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Jul. 21, 2008: Special marching orders for your store’s special orders

July 21, 2008
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OK you guys, knock off stocking those thousand dollar parts. And while I have your attention, can’t we please keep that nickel and dime stuff in stock? It costs two days and a buck in special freight to bring in a dime part. Not smart.

That’s what I found out by looking at 10 million parts sold in your stores from January-June of this year. You pushed a lot of product over the counter. Great. But couldn’t we be a little smarter about getting it here?

Look at these charts. Chart A shows the percentage of special orders for parts that sold only one (ONE, as in UNO) in six months, up to parts that sold more than 10,000 in these same six months. We see that for those slow movers on the left, we special ordered them 42 percent of the time. Turn that around, and say it so it hurts. These things sell only once in six months, and we sell off the shelf 58 percent of the time! And on the other end, we have a group of parts that sell almost two per week in each store. These babies walk out the door about as fast as the UPS guy drops them on the floor. But — and here’s the rub — we are bringing these in as special orders almost 5 percent of the time.

Now, 5 percent special order for parts that sell seven times a month is not all that bad, but with that volume, don’t you think you could keep them on hand 100 percent of the time? I am not a fan of min/max reordering, but if there is a place for that, this is it.

Now, let’s back up and take another run at this thing. Chart B shows how we handle inexpensive parts, and what we do with the thousand dollar stuff.

For parts that cost us under a buck, I see that we are special ordering 22 percent of the time. One out of five of these little flat washers has to be special ordered, and they cost 11¢! Not worth your time and aggravation to be out of this stuff. Identify the little things that do move, and keep them on hand. Again, (and I can’t believe I am saying this again…) min/max.

Now the other end, parts that cost a bunch: Parts more than $500 are being special ordered about half the time. That means that we have them in stock half the time. This holds true even up to the thousand dollar goodies. Fifty percent fill from stock on slow-moving thousand dollar parts? I’m guessing this is not an efficient use of parts inventory capital.

What do we draw from all of this? First, I think we can all agree the small, inexpensive stuff that we use all the time needs to be kept in stock all the time. Keep your techs happy and busy. Second, who doesn’t agree that expensive, slow moving stuff should be special ordered? Yet, we are filling half of those sales from stock.

These two charts clearly illustrate areas of inefficiency in our operations. Inefficiency means loss of margin, increased expense and ultimately loss of profit. In today’s market, we must look everywhere for areas to improve, and then fix them. Here are two places to start.

Hal Ethington has been associated with the powersports industry for more than 30 years. Ethington is a senior analyst at ADP Lightspeed. He can be reached at Hal_ethington@adp.com.

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