OEM returns program for the oldest inventory, where applicable.  Then turn anything older than 10 – 12 months over to a parts broker(s) and get started turning idle into working capital.

But don’t stop there.  Run a monthly listing of idle and use your parts locator to automate the advertising of slow-moving parts at increasing discounts as parts age.  This simultaneous approach will help keep your inventory clean and your gross profit healthier.